THE UK’S LEADING
REGENERATION SPECIALIST
S
T
.
M
O
D
W
E
N
P
R
O
P
E
R
T
I
E
S
P
L
C
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
ST. MODWEN PROPERTIES PLC
HEAD OFFICE & MIDLANDS REGIONAL OFFICE
Sir Stanley Clarke House
7 Ridgeway
Quinton Business Park
Birmingham
B32 1AF
T: 0121 222 9400 F: 0121 222 9401
W: stmodwen.co.uk E: info@stmodwen.co.uk
REGIONAL OFFICES
LONDON & SOUTH EAST
16 Berkeley Street
London
W1J 8DZ
T: 020 7499 5666
SOUTH WEST
King’s Western Lane
Avonmouth
Bristol
BS11 8AZ
T: 0117 316 7780
YORKSHIRE
Ground Floor, Unit 2
Landmark Court
Elland Road
Leeds
LS11 8JT
T: 0113 272 7070
NORTH STAFFORDSHIRE
Island Reach
Festival Way
Stoke-on-Trent
ST1 5SW
T: 01782 281844
NORTH WEST
Chepstow House
Trident Business Park
Daten Avenue
Risley
Warrington
WA3 6BX
T: 01925 825950
NORTHERN HOME COUNTIES
First Floor, Unit E1
The Courtyard
Alban Park
Hatfi eld Road
St Albans
Hertfordshire
AL4 0LA
T: 01727 732690
14704
04/02/08
Proof 6
14704
04/02/08
Proof 6
ST. MODWEN PROPERTIES PLC
ANNUAL REPORT 2007
� LITTLECOMBE VILLAGE, DURSLEY
THE COMPANY’S FIRST TRUE URBAN VILLAGE
DEVELOPMENT. IN PARTNERSHIP WITH SWERDA,
MORE THAN HALF THE SITE HAS BEEN REMEDIATED,
WITH THE FIRST PHASE OF INFRASTRUCTURE AND
EMPLOYMENT SPACE UNDER CONSTRUCTION. THE
RIVER CAM HAS BEEN OPENED UP, AND RESIDENTIAL
DEVELOPMENT WILL COMMENCE IN 2008
TRENTHAM
ONE OF CHARLES BARRY’S ITALIANATE
PAVILIONS AND HIS BALUSTRADE, FAITHFULLY
RESTORED AS PART OF THE TRENTHAM
GARDENS PROJECT
�
14704
11/02/08
Proof 8
14704
11/02/08
Proof 8
FOUR SPECIALIST AREAS:
Town centre regeneration
Partnering industry
Brownfield land renewal
Heritage restoration
BUSINESS REVIEW
6 Chairman’s statement 8 St.Modwen at a glance 10 The hopper strategy
13 Operational review 20 Financial review 26 Case studies
CSR REVIEW
36 Corporate social responsibility 46 Board members and senior management
48 Corporate governance report 55 Directors’ remuneration report
FINANCIAL STATEMENTS
64 Group and company accounts 109 Five year record
110 Notice of Annual General Meeting 114 Glossary of terms 116 Shareholder information
The report of the directors comprises the business review and CSR review sections of the
annual report and has been drawn up and presented in accordance with English Company Law.
14704
12/02/08
Proof 12
2
� LONGBRIDGE
DEMOLITION IN PROGRESS.
OVER 2M SQ FT OF REDUNDANT
FACTORY SPACE HAS BEEN
DEMOLISHED WITH OVER 90% OF
THE DEMOLITION PRODUCTS SENT
FOR RECYCLING OR REUSED ON
SITE (A PARTNERSHIP PROJECT
WITH AWM)
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
FINANCIAL HIGHLIGHTS
3
+3%
100.1
96.9
PROFIT BEFORE TAX (£ million)
82.9
64.3
47.5
+20%
387
323
268
NET ASSETS PER SHARE (p)
400
350
300
250
200
150
100
220
176
2003
2004
2005
2006
2007
2003
2004
2005
2006
2007
+15%
11.7
10.2
8.8
DIVIDEND PER SHARE (p)
7.6
6.6
2003
2004
2005
2006
2007
EARNINGS PER SHARE (p)
+19%
80
70
60
50
40
30
20
10
73.3
61.6
55.4
41.5
31.2
2003
2004
2005
2006
2007
100
80
60
40
20
12
10
8
6
4
2
• Profi t before tax increased by 3% to £100.1m (2006: £96.9m).
• Earnings per share up 19% to 73.3p (2006: 61.6p).
• Net assets per share increased by 20% to 387p (2006: 323p).
• Proposed final dividend of 7.8p per share (2006: 6.8p) increasing total
dividends for the year by 15% to 11.7p (2006: 10.2p).
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
BUSINESS REVIEW
THE UNDERLYING PURPOSE OF ALL ST. MODWEN’S ACTIVITY
IS TO ADD VALUE TO THE PROPERTIES IT CONTROLS
6 Chairman’s statement
8
St. Modwen at a glance
10 The hopper strategy
13 Operational review
20 Financial review
26 Case studies
14704
12/02/08
Proof 12
6
CHAIRMAN’S STATEMENT
RESULTS
I am pleased to report on a 15th successive year
of record results. The success in achieving a
significant increase in realised property profits and
valuation uplifts arising from asset management
and planning activities more than compensated
for the valuation reductions arising from the
correction in investment property yields which we
suffered in the second half.
Net assets per share increased by 20% to 387p
(2006: 323p). Profit before tax increased by 3% to
£100.1m (2006: £96.9m). Earnings per share grew
by 19% to 73.3p (2006: 61.6p).
Our key performance measurement of return on
equity (now calculated after tax) was 21.9% (2006:
21.3%).
DIVIDEND
Your board is recommending a final dividend of
7.8p (2006: 6.8p) per ordinary share, making a total
distribution for the year of 11.7p (2006: 10.2p), an
increase of 15%. This final dividend will be paid on
4th April 2008 to shareholders on the register on
14th March 2008.
WE ARE NOW REGARDED
AS THE UK’S LEADING
REGENERATION SPECIALIST.
STRATEGY
Your company’s strategy, being essentially
long-term, is not altered because of the current
weakness in the investment market, although its
short-term implementation is obviously affected
by market considerations.
This market weakness in fact serves to highlight
the differentiation of your company from many of
its peers which I referred to in last year’s report.
Growth through realised profits and revaluations
based on actually adding value has always been
at the heart of our strategy and should stand us in
good stead in this more difficult climate. Also our
exposure to a broad range of market sectors and
geographic areas through seven regional offices
gives us the ability to take advantage of whatever
opportunities there are.
We are now regarded as the UK’s leading
regeneration specialist which is evidenced by our
selection by BP as the developer of the Coed Darcy
site and by West Lancashire District Council and
English Partnerships as their preferred partner for
the redevelopment of Skelmersdale town centre.
In both these cases, our skills as a master
developer which have been honed over the
past two decades on schemes such as Hilton,
Derbyshire (joint venture with MOD); Trentham
Lakes, Stoke-on-Trent (joint venture with Stoke
on-Trent City Council); Longbridge, Birmingham;
and Llanwern, Newport proved attractive to the
selecting organisations. With the acknowledged
need for major regeneration initiatives, the
recognition of our skills in this important area
should help to underwrite your company’s future
prosperity.
Two key elements of the strategy are the continued
acquisition of well-located opportunities to top
up the hopper and their marshalling through the
planning and development process to ultimate
delivery. In both areas, this year has seen
continued success as is set out in the business
review.
Availability of finance is a critical success factor
for a property business. We have always operated
a policy of reviewing our funding requirements on
a regular basis and currently have all our facilities
secured through to 2011 with a realistic degree of
headroom and at competitive margins.
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
BUSINESS REVIEW 7
PROSPECTS
There will undoubtedly be some further
deterioration in the market value of investment
properties, particularly in the first half of 2008,
and we cannot be immune from the effects of that.
However, we are planning that overall the year
will see growth in the company’s net asset value,
albeit at a lower level than in the recent past, and
we would expect to maintain our recent pattern of
dividend growth. The company has a well-founded
development and marshalling programme and
we are achieving a regular flow of occupational
transactions.
Our ambition remains to double net asset value
per share on a 5-year basis, but in the short term
growing at that rate is clearly unrealistic whilst
today’s market conditions prevail, and we will not
be tempted to try to force the pace of growth faster
than prudent market judgements will allow.
Our confidence in the longer term is undiminished.
We are continuing, therefore, to invest in people,
regional offices and acquisitions for the hopper so
that we will be in good shape when the
market stabilises.
Anthony Glossop
Chairman
8th February 2008
SUSTAINABILITY
We remain committed to managing our affairs
with the highest standards of integrity and to
ensuring that communities and the environment
are respected in our developments. In the CSR
review, we set out how we go about achieving
these commitments.
DIRECTORS AND EMPLOYEES
Achieving the results for the year in the current
climate is a tribute to the quality and strength
of the team at all levels in the organisation. My
thanks go to everyone for the efforts they have put
in to bring about another successful year.
We have been recruiting extensively to cope with
the challenges of growth and the sheer scale of
the hopper and I have been delighted with the
quality of our new colleagues. At the same time,
it has been a real pleasure to see how so many
of our existing team have risen to the challenge
and developed their own skills to take more
responsibility within the organisation.
By way of example, Rupert Wood, who has been
with us less than two years, has been promoted
to head the new Northern Home Counties region
and Rupert Joseland and Stephen Prosser, who
formed the new South West and Yorkshire offices
three years ago, have been promoted to regional
director.
The increased strength in depth in the company
enables my own role to continue to evolve. I am
now becoming non-executive. I will continue to
give support to Bill Oliver and the executive in
maintaining the company’s standing in the market
as well as undertaking the normal role of a non-
executive chairman.
14704
12/02/08
Proof 12
8
ST. MODWEN AT A GLANCE
THE COMPANY FOCUSES ON FOUR AREAS:
TOWN CENTRE REGENERATION
Many centres that were developed during the
1960s and 1970s now require substantial
refurbishment and updating to meet the
demands of the contemporary shopper, to
accommodate new trends in town centre living,
and to bring back into these centres community
and business uses. St. Modwen has substantial
experience in revitalising town centres, and is
currently engaged on a number of such
schemes, including major projects at Edmonton
Green, Farnborough, Skelmersdale and
Wembley.
PARTNERING INDUSTRY
Restructuring of traditional industries has left
numerous former employment complexes
potentially available for redevelopment.
St. Modwen has established joint ventures with
companies such as Alstom, Corus, Goodyear,
BP and Ford to undertake the redevelopment of
such sites, often through innovative sale and
leaseback arrangements which provide the
required flexibility for the landowner.
BROWNFIELD LAND RENEWAL
St. Modwen is the UK’s leading expert in the
large-scale renewal of brownfield land. The
company has huge experience in the
remediation, remodelling, infrastructuring and
redevelopment of such sites, having reclaimed
hundreds of acres of brownfield land for both
residential and commercial use. There is
currently well over 1,000 acres of land in the
hopper in the process of such development,
including the massive Llanwern (former
steelworks) and Avonmouth (former zinc
smelter) sites.
HERITAGE RESTORATION
The company has applied similar skills to a
number of heritage, leisure-related projects. In
these projects, an enabling commercial
development finances an otherwise non-viable
heritage restoration scheme. Two such
schemes currently being undertaken are: the
£100m transformation of Trentham Gardens at
Stoke-on-Trent into a major leisure and
commercial visitor attraction; and a similar
project at Dudley in the West Midlands, which
will incorporate the existing zoo and medieval
castle into a new visitor attraction.
EDMONTON GREEN
GOODYEAR
AVONMOUTH
TRENTHAM GARDENS
NORTH WEST
01
NEWTON-LE-WILLOWS
Vulcan Works
GLASGOW
Pegasus Business Park
Springburn
PRESTON
Channel Way
BLACKBURN
Medipark
SKELMERSDALE
Town Centre
02
08
09
10
11
ECCLES
Lankro Way
12 WIGAN
Enterprise Park
13 MANCHESTER
14
Wythenshawe
Trafford Park
LIVERPOOL
East Lancs Road
Great Homer Street
15 WIDNES
Economic Development Zone
Town Centre
NORTH STAFFORDSHIRE
16
STOKE-ON-TRENT
Festival Park
Trentham Gardens
Trentham Lakes
17
STONE
Meaford Power Station
MIDLANDS
18
19
20
DERBY
Hilton Depot
STAFFORD
Lichfield Road
St. Leonard’s
BURTON-UPON-TRENT
Barton Business Park
24
25
26
27
21 WOLVERHAMPTON
Goodyear
TELFORD
Brockton Business Park
Queensway Business Park 29
22
23 WALSALL
St. Matthew’s Quarter
30
DUDLEY
Castle Hill
BIRMINGHAM
Washwood Heath
Quinton Business Park
LONGBRIDGE
RUGBY
Mill Road
Newbold Road
28 WORCESTER
Shrub Hill Industrial Estate
STRATFORD-UPON-AVON
Long Marston
COVENTRY
Whitley
SOUTHWEST
GLOUCESTER
31
Quedgeley Industrial
Estates
NEWPORT, GWENT
Llanwern
DURSLEY, GLOS
Littlecombe Village
32
33
34
35
36
AVONMOUTH, BRISTOL
Access 18
TAUNTON
Trading Estate
NEATH
Coed Darcy
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
BUSINESS REVIEW 9
YORKSHIRE
03
04
05
DARLINGTON
Whessoe Road
GUISELEY
Netherfield Road
HULL
Melton Park
06
07
DONCASTER
Worcester Avenue
LINCOLN
Rushton Works
NORTHERN HOME COUNTIES
37
38
CRANFIELD
Technology Park
BEDFORD
Thurleigh Airfield
Town Centre
39
40
MILTON KEYNES
Stratford Road
HATFIELD
Town Centre
02
LONDON AND SOUTH EAST
41 MILL HILL
42
43
44
45
Inglis Barracks
STANMORE
RAF Bentley Priory
UXBRIDGE
RAF Uxbridge
THURROCK
South Ockendon
LONDON
Catford
Edmonton Green
Elephant & Castle
Hounslow
Leegate Centre
Newham
Wembley Central
46
47
48
49
50
51
52
53
54
WOKING
The Planets
BASINGSTOKE
The Malls
FARNBOROUGH
Town Centre
SURREY
Henley Industrial Estate
YALDING
Syngenta
BOGNOR REGIS
Town Centre
EASTLEIGH
Campbell Road
POOLE
Discovery Court
WALTHAMSTOW
03
09
01
13
11
12
08
10
14
15
04
LEEDS
05
WARRINGTON
06
07
STOKE-ON-TRENT
16
17
20
21 24
25
22
18
19
23
26
28
33
31
34
BRISTOL
32
36
BIRMINGHAM
30
27
29
39
37
38
40
53
47
43
45
41
42
40
49
35
53
48
52
51
14704
12/02/08
Proof 12
ST. ALBANS
54
LONDON
44
50
46
REGIONAL OFFICES
Zone
rial Estate
10
THE HOPPER STRATEGY
THE HOPPER
NEW PROJECTS
1
THE HOPPER
The company strategy
is based on a hopper
of future development
opportunities, acquired
in their raw state.
It currently comprises over
5,000 developable acres
and 18 town centre
schemes. One of our
targets is to replace 120%
of land used every year to
ensure the long-term
continuation of the
company’s growth strategy.
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
BUSINESS REVIEW 11
THE COMPANY’S AMBITION IS TO DOUBLE ITS NET ASSET
VALUE PER SHARE EVERY FIVE YEARS, THROUGH A MIXTURE
OF REALISED PROFITS AND REVALUATION SURPLUSES. BY
MARSHALLING AN EXTENSIVE HOPPER OF DEVELOPMENT
OPPORTUNITIES, BY DELIVERING BUILT-OUT SCHEMES
ACROSS ALL SECTORS OF THE PROPERTY MARKET, AND BY
REGULARLY RECYCLING CAPITAL INTO THE ACQUISITION OF
NEW OPPORTUNITIES, THE COMPANY HAS CONSISTENTLY
EXCEEDED THIS TARGET OVER THE LAST 15 YEARS.
MARSHALLING
2
MARSHALLING
The company’s own team, supplemented with
skilled external professionals, has a proven track
record in marshalling a wide range of projects
through the complex and lengthy planning and
development processes. It has particular expertise
in site assembly, assessing and managing
remediation risks, masterplanning and
undertaking public consultation.
DELIVERY
3
DELIVERY
Schemes once marshalled are built-out in
response to market conditions, with a mixture
of pre-let and speculative buildings forming the
company’s substantial annual construction
programme. Where the use requires a specialist
developer such as a housebuilder, land may be
sold under tight development control principles.
Assets are disposed of once no further signifi cant
value can be added, and the capital is then
recycled into new schemes, enabling the entire
process to begin again.
14704
12/02/08
Proof 12
12
� WEMBLEY CENTRAL, WEMBLEY
THE FIRST PHASE OF THIS PROJECT PROVIDES 85
APARTMENTS FOR GENESIS HOUSING ASSOCIATION
WITH A COMBINATION OF NEW BUILD AND
REFURBISHED OFFICE SPACE. THE SECOND PHASE
PROVIDING PRIVATE APARTMENTS AND RETAIL AND
LEISURE SPACE WILL BE CONSTRUCTED IN 2008 (A
PARTNERSHIP PROJECT WITH ROTCH)
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
13
�
STEVE BURKE –
CONSTRUCTION DIRECTOR
BILL OLIVER –
CHIEF EXECUTIVE
TIM HAYWOOD –
FINANCE DIRECTOR
OPERATIONAL REVIEW
OUR MARKET
We are the country’s leading regeneration
specialist, operating within all sectors of the UK
property market.
The property investment market peaked in
the first half of 2007, since when prices for
investment properties have fallen. There is limited
transactional evidence to support the various
projections being discussed in the market. The
consensus, if there is one, is that prices will fall
during 2008 by 10–15%, caused by a yield shift
of up to 1/2% on average. What is ignored is the
base from which the fall is taking place. Prudent
appraisals and valuations, which we believe have
always been our hallmark, are obviously less
vulnerable than aspirational ones.
The owner of a property without asset
management or development opportunities
appears to be at the mercy of the market.
However, our portfolio was created on the
principle that we should not hold any property to
which we could not add significant value by our
own efforts. That puts us in a significantly better
position than many of our peers.
The occupational market remains variable, as
it has been for a considerable time, but it still
offers good opportunities for an active developer,
particularly one who has exposure to a broad
range of sectors and geographic areas. The retail
market is undoubtedly tougher, but the level
of interest in our major mixed use town centre
schemes remains encouraging. The business
park market has remained difficult, but we have
continued to do well in the small office unit
market. The industrial market remains solid,
with a number of large bespoke requirements
supplementing a steady stream of owner-occupier
demand for smaller units.
Residential land is an important market for us.
There is undoubtedly a more cautious approach
to this market, but we continue to see good levels
of interest for our product of remediated, fully
serviced land with all necessary consents in place.
Our long-term strategy mitigates the effect of a
difficult market on St. Modwen. Apart from the
14704
12/02/08
Proof 12
prudent approach to appraisals, the emphasis on
adding value, and the diversity of our exposure to
both different property sectors and geographic
areas, we also benefit from:
�
�
�
The size and diversity of the hopper, providing
the range of opportunity to enable us to align
our development activities to market needs and
prevailing conditions
A strong balance sheet with confirmed
banking facilities for all our commitments with
significant headroom for further activity
A strong and experienced management,
development and construction team
COMPETITIVE AND REGULATORY
ENVIRONMENT
The UK property market is normally extremely
competitive. Natural barriers to entry are
generally low. Finance is usually readily available
(although the recent credit crunch is likely to
see a flight to quality by lenders) and advantages
of scale, although they do exist, are limited. It
is rare, therefore, for the company not to be in
serious competition whether it is seeking to make
an acquisition, to achieve selection as preferred
developer, or to secure an occupier.
By contrast, the regulatory environment is
restrictive and becoming increasingly more so.
Numerous attempts to simplify and speed up
the planning process have not worked and the
cost and timescale involved in obtaining planning
permission continue to escalate with every new
initiative, guidance and regulation.
14 OPERATIONAL REVIEW
�
However, to a considerable extent, the above
regulatory challenges create an environment
in which a developer such as St. Modwen with
appropriate skills and determination, a strong
balance sheet and a willingness to take the long-
term view, can continue to succeed.
the area such as at Bedford, Cranfield, Hatfield, and Thurleigh, and to seek
out new opportunities.
The key to our strategy remains the continuing acquisition of well-located
opportunities to top up the hopper.
The hopper is a bank of development opportunities. It is:
BUSINESS MODEL AND STRATEGY
The underlying purpose of all St. Modwen’s
activity is to add value to the properties it controls.
The aim is that no property should be acquired or
retained unless it is believed that significant value
can be added to that property by the company’s
own efforts – asset management, refurbishment
or redevelopment – over a five to fifteen year
horizon.
In a declining market, such as the one we are
currently facing, the challenge is even greater. We
seek to meet this challenge by a strategy which
emphasises value creation, cost control and local
market knowledge. Through a network of regional
offices, supported by a strong central construction
management team, we create a broadly based
programme of activity, pulling out of the hopper
the projects for which there is a current market
opportunity. In December 2007 we were pleased
to announce the expansion of this network to
seven offices by the creation of a Northern Home
Counties region to service our existing schemes in
�
�
�
�
�
Long term – We seldom source properties for short-term realisation. The
normal development horizon is five years or more.
Broadly based – St. Modwen is not a sectoral specialist. We can
successfully deliver a wide range of outputs and, therefore, adjust the mix
of our development programme to match market conditions.
Geographically spread – Operating through its regional offices, St. Modwen
combines the strength of a local developer with the power of a national
company.
Focused upon regeneration – St. Modwen goes where it is needed, rather
than where it is fashionable, undertaking town centre regeneration,
partnering industry in its restructuring, brownfi eld land renewal, and
heritage restoration.
Acquired in its rawest state – Most added value and more flexibility can
be achieved if a developer tackles property and risk from the outset of the
regeneration process.
The hopper comprises more than 5,000 acres of developable land, excluding
Coed Darcy, a 1,000 acre site for which we were selected as the preferred
developer in 2007. The purchase of this site is forecast to complete in 2008.
This business model requires hands-on management, a skilled committed
team and a flexible medium-term programme of marshalling projects from
the hopper through to the shorter-term development programme. The
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
�
VULCAN WORKS, NEWTON-LE-WILLOWS
ANOTHER MAJOR DEMOLITION PROJECT WITH 600,000 SQ FT
DEMOLISHED TO DATE AND INITIAL INFRASTRUCTURE DUE TO
COMMENCE TO OPEN UP 40 ACRES OF RESIDENTIAL LAND
(A PARTNERSHIP PROJECT WITH KPI)
consistency of future performance depends on the
successful interaction of these elements.
Another important aspect of our business model
is long-term partnerships with the public sector
and other major landowners, having more such
arrangements than any other comparable company.
All development and property management
activity is undertaken by the regional offices,
supported and supplemented by a strong central
team, providing construction, planning, financial,
and commercial expertise.
OPERATIONAL REVIEW 15
FINANCIAL OBJECTIVES AND KEY PERFORMANCE INDICATORS
The company has a financial model with an ambition to double net
asset value per share every five years. This has been achieved for over a
decade, and still remains the company’s key long-term target. It should be
emphasised that this is a five-year target and does not assume a straight-
line progression of 15% per annum compound. In volatile periods, such as
the present, annual progression will undershoot the average, but this will
hopefully be balanced by outperformance in more favourable years.
Our key performance indicator for return on equity has been amended
to incorporate the effect of tax, and as such a post-tax return of 17.5%
(equivalent to the previous pre-tax target of 25%) is now targeted.
EMPLOYEES
One of the major challenges for the company is
to recruit and retain a team capable of handling
the range and complexity of projects which we
undertake. Many of our key staff have been with
us for a number years, but that core needs regular
replenishment with recruits of as good, if not
better, quality.
Year
2007
2006
2005
2004
2003
Cumulative
Target
Net assets
per share
Growth1
20.0%
20.3%
22.0%
25.2%
15.4%
154%
100%
Return on
Equity2
21.9%
21.3%
22.9%
21.3%
19.1%
Average 21.3%
17.5%
One of the prerequisites of staff retention is the
provision of career development opportunities.
Our growing size now enables (and, indeed,
requires) us to put in place more structured
career paths than previously. This is evidenced by
the promotions in the year to Regional Director
of Rupert Joseland and Stephen Prosser, and of
Rupert Wood to Regional Manager in our new
Northern Home Counties office.
We now have sufficient critical mass to embark
on a more structured people development
programme, and have recruited a people
development manager to initiate such a
programme in early 2008. This will help us grow
talented people who will be the drivers of the
company’s future expansion. We encourage
employees to improve their skills by obtaining
additional relevant qualifications, and support
them by appropriate paid time-off for study and by
payment for courses and course materials.
We have also strengthened the central services
team to support the growth of the regional teams,
with the recruitment in the year of a company
secretary, financial controller, internal auditor,
and a further regional financial controller.
This has enabled the regions to expand their
operational activities, whilst a strong central
framework of procedures and control is
maintained.
1 Net asset figures prior to 30th November 2004 are restated on an IFRS basis, but do not reflect the
reclassification of certain work in progress assets and their subsequent revaluation.
2 Return on equity = profit after tax as a percentage of average equity.
The company’s other key performance indicator is to replace opportunities
used in the year by new acquisitions at a rate of 120%. In the past year this
KPI was not achieved; land used amounted to 224 acres and developable
land acquired totalled 211 acres. However, siginificant progress was made on
negotiations on the Coed Darcy opportunity which, on completion, would add
a further 420 developable acres.
DEVELOPMENT AND PERFORMANCE OF THE BUSINESS
THE HOPPER – ASSEMBLY AND ACQUISITION
2007 was another active year with 28 acquisitions, including 12 new sites and
16 for land assembly exercises at our mixed use town centre projects.
Our total expenditure on acquisitions (including 100% of joint ventures)
during the year was £56m. As a result, the hopper (including 100% of joint
ventures) now stands at 7,621 acres, of which 5,045 is developable. 349 of
these developable acres have an intended future retail/leisure use; 2,358
acres for employment; 1,165 acres for residential; and 1,173 acres for as yet
unspecified uses.
Significant acquisitions during the period included:
�
�
Whitley – The acquisition of 53 acres of surplus land near Coventry, from
Jaguar and the City Council opens the way for the creation of a high-class
business park, for which outline planning consent already exists.
Eccles – A 36-acre chemical works in Salford, Manchester. The site was
purchased from Akcros Chemicals Ltd which has taken two occupational
leases of 30 years and 6 years. It adjoins Eccles town centre, and has
14704
12/02/08
Proof 12
16 OPERATIONAL REVIEW
VULCAN
MAGNA SIT AMET JUS
TO ULTRICES DIGNISSIM.
VIVAMUS FRINGILLA LACUS
A QUAM. PHASELLUS
INTERDUM MALESUADA
NIBH. INTEGER ELEMENTUM
DUI EGET LIBERO.
medium-term opportunities for mixed use
development.
�
�
Worcester – 20 acres, strategically located
between M5 Junctions 6 and 7. The City of
Worcester Local Plan identifies the land as
being a potential relocation site for Worcester
City Football Club, with whom a development
agreement has been exchanged.
Widnes – The acquisition of 14 acres from
Croda and the adjoining 20 acre council site,
has assembled a major employment site in
Widnes Waterfront.
Many of the assets in our hopper are, not acquired
outright, with control being obtained through
development agreements. This trend continued
during 2007 with our selection as preferred
developer for a number of important projects,
including:
�
�
Medway – The company has been chosen
as Medway Council’s preferred ‘investment
partner’ to deliver long-term investment to
transform Medway into the new city of the
Thames Gateway.
Walthamstow – Selected by Waltham Forest
Council for the Arcade site in respect of which
a development agreement has now been
exchanged.
MARSHALLING
We have continued to make good progress in marshalling projects for future
delivery, as evidenced by the quantity and quality of planning permissions
obtained in the year, as detailed in the table below.
PLANNING PERMISSIONS OBTAINED IN THE YEAR
Residential
Retail
Commercial
Office
No.
18
14
29
10
Sq Ft
1,087,000
5,587,000
933,000
Units
7,806
In particular, we obtained planning consent on the following major schemes:
�
�
�
�
Llanwern – Outline planning consent was obtained for this major mixed
use development which is described in greater detail in the case study
section.
Rugby – Planning consent has been obtained for the mixed use
redevelopment by Key Property Investments (“KPI”, our joint venture with
Salhia Real Estate KSC) of 100 acres of the former GEC industrial estates
in Rugby, including a new campus for Warwickshire College, 100,000 sq ft
of employment accommodation and 770 dwellings.
Great Homer Street, Liverpool – Outline planning consent was obtained for
this major mixed use development which is described in greater detail in
the case study section.
