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ST. MODWEN PROPERTIES PLC
HEAD OFFICE & MIDLANDS
REGIONAL OFFICE
Sir Stanley Clarke House
7 Ridgeway
Quinton Business Park
Birmingham
B32 1AF
0121 222 9400
stmodwen.co.uk
info@stmodwen.co.uk
REGIONAL OFFICES:
LONDON & SOUTH EAST
180 Great Portland Street
London
W1W 5QZ
YORKSHIRE
Ground Floor, Unit 2
Landmark Court
Elland Road
Leeds
LS11 8JT
020 7788 3700
0113 272 7070
SOUTH WEST
King’s Weston Lane
Avonmouth
Bristol
BS11 8AZ
0117 316 7780
NORTH STAFFORDSHIRE
The Trentham Estate
Management Suite
Stone Road
Trentham
StokeonTrent
ST4 8AX
01782 281844
NORTH WEST
Chepstow House
Trident Business Park
Daten Avenue
Risley
Warrington
WA3 6BX
01925 825950
NORTHERN HOME COUNTIES
First Floor, Unit E1
The Courtyard
Alban Park
Hatfield Road
St Albans
Hertfordshire
AL4 0LA
01727 732690
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THE UK’S LEADING
REGENERATION SPECIALIST
www.stmodwen.co.uk
STOCK CODE: SMP
ST. MODWEN PROPERTIES PLC
ANNUAL REPORT 2008
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HIGHLIGHTS
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HIGHLIGHTS
TRADING PROFIT*
NET ASSETS PER SHARE
£8.2m 333p
(*See page 18)
DEVELOPABLE ACRES
5,020
BUSINESS REVIEW
4 Chairman’s statement 6 The hopper strategy 8 St. Modwen at a glance
10 Operational review 18 Financial review 22 Areas of operation
CORPORATE GOVERNANCE
40 Corporate social responsibility 48 Board members and senior management
50 Corporate governance report 56 Directors’ remuneration report
FINANCIAL STATEMENTS
66 Directors’ responsibility statement 67 Independent group auditors’ report
68 Group and company accounts 110 Independent company auditors’ report
111 Five year record 112 Notice of annual general meeting
115 Glossary of terms 116 Shareholder information
� INSIDE FRONT COVER WEMBLEY CENTRAL
Works to the £90m redevelopment of
Wembley Central are now well underway.
� FRONT COVER GLASSWORKS FACTORY, SUNDERLAND
Former glassworks factory, Sunderland; St. Modwen
will transform this 17 acre site into a £10m
mixeduse development.
The report of the directors comprises the business
review and corporate governance sections of the
annual report and has been drawn up and presented
in accordance with English Company Law.
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BUSINESS REVIEW
“OUR BUSINESS MODEL WILL CONTINUE TO CREATE
VALUE EVEN IN DIFFICULT TIMES”
04 Chairman’s statement
06 The hopper strategy
08 St. Modwen at a glance
10 Operational review
18 Financial review
22 Areas of operation
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04
CHAIRMAN’S
STATEMENT
RESULTS
I am pleased to report that, despite experiencing the most difficult
year for property in decades, we made a trading profit (excluding
revaluation writedowns and mark to market adjustments of our
interest rate hedges — see page 18) of £8.2m (2007: £50.9m).
The outcome for the past year, including those items, is a loss for
the year of £50.7m (2007: £93.7m profit) and, taking into account the
payment of dividends, a decline in the net asset value of the
company of 14% to 333p per share (2007: 387p).
TRADING AND VALUATIONS
The broad range and regional spread of our activities enabled us to
continue to find business despite the economic turbulence. We
achieved property sales of £146m, completing 104 transactions, and
have grown our rent roll, with rental income in the second half 8%
higher than in the first half.
Our valuations at 30th November 2008 reflect a year of considerable
uncertainty in the real estate investment market. The yields used for
valuing our properties have continued to weaken. The results for the
year include a negative yield shift on average of 1%. The value of our
commercial land has also been reduced to reflect the declining
values of developments that will be undertaken on the land.
Additionally, the valuation of our residential land has been
significantly reduced to reflect the current housing market. For the
majority of our sites that have consent for residential development,
carrying values are now at similar levels to that for employment
land without such consent.
However our strategy of constantly seeking to add value helped to
mitigate the unavoidable market value writedowns. Market related
adjustments of £129.4m were therefore tempered by added value
gains of £64.8m.
We continue to transact a steady flow of business, and since 30
November 2008, we have agreed forward sales or the disposal of
prelet properties with a value of some £90m, and have rent roll
increases, completed or in solicitors’ hands, of £4.9m (£2.6m net of
vacations and tenant failures)
FINANCING
We have adequate lines of credit in place which do not require any
material refinancing before 2011. Interest cover covenants have
been redefined to include the realisation of historical revaluation
surpluses, which gives us greater flexibility in meeting them. The
company is trading within all its banking covenants and its forward
projections show a continuation of that position. Although there is
uncertainty around forecast property valuations, we believe we will
mitigate any downward movements, in part, through continued
marshalling activity.
We continue to assess the full range of options to provide additional
financial flexibility, including generating trading profits, cash
management and cost control and disposals from our investment
portfolio, as well as possible equity raising.
DIVIDEND
Your board is not recommending a final dividend for the year,
(although an interim dividend of 3.9p per share has been paid). We
believe that the funds are currently better used in the operations of
the business, until market conditions are clearer and more positive.
STRATEGY
In the current economic downturn, where bank and investor liquidity
is limited, and the market for residential land is at an historic low,
we have adapted our activities to suit the changing conditions.
Therefore during the year we have scaledback speculative
schemes, whilst continuing to marshal sites for development on the
back of prelet or presold opportunities. We have also continued to
dispose of those mature assets to which we can add no further
significant value.
Our aim has been to bring debt and gearing levels down, which I am
pleased to report is being achieved – borrowings have now peaked
and we expect that the next period will see a gradual reduction in
our debt.
Notwithstanding our focus on cash generation, we continue to seek,
and to find, longterm opportunities for the Hopper. During the year,
we made 20 acquisitions adding 318 acres of developable land to
our hopper. Our selection by BP for the acquisition of Coed Darcy is
a good example of this: the acquisition will be selffinancing; it will
entail a 20year development horizon that will enable the company
to utilise fully its brownfield land remediation expertise.
Looking ahead, we remain confident that the company’s strategy is
valid in the longterm, despite the current weakness in the market.
We will continue to build on our reputation as the UK’s leading
regeneration specialist. We will continue to add value across our
geographically and sectordiversified Hopper through our network
of regional offices. We will continue to work in partnership with
communities and local authorities to bring innovative regeneration
to those areas which need it most. And in doing all this, I believe
that the company will return to the longstanding historical trend of
providing sectorleading returns to our shareholders.
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CHAIRMAN’S STATEMENT
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“WE WILL CONTINUE TO
BUILD ON OUR REPUTATION
AS THE UK’S LEADING
REGENERATION SPECIALIST”
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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.
At the next Annual General Meeting, Christopher Roshier will step
down as nonexecutive director, having completed 22 years’ service,
including a long spell as chairman of the audit committee and
senior independent director. I would like to thank him for his wise
counsel and for the valued contribution that he has made to the
success of the company during this time.
PROSPECTS
Property market prospects for 2009 are uncertain. The economy is
in recession, with little business confidence.
However, we are well prepared for such conditions: our financial
position is sound; our business model will continue to create value
even in difficult times; and we anticipate that there will be attractive
opportunities to add further to the Hopper.
Our business has never been based on a concept of automatic rental
growth or new headline rents, but on constantly providing value for
money. Even in today’s market this approach bears fruit.
Our confidence in the longerterm is undiminished. The market for
residential land will eventually return and investment yields will
stabilise as the benefits from lower interest rates are realised.
When this occurs, the company’s 5,000 acre hopper and experienced
management team will provide an exceptional foundation for a
return to growth.
Anthony Glossop
Chairman
26th February 2009
Anthony Glossop
Chairman
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THE HOPPER STRATEGY
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NEW PROJECTS
The company’s strategy is to add value to all assets it holds by
marshalling an extensive hopper of development opportunities, by
delivering builtout schemes across all sectors of the property
market, and by regularly recycling capital into the acquisition of
new opportunities.
2. MARSHALLING
The company s own team,
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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,
master planning and undertaking
public consultation.
�
01�
RAF BENTLEY PRIORY
The site was formally closed this year
to make way for its redevelopment
into a luxury housing development
and museum linked to the site's
heritage with the Battle of Britain.
�
�
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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. The aim is to
replace land used every year to
ensure the longterm continuation of
the company’s growth strategy.
�
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EDMONTON GREEN
This £100m regeneration project is
now nearing completion.
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THE TRENTHAM ESTATE
The company is now entering its sixth
year of its £100m restoration
programme at the Trentham Estate.
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3. DELIVERY
Once marshalled schemes are builtout in response
to market conditions, with a mixture of prelet 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 significant value can be added,
and the capital is then recycled into new schemes,
enabling the entire process to begin again.
’
�
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ST. MODWEN
AT A GLANCE
The company focuses on four areas:
BROWNFIELD LAND RENEWAL
Page 22
TOWN CENTRE REGENERATION
Page 26
0
PARTNERSHIPS
Page 30
INNOVATION AND EDUCATION
Page 34
162 £1.1bn
TOTAL INVESTMENT PROPERTIES
SCHEMES
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NORTH WEST
01 NEWTONLEWILLOWS
12 WIGAN
Vulcan Works
02 GLASGOW
Pegasus Business Park
Springburn
08 PRESTON
Channel Way
09 BLACKBURN
Evolution Park
10 SKELMERSDALE
Town Centre
11 ECCLES
Lankro Way
SOUTH WEST
31 GLOUCESTER
Quedgeley Industrial
Estates
32 NEWPORT, GWENT
Llanwern
33 DURSLEY, GLOS
Littlecombe Village
34 AVONMOUTH, BRISTOL
Access 18
Enterprise Park
13 MANCHESTER
Wythenshawe
Trafford Park
14 LIVERPOOL
East Lancs Road
Great Homer Street
15 WIDNES
Economic Development Zone
Town Centre
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TAUNTON
Trading Estate
NEATH
Coed Darcy
EXETER
Skypark
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LEEDS
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WARRINGTON
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STOKE-ON-TRENT
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BRISTOL
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ST. ALBANS
LONDON
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REGIONAL OFFICES
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ST.MODWEN AT A GLANCE
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03 DARLINGTON
Whessoe Road
04 SUNDERLAND
Glassworks
05 HULL
Melton Park
06 DONCASTER
Worcester Avenue
07 LINCOLN
Ruston Works
NORTH STAFFORDSHIRE
16 STOKEONTRENT
Festival Park
Trentham Gardens
Trentham Lakes
17 STONE
Meaford Power Station
MIDLANDS
18 DERBY
Hilton Depot
19 STAFFORD
Lichfield Road
St. Leonard’s
20 BURTONUPONTRENT
Barton Business Park
21 WOLVERHAMPTON
Goodyear
22 TELFORD
25 BIRMINGHAM
Washwood Heath
Quinton Business Park
26 LONGBRIDGE
Town Centre
27 RUGBY
Mill Road
Newbold Road
28 WORCESTER
Shrub Hill Industrial Estate
Brockton Business Park
Queensway Business Park
29 STRATFORDUPONAVON
Long Marston
23 WALSALL
St. Matthew’s Quarter
30 COVENTRY
Whitley
NORTHERN HOME COUNTIES
37 CRANFIELD
Technology Park
38 BEDFORD
Thurleigh Airfield
Town Centre
45 LONDON
Edmonton Green
39 MILTON KEYNES
Stratford Road
40 HATFIELD
Town Centre
55 LETCHWORTH
56 HEMEL HEMPSTEAD
Maxstead Park
LONDON AND SOUTH EAST
41 MILL HILL
Inglis Barracks
42 STANMORE
RAF Bentley Priory
43 UXBRIDGE
RAF Uxbridge
44 THURROCK
South Ockendon
45 LONDON
Catford
Elephant & Castle
Hounslow
Leegate Centre
Newham
Wembley Central
46 WOKING
The Planets
57 BRIGHTON
Woodingdean
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The Malls
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Town Centre
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Henley Industrial Estate
50 YALDING
Syngenta
51 BOGNOR REGIS
Town Centre
52 EASTLEIGH
Campbell Road
53 POOLE
Discovery Court
54 WALTHAMSTOW
Town Centre
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OPERATIONAL
REVIEW
OUR MARKET
We are the UK’s leading regeneration specialist, operating within
all sectors of the property market.