Vulcan Works, Newton-le-Willows – Part of the KPI Alstom portfolio
and also a joint venture with Ashtenne Ltd on our combined sites.
The successful outcome of the calling in inquiry resulted in planning
permission for 630 homes on the overall 64 acre site. Work on the initial
infrastructure has begun.
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
OPERATIONAL REVIEW 17
� LONGBRIDGE INNOVATION CENTRE
THE FIRST OUTPUT FROM LONGBRIDGE’S REGENERATION — A 45,000 SQ FT INNOVATION CENTRE NOW OVER 50% OCCUPIED
(DEVELOPED IN CONJUNCTION WITH AWM)
Elsewhere we continue to move forward the
planning position on major sites:
Yalding – A planning application has been
�
submitted for the mixed use redevelopment of
this former Syngenta site, comprising 315,000
sq ft of employment space and 350 residential
units.
�
Longbridge – A preferred option has been
identified from the consultation process on
the Area Action Plan. This crystallises the
shape of the site’s future development for an
employment-led mixed use scheme, and should
be adopted by late 2008.
Significant achievements on our major town
centre projects include:
Wythenshawe – The latest phase of the £130m
�
regeneration of the town centre has been
launched with the opening of a new £20m Asda
food store. Planning applications have been
submitted for a further 55,000 sq ft of retail,
leisure and office development.
�
Farnborough – The £80m redevelopment of the town centre, including
a 50,000 sq ft foodstore pre-sold to Sainsbury’s, began in May and the
current phases should be completed in 2008/2009.
Our substantial construction programme continues to deliver new schemes
for future years:
�
�
�
Longbridge Technology Park – The 45,000 sq ft Innovation Centre has been
completed and is being let to a range of technology-based businesses, with
more than 50% now occupied.
Edmonton Green – The leisure centre at the heart of this £100m mixed use
scheme is now open. The residential units have been handed over to our
Housing Association partners, four months ahead of programme. Work
on the next phase, the construction of a 66,000 sq ft ASDA foodstore and
additional retail units, is well underway.
Quedgeley, Gloucestershire – 30,445 sq ft of the second phase of
distribution/industrial units now under construction has been pre-let,
while a further 91,000 sq ft will be available by the spring.
It is in the nature of our business that occasional setbacks are encountered,
and not all of the progress in this period has therefore been positive.
However, the diversity and range of the hopper is a key strength of the
company, meaning that no individual project is critical to our overall success.
Two such events that arose during this period were:
Hatfield – The £100m mixed use regeneration
�
scheme was further advanced by the exchange
of a key agreement with the Royal Mail, and the
grant of the CPO.
�
Basingstoke – An 87,000 sq ft anchor store has
�
been sold on a long lease to Primark.
Matthew’s Quarter, Walsall – We were saddened that the listed
St
Shannon’s Mill building, which was to form the centrepiece of our £40m
retail and residential regeneration scheme, was lost to an arson attack
in August. Although this event will delay and may alter the ultimate
development, we were fully insured and expect to suffer no financial loss.
14704
12/02/08
Proof 12
18 OPERATIONAL REVIEW
�
�
Elephant & Castle – We were disappointed not
to be selected by Southwark Borough Council
for its proposed £2bn redevelopment. However,
as we are the owners of a key part of the site,
we will work with the selected developers
and Southwark to maximise the value of our
holdings. All bid costs had been written off as
they were incurred.
DELIVERY
The year saw more than 100 transactions
completed.
Residential land sales from our brownfield
land renewal programme have again figured
prominently in the year with disposals at:
�
�
�
RAF Eastcote – The first disposal from the
MoDEL portfolio, a 19 acre residential land sale
to Taylor Wimpey for £60m.
RAF West Ruislip – Also from the MoDEL
portfolio, a 21 acre residential land sale
to Cala Homes for £81m, after obtaining
planning consent for 415 homes and an 80 unit
retirement home.
Guiseley – 7 acres of residential land, acquired
as part of the Invensys portfolio in 2002, sold
to Bellway for £12m after obtaining planning
consent and site remediation.
�
Boughton Road, Rugby – 10 acres of residential land, part of a former
factory site acquired by KPI from Marconi in 2002. The site was sold to
Taylor Wimpey for £15m, following the granting of outline planning consent
for 270 homes.
Development and lettings in the industrial/distribution sector have also been
significant. During the year we completed 1,100,000 sq ft of new buildings
and 450,000 sq ft of refurbishments, including:
�
�
�
�
Trafford Park, Manchester – A pre-let of a 430,000 sq ft distribution centre
to adidas for its UK headquarters forward sold by KPI to NFU Mutual for
£33m. The building was completed in November.
Barton Business Park, Burton upon Trent – A 150,000 sq ft distribution
unit sold by Barton Business Park Limited (a joint venture with Prologis) to
Close Brothers for £9.5m.
Trentham Lakes and Centre 500 – Construction and sale of a number of
speculatively built employment buildings totalling 140,000 sq ft.
Longbridge – Sale of a 21,000 sq ft existing unit at Cofton Centre, and
commencement of construction of two speculative units totalling 75,000
sq ft, an early phase of the wider Longbridge regeneration programme.
In order to fund this construction and remediation programme, it has been
a consistent policy of the company to recycle its capital resources by selling
completed developments and any assets where it is no longer possible for
us to add further significant value. To this end, we disposed of Junction 7
Business Park, Accrington to GE Capital for £25m. This 50 acre managed
estate, acquired by KPI in 2001 as part of the Marconi portfolio, had been
successfully asset managed and 4 acres have been retained for new
speculative development.
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
�
CRANFIELD TECHNOLOGY PARK
A PARTNERSHIP WITH CRANFIELD UNIVERSITY. THE LATEST
PHASE OF CONSTRUCTION PROVIDES THIS HIGH QUALITY
39,000 SQ FT MULTI OCCUPATION OFFICE FACILITY FOR FIRMS
GROWING OUT OF THE INNOVATION CENTRE
OPERATIONAL REVIEW 19
We have also ended our 18-year association with
horse racing with the sale of Northern Racing
PLC. The amount realised for the group’s 27.2%
shareholding was £17.7m, an uplift of £6.7m on our
carrying value – a very successful conclusion to the
earliest of our property related operating activities.
Our construction team, at the end of the year,
were on site with 50 schemes including 5 major
town centre regeneration projects; ground
remediation works at Llanwern, Longbridge,
Goodyear, Etruria Valley and Goodyear; and the
provision of 1,700,000 sq ft of employment space.
This extensive construction activity will form
the backbone of our development programme
for 2008 and will ensure that we have available
product in all sectors and all regions. This will be
initiated in stages depending on the success of
previous phases, levels of interest, and market
requirements.
We continue to devote considerable resources to improving both the value
and income of the property we own through a variety of asset management
activities. During the year ended 30th November 2007, our in-house team
undertook:
�
�
�
86 lease renewals, securing rent roll of £1.5m;
144 rent reviews, achieving an uplift in rents of £0.7m (12%); and
310 new lettings, producing additional rent roll of £7.8m.
which more than offset the 305 vacations (rent roll £7.4m).
At Trentham, despite very poor summer weather, the gardens attracted
150,000 visitors (2006: 133,000) and, with a total of 2.2m visitors to the site
(2006: 2.1m), and the completion of the second phase of the retail scheme, a
trading profit before interest of £0.9m (2006: £0.3m) was achieved. Extensive
works continued on this heritage restoration scheme, with the completion of
the 120-bedroom hotel that has been pre-let to Golden Tulip (subsequently
acquired by Whitbread).
[For further details of projects referred to in this business review, and other
projects, see our website www.stmodwen.co.uk]
TULIP HOTEL, TRENTHAM GARDENS
A 120 BEDROOM HOTEL FOR WHITBREAD, RECENTLY
COMPLETED AS PART OF THE COMPANY’S £100M
TRENTHAM GARDENS PROJECT (IN PARTNERSHIP WITH
MR WILLI REITZ)
�
14704
12/02/08
Proof 12
20
FINANCIAL REVIEW
PROFIT BEFORE TAX
The principal factors behind the increase in profit before tax in the year are
shown in the table below:
PROFIT BEFORE TAX
PROFIT BEFORE TAX
Year ended 30th November 2006
Year ended 30th November 2006
Net rental income rose
Property profits increased by
Valuation gains increased by
We disposed of our interest in Northern Racing
Net rental income rose
Property profi ts increased by
We disposed of our interest in Northern Racing
Valuation gains were lower
Administrative expenses rose
Administrative expenses rose
Finance charges increased by
Other items
Year ended 30th November 2007
Finance charges† increased by
Other items
Year ended 30th November 2007
Amortisation of deferred consideration increased by
1.8
3.4
6.7
(2.7)
(0.8)
(4.2)
(1.0)
£m*
£m*
96.9
96.9
1.7
3.2
6.7
7.2
(0.8)
(8.1)
(6.1)
(0.6)
100.1
100.1
* The variances identified above include the company’s share of joint venture
activities.
† Excluding amortisation of deferred consideration.
Throughout this financial review certain numbers are quoted which include
the group’s share of joint ventures as detailed in note 9.
NET RENTAL INCOME
Net rental income for the year, including our share of rent from joint ventures,
increased by 5% to £34.9m (2006: £33.2m). The impact of disposals and
acquisitions on net rental income in the year was an increase in net rent of
£0.5m. Additionally, we have a number of longer-term multi-phase projects,
where new lettable space is not sold on a piecemeal basis, but retained
until the completion of the wider development (examples include Trentham
Gardens, Edmonton Green and Longbridge Innovation Centre). The retention
of these assets has resulted in an increase in net rental income of £0.5m.
At 30th November 2007, the gross rent roll, including our share of rent
from joint ventures, had increased to £41.2m (2006: £35.3m). This increase
reflects both the development of new space referred to previously, and also a
number of notable successes from our asset management activities.
Consequently, during the year under review, our overall voids fell to 15.2%
(2006: 18.5%), which is consistent with our development strategy for the
portfolio. The recent Government announcement of the imposition of
business rates on vacant properties represents an unnecessary additional
fi nancial burden to businesses like ours, and a potential annual cost in
excess of £3m. We have a programme established to mitigate this cost,
aimed at reducing our level of void properties.
PROPERTY PROFITS
Property profits, including our share of joint
ventures, increased by 22% to £54.5m (2006:
£44.6m). More than 100 individual property
disposals were completed in the period, of which
11 contributed profits over £1m. Included in these
numbers is a gain of £6.7m from the disposal in
the year of our shareholding in Northern Racing
PLC.
VALUATION GAINS
All of our investment properties (including land)
are valued every six months by King Sturge and
Co. at market value.
The valuation of our investment properties
reflects both market movements and the
value added by the company’s activities. The
latter includes the achievement of marshalling
milestones in the planning process (including
allocations in local plans, obtaining planning
permissions, and resolution of Section 106
agreements). The calculation of this added value
incorporates the present value of future cash
flows, based on existing land prices and the
current best estimate of costs (incorporating
appropriate contingencies) to be incurred, but also
deducting an allowance for a developer’s profit to
be realised at the point of development.
As has been widely documented, 2007 saw the
end of a long period of yield compression for
investment property. In the first half of the year,
yields were flat and the second half saw the
beginning of a reversal (yield expansion). The
properties within our portfolio are not immune to
such market movements, and the results for the
year include a yield expansion on average (all in
the second half) of 0.25%, resulting in valuation
decreases of £24.1m. Additionally, the discount
factor used to calculate future cash flows included
in the year end valuations was increased from 6%
to 7% to reflect the increased cost of borrowing:
the impact of this change was a further reduction
in the valuation of £8.1m.
Notwithstanding these significant adverse
movements, we nevertheless achieved net
valuation gains in the second half of £14.2m and in
the full year of £62.8m (2006: £55.6m) (including
our share of joint ventures). These were obtained
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
FINANCIAL REVIEW 21
through achieving marshalling milestones (such as those at Llanwern,
Rugby, Goodyear, Stoke and Newton-le-Willows described previously), and
the value added by our redevelopment and asset management activities (at
Longbridge, Edmonton and Trentham Gardens amongst others).
VALUATION GAINS (£m)
Marshalling milestones
Total
62.3
Asset management and development 32.7
Market yield movement
Discount rate movement
Total
(24.1)
(8.1)
62.8
1st Half
2nd Half
40.8
7.8
—
—
48.6
21.5
24.9
(24.1)
(8.1)
14.2
ADMINISTRATIVE EXPENSES
Administrative expenses (including our share of joint ventures) have
increased during the year by £0.8m to £16.5m, due to the continuing
programme of recruitment and the regional expansion needed to match our
increased activity. Offsetting these additional costs was a substantial (£3.1m)
fall in the cost of employee share options following a period where the share
price has fallen significantly (in line with the quoted real estate sector as
a whole).
During the year we recruited extensively to
strengthen our development, finance and
construction teams. We now have 131 employees
in our seven regional offices and head office, with
a further 59 undertaking site management and 98
in our operating ventures.
JOINT VENTURES AND ASSOCIATES
Our share of the post-tax results of joint ventures
and associates is shown on the income statement
as one net figure. A full analysis of the underlying
details is disclosed in note 9. The principal joint
venture in which the group is involved is Key
Property Investments Limited from which our
post-tax return was £11.1m (2006: £9.3m). Our
27.2% interest in the post-tax results of our
associate, Northern Racing PLC, is also included
under this heading in the comparative figures for
2006.
ST MATTHEW’S QUARTER, WALSALL
WORK ON THE ROOF DECK OF THE 1,000 SPACE MULTI
STOREY CAR PARK. PART OF THE FIRST PHASE WHICH
INCLUDED AN ASDA AND 41 APARTMENTS FOR A HOUSING
ASSOCIATION (A PARTNERSHIP WITH GOOLD ESTATES)
�
14704
12/02/08
Proof 12
22 FINANCIAL REVIEW
�
FINANCE COSTS AND INCOME
Net finance charges (including our share of joint ventures) have increased to
£35.3m (2006: £21.1m).
During the year average group borrowings increased by £113m to £348m,
and average LIBOR (upon which our borrowing costs are based) increased
by 114 basis points. The impact of these changes was in part offset by a
combination of successful hedging and renegotiation of facilities. As a result,
underlying group bank interest costs increased by £3.9m and the hedged
average rate of interest payable as at 30th November 2007 increased to 6.5%
(2006: 6.0%).
The revaluation of our interest rate swap contracts to market value at year
end resulted in a charge to the Income Statement of £0.7m (2006: £2.0m
credit), recognising the decreasing value of such contracts in the prevailing
climate of falling interest rates.
Net finance charges also includes a full year’s charge of £9.9m (2006:
£3.8m for four months) for the amortisation of the discounted deferred
consideration payable to the MOD in respect of Project MoDEL.
During 2007 the group has continued to expense all interest as it has arisen,
and has not capitalised any interest on its developments or its investments.
TAXATION
The effective rate of tax for the year, including our share of joint ventures,
and with full provision for deferred taxation, has fallen to 8.9% (2006: 23.8%).
This rate is substantially lower than the 30%
standard rate of UK Corporation Tax due primarily
to the benefits of approved tax planning activities
and the impact of Budget changes (mainly re-
basing the deferred tax provision to 28%, and the
release of previous provisions for the clawback of
balancing allowances).
TAX RATE
Standard rate
Approved tax planning activities
Rebasing of deferred tax provisions
Release of clawback provisions
Other
Total
%
30.0
(9.7)
(6.0)
(4.2)
(1.2)
8.9
It is anticipated that, with the continued utilisation
of indexation and land remediation allowances
and the benefit in future years of approved tax
planning activities, the effective rate of tax will
revert to a higher level than 2007, but will still
remain below the standard rate of UK
Corporation Tax.
Benefit from tax planning activities is only
recognised when the outcome is reasonably
certain.
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
�
EDMONTON GREEN
THE COMPLETED APARTMENTS, CONSTRUCTED FOR A
CONSORTIUM OF REGISTERED SOCIAL LANDLORDS,
TOGETHER WITH THE NEW PRIMARY CARE TRUST FACILITY
AND LEISURE CENTRE
FINANCIAL REVIEW 23
CASH FLOW AND FINANCING
The company continues to produce a strong
cash flow, based on recurring net rental income
of £35m (including our share of joint ventures)
and an ongoing programme of asset disposals,
which generated £136m in the year. This, together
with new bank facilities put in place during the
year, enabled us to meet our administrative
expenses, dividends and interest, and to invest in
a £168m development programme and in property
acquisitions and capital expenditure of £107m.
In the uncertain times following the recent
credit crunch, it is clear that availability of
fi nance will be a critical success factor for many
property businesses. Our finance strategy has
for many years been to maintain an appropriate
gearing level to ensure that a good operational
performance is converted into excellent
shareholder returns. To this end, we target a
preferred gearing range of 75% to 125%. Despite
an extensive programme of investment during the
year, our current gearing level of 86% remains
well within the target range.
Interest cover has fallen from 7.9 times in 2006
to 6.6 times. Excluding revaluation gains (a more
realistic measure of the company’s ability to
service its debt), adjusted interest cover is still 3.2
times (2006: 4.4 times). This underlines our ability
to continue to invest in a development programme
appropriate for market conditions.
We also have in place a financial structure that
is both cost-effective and flexible. The group is
fi nanced by shareholders’ funds and bank debt
of varying maturity profiles, which is appropriate
to the needs of the group and reflects the type of
assets in which it invests. The majority of the bank
debt is provided through bilateral revolving credit
facilities, providing us with the flexibility to draw
and repay loans, and sell and acquire assets as
opportunities arise.
During the year we undertook a substantial refinancing programme,
including; the refinancing of our principal joint venture, Key Property
Investments, via a five year £200m facility (with Bank of Scotland, HBOS and
Bank of Ireland); a £45m extension to our existing HBOS facility; a new £50m
facility with Lloyds TSB; and a £46m development facility with Fortis Bank for
our Sowcrest joint venture’s activities at Wembley.
As a result of this, the group’s banking facilities have increased to £569m
(30th November 2006: £458m), with a weighted average maturity of 5 years
(2006: 5 years). Current net debt is £402m (2006: £253m), giving us a gearing
of 86% (2006: 65%). Including joint ventures, total banking facilities are
£815m (2006: £659m), net debt is £580m (2006: £439m) and gearing 105%
(2006: 88%).
We now have undrawn, but committed, facilities of £167m (2006: £205m)
available to finance future expansion (of which £40m is ring-fenced for
Project MoDEL expenditure within VSM). Moreover, the terms of these
facilities have also been improved, with a weighted average margin of 81
basis points (2006: 100 b.p.) over LIBOR. Terms have also been agreed for
a further £135m of new facilities which will be put in place early in 2008 to
enable the company to action its projected development programme and to
capitalise on the expected buying opportunities presented by current market
conditions.
It is reassuring in the current uncertain credit environment that all of our
existing facilities are in place until 2011/12, and are with banks with whom
we have long-standing relationships. The interest cost of 68% of our debt is
fixed by hedging contracts (2006: 62%). The weighted average fixed interest
payable under these hedges is 5.0%, which compared very favourably to
three month LIBOR of 6.6% as at 30th November 2007.
Our strategy is to hedge two-thirds of all borrowings, with the maturity of
both hedges and facilities being aligned with individual schemes where
applicable, or over a maximum of 5 years for revolving facilities.
Financial Statistics
Net borrowings
Gearing
Gearing, including share of JV debt
Average debt maturity
% debt hedged
Interest cover, excluding valuation gains
Undrawn committed facilities
Return on equity
2007
£402m
86%
105%
5 years
68%
3.2
£167m
21.9%
2006
£253m
65%
88%
5 years
62%
4.4
£205m
21.3%
14704
12/02/08
Proof 12
�
�
24 FINANCIAL REVIEW
BALANCE SHEET
NET ASSETS
At the year end, net asset value per share was 387p, an increase of 64p
(20%). In common with other property companies, we also use the diluted
EPRA NAV measure of net assets which analysts also use in comparing the
relative performance of such companies. The adjustments required to arrive
at our adjusted net assets measure are shown in the table below.
Adjusted net assets per share were 430p at 30th November 2007, an increase
of 70p (19%) in the year.
NET ASSETS
Net assets, beginning
of year
Profit after tax
Dividends paid
Other
Net assets, end of year
Deferred tax on
capital allowances
Deferred tax on
revaluation surpluses
Mark to market of
interest rate swaps
Diluted EPRA NAV
– total
– per share
2007
£m
389.8
93.7
(13.5)
(2.3)
467.7
2.8
48.4
0.7
519.6
430p
2006
£m
324.0
75.9
(11.5)
1.4
389.8
7.3
39.2
(2.0)
434.3
360p
INVESTMENT PROPERTIES
The total value of investment properties under
our control, including 100% of joint ventures,
increased by £98m during the year to £1,134m.
The independent valuation at 30th November
2007 resulted in an uplift in the value of our
portfolio including our share of joint ventures of
6.8% (£62.8m), compared with the previous year
end. Our properties are currently valued at the
following weighted average yields:
Retail
Industrial
Office
Equivalent yield
6.7%
8.0%
7.6%
INVENTORIES
Inventories have increased in the year from £66m
to £209m reflecting the extensive development
programme (including £60m relating to Project
MoDEL). Assets held in inventories principally
comprise development projects that are on site
and under construction and have not been pre-
sold, and other assets that are held for resale at
the period end.
Assets held in inventories are not included in the
annual valuation.
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
�
QUINTON BUSINESS PARK, BIRMINGHAM
AN AERIAL VIEW SHOWING THE FIRST THREE PHASES OF THE
DEVELOPMENT OF THE PARK, INCLUDING THE COMPANY’S
HEAD OFFICE
FINANCIAL REVIEW 25
INVESTMENTS IN ASSOCIATES
Our 27.2% stake in Northern Racing PLC, an
AIM-listed company, was sold during the year,
generating a profit of £6.7m.
THE FUTURE
The company’s hopper (details of which are set
out above) is an underlying strength which should
provide a stream of future profitability.
The key issues determining the company’s future
performance are:
�
�
�
Whether we can continue to acquire sufficient
opportunities to top up and expand the hopper
How we marshal projects through land
assembly, planning and construction to create
annual development programmes
Whether the occupational market across the
various sectors will be sufficiently strong to
support those programmes
�
Whether there is a reasonable investment/owner-occupier market to
purchase the output from those programmes
We have strategies in place to address each of these issues:
�
�
�
�
The experienced teams within our network of regional offices and the long-
term relationships that they build give us a good prospect of identifying
and securing the right opportunities
Regular detailed reviews of all live projects mean that issues associated
with marshalling schemes can be identified and addressed in a timely
manner
By operating across a wide range of property sectors, we spread the risk of
an occupational downturn in any particular sector
Our headroom in existing facilities gives us some scope, if necessary, to
hold income-generating properties until the market conditions are right
for sale
The future prospects for the company are good, and the net asset value should
continue to improve, even in today’s market conditions.
W.A. Oliver Chief Executive
T.P. Haywood Finance Director
8th February 2008
WHITLEY, COVENTRY
53 ACRES OF SURPLUS LAND ACQUIRED FROM JAGUAR AND
COVENTRY CITY COUNCIL, WITH CONSENT FOR DEVELOPMENT
AS A BUSINESS PARK
�
14704
12/02/08
Proof 12
26 CASE STUDIES
0% WATERMARK.01
NLY USE ON BACKGROUND 282c, 2995c, 3035c,
OL GREY 10, COOL GREY 7, COOL GREY 4 & WHITE
� LLANWERN
A 600 ACRE MIXED USE DEVELOPMENT, FOR WHICH
PLANNING PERMISSION HAS BEEN OBTAINED.
INFRASTRUCTURE WORK TOGETHER WITH THE FIRST
RESIDENTIAL PHASES WILL COMMENCE IN 2008
100%
ONLY USE
COOL GRE
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
MARSHALLING THROUGH PLANNING
LLANWERN
CASE STUDIES 27
BACKGROUND
We acquired the 600 acre site, formerly part
of the Corus steelworks, in 2004 for £17.5m.
It comprised the offices, coal and iron ore
stockyards, blast furnace and steelmaking plant
of the Llanwern works. Corus undertook to
demolish the historic structures down to slab
level. We assumed total responsibility for historic
environmental liabilities.
This project exemplifies three of our core
areas of expertise, namely the winning of
appropriate planning consents, the remediation
of contaminated brownfield land, and the
masterplanning and delivery of major mixed use
schemes. It is also illustrative of the long-term
nature of much of our hopper, with redevelopment
of the site from acquisition expected to take 20
years to complete.
MARSHALLING
During 2007, after an extensive programme of
public consultation, we obtained outline planning
consent for a £1bn sustainable, mixed use
development, comprising a new urban village
of 4,000 homes with full supporting community
facilities and 1.5m sq ft of employment space.
�
LLANWERN
EARLY REMEDIATION
WORKS TAKING PLACE
ON THE SITE
BROWNFIELD REMEDIATION
We have assessed the areas requiring remediation
against our masterplan, and have already started
to excavate foundations, break up slabs and re-
engineer the ground formations. In the process,
we have reclaimed over 1,000 tonnes of scrap
metal, and are reusing the crushed aggregates on
site. We are also reusing green waste to generate
soil on site, and are recycling slag, coke and
other waste products for a variety of uses. Areas
requiring more specialised remediation have been
identified for future treatment.
DELIVERY
Further progress on ground remediation
and remodelling and the initial phase of the
infrastructure works is scheduled for 2008,
which should also see the first dwellings and
employment buildings being developed.
2008-2020
Infrastructure
2024
Project completion
2008-2023
Residential land sales/
commercial development
PROJECT
PROGRESS
100% WATERMARK.03
ONLY USE ON BACKGROUND 282c, 2995c, 3015, 3035c,
COOL GREY 10, COOL GREY 7, COOL GREY 4 & WHITE
2004-2007
Planning process
2004
Site acquired
2006-2014
Ground remediation
14704
12/02/08
Proof 12
28 CASE STUDIES
0% WATERMARK.01
NLY USE ON BACKGROUND 282c, 2995c, 3035c,
OL GREY 10, COOL GREY 7, COOL GREY 4 & WHITE
� GREAT HOMER STREET
ANOTHER MAJOR MIXED USE PROJECT FOR WHICH
PLANNING CONSENT HAS BEEN OBTAINED (A
PARTNERSHIP PROJECT WITH LIVERPOOL CITY COUNCIL)
100%
ONLY USE
COOL GRE
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
LOCAL AUTHORITY PARTNERSHIP
GREAT HOMER STREET, LIVERPOOL
CASE STUDIES 29
�
GREAT HOMER STREET
AN AREA OF SIGNIFICANT
DEPRIVATION
BACKGROUND
We were selected by Liverpool City Council in 2004
as the preferred developer for a £150m mixed
use regeneration project on 45 acres in North
Liverpool.
This flagship project is an important example of
a large-scale complex mixed use regeneration
scheme, redeveloping an area of significant
deprivation. We are drawing on our considerable
experience of partnerships with the public sector
to work together with Liverpool City Council to
deliver a scheme that meets its aspirations.
MARSHALLING
During 2007 we reached a significant milestone
in a lengthy public consultation process when we
obtained outline planning consent for a scheme
comprising a 115,000 sq ft superstore, 80,000 sq
ft of other retail accommodation, a new market
and market hall, 480 homes, and facilities for a
Primary Care Trust centre, new library, leisure
facilities as well as 80,000 sq ft of employment
space. There will also be new public realm leading
from the scheme into Everton Park.
Work is now under way on land acquisition
and detailed planning of the scheme including
preparation for a compulsory purchase and road
closure procedure. Construction is expected to
begin in 2009.
Four industrial sites in the surrounding area
(Larch Lea, Gilmoss, Brasenose and Clegg Street)
have been acquired to provide alternative
locations for businesses being relocated as part
of the redevelopment.
PROJECT
PROGRESS
100% WATERMARK.03
ONLY USE ON BACKGROUND 282c, 2995c, 3015, 3035c,
COOL GREY 10, COOL GREY 7, COOL GREY 4 & WHITE
2004
Selected as
preferred developer
2004-2007
Planning approval
2009-2012
Construction
2007-2009
Site assembly
2013
Project completion
14704
12/02/08
Proof 12
30 CASE STUDIES
0% WATERMARK.01
NLY USE ON BACKGROUND 282c, 2995c, 3035c,
OL GREY 10, COOL GREY 7, COOL GREY 4 & WHITE
� PROJECT MoDEL
RAF NORTHOLT — WORK IN PROGRESS ON NEW
FACILITIES FOR THE MINISTRY OF DEFENCE, WHICH
CLEARS THE WAY FOR THE REDEVELOPMENT OF
OTHER MOD BASES IN WEST LONDON
100%
ONLY USE
COOL GRE
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
INNOVATIVE TRANSACTION & STRUCTURE
PROJECT MoDEL
CASE STUDIES 31
�
BENTLEY PRIORY
ANOTHER MoDEL PROJECT
WHICH WILL PROVIDE: A
MUSEUM LINKED TO THE
SITE’S HERITAGE WITH THE
BATTLE OF BRITAIN; THE
RESTORATION OF THE LISTED
BUILDING; AND NEW
RESIDENTIAL
ACCOMMODATION
In addition, we successfully completed the
disposal of two of the six surplus sites under
this project, namely: RAF Eastcote – a 19 acre
residential land sale to Taylor Wimpey for £60m;
and RAF West Ruislip – a 21 acre residential land
sale to Cala Homes for £81m, after obtaining
planning consent for 415 homes and an 80 unit
retirement home. Marshalling of the remaining
four disposal sites is proceeding according to
plan.