company not to be in serious competition whether it has been
seeking to make an acquisition, to achieve selection as preferred
developer, or to secure an occupier.
The property market is experiencing the worst trading conditions
for decades.
The occupational market continues to be vulnerable to further
economic downturn. The retail market is undoubtedly weaker,
although occupancies in our existing town centre schemes are
holding up well. The business park market has also remained
difficult, but we have continued to make progress in the small office
unit market and our business innovation centres have achieved
good early results. The industrial market remains the strongest,
with a number of large bespoke requirements supplementing
owneroccupier demand for smaller units.
The market for residential land, however, which has been important
for us in recent years, has collapsed. There are currently no
substantial private sector buyers for residential land, as house
builders struggle to move existing housing stocks and to shore up
their overstretched balance sheets. However, having incurred a
significant writedown in the carrying values of our residential
land during 2008, we believe that our further exposure in this area
is limited.
Our longterm strategy should continue to mitigate the worst effects
of a difficult market on St. Modwen. As well as a prudent approach
to appraising schemes, an emphasis on adding value, and our
exposure to a wide range of property sectors and geographic areas,
we also benefit from:
The size and diversity of the hopper, enabling us to align our
development activities to market conditions.
An unrivalled experience in brownfield land regeneration.
A strong and experienced management, development and
construction team.
In the current credit crunch market, however, conditions are
different: the lack of readily available finance has restricted the
appetite and ability to compete of many developers; and the
dislocation of the residential market, combined with falling
investment returns, and increasing levels of caution amongst
occupiers has undermined the viability of a number of proposed
schemes. As a result, development and acquisition activity has
fallen to low levels.
By contrast, the regulatory environment remains restrictive.
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.
Two recent regulatory innovations, purportedly introduced to speed
up the planning process and to facilitate property occupation, are
cases in point. The Area Action Plan process which is being trialled
at Longbridge took more than three years, before the masterplan
for this massively important regeneration scheme was finally
approved in February 2009, despite close collaboration with the
relevant local authorities. In the meantime, plans for the creation of
10,000 jobs, 1,400 homes, and a new town centre on the site of the
former MG Rover car factory have remained unrealised.
A second initiative, the imposition of business rates on empty
buildings, which became effective in April 2008, has had similarly
unintended consequences. This tax represents a significant
additional burden to which the rational response of the property
owner is likely to be to demolish those secondhand buildings that
cannot immediately be let, thereby removing a source of affordable
space. This was exemplified at Longbridge, where we reluctantly
demolished a 750,000 sq ft former factory in order to avoid a
£700,000 annual tax charge.)
COMPETITIVE AND REGULATORY ENVIRONMENT
The UK property market is normally extremely competitive.
Natural barriers to entry are generally low. Finance is usually
readily available and advantages of scale, although they do exist,
are limited. In recent years it has been rare, therefore, for the
Furthermore, the speculative development of new facilities for
small and startup businesses, such as our innovation centres, are
now unlikely to proceed without public sector funding, thereby
depriving these businesses of a source of usable space ready for
immediate occupation.
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� WHITLEY BUSINESS PARK
The first phase of this 1.1 million sq ft
speculative development was completed
at the start of 2009.
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OPERATIONAL REVIEW
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OPERATIONAL REVIEW
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Our current financial objectives are more simple, namely: to
manage through the downturn by running the business for
cashflow; and to be in the best possible shape to profit from the
opportunities that will undoubtedly arise.
Both of these objectives require the same thing: adapting our
activities to changing conditions. We are doing this by reducing
expenditure; seeking to drive down debt and gearing levels; selling
assets to which we can no longer add value; eliminating speculative
development activity, and minimising any other nonfunded
commitments.
For us, as for all property companies, adherence to our banking
covenants is paramount. Consequently, our key performance
indicators are currently those set by those covenants, namely:
Gearing1
Net assets2
Interest cover3
Loan to value4
Actual
2008
105%
Actual
2007
Covenant
86%
< 125%
> £350m £402m £468m
307%
> 150%
53%
< 70–80%
162%
46%
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1 Gearing = net debt as a percentage of shareholders’ funds.
2 Net assets = the definitions of net assets in our banking facilities
vary, the most stretching definition excludes minority interests.
Interest cover = profit before interest and tax (excluding noncash
items such as investment property revaluations) plus the
realisation of previous years’ revaluations, as a percentage of net
interest (excluding noncash items such as marktomarket of
swaps).
4 Loan to value = the amount of loan secured against specific
portfolios of properties, as a percentage of the market value of
those properties. This is tested separately for each of our bank
loans. The table above shows the companywide ratio of our
drawn facilities to our total available security.
The company is trading within all its banking covenants and its
realistic forward projections show a continuation of that position.
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.
The key to our strategy remains the continuing acquisition of well
located opportunities to top up the hopper, which currently
comprises more than 5,000 acres of developable land.
EMPLOYEES
We take a handson approach to all aspects of our business: asset
management; marshalling; and development. And as such, the skill
of our people is fundamental to enable us to add value to the assets
in the hopper. Consequently, even in these difficult times, we have
continued to invest in our own bespoke management development
programme for all senior staff, which enables us to continue to grow
the abilities of the talented people who will be the drivers of the
company’s future expansion.
It was, therefore, with reluctance that we decided in October that
the continued fall in activity levels required us to reduce our
headcount. As a result, 30 staff were made redundant from our
property functions, and a further 16 from our leisure operation
at Trentham.
FINANCIAL OBJECTIVES AND KEY PERFORMANCE
INDICATORS
In the current UK economic and property market conditions, our
previously stated financial objectives for NAV and dividend growth,
or for specified returns on equity, are in the short term largely
meaningless.
� RAF NORTHOLT
The £150m redevelopment of RAF
Northolt will create the MOD's first
integrated core site in London.
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OPERATIONAL REVIEW
DEVELOPMENT AND PERFORMANCE OF THE BUSINESS
THE HOPPER — ASSEMBLY AND ACQUISITION
Despite the financial constraints on the business, 2008 was another
excellent year for acquisitions, yet without significant cash outlay.
Obtaining control of opportunities through selffinancing
transactions has always been part of our hopper strategy, and this
year our skills in deal structuring have enabled us to continue to
build for the future without compromising the shortterm
requirements of the business.
Our total expenditure on new acquisitions (including 100% of joint
ventures) during the year was only £18m. However, this enabled us
to add 318 acres of developable land to the hopper. As a result, the
hopper (including 100% of joint ventures) now stands at 8,702 acres,
of which 5,020 is developable. The hopper is very broadly based,
comprising some 162 separate schemes, across all sectors of the
property market.
Significant acquisitions during the period included:
Coed Darcy — A 1,000 acre former oil refinery site near Neath,
South Wales. Working closely in partnership with BP, The Welsh
Assembly Government, Neath Port Talbot County Borough
Council, and The Prince’s Foundation for the Built Environment,
we have commenced extensive remediation works prior to
creating a sustainable urban village community of some 4,000
homes on the site.
Sunderland — A 10 acre former Pyrex factory site with 350,000
sq ft of buildings, identified as a priority regeneration site by the
city’s urban regeneration company, Sunderland arc. Subsequent
to the year end we acquired an adjoining 7 acre former Corning
glassworks facility.
WestonsuperMare — Selected as the preferred developer for
the former RAF Locking site, now known as Locking Parklands,
by South West RDA and English Partnerships. The site will
become a new 200 acre mixed use community.
Letchworth — A 5 acre former RWE power station site in
Letchworth Garden City, acquired from Letchworth Heritage
Foundation for development into an 80,000 sq ft office and
industrial park.
Additionally, in November we were selected by BP as preferred
developer for a 2,500 acre portfolio of brownfield sites in South
Wales, Scotland, the Midlands and South East England. We are
currently documenting the acquisition of the portfolio, before
commencing an extensive programme of remediation works, funded
by a dowry from BP. The sites are likely to be redeveloped for
predominantly employmentled commercial uses.
This important portfolio acquisition exemplifies much of our
business model, namely:
A partnership with a major landowner.
A series of longterm brownfield remediation projects.
A selffinancing transaction, with costs incurred only as value is
unlocked.
This portfolio will take its place in our widespread and diversified
hopper, being marshalled over a 10–15 year horizon to deliver a
regular contribution in future years, and continuing the
reinforcement of our reputation as the UK’s leading regeneration
specialist.
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
Sq Ft
No.
—
5
151,000
5
22 1,295,000
399,000
11
Units
4,425
—
—
—
In particular, we obtained planning consent on the following major
schemes:
Project MoDEL — Planning permission was obtained on two of
the remaining four former MOD sites: at Bentley Priory,
Stanmore, for a new museum commemorating the Battle of
Britain and 103 new homes; and at Victoria House in Woolwich,
South East London, for a 75bedroom care home.
Coed Darcy — Planning consent has been obtained for 4,000
dwellings and 500,000 sq ft of employment space together with
retail and community facilities, and the Section 106 obligations
and outline remediation strategy have been agreed.
Darlington — An agreement has been signed with Darlington
Borough Council to open up 70 acres of land within the
Faverdale Employment Area to create a £50m major industrial
park capable of providing 1,500 jobs. We have received a
resolution to grant planning consent for up to 1.1 million sq ft of
predominantly distribution space.
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Connah’s Quay, Flintshire — Planning consent has been
obtained for the redevelopment of the Deeside district centre,
comprising a 52,000 sq ft foodstore, which has been prelet to
Morrisons and 20,000 sq ft of further retail space.
StokeonTrent — Planning consents have been obtained for the
regeneration of the historic former Royal Doulton site in Nile
Street, Burslem (a mixed use scheme comprising a 70,000 sq ft
Enterprise Centre and 140 homes), and for a 21,000 sq ft district
centre at Trentham South.
Elsewhere we continue to move forward the planning position on
major sites:
Long Marston — Our proposed Middle Quinton development on
this former MOD site is one of twelve nationally shortlisted
potential ecotowns. The site recently received a Grade B rating
in the Department of Communities and Local Government
Sustainability Assessment (which classified the site as ‘Might be
a suitable location subject to meeting specific planning and
design objectives.’), and remains on track for selection some
time in 2009. In the meantime, we continue to work up
alternative proposals for a mixed use employmentled
redevelopment of the site in accordance with the existing
local plan.
Longbridge — Four separate planning applications,
representing £750m of mixed use development, have been
submitted to Birmingham City Council and Bromsgrove District
Council for the regeneration of the 468 acre former MG Rover
Works. The applications comprise 1.8 million sq ft of
employment space, together with 1,980 new homes, a new town
centre and extensive community facilities. In addition, there will
be a new learning quarter on the site, anchored by Bournville
College which announced in 2008 that it will relocate to a new
purposebuilt £84m educational facility at Longbridge in 2011.
Hednesford — We are currently working up a 124,000 sq ft retail
scheme, anchored by a foodstore, with planning due for
submission in autumn 2009.
Sunderland — A planning application is shortly to be submitted
for a mixed use scheme comprising 25,000 sq ft of office
accommodation and 285 family homes, following the successful
assembly of this 17 acre site.
Significant achievements on our major town centre projects include:
Edmonton Green, Enfield — The latest phases of this £100m
regeneration scheme, the 66,000 sq ft Asda foodstore and
37,500 sq ft new West Mall, have been completed, and a letting
to Argos has been secured.
Wembley — A prelet over 15,700 sq ft to Peacocks has been
added to a strong lineup of other retailers including TK Maxx,
Somerfield, Iceland, Holland & Barrett and Totesport, bringing
the total of prelet retail space to over 60%, with several other
deals with retailers at various stages in the legal process.
Farnborough — One of a very limited number of retail
development schemes coming on stream nationally in the
period 2009–2010. Following demolition and infrastructure
works, we have commenced on the first phase of the town
centre redevelopment which will provide 190,000 sq ft of new
retail space, a new Sainsbury’s store, Travelodge and leisure
facilities, together with 115 private apartments and 56
apartments for affordable housing in partnership with Thames
Valley Housing Association and Pavilion Housing Association.
Although scaled back in response to current market conditions, our
construction programme continues to deliver new schemes:
StokeonTrent — Work has started on a prelet £30m call
centre for Vodafone. The innovativelydesigned 80,000 sq ft
building should secure jobs for about 1,100 people in the area.
Work has also begun on a 7,850 sq ft selfcontained twostorey
office for Hanley Economic Building Society, part of the fourth
phase of the highly successful Festival Park where over 220
acres have already been developed.
Whitley, Coventry — The first phase of development at the 93
acre business park has been completed, providing 42,000 sq ft
of grade A offices with “very good” BREEAM sustainability
rating. This flagship mixed use business environment is being
created on land recently acquired from Jaguar and Coventry City
Council, and will eventually provide 1.1 million sq ft of business
space and generate more than 2,000 new jobs.
Evolution Park, Blackburn — A 44,000 sq ft Innovation Centre
and a 22,500 sq ft growon facility have been completed,
targeted at startup and growing enterprises within the medical,
knowledge, science and technology sectors. This is our third
innovation centre, following the successful developments at
Cranfield and, more recently, at Longbridge.
Woodingdean Business Park, Brighton — A further 30,000 sq ft
of office accommodation has been completed at this 9.5 acre
former bakery site. To date, over 75,000 sq ft of industrial and
office space has been delivered on the Business Park.
Heron Business Park, Widnes — The second phase of this
development, supported by Halton Borough Council and North
West Development Agency and ERDF funding, is scheduled to
complete in early 2009 and comprises 19 business units
providing 73,700 sq ft of modern industrial, suitable for office,
light industrial and general manufacturing uses.
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DELIVERY
Despite the difficult market conditions, we have completed 104
transactions in the year and realised disposal proceeds of £146m,
benefiting from the wide range, varied lot sizes, and realistic pricing
of our products.
Liebig Court, Widnes — A development of 38 apartments and 6
retail units was sold to Places for People, a notforprofit
property management and development company, for £3.1m.
Kempton Point, Sunbury on Thames — A 35,000 sq ft office
building was sold to Arlo Holdings for £3.4m.
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We continue to devote considerable resources to creating additional
value and enhancing the income of the property we own through a
variety of asset management activities. During the year, our in
house team undertook:
96 lease renewals, securing rent roll of £2.6m
235 rent reviews, achieving an uplift in rents of £1.5m (9.9%) and
456 new lettings, producing additional rent roll of £10.6m, which
more than offset the 332 vacations (rent roll reduction £8.9m).
At Trentham, despite another year of very poor weather, the
gardens attracted 108,000 visitors (2007: 122,000) and a trading
profit before interest of £0.8m (2007: £0.9m) was achieved. The
highlights of last year were the new maze and Eastern pleasure
ground development. This year’s features are the Potter’s Wheel
and the iconic new garden restaurant. Further expansion of the
retail village will be undertaken as prelets are achieved.
POSTYEAR END SALES AND LETTINGS
Since the year end we have continued to make good progress, with
over £90m of revenue secured either from sales of existing stock or
from contracts for new buildings. Furthermore, our asset
management activities have generated an additional £2.6m of
annual rental income from new lettings and prelets for buildings
under construction (net of vacations and tenant failures in
the period).
For further details of projects referred to in this business review,
and other projects, see our website www.stmodwen.co.uk
In the industrial/distribution sector we completed 987,000 sq ft of
new buildings and 517,000 sq ft of refurbishments, including:
Quedgeley West Business Park, Gloucester — A 102,000 sq ft
distribution facility built for CM Downton, together with a further
120,000 sq ft of industrial and distribution facilities speculatively
developed, of which 65% has already been let and sold to
investors.
Avonmouth — A 165,000 sq ft distribution centre built for
Nisbetts, together with 78,000 sq ft of speculatively developed
industrial buildings sold to owner occupiers.
In the office and business park sector, a number of developments
were successfully completed, including:
Trentham Lakes, StokeonTrent — A 37,000 sq ft business
quarter of small offices, of which 75% has been sold to owner
occupiers.
Melton Park, Hull — A first phase of 75,000 sq ft industrial and
25,000 sq ft office space of this 116 acre mixed use
development.
Quinton Business Park — A 33,000 sq ft office building let to
Business Link was acquired by Advantage West Midlands, and a
further building was let to Linpac.
We have also continued our longstanding policy of disposing of
those assets to which we can add no further value, seeking to
recycle capital for use on other projects:
Trentham Gardens, Staffordshire — The 119bedroom Premier
Inn Hotel at our popular tourist and leisure destination near
Stoke on Trent was sold to Habro Properties Group for £10m.
Edmonton Green, Enfield — The 21,500 sq ft primary care trust
was sold to Forest Vale Fundo Ltd for £5.5m.
Bridge Retail Park, Runcorn — A 29,000 sq ft retail park,
including a Homebase and Dreams store, was sold to Hornbill
Ltd, a private property company for £4.6m.
Stafford — A 200,000 sq ft industrial/warehouse building and a
40,000 sq ft office building were sold to Areva T&D UK Limited
for £6.9m.
� LONGBRIDGE, WEST WORKS
The Longbridge West Works were
demolished in 2008, making way for an
employment and residential area which
will include a new park.
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REVIEW
In the trading profits table and throughout the financial review,
certain numbers are quoted which include the group’s share of joint
ventures and associates as detailed in note 9.
future cash flows, based on existing land prices and the current best
estimate of costs (incorporating appropriate contingencies) to be
incurred.
TRADING PROFIT
In very difficult conditions, we are pleased to have delivered a
trading profit of £8.2m for the year. Our business model is based on
core rental and other income covering the running costs of the
company (property outgoings, overheads and interest), so that even
when development profits are reduced, the company is still able to
meet its commitments.
(£m)*
Net rental income
Property profits1
Other income
Administrative expenses
Bank interest2
Trading profit
2008
33.2
9.6
7.3
(14.1)
(27.8)
8.2
2007
34.9
54.5
2.5
(16.5)
(24.5)
50.9
Var
(1.7)
(44.9)
4.8
2.4
(3.3)
(42.7)
* Including the group’s share of joint ventures and associates.
1 comprises development profits and gains on disposal of
investment properties.
2 Excluding mark to market adjustments and other noncash items
of £20.8m (2007: £10.5m) in the group and £2.9m (2007: £0.3m) in
joint ventures.
NET RENTAL INCOME
The fall in net rental income was principally due to the £1.1m
impact of disposals, and the loss of £0.3m of rent due to vacancies
being created for development (particularly at Wembley). The effect
of tenant failures and vacations in the year was offset by a number
of notable successes from our asset management activities.
At 30th November 2008, the gross rent roll, including our share of
rent from joint ventures, had increased to £43.2m (2007: £41.2m).
At the year end our overall voids were 16.8% (2007: 15.2%),
reflecting the completion of certain, as yet unlet, developments
during the year.
PROPERTY PROFITS
Property profits, including our share of joint ventures, fell to £9.6m
(2007: £54.5m). However, this still represented a considerable level
of activity with more than 100 individual property disposals being
completed in the period.
PROPERTY VALUATIONS
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
2008 was a year of considerable uncertainty in the real estate
investment market, and our valuations at 30th November reflect
this. The yields used for valuing our properties have continued to
weaken. The results for the year include a negative yield shift on
average of 1%. The value of our commercial land has also been
reduced to reflect the declining values of developments that will be
undertaken on the land. Additionally, the valuation of our residential
land has been significantly reduced to reflect the current housing
market. For the majority of our sites that have consent for
residential development, carrying values are now at similar levels to
that for employment land without such consent. We believe that this
does not reflect the longterm value of residential land which we
consider will return to more realistic levels once a functioning
housing market is reestablished.
The impact of these significant adverse movements was partly
mitigated by gains achieved from our marshalling, redevelopment
and asset management activities which added value of £64.8m in
the year.