BACKGROUND
Together with Vinci PLC we were selected by the
UK Ministry of Defence (MOD) in 2006 for Project
MoDEL, a complex and innovative public–private
partnership which will enable the MOD to
consolidate their real estate in north-west London
onto a single site at RAF Northolt.
This project draws on our abilities to structure
a transaction so as to meet the complex needs
of our partner. In this case, these included:
the relocation of a variety of activities into new
accommodation; marshalling sites through the
planning system; maximising value from an
orchestrated disposal process; and the provision
of finance for a complex multi-phase scheme.
DELIVERY
During 2007 we achieved substantial progress on
many aspects of this project.
The primary focus of the project is the £150m
redevelopment of RAF Northolt. This will create
the MOD’s first integrated core site in London
providing service personnel with new living,
working and messing accommodation plus sports,
social, health and welfare facilities. During the
year substantial progress was made on the initial
phases of this construction programme, which is
currently on schedule and on budget.
PROJECT
PROGRESS
100% WATERMARK.03
ONLY USE ON BACKGROUND 282c, 2995c, 3015, 3035c,
COOL GREY 10, COOL GREY 7, COOL GREY 4 & WHITE
2007
Sale of Eastcote/West Ruislip
2006
Sites acquired
2007-2009
Construction of
RAF Northolt
2009
Sale of Bentley Priory
2011
Project completion
2009-2011
Sale of Mill Hill/
Uxbridge
14704
12/02/08
Proof 12
32 CASE STUDIES
0% WATERMARK.01
NLY USE ON BACKGROUND 282c, 2995c, 3035c,
OL GREY 10, COOL GREY 7, COOL GREY 4 & WHITE
�COOMBS WOOD, HALESOWEN
AN AERIAL VIEW OF THE
COMPLETED DEVELOPMENT
100%
ONLY USE
COOL GRE
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
CASE STUDIES 33
�COOMBS WOOD, HALESOWEN
ONE OF THE BUILDINGS
FROM THE LATEST PHASE
OF THIS DEVELOPMENT
LONG-TERM PROJECT
COOMBS WOOD, HALESOWEN
BACKGROUND
This 85 acre former steelworks was acquired from
Corus in 1995 and has been gradually remediated
and developed over the last twelve years.
This scheme illustrates our key skills of
working in long-term partnership with industry
and undertaking the remediation of a really
challenging brownfield site to reclaim it for reuse.
Coombs Wood is one of the most successful
commercial developments in the Black Country,
attracting a range of occupiers including
manufacturing, distribution and office users,
many of them local companies. In addition to a
number of bespoke buildings, we have rolled out a
succession of speculative schemes covering small
business units, distribution space, and offices, all
of which have been well received.
DELIVERY
2007 saw substantial completion of this scheme
with the sale of the last industrial unit and
completion of the final phase 13,000 sq ft office
scheme. A total of 485,000 sq ft of office and
industrial accommodation has been developed on
the site, creating over 1,000 jobs.
PROJECT
PROGRESS
100% WATERMARK.03
ONLY USE ON BACKGROUND 282c, 2995c, 3015, 3035c,
COOL GREY 10, COOL GREY 7, COOL GREY 4 & WHITE
1995-1998
Masterplanning
1998-2008
Development phases
1995
Site acquired
1998
Infrastructure
2008
Project completion
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
CSR REVIEW
CORPORATE SOCIAL RESPONSIBILITY
AT THE HEART OF OUR BUSINESS
36 Corporate social responsibility
46 Board members and senior management
48 Corporate governance report
55 Directors’ remuneration report
14704
12/02/08
Proof 12
36
CORPORATE SOCIAL RESPONSIBILITY (“CSR”)
Consequently, in all of our business we adhere to the following principles:
�
�
�
�
�
�
�
�
We seek to make a positive contribution to society as a whole, and
specifically the communities in which we operate.
We treat all partners, suppliers and employees fairly, without regard to
race, colour, creed, gender, age, sexual orientation or disability.
We require our suppliers to operate to similar high standards as ourselves.
Compliance with laws and regulations is required as an absolute minimum
standard.
Reputable business practices must be applied.
Conflicts of interest must be declared and appropriate arrangements
made to ensure that those with a material interest are not involved in the
decision making process.
Improper payments or inducements of any kind are prohibited.
Reporting of business performance is undertaken in such a way that
stakeholders are fully and properly informed concerning the business’s
true performance, risks and opportunities in a timely manner.
SUSTAINABILITY
We are committed to improving the built environment, whilst undertaking
projects that seek to transform areas of dereliction and decay into
sustainable communities.
Each one of our projects poses its own environmental challenges. In tackling
these challenges, we seek to:
�
�
�
�
Identify the potential impact of our developments on the environment;
Design development solutions which meet the requirements of the
planning and environmental regulators;
Implement the development so it protects and where practicable enhances
the environment, repairing the damage done by previous generations; and
Particularly recycle materials, conserve energy, reduce consumption of
raw materials and minimise waste production.
We apply our approach to sustainable development at all stages of our work:
in the way we use land and buildings; in site and building design; and in our
construction methods. The following section provides more detail about our
approach, with case studies drawn from our regeneration projects over the
last year.
INTRODUCTION
As the UK’s leading regeneration specialist, we
recognise the significant impact that our activities
have on the environment and the communities
in which we work. We recognise that managing
these activities responsibly brings long-term
benefits to our shareholders as well as our other
stakeholders.
One of the company’s key strengths is its ability
and willingness to undertake difficult and long
term projects, focusing on:
�
�
�
�
Town centre regeneration – the refurbishment
and revitalisation of tired town centres;
Partnering industry – enabling the reuse of
redundant former employment complexes;
Brownfi eld land renewal – the remediation of
contaminated brownfield land; and
Heritage restoration – the restoration of
heritage assets of both local and national
importance.
At the very heart of all of our business is the
principle of sustainability – the need to conserve
scarce resources and avoid compromising the
inheritance of future generations.
The other principle underlying our business is
to conduct it to the highest ethical standards,
treating others as we would wish to be treated
ourselves.
Our business depends critically on the behaviour
of our employees and the professionals and
contractors who help deliver our projects. We
seek to treat them with respect and to encourage
them in the delivery of our projects to give equal
respect to all our stakeholders.
The following pages set out our CSR principles
and illustrate the progress we have made in
the year.
PRINCIPLES & ETHICS
We strive to maintain the highest standards of
ethical conduct and corporate responsibility,
by acting with integrity in our dealings with our
business partners, stakeholders and with
each other.
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
SOCIAL RESPONSIBILITY (“CSR”)
CORPORATE SOCIAL RESPONSIBILITY 37
� STRETTON A VIEW OF THE FINAL PHASE OF STRETTON BUSINESS PARK ACROSS THE COVENTRY CANAL
1. SUSTAINABLE LOCATION
�
�
Reusing land – The recycling and returning
of previously developed land to beneficial
use safeguards the countryside and helps to
preserve natural habitats. It helps tackle the
blight of dereliction in communities by bringing
poor quality sites back into use, and enables
the reuse of existing infrastructure and utilities.
Moreover, the decontamination and remediation
of polluted land will improve the environment.
As a specialist in regeneration, we already have
extensive experience in the reuse of previously
developed sites. In 2007 94% (2006: 91%) of our
building activity was on brownfield land.
Reusing buildings – The refurbishment and
reuse of a building is generally a better option
than its demolition and replacement with a new
building from an environmental point of view,
and we seek to apply this principle whenever it
is practicable to do so. The reuse of buildings
reduces the environmental costs involved in the
demolition and construction processes, and
enables reuse of existing utility infrastructure.
However, this has to be set against the
practicability of reusing an old building.
CASE STUDIES
Reusing land – Longbridge, Birmingham – We have demolished
over 2 million sq ft of redundant buildings from the former MG Rover
car plant, and are currently remediating 159 acres of contaminated
brownfield land for a mixed use development that will provide 10,000
jobs, 1,500 homes and a new district centre.
Reusing buildings – Wembley Central – We are refurbishing a
redundant 40,000 sq ft offi ce building by converting two floors
to residential and adding an additional residential floor, whilst
converting the remaining space to a business centre. At the same
time the derelict multi-storey car park is being remodelled to meet
Parkmark standard so as to play an integral part in the £100m mixed
use regeneration scheme.
2. SITE DESIGN
�
Providing transport choices – Accessibility is a key consideration in
all our new developments. For a variety of reasons, both social and
planning, people tend not to live in close proximity to their place of
work. This has led to a dramatic increase in travel demand, leading to
increased CO2 emissions, congestion, and long commuting times and it
also creates accessibility problems for people without access to a car. We
believe that sustainable communities must seek to reconnect housing,
workplace, and amenities, via provision of public and sustainable
transport linkages and integrated land-use planning.
14704
12/02/08
Proof 12
�
�
38 CORPORATE SOCIAL RESPONSIBILITY
�
�
Community engagement – Sustainable
communities are places where people want
to live and work, now and for generations to
come. They meet the diverse needs of existing
and future residents, are sensitive to their
environment, and contribute to a high quality of
life. They are safe and inclusive, well planned,
built and run and offer equality of opportunity
and good service for all. In all our projects,
we consider it essential to engage with local
communities to establish what they want to see
developed, and how it should be managed.
Enhancing the environment – We ensure
in our developments that protected species
and habitats are safeguarded or new habitats
provided, with site design allowing for the
movement of protected wildlife (for example
by the provision of bat corridors without
bright lights, badger tunnels under roads).
We also seek to enhance the wildlife value of
sites by the retention or introduction of native
species appropriate to the site and prevailing
conditions, the creation of new wildlife habitats
and corridors, and by limiting the area of hard
surfaces.
�
Managing flood risk – Sustainable communities are protected as far
as possible from flooding, have safe access and escape should flooding
nevertheless occur, and do not increase the flood risk of areas elsewhere.
We seek to incorporate sustainable urban drainage systems (SUDS) in
all of our developments, by the appropriate use of permeable surfaces,
rainwater harvesting systems, ponds and seasonal wetlands, swales and
soakaways, and by extensive tree planting.
CASE STUDIES
Providing transport choices – Edmonton Green, Enfield – A new 26
stand bus station, built in partnership with Transport for London,
forms the centrepiece of our major mixed use regeneration scheme.
Community engagement – Dursley – We engaged in extensive
consultation with the local community in the process of obtaining
planning for this 92 acre mixed use development, and are establishing a
community interest company to manage the community infrastructure,
including a biomass heating system which lies at the heart of the
scheme, and have recruited a full-time community liaison officer.
Enhancing the environment – The St. Modwen Environmental
Trust – during 2006 we established the Trust with an annual budget
of £300,000, to support projects that seek to improve the local
environment in areas in which the company is active.
Managing flood risk – Quedgeley West Business Park – We have used
four types of SUDS techniques at this former MOD depot site. These
are: a dry pond with throttled outflow; porous paving; Wavin Aqua
cellular storage; and swales. Together, these signifi cantly reduce peak
run-off rates, preventing flooding both on site and downstream.
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
�
TRENTHAM LAKES
THE PETS AT HOME
EXTENSION SEEN ACROSS
THE BALANCING POND,
WHICH HAS BECOME A
HAVEN OF WILDLIFE
CORPORATE SOCIAL RESPONSIBILITY 39
3. BUILDING DESIGN
�
Energy efficiency – Burning fossil fuels contributes to atmospheric
pollution resulting in climate change, and damage to the environment and
public health. We respect the three cardinal principles of reducing energy
usage: be lean – use less energy; be clean – use energy efficiently; and be
green – use renewables.
Methods of reducing the energy demands of our buildings are considered
at the outset of development. These include: building layout and
orientation; window placement to avoid overheating; low U values to
prevent unwanted heat loss/gain; high building mass to help keep
buildings warm in winter and cool in summer; low air permeability to
reduce draughts and hence limit uncontrolled heat losses in winter;
the use of natural ventilation; and the introduction of smart controls on
heating and lighting to avoid waste.
�
Conserving water – Water resources are becoming increasingly scarce
as demand continues to increase rapidly due to growing population and
changing lifestyles and the predicted effects of climate change. The key
to water conservation is water efficiency rather than restriction of use.
Conservation of water can be achieved in buildings through the installation
of features such as dual flush toilets, water efficient taps and rainwater
harvesting systems.
EDMONTON GREEN
A BUS STATION NEEDN’T BE DULL – THE NEW 16 STAND
FACILITY IN LONDON’S FIFTH BUSIEST BUS TERMINAL
�
CASE STUDIES
Energy effi ciency: Reducing energy
demand – Edmonton Green – A low energy
strategy has been adopted throughout the
development. The residential units were
designed with high levels of insulation to
minimise energy use. Average U values
were 27% above those required by Building
Regulations. Additionally, low energy lighting
was specifi ed throughout, reducing CO
emissions to less than 45kg/m2/year, and
enabling the development to achieve an Eco-
Homes rating of Good.
2
Energy effi ciency: Integrating renewable
energy – Trentham Lakes – Mine gas from
this former colliery site is being extracted
and used to generate up to 4 megawatts of
electricity, as well as preventing some 240
million cubic metres of methane from the
mines being vented to the atmosphere.
Conserving water – Trafford Park – We have
installed a rainwater harvesting system for
the new adidas warehouse, which has the
capacity to store 75 cubic metres of collected
rainwater. This will dramatically cut mains
water usage, as well as attenuating run-off
from the development, hence reducing the
risk of flooding.
14704
12/02/08
Proof 12
40 CORPORATE SOCIAL RESPONSIBILITY
�
4. CONSTRUCTION
�
�
�
Sustainable materials – Our resources are not limitless. ‘Non-renewable’
resources have built up over millions of years and are being rapidly
consumed by the construction industry. However, sustainable materials
are becoming more readily available at reasonable costs and can be
sourced locally. To ensure that the most sustainable material is chosen
for our developments the following factors are considered: the mass of
materials, the ‘embodied energy’ of the materials (the energy used in their
production), their recycled content and the potential to recycle materials at
the end of their life.
Minimising waste – Land filling is currently the principal mode of waste
disposal in the UK. Landfill sites are a finite resource that may pollute
water, soil and air in surrounding areas. Reliance on land filling is an
unsustainable activity and a potential source of carbon dioxide and
methane, both greenhouse gases contributing to climate change. In
all of our developments we seek to reduce waste generation at all stages
of our construction works and ensure that waste generated is disposed
of in a sustainable way. For many years we have sought to avoid the
use of landfill. On major sites our target is to eliminate landfill entirely
from ground remediation schemes and to seek to recycle the maximum
amount possible from demolition activity and in 2007 94% of all our waste
materials were dealt with on site.
Preventing pollution – The construction industry is a major source
of pollution, responsible for 4% of particulate emissions, more water
pollution incidents than any other industry and thousands of noise
complaints every year. Construction activities can also disrupt ecological
communities. We monitor contractors on all of our sites to ensure that
best practice measures to prevent pollution and ensure environmental
protection are implemented.
CASE STUDIES
Sustainable materials – Etruria Valley –
In 1998 we built the temporary steel stock
yard using recyclable clay blocks. In 2007 1.8
million of these have been lifted for reuse
following the closure of the yard.
Minimising waste – Longbridge
– Approximately 95% of all demolition
materials are being reclaimed and reused.
To date, this includes 22,000 tonnes of steel
sent for recycling, and over 200,000 tonnes
of brickwork and concrete which is being
crushed and reused on site. 365,000 litres
of fuel which leaked into the ground during
the operation of the former MG Rover car
plant have been recovered and sold back to
refiners
Preventing pollution – Ludgershall
– We are working with the contractor to
champion industry-leading pollution-
prevention measures on this site: energy
and water usage on site will be monitored
and reduction targets set; air pollution will
be measured and minimised; Environment
Agency procedures will be followed to
safeguard against water pollution; and
special measures have been taken to protect
the site’s ecology during construction,
including reptile-proof fencing and the
programming of site clearance works to
minimise disruption to nesting birds.
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
�
LLANWERN
THE SORT OF CHALLENGE
WE FACE REGULARLY: THE
CONCRETE WILL BE
PROCESSED INTO RE
USABLE AGGREGATE, AND
THE STEEL REINFORCEMENT
SENT FOR RECYCLING
CORPORATE SOCIAL RESPONSIBILITY 41
5. SUSTAINABILITY TARGETS
We are in the process of establishing firm,
deliverable targets across a range of our activities
to ensure that our commitment to sustainability is
both real and evidenced. This process is
well advanced in our traditional areas of
brownfield land, contract management and
commercial development, where we now have
established targets. In emerging areas, such
as apartment building, we are evaluating the
balance between environmental aspiration and
commercial reality and expect to establish targets
over the coming year.
All our new schemes now benefit from:
�
�
The use of our Sustainability Guide developed during 2007. This embodies
a Sustainability Assessment System. Using this assessment tool we
will identify, with greater accuracy, all of the environmental impacts of
our projects and so achieve continual improvement in our sustainability
performance.
Site waste management plans. Through these, we will manage the waste
generated by both our and our land purchasers’ construction activities,
limiting waste and maximising recycling.
The targets we have established and our actual performance levels in 2007 are:
2007
%
2008
%
2009
%
Brownfield land remediation
On all of our brownfi eld sites where we need to remediate soils, we employ a variety of technologies
to seek to eliminate off-site disposal. In addition, we maximise the recycling of metals or other
recyclable materials from this process.
Target: Percentage of remediated materials reused or recycled
94
95
96
Demolition
On all our demolition projects we aspire to retain or recycle all demolition products on-site, with
the exception of asbestos. This is achieved by a combination of crushing and screening aggregates
and mulching green waste for future use on-site, and segregating other materials such as metals,
glass and wood for recycling.
Target: Percentage of demolition products reclaimed for retention on-site or recycling
88
89
90
Construction waste
Construction waste generated from our projects will be reused or recycled through the application
of our Site Waste Management Plans. Adopting sustainable principles we will implement the
following hierarchy – avoid, reduce, reuse and recycle.
Target: Percentage of construction project waste reused or recycled
20
40
50
Commercial Buildings
On our new commercial speculative building projects, we intend to increase progressively the
proportion of our buildings achieving at least a very good BREEAM rating.
Target: Percentage of speculative industrial units in excess of 25,000 sq ft achieving at least a very
good BREEAM rating
Target: Percentage of speculative offices in excess of 5,000 sq ft achieving at least a very
good BREEAM rating
22
60
75
52
70
75
14704
12/02/08
Proof 12
42 CORPORATE SOCIAL RESPONSIBILITY
2007
%
2008
%
2009
%
Reduced energy use
On all our building projects we intend to reduce progressively their energy consumption in use.
Target: Energy consumption reduction above that involved in achieving Building Regulations on
speculative projects in excess of 50,000 sq ft for industrial buildings and 25,000 sq ft for offices
5
20
25
Water
Our buildings will be designed to reduce water consumption through design efficiencies and/or
water recycling technologies.
Target: Percentage of schemes with water usage reduction technologies
Target: Percentage of schemes with water recycling technologies
65
20
100
100
25
30
HEALTH & SAFETY
The company gives high priority to safeguarding
the health and safety of the public and its
employees by pursuing a policy which
ensures that:
�
�
�
�
�
�
�
�
Its business is conducted in accordance with
standards that are in compliance with relevant
statutory provisions for health and safety
of staff and any other persons on company
premises;
A safe and healthy working environment
is established and maintained at all of the
company’s locations;
Managers at all levels regard health and safety
matters as a prime management responsibility;
Sufficient financial resources are provided
to ensure that policies can be carried out
effectively;
Good standards of training and instruction in
matters of health and safety are provided and
maintained at all levels of employment;
Risk assessments are carried out wherever
appropriate;
Co-operation of staff in promoting safe and
healthy conditions and systems of work is
required;
An adequate advisory service in matters of
health & safety is provided and maintained.
Detailed policies and procedures are documented and made available to
all staff. The Health and Safety Forum, chaired by the Company Secretary,
and reporting to the Chief Executive, meets regularly to discuss and resolve
implementation issues. The procedures are reviewed by the board annually,
with health and safety matters included on the agenda of every board
meeting.
The Health and Safety Forum provides guidance to employees on all aspects
of health and safety. To assist, a Health and Safety Procedures Manual has
been produced.
We ourselves undertake no construction work on site directly, therefore
our assessment of a subcontractor’s or main contractor’s health and safety
procedures forms a key part of our supplier selection process, and is a vital
element in our health and safety controls. We ensure that health and safety
audits are performed on all of our projects.
For our operational sites (including Trentham Gardens, Solihull Ice Rink,
and our shopping centres), individual risk assessments are undertaken, and
updated annually, by a retained health & safety consultant.
The company’s health and safety performance continues to be very good,
with no prosecutions for breaches of health and safety, and no fatalities.
HEALTH & SAFETY TARGETS
2007
2008
2009
%
%
%
The HSE’s construction industry average is
an Accident Incident Frequency Rate with
respect to the number of hours worked on
site of 10 .
Target: Accident Incident Frequency Rate in
relation to number of hours on site
‹10
‹9
‹8
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
CORPORATE SOCIAL RESPONSIBILITY 43
At a number of our sites, we provide free, or heavily subsidised, space
and facilities for the use of local charities. These include: free use of our
Trentham Gardens site for a number of charities including the Race for Life,
the Donna Louise Trust, and the Douglas MacMIllan Hospice, which together
raised £750,000 from Trentham events; and the provision in our Edmonton
Green Shopping Centre of 10,000 sq ft of heavily subsidised accommodation
for an integrated network of training and employment charities and not for
profit organisations, together with 15,000 sq ft of community theatre and
arts-related facilities.
CASE STUDIES
Worcestershire Resource Exchange (WRE) was opened by the
Duckworth Worcestershire Trust in 2004 in some underutilised first
fl oor space on our Gregory’s Bank Industrial Estate in Worcester. WRE
is a ‘scrap-store’ which collects clean and safe waste from a range
of industries and businesses and sells it as inexpensive resources.
Customers of the Exchange include teachers and other educators,
community play workers, arts groups, Guide and Scout groups, as
well as members of the public. WRE also operates a Community Re
paint scheme: collecting unwanted paint from retailers, businesses
and households, and redistributing them for reuse. In 2007, the Trust
approached us to see if we could help them find some larger premises
to meet the growing needs of the community. We identified a unit
of nearly 8,000 sq ft at Shrub Hill Industrial Estate, close to the city
centre, which we refurbished in conjunction with WRE and the new
centre opened in May 2007.
Our VSM Estates subsidiary supported Ruislip High School in
Hillingdon in its successful bid for Specialist Status in Maths and by
providing funds for a new Maths and Computing Suite for the school.
The donation refl ects our ongoing commitment to making a positive
contribution to local communities across the London Borough of
Hillingdon in which we are very active though our projects in Northolt,
West Ruislip and Uxbridge.
EMPLOYEES
We encourage our employees to play an active role in fulfi lling the
company’s corporate social responsibility. Schemes adopted by the St.
Modwen Environmental Trust require a project champion from amongst
the employees and we support employees taking an active role in local
community bodies.
COMMUNITIES AND SOCIAL INCLUSION
Many of the projects undertaken by the company
– often in partnership with local authorities
and other public sector bodies – are in areas of
significant deprivation. We are therefore often
at the forefront of attempts to address issues
of social exclusion, by providing local jobs and
improving local amenities, infrastructure and
affordable housing stocks. Outstanding examples
in the last year included: the completion of a £27m
state-of-the-art new leisure centre at Edmonton
Green (in partnership with Enfield Borough
Council); and the launch of a major speculative
programme for small and medium enterprises
in the city of Stoke-on-Trent involving 83 units
totalling 287,000 sq ft.
Once a project is under way, active participation in
local community activities is a key feature of the
company’s approach. We deploy a combination
of initiatives to encourage local communities to
share in the improvements brought about by its
regeneration schemes, including:
�
�
�
�
�
�
Encouraging the employment of local people.
Incorporating opportunities for local traders in
markets or small units in our retail schemes at
sustainable levels of rent.
Subsidising local initiatives such as a Credit
Union, local radio stations and community
wardens.
Encouraging community participation in our
developments. At Trentham Gardens we have
a team of 46 volunteers, 6 from special needs
groups, and 7 from groups supporting the
rehabilitation of the long-term unemployed
(including the Prince’s Trust).
Incorporating non-intrusive, but high levels of
security facilities in our schemes to reassure
and protect the vulnerable.
Sponsoring local sport, leisure and charitable
activities, including the Trentham Water
Sports Association that provides access to
water sports for universities, schools, disabled
groups and local community initiatives, and the
Dursley Bowls Club for whom we provided new
changing rooms, kitchen and other clubhouse
facilities.
14704
12/02/08
Proof 12
44 CORPORATE SOCIAL RESPONSIBILITY
� LONGBRIDGE
AN AERIAL VIEW OF LONGBRIDGE, SHOWING THE
DEMOLITION PROGRESSING FROM THE WEST WORKS
THROUGH THE NORTH AND SOUTH WORKS TO THE EAST
WORKS AND POWERTRAIN. NANJING’S OPERATION IS
LOCATED IN THE CENTRE, AND THE FUTURE IS
REPRESENTED BY THE INNOVATION CENTRE, AND NEW
OFFICE BUILDING IN THE LEFT FOREGROUND
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
CORPORATE SOCIAL RESPONSIBILITY 45
14704
12/02/08
Proof 12
46
BOARD MEMBERS
01
05
09
02
06
10
03
07
04
08
* Member of audit and
remuneration committees
† Members of nominations
committee
01 ANTHONY GLOSSOP MA† NON-EXECUTIVE CHAIRMAN
Aged 66. A director since 1976 and Chief Executive from 1982 to
2004. Previously Chief Executive of Redman Heenan
International plc. He is also a non-executive director of
Robinson PLC.
02 BILL OLIVER BSc, FCA CHIEF EXECUTIVE
Aged 51. Joined the company as Finance Director in 2000.
Appointed Managing Director in 2003 and Chief Executive in
2004. Previously Finance Director of Dwyer Estates plc after a
career in the housing industry.
.
03 TIM HAYWOOD MA, FCA, FINANCE DIRECTOR
Aged 44. Joined the company in 2003. Previously Chief Financial
Officer of Hagemeyer (UK) Limited, after a career with Williams
Holdings PLC.
05 CHRISTOPHER ROSHIER MA, FCA
Aged 61. A non-executive director appointed in 1987. Senior
Independent Director. He is a Chartered Accountant with over 20
years’ experience in Corporate Finance. Currently chairman of
Gibbs & Dandy PLC and Deutsche Land Management LLP and a
director of two overseas investment companies.
07 MARY FRANCIS MA, CBE*†
Aged 59. A non-executive director appointed in 2005. Chairman
of the Remuneration Committee. Former Director-General of
the Association of British Insurers and Deputy Private Secretary
to the Queen. Previously a senior civil servant in HM Treasury
and 10 Downing Street. She is a non-executive director of
Centrica plc, Aviva plc and Alliance & Leicester plc.
09 IAN MENZIES-GOW MA*†
Aged 65. A non-executive director appointed in 2002. Formerly
Chairman of Geest PLC and Derbyshire Building Society, and
prior to that held senior executive positions within the Hanson
Group.
04 STEVE BURKE CONSTRUCTION DIRECTOR
Aged 48. Joined the company as Construction Director in 1995
and appointed to the main board as a director in November
2006. Previously contracts director and construction manager
with a number of national contracting companies (including
Balfour Beatty and Clarke Construction).
06 JOHN SALMON FCA*†
Aged 63. A non-executive director appointed in 2005.
Chairman of the Audit Committee. Formerly a partner of
PricewaterhouseCoopers LLP, and a member and former
Deputy Chairman of their Supervisory Board. Currently a senior
adviser to IDDAS and a trustee and member of Council of the
British Heart Foundation.
08 SIMON CLARKE*
Aged 42. A non-executive director appointed in 2004. Previously
Deputy Chairman of Northern Racing PLC and Director and the
Vice-Chairman of the Racecourse Association.
10 PAUL RIGG DL, CPFA*†
Aged 61. A non-executive director appointed in 2004. Formerly
Chief Executive of West Sussex County Council. He is a director
of the Chichester Festival Theatre Ltd, and a non-executive
director and trustee of the Weald and Downland Open Air
Museum Ltd.