PROPERTY VALUATIONS (£m)
Marshalling milestones
Asset management and development
Market yield movement
Total
2008
11.5
53.3
(129.4)
(64.6)
2007
62.3
32.7
(32.2)
62.8
ADMINISTRATIVE EXPENSES
Towards the end of the year, we took action to reduce our cost base
to reflect the lower activity levels in the business. The impact of the
resulting redundancy programme is an annualised saving of £3m.
The £0.6m cost of implementing these savings has been charged to
profit in the current year.
Administrative expenses (including our share of joint ventures) have
decreased during the year by £2.4m to £14.1m, due primarily to a
substantial (£2.9m) reduction 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).
JOINT VENTURES AND ASSOCIATES
Our share of the posttax 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, which recorded a posttax loss, of which our share was
£7.2m (2007: £11.1m profit).
FINANCE COSTS AND INCOME
Net finance charges (including our share of joint ventures) have
increased to £51.5m (2007: £35.3m).
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During the year average group borrowings increased by £82m to
£430m, and average LIBOR (upon which our borrowing costs are
based) decreased by approximately 30 basis points. As a result,
interest payable on bank borrowings increased by £4.1m.
As a result of the recent dramatic reduction in interest rates, the
revaluation of our interest rate swap contracts (which have a
weighted average cost before margin of 4.99%) to market value at
year end resulted in a charge to the Income Statement of £18.3m
(2007: £1.0m), recognising the decreasing market value of such
contracts in the prevailing climate of falling interest rates.
The positive aspect of this recent reduction in interest rates,
however, can be seen in our average rate of interest payable, which
at 30th November 2008 had fallen to 4.9% (2007: 6.5%).
Net finance charges also include a charge of £5.6m (2007: £9.9m)
for the amortisation of the discounted deferred consideration
payable to the MOD in respect of Project MoDEL.
During 2008 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 credit for the year, including our share of
joint ventures, and with full provision for deferred taxation, is 36.7%
(2007: 8.9% charge).
This rate is substantially better than the standard rate of UK
Corporation Tax due primarily to the benefits of approved tax
planning activities and land remediation and indexation allowances.
It is anticipated that, with the continued utilisation of these
allowances and the benefit in future years of approved tax planning
activities, the effective rate of tax will remain below the standard
rate of UK Corporation Tax.
Benefit from tax planning activities is only recognised when the
outcome is reasonably certain.
FINANCING, COVENANTS AND GOING CONCERN
FINANCING
The company entered the downturn with adequate secured facilities
and excellent banking relationships, but also with a high level of
gearing. During the year we have focused the business on cash
generation, and have worked closely with our banks to ensure that
appropriate covenants are in place. In both of these areas we have
achieved considerable success.
The company’s cash flow has been adversely affected by the
illiquidity of a number of our markets, but we have nevertheless
been able to realise £146m from our ongoing programme of asset
disposals. This, together with our recurring net rental income, and
close management of our working capital, enabled us to meet our
administrative expenses and interest, to pay an interim dividend,
and to meet the requirements of a £202m development and capital
expenditure programme, with only a £20m increase in borrowings.
Although the level of our net debt has risen in the year, this was due
to the completion of already committed developments. We consider
that our debt and gearing levels have now peaked, and that they will
reduce over the next year as the full impact of our cash
management activities is delivered.
At 30th November 2008, the group’s banking facilities were £619m
(2007: £569m), with no material maturities before 2011, and with a
weighted average maturity of 4 years (2007: 5 years). Current net
debt is £422m (2007: £402m), giving us a gearing of 105% (2007:
86%) and a headroom to meet future commitments of £197m.
Including joint ventures, total banking facilities are £871m (2007:
£815m), net debt is £625m (2007: £580m) and gearing 118% (2007:
105%). A £46m facility in our Sowcrest joint venture is due for
renewal or refinancing in September 2009.
The weighted average margin of our facilities is 86 basis points
(2007: 81 b.p.) over LIBOR. Our strategy has been to hedge two
thirds of all borrowings, with the maturity of both hedges and
facilities being aligned with individual schemes where applicable.
As a result, the interest cost of 57% of our debt is fixed by hedging
contracts (2007: 68%). The weighted average fixed interest payable
under these hedges is 4.99 %.
COVENANTS
At the start of the year we initiated a review of all of our banking
covenants, in anticipation of changing times. As a result of this, we
have been able to obtain, at no additional cost, significant
improvements and clarifications. Most importantly, the interest cover
covenant (which was our principal constraint) has been refined to
exclude noncash items (particularly valuation movements) and to
include the cash realisation of previous years’ revaluations. This
change provides us with considerably more headroom, as a number
of currently planned, and recently completed disposals would unlock
sizeable historic revaluation surpluses.
Our covenants have also been aligned across all of our banking
relationships. The key measurements are gearing; net asset value;
interest cover; and loan to value — as shown on page 20.
Current forecasts and projections, taking account of our view of
reasonably possible changes in property valuations, and anticipated
marshalling gains, show that the group should be able to operate
within its current facilities and comply with its banking covenants.
The interest cover covenant is expected to be met from a
combination of the company’s strong rent roll, selective asset
disposals to unlock historical revaluation surpluses, and from a
reducing interest charge as rates fall.
The net asset value covenant is expected to be met by limiting the
impact of further market yield movements with mitigating actions
across the company’s property portfolio, including development,
asset management, and the achievement of marshalling milestones.
The current economic conditions create uncertainty over likely
market yield movements. We have considered available market
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information, consulted with our advisers and applied our own
knowledge and experience to the group’s property portfolio. If
property values were to decline below that which has been assumed
in the group’s current forecasts, the group may not be able to meet
all of its covenants when tested in the future. Should a covenant
breach become likely, we believe that constructive discussions with
our banks would enable the debt to be refinanced. This could result
in increased costs to the business.
GOING CONCERN
The Directors, in their consideration of going concern, have
considered the factors described above, reviewed the group’s future
cash forecasts and valuation projections, which they believe are
based on reasonable assumptions, and believe, based on those
forecasts and assumptions, that it is appropriate to prepare the
financial statements of the group on the going concern basis.
FINANCIAL STATISTICS
Net borrowings
Gearing
Gearing, incl. share of JV debt
Average debt maturity
% debt hedged
Interest cover
Undrawn committed facilities
2008
105%
118%
2007
£422m £402m
86%
105%
4 years 5 years
68%
57%
1.62✕
3.07X
✕
£185m £150m
BALANCE SHEET
NET ASSETS
At the year end, net asset value per share was 333p, a reduction of
54p (14%). 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 375p at 30th November 2008, a
reduction of 55p (13%) in the year.
NET ASSETS
Net assets beginning of year
(Loss)/profit after tax
Dividends paid
Other
Net assets, end of year
Deferred tax on capital allowances
Deferred tax on revaluations
Mark to market of interest rate swaps
Diluted EPRA NAV
— total
— per share
2008
£m
467.7
(50.7)
(15.1)
0.3
402.2
4.3
31.2
14.6
2007
£m
389.8
93.7
(13.5)
(2.3)
467.7
2.8
48.4
0.7
452.3
375p
519.6
430p
In calculating the EPRA net asset value, the directors consider the
fair value of inventories to be their book value.
INVESTMENT PROPERTIES
The total value of investment properties under our control, including
100% of joint ventures, fell by £32m during the year to £1,102m.
The independent valuations during the year ended 30th November
2008 resulted in net revaluation losses, including our share of joint
ventures, of 5.9% (£65m), compared with the previous year end. Our
properties are currently valued at the following weighted average
equivalent yields:
Retail
Industrial
Office
2008
7.8%
8.8%
7.9%
2007
6.7%
8.0%
7.6%
INVENTORIES
Inventories have increased in the year from £209m to £228m
reflecting the completion of the committed development
programme (including £73m relating to Project MoDEL). Assets held
in inventories principally comprise development projects that are on
site and under construction and have not been presold, and other
assets that are held for resale at the period end.
THE FUTURE
The company’s hopper remains an underlying strength, even in
difficult economic conditions, and will provide a stream of future
profitability once an active market is reestablished.
We expect that markets will gradually return to normality, although
the timescale is unpredictable. In the meantime, the company’s
focus will continue to be on cash and asset management, on making
the selective disposals necessary to remain within our banking
covenants and to maintain cash flow, and on marshalling our long
term projects through the planning process to ensure that schemes
are in good shape for the eventual recovery.
We believe that the longterm prospects for the company remain
good, and that the net asset value is robust, with realistic valuations
in place.
Bill Oliver
Chief Executive
26th February 2009
Tim Haywood
Finance Director
� ETRURIA VALLEY
Building works are progressing on the
£30m, 80,000 sq ft new Vodafone facility
— the largest new commercial building
in Stoke on Trent.
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BROWNFIELD
LAND RENEWAL
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BROWNFIELD RENEWAL
SCHEMES
St. Modwen is the UK’s leading expert in bringing large
scale brownfield sites back into active use. With
sustainability, the environment and zero carbon targets
moving quickly up the Government agenda, the renewal
of brownfield land has become central to the progress
of development in the UK.
St. Modwen has vast experience in the remediation,
assembly and redevelopment of such sites, having
reclaimed hundreds of acres of brownfield land and
transformed it into business, retail and residential
developments. In doing so, the company has created
opportunities for thousands of new jobs across the
UK and created hundreds of new housing and
shopping destinations.
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LETCHWORTH
St. Modwen acquired this 4.5 acre former power
station site in Letchworth Garden City in summer
2008 and has since submitted planning for
its redevelopment into an 80,000 sq ft
Business Park.
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CASE STUDY
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CASE STUDY
BP SITES
BACKGROUND
In 2007 we were selected by BP as the preferred
developer for the 1,000 acre former Llandarcy oil
refinery in Neath, South Wales. The acquisition
was completed in 2008, and since then we have
completed the first phase of remediation works on
400 acres of the site with the second phase now
well underway. Demolition works to the existing
buildings commenced in autumn 2008 and oil
recovery is also now in progress; at the end of
January 2009 over 100,000 litres had been
recycled. These works represent the early stages
of our plans to transform the site into the Coed
Darcy urban village over a period of 25 years.
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BAGLAN BAY
The largest site in the new portfolio, Baglan Bay comprises 1,050 acres and was formerly the
location of a BP petrochemicals plant.
The success of our approach and of our flourishing
partnership with BP were recognised in October
2008, when we were selected by BP as the
preferred developer on its 2,500 acre portfolio of
former sites across South Wales, Scotland, the
Midlands and South East England. This is BP's
biggest ever land disposal and only the second
time the company has awarded disused sites/land
to a third party, the first time being the 1,000 acre
Coed Darcy site.
� COED DARCY
The former BP oil refinery, Neath, which
St. Modwen is currently regenerating
into the £1.2bn Coed Darcy urban
community.
PROJECT PROGRESS
2009–2034
Construction
Feb 2008
Outline planning secured
2008–2015
Remediation
2034
Project completion
May 2008
Site acquisition
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TOWN CENTRE
REGENERATION
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TOWN CENTRE SCHEMES
TOWN CENTRE SCHEMES
As lifestyle habits and attitudes to shopping and
working change, town centres across the UK need to
accommodate these new trends and create more choice
for today’s busy and demanding consumer. St. Modwen
is currently channelling its expertise into 18 Town
Centre regeneration projects, all at different stages of
the development cycle and all designed to create
sustainable and vibrant communities where people will
want to live, work and shop. Major projects now in
progress include Edmonton Green, Farnborough, and
Wembley Central.
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EDMONTON GREEN
The new 66,000 sq ft Asda store in Edmonton
Green, part of this £100m regeneration project
led to a job creation for the community and saw
the Council opening a job centre specifically to
recruit locally.
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CHAIRMAN’S
STATEMENT
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CASE STUDY
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CASE STUDY
WEMBLEY CENTRAL
BACKGROUND
Sitting directly above Wembley Central station, this
site was acquired from Network Rail in 1995. Once
a thriving retail centre, Wembley suffered from the
opening of the Brent Cross Shopping Centre and
Harrow and Ealing Broadway Shopping Centres in
the 1970s/’80s and has since suffered a period of
decline.
The £90m redevelopment of Wembley Central is a
clear example of how we can bring tired town
centres up to date. By creating new public and
retail areas, we are lifting the whole area and
injecting new life into the local economy.
When complete, the scheme will comprise:
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135,000 sq ft of retail space
24,000 sq ft of office accommodation
174 private apartments of high specification
85 affordable homes
� WEMBLEY CENTRAL
Over 60% of the first development phase
has been already secured to a number of
High Street brands.
PROJECT PROGRESS
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WEMBLEY CENTRAL
The scheme includes 174 highly specified private apartments and 84 affordable homes. We
have already handed the latter over to Genesis Housing Association.
DELIVERY
Having demolished the original buildings in 2006,
the first phase of building works is due for
completion in summer 2009. Significant progress
has been made in preletting the retail space, with
over 60% already let to a number of High Street
brands and the first phase of private apartments
will be launched this year. We have handed over
the affordable homes to Genesis Housing
Association, have remodelled the office
accommodation and will shortly begin the works to
the public square fronting Wembley High Road.
This will provide an eye catching open aspect for
Wembley Central Train Station and create an
attractive entrance ambience that will add to the
excitement of the scheme.
2011
Project completion
OCT 2005
Planning approval
2006–2010
Phased construction
NOV 2005
Commence demolition
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PARTNERSHIPS
58
PARTNERSHIP SCHEMES
PARTNERSHIP SCHEMES
Over time, we have formed strong relationships with
many partners including Local Authorities and Regional
Development Agencies, with whom we have many
development joint ventures.
Our relationships with commercial partners such as
Alstom, Corus, Ford, Goodyear, and more recently BP,
have also played an important role in our continuing
success. Through these partnerships, we unlock the
development potential from our partners’ surplus sites
to assist them in their restructuring.
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AREAS OF OPERATION
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COED DARCY
St. Modwen is working closely with Neath Port
Talbot County Council, The Prince’s Foundation
for the Built Environment and Welsh Assembly
Government in its realisation of the regeneration
of this former BP oil refinery into a £1.2bn
urban community.
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CASE STUDY
33
CASE STUDY
GOODYEAR, WOLVERHAMPTON
BACKGROUND
The decline in the UK manufacturing industry
during the 1970s and ‘80s hit many companies
across the country, including Goodyear. We
acquired the 85 acre site from the tyre
manufacturer in 2002 under a sale and leaseback
arrangement, releasing funds for its ongoing
operations.
Since then we have taken back 67 acres from the
leased area and secured outline planning
permission for the development of a £150m urban
community that will include:
38 acres of housing, including affordable
16 acres of neighbourhood park for general
local use
2.5 acres for a school
1.5 acres of neighbourhood retail facilities
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GOODYEAR
Anthony Glossop, chairman, St. Modwen (right) with David Brookes, Goodyear Production
Operations Manager.
DELIVERY
We have made significant progress during 2008.
The landmark Goodyear chimney has been
demolished, a milestone that marked the
completion of an eight month demolition
programme and the start of extensive remediation
works. Since then, building works have progressed
on the part of the site retained by Goodyear to fit it
for its ongoing use. An Aldi foodstore has been
secured to anchor the neighbourhood retail
scheme, for which planning consent should be
obtained early in 2009, with a view to commencing
construction works in late spring.
� GOODYEAR FACTORY
The demolition of the landmark Goodyear
chimney was a milestone that marked
the completion of an eight month
demolition programme and start of
extensive remediation works.
PROJECT PROGRESS
2002
Site acquisition
2006
Outline planning secured
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Complete retail centre
2008
Demolition works
complete
2016
Project completion
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34
INNOVATION AND
EDUCATION
160
BUSINESSES IN OUR
INNOVATION CENTRES
�
LONGBRIDGE
The Innovation Centre at Longbridge,
Birmingham, part of the first phase of
development works at this £750m
regeneration project.
We recognise that small to mediumsized businesses
are the lifeblood of the UK economy and understand
how important it is to create a suitable environment
where these companies can grow, take advantage of
their surroundings and learn from one another.
Targeted at these growing businesses, our Innovation
Centres provide space where businesses can share their
expertise with one another and in turn, receive support
to encourage their ongoing business development. We
are rolling out a series of these Centres as part of our
national regeneration programme. We have already
opened three
at Cranfield, Longbridge, and most
recently in Blackburn
—
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SCHOOLS AND COLLEGES
PROPOSED/ UNDERWAY
At the same time, schools and colleges play a vital role
in the life of local communities and it is crucial that the
best learning environments are created in order to
equip future generations with the appropriate skills of
the future.
Whether we are designing and building a campus for a
university/college or developing schools in new
communities, we work closely with all types of
educational organisations on many of our sites across
the UK.
In 2009, we expect to be starting on site with Bournville
College at Longbridge and Warwickshire College, Rugby
and we have many schools in the pipeline across our
portfolio of urban community developments.
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CASE STUDY
37
CASE STUDY
INNOVATION CENTRE, BLACKBURN
At the end of 2008, a new 44,000 sq ft Innovation
Centre and a 22,500 sq ft “growon” facility were
opened at Evolution Park, our 14 acre Business
and Industrial Park, situated on junction 5 of the
M65 motorway.
Developed in partnership with Blackburn with
Darwen Borough Council, the new centre provides
startup and growing enterprises with a range of
tailored offices.
It forms part of the first phase of development of
our £25m, 223,000 sq ft Evolution Park, which will
comprise a mixture of speculative and bespoke
buildings to house up to 1,000 jobs.
� BLACKBURN INNOVATION CENTRE — INTERIOR
Our Innovation Centres provide startup and growing enterprises with a range of tailored
offices and create a suitable environment where they can grow and learn from one another.
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� BLACKBURN INNOVATION CENTRE —
EXTERIOR
The Innovation Centre at Blackburn was
formally opened in winter 2008 and is
almost fully let.
PROJECT PROGRESS
2007
Development Agreement
signed
2008
Detailed planning
secured
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2008
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2010
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CORPORATE GOVERNANCE
“WE ARE DEDICATED TO IMPROVING THE
COMMUNITIES IN WHICH WE ARE ACTIVE”
40 Corporate social responsibility
48 Board members and senior management
50 Corporate governance report
56 Directors’ remuneration report
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CORPORATE SOCIAL
RESPONSIBILITY
INTRODUCTION
St. Modwen is the UK’s leading expert in regeneration because we
are dedicated to improving the communities in which we are active
and to ensuring that our development activities have a positive
impact on the environment.
The complexity and longterm nature of our schemes — some
taking up to 25 years to complete — means that we make a long
lasting commitment to the surrounding community. With every
project, we look to leave a legacy by delivering the right physical and
economic infrastructure and creating a setting in which businesses
and communities can evolve and develop.
Sustainability, the need to protect and enhance the environment,
maintain our heritage and conserve vital resources, is at the heart
of our business, and we set ourselves challenging targets to ensure
that we are promoting the highest standards.
The current economic difficulties have inevitably required strong
emphasis on containing costs and ensuring that projects are
profitable. But this has not undermined our commitment to
sustainability and to respecting the longterm interests of the
communities and environments in which we work.
PRINCIPLES
We conduct our business to the highest ethical standards, treating
others as we would wish to be treated ourselves. 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 and our partners to adhere to similar
high standards as ourselves.
Compliance with laws and regulation 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 decisionmaking process.
Unlawful payments or inducements of any kind are prohibited.
As well as adhering to a strong set of principles, each project
presents its own environmental challenges for which we carefully
prepare to ensure minimal ecological impact whilst also ensuring
that optimum use can be made of the site.
REMEDIATION AND REUSE
One of our key strengths, and one of the most important aspects of
regeneration, is remediating land for redevelopment. This is a
complex process that requires the highest expertise. The challenges
and techniques vary from project to project; from pumping out
hydrocarbon spillages, to baking the soil and employing innovative
biodegradation techniques, whereby microorganisms are used to
clean up the soil. By such techniques, we create remediated land
suitable for the development of spaces where people can live
and work.
We have been recycling and reusing previously developed land for
over a generation. Not only does this make the best use of derelict
and rundown areas, it creates employment opportunities in areas
that are suffering economically, whilst also preserving natural
habitats.
But it is not only land that we seek to recycle — we also try to reuse
as many of the existing buildings and materials on our sites as
possible.
CASE STUDY — LONGBRIDGE
With 3,000,000 sq ft of buildings now demolished at Longbridge,
extensive remediation works are under way to prepare the
ground for future development. We are targeting (and achieving)
that 95% of all onsite material shall be recycled during the
development process. At Longbridge West, a £3m, six month
remediation programme has been completed during the year,
with more than 200,000 cubic metres of soil cleaned across the
17 acre site. Bioremediation techniques were utilised to recycle
soil contaminated by hydrocarbons.
JOB CREATION
Our sites not only transform the look and feel of the area, bringing
about positive changes to once rundown centres of the UK and
creating a renewed sense of community spirit, they also enhance
the local economy through employment creation. During 2008, the
company’s schemes have created thousands of jobs across the
country.
In some cases, we have been so successful in breathing new life into
derelict sites, that we have helped to create more jobs with the new
development than existed under the site’s previous use.
� FARNBOROUGH
Construction works started on the £85m
regeneration of Farnborough Town Centre
in the autumn of 2008.
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CORPORATE SOCIAL RESPONSIBILITY
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CORPORATE SOCIAL RESPONSIBILITY
43
TRENTHAM LAKES:
In 2009, St. Modwen’s North Staffordshire office celebrates 21
years of regeneration activity in the region. To date, the company
has developed over 900 acres of land, on which it has built 3.6m
sq ft of commercial space which has created opportunities for in
excess of 11,000 new jobs.