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
47
04
SENIOR MANAGEMENT
02
06
03
07
01
05
08
01 JOHN DODDS BSc, FRICS
REGIONAL DIRECTOR – MIDLANDS
Aged 51. 6 years’ service.
02 MIKE HERBERT
REGIONAL DIRECTOR – NORTH STAFFORDSHIRE
Aged 52. 17 years’ service.
03 RUPERT JOSELAND BSc, MRICS
REGIONAL DIRECTOR – SOUTH WEST
04 STEPHEN PROSSER BSc, MRICS
REGIONAL DIRECTOR – YORKSHIRE
Aged 38. 6 years’ service.
Aged 44. 10 years’ service.
05 TIM SEDDON BSc, MRICS
REGIONAL DIRECTOR – LONDON AND
SOUTH EAST
Aged 43. 2 years’ service.
06 MICHELLE TAYLOR BSc, MRICS
REGIONAL DIRECTOR – NORTH WEST
Aged 45. 16 years’ service.
07 RUPERT WOOD BSc, MRICS
REGIONAL MANAGER – NORTHERN
HOME COUNTIES
Aged 34. 18 months’ service.
08 JON MESSENT LLB, Solicitor
COMPANY SECRETARY
Aged 43. 1 year’s service
14704
12/02/08
Proof 12
48
CORPORATE GOVERNANCE REPORT
St. Modwen is committed to the highest standards
of corporate governance. The board of directors,
through the executive directors and management,
exercises effective control over the group and
its activities, recognising its responsibility to
shareholders and other interested parties. The
procedures for applying these principles within
the group are set out below. This should be read
in conjunction with the Directors’ remuneration
report on pages 55 to 61.
Throughout the year ended 30th November 2007
the company has complied with the principles
set out in Section 1 of the Combined Code on
Corporate Governance 2006 (“The Code”) except
for the following matters:
�
�
The Code asks the board to identify each
non-executive director it considers to be
independent. Of the six non-executive
directors at the end of 2007, the board
considers Mary Francis, Ian Menzies-Gow,
Paul Rigg, Christopher Roshier and John
Salmon to be fully independent. The Code
seeks an explanation for the determination
of independence in certain circumstances,
including if a non-executive has served for
longer than nine years. Christopher Roshier
has been a non-executive director for twenty
years, but the board is satisfied that he
maintains an independent and rigorous
approach to all of its business and accordingly
considers him to be independent. The board
recognises that Simon Clarke does not meet
the criteria for a fully independent director
under the Code, although his position as a
representative of the Clarke and Leavesley
families, who together hold 51.4m shares
(42.5%) in the company’s equity, gives him
a very strong interest in challenging and
scrutinising management to secure excellent
performance from the company.
�
�
and four executive members including the Chairman. The object sought
by the Code – that no individual or group of individuals can dominate the
board’s decision-making – is thus achieved.
The Code recommends that all members of the Audit and Remuneration
Committees are independent non-executive directors. Each of these
Committees comprises all of the non-executive members of the board
except for Christopher Roshier. As explained above, Simon Clarke is not
a fully independent director under the Code, but the board considers
that its discussions benefit from his involvement in the preparatory
detailed scrutiny which takes place in these Committees. As also noted
above, Simon Clarke has a strong interest in challenging and monitoring
management’s performance.
The Code recommends that a Chief Executive should not go on to be the
chairman of the same company. As explained in previous years’ annual
reports, the board recommended the appointment of former Chief
Executive Anthony Glossop as Chairman of the board. This was endorsed
by shareholders at the Annual General Meeting in April 2004. As of
11th February 2008 Anthony Glossop became non-executive Chairman.
The roles of the Chairman and Chief Executive are carefully differentiated.
PRINCIPAL ACTIVITIES
The company acts as the holding company of a group of property investment and
development companies. A list of the subsidiary and associated undertakings
affecting the profit or net assets of the group is included at page 103.
BOARD COMPOSITION AND COMMITTEES
The composition of the board provides an appropriate blend of experience
and qualifications, and the number of non-executives provides a strong base
for ensuring appropriate corporate governance of the company. The board’s
decisions are implemented by the executive directors. The Chairman and
the non-executives also met during the year without the executive directors
being present.
Christopher Roshier is the senior independent director. He is available for
consultation by shareholders, whenever appropriate.
The company’s Articles of Association provide that all directors are subject to
re-election at least every three years. In addition, all directors are subject to
re-election by shareholders after their initial appointment.
The Code recommends that at least half
the board, excluding the Chairman, should
comprise independent non-executive directors.
The board currently comprises five non-
executive directors whom it determines to be
independent; one non-executive (Simon Clarke)
who is not deemed fully independent under
the Code but who – as explained above – has a
strong interest as a shareholder representative
in challenging and scrutinising management;
The reappointment of non-executive directors is not automatic. It is intended
that appointments will be for an initial term of three years, which may be
extended by mutual agreement. Prior to each non-executive offering himself
to the members for re-election his reappointment must be confirmed by the
Chairman in consultation with the remainder of the board.
The terms and conditions of appointment of all directors are available for
inspection at the company’s registered office during normal business hours,
and at the AGM.
The board is supplied with timely and relevant information regarding the
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
CORPORATE GOVERNANCE REPORT 49
business, through regular monthly and ad
hoc reports, site visits and presentations from
members of the management team and by
meetings with key partners. Where appropriate,
the company provides the resources to enable
directors to update and upgrade their knowledge.
Through the Company Secretary, the board is
informed of corporate governance issues and all
board members have access via the Company
Secretary to independent advice if required
The criteria used for evaluating individual executive
directors’ performance are included in the Directors’
Remuneration Report. Individual non-executive
directors’ performance is reviewed by the Chairman
and Chief Executive. The performance of the
board as a whole is assessed in the context of the
company’s achievement of its strategic objectives
and total shareholder return targets. Feedback on
the company is sought through external surveys
from shareholders, analysts and other professionals
within the investment community following the
regular briefings, presentations and site visits
undertaken by the company. This feedback is made
available to the whole board.
In support of the principles of good corporate
governance, the board has appointed the following
committees, all of which have formal terms of
reference which are available for inspection by
shareholders and are posted on the company’s
website:
a) Remuneration Committee
The composition and function of the
Remuneration Committee are set out in the
Directors’ Remuneration Report on page 55.
b) Audit Committee
The Audit Committee, which currently comprises
all of the non-executive directors except for
Christopher Roshier, is chaired by John Salmon.
The company’s Finance Director, Financial
Controller and Internal Auditor attend Audit
Committee meetings but the Committee also
meets without management being present and
has private sessions with the auditors. The
Committee has direct access to the internal and
external auditors.
The Audit Committee’s functions include:
�
Ensuring that appropriate accounting systems
and financial controls are in operation and
that the company’s financial statements comply with statutory and other
requirements.
Receiving reports from, and consulting with, the internal and external
auditors.
Reviewing the interim and annual results and reports to shareholders, and
considering any matters raised by the internal and external auditors.
Considering the appropriateness of the accounting policies of the company
used in preparing its financial statements.
Monitoring the integrity of the financial statements of the group and
formal announcements relating to the group’s financial performance, and
reviewing significant financial reporting judgements contained therein.
Reviewing the effectiveness of the group’s internal audit function.
Reviewing and monitoring the independence and objectivity of the
company’s external auditors.
Monitoring the scope, cost-effectiveness and objectivity of the audit.
Monitoring the company’s policy on non-audit services provided by the
external auditors.
Making an annual assessment of the external auditors and recommending,
or not, their reappointment.
Reviewing “whistle-blowing”arrangements within the company.
Reviewing its own performance, constitution and terms of reference to
ensure it is operating at maximum effectiveness and recommending any
changes it considers necessary to the board for approval.
�
�
�
�
�
�
�
�
�
�
�
Given the increasing size, complexity and geographical scope of the company’s
operations, the company has proceeded with the appointment of an internal
auditor tasked with formalising and documenting internal control procedures
and ensuring compliance. The newly appointed internal auditor took up her
role on 2nd January 2007.
The Committee’s policy on the provision of non-audit services by the external
auditors is that, whilst it is appropriate and cost-effective for the external
auditors to provide tax compliance and tax planning services to the group,
other services should only be provided where alternative providers do not
exist or where it is cost-effective or in the group’s interest for the external
auditors to provide such services. In all cases the provision of non-audit
services is carefully monitored by, and subject to the prior approval of,
the Committee. The external auditors would not be invited to provide any
non-audit services where it was felt that this could conflict with their
independence or objectivity. Such services would include the provision of
internal audit and management consulting services.
As part of the regular review of its providers of professional services,
the board put the audit out to a tender process involving a number of
firms, including Ernst & Young, the incumbent auditors. This process
was completed in 2007 and Deloitte & Touche LLP were selected as the
company’s auditors.
14704
12/02/08
Proof 12
50 CORPORATE GOVERNANCE REPORT
c) Nominations Committee
The Nominations Committee was reconstituted
in 2006 and now comprises Anthony Glossop (as
chairman of the Committee), Mary Francis, Ian
Menzies-Gow, Paul Rigg and John Salmon.
For the appointment of the Company Secretary
during the year, a detailed specification was drawn
up and agreed with all board members setting
out the required skills and background from
which it was felt candidates should be drawn.
Since a suitable candidate was not already known
to the company it was necessary to instruct a
search agency. A recommendation was made
by the Nominations Committee to the board for
the appointment of Jon Messent as Company
Secretary.
BOARD AND COMMITTEE ATTENDANCE
The board met eleven times during the
year. The Audit Committee met three times,
the Nominations Committee once, and the
Remuneration Committee four times. All
members attended all meetings except that Simon
Clarke and Paul Rigg were unable to attend two
board meetings. Ian Menzies-Gow and Christopher
Roshier were each unable to attend one board
meeting. Paul Rigg was unable to attend two
Remuneration Committee meetings, and Simon
Clarke and Ian Menzies-Gow one.
BOARD EFFECTIVENESS
The Code recommends that the board undertakes
a formal and rigorous annual evaluation of its own
performance. A formal evaluation, facilitated by
an external assessor, Dr Tracy Long of Boardroom
Review, was undertaken during 2005 and 2006.
The principal findings of the review were that “the
board functions well as a team, with high levels
of trust and respect amongst new and existing
members, and an ability to deal capably with
change. Financial documentation and controls
have been upgraded, and recent improvements
have been made in the area of board and
committee independence and composition,
board agendas, shareholder communication
and corporate governance.” Three areas for
improvement were identified: maximising board
contribution; succession planning; and risk
analysis. Actions taken to address these
areas were:
�
�
�
�
Sharpened focus of board agendas and papers.
Reviewed levels of authority and board involvement in major project
acquisitions.
Increased time given to strategy and risk analysis.
Identified structure for succession planning.
For 2007 the next formal evaluation has been commenced with Boardroom
Review to review the board’s progress against previous action items, and to
establish whether there are further improvements required.
RISK MANAGEMENT AND INTERNAL CONTROL
The board recognises that it has overall responsibility for the identification
and mitigation of risks and the development and maintenance of an
appropriate system of internal control.
During the period under review the directors have reviewed the effectiveness
of the system of internal control in accordance with the Turnbull guidance,
through the production of a detailed report which covered: the group’s
control environment; the manner in which key business risks are identified;
the adequacy of information systems and control procedures; and the
manner in which any required corrective action is to be taken.
The group’s key internal controls are centred on comprehensive monthly
reporting from all activities which includes a detailed portfolio analysis,
development progress reviews, management accounts and a comparison
of committed expenditure against available facilities. These matters are
reported to the board monthly, with reasons for any significant variances
from budget. Detailed annual budgets are reviewed by the board and revised
forecasts for the year are prepared on a regular basis.
There are clearly defined procedures for the authorisation of capital
expenditure, purchases and sales of development and investment properties,
contracts and commitments and a formal schedule of matters, including
major investment and development decisions and strategic matters, that are
reserved for board approval. Formal policies and procedures are in place
covering all elements of employment, the construction process, health and
safety and IT. The company is currently working in conjuction with FAST
(Federation Against Software Theft) to achieve their Gold Accreditation for
software licensing compliance. The company already holds Bronze and Silver
awards. All necessary steps to achieve the Gold award were undertaken in
2007 and an application will be made in 2008.
Internal control, by its nature, provides only reasonable and not absolute
assurance against material misstatement or loss. The directors continue,
however, to strive to ensure that internal control and risk management are
further embedded into the operations of the business by dealing with areas
for improvement as they are identified. In the year under review, no material
loss was suffered by a failure of internal control.
The analysis of the business’s key risks was also reviewed and redefined in
the light of current experience.
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
CORPORATE GOVERNANCE REPORT 51
The company’s policies with respect to its:
a) financial risk management objectives and
policies, including the policy for hedging each
major type of forecasted transaction for which
hedge accounting is used; and
b) exposure to price risk, credit risk, liquidity risk
and cash flow risk
are contained in the notes to the accounts at
pages 86 and 89.
RISKS AND UNCERTAINTIES
The key business risks facing the company, their
potential impact and mitigation, are reviewed
regularly. This year the risks were assessed
against a set of scenarios, and were found to be
still appropriate.
attractiveness of the company and its remuneration packages. To support the
fi nancial objectives, we will need to continue to improve the employee base.
2. ECONOMIC/PROPERTY RISKS
The risks identified included:
�
�
�
�
�
�
�
�
�
Demand for space from occupiers;
Rental levels;
Investment yield;
Relative sector performance;
Overexposure to single tenant/scheme;
Site assembly risk;
Occupational risks;
Investment value risk;
Changing public sector requirements.
The principal mitigating actions are:
MANAGEMENT OF KEY RISKS
The key risks that have been identified, the
management approach to each, and the
assessment of the residual risk are set out below:
1. ORGANISATIONAL/PEOPLE FACTORS
The risks identified included:
�
�
�
�
�
�
�
�
Succession planning and talent management;
IT;
Disaster planning;
Failure to recruit.
The principal mitigating actions are:
Regular dialogue with industry experts and commentators;
Use of high quality professional advisers;
The hopper and geographical spread gives flexibility and facilitates
diversification;
Emphasis on value creation through active property management and
development.
Assessment – We have chosen to operate only in one geographical area, the
UK, which is subject to relatively low-risk, low-returns from a stable and
mature, albeit cyclical economy and property market. By involvement with all
sectors of that economy and that property market, we are as diversified as
possible, without venturing overseas.
Targeted recruitment procedures;
Competitive remuneration packages;
Strong performance-related link to
remuneration;
Regular assessment of performance and
identification of training needs;
3. REGULATORY FACTORS
The risks identified included:
�
�
�
�
Planning;
Tax;
Technology;
Lease structures.
Tailored training programme;
The principal mitigating actions are:
Regular communication of strategic and
tactical objectives;
Properly resourced and structured IT solutions;
Appropriate disaster recovery procedures.
Assessment – Employee turnover has been low,
indicating good retention levels. Vacancies are few,
and are generally filled promptly, indicating the
14704
12/02/08
Proof 12
�
�
�
Being alert to policies being promoted;
Use of high quality professional advisers;
In-house expert resources in planning/residential/construction/tax/IT.
Assessment – Our daily exposure to all aspects of the planning process, and
internal procedures for spreading best practice ensure we remain abreast of
most developments. We have not been very active in attempting to influence
public policy debate, but may need to do so as we grow.
�
�
�
�
�
�
�
�
52 CORPORATE GOVERNANCE REPORT
4. FINANCIAL RISKS
The risks identified included:
�
�
�
Lack of available funds;
Interest rates;
Taxation.
The principal mitigating actions are:
�
�
�
�
Small number of high-quality banking
relationships;
Hedging policy to contain interest rate risk;
Benchmarking of costs of finance;
Tax strategy identifying areas of acceptable
innovation.
Assessment – Our conservative approach to
fi nancing reduces the opportunity for true
innovation in this area. This is offset by the
benefits of stability, reliability and borrowing
capacity, ensuring finance is available for all
foreseeable projects.
5. FAILURE TO SECURE SCHEMES
The risks identified included:
�
�
�
�
Competition;
Overheated market;
People;
Reputation.
The principal mitigating actions are:
�
�
�
�
�
�
�
Regional offices in touch with their local market;
Strong performance-related link to
remuneration;
Dedicated central resource to support regional
teams;
Streamlined and effective decision-making
process;
Availability of adequate finance;
Flexible and innovative approach to acquisitions
in response to changing market conditions;
Raising the profile of the company as the
country’s leading regeneration specialist.
Assessment – The increasing focus on the regions to deliver acquisitions,
and the growing reputation and financial capacity of the company, have
enabled us to deliver more than the target of replacing 120% of land used
over the past five years.
6. SOCIAL, ETHICAL AND ENVIRONMENTAL RISKS
The risks identified included:
�
�
�
�
�
Health, safety & environment risk;
Climate change;
Business ethics;
Internal controls;
Customer satisfaction.
The principal mitigating actions are:
�
�
�
�
�
�
Systems of control procedures and delegated authorities;
Regular and detailed operational and financial reporting;
Regular dialogue with industry investors and commentators;
Close supervision of transactions and key relationships;
Proactive press/media contacts;
Regular top-level meetings with local authorities, RDAs, and other
government or quasi-governmental bodies.
Assessment – The company has benefited from an excellent reputation. This
is underpinned by a simple set of operating commitments.
7. REPUTATIONAL RISKS
The risks identified included:
�
�
�
Failure to deliver on promises;
Involvement with controversial schemes/partners;
Failure to live up to expectations.
The principal mitigating actions are:
�
�
�
�
Adherence to system of principles and ethics;
Thorough and proactive PR to get messages across clearly;
Inclusion of reputational issues as an item in scheme selection process;
A strong culture of propriety led from the board.
Assessment – The company enjoys an excellent reputation with its
stakeholders (including investors, business partners and employees). This is
based on, and reinforced by, a strong set of principles and consistent delivery
of promises.
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
CORPORATE GOVERNANCE REPORT 53
8. CONSTRUCTION RISK
The risks identified included:
�
�
�
Build quality;
Remediation/contamination;
Liability issues.
The principal mitigating actions are:
�
�
�
�
A strong internal construction management
team;
Projects, acquisitions and disposals are
reviewed (and financially appraised) in detail
within clearly defined authorisation limits;
Regular management reviews;
Use and close supervision of high-quality
trusted contractors and professionals;
�
Contractual liability clearly defined.
Assessment – The company is willing to accept
a degree of environmental/contamination risk,
enabling higher returns to be made for the
perceived higher risks undertaken. These risks
are passed on or minimised where possible, but
cannot be eliminated. In our recent experience,
the residual risks have been acceptably low.
DIRECTORS AND THEIR INTERESTS
In accordance with the provisions set out in
Section 1 of the Combined Code on Corporate
Governance issued by the Financial Reporting
Council in July 2006 Christopher Roshier offers
himself for re-election to the board. The reasons
for this are set out on page 48.
Bill Oliver, John Salmon, Mary Francis and
Christopher Roshier will retire from the board in
accordance with the provisions of the company’s
Articles of Association and offer themselves for
re-election.
DIRECTORS’ INTERESTS IN ORDINARY SHARES
The interests of the directors in the issued share capital of the company are
shown below:
Beneficial
S.J. Burke
S.W. Clarke
M.E. Francis
C.C.A. Glossop
T.P. Haywood
W.A. Oliver
P. Rigg
C.E. Roshier
J. Salmon
Non-beneficial
C.C.A. Glossop
30th November
2007
30th November
2006
13,240
3,859,332
1,000
1,707,933
87,823
188,304
1,875
10,417
2,000
–
3,859,332
1,000
1,707,933
66,823
188,304
–
10,417
–
100,000
100,000
The above interests do not include shares held under the share option
schemes detailed in the directors’ remuneration report on page 59.
There has been no change in these interests between 30th November 2007
and 8th February 2008.
SUBSTANTIAL INTERESTS
As at 14th January 2008 in addition to those noted above, the company had
been notified, in accordance with the Financial Services and Markets Act
2000, of the following interests in more than 3% of its issued share capital:
Shareholder
Number of
Ordinary Shares
Held
Percentage of
Ordinary Share
Capital
Lady Clarke and family holdings
(excluding S.W. Clarke)
30,271,420
J.D. Leavesley and connected parties
17,307,477
ING Investment Management
10,038,746
Scottish Widows Investment Partnership 5,264,049
Thames River Capital
4,430,000
25.1%
14.3%
8.3%
4.4%
3.7%
None of the directors had any material interest in
contracts with the group.
Legal and General
Investment Management
4,041,039
3.4%
14704
12/02/08
Proof 12
54 CORPORATE GOVERNANCE REPORT
ACQUISITION OF THE COMPANY’S
OWN SHARES
During the year ended 30th November 2007 the
company purchased 150,000 ordinary shares of
10p each in the company and transferred them
into the company’s employee benefit trust. The
aggregate consideration paid for these shares
amounted to £813,783. The total of ordinary
shares purchased in the year constitutes 0.12%
of the company’s authorised and issued share
capital.
CREDITOR PAYMENT POLICY
It is the group’s policy to agree specific payment
terms for its business transactions with its
suppliers and to abide by those terms whenever
it is satisfied that the supplier has provided the
goods and services in accordance with the agreed
terms and conditions.
During the year ended 30th November 2007
trade creditors represented an average of 26
days’ purchases (2006: 25 days). This has been
calculated by expressing year end creditors as
a fraction of purchases made in the year, and
multiplying the resulting fraction by 365 days.
EMPLOYEES
The group encourages employee involvement
and places emphasis on keeping its employees
informed of the group’s activities and
performance. The company’s executive runs
quarterly management meetings at which senior
employees are informed about information
affecting them as employees, where their
feedback is sought on decisions likely to affect
their interests, and where a common awareness
is achieved of the financial and economic
factors affecting the company’s performance.
This information is then cascaded to staff at
the company’s head office and regional offices.
A performance related annual bonus scheme
and share option arrangements are designed to
encourage employee involvement in the success
of the group.
The group operates a non-discriminatory employment policy under which
full and fair consideration is given to disabled applicants, to the continued
employment of staff who become disabled, and to their continued career
development and promotion.
The group operates a pension scheme which is open to all employees – see
pages 91 to 94.
POLITICAL AND CHARITABLE DONATIONS
The company did not make any political donations in the year. Details of
the company’s charitable activities are included in the CSR review. Direct
charitable donations during the year totalled £8,000 (2006: £7,000).
SHAREHOLDER RELATIONS
The executive directors have a programme of meetings with institutional
shareholders and analysts at which the company’s strategy and most
recently reported performance are explained and questions and comments
made are relayed to the whole board. Visits are also arranged to sites of
particular interest or significance to assist investors’ understanding of the
company’s business. The company’s Annual General Meeting is also used as
an opportunity to communicate with private investors. In addition to the usual
period for questions which is made available for shareholders at the Annual
General Meeting, John Salmon, the chairman of the Audit Committee,
and Mary Francis, the chairman of the Remuneration Committee, will
be available to answer appropriate questions. Any matters of concern
regarding the company are discussed by the senior independent director with
shareholders or appropriate corporate governance bodies and comments are
fed back by him to the whole board.
Copies of all press releases, investor presentations and Annual Reports
are posted on the company’s website (www.stmodwen.co.uk), together with
additional details of major projects, key financial information and company
background.
To simplify and encourage participation in voting on resolutions at our
Annual General Meeting, the company provides the opportunity to vote
electronically through CREST (for further details see pages 112 and 113).
BUSINESS STANDARDS
The company does not condone any form of corrupt behaviour in business
dealings and has disciplinary procedures in place to deal with any illegal or
inappropriate activities by employees.
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
DIRECTORS’ REMUNERATION REPORT
55
This report has been drawn up in accordance
with the Combined Code 2006 and the Companies
Act, complies with the FSA’s Listing Rules, and
has been approved by both the Remuneration
Committee and the board. Shareholders will
be invited to approve this report at the Annual
General Meeting. The Remuneration Committee’s
terms of reference are available for inspection on
the company’s website.
The Companies Act requires certain parts of the
remuneration report to be audited. The audited
sections are highlighted.
The overall aim is that the fixed elements of executive directors’
remuneration (base salaries and pension benefits) should be set at around
the median of the range paid by comparable companies, and that superior
performance should be rewarded through total remuneration in the upper
quartile of the range. These benchmarks gear rewards to high performance,
and seek to ensure that the company can attract and retain executives of
suitable calibre in the sector’s very competitive labour market.
The Committee undertook a full review of the remuneration arrangements
for executive directors in 2005–06 and the resultant recommendations were
approved by shareholders at last year’s Annual General Meeting. The new
arrangements were accordingly implemented for the first time in 2006–07.
They comprise:
�
�
�
�
�
Base salary: Reviewed annually in the light of external market movements
and other relevant factors such as internal relativities. Base salary levels
were checked in the 2005–06 review and set around the median of external
comparators.
Annual bonus: The aim is to provide a clear and direct incentive.
Bonus comprises a single payment awarded at the end of the financial
year. Bonus levels depend on performance against a financial target
(growth in net asset value per share during the year in question) and
personal targets. Awards range from 10% of base salary if the minimum
performance target is met, to 125% for performance at the maximum.
Performance share plan: An annual award of shares which vests after
three years and provides the main incentive to sustained, longer term
performance. The level of vesting depends on performance against two
cumulative financial targets – growth in net asset value per share and
growth in total shareholder returns. Awards are normally worth 125%
of base salary and levels of vesting range from 25% of base salary if the
minimum net asset value growth performance target is met but the Total
Shareholder Return (“TSR”) is less than 0%, to 150% if both targets are
met in full.
Pensions: Executive directors’ pension benefits are funded through either
the defined benefit scheme (now closed), or the defined contribution
scheme.
Shareholdings: Since 1st December 2006 it has been the company’s policy
that excutive directors are expected to build up their shareholdings in the
company over a five year period to be, at a minimum, the value of one
times base salary.
COMPOSITION AND FUNCTION OF THE
REMUNERATION COMMITTEE
The Remuneration Committee was reconstituted
in April 2007 and now comprises Mary Francis
(Chairman), Simon Clarke, Ian Menzies-Gow, Paul
Rigg and John Salmon.
The Committee considers all aspects of
the executive directors’ remuneration and
administers the company’s share schemes.
The remuneration of the non-executive
directors is considered by the board following
recommendations by the executive directors.
No director participates in setting their own
remuneration. The Committee also reviews and
notes annually the remuneration trends across
the company and any major changes in employee
benefits structures.
The company has complied throughout the
period with the Directors’ Remuneration Report
Regulations 2002.
REMUNERATION POLICY AND MAIN
ELEMENTS OF REMUNERATION
The objective of St. Modwen’s remuneration
policy is to attract, retain and motivate high
calibre senior executives through competitive pay
arrangements which are also in the best interests
of shareholders. These include performance-
related elements with demanding targets, in
order to align the interests of directors and
shareholders and to reward success.
14704
12/02/08
Proof 12
56 DIRECTORS’ REMUNERATION REPORT
THE COMMITTEE’S WORK IN 2006–07
During 2006–07, the Committee held four meetings. Its main activities were
implementing the new remuneration arrangements for executive directors;
monitoring the remuneration (including share scheme) arrangements for
staff below board level, especially at regional director and equivalent levels;
and preparing the 2007–08 remuneration decisions. The latter have required
careful consideration, both because of the declining and rapidly changing
market conditions commented on elsewhere in this Annual Report, and
because the recruitment market for high quality staff nevertheless remains
tight and relativities between executive board members and senior staff
have narrowed and in a few cases reversed. Full details of the remuneration
arrangements for the year ending 30th November 2008 will be provided in
the 2007–08 Annual Report and changes to the Performance Share Plan
awards made in February 2008 are set out in the section on Performance-
Related Remuneration below.
BASE SALARIES
As reported in last year’s Annual Report &
Accounts, following advice from Deloitte,
the executive directors’ base salaries were
increased to levels around the market median for
comparable external positions. The salary leves
are set out on page 57 of this report.
Since 1st December 2005, the Chairman has
been paid a base salary only. He does not receive
annual bonus options or performance shares. Mr
Glossop’s salary for the year 2006–07 is set out on
page 60.
References to executive directors in the
paragraphs below exclude the Chairman.
Deloitte & Touche LLP (“Deloitte”) acted as external advisers to the
Remuneration Committee until 2007. Deloitte were closely involved in the
comprehensive review of the remuneration arrangements for executive
directors referred to above. Upon Deloitte’s appointment as external auditors
to the company, the Committee terminated their role as remuneration
advisers. We are grateful for the advice and support they provided to us. New
remuneration advisers will be appointed in 2008.
The remainder of this report sets out in more detail the remuneration
arrangements in the year ended 30th November 2007.