Trentham Lakes is one of our longstanding employment
developments in North Staffordshire. We acquired this 267 acre
former colliery site over a period of three years from 1996. Since
then, we have transformed over half of the site into 1.7m sq ft of
employment space and in doing so has created opportunities for
over 3,300 new jobs.
ENHANCING THE ENVIRONMENT
As part of our work to preserve the land and improve our
surroundings, we undertake significant ecological and conservation
activities on many of our sites, conducting careful studies and
working hard to preserve the natural habitat. Measures can include
preservation of rare species such as newts, water voles and bats.
We also actively seek to introduce new species into areas in which
we build to enhance the wildlife value of sites.
EXAMPLES:
Stonebridge, Liverpool
At our 30 acre Stonebridge speculative industrial development
we have constructed BREEAM very good units with dual fuel
(rapeseed oil/gas) heating. The heating system and efficient
building design has resulted in a 34% reduction in CO2 emissions
beyond the minimum Building Regulations Requirement. In
addition, the following has also been undertaken as part of the
development:
— Secured and welllit cycle racks and showers
— Recycled aggregates used in the construction of
infrastructure
— Use of A rated building materials (in accordance with Green
Guide to Specification)
— Provision of a compactor/baler to reduce waste quantities.
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COMMUNITY ENGAGEMENT 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 stock. An outstanding example in the last
year was our completion of an Asda at Edmonton Green, for which a
new job centre was opened, specifically to employ a local workforce
for the store.
Once a project is under way, active participation in local community
activities is a key feature of the company’s approach. We use a
number of initiatives to encourage local communities to share in the
improvements brought about by our 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, for example, we have a team of 46
volunteers, 6 from special needs groups, and 7 from groups
supporting the rehabilitation of the longterm unemployed
(including the Prince’s Trust).
Incorporating nonintrusive, but high levels of security facilities
in our schemes to reassure and protect the vulnerable.
Sponsoring local sport, leisure and charitable activities. We
gave support in the year to a number of organisations, including
the Trentham Water Sports Association (providing access to
water sports for universities, schools, disabled groups and local
community initiatives), the Dursley Bowls Club (for whom we
provided new changing rooms, kitchen and other clubhouse
facilities) and the Edmonton Ladies basketball team.
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
McMillan Hospice, and a temporary letting to a local charity in
Worcester known as Samaritan’s purse — the charity, which puts
together shoe boxes full of toys for deprived children overseas, is
occupying the space free of charge.
� STONEBRIDGE, LIVERPOOL
An example of St. Modwen's ongoing
commitment to sustainability in new
build developments.
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CORPORATE SOCIAL RESPONSIBILITY
CHARITY CASE STUDIES
TRENTHAM WATERSPORTS ASSOCIATION
The longterm future for rowing and canoeing on Trentham’s
milelong lake was secured when the trustees of Trentham
Watersports Association signed a 99year lease for a new
boathouse in 2008.
Alan Meegan, Amateur Rowing Association:
“Large companies are not valued for the way that they enrich
communities. We all owe it to St. Modwen to support and
recognise the huge amount of time, effort and goodwill that has
been directed to this scheme.”
�
Mike Herbert, North Staffordshire regional director, St. Modwen (far right) with John Court
and Ken Walters of Trentham Watersports.
ENVIRONMENTAL TRUST
The St. Modwen Environmental Trust has been established to
provide support to the communities in which the company operates
by offering grants to groups seeking to improve their local
environment.
The Trust is run by a board of trustees comprising representatives
from the board of the company and a majority of independent
trustees who have experience in environmental matters.
Funding for the Trust is supplied by the company and by the Landfill
Tax Credit Scheme (‘LTCS’). The use of LTCS monies is regulated
and monitored by Entrust.
Examples of projects supported by the Environmental Trust include:
the Mary Hare primary school in Newbury with the development of a
new sensory garden for the children to enjoy throughout the year,
whilst a new Celebration Garden has been built for the staff and
children at Field View Primary School in Bilston, near
Wolverhampton.
HEALTH AND 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.
Cooperation of staff in promoting safe and healthy conditions
and systems of work is required.
An adequate advisory service in matters of health and safety is
provided and maintained.
Detailed policies and procedures are documented and made
available to all staff. The Health and Safety Forum, reporting to
the board, 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 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 and 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.
� BOURNVILLE COLLEGE
An artist's impression of the £84m new
Bournville College, set to anchor the next phase
of development at Longbridge in 2009.
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45
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AWARDS The following are examples of some of the awards we have received in 2008.
AWARD FOR LEPIDOPTERA
St. Modwen won a prestigious national ecology award for the
conservation of rare species of butterfly on three of its sites in
the West Midlands.
SUSTAINABILITY AWARD — LITTLECOMBE, DURSLEY
We won the South West Business Insider’s 2008 award for
Sustainability for our work at the 92 acre former Lister Petter
manufacturing site in Littlecombe, Gloucestershire.
The company was named winner of the Marsh Award for the
promotion of Lepidoptera, for enhancement and management
which has supported the protection of endangered butterflies at:
Coombs Wood in Halesowen, the proposed Middle Quinton Eco
Town in Warwickshire and at Fenton Trade Park, StokeonTrent.
Working closely with experts from the Butterfly Conservation
organisation, we identified and preserved existing habitat and
created new areas for the species to thrive on each of the sites.
This scheme involves the development of a new urban
community of up to 600 homes and 1,000 job opportunities, as
well as opening up the River Cam and providing local facilities.
As part of the development, the project will include a district
wide biomass heating and hot water system in order to reduce
CO2 emissions by circa 50% against prevailing building
regulations.
BP HELIOS AWARDS, COED DARCY, NEATH
The BP Helios Awards recognise projects of particular
significance globally, across the entire company.
In 2008, St. Modwen’s Coed Darcy project — the regeneration of a
1,000 acre former BP oil refinery — was awarded the
“Progressive” Helios Award which focuses specifically on
“new and better ways of doing things”.
The Coed Darcy project was selected because of the excellent
working relationship between BP and St. Modwen, the remediation
techniques employed, and the way in which a very polluted site is
being transformed — over a period of 25 years — into a £1.2 billion
urban community.
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47
SUSTAINABILITY TARGETS
We adopt a longterm approach to achieving and improving our sustainability targets. A review of our targets will see us focus on the
following areas for 2009:
— Reduction in energy use — particularly energy derived from the burning of nonrenewable fossil fuels. We have added to our targets for
2009 a requirement for 10% renewable energy sources in new building projects.
— Use of buildings — greater focus on the cost in use of buildings and the potential value this creates. During 2009 we will offer energy in
use calculations to enable new occupiers to make maximise use of their building’s efficiency.
— Waste recycling — the target of recycling construction waste has increased from 50% in 2008 to 60% in 2009.
— Transport — more environmentally friendly forms of transport and locally sourced labour/materials will be given greater consideration
in 2009. We will now stipulate in all specifications the use of local labour and travel plans for contractors who work on our remediation,
infrastructure and building projects.
— New initiatives — we will continue to look at cleaner ways of generating electricity, using renewable energy sources such as wind power,
solar power, bio fuels and geothermal energy.
— Ongoing review — we are taking the opportunity of the current pause in the property market to review our targets for speculative
commercial and residential buildings so we are ready for when it recovers.
THE TARGETS
SUSTAINABLITY TARGETS 2009
2007
% (achieved)
2008
% (achieved)
2009
% (target)
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BROWNFIELD LAND REMEDIATION
TARGET: Percentage of remediated materials reused or recycled.
DEMOLITION
TARGET: Percentage of demolition products reclaimed for retention
on site or recycling.
WASTE
TARGET: Percentage of construction project waste reused or recycled.
REDUCED ENERGY 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.
RENEWABLE ENERGY
TARGET: percentage of building projects to have at least 10% of power from
a renewable energy source.
REDUCTION OF ENERGY DURING BUILDING OCCUPANCY
TARGET: Percentage of new building occupiers offered cost in use energy
calculations and suggestions of energy reduction measures.
WATER
TARGET: Percentage of schemes with water usage reduction technologies.
TARGET: Percentage of schemes with water recycling technologies.
94
88
20
5
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—
65
20
99
91
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100
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—
100
26
96
90
60
25
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100
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48
BOARD
MEMBERS
01
05
09
02
06
10
03
07
04
08
* Member of audit and
remuneration committees
† Member of nomination
committee
01 ANTHONY GLOSSOP MA†
NONEXECUTIVE CHAIRMAN
Aged 67. A director since 1976 and Chief Executive from 1982 to 2004.
Executive Chairman from 2004 to 2008, and NonExecutive Chairman since
11th February 2008. He is Chairman of the Nomination Committee. He is also
a nonexecutive director of Robinson PLC., and a member of the Regeneration
and Development Committee of the British Property Federation.
06 JOHN SALMON FCA*†
Aged 64. A nonexecutive 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
an advisory board member of Savile plc and Chairman of the Board of
Trustees and Council member of the British Heart Foundation.
02 BILL OLIVER BSc, FCA
CHIEF EXECUTIVE
Aged 52. 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 and COMPANY SECRETARY
Aged 45. Joined the company in 2003. Previously Chief Financial Officer of
Hagemeyer (UK) Limited, after a career with Williams Holdings PLC.
07 MARY FRANCIS MA, CBE*†
Aged 60. A nonexecutive director appointed in 2005. Chairman of the
Remuneration Committee. Former DirectorGeneral of the Association of
British Insurers and former Deputy Private Secretary to the Queen.
Previously a senior civil servant in HM Treasury and 10 Downing Street. She is
Senior Independent Director of Centrica plc and a nonexecutive director of
Aviva plc.
08 SIMON CLARKE*
Aged 43. A nonexecutive director appointed in 2004. Previously Deputy
Chairman of Northern Racing PLC and Director and the ViceChairman of the
Racecourse Association.
04 STEVE BURKE
CONSTRUCTION DIRECTOR
Aged 49. Joined the company as construction director in 1995 and appointed
to the 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).
09 IAN MENZIESGOW MA*†
Aged 66. A nonexecutive director appointed in 2002. Senior Independent
Director since 23rd February 2009. Formerly Chairman of Geest PLC and
Derbyshire Building Society, and prior to that held senior executive positions
within the Hanson Group.
05 CHRISTOPHER ROSHIER MA, FCA
Aged 62. A nonexecutive director appointed in 1987. He is a Chartered
Accountant with over 20 years’ experience in corporate finance. Currently
Chairman of Deutsche Land Management Limited and a director of two
overseas investment companies.
10 PAUL RIGG DL, CPFA*†
Aged 62. A nonexecutive director appointed in 2004. Formerly Chief Executive
of West Sussex County Council. He is a director of the Chichester Festival
Theatre Ltd, and Chairman of the Weald and Downland Open Air Museum Ltd.