SERVICE CONTRACTS
All of the executive directors have service contracts of no fixed term, with
notice periods of twelve months.
The non-executive directors do not have service contracts. Non-executive
directors have notice periods of three months.
No director has any rights to compensation on loss of office (apart from
payment in lieu of notice, where appropriate).
Unless specifically approved by the board, executive directors are not
permitted to hold external non-executive directorships. Anthony Glossop
receives fees of £16,500 per annum which he retains in respect of his service
as a non-executive director of Robinson PLC. He received no fees in respect
of his service as a non-executive director of Northern Racing PLC, of which
he ceased to be a director on 22 June 2007.
The dates of the directors’ service contracts are as follows:
C.C.A. Glossop
1st December 1988
W.A. Oliver
S.J. Burke
T.P. Haywood
24th January 2000
1st January 2006
14th April 2003
PERFORMANCE-RELATED
REMUNERATION
The Remuneration Committee has approved all
performance-related remuneration in respect of
the year to 30th November 2007, and the targets
for achievement of such remuneration which were
set at the beginning of the financial year
BONUS SCHEME
Executive directors participated in a performance-
linked cash bonus scheme which was payable in
one instalment on the publication of the results
for the year ended 30th November 2007. The
executive directors were eligible to receive a total
bonus of up to 125% of base salary (up to 62.5%
allocated towards achievement of financial targets
and up to 62.5% towards achievement of personal
targets).
The levels of bonus award were determined by
the Remuneration Committee on the basis of
performance against the financial and personal
targets. The financial target set by the Committee
for the year to 30th November 2007 was based
on growth in net assets per share with growth of
10% earning the minumum bonus of 10% of base
salary, growth of 15% earning a bonus of 50%
of base salary, and growth of 20% earning the
maximum bonus of 62.5% of base salary. Awards
would be pro-rated between these points.
Personal targets were set individually for each
executive director, and focused on actions
necessary to secure the company’s long-term
growth such as replenishment of the hopper,
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
DIRECTORS’ REMUNERATION REPORT 57
realising marshalling opportunities, and
deepening talent and succession planning below
board level. The Remuneration Committee has,
in accordance with its terms of reference, no
restrictions on the factors it can take in to account
in determining the appropriateness and relevance
of the remuneration policy.
The Chairman makes recommendations to the
Remuneration Committee for the levels of bonus
payable to executive directors against both the
financial and personal targets, supported by
audited figures in respect of the financial targets.
Decisions on the levels of bonus payable are taken
by the Remuneration Committee. Annual bonuses
do not form part of pensionable pay.
For the year to 30th November 2007, the bonuses
paid to directors as a percentage of annual salary
were as follows: Bill Oliver 122.5%; Steve Burke
122.5%; Tim Haywood 117.5%. These bonuses
represented 100% of the maximum of 62.5%
for achievement of the net asset growth target,
the out-turn being growth of 20%. The balance
represents the bonus paid for the achievement
of the personal targets set for each executive
director. Given the strong growth in net assets
in 2007 and the achievement of almost all the
personal targets set for each executive director,
the Committee agreed that bonuses at this level
were justified.
The bonus arrangements described above were
introduced in 2007 following the Committee’s
comprehensive review of executive directors’
remuneration. The previous bonus scheme
provided for higher awards of up to 140% of base
salary, payable in two equal instalments. The
amounts potentially payable to directors (provided
the company’s net assets per share growth
over the relevant three year period exceeds RPI
plus 5% per annum and the director concerned
continues to be employed by the company) in
future years in respect of the second instalments
of the bonuses earned in 2004 to 2006 are as
follows:
W.A. Oliver
S.J. Burke
T.P. Haywood
2008
£’000
175
50
77
2009
£’000
217
60
123
2010
£’000
252
74
140
Total
£’000
644
184
340
SHARE SCHEMES
The Remuneration Committee is responsible for overseeing the company’s
Performance Share Plan (“PSP”), Executive Share Option and Savings
Related Share Option schemes in accordance with rules previously approved
by shareholders. The PSP, introduced in 2007, is the long-term incentive for
executive directors, and the Executive Share Option Scheme rewards other
senior employees. The company has under consideration the inclusion of
senior staff below board level in the PSP (in which case they would cease to
participate in the Executive Share Option scheme) but has decided that the
present arrangements should remain in place for the year ending
30th November 2008.
As notified to shareholders before the 2007 Annual General Meeting, PSP
awards to executive directors in 2007 were equal to 150% of salary. The
awards will vest after three years according to performance against two
fi nancial targets.
The first is cumulative real growth in net asset value per share (“net asset
growth”) over the three year period from the date of grant. This target was
selected to incentivise executives to aim for the continued long-term growth
of the company, whilst delivering the short-term and medium-term results
which are the principal focus of the bonus scheme. Net asset growth of 33%
will earn PSP shares worth 31.25% of base salary; growth of 50% will earn
shares worth 100% of base salary; and growth of 75% will earn shares worth
125% of base salary. Awards will be pro-rated between these points. The
second target is the company’s total shareholder return (“TSR”). If TSR over
the three years from the date of grant is 75% or more the PSP grant achieved
as a result of net asset growth will be enhanced by 20%. No adjustment will
be made if TSR is between 0% and 75%. Awards will be reduced by 20% if
TSR is at or below 0%. The combined effect of the two targets is that the
minimum vesting of PSP shares will be worth 25% of base salary and the
maximum will be worth 150%. No shares will vest unless net asset growth is
at least 33% over the three year period.
14704
12/02/08
Proof 12
58 DIRECTORS’ REMUNERATION REPORT
The executive directors did not take part in the executive share option
scheme in 2007, but have rights over options granted to them in previous
years. For options granted in 2005 and earlier years, the performance
condition was subject to one retesting whereby if the condition was not met
in the initial period of 3 years the options could still be exercised if the real
growth in the net asset value per share of the Company was at least 5% per
annum over the four year period from the date of grant. Options granted in
2006 and thereafter do not allow retesting if the performance condition is not
met in the initial 3 year period – if this is the case the options will lapse. All
performance conditions not yet met will be adjusted for the introduction of
International Financial Reporting Standards to the company in 2006.
Executive directors may also participate in the company’s savings-related
share schemes on the same terms as all other employees.
2008 PSP PERFORMANCE CONDITIONS
The Remuneration Committee has given extensive consideration to the
performance targets to be set for PSP grants to the executive directors for
the period 2007–08 to 2009–10. It has decided that in the difficult market
conditions facing the company, the targets for cumulative net asset growth
per share should be reduced to 9% for the minimum award of shares worth
31.25% of base salary, and 44% for the maximum award of shares worth
125% of base salary.
Awards will be pro-rated between these two points. The choice of only
maximum and minimum net asset targets marks a change from the 2007
award (described above), where a mid-point target was also identified and
secured shares worth 100% of base salary.
TOTAL SHAREHOLDER RETURN 2002–2007
St. Modwen Properties
FTSE 350 Real Estate
FTSE 250
600
500
400
300
200
100
2002
2003
2004
2005
2006
2007
The company’s total shareholder return is shown in the graph against a
broad equity market index. Since the company is a constituent of the FTSE
250 and FTSE Real Estate indices, these are considered to be appropriate
benchmarks for the graph.
The Committee agreed that the targets for TSR
growth should remain the same as in 2006–07.
Any awards secured against the net asset growth
targets will accordingly be reduced by 20% if TSR
grows by zero or less and will be increased by
20% if TSR grows by 75% or more. No adjustment
will be made if TSR growth is between zero and
75%. The potential range of total PSP awards for
the three years beginning 2007–08 will thus be
the same as in the previous year: from shares
worth 25% of base salary if net asset growth is
at the minimum target and TSR growth is at or
below 0%, to shares worth 150% of base salary
if the maximum net asset target is met and TSR
growth is 75% or more. The Committee considers
that the performance conditions are demanding
in the light of current and prospective market
conditions, and provide appropriate incentives
to the executive directors to deliver value to
shareholders.
NON-EXECUTIVE DIRECTORS’ FEES
The level of non-executive directors’ fees is
recommended to the board by the Chairman and
executive directors, having taken independent
advice on market practice. For 2007 the level of
the basic fee paid was £35,000 per director with
additional payments of £8,000 to the Chairman
of the Audit Committee and the Chairman of the
Remuneration Committee and of £5,300 to the
Senior Independent Director.
For the year commencing 1st December 2007,
non-executive directors’ fees have been set at
£37,000 per director, with additional payments of
£9,000 to the Chairman of the Audit Committee
and the Chairman of the Remuneration
Committee and of £6,000 to the Senior
Independent Director.
Non-executive directors are not permitted to
participate in the company’s bonus, share or
pension schemes.
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
DIRECTORS’ REMUNERATION REPORT 59
Audited Information:
EXECUTIVE SHARE OPTION SCHEMES*
Date of Grant
C.C.A. Glossop
W.A. Oliver
S.J. Burke
T.P. Haywood
Exercise Price
Exercise Period
November 1999
September 2002
August 2003
August 2004
August 2005
August 2006
500,000
—
—
—
—
—
—
60,000
112,000
89,500
87,250
75,300
—
—
—
39,250
33,750
34,500
As at 30th November 2006 500,000
424,050
107,500
—
—
—
—
39,500
41,800
81,300
99p
Nov 2003 – Nov 2009
134p
Sept 2005 – Sept 2012
200p
279p
443p
478p
Aug 2006 – Aug 2013
Aug 2007 – Aug 2014
Aug 2008 – Aug 2015
Aug 2009 – Aug 2016
* All share options granted in 2004 or earlier have vested and are no longer subject to performance conditions. Those granted in
2005 or later will vest if the real growth in the net asset value per share of the company is at least 5% per annum over the relevant
three year period.
Details of Executive Share options exercised by directors during the year are as follows:
W.A. Oliver
T.P. Haywood
Date of
exercise
May 2007
August 2007
Market price
at date of
exercise
713.5p
510p
Number of
options
exercised
90,000
55,500
Gain
£’000
525
128
PERFORMANCE SHARE PLAN SCHEME
Directors’ maximum entitlements, subject to the satisfaction of performance conditions, are as follows:
Date of Grant
May 2007
SAVINGS RELATED SCHEMES
W.A. Oliver
S.J. Burke
T.P. Haywood
Exercise Period
87,235
45,317
50,981
May 2010–April 2017
Date of Grant
C.C.A. Glossop
W.A. Oliver
S.J. Burke
T.P. Haywood
Balance at
30th Nov. 2006
Exercised
Granted
Balance at
30th Nov. 2007
Exercise
Price
Exercise Period
6,072
3,713
13,240
7,497
—
—
(13,240)
—
—
—
3,383
—
6,072
£2.48–4.335
Oct 2009–Mar 2012
3,713
3,383
7,497
£4.335
£4.84
Oct 2011–Mar 2012
Oct 2012–Mar 2013
£1.82–2.48
Oct 2008–Mar 2010
Details of Savings Related Share options exercised by directors during the year are as follows:
S.J. Burke
Date of
exercise
October 2007
Market price
at date of
exercise
517p
Number of
options
exercised
13,240
Gain
£’000
52
The share price as at 30th November 2007 was 424p. The highest price during the year was 730p and the lowest price was 363p.
14704
12/02/08
Proof 12
60 DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION
The remuneration of the directors for the year ended 30th November 2007 was as follows:
Executive
S.J. Burke
C.C.A. Glossop
T.P. Haywood
W.A. Oliver
Non-executive
S.W. Clarke
M.E. Francis
R.I. Menzies-Gow
D.P. Rigg
C.E. Roshier
J.H. Salmon
Salary/Fees
£’000
Annual bonus
£’000
Benefits
£’000
200
350
225
385
35
43
35
35
40
43
1,391
245
—
264
472
—
—
—
—
—
—
981
13
23
20
29
—
—
—
—
—
—
85
Total emoluments
excluding pensions and
pension contributions
2006
2007
£’000
£’000
458
373
509
886
35
43
35
35
40
43
—
321
362
644
33
37
33
33
44
37
2,457
1,544
All benefits for the executive directors (comprising mainly the provision of company car, fuel and
health insurance) arise from employment with the company, and do not form part of directors’ final
pensionable pay.
The figures above represent emoluments earned during the relevant financial year. Such emoluments
are paid in the same financial year with the exception of performance-related bonuses, which are paid
in the year following that in which they are earned. The figures above exclude amounts payable in future
years in respect of the deferred second instalment of previous years’ bonuses, as these are subject to
additional performance criteria.
During the year, payments of £3,000 each in respect of consultancy services provided were made to
former directors J.D.Leavesley and C.H.Lewis, and £10,000 to Sir David Trippier. Benefits totalling
£45,847 were provided by the company during the year to the widow of Sir Stanley Clarke (comprising
mainly the provision of a car and driver).
Total non-executive directors’ fees were set at the Annual General Meeting in 2004 at a maximum of
£250,000 (with annual adjustments for RPI).
PENSIONS
The company operates a pension scheme with both a defined benefits and defined contribution section,
covering the majority of employees, including executive directors. In relation to the defined benefits
section, benefits are based on years of credited service and final pensionable pay. The maximum
pension generally payable under the scheme is two-thirds of final pensionable pay. The defined benefits
section of the scheme was closed to new members in 1999.
Membership of the defined contribution section is available to all permanent employees including
executive directors joining the company after 6th April 1999. Contributions are invested by an
independent investment manager.
14704
12/02/08
Proof 12
14704
12/02/08
Proof 12
DIRECTORS’ REMUNERATION REPORT 61
Audited Information:
Pension benefits earned by the directors who are members of the defined
benefits scheme:
Age at
30th November
2007
Accrued Pension
Transfer Value
2007
2006
2007
2006
£’000 p.a.
£’000
C.C.A. Glossop
S.J. Burke
66
48
240
19
233
16
3,961
203
4,008
174
Contributions made on behalf of the remaining
directors who are members of the defi ned
contribution section of the Pension Scheme
amounted to:
T.P. Haywood
W.A. Oliver
2007
£’000
34
58
2006
£’000
30
54
Approved by the board and signed on its behalf by
Mary E. Francis
Chairman, Remuneration Committee
8th February 2008
Further information on the company’s pension
scheme is shown in note 19 on pages 91 to 94.
C.C.A. Glossop, who had been a deferred pensioner since his normal
retirement age of 60, elected to draw his pension from 1st April 2006. The
accrued pension disclosed above represents the annual pension currently
in payment (of which £238,000 has been paid in the year).
Notes relating to the defi ned benefits scheme:
1. Contributions of up to 7.5% are payable by members, effective 1st
December 2004. Scheme members within five years of normal
retirement age on 1st December 2004 pay no contributions.
2. Accrued pension is that which would be paid annually at retirement age
based on service to 30th November 2007.
3. Members have the option to pay Additional Voluntary Contributions;
neither the contributions nor the resulting benefits are included above.
4. Normal retirement age is 65, effective 1st December 2004 (age 60 for
Scheme members within five years of normal retirement age on 1st
December 2004).
5. Death in service benefits amount to a lump sum equal to the greater
of four times basic salary at death and four times the average of gross
earnings in the last three years. In addition, a spouse’s pension would be
payable, equivalent to 50% of the full pension the member would have
been entitled to had he worked to normal retirement age.
6. A spouse’s pension of 50% of the full pension is payable after the death
in retirement of a member.
7. Pension payments increase annually by the lower of the RPI increase
and 5%.
8. Pensionable salary increases are capped at RPI plus 3% per annum
cumulatively (effective 1st December 2004). Scheme members within
fi ve years of normal retirement age on
1st December 2004 received uncapped increases (subject to Inland
Revenue limits, which will continue under the transitional provisions of
the recent legislation).
14704
12/02/08
Proof 12
14704
14704
12/02/08
12/02/08
Proof 12
Proof 12
14704
14704
12/02/08
12/02/08
Proof 12
Proof 12
FINANCIAL STATEMENTS
A FIFTEENTH SUCCESSIVE YEAR OF RECORD RESULTS
64 Group and company accounts
109 Five year record
110 Notice of Annual General Meeting
114 Glossary of terms
116 Shareholder information
14704
14704
12/02/08
12/02/08
Proof 12
Proof 12
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 64
64
DIRECTORS’ RESPONSIBILITIES IN
RELATION TO FINANCIAL STATEMENTS
The directors are responsible for preparing the annual report, directors’ remuneration report and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. The directors are required by the IAS
Regulation to prepare the group financial statements under IFRSs (IFRSs) as adopted by the European Union. The group financial
statements are also required by law to be properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS
Regulation.
International Accounting Standard 1 requires that financial statements present fairly for each financial year the company’s
financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions,
other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses
set out in the International Accounting Standards Board’s ‘Framework for the Preparation and Presentation of Financial
Statements’. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. Directors
are also required to:
Properly select and apply accounting policies;
Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information; and
Provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to
understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial
performance.
The directors have elected to prepare the parent company financial statements in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The parent company financial
statements are required by law to give a true and fair view of the state of affairs of the company. In preparing these financial
statements, the directors are required to:
Select suitable accounting policies and then apply them consistently;
Make judgements and estimates that are reasonable and prudent;
State whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and
explained in the financial statements; and
Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will
continue in business.
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the
financial position of the company, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud
and other irregularities and for the preparation of a directors’ report and directors’ remuneration report which comply with the
requirements of the Companies Act 1985.
The directors are responsible for the maintenance and integrity of the company website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements differs from legislation in other jurisdictions.
Each director at the date of approval of this report confirms that:
1) so far as they are aware, there is no relevant audit information of which the company’s auditors are unaware; and
2) they have taken all steps necessary to be aware of any relevant audit information and to establish that the company’s auditors
are aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of S234ZA of the Companies Act 1985.
Going concern
The directors are of the opinion that, having regard to the bank and loan facilities available to the group, there is a reasonable
expectation that the group has sufficient working capital to continue in operational existence for the foreseeable future. For this
reason, they continue to adopt the going concern basis in preparing the accounts.
The report of the directors, as defined on page 1, has been approved by the board of directors.
By order of the board
W.A. Oliver
Chief Executive
8th February 2008
T.P. Haywood
Finance Director
14704
12/02/2008
Proof 13
147
●
●
●
●
●
●
●
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 65
INDEPENDENT AUDITORS’ REPORT TO THE
MEMBERS OF ST. MODWEN PROPERTIES PLC
65
We have audited the group financial statements of St. Modwen Properties PLC for the year ended 30th November 2007 which
comprise the Group Income Statement, the Group Statement of Recognised Income and Expense, the Group Balance Sheet, the
Group Cash Flow Statement, and the related notes 1 to 22. These group financial statements have been prepared under the
accounting policies set out therein. We have also audited the information in the Directors’ Remuneration Report that is described
as having been audited.
We have reported separately on the parent company financial statements of St. Modwen Properties PLC for the year ended
30th November 2007.
This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit
work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an
auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Annual Report, the Directors’ Remuneration Report and the group financial
statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European
Union are set out in the Statement of Directors’ Responsibilities.
Our responsibility is to audit the group financial statements in accordance with relevant legal and regulatory requirements and
International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the group financial statements give a true and fair view, whether the group financial
statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation and
whether the part of the directors’ remuneration report described as having been audited has been properly prepared in accordance
with the Companies Act 1985. We also report to you whether in our opinion the information given in the Report of the Directors is
consistent with the group financial statements.
In addition we report to you if, in our opinion, we have not received all the information and explanations we require for our audit, or
if information specified by law regarding directors’ remuneration and other transactions is not disclosed.
We review whether the Corporate Governance Statement reflects the company’s compliance with the nine provisions of the 2006
Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are
not required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the
effectiveness of the group’s corporate governance procedures or its risk and control procedures.
We read the other information contained in the Annual Report as described in the contents section and consider whether it is
consistent with the audited group financial statements. We consider the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the group financial statements. Our responsibilities do not extend to any
further information outside the Annual Report.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices
Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the group financial
statements and the part of the Directors’ Remuneration Report to be audited. It also includes an assessment of the significant
estimates and judgements made by the directors in the preparation of the group financial statements, and of whether the
accounting policies are appropriate to the group’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order
to provide us with sufficient evidence to give reasonable assurance that the group financial statements and the part of the
Directors’ Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity
or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the group financial
statements and the part of the Directors’ Remuneration Report to be audited.
Opinion
In our opinion:
the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the
state of the group’s affairs as at 30th November 2007 and of its profit for the year then ended;
the group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the
IAS Regulation;
the part of the Directors’ Remuneration Report described as having been audited has been properly prepared in accordance
with the Companies Act 1985; and
the information given in the Report of the Directors is consistent with the group financial statements.
Deloitte & Touche LLP
Chartered Accountants and Registered Auditors
Birmingham, United Kingdom
8th February 2008
14704
12/02/2008
Proof 13
●
●
●
●
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 66
66
GROUP INCOME STATEMENT
FOR THE YEAR ENDED 30TH NOVEMBER 2007
REVENUE
Net rental income
Development profit
Gains on disposal of investments/investment properties
Investment property revaluation gains
Other net income
Joint ventures and associates (posttax)
Administrative expenses
PROFIT BEFORE INTEREST AND TAX
Finance cost
Finance income
PROFIT BEFORE TAX
Taxation
PROFIT FOR THE YEAR
ATTRIBUTABLE TO:
Equity shareholders of the company
Minority interests
Basic earnings per share
Diluted earnings per share
Proposed final dividend per share
Interim dividend paid
Total dividend
Notes
1
1
1
7
1
9
2
3
3
4
17
18
Notes
5
5
6
6
2007
£m
127.5
26.3
32.4
11.4
60.3
2.4
12.6
(16.4)
129.0
(32.5)
3.6
100.1
(6.4)
93.7
88.4
5.3
93.7
2007
pence
73.3
72.4
7.8
3.9
11.7
2006
£m
128.1
24.3
14.6
27.2
49.0
2.4
11.0
(15.6)
112.9
(20.0)
4.0
96.9
(21.0)
75.9
74.4
1.5
75.9
2006
pence
61.6
61.6
6.8
3.4
10.2
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 67
GROUP BALANCE SHEET
AS AT 30TH NOVEMBER 2007
67
Noncurrent assets
Investment property
Operating property, plant and equipment
Investments in joint ventures, associates and other investments
Trade and other receivables
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Current liabilities
Trade and other payables
Borrowings
Tax payables
Noncurrent liabilities
Trade and other payables
Borrowings
Deferred tax
Net assets
Capital and reserves
Share capital
Share premium account
Capital redemption reserve
Retained earnings
Own shares
Shareholders’ equity
Minority interests
Total equity
Notes
7
8
9
10
11
10
12
13
4
12
13
4
16
17
17
17
17
18
2007
£m
846.9
3.9
75.4
8.9
935.1
209.3
31.6
17.9
258.8
(127.3)
(0.4)
(12.3)
(140.0)
(128.0)
(419.4)
(38.8)
(586.2)
467.7
12.1
9.1
0.3
437.4
(0.7)
458.2
9.5
467.7
2006
£m
736.4
3.8
77.9
4.0
822.1
65.9
58.4
7.0
131.3
(109.3)
(49.2)
(3.7)
(162.2)
(143.7)
(210.7)
(47.0)
(401.4)
389.8
12.1
9.1
0.3
364.3
(0.8)
385.0
4.8
389.8
These financial statements were approved by the board of directors on 8th February 2008 and were signed on its behalf by
Anthony Glossop and Tim Haywood.
Anthony Glossop
Chairman
Tim Haywood
Finance Director
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 68
68
GROUP CASH FLOW STATEMENT
FOR THE YEAR ENDED 30TH NOVEMBER 2007
Operating activities
Profit before interest and tax
Gains on investment property disposals
Share of profit of joint ventures and associates (posttax)
Investment property revaluation gains
Depreciation
Increase in inventories
Decrease in trade and other receivables
Decrease/(increase) in trade and other payables
Share options and share awards
Pension funding
Tax received/(paid)
Net cash (outflow) from operating activities
Investing activities
Investment property disposals
Investment property additions
Property, plant and equipment additions
Interest received
Dividends received
Net cash (outflow) from investing activities
Financing activities
Dividends paid
Dividends paid to minorities
Interest paid
Purchase of own shares
New borrowings drawn
Repayment of borrowings
Net cash inflow from financing activities
Increase in cash and cash equivalents
Cash and cash equivalents at start of year
Cash being cash and cash equivalents at end of year
Notes
9
7
8
4(c)
6
18
2007
£m
129.0
(11.4)
(12.6)
(60.3)
0.6
(109.2)
19.1
1.2
0.1
(0.2)
1.8
(41.9)
44.4
(124.2)
(0.7)
1.8
4.0
(74.7)
(12.9)
(0.6)
(18.1)
(0.8)
159.9
—
127.5
10.9
7.0
17.9
2006
£m
112.9
(27.2)
(11.0)
(49.0)
0.9
(24.8)
1.4
(6.1)
0.3
(0.7)
(7.5)
(10.8)
87.5
(95.5)
(0.7)
0.1
1.6
(7.0)
(11.2)
(0.3)
(14.6)
(1.2)
73.1
(19.2)
26.6
8.8
(1.8)
7.0
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 69
GROUP STATEMENT OF RECOGNISED
INCOME AND EXPENSE
FOR THE YEAR ENDED 30TH NOVEMBER 2007
69
Profit for the year
Pension fund:
— actuarial gains and losses
— deferred tax thereon
Total recognised income and expense
Attributable to:
— Equity shareholders of the company
— Minority interests
Total recognised income and expense
Notes
19
19
18
18
2007
£m
93.7
(3.3)
0.9
91.3
86.0
5.3
91.3
2006
£m
75.9
2.5
(0.7)
77.7
76.2
1.5
77.7
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 70
70
ACCOUNTING POLICIES
FOR THE YEAR ENDED 30TH NOVEMBER 2007
Basis of preparation
The group’s financial statements have been prepared in accordance with International Financial Reporting Standards as adopted
by the EU as they apply to the group for the year ended 30th November 2007 applied in accordance with the provisions of the
Companies Act 1985.
The financial statements have been prepared on the historical cost basis except for the revaluation of certain properties, derivative
financial instruments and the defined benefit section of the group’s pension scheme.
The group’s functional currency is pounds sterling and its IFRS accounting policies are set out below.
Basis of consolidation
The group financial statements consolidate the financial statements of St. Modwen Properties PLC and the entities it controls.
Control comprises the power to govern the financial and operating policies of the investee and is achieved through direct or
indirect ownership of voting rights or by contractual agreement. A list of the principal entities is given in note F of the company’s
financial statements on page 103.
All entities are consolidated from the date on which the group obtains control, and continue to be consolidated until the date that
such control ceases. All intragroup transactions, balances, income and expense are eliminated on consolidation.
Minority interests represent the portion of profit or loss and net assets in entities that is not held by the group and is presented
separately within equity in the group balance sheet.
Interests in joint ventures
The group recognises its interest in joint ventures using the equity method of accounting. Under the equity method, the interest in
the joint venture is carried in the balance sheet at cost plus postacquisition changes in the group’s share of its net assets, less
distributions received and less any impairment in value of individual investments. The income statement reflects the group’s share
of the jointly controlled entities’ results after interest and tax.
Financial statements of jointly controlled entities are prepared for the same reporting period as the group. Where necessary,
adjustments are made to bring the accounting policies used into line with those of the group.
The group statement of recognised income and expense reflects the group’s share of any income and expense recognised by the
jointly controlled entities outside the income statement.
Interests in associates
The group’s interests in its associates, being those entities over which it has significant influence and which are neither
subsidiaries nor joint ventures, are accounted for using the equity method of accounting, as described above.
Other investments
Other investments, comprising entities over which the group does not have a significant influence, are held at fair value.
Properties
Investment properties
Investment properties, being freehold and leasehold properties held for capital appreciation and/or to earn rental income, are
carried at fair value following initial recognition at the present value of the consideration payable. To establish fair value,
investment properties are independently valued on an open market basis. Any surplus or deficit arising is recognised in the income
statement for the period.
Once classified as an investment property, a property remains in this category until development with a view to sale is authorised,
at which point the asset is transferred to inventories at current valuation.
Where an investment property is being redeveloped for continued use as an investment property, the property remains within
investment property and any movement in valuation is recognised in the income statement.
Investment property disposals are recognised on completion. Profits and losses arising are recognised through the income
statement and the profit on disposal is determined as the difference between the sales proceeds and the carrying amount of
the asset.
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 71
FINANCIAL STATEMENTS 71
Inventories
Inventories principally comprise properties held for sale, properties under construction and land under option.
Presold properties under construction are accounted for at cost plus attributable profit less payments received on account.
Attributable profit is ascertained based on the estimated outcome of the development and the amount of the work undertaken
to date.
All land held under option agreements is intended for use by the group in the normal course of its activities and is recorded at the
lower of cost and net realisable value within inventories.
Properties that are anticipated to be sold within twelve months of the balance sheet date are classified as properties held for sale
within inventories.