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SENIOR
MANAGEMENT
01
05
02
06
03
07
04
BOARD AND MANAGEMENT
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01 JOHN DODDS BSc, FRICS
REGIONAL DIRECTOR – MIDLANDS
Aged 52. 7 years’ service.
05 TIM SEDDON BSc, MRICS
REGIONAL DIRECTOR – LONDON AND SOUTH EAST
Aged 44. 3 years’ service.
02 MIKE HERBERT
REGIONAL DIRECTOR – NORTH STAFFORDSHIRE
Aged 53. 18 years’ service.
06 MICHELLE TAYLOR BSc, MRICS
REGIONAL DIRECTOR – NORTH WEST
Aged 46. 17 years’ service.
03 RUPERT JOSELAND BSc, MRICS
REGIONAL DIRECTOR – SOUTH WEST
Aged 39. 7 years’ service.
04 STEPHEN PROSSER BSc, MRICS
REGIONAL DIRECTOR – YORKSHIRE
Aged 45. 11 years’ service.
07 RUPERT WOOD BSc, MRICS
REGIONAL MANAGER – NORTHERN HOME COUNTIES
Aged 35. 3 years’ service.
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50
CORPORATE GOVERNANCE
REPORT
The board is committed to maintaining high standards of corporate
governance within the company. Throughout the year ended
30th November 2008, and up to the date of approval of the annual
report and accounts the company has complied with Section 1 of the
Combined Code on Corporate Governance issued in 2006 (the
‘Code’) except in relation to the following matters:
The Code asks the board to identify each nonexecutive director
it considers to be independent. Of the seven nonexecutive
directors at the end of 2008, the board considers Mary Francis,
Ian MenziesGow, 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 nonexecutive has served for longer than nine
years. Christopher Roshier has been a nonexecutive director
for twenty two 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. At the Annual
General Meeting he will step down as a nonexecutive director
and will not be seeking reelection. The board recognises that
Simon Clarke does not meet the criteria for a fully independent
director under the Code, although his postion as a
representative of the Clarke and Leavesley families who
together hold 51.4m shares (42.5%) in the company’s issued
share capital, gives him a very strong interest in challenging and
scrutinising management to secure excellent performance from
the company.
The Code recommends that all members of the Audit and
Remuneration Committees are independent nonexecutive
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 in 2004 which was endorsed by
shareholders at the Annual General Meeting that same year.
As of 11th February 2008 Anthony Glossop became non
executive Chairman. The roles of the Chairman and Chief
Executive are carefully differentiated.
BOARD OF DIRECTORS AND COMMITTEES
The board operates within the terms of its written authorities, which
include a schedule of matters reserved for the approval of the
board. The board currently consists of the nonexecutive Chairman,
three executive directors and six nonexecutive directors. The
composition of the board provides an appropriate blend of
experience and qualifications, and the number of nonexecutives
provides a strong base for ensuring appropriate corporate
governance of the company. The board’s decisions are implemented
by the executive directors.
The board meets not less than ten times during the year and the
Chairman and the nonexecutive directors also met without the
executive directors being present. The programme of board
meetings is tailored to enable some meetings to be held at the
company’s properties. In advance of each meeting, each director
receives a board pack containing comprehensive briefing papers.
Presentation on business and operational issues are made regularly
to the board by senior management.
Ian MenziesGow 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 reelection at least every three years. In addition, all
directors are subject to reelection by shareholders after their
initial appointment.
The reappointment of nonexecutive 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 reelection his
reappointment must be confirmed by the Chairman in consultation
with the remainder of the board.
The board is supplied with timely and relevant information regarding
the 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 nonexecutive 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) Audit Committee
The Audit Committee currently comprises all the nonexecutive
directors except for Christopher Roshier. The Committee
is chaired by John Salmon who, as a former partner of
PricewaterhouseCoopers LLP, is considered by the board to
have the required recent and relevant experience.
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CORPORATE GOVERNANCE REPORT
51
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.
During the year, the Committee was assisted in the performance of
these duties by the company’s internal auditor, tasked with
formalising and documenting internal control procedures and
ensuring compliance.
The Committee’s policy on the provision of nonaudit services by the
external auditors is that, whilst it is appropriate and costeffective
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 costeffective or in
the group’s interest for the external auditors to provide such
services. In all cases the provision of nonaudit services is carefully
monitored by, and subject to the prior approval of, the Committee.
The external auditors would not be invited to provide any nonaudit
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.
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.
b) Nomination Committee
The Nomination Committee comprises Anthony Glossop (as
Chairman), Mary Francis, Ian MenziesGow, Paul Rigg and
John Salmon.
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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 nonaudit services provided
by the external auditors.
Making an annual assessment of the external auditors and
recommending, or not, their reappointment.
Reviewing “whistleblowing” 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.
The Committee ensures that the membership and composition of
the board, including the balance of executive directors and non
executive directors, continues to be appropriate and undertakes a
regular review of succession planning. During the year, on the
recommendation of the Committee, the board agreed that Tim
Haywood would resume his former responsibilities as Company
Secretary.
c) Remuneration Committee
The composition and function of the Remuneration Committee are
set out in the Directors’ Remuneration Report.
BOARD AND COMMITTEE ATTENDANCE
The attendance of board or Committee meetings during the year to 30th November 2008 was as follows:
C.C.A. Glossop
S.J. Burke
T.P. Haywood
W.A. Oliver
S.W. Clarke
M. Francis
R.I. MenziesGow
D.P. Rigg
C.E. Roshier
J.H. Salmon
No. of meetings during the year
* In attendance, but not a member of the Committee.
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13
13
13
11
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12
10
11
13
13
Audit Remuneration
Committee
5*
—
—
5*
4
5
4
4
4*
5
5
Committee
—
—
3*
1*
3
3
3
3
2*
3
3
Nomination
Committee
1
—
—
—
—
1
1
1
—
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CORPORATE GOVERNANCE REPORT
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 the year. The principal
findings of the review were that “since the first review in 2005 many
of the issues raised had improved significantly, and that there was a
shared sense of strategic mission and vision . . . an improved
process of risk management, good communication with
shareholders and stakeholders, and . . . a highly committed and
knowledgeable executive team”. The principal areas identified as
requiring further work were:
1. Clarity of board agendas and papers
2. Discussion of the corporate domain
3. Succession planning
4. The role of the Chairman
During the year progress has been made against these
recommendations in a number of areas, including the initiation of a
management development programme to identify and develop
talent; a growing focus on the macroeconomic forces influencing
the company’s markets; and a redefinition of the role and time
commitment of the nonexecutive Chairman.
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.
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.
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 note 15 to the accounts.
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.
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. ECONOMIC/PROPERTY RISKS
The risks identified included:
Availability of liquidity for potential property investors
Demand for land from housebuilders
Demand for space from occupiers
Investment yield movements and difficulties ascertaining
market values in illiquid markets
Overexposure to single tenant/scheme/sector
Changing public sector requirements
The principal mitigating actions are:
Use of realistic, but conservative, property valuations
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 the UK, which is
normally subject to relatively lowrisk, lowreturns from a stable
and mature, albeit cyclical economy and property market. By
involvement with many sectors of that economy and that property
market, we are well diversified, without venturing overseas.
The current volatile economic climate, and the resultant illiquidity of
UK financial and property markets, has increased risk levels in this
area significantly. Furthermore, existing property valuations, though
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53
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undertaken with professional diligence by external experts, are now
subject to higher degrees of volatility and uncertainty than in
previous years. This is a macroeconomic phenomenon that
seriously affects our principal market. However, strong, wellrun
companies will survive this downturn, and will benefit from
enhanced opportunities and reduced competition when conditions
improve. In the meantime, we will address this higher risk profile by
maintaining our conservative stance to funding, development and
acquisitions.
The principal mitigating actions are:
Competitive remuneration packages
Regular assessment of performance and identification of
training needs
Headcount reduction undertaken in period
Regular communication of strategic and tactical objectives
Properly resourced and structured IT solutions
Appropriate disaster recovery procedures
2. FINANCIAL RISKS
The risks identified included:
Ability to manage business within existing banking covenants
Lack of available funds
Ability to balance cash flows to meet changing market
conditions
Interest rates
The principal mitigating actions are:
Detailed cash flow forecasting
Recurring rent roll enabling interest costs to be met when
development activity declines
Acquisition transactions structured in selffinancing manner
Small number of highquality banking relationships
Hedging policy to contain interest rate risk
Redefinition of covenants to ensure in line with business
capabilities
Assessment — A breach of one or more of the covenants could
result in the group’s debt becoming subject to repayment on
demand by its finance providers. Whilst this scenario is not
currently envisaged, the group is subject to a number of risks and
uncertainties which arise as a result of the current market
conditions. In determining that the group is a going concern, we
have considered these risks and uncertainties and have determined
that they do not currently represent a significant threat to the group.
As a result of the factors set out on pages 19 and 20, over the past
year the focus has been on reducing forward commitments and
speculative development and progressing selective asset disposals
to optimise cash flow, and to enable us to operate within our
existing resources. This will necessarily limit the extent of
development undertaken during this period.
3. ORGANISATIONAL/PEOPLE FACTORS
The risks identified included:
Failure to retain or train skilled personnel
Succession planning and talent management
IT
Disaster planning
Need to manage cost base to meet lower activity levels
Assessment — Employee turnover has historically been low,
indicating good retention levels. Vacancies have been few, and are
generally filled promptly, indicating the attractiveness of the
company and remuneration packages. To support the longterm
financial objectives, we will need to continue to improve the skills of
our employees. In the short term, although we unfortunately had to
implement a redundancy programme to reduce our cost base in line
with activity levels, this was done without any adverse impact on our
live schemes.
4. REGULATORY FACTORS
The risks identified included:
Planning
Tax
Lease structures
The principal mitigating actions are:
Being alert to policies being promoted
Use of high quality professional advisers
Inhouse 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 become more
active in attempting to influence public policy debate, although
meaningful and beneficial changes are very difficult to bring about,
notwithstanding the formalities of extensive public consultation.
5. FAILURE TO SECURE SCHEMES
The risks identified included:
Availability of finance
Competition
Reputation
The principal mitigating actions are:
Regional offices in touch with their local market
Dedicated central resource to support regional teams
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
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CORPORATE GOVERNANCE REPORT
Assessment — The increasing focus on the regions to deliver
acquisitions and the growing reputation and financial capacity of the
company have enabled us to win a large number of schemes and to
grow the hopper to record levels, while selling completed schemes
into a buoyant market. In the current financially constrained
climate, opportunities are fewer as buyer and seller expectations
differ widely. We have nevertheless continued to make a number of
excellent, selffinancing acquisitions, and anticipate that the
number of opportunities will increase as the downturn intensifies.