Transfers from investment property are made at book value not cost and are then carried as current assets at the lower of this
value and net realisable value. Net realisable value is based on estimated selling price less any further costs expected to be
incurred to completion and disposal.
Properties acquired from third parties exclusively with a view to sale are carried at the lower of cost and net realisable value
within inventories.
Finance costs
Finance costs incurred are not capitalised, but written off to the income statement on an accruals basis.
Operating property, plant and equipment
Operating property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses.
Such cost includes costs directly attributable to making the asset capable of operating as intended.
Depreciation is provided on all operating property, plant and equipment at rates calculated to write off the cost less estimated
residual value, based on prices prevailing at the balance sheet date, of each asset evenly over its expected useful life as follows:
— over the shorter of the lease term and 25 years
Leasehold operating properties
— over 2 to 5 years
Plant, machinery and equipment
Freehold properties, which comprise land, are not depreciated.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases.
Nonproperty assets held under finance leases are capitalised at the inception of the lease with a corresponding liability being
recognised for the fair value of the leased asset or, if lower, the present value of the minimum lease payments. Lease payments
are apportioned between the reduction of the lease liability and finance charges in the income statement so as to achieve a
constant rate of interest on the remaining balance of the liability. Nonproperty assets held under finance leases are depreciated
over the shorter of the estimated useful life of the asset and the lease term.
Leasehold investment properties are accounted for as finance leases with the present value of guaranteed minimum ground rents
included within the carrying value of the property and within longterm liabilities. On payment of a guaranteed ground rent,
virtually all of the cost is charged to the income statement, as interest payable, and the balance reduces the liability.
Rentals payable under operating leases are charged in the income statement on a straightline basis over the lease term.
Lease incentives
Lease incentives, including rentfree periods and payments to tenants, are allocated to the income statement on a straightline
basis over the lease term.
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 72
72 FINANCIAL STATEMENTS
Trade and other receivables
Trade receivables are recognised and carried at the lower of their original invoiced value and recoverable amount. Provision
is made when there is evidence that the group will not be able to recover balances in full. Balances are written off when
the probability of recovery is assessed as being remote.
Trade and other payables
Trade and other payables on deferred payment terms are initially recorded by discounting the nominal amount payable
to net present value. The discount to nominal value is amortised over the period of the deferred arrangement and charged
to finance costs.
Interest bearing loans and borrowings
All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition,
loans and borrowings are measured at amortised cost.
Gains and losses arising on the repurchase, settlement or otherwise cancellation of liabilities are recognised respectively
in finance income and finance expense.
Income taxes
Current tax assets and liabilities are measured at the amount expected to be recovered from, or paid to, the taxation authorities,
based on tax rates and laws that are enacted or substantively enacted by the balance sheet date.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income
statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes
items that are never taxable or deductible.
Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the financial statements, using the rates of tax expected to apply based on legislation enacted or substantively
enacted at the balance sheet date, with the following exceptions:
in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, where
the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will
not reverse in the foreseeable future; and
deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which
the deductible temporary differences, carried forward tax credits or tax losses can be utilised.
Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when
the related asset is realised or liability is settled, based on tax rates and laws substantively enacted at the balance sheet date.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current
tax liabilities and when they relate to income taxes levied by the same authority and the group intends to settle its current tax
assets and liabilities on a net basis.
Income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity. Otherwise, income
tax is recognised in the income statement.
Derivative financial instruments and hedging
The group uses derivative financial instruments such as interest rate swaps to hedge its risks associated with interest rate
fluctuations. Such instruments are initially recognised at fair value on the date on which a contract is entered into and are
subsequently remeasured at fair value. The group has determined that the derivative financial instruments in use do not qualify
for hedge accounting and, consequently, any gains or losses arising from changes in the fair value of derivatives are taken to the
income statement.
Pensions
The group operates a pension scheme with both defined benefit and defined contribution sections. The defined benefit section
is closed to new members.
14704
12/02/2008
Proof 11
14704
●
●
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 73
FINANCIAL STATEMENTS 73
The cost of providing benefits under the defined benefit section is determined using the projected unit credit method, which
attributes entitlement to benefits to the current period (to determine current service cost) and to the current and prior periods
(to determine the present value of defined benefit obligation) and is based on actuarial advice. Past service costs are recognised
in the income statement immediately if the benefits have vested.
The interest element of the defined benefit cost represents the change in present value of scheme obligations resulting from
the passage of time and is determined by applying the discount rate to the opening present value of the benefit obligation, taking
into account material changes in the obligation during the year. The expected return on plan assets is based on an assessment
made at the beginning of the year of longterm market returns on scheme assets, adjusted for the effect on the fair value of plan
assets of contributions received and benefits paid during the year. The difference between the expected return on plan assets and
the interest cost is recognised in the income statement as other finance income or expense.
Actuarial gains and losses are recognised in full in the statement of recognised income and expense in the year in which they
occur. The defined benefit pension asset or liability in the balance sheet comprises the present value of the defined benefit
obligation, less any past service cost not yet recognised and less the fair value of plan assets out of which the obligations
are to be settled directly.
In periods when the defined benefit section of the group’s pension scheme is in surplus, the directors review the recoverability of
this surplus to determine whether recognition, in part or in full, is appropriate at the balance sheet date.
Contributions to defined contribution schemes are recognised in the income statement in the year in which they become payable.
Own shares
St. Modwen Properties PLC shares held by the group are classified in shareholders’ equity and are recognised at cost.
Dividends
Dividends declared after the balance sheet date are not recognised as liabilities at the balance sheet date.
Revenue recognition
Revenue is recognised to the extent that it is probable that economic benefits will flow to the group and the revenue can be reliably
measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, VAT and other sales
taxes or duty. The following criteria must also be met before revenue is recognised:
Sale of property
Revenue arising from the sale of property is recognised on legal completion of the sale. Where revenue is earned for development
of property not owned, this is recognised when the group has substantially fulfilled its obligations in respect of the transaction.
Construction contracts
Revenue arising from construction contracts is recognised only when the outcome of the contract can be ascertained with
reasonable certainty. The amount of revenue recognised is based on the estimated outcome and the amount of the work
undertaken to date.
Rental income
Rental income arising from investment properties is accounted for on a straightline basis over the lease term.
Sharebased payments
The group accounts for its share option schemes as cashsettled sharebased payments as new shares are not issued to satisfy
employee share option plans. The cost of cashsettled transactions is measured at fair value using an appropriate option pricing
model and amortised through the income statement over the vesting period. The liability is remeasured at each balance sheet
date. Revisions to the fair value of the accrued liability after the end of the vesting period are recorded in the income statement of
the year in which they occur.
Cash and cash equivalents
Cash and cash equivalents comprises cash balances and shortterm deposits with banks.
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 74
74 FINANCIAL STATEMENTS
1
2
Use of estimates and judgements
To be able to prepare accounts according to generally accepted accounting principles, management must make estimates and
assumptions that affect the asset and liability items and revenue and expense amounts recorded in the financial accounts. These
estimates are based on the group’s systems of internal control, historical experience and the advice of external experts (including
qualified professional valuers and actuaries) together with various other assumptions that management and the board of directors
believe are reasonable under the circumstances. The results of these considerations form the basis for making judgements about
the carrying value of assets and liabilities that are not readily available from other sources.
The areas requiring the use of estimates and critical judgements that may significantly impact the group’s earnings and financial
position are:
revenue and cost recognition on developments between current and future periods. A number of the group’s projects and
contracts span more than one accounting period and management make judgements, based on the group’s systems of internal
control, as to how revenues and costs should be allocated between periods;
valuation of investment properties. The group’s investment properties are valued by a qualified external valuer at market value;
estimation of remediation and other costs to complete for both development and investment properties. In making an
assessment of these costs there is inherent uncertainty and the group has developed systems of internal control to assess and
review carrying values and the appropriateness of estimates made;
the calculation of deferred tax assets and liabilities, together with assessment of the recoverability of deferred tax assets;
calculation of the net present value of pension scheme liabilities. In calculating this liability it is necessary for actuarial
assumptions to be made, including discount and mortality rates and the long term rate of return upon scheme assets. The
group engages a qualified actuary to assist with determining the assumptions to be made and evaluating these liabilities.
Impact of standards and interpretations in issue but not yet effective
The group has considered all new IASB and IFRIC standards and interpretations with an effective date after the date of this
financial information. The new standards and interpretations that may have an impact on the group financial statements are:
Financial Instruments: Disclosures
Amendment — Presentation of Financial Statements: Capital Disclosures
Amendment — Borrowing Costs
IFRS 7
IAS 1
IAS 23
IRFIC 14–IAS 19 The Limit on a Defined Benefit Asset
Operating Segments
IFRS 8
Amendment — Comprehensive Amendment
IAS 1
Amendment — Comprehensive Amendment
IFRS 3
Amendment — Amendments relating to puttable instruments and
IAS 32
obligations arising on liquidation
Applicable period
Year ending 30th November 2008
Year ending 30th November 2008
Year ending 30th November 2009
Year ending 30th November 2009
Year ending 30th November 2010
Year ending 30th November 2010
Year ending 30th November 2010
Year ending 30th November 2010
Upon adoption of IFRS 7, the group will have to disclose additional information about its financial instruments, their significance
and the nature and extent of risks that they give rise to. More specifically, the group will need to disclose the fair value of its
financial instruments and its risk exposure in greater detail. There will be no effect on reported income or net assets.
The directors do not consider that the adoption of IAS 1 in respect of capital disclosures will have a material impact on the
group’s financial statements in the period of initial application.
The directors have adopted the principles of IFRIC 14–IAS 19 in assessing the recoverability of the group’s defined benefit
pension asset.
The directors are currently assessing the impact of the amendments to IAS 23 and 32; IFRS 8; and the comprehensive
amendments to IAS 1 and IFRS 3 (and the consequential amendments to IAS 27, 28 and 29).
The adoption of the following IASB and IFRIC standards and interpretations are not expected to have an impact on the financial
statements of the group.
IFRS 11–IFRS 2 Group and Treasury Share Transactions
IFRIC 12
IFRIC 13
Service Concession Agreements
Customer Loyalty Programmes
Applicable period
Year ending 30th November 2008
Year ending 30th November 2009
Year ending 30th November 2009
14704
12/02/2008
Proof 11
14704
●
●
●
●
●
●
●
●
●
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 75
NOTES TO THE ACCOUNTS
75
1 REVENUE AND GROSS PROFIT
Revenue
Cost of sales
Gross profit
Revenue
Cost of sales
Gross profit
Rental
£m
30.3
(4.0)
26.3
Development
£m
91.1
(58.7)
32.4
Rental
£m
29.4
(5.1)
24.3
Development
£m
92.9
(78.3)
14.6
2007
2006
Other
£m
6.1
(3.7)
2.4
Other
£m
5.8
(3.4)
2.4
Total
£m
127.5
(66.4)
61.1
Total
£m
128.1
(86.8)
41.3
The group operates exclusively in the UK and all of its revenues derive from its portfolio of properties which the group
manages as one business. Therefore, the financial statements and related notes represent the results and financial position
of the group’s sole business segment.
The group’s total revenue for 2007 was £134.2m (2006: £133.3m) and in addition to the amounts above included service charge
income of £4.9m (2006: £4.8m), for which there was a corresponding expense, and interest income of £1.8m (2006: £0.4m).
Property operating expenses relating to investment properties that did not generate any rental income were £0.2m
(2006: £0.1m).
2
OTHER INCOME STATEMENT DISCLOSURES
a. Administrative expenses
Depreciation
Operating lease costs
b. Auditors’ remuneration
2007
£’000
611
766
2006
£’000
875
55
2007
Deloitte & Touche Ernst & Young
LLP
£’000
LLP
£’000
2006
Ernst & Young
LLP
£’000
Fees paid to auditors in respect of:
— Fees payable for the audit of the company’s annual accounts
— The audit of subsidiary companies and joint ventures pursuant to legislation
— Other services pursuant to legislation
— Tax services
— Services related to recruitment and remuneration
— Other services
Total fees
105
90
25
167
86
—
473
—
5
—
—
44
—
49
156
104
25
95
—
36
416
The 2007 figures shown include fees paid to Deloitte & Touche LLP prior to their appointment, and Ernst & Young post their
resignation, as auditors. The above amounts include all amounts charged by the group auditors in respect of joint venture
undertakings.
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 76
76 FINANCIAL STATEMENTS
2
3
2 OTHER INCOME STATEMENT DISCLOSURES (CONTINUED)
c. Employees
The average number of fulltime employees (including directors) employed by the group during the year was as follows:
Property
Leisure and other activities
Administration
The total payroll costs of these employees were:
Wages and salaries
Social security costs
Pension costs
Share based payments
2007
(number)
129
68
44
241
2006
(number)
126
71
46
243
2007
£m
12.1
1.5
0.8
—
14.4
2006
£m
10.3
1.3
0.8
3.1
15.5
Details of the directors’ remuneration is given in the directors’ remuneration report on pages 55 to 61.
d. Sharebased payments
The group has a save as you earn share option scheme open to all employees. Employees must remain in service for a period
of five years from the date of grant before exercising their options. The option period ends six months following the end of the
vesting period. The group also has an executive share option scheme and performance share plan (“PSP”), full details of
which are given in the directors’ remuneration report on pages 55 to 61.
The following table illustrates the number and weighted average exercise price of, and movements in, share options during
the year. As the PSP includes the grant of options at nil exercise price, the weighted average prices below are calculated
including and excluding the options under this plan:
Outstanding at start of year
Granted
Lapsed
Exercised
Outstanding at end of year
Exercisable at year end
Number of
options
3,390,130
685,043
(12,838)
(445,898)
3,616,437
1,562,731
2007
2006
Weighted average price
All options £ Excluding PSP £
2.69
5.29
(2.48)
(1.55)
2.69
3.88
(2.48)
(1.55)
Number of
options
3,708,371
615,267
(261,331)
(672,177)
Weighted average price
All options £ Excluding PSP £
2.19
4.72
(3.00)
(1.62)
2.19
4.72
(3.00)
(1.62)
3.06
1.77
3.23
3,390,130
1.77
1,290,972
2.69
1.34
2.69
1.34
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 77
FINANCIAL STATEMENTS 77
2 OTHER INCOME STATEMENT DISCLOSURES (CONTINUED)
Share options are priced using a BlackScholes valuation model. The fair values calculated and the assumptions used are
as follows:
Fair value of
balance sheet
liability
£m
6.2
8.2
Riskfree
interest rate
%
4.6–5.3
5.3
Expected
volatility
%
24.0–40.4
20.0
Dividend
yield
%
2.3
2.2
Share
price
£*
4.69
5.38
As at 30th November 2007
As at 30th November 2006
* Based on 90 day moving average.
In arriving at fair value it has been assumed that all shares options are exercised on the day of vesting. Expected volatility was
determined by reference to the historical volatility of the group’s share price over a period consistent with the expected life of
the options.
The weighted average share price at the date of exercise was £5.90 (2006: £4.89). The executive share options outstanding at
the year end had a range of exercise prices between 103.5p and 538.0p (2006: 81.5p and 478.0p) with PSP options exercisable at
£nil. Outstanding options had a weighted average remaining contractual life of 6.1 years (2006: 6.2 years).
3
FINANCE COST AND FINANCE INCOME
Interest payable on borrowings
Amortisation of discount on deferred payment arrangements
Amortisation of refinancing expenses
Head rents treated as finance leases
Movement in market value of interest rate derivatives (note 15)
Interest on pension scheme liabilities (note 19)
Total finance cost
Interest receivable on cash deposits
Movement in market value of interest rate derivatives (note 15)
Expected return on pension scheme assets (note 19)
Total finance income
2007
£m
(19.6)
(9.9)
(0.6)
(0.2)
(0.7)
(1.5)
(32.5)
1.8
—
1.8
3.6
2006
£m
(14.3)
(3.8)
(0.2)
(0.2)
—
(1.5)
(20.0)
0.4
2.0
1.6
4.0
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 78
78 FINANCIAL STATEMENTS
4
TAXATION
a. Tax on profit on ordinary activities
4
Tax charged in the income statement
Corporation tax charge
Tax on current year profits
Adjustments in respect of previous years
Deferred tax (credit)/charge
(Reversal)/origination of temporary differences
Impact of current year revaluations
Adjustments in respect of previous years
Total tax charge in the income statement
Tax relating to items charged or credited to equity
Deferred tax
Actuarial gains and losses on pension schemes (note 19)
Tax (credit)/charge in the statement of total recognised income and expense
b. Reconciliation of effective tax rate
Profit before tax
Less: Joint ventures and associates
Pretax profit attributable to the group
Corporation tax at 30%
Permanent differences
Release of temporary differences in respect of industrial buildings
Release of deferred tax following rate change from 30% to 28%
Recognition of deferred tax asset for losses previously unrecognised
Investment property revaluation gains
Differences between chargeable gains and accounting profit
Current year charge
Adjustments in respect of previous years
Effective rate of tax
2007
£m
8.1
(0.1)
8.0
(11.7)
11.8
(1.7)
(1.6)
6.4
2006
£m
11.7
(1.7)
10.0
0.6
9.6
0.8
11.0
21.0
(0.9)
(0.9)
0.7
0.7
2007
Total
tax
£m
100.1
(12.6)
87.5
26.3
1.6
(6.7)
(2.9)
(6.1)
(3.3)
(0.7)
8.2
(1.8)
6.4
7%
2006
Total
tax
£m
96.9
(11.0)
85.9
25.8
2.2
—
—
—
(5.0)
(1.1)
21.9
(0.9)
21.0
24%
The post tax results of Joint Ventures and Associates are stated after a tax charge of £2.8m (2006: £2.7m). the effective tax rate
for the Group including Joint Ventures and Associates is 8.9% (2006: 23.8%).
The UK Government announced that balancing allowances and balancing charges on industrial buildings were to be abolished
wih effect from 21st March 2007. Accordingly, temporary differences in respect of industrial buildings held for rental have been
released.
The UK Government announced that they would reduce the corporation tax rate for large companies to 28% with effect from
1st April 2008. Accordingly, deferred tax adjustments have been restated to 28% as this is the rate at which they are expected to
reverse.
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 79
FINANCIAL STATEMENTS 79
4
TAXATION (CONTINUED)
c. Balance sheet
Balance at start of the year
Charge to the income statement
Charge directly to equity
Net refund/(payment)
Other
Balance at end of the year
2007
2006
Corporation
tax
£m
3.7
8.0
—
1.8
(1.2)
12.3
Deferred
tax
£m
47.0
(1.6)
(0.9)
—
(5.7)
38.8
Corporation
tax
£m
1.7
10.0
—
(7.5)
(0.5)
3.7
Deferred
tax
£m
35.3
11.0
0.7
—
—
47.0
An analysis of the deferred tax provided by the group is given below:
Asset
£m
—
—
—
(14.3)
(14.3)
2007
Liability
£m
48.4
2.8
1.4
0.5
53.1
Net
£m
48.4
2.8
1.4
(13.8)
38.8
Asset
£m
—
—
—
(5.4)
(5.4)
2006
Liability
£m
39.2
7.3
1.4
4.5
52.4
Net
£m
39.2
7.3
1.4
(0.9)
47.0
Property revaluations
Capital allowances
Appropriations to trading stock
Other temporary differences
There is no unprovided deferred tax.
d. Factors that may affect future tax charges
Based on current capital investment plans, the group expects to continue to be able to claim capital allowances in excess of
depreciation in future years.
The benefits of any tax planning are not recognised by the group until the outcome is reasonably certain.
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 80
80 FINANCIAL STATEMENTS
5 EARNINGS PER SHARE
7
The group’s share option schemes are accounted for as cashsettled sharebased payments as it is the group’s practice not to
issue new shares in satisfaction of employee options. The potential dilutive effect on earnings per share on the assumption that
such shares were to be issued is set out below:
Weighted number of shares in issue*
Weighted number of dilutive shares†
Earnings (basic and diluted)
Basic earnings per share
Diluted earnings per share
2007
Number of
shares
120,636,100
1,506,851
122,142,951
2006
Number of
shares
120,628,368
76,550
120,704,918
2007
£m
88.4
2007
pence
73.3
72.4
2006
£m
74.4
2006
pence
61.6
61.6
* Shares held by the Employee Benefit Trust are excluded from the above calculations.
† In calculating diluted earnings per share, earnings have been adjusted for changes which would have resulted from the
option being classified as equity settled. The number of shares included in the calculation has also been adjusted accordingly.
6
DIVIDENDS
Dividends paid during the year comprised the final dividend in respect of 2006 and the interim dividend in respect of 2007. The
proposed final dividend is subject to approval at the Annual General Meeting and has not been included as a liability in these
financial statements.
Paid
Final dividend in respect of previous year
Interim dividend in respect of current year
Total
Proposed
Current year final dividend
The Employee Benefit Trust waives its entitlement to dividends.
2007
2006
p per share
£m
p per share
6.8
3.9
10.7
7.8
8.2
4.7
12.9
9.4
5.9
3.4
9.3
6.8
£m
7.1
4.1
11.2
8.2
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 81
FINANCIAL STATEMENTS 81
7
INVESTMENT PROPERTY
Fair value
At 30th November 2005
Additions — new properties
Other additions
Transfers to inventories (note 11)
Disposals
Surplus on revaluation
At 30th November 2006
Additions — new properties
Other additions
Transfers to inventories (note 11)
Disposals
Surplus on revaluation
At 30th November 2007
Freehold
investment
properties
£m
Leasehold
investment
properties
£m
349.1
21.7
51.3
(5.1)
(50.6)
29.1
395.5
38.0
32.4
(13.2)
(21.6)
42.3
473.4
132.1
176.9
21.7
—
(9.7)
19.9
340.9
5.0
31.3
(20.9)
(0.8)
18.0
373.5
Total
£m
481.2
198.6
73.0
(5.1)
(60.3)
49.0
736.4
43.0
63.7
(34.1)
(22.4)
60.3
846.9
Investment properties were valued at 30th November 2007 and 2006 by King Sturge & Co, Chartered Surveyors, in accordance
with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors, on the basis of market value.
Included within leasehold investment properties are £3.9m (2006: £3.9m) of assets held under finance leases.
Further details of the movements in investment property are given on pages 20, 21 and 24 of the business review.
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 82
82 FINANCIAL STATEMENTS
8 OPERATING PROPERTY, PLANT AND EQUIPMENT
9
Cost
At 30th November 2005
Additions
At 30th November 2006
Additions
At 30th November 2007
Depreciation
At 30th November 2005
Charge for the year
At 30th November 2006
Charge for the year
At 30th November 2007
Net book value
At 30th November 2005
At 30th November 2006
At 30th November 2007
Tenure of operating properties:
Freehold
Leasehold
Plant,
machinery
and
equipment
£m
Operating
properties
£m
2.4
0.2
2.6
—
2.6
0.2
0.2
0.4
—
0.4
2.2
2.2
2.2
3.1
0.5
3.6
0.7
4.3
1.3
0.7
2.0
0.6
2.6
1.8
1.6
1.7
2007
£m
0.3
1.9
2.2
Total
£m
5.5
0.7
6.2
0.7
6.9
1.5
0.9
2.4
0.6
3.0
4.0
3.8
3.9
2006
£m
0.3
1.9
2.2
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 83
FINANCIAL STATEMENTS 83
9
JOINT VENTURES, ASSOCIATES AND OTHER INVESTMENTS
The group’s share of the trading results for the year of its joint ventures and associates is:
Key Property
Investments
Limited
£m
2007
Other joint
ventures
£m
Income statements
Revenue
Net rental income
Development profit
Gains on disposals of investment/
investment properties
Investment property revaluation gains
Administrative expenses
Profit before interest and tax
Finance cost
Finance income
Profit before tax
Taxation
Profit for the year
Group’s share of associate’s profit (27%)
35.6
8.5
4.3
4.4
1.8
(0.1)
18.9
(5.8)
0.1
13.2
(2.1)
11.1
5.5
0.1
2.0
—
0.7
—
2.8
(0.7)
—
2.1
(0.7)
1.4
Key Property
Investments
Limited
£m
2006
Other joint
ventures
£m
10.7
8.7
(0.3)
1.9
6.1
(0.1)
16.3
(5.5)
0.7
11.5
(2.2)
9.3
3.9
0.2
1.2
—
0.5
—
1.9
(0.3)
—
1.6
(0.5)
1.1
Total
£m
41.1
8.6
6.3
4.4
2.5
(0.1)
21.7
(6.5)
0.1
15.3
(2.8)
12.5
0.1
12.6
Total
£m
14.6
8.9
0.9
1.9
6.6
(0.1)
18.2
(5.8)
0.7
13.1
(2.7)
10.4
0.6
11.0
During the year ended 30th November 2007 the group disposed of its entire shareholding in Northern Racing PLC, realising a
profit of £6.7m. This gain is recorded as part of “Gains on disposal of investments/investment properties”.
The group’s share of the balance sheet of its joint ventures and associates, together with the cost of other investments, is:
Key Property
Investments
Limited
£m
2007
Other joint
ventures
£m
Balance Sheets
Noncurrent assets
Current assets
Current liabilities
Noncurrent liabilities
Net assets
Equity at start of year
Profit for the year
Dividends paid
Equity at end of year
Group’s share of joint ventures’ net assets
Group’s share of associate’s net assets
Investment in Stoke on Trent Community
Stadium Development Company Limited
136.7
26.2
(10.4)
(83.1)
69.4
62.3
11.1
(4.0)
69.4
6.8
17.7
(5.5)
(13.6)
5.4
4.0
1.4
—
5.4
Key Property
Investments
Limited
£m
2006
Other joint
ventures
£m
145.4
21.0
(5.6)
(98.5)
62.3
54.5
9.3
(1.5)
62.3
4.5
7.8
(0.9)
(7.4)
4.0
2.9
1.1
—
4.0
Total
£m
143.5
43.9
(15.9)
(96.7)
74.8
66.3
12.5
(4.0)
74.8
74.8
—
0.6
75.4
Total
£m
149.9
28.8
(6.5)
(105.9)
66.3
57.4
10.4
(1.5)
66.3
66.3
11.0
0.6
77.9
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 84
84 FINANCIAL STATEMENTS
9
JOINT VENTURES, ASSOCIATES AND OTHER INVESTMENTS (CONTINUED)
Joint venture companies, associates and other investments comprise:
Name
Key Property Investments Limited
Barton Business Park Limited
Sowcrest Limited
Holaw (462) Limited
Shaw Park Developments Limited
Stoke on Trent Community Stadium
Development Company Limited
Status
Joint venture
Joint venture
Joint venture
Joint venture
Joint venture
Interest
50%
50%
50%
50%
50%
Activity
Property investment and development
Property development
Property development
Property investment
Property development
Other investment
15%
Stadium operator
Many of the joint ventures contain change of control provisions, as is common for such arrangements.
Further details of the movements in joint ventures, associates and other investments are given in pages 21 and 25 of the
business review.
10
TRADE AND OTHER RECEIVABLES
Noncurrent
Other debtors
Derivative financial instruments (note 15)
Pension fund surplus (note 19)
Current
Trade receivables
Prepayments and accrued income
Other debtors
Amounts due from joint ventures
Derivative financial instruments (note 15)
2007
£m
8.9
—
—
8.9
5.0
1.7
19.7
3.2
2.0
31.6
2006
£m
—
1.2
2.8
4.0
2.6
2.6
45.0
7.6
0.6
58.4
11
12
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 85
FINANCIAL STATEMENTS 85
2007
£m
88.5
100.0
20.8
209.3
2006
£m
37.9
10.8
17.2
65.9
£m
36.1
103.0
5.1
(78.3)
65.9
168.0
34.1
(58.7)
209.3
11
INVENTORIES
Properties held for sale
Properties under construction
Land under option
The movement in inventories during the two years ended 30th November 2007 is as follows:
Balance at 30th November 2005
Additions
Transfers from investment property (note 7)
Disposals (transferred to cost of sales) (note 1)
Balance at 30th November 2006
Additions
Transfers from investment property (note 7)
Disposals (transferred to cost of sales) (note 1)
Balance at 30th November 2007
The directors consider all inventories to be current in nature. The operational cycle is such that a proportion of inventories
will not be realised within 12 months. It is not possible to determine with accuracy when specific inventory will be realised as
this will be subject to a number of issues including the strength of the property market.
As at 30th November 2007 £12.4m of inventory was pledged as security for the group’s loan facilities.
12
TRADE AND OTHER PAYABLES
Current
Trade payables
Amounts due to joint ventures
Other payables and accrued expenses
Other payables on deferred terms
Derivative financial instruments (note 15)
Noncurrent
Other payables and accrued expenses
Other payables on deferred terms
Finance lease liabilities (head rents) (note 14)
2007
£m
5.6
4.1
45.9
70.5
1.2
127.3
3.1
121.0
3.9
128.0
2006
£m
4.9
0.1
43.8
60.2
0.3
109.3
1.9
138.9
2.9
143.7
The payment terms of the other payables on deferred terms, all of which relate to VSM Estates (Holdings) Limited, are subject
to contractual commitments which are expected to allow for realisation of the related assets and settlement of the liability on
a basis which is at least cash neutral over a minimum period of ten years.
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 86
86 FINANCIAL STATEMENTS
13 BORROWINGS
13
Current
Bank loans
Floating rate unsecured loan notes
Noncurrent
Bank loans repayable between two and five years
Bank loans repayable after more than five years
2007
£m
—
0.4
0.4
295.4
124.0
419.4
2006
£m
48.8
0.4
49.2
129.4
81.3
210.7
All bank borrowings are secured by a fixed charge over the group’s property assets.
Maturity profile of committed bank facilities
The majority of the group’s bank debt is provided by bilateral revolving credit facilities, providing the flexibility to draw and
repay loans as required. The maturity profile of the group’s committed facilities is set out below.
Floating rate borrowings
Interest rate swaps
2007
Drawn
£m
0.4
—
—
164.7
130.7
124.0
419.8
Drawn
£m
48.8
—
—
47.0
82.4
81.3
259.5
Undrawn
£m
5.0
—
—
85.3
13.3
46.0
149.6
Floating rate borrowings
Undrawn
£m
16.2
—
—
80.3
22.6
79.2
198.3
Total
£m
5.4
—
—
250.0
144.0
170.0
569.4
Total
£m
65.0
—
—
127.3
105.0
160.5
457.8
Earliest termination
£m
60.0
80.0
80.0
20.0
—
—
240.0
%*
4.82
4.70
5.54
4.48
—
—
4.99
Latest termination
£m
30.0
—
30.0
80.0
80.0
20.0
240.0
%*
5.17
—
4.47
4.71
5.54
4.47
4.99
2006
Interest rate swaps
Earliest termination
£m
—
60.0
80.0
—
20.0
—
160.0
%*
—
4.82
4.71
—
4.47
—
4.72
Latest termination
£m
—
30.0
—
30.0
80.0
20.0
160.0
%*
—
5.17
—
4.47
4.71
4.47
4.72
Less than one year
One to two years
Two to three years
Three to four years
Four to five years
More than five years
Total
Less than one year
One to two years
Two to three years
Three to four years
Four to five years
More than five years
Total
* Weighted average interest rate.
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 87
FINANCIAL STATEMENTS 87
13 BORROWINGS (CONTINUED)
Most of the interest rate swaps are extendable at the bank’s option; therefore, the tables above show the dates of normal
termination and extended termination.
£40m (2006: £79m) of the undrawn committed bank facilities are ring fenced for VSM Estates (Holdings) Limited.
Interest payable on the above loans is at a weighted average of 7.1% (2006: 6.0%) before taking into account the effects of the
hedging. At 30th November 2007 the weighted average facility maturity of the bank debt was 5 years (2006: 5 years).
Interest rate profile
The interest rate profile of the group’s borrowings after taking into account the effects of its interest rate derivative financial
instruments is:
Total
£m
419.8
259.5
Floating
Rate Debt
£m
179.8
99.5
Fixed
Rate Debt
£m
240.0
160.0
Weighted
average
fixed
interest
rate
(%)
4.99
4.72
Weighted
maturity of
derivatives
(years)*
1.75
2.25
At 30th November 2007
At 30th November 2006
* Based on earliest termination dates.
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 88
88 FINANCIAL STATEMENTS
14 LEASING
Operating lease commitments where the group is the lessee
The group leases certain of its premises, motor vehicles and office equipment under operating leases. Future aggregate
minimum lease rentals payable under noncancellable operating leases are as follows:
15
In one year or less
Between one and five years
In five years or more
2007
Other
£m
0.8
0.7
0.2
1.7
2006
Other
£m
0.6
0.8
0.2
1.6
Operating leases where the group is the lessor
The group leases out its investment properties under operating leases. The future aggregate minimum rentals receivable
under noncancellable operating leases are as follows:
In one year or less
Between one and five years
In five years or more
2007
£m
27.0
74.8
140.0
241.8
2006
£m
22.9
59.9
114.6
197.4
Contingent rents, calculated as a percentage of turnover for a limited number of tenants, of £0.3m (2006: £0.4m) were
recognised during the year.
Obligations under finance leases
Finance lease liabilities are payable as follows:
Less than one year
Between one and five years
More than five years
Less than one year
Between one and five years
More than five years
Minimum lease
payments
£m
0.2
0.8
68.1
69.1
Minimum lease
payments
£m
0.2
0.8
68.3
69.3
2007
Interest
£m
0.2
0.8
64.2
65.2
2006
Interest
£m
0.2
0.8
65.4
66.4
Principal
£m
—
—
3.9
3.9
Principal
£m
—
—
2.9
2.9
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 89
FINANCIAL STATEMENTS 89
15 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
The group manages its interest rate risk through interest rate swaps with the objective of fixing twothirds of its floating rate
debt. Typically interest rate swaps have a maturity of 3 to 5 years at inception and the majority are in the form of knockout
options. The group’s finance strategy is discussed in more detail in the business review.
The counterparties to all derivative financial instruments are UK and European banks, all of whom also lend to the group.
Noncurrent assets
Current assets
Current liabilities
Noncurrent liabilities
Net value
Amount credited/(charged) to the income statement
Balance
at 30th
November
2005
£m
0.1
0.2
(0.4)
(0.4)
(0.5)
Mark to
market
£m
1.1
0.4
0.1
0.4
Balance
at 30th
November
2006
£m
1.2
0.6
(0.3)
—
1.5
2.0
Mark to
market
£m
(1.2)
1.4
(0.9)
—
Balance
at 30th
November
2007
£m
—
2.0
(1.2)
—
0.8
(0.7)
All other financial assets and liabilities are noninterest bearing with a fair value equivalent to their cost with the following
exceptions:
— cash, which earns interest at floating rates based on daily bank deposit rates; and
— finance leases, which have a fair value of £3.9m (2006: £2.9m).
The group’s credit risk is primarily attributable to its trade and other receivables. The amounts in the balance sheet are net of
allowances for doubtful receivables. An allowance for impairment is made where there is an identified loss event which, based
on previous experience, is evidence of a reduction in the recoverability of the cash flows.
Further details of the group’s risk policies and financial instruments are provided in the business review on page 23.
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 90
90 FINANCIAL STATEMENTS
18
19
16 SHARE CAPITAL
Authorised:
Equity share capital
150,000,000
Ordinary 10p shares
Allotted and fully paid:
Equity share capital
120,773,954
Ordinary 10p shares
See note 2d for details of outstanding options to acquire ordinary shares.
2007
£m
2006
£m
15.0
15.0
12.1
12.1
17
RESERVES
At 30th November 2005
Profit for the year attributable to shareholders
Pension fund actuarial gains and losses (note 19)
Net share acquisitions
Dividends paid (note 6)
At 30th November 2006
Profit for the year attributable to shareholders
Pension fund actuarial gains and losses (note 19)
Net share disposals
Dividends paid (note 6)
At 30th November 2007
Share
premium
account
£m
9.1
—
—
—
—
9.1
—
—
—
—
9.1
Capital
redemption
reserve
£m
0.3
—
—
—
—
0.3
—
—
—
—
0.3
Retained
earnings
£m
299.3
74.4
1.8
—
(11.2)
364.3
88.4
(2.4)
—
(12.9)
437.4
Own
shares
£m
(0.4)
—
—
(0.4)
—
(0.8)
—
—
0.1
—
(0.7)
‘Own shares’ represents the cost of 137,854 (2006: 167,306) shares held by the Employee Benefit Trust. The open market value
of the shares held at 30th November 2007 was £584,501 (2006: £951,971).
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 91
FINANCIAL STATEMENTS 91
18 RECONCILIATION OF MOVEMENT IN EQUITY
Total recognised income and expense
Dividends paid
Net disposal/(purchase) of own shares
Equity at start of year
Equity at end of year
Equity
shareholders
£m
86.0
(12.9)
0.1
385.0
458.2
2007
Minority
interests
£m
5.3
(0.6)
—
4.8
9.5
Equity
shareholders
£m
76.2
(11.2)
(0.4)
320.4
385.0
Total
£m
91.3
(13.5)
0.1
389.8
467.7
2006
Minority
interests
£m
1.5
(0.3)
—
3.6
4.8
Total
£m
77.7
(11.5)
(0.4)
324.0
389.8
19 PENSIONS
The group operates a pension scheme with both defined benefit and defined contribution sections. The defined benefit section
is closed to new members. The income statement charge was £0.4m (2006: £0.5m) for the defined benefit section and £0.4m
(2006: £0.3m) for the defined contribution section.
The last formal actuarial valuation of the scheme was at 5th April 2005, when the market value of the net assets of the
scheme was £26,025,000. The valuation was performed using the ‘Projected Unit Cost Method’ under IAS 19. The main
actuarial assumptions were:
Investment rate of return:
Increase in earnings*
Increase in pensions
preretirement
postretirement
6.3% p.a.
4.8% p.a.
5.9% p.a.
2.9% p.a.
* Capped to 4.9% for certain members.
The valuation showed a funding level of 95%.
The actuarial valuation of the defined benefit section, a final salary scheme, was updated to 30th November 2007 on an IAS
basis by a qualified independent actuary. The major assumptions used by the actuary were:
Rate of increase in salaries
Rate of increase in deferred pensions
Rate of increase in pensions in payment
Discount rate
Inflation assumption
Pre6th April 1997 benefits
Post5th April 1997 benefits
2007
5.5%
3.5%
3.0%
3.5%
5.8%
3.5%
2006
5.1%
3.1%
3.0%
3.1%
5.0%
3.1%
2005
4.8%
2.8%
2.8%
2.8%
4.9%
2.8%
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 92
92 FINANCIAL STATEMENTS
19 PENSIONS (CONTINUED)
19
The mortality rates adopted are from the PA92 year of birth and medium cohort tables (which assume that, for example, male
members who are currently retired are expected to draw their pensions for 24.9 years and nonretired members for 27.1 years,
based on the normal retirement age of 65).
The group expects to make contributions of £0.4m to the defined benefit section of the scheme in 2008. As the defined benefit
section of the scheme is a closed scheme valued under the ‘Projected Unit Cost Method’ the service cost is likely to increase in
future years as members approach retirement.
The fair values of assets in the defined benefit section of the scheme and the expected rates of return were:
2007
2006
2005
Equities
Bonds
Property
Cash and other assets
%
6.1
5.8
6.1
4.6
Actuarial value of liabilities
Unrecoverable surplus
Surplus/(deficit) in the scheme
(note 10 and note 12)
Related deferred tax (liability)/asset (note 4)
Fair value of pension asset/(liability)
net of deferred tax
£m
19.4
0.4
11.7
3.5
35.0
(29.0)
(6.0)
—
—
—
%
5.8
4.9
5.8
4.3
£m
18.0
0.3
9.8
5.8
33.9
(31.1)
—
2.8
(0.8)
2.0
%
5.7
4.7
5.7
4.2
£m
16.7
0.3
8.4
3.9
29.3
(29.8)
—
(0.5)
0.2
(0.3)
Given the current uncertainty in both the equity and property markets, and with due consideration of the recently issued IFRIC
guidance on the recognition of pension scheme assets, the directors do not consider it appropriate to recognise the surplus
arising in the defined benefit section of the scheme at this time.
The cumulative amount of actuarial gains and losses (before unrecoverable surplus of £6.0m) recorded in the group statement
of recognised income and expense is £5.0m (2006: £2.3m).
Analysis of the amount charged to operating profit
Current service cost
Employee contributions
Total operating charge
Analysis of the amount credited/(charged) to finance costs and income
Expected return on pension scheme assets
Interest on pension scheme liabilities
2007
£m
(0.5)
0.1
(0.4)
2007
£m
1.8
(1.5)
0.3
2006
£m
(0.5)
0.1
(0.4)
2006
£m
1.6
(1.5)
0.1
2005
£m
(0.6)
0.1
(0.5)
2005
£m
1.5
(1.3)
0.2
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 93
FINANCIAL STATEMENTS 93
19 PENSIONS (CONTINUED)
Analysis of the amount recognised in the group statement of recognised income and expense
Difference between expected and actual return on assets
Experience gains and losses arising on fair value of scheme liabilities
Effects of changes in the demographic and financial assumptions underlying
the fair value of the scheme liabilities
Change in unrecoverable surplus
Total actuarial (loss)/gain
Analysis of the movement in the fair value of the scheme liabilities
Beginning of year
Movement in year:
Current service cost
Employee contributions
Interest cost
Actuarial gains and losses
Benefits paid
End of year
Analysis of the movement in the fair value of the scheme assets
Beginning of year
Movement in year:
Expected return on scheme assets
Contributions by employer
Actuarial gains and losses
Benefits paid
End of year
Surplus/(deficit) in scheme at the year end
Unrecoverable surplus
Net surplus/(deficit)
2007
£m
(0.1)
(3.0)
5.8
(6.0)
(3.3)
2007
£m
31.1
0.5
(0.1)
1.5
(2.8)
(1.2)
29.0
2007
£m
33.9
1.8
0.6
(0.1)
(1.2)
35.0
6.0
(6.0)
—
2006
£m
2.7
(1.1)
0.9
—
2.5
2006
£m
29.8
0.5
(0.1)
1.5
0.2
(0.8)
31.1
2006
£m
29.3
1.6
1.1
2.7
(0.8)
33.9
2.8
—
2.8
2005
£m
3.8
0.3
(4.9)
—
(0.8)
2005
£m
24.0
0.6
(0.1)
1.3
4.6
(0.6)
29.8
2005
£m
24.0
1.5
0.6
3.8
(0.6)
29.3
(0.5)
—
(0.5)
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 94
94 FINANCIAL STATEMENTS
19 PENSIONS (CONTINUED)
History of experience gains and losses
22
2007
£m
Difference between expected and actual return on scheme assets
(0.1)
(0.3%)
Amount
Percentage of scheme assets
Experience gains and losses on scheme liabilities
Amount
Percentage of fair value of scheme liabilities
Changes in assumptions underlying the fair value
of scheme liabilities
Amount
Percentage of fair value of scheme liabilities
Change in unrecoverable surplus
Total actuarial gain/(loss) recognised in the statement of
recognised income and expense
(3.0)
10.3%
5.8
20.0%
(6.0)
Amount
Percentage of present value of scheme liabilities
(3.3)
(11.4%)
Deferred taxation attributable to pension movements (note 4) 0.9
Pension scheme movement for the year net of deferred tax (2.4)
2006
£m
2.7
8.0%
(1.1)
3.5%
0.9
2.9%
—
2.5
8.0%
(0.7)
1.8
2005
£m
3.8
13.0%
0.3
(1.0%)
(4.9)
(16.5%)
—
(0.8)
(2.8%)
0.3
(0.5)
2004
£m
1.3
5.3%
(0.9)
3.7%
(0.5)
(1.9%)
—
(0.1)
(0.3%)
—
(0.1)
2003
£m
1.3
6.3%
(1.5)
6.9%
(2.1)
(9.8%)
—
(2.3)
(10.9%)
0.7
(1.6)
20
CAPITAL COMMITMENTS
At 30th November 2007 the group had contracted capital expenditure of £14,184,000 (2006: £11,592,000).
21
CONTINGENT LIABILITIES
The group has a joint and several unlimited liability with Vinci PLC and the Ministry of Defence under guarantees in respect of
the financial performance of VSM Estates (Holdings) Limited.
The group is also party to a joint and several guarantee to Fortis Bank in respect of the performance of Sowcrest Limited
which is limited to £18.4m.
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 95
FINANCIAL STATEMENTS 95
22 RELATED PARTY TRANSACTIONS
Transactions between the group and its nonwholly owned subsidiaries, joint ventures and associates are as follows:
Key Property Investments Limited (‘KPI’)
During the year the group provided management services to KPI for which it received fees totalling £2.4m (2006: £0.5m).
Holaw (462) Limited (‘Holaw’)
During the year Holaw repaid £0.1m of its loan (2006: £nil). The balance due to the group at the year end was £0.6m (2006:
£0.7m). No interest is charged on the loan.
Barton Business Park Limited (‘Barton’)
During the year Barton repaid £0.4m (2006: £0.7m) of its loan reducing the balance to £nil (2006: £0.4m). In addition to the
repayment of loan, a further £3.5m (2006: £nil) was advanced to the group and remains due to Barton. No interest is charged
on balances outstanding.
Sowcrest Limited (‘Sowcrest’)
During the year the group received £2.9m from Sowcrest (2006: paid £2.3m to Sowcrest). The balance due to Sowcrest at the
year end was £0.8m (2006: £1.9m due from Sowcrest). No interest is charged on the loan.
Shaw Park Developments Limited (‘SPD’)
The balance due to the group from SPD at the year end was £2.2m (2006: £2.2m). The loan is secured and interest is
chargeable at 1.5% (2006: 1.5%) above base rate. At the beginning of the year the group was also due £2.2m from Healnorth
Limited, a company controlled by our joint venture partner in SPD. This amount was repaid in full during the year.
St. Modwen Pension Scheme
During the year the group sold properties to the pension scheme for consideration of £2.1m (2006: £2.8m). The group
occupies offices owned by the pension scheme with a value of £0.6m (2006: £0.6m).
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 96
96 FINANCIAL STATEMENTS
22 RELATED PARTY TRANSACTIONS (CONTINUED)
Nonwholly owned subsidiaries
The company provides administrative and management services and provides a central purchase ledger system to subsidiary
companies. In addition, the company also operates a central treasury function which lends to and borrows from subsidiary
undertakings as appropriate. Management fees and interest charged/(credited) during the year and net balances due
(to)/from subsidiaries in which the company has a less than 90% interest were as follows:
StokeonTrent Regeneration Limited
StokeonTrent Regeneration
(Investments) Limited
Uttoxeter Estates Limited
Widnes Regeneration Limited
Trentham Leisure Limited
Norton & Proffitt Developments Limited
VSM Estates (Holdings) Limited
Management fees
Interest
Balance
2007
£m
—
—
—
—
0.4
—
0.3
0.7
2006
£m
—
—
—
—
0.4
—
0.8
1.2
2007
£m
(1.0)
0.1
—
0.3
1.5
—
—
0.9
2006
£m
(0.8)
—
—
0.2
1.3
—
—
0.7
2007
£m
(5.1)
0.2
—
3.7
24.5
9.1
(1.7)
30.7
2006
£m
(20.8)
0.3
—
5.2
20.0
3.7
—
8.4
With the exception of SPD, all amounts due to the group are unsecured and will be settled in cash. All amounts above are
stated before provisions for doubtful debts of £0.4m (2006: £nil). No guarantees have been given or received from related
parties.
Key management personnel
The group’s key management personnel are the executive directors (whose remuneration is disclosed in the directors’
remuneration report) and senior management whose aggregate remuneration totalled £1.7m (2006: £1.7m).
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 97
COMPANY BALANCE SHEET
AT 30TH NOVEMBER 2007
97
Fixed assets
Tangible assets
Investments
Current assets
Debtors
Cash at bank and in hand
Current liabilities
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Net assets excluding pension asset/(liability)
Defined benefit pension asset
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Revaluation reserve
Profit and loss account
Own shares
Equity shareholders’ funds
Notes
(E)
(F)
(G)
(H)
(H)
(M)
(K)
(L)
(L)
(L)
(L)
(L)
2007
£m
1.1
389.0
390.1
400.2
17.0
(147.8)
269.4
659.5
(228.8)
430.7
—
430.7
12.1
9.1
0.3
314.5
95.4
(0.7)
430.7
2006
£m
1.3
344.5
345.8
296.6
—
(114.1)
182.5
528.3
(127.1)
401.2
2.0
403.2
12.1
9.1
0.3
259.0
123.5
(0.8)
403.2
These financial statements were approved by the board of directors on 8th February 2008 and were signed on its behalf by
Anthony Glossop and Tim Haywood.
Anthony Glossop
Chairman
Tim Haywood
Finance Director
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 98
98
NOTES TO THE COMPANY ACCOUNTS
A ACCOUNTING POLICIES
Basis of preparation
The accounts and notes have been prepared in accordance with applicable UK GAAP.
Compliance with SSAP 19 “Accounting for Investment Properties” requires departure from the Companies Act 1985 relating to
depreciation and an explanation of the departure is given below.
Accounting convention
The accounts have been prepared under the historical cost convention, modified by the revaluation of investment properties.
Revenue recognition
Revenue is recognised to the extent that the company obtains the right to consideration in exchange for its performance.
Revenue is measured at the fair value of the consideration received, excluding discounts and VAT.
Rental income
Rental income arising from investment properties is accounted for on a straightline basis over the lease term.
Interest receivable
Interest receivable is recognised on the accruals basis.
Tangible fixed assets
Tangible fixed assets, other than investment properties, are stated at cost less accumulated depreciation and accumulated
impairment losses. Such cost includes costs directly attributable to making the asset capable of operating as intended.
Depreciation is provided on all plant, machinery and equipment at rates calculated to write off the cost less estimated residual
value, based on prices prevailing at the balance sheet date, of each asset evenly over its expected useful life as follows:
Plant, machinery and equipment — over 2 to 5 years
Depreciation is not provided on investment properties which are subject to annual revaluations.
Investment properties
In accordance with SSAP 19, investment properties are revalued annually and the aggregate surplus or temporary deficit is
transferred to the revaluation reserve. Permanent diminutions are recognised through the profit and loss account. No
depreciation is provided in respect of investment properties.
The Companies Act 1985 requires all properties to be depreciated. However, this requirement conflicts with the generally
accepted accounting principle set out in SSAP 19. The directors consider that, because these properties are not held for
consumption but for their investment potential, to depreciate them would not give a true and fair view and that it is necessary
to adopt SSAP 19 in order to give a true and fair view. If this departure from the Act had not been made, the profit for the
financial year would have been reduced by depreciation. However, the amount of depreciation cannot reasonably be quantified
because depreciation is only one of many factors reflected in the annual valuation and the amount which might otherwise have
been shown cannot be separately identified or quantified.
Investment in subsidiary, joint venture and associated companies
The investments in subsidiary, joint venture and associated companies are included in the company’s balance sheet at the
company’s share of net asset value. The valuation recognises the cost of acquisition and changes in the book values of the
underlying net assets. The surplus or deficit arising on revaluation is reflected in the company’s reserves.
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 99
FINANCIAL STATEMENTS 99
Deferred taxation
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date
where transactions or events have occurred at that date that will result in an obligation to pay less or to receive more tax, with
the following exceptions:
Provision is made for tax on gains arising from the revaluation (and similar fair value adjustments) of fixed assets and
gains on disposal of fixed assets that have been rolled over into replacement assets only to the extent that, at the balance
sheet date, there is a binding agreement to dispose of the assets concerned. However, no provision is made where, on the
basis of all available evidence at the balance sheet date, it is more likely than not that the taxable gain will be rolled over
into replacement assets and charged to tax only where the replacement assets are sold.
Deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there
will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing
differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
Interest
Income paid is charged to the profit and loss account on an accruals basis.
Finance costs of debt are allocated over the term of the debt at a constant rate on the carrying amount.
Sharebased payment
The company accounts for its share option schemes as cashsettled sharebased payments as new shares are not issued to
satisfy employee share option plans. The cost of cashsettled transactions is measured at fair value using an appropriate
option pricing model and amortised through the profit and loss account over the vesting period. The liability is remeasured at
each year end. Revisions to the fair value of the accrued liability after the end of the vesting period are recorded in the profit
and loss account of the year in which they occur. Further details are set out in note 2 of the group financial statements.
Pensions
The company operates a pension scheme with both defined benefit and defined contribution sections. The defined benefit
section is closed to new members.
The cost of providing benefits under the defined benefit section is determined using the projected unit credit method, which
attributes entitlement to benefits to the current period (to determine current service cost) and to the current and prior periods
(to determine the present value of defined benefit obligation) and is based on actuarial advice. Past service costs are
recognised in the profit and loss account immediately if the benefits have vested.
The interest element of the defined benefit cost represents the change in present value of scheme obligations. The expected
return on plan assets is based on an assessment made at the beginning of the year of longterm market returns on scheme
assets, adjusted for the effect on the fair value of plan assets of contributions received and benefits paid during the year. The
difference between the expected return on plan assets and the interest cost is recognised in the profit and loss account as
other finance income or expense.
Actuarial gains and losses are recognised in full in the statement of total recognised gains and losses in the year in which they
occur. The defined benefit pension asset or liability in the balance sheet comprises the present value of the defined benefit
obligation, less any past service cost not yet recognised and less the fair value of plan assets out of which the obligations are to
be settled directly.
In periods when the defined benefit section of the company’s pension scheme is in surplus, the directors review the
recoverability of this surplus to determine whether recognition, in part or in full, is appropriate at the balance sheet date.
14704
12/02/2008
Proof 13
●
●
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 100
100 FINANCIAL STATEMENTS
A ACCOUNTING POLICIES (CONTINUED)
Contributions to defined contribution schemes are recognised in the profit and loss account in the period in which they become
payable.
Derivative financial instruments and hedging
The company uses derivative financial instruments such as interest rate swaps to hedge its risks associated with interest rate
fluctuations. Such instruments are initially recognised at fair value on the date on which a contract is entered into and are
subsequently remeasured at fair value. The company has determined that the derivative financial instruments in use do not
qualify for hedge accounting and, consequently, any gains or losses arising from changes in the fair value of derivatives are
taken to the profit and loss account.
Full details of the company’s derivative financial instruments are given in note 15 to the group financial statements.
Own shares
St. Modwen Properties PLC shares held by the company are classified in shareholders’ equity and are recognised at cost.
Interest bearing loans and borrowings
All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial
recognition, loans and borrowings are measured at amortised cost.
Gains and losses arising on the repurchase, settlement or otherwise cancellation of liabilities are recognised respectively in
finance income and expense.
Cash flow statement
The company has taken advantage of the exemption permitted by FRS 1 not to present a cash flow statement.
B
C
D
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 101
FINANCIAL STATEMENTS 101
B
PROFIT FOR THE FINANCIAL YEAR
The company has taken advantage of Section 230 of the Companies Act 1985 and has not included its own profit and loss
account in these financial statements. The company’s loss for the year was £12.8m (2006: £59.9m profit).
C
OPERATING EXPENSES
(i) Audit fees
Fees paid to Deloitte and Touche LLP (2006: Ernst & Young LLP) in respect of:
— Fees payable for the audit of the company’s annual accounts
— Other services pursuant to legislation
— Tax services
— Other services
2007
£’000
105
25
82
86
298
2006
£’000
156
25
2
36
219
(ii) Employees
The average number of fulltime employees (including executive directors) employed by the company during the year was
as follows:
Property
Leisure and other activities
Administration
The total payroll costs of these employees were:
Wages and salaries
Social security costs
Pension costs
Sharebased payments
2007
(number)
129
44
44
217
2006
(number)
126
47
46
219
2007
£m
11.7
1.4
0.8
—
13.9
2006
£m
9.9
1.2
0.8
3.1
15.0
D DIVIDENDS
Dividends paid during the year comprised the final dividend in respect of 2006, approved at the AGM, and the interim dividend in
respect of 2007.
Paid
Final dividend in respect of previous year
Interim dividend in respect of current year
Total
Proposed
Current year final dividend
The Employee Benefit Trust waives its entitlement to dividends.
2007
2006
p per share
£m
p per share
6.8
3.9
10.7
7.8
8.2
4.7
12.9
9.4
5.9
3.4
9.3
6.8
£m
7.1
4.1
11.2
8.2
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 102
102 FINANCIAL STATEMENTS
E
TANGIBLE FIXED ASSETS
Cost or valuation
At 30th November 2006
Additions
Disposals
At 30th November 2007
Depreciation
At 30th November 2006
Charge for the year
At 30th November 2007
Net book value
At 30th November 2007
At 30th November 2006
Long
leasehold
investment
properties
£m
Plant,
machinery
and
equipment
£m
0.7
—
(0.1)
0.6
—
—
—
0.6
0.7
1.6
0.2
—
1.8
1.0
0.3
1.3
0.5
0.6
Total
£m
2.3
0.2
(0.1)
2.4
1.0
0.3
1.3
1.1
1.3
Investment properties were valued at 30th November 2007 and 2006 by King Sturge & Co, Chartered Surveyors, in accordance
with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors, on the basis of market value.
Long leasehold investment properties are currently let under operating leases for the purpose of generating rental income.
F
INVESTMENTS HELD AS FIXED ASSETS
At 30th November 2006
Revaluation of investments
Disposals
At 30th November 2007
Investment
in subsidiary
companies
£m
260.6
54.1
—
314.7
Investment
in joint
ventures
£m
72.9
1.4
—
74.3
Investment
in associated
companies
£m
11.0
—
(11.0)
—
Total
£m
344.5
55.5
(11.0)
389.0
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 103
FINANCIAL STATEMENTS 103
Subsidiary companies:
At 30th November 2007 the principal subsidiaries, all of which were held directly by the company, were as follows:
Boughton Holdings
Chaucer Estates Limited
Leisure Living Limited
Redman Heenan Properties Limited
St. Modwen Developments Limited
St. Modwen Investments Limited
St. Modwen Securities Limited
St. Modwen Ventures Limited
StokeonTrent Regeneration Limited
Uttoxeter Estates Limited
Widnes Regeneration Limited
Trentham Leisure Limited
Norton & Proffitt Developments Limited
VSM Estates (Holdings) Limited
Proportion of ordinary shares held
100%
100%
100%
100%
100%
100%
100%
100%
81%
81%
81%
80%
75%
50%
All principal subsidiaries are registered and operate in England and Wales.
Joint ventures
At 30th November 2007 the joint ventures were:
Nature of principal business
Investment company
Property investors
Leisure operator
Property investors
Property developers
Property investors
Property developers
Property investors
Property developers
Property developers
Property developers
Leisure operator
Property developers
Property developers
Key Property Investments Limited
Holaw (462) Limited
Barton Business Park Limited
Sowcrest Limited
Shaw Park Developments Limited
Percentage shareholding
50%
50%
50%
50%
50%
Nature of business
Property investment and development
Property investment
Property development
Property development
Property development
Many of the joint ventures contain change of control provisions, as is common for such arrangements.
Associated companies:
During the year ended 30th November 2007 the company disposed of its entire shareholding in Northern Racing PLC, realising
a profit of £6.7m.
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 104
104 FINANCIAL STATEMENTS
I
J
G DEBTORS
Trade debtors
Amounts due from subsidiaries
Amounts due from joint venture and associated companies
Other debtors
Prepayments and accrued income
Derivative financial instruments*
Deferred tax asset (see note (J))
* Included in this amount is £nil (2006: £1.2m) which is due in more than one year.
H
CREDITORS
Amounts falling due within one year:
Bank overdraft
Amounts due to subsidiaries
Amounts due to joint venture and associated companies
Other tax and social security
Other creditors
Accruals and deferred income
Derivative financial instruments
Amounts falling due after more than one year:
Bank loans
Accruals and deferred income
2007
£m
0.2
380.9
2.8
11.9
1.2
2.0
1.2
400.2
2007
£m
24.8
103.3
4.2
0.1
0.5
13.7
1.2
147.8
2007
£m
227.4
1.4
228.8
2006
£m
0.1
252.3
6.8
33.2
0.7
1.8
1.7
296.6
2006
£m
19.5
80.1
0.2
—
0.1
13.9
0.3
114.1
2006
£m
127.1
—
127.1
All bank borrowings are secured by a fixed charge over the property assets of the company and its subsidiaries.
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 105
I
BORROWINGS
The maturity profile of the bank borrowings is as follows:
Less than one year
One to two years
Two to five years
More than five years
Total
The bank borrowings can be further analysed as follows:
Wholly repayable within five years
Not wholly repayable in five years
FINANCIAL STATEMENTS 105
2007
£m
24.8
—
211.0
16.4
252.2
2007
£m
235.8
16.4
252.2
2006
£m
19.5
—
114.4
12.7
146.6
2006
£m
133.9
12.7
146.6
J
DEFERRED TAXATION
The amounts of deferred taxation provided and unprovided in the accounts are:
Capital allowances in excess of depreciation
Other timing differences
Revaluation of properties
Reconciliation of movement on deferred tax asset included in debtors
Balance as at 30th November 2006
Profit and loss account
Balance as at 30th November 2007
Reconciliation of deferred tax liability included in pension scheme asset
Balance as at 30th November 2006
Profit and loss account
Statement of total recognised gains and losses
Balance as at 30th November 2007
14704
12/02/2008
Proof 13
Provided
Unprovided
2007
£m
1.0
(2.2)
—
(1.2)
2006
£m
1.0
(2.7)
—
(1.7)
2007
£m
—
—
—
—
2006
£m
—
—
(0.1)
(0.1)
£m
(1.7)
0.5
(1.2)
£m
0.8
0.1
(0.9)
—
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 106
106 FINANCIAL STATEMENTS
K SHARE CAPITAL
Authorised:
Equity share capital
50,000,000
Ordinary 10p shares
Allotted and fully paid:
Equity share capital
120,773,954
Ordinary 10p shares
2007
£m
2006
£m
15.0
15.0
12.1
12.1
See note 2d of the group financial statements for details of outstanding options to acquire ordinary shares.
L
RESERVES
Share premium
account
£m
9.1
At 30th November 2006
—
Surplus on revaluation of investments (note F)
—
Retained (loss)/profit for the year (note B)
—
Net share additions
—
Dividends paid (note D)
Actuarial gain on pension scheme (note M)
—
Movement on deferred tax relating to pension asset (note J) —
9.1
At 30th November 2007
Capital
redemption
reserve
£m
0.3
—
—
—
—
—
—
0.3
Revaluation
reserve
£m
259.0
55.5
—
—
—
—
—
314.5
Profit
and loss
account
£m
123.5
—
(12.8)
—
(12.9)
(3.3)
0.9
95.4
Own shares
£m
(0.8)
—
—
0.1
—
—
—
(0.7)
‘Own shares’ represents the cost of 137,854 (2006: 167,306) shares held by the Employee Benefit Trust. The open market value
of the shares held at 30th November 2007 was £584,501 (2006: £951,971).
M
N
O
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 107
FINANCIAL STATEMENTS 107
M
PENSIONS
The company’s pension schemes are the principal pension schemes of the group and details are set out in note 19 of the
consolidated financial statements. The directors are satisfied that this note, which contains the required IAS 19 “Employee
Benefits” disclosures for the group, also covers the requirements of FRS 17 “Retirement Benefits” for the company.
N
OPERATING LEASE COMMITMENTS
Operating lease commitments where the company is the lessee
Annual commitments under noncancellable operating leases are as follows:
Operating leases which expire:
In one year or less
Between one and five years
2007
2006
Land and
buildings
£m
—
0.3
0.3
Other
£m
0.1
0.4
0.5
Land and
buildings
£m
—
0.3
0.3
Other
£m
0.1
0.4
0.5
O CONTINGENT LIABILITIES
The company has a joint and several unlimited liability with Vinci PLC and the Ministry of Defence under guarantees in respect of
the financial performance of VSM Estates (Holdings) Limited.
The company is also party to a joint and several guarantee to Fortis Bank in respect of the performance of Sowcrest Limited
which is limited to £18.4m.
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 108
108
INDEPENDENT AUDITORS’ REPORT TO THE
MEMBERS OF ST. MODWEN PROPERTIES PLC
We have audited the parent company financial statements of St. Modwen Properties PLC for the year ended 30th November 2007
which comprise the Company balance sheet and the related notes A to O. These parent company financial statements have been
prepared under the accounting policies set out therein.
We have reported separately on the group financial statements of St. Modwen Properties PLC for the year ended 30th November
2007 and on the information in the Directors’ Remuneration Report that is described as having been audited.
This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our
audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them
in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Annual Report, the Directors’ Remuneration Report and the parent company
financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally
Accepted Accounting Practice) are set out in the Statement of Directors’ Responsibilities.
Our responsibility is to audit the parent company financial statements and the part of the Directors’ Remuneration Report to be
audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the parent company financial statements give a true and fair view and whether the
parent company financial statements have been properly prepared in accordance with the Companies Act 1985. We also report to
you whether in our opinion the Report of the Directors is consistent with the parent company financial statements.
In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the
information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and
other transactions is not disclosed.
We read the other information contained in the Annual Report and consider whether it is consistent with the audited parent
company financial statements. The other information comprises only the Directors’ Report, the Chairman’s Statement and the
Business Review. We consider the implications for our report if we become aware of any apparent misstatements or material
inconsistencies with the parent company financial statements. Our responsibilities do not extend to any further information
outside the Annual Report.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices
Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the parent company
financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the
preparation of the parent company financial statements, and of whether the accounting policies are appropriate to the company’s
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order
to provide us with sufficient evidence to give reasonable assurance that the parent company financial statements are free from
material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the parent company financial statements.
Opinion
In our opinion:
the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted
Accounting Practice, of the state of the company’s affairs as at 30th November 2007;
the parent company financial statements have been properly prepared in accordance with the Companies Act 1985; and
the information given in the Report of the Directors is consistent with the parent company financial statements.
Deloitte & Touche LLP
Chartered Accountants and Registered Auditors
Birmingham, United Kingdom
8th February 2008
14704
12/02/2008
Proof 11
14704
●
●
●
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 109
FIVE YEAR RECORD
PLC
109
Rental income*
Property profits*
Revaluation surplus*
Pretax profits†
Earnings per share (pence)
Dividends paid per share (pence)
Dividend cover (times)
Net assets per share (pence)
Increase on prior year
Net assets employed
Investment properties
Investments
Inventories
Other net liabilities
Net borrowings
Net assets
Financed by
Share capital
Reserves
Own shares
Minority interests
2003
£m
42.5
25.2
14.5
47.5
31.2
6.6
4.7
175.5
2004
£m
44.3
34.0
26.1
64.3
41.5
7.6
5.5
219.8
2005
£m
45.2
39.3
44.9
82.9
55.4
8.8
6.3
268.3
2006
£m
40.3
44.6
55.6
96.9
61.6
10.2
6.0
322.8
2007
£m
34.9
54.5
62.8
100.1
73.3
11.7
6.3
387.3
15%
25%
22%
20%
20%
266.5
38.1
77.5
(35.1)
(135.0)
212.0
12.1
198.2
(1.3)
3.0
212.0
454.2
49.9
48.1
(59.4)
(227.3)
265.5
12.1
252.2
(1.9)
3.1
265.5
481.2
68.5
36.1
(54.0)
(207.8)
324.0
12.1
308.7
(0.4)
3.6
324.0
736.4
77.9
65.9
(237.5)
(252.9)
389.8
12.1
373.7
(0.8)
4.8
389.8
846.9
75.4
209.3
(262.0)
(401.9)
467.7
12.1
446.8
(0.7)
9.5
467.7
* Including share of joint ventures.
† Including posttax profit of joint ventures.
Figures prior to 30th November 2004 are restated on an IFRS basis, but do not reflect the reclassification of certain work in
progress assets.
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 110
110
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the sixtyseventh Annual General Meeting of St. Modwen Properties PLC will be held at noon on Friday,
28th March 2008 at the Ironmongers’ Hall, Barbican, London, EC2Y 8AA.
Ordinary Business
1. To receive and adopt the report of the directors and the accounts for the year ended 30th November 2007.
2. To declare a final ordinary dividend of 7.8p per share.
3. To reelect as directors:
i. William Oliver
ii. John Salmon
iii. Mary Francis
iv. Christopher Roshier
4. To reappoint Deloitte & Touche LLP as auditors and to authorise the directors to determine their remuneration.
5. To approve the directors’ remuneration report contained on pages 55 to 61.
Special Business
To consider and, if thought fit, pass the following resolutions:
6. Ordinary Resolution
That the authority to pay nonexecutive directors’ fees in accordance with Article 112.1 of the company’s Articles of Association
be and is hereby increased so that such fees paid in the aggregate to all nonexecutive directors shall not in any year exceed the
sum of £600,000, and such maximum shall be increased on each anniversary of the date of adoption of this resolution by the
movement in the Retail Prices Index.
7. Ordinary Resolution
That the authority to allot relevant securities and equity securities conferred on the directors by Article 8.2 of the company’s
Articles of Association be and is hereby granted for the period ending on 26th June 2009 or at the conclusion of the Annual
General Meeting of the company to be held after the date of the passing of this Resolution (whichever is the earlier) and for
such period the Section 80 amount shall be £2,922,605.
8. Special Resolution
That the power to allot relevant securities and equity securities conferred on the directors by Article 8.2 of the company’s
Articles of Association be and is hereby granted for the period ending on 26th June 2009 or at the conclusion of the Annual
General Meeting of the company to be held after the date of the passing of this Resolution (whichever is the earlier) and for
such period the Section 89 amount shall be £603,870.
9. Special Resolution
That, in accordance with Article 10 of its Articles of Association and Section 166 of the Companies Act 1985, the company be and
is hereby granted general and unconditional authority to make market purchases (as defined in Section 163 of the Companies
Act 1985) of any of its own ordinary shares on such terms and in such manner as the board of directors may from time to time
determine PROVIDED THAT the general authority conferred by this Resolution shall:
(a) be limited to 12,077,395 ordinary shares of 10p each;
(b) not permit the payment per share of more than 105% of the average middle market price quotation on the London Stock
Exchange for the ordinary shares on the five previous dealing days or less than 10p (in each case exclusive of advance
corporation tax (if any) and expenses payable by the company); and
(c) expire on 26th June 2009 or at the conclusion of the next Annual General Meeting of the company to be held after the date of
the passing of this Resolution (whichever is the earlier), save that if the company should before such expiry enter into a
contract of purchase then the purchase may be completed or executed wholly or partly after such expiry.
By order of the board
Jon Messent
Secretary
8th February 2008
Sir Stanley Clarke House
7 Ridgeway
Quinton Business Park
Birmingham, B32 1AF
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 111
NOTICE OF ANNUAL GENERAL MEETING 111
Notes
a) Deloitte & Touche LLP have expressed their willingness to remain in office and a resolution to reappoint them as auditors of the
company will be proposed at the forthcoming Annual General Meeting.
b) The level of aggregate fees for nonexecutive directors was last revised at the company’s Annual General Meeting in 2004. Given
the increase in fees awarded in the intervening period, and given the change to nonexecutive status of Anthony Glossop, the
level of aggregate fees permitted requires to be increased to £600,000.
c) The existing general authority of the directors to allot shares and the current disapplication of the statutory preemption rights
expire at the conclusion of the forthcoming Annual General Meeting.
Article 8.2 of the company’s Articles of Association contains a general authority for the directors to allot shares in the company
for a period (not exceeding five years) (“the prescribed period”) and up to a maximum aggregate nominal amount (“the Section
80 amount”) approved by a Special or Ordinary Resolution of the company. Article 8.2 also empowers the directors during the
prescribed period to allot shares for cash in connection with a rights issue and also to allot shares for cash in any other
circumstances up to a maximum aggregate nominal amount approved by a Special Resolution of the company (“the Section
89 amount”).
The board has no intention at present to exercise the authority to allot shares.
Resolution 7, which will be proposed as an Ordinary Resolution, provides for the Section 80 amount to be £2,922,605 (being an
amount equal to the authorised but unissued share capital of the company at the date of this report and representing 24% of the
company’s issued share capital at that date).
Resolution 8, which will be proposed as a Special Resolution, provides for the Section 89 amount to be £603,870 (representing
5% of the company’s issued share capital).
The prescribed period for which these powers and authorities are granted will expire at the conclusion of the Annual General
Meeting to be held next year (or on 26th June 2009 if earlier) when the directors intend to seek renewal of the authorities.
d) Renewal of the authority for the company to purchase certain of its own shares (Resolution 9).
This resolution renews an existing authority for a further year. The directors believe it is advantageous to have such authority
but would only exercise it if it was believed to be in the best interests of shareholders. At present, the board has no intention to
exercise the authority.
e) A member entitled to attend and vote at this meeting may appoint another person (whether a member or not) as his/her proxy,
to attend and, on a poll, vote for him/her. Forms of proxy, one of which is enclosed, must be signed by the appointer and must be
lodged at the registrar’s office at least 48 hours before the meeting. A proxy need not be a member of the company.
f) Copies of the contracts of service between the company and Mr C.C.A. Glossop, Mr W.A. Oliver, Mr S.J. Burke and Mr T.P.
Haywood are available for inspection at the registered office of the company on each business day during normal business
hours and will be available on the day of the meeting, at the place of the meeting, from at least 15 minutes prior to the meeting
until its conclusion. A register of directors’ interests will also be available for inspection from the commencement of the
meeting until its conclusion.
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 112
112 NOTICE OF ANNUAL GENERAL MEETING
g) In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, the company gives notice that only those
shareholders entered on the relevant register of members (the “Register”) for certificated or uncertificated shares of the
company (as the case may be) at 6 p.m. on Wednesday 26th March 2008 (the “Specified Time”) will be entitled to attend or vote
at the meeting in respect of the number of shares registered in their name at the time. Changes to entries on the Register after
the Specified Time will be disregarded in determining the rights of any person to attend or vote at that meeting. Should the
meeting be adjourned to a time not more than 48 hours after the Specified Time, that time will also apply for the purpose of
determining the entitlement of members to attend and vote (and for the purpose of determining the number of votes they may
cast) at the adjourned meeting. Should the meeting be adjourned for a longer period, then to be so entitled, members must be
entered on the Register at the time which is 48 hours before the time fixed for the adjourned meeting or, if the company gives
notice of the adjourned meeting, at the time specified in the notice.
h) Electronic proxy appointment through CREST
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for
the annual general meeting and any adjournment(s) thereof by using the procedures described in the CREST Manual. CREST
Personal Members or other CREST sponsored members, and those CREST members who have appointed a voting service
provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on
their behalf.
In order for a proxy appointment or instruction made using the CREST service to be valid, the approprate CREST message (a
“CREST Proxy Instruction”) must be properly authenticated in accordance with CRESTCo’s specifications and must contain the
information required for such instructions, as described in the CREST Manual. The message, regardless of whether it
constitutes the appointment of a proxy or to an amendment to the instruction given to a previously appointed proxy must, in
order to be valid, be transmitted so as to be received b the issuer’s agent (ID 7RA01) by the latest time(s) for receipt of proxy
appointments specified in the notice of meeting. For this purpose, the time of receipt will be taken to be the time (as determined
by the timestamp applied to the message by the CRESR Applications Host) from which the issuer’s agent is able to retrieve the
message by enquiry to CRESR in the manner prescribed by CREST. After this time any change of instructions to proxies
appointed through CREST should be communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors or voting service providers should note that CRESTCo does not
make available special prcocedures in CREST for any particula messages. Norma system timings and limitations will therefore
appli in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if
the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to
procure that his CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST
sponsors or voting service providers are referred in particular, to those sections of the CREST Manual concerning practical
limitations of the CREST system and timings.
The company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5) of the
Uncertificated Securities Regulations 2001.
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 113
NOTICE OF ANNUAL GENERAL MEETING 113
(i) Multiple Corporate Representatives
In order to facilitate voting by corporate representatives at the meeting, arrangements will be put in place at the meeting so that
1. If a corporate shareholder has appointed the Chairman of the meeting as its corporate representative with instructions to
vote on a poll in accordance with the directions of all of the other corporate representatives for that shareholder at the
meeting, then on a poll those corporate representatives will give voting directions to the Chairman and the Chairman will
vote (or withhold a vote) as corporate representative in accordance with those directions; and
2. If more than one corporate representative for the same corporate shareholder attends the meeting but the corporate
shareholder has not appointed the Chairman of the meeting as its corporate representative, a designated corporate
representative will be nominated, from those corporate representatives who attend, who will vote on a poll and the other
corporate representatives will give voting directions to that designated corporate representative. Corporate shareholders are
referred to the guidance issued by the Institute of Chartered Secretaries and Administrators on proxies and corporate
representatives www.icsa.org.uk for further details of this procedure.
(j) Multiple Proxy appointment
1. Every holder has the right to appoint some other person(s) of their choice, who need not be a shareholder as his proxy to
exercise all or any of his rights, to attend, speak and vote on their behalf at the meeting. If you wish to appoint a person other
than the Chairman, please insert the name of your chosen proxy holder in the space provided. If the proxy is being appointed
in relation to less than your full voting entitlement, please enter in the box next to the proxy holder’s name the number of
shares in relation to which they are authorised to act as your proxy. If left blank your proxy will be deemed to be authorised in
respect of your full voting entitlement (or if the proxy form has been issued in respect of a designated account for a
shareholder, the full voting entitlement for that designated account).
2. To appoint more than one proxy, (an) additional proxy form(s) may be obtained by contacting the Registrars helpline on 0871
384 2198 or you may photocopy the form. Please indicate in the box next to the proxy holder’s name the number of shares in
relation to which they are authorised to act as your proxy. Please also indicate by ticking the box provided if the proxy
instruction is one of multiple instructions being given. All forms must be signed and should be returned together in the same
envelope.
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 114
114
GLOSSARY OF TERMS
Annualised net rents are gross rents as at a reporting date plus, where rent reviews are outstanding, any increases to estimated
rental value (as determined by the group’s external valuers), less any ground rents payable under head leases.
BREEAM – Building Research Establishment Environmental Assessment Method – an industrywide system of standards to assess
sustainable developments and measure the environmental impact of buildings.
Capital allowances deferred tax provision – In accordance with IAS 12, full provision has been made for the deferred tax arising on
the benefit of capital allowances claimed to date. However, in the group’s experience, the liabilities in respect of capital allowances
provided are unlikely to crystallise in practice and are therefore excluded when arriving at EPRA NAV.
Community interest company is a limited company conducting a business or other activity for community benefit, not purely for
private advantage. The assets and profits are dedicated to community purposes.
Compulsory purchase order (CPO) is the compulsory acquisition of land by a planning authority, undertaken in the public interest
and with predefined timescales and compensation arrangements.
CSR — corporate and social responsibility.
EPRA is the European Public Real Estate Association – a body that has put forward recommendations for best practice for financial
reporting by real estate companies.
EPRA net asset value (EPRA NAV) is the balance sheet net assets, excluding fair value adjustments for debt and related
derivatives, deferred taxation on revaluation and capital allowances.
EPRA net assets per share is EPRA net assets divided by the diluted number of shares at the period end.
Estimated rental value (ERV) is the group’s external valuers’ opinion as to the open market rent which, on the date of valuation,
could reasonably be expected to be obtained on a new letting or rent review of the property.
Equivalent yield is a weighted average of the initial yield and reversionary yield and represents the return a property will produce
based on the timing of the income received.
Gearing is the level of the group’s bank borrowing (excluding finance leases) expressed as a percentage of net assets.
Hopper is the bank of property comprising all of the land under the group’s control, whether wholly owned or through joint
ventures or development agreements.
IFRS – International financial reporting standards.
Initial yield is the annualised net rent expressed as a percentage of the valuation.
Interest cover is the number of times group net interest payable is covered by profit before interest and taxation.
IPD is the Investment Property Databank Ltd., a company that produces an independent benchmark of property returns.
Knockout options are interest rate swap contracts in which the bank has the right to terminate at a fixed point during the
contract.
14704
12/02/2008
Proof 11
14704
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 115
GLOSSARY OF TERMS 115
Market value is an opinion of the best price at which the sale of an interest in the property would complete unconditionally for cash
consideration on the date of valuation (as determined by the group’s external valuers).
In accordance with usual practice, the group’s external valuers report valuations net, after the deduction of the prospective
purchaser’s costs, including stamp duty, agent and legal fees.
Marshalling is the process of progressing projects through planning and development.
Net rental income is the rental income receivable in the period after payment of ground rents and net property outgoings.
Presold projects are those projects where we are constructing buildings that have been specified by, and designed for, or
adapted by, a specific client under a specific construction contract. On such projects, profit is recognised using the stage
completion method.
Property profits includes profits made on sales of investment properties, properties held for sale and properties under construction.
Rent roll is the gross rent plus rent reviews that have been agreed as at the reporting date.
Return on equity – A key performance indicator, measuring profit after tax as a percentage of average equity.
Section 106 agreements are legally binding agreements reached with local planning authorities under S106 of the Town and
Country Planning Act 1990. They address the impact of proposed developments on the local community and often involve a
financial contribution by the developer.
Voids is the estimated rental value of vacant properties expressed as a percentage of the total estimated rental value of the
portfolio, excluding development properties.
Weighted average debt maturity – Each tranche of group debt is multiplied by the remaining period to its maturity and the result
is divided by total group debt in issue at the period end.
Weighted average interest rate is the group loan interest and derivative costs per annum at the period end, divided by total group
debt in issue at the period end.
14704
12/02/2008
Proof 13
14704STMODWEN FIN:Layout 1
13/2/08
10:05
Page 116
116
SHAREHOLDER INFORMATION
ADVISERS
Auditors
Deloitte & Touche LLP
Registrars
Equiniti Registrars
Stockbrokers
Landsbanki Securities
(UK) Limited
REGISTERED OFFICE
Sir Stanley
Clarke House
7 Ridgeway
Quinton Business Park
Birmingham, B32 1AF
Company number
349201
Website:
www.stmodwen.co.uk
Financial Calendar
Record date for 2007 final dividend
Annual General Meeting
Payment of 2007 final dividend
Announcement of 2008 interim results
Payment of 2008 interim ordinary dividend
Announcement of 2008 final results
Ordinary Shareholdings at 30th November 2007
By shareholder
Directors and connected persons
Individuals
Insurance companies, nominees and pension funds
Other limited companies and corporate bodies
By shareholding
Up to 500
501 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 50,000
50,001 to 100,000
100,001 to 500,000
500,001 to 1,000,000
1,000,001 and above
Shareholders
No.
%
31
3,970
740
110
0.6
81.8
15.3
2.3
Shareholders
No.
%
1,304
927
1,755
371
333
52
69
17
23
26.9
19.1
36.2
7.6
6.9
1.1
1.4
0.3
0.5
Principal institutional shareholders at 30th November 2007
ING Investment Management
Scottish Widows
Thames River Capital
Legal & General Investment Management Limited
M & G Investment Management Limited
Dimensional Fund Advisers
Barclays Global Investors Limited
Henderson Global Investors
ABP Investments
AXA Framlington Investment Management Limited
Brewin Dolphin
Smith & Williamson
The Clarke and Leavesley families and trusts together hold
14704
12/02/2008
Proof 11
14th March 2008
28th March 2008
4th April 2008
July 2008
September 2008
February 2009
Shareholders
No.
39.7
24.2
54.8
2.0
No.m
0.3
0.7
4.0
2.7
7.1
3.8
14.5
12.9
74.7
No. (m)
9.7
5.3
4.4
4.0
2.6
2.4
1.9
1.8
1.5
1.4
1.2
1.2
51.4
Shares
Shares
%
32.9
20.0
45.4
1.7
%
0.3
0.6
3.4
2.2
5.9
3.2
12.0
10.6
61.8
%
8.0
4.4
3.7
3.3
2.2
2.0
1.6
1.5
1.3
1.2
1.0
1.0
42.5
�
LITTLECOMBE VILLAGE, DURSLEY
THE COMPANY’S FIRST TRUE URBAN VILLAGE
DEVELOPMENT. IN PARTNERSHIP WITH SWERDA,
MORE THAN HALF THE SITE HAS BEEN REMEDIATED,
WITH THE FIRST PHASE OF INFRASTRUCTURE AND
EMPLOYMENT SPACE UNDER CONSTRUCTION. THE
RIVER CAM HAS BEEN OPENED UP, AND RESIDENTIAL
DEVELOPMENT WILL COMMENCE IN 2008
TRENTHAM �
ONE OF CHARLES BARRY’S ITALIANATE
PAVILIONS AND HIS BALUSTRADE, FAITHFULLY
RESTORED AS PART OF THE TRENTHAM
GARDENS PROJECT
14704
11/02/08
Proof 8
14704
11/02/08
Proof 8
THE UK’S LEADING
REGENERATION SPECIALIST
S
T
.
M
O
D
W
E
N
P
R
O
P
E
R
T
I
E
S
P
L
C
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
ST. MODWEN PROPERTIES PLC
HEAD OFFICE & MIDLANDS REGIONAL OFFICE
Sir Stanley Clarke House
7 Ridgeway
Quinton Business Park
Birmingham
B32 1AF
T: 0121 222 9400 F: 0121 222 9401
W: stmodwen.co.uk E: info@stmodwen.co.uk
REGIONAL OFFICES
LONDON & SOUTH EAST
16 Berkeley Street
London
W1J 8DZ
T: 020 7499 5666
SOUTH WEST
King’s Western Lane
Avonmouth
Bristol
BS11 8AZ
T: 0117 316 7780
YORKSHIRE
Ground Floor, Unit 2
Landmark Court
Elland Road
Leeds
LS11 8JT
T: 0113 272 7070
NORTH STAFFORDSHIRE
Island Reach
Festival Way
Stoke-on-Trent
ST1 5SW
T: 01782 281844
NORTH WEST
Chepstow House
Trident Business Park
Daten Avenue
Risley
Warrington
WA3 6BX
T: 01925 825950
NORTHERN HOME COUNTIES
First Floor, Unit E1
The Courtyard
Alban Park
Hatfi eld Road
St Albans
Hertfordshire
AL4 0LA
T: 01727 732690
14704
04/02/08
Proof 6
14704
04/02/08
Proof 6
ST. MODWEN PROPERTIES PLC
ANNUAL REPORT 2007