8. CONSTRUCTION RISK
The risks identified included:
Build quality
Remediation/contamination
Liability issues
Contractor failure
The principal mitigating actions are:
6. SOCIAL, ETHICAL AND ENVIRONMENTAL RISKS
The risks identified included:
Health, safety & environment risk
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
Assessment — The initial assessment of environmental costs (and
the subsequent optimising of remediation solutions) is an integral
part of our acquisition and postacquisition procedures. We seek to
minimise or pass on any such environmental risks, and believe that
the residual risk in this respect is acceptably low. In other social and
ethical areas, the company has benefited from an excellent
reputation, which 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
Regular toplevel meetings with local authorities, RDAs, and
other government or quasi governmental bodies
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.
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 highquality trusted contractors
and professionals
Contractual liability clearly defined
Close monitoring of contractors’ performance and financial
viability
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.
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 in note F to the company accounts.
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
Nonbeneficial
C.C.A. Glossop
30th November 30th November
2007
2008
26,938
7,026,546
1,000
1,607,933
91,251
202,002
1,875
10,417
2,000
13,240
3,859,332
1,000
1,607,933
87,823
188,304
1,875
10,417
2,000
100,000
100,000
The above interests do not include shares held under the share
option schemes described in the Directors’ Remuneration Report.
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There has been no change in these beneficial interests between
30th November 2008 and 26th February 2009.
SUBSTANTIAL INTERESTS
As at 26th February 2009 the company had been notified of the
following interests in more than 3% of its issued share capital:
Number Percentage
of Ordinary of Ordinary
Share
Capital
Shares
Held
Shareholder
Clarke family holdings
27,104,206
(excluding S.W. Clarke)
17,307,477
J.D. Leavesley and connected parties
4,707,438
Kempen Capital Management
ING Investment Management
3,972,467
Legal & General Investment Management 3,876,867
3,618,201
Dimensional Fund Advisors
22.4%
14.3%
3.9%
3.3%
3.2%
3.0%
REAPPOINTMENT OF DIRECTORS
The directors listed on page 48 constituted the board during the
year. Anthony Glossop, Tim Haywood, and Ian MenziesGow will
retire from the board in accordance with the provisions of the
company’s Articles of Association and offer themselves for re
election at the 2009 Annual General Meeting.
DIRECTORS’ INTERESTS IN CONTRACTS
No contract existed during the year in relation to the company’s
business in which any director was materially interested.
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 2008 trade creditors
represented an average of 30 days’ purchases (2007: 26 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.
SHARE CAPITAL
On 30th November 2008 there were 120,773,954 ordinary shares of
10p in issue, each with one vote. There have been no changes in the
company’s share capital during the year under review.
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 staff 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 nondiscriminatory 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. It is the policy of
the group that the training, career development and promotion of
disabled persons should, as far as possible, be identical to that of
other employees.
The group operates a pension scheme which is open to all
employees — see note 19 to the accounts.
POLITICAL DONATIONS 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
£7,000 (2007: £8,000).
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
page 114).
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.
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DIRECTORS’ REMUNERATION
REPORT
This report has been drawn up in accordance with the Combined
Code 2006 and the Companies Act 1985. It 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 AGM. 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.
COMPOSITION AND FUNCTION OF THE REMUNERATION
COMMITTEE
The Remuneration Committee comprises Mary Francis (Chairman),
Simon Clarke, Ian MenziesGow, 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 nonexecutive 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.
During 2008 the Committee was assisted by Watson Wyatt, who
were appointed as its independent remuneration advisers in June
2008. Watson Wyatt do no other work for the Company. The
Remuneration Commmittee was also assisted in its deliberations by
the Chairman, the CEO and the Company Secretary. These
executives were not present when their own remuneration
arrnagements were under discussion.
REMUNERATION POLICY
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 performancerelated elements with
demanding targets, in order to align the interests of directors and
shareholders and to reward success.
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 main elements of executive directors’ remuneration comprise:
Base salary: reviewed annually in the light of information on the
external market and other relevant factors such as internal
relativities and individual performance.
Annual bonus: the aim is to provide a clear and direct incentive.
Bonus normally comprises a single cash payment awarded at
the end of the financial year. Bonus targets require performance
based on financial, operational and strategic measures at
company and personal levels. Awards range from 20% of base
salary, if the minimum performance targets are met, to 125%
for performance at the maximum.
Performance share plan: an annual award of shares normally
with a face value of 150% of base salary which vest, subject to
achivement of performance targets, in whole or in part after
three years. The plan was agreed by shareholders in 2007 and
provides the main incentive to sustained, longer term
performance. The plan rules require challenging performance
targets to be set for each award to vest and stipulate that the
measures used should be appropriate in the prevailing
economic environment and circumstances of the company.
Pensions and benefits: executive directors’ pension benefits are
funded through either the defined benefit scheme (now closed),
or the defined contribution scheme. Executive directors also
receive private medical insurance, life insurance and participate
in the company car plan.
Shareholdings: it has been the company’s policy since 1st
December 2006 that executive 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.
The diagram below shows the expected value of remuneration in
terms of base salary, shortterm and longterm incentives:
EXECUTIVE DIRECTORS
■ Base Salary 45%
■ Shortterm incentive 29%
■ Longterm incentive 26%
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EXECUTIVE DIRECTORS’ REMUNERATION IN 2008
The year under review was one of considerable challenge and
difficulty for the company, its shareholders and its management
team. At its meetings during the year, the Committee discussed in
depth what constitutes fair pay for the company’s executives in
these circumstances and agreed it should focus on meeting the
following objectives:
To take account of shareholders’ interests at a time of declining
shareholder value.
To continue to motivate and retain the company’s key executives.
To ensure that performance targets remain both stretching and
relevant.
To incentivise the executive team to maintain a focus on the
longerterm strength of the company, as well as addressing the
shorterterm challenges of the recession.
To ensure that decisions on executive directors’ pay are aligned
with decisions made for other employees of the Company.
The Committee was particularly mindful of the message it receives
from many institutional fund managers: that they invest in
St. Modwen because they have a high regard for its management
team, led by the three executive directors. They see retention and
motivation of the company’s top team as a key objective for the
Remuneration Committee, and are mindful of the fact that attractive
opportunities continue to arise for executives of their quality in
other companies — both quoted and private. At the same time, the
Committee was aware of the expectation from shareholders and
their representative bodies that remuneration should reflect
declines in shareholder value in current market conditions. Applying
these objectives required the Committee to reach balanced
judgements in relation to remuneration in 2008 and in structuring
remuneration for 2009. The overall effect was that the total
remuneration of each of the executive directors was substantially
lower in 2008 than in the previous year.
The remuneration arrangements for the year ended 30th November
2008 are set out below.
BASE SALARIES
Base salaries for the year beginning 1st December 2007 were set at
levels which would be externally competitive, since companies in
the sector were still recruiting actively and retention remained an
issue. The Chief Executive’s and Finance Director’s base salaries
were raised in line with average increases in the market to £412,000
and £241,000 respectively. The Construction Director’s salary was
increased from £200,000 to £230,000 to recognise his increasing
contribution to the company since his appointment as a director and
to move his salary towards a marketcomparable level.
2008 BONUS SCHEME
The executive directors had the opportunity to earn a total bonus of
up to 125% of base salary, with up to 50% of the maximum allocated
to achievement of a financial target and up to 50% to achievement of
personal targets. The two elements were to be judged
independently. Performance against the financial target was not a
condition for payment against the personal targets, since the latter
focussed on both developing the longerterm strength of the
company and on inyear priorities which were, in the Committee’s
view, essential elements of performance.
The financial target set by the Committee was based on growth in
net asset value per share. The net asset value target was not met,
and, therefore, no award was made in respect of the financial
element of the bonus.
As noted above, the personal targets were focussed on:
Longerterm strength of the company:
— delivering marshalling milestones including planning
permissions for key sites
— acquiring new land and properties
—
improving management structures and training, and improving
succession planning.
Inyear priorities:
— cost control and asset management
— cash management
— bank covenants.
The executive directors’ performance was assessed individually by
the Committee against these targets, relying on audited information
where appropriate.
The longerterm measures were substantially achieved, subject to
some variations in personal performance reflected in the final
amounts awarded (see below). Despite the difficult market
conditions, acquisition and marshalling activity continued, with a
number of outstanding achievements. In particular, the acquisition,
marshalling and initiation of remediation works at Coed Darcy, and
the selection by BP for the development of a further 2,500 acre
portfolio, were outstanding achievements. As the year progressed,
the inyear priorities became the key focus and in the deteriorating
financial conditions were increasingly stretching to achieve. Each
was fully met.
The bonus payments made to each of the executive directors, in
accordance with the performance conditions, were: Bill Oliver 50%
of maximum bonus, (62.5% of base salary); Steve Burke 48% of
maximum bonus, (60% of base salary); Tim Haywood 36% of
maximum bonus, (45% of base salary). The awards reflected the
Committee’s assessment of each individual’s performance. In total,
bonus payments were substantially below those awarded the
previous year.
The Committee was conscious that it could be seen as inappropriate
for the resulting bonus payments to be paid in cash at a time when
shareholders had seen declines in the absolute value of their
shares. Taking this into account, the Committee decided to make
payment conditional on the executive directors undertaking to invest
the bonus received, after payment of income tax and national
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insurance, in company shares and to retain those shares for a
minimum period of two years.
In normal circumstances, once awarded, cash payments under the
bonus scheme are a contractual right. Requiring the executive
directors to invest the payments made to them into the company’s
shares was an exceptional decision, to which they agreed.
Accordingly the shares purchased will not be forfeitable if an
executive director leaves the Company.
DEFERRED BONUS SCHEME
The deferred cash bonus plan that was in place between 2004 to
2006, was introduced as a retention tool. It required participants to
receive half their annual bonus in cash with payment of the
remainder deferred for a further three years. In respect of senior
managers the deferment was subject only to continued employment
with the company, and in the case of the executive directors an
additional NAV growth condition applied. The plan was replaced by
the current arrangements, under which an annual cash bonus is
paid,at the end of the year in which it is earned, and longterm
incentives are provided through a performance share plan.
The deferred bonuses due for payment in 2009 were earned for
performance in 2005. As Steve Burke was not appointed to the board
until November 2006 his deferred bonus of £60,000 was not subect to
further performance condition, so automatically vested in full.
After very careful consideration, the Committee concluded that the
deferred bonus should be paid. This was a balanced and difficult
judgement, taken in the context of the Committee’s overall
remuneration decisions. In particular:
The executive directors’ actual and expected remuneration had
been substantially reduced because of the decline in NAV in
2008. The financial element of the 2008 bonus (accounting for
half the potential award) and the executive share option grant
due to vest in early 2009 would both lapse. There is also a high
probability that the entire performance share plan grants made
in 2007 and 2008 will lapse.
The Committee had used its discretion to request the executive
directors to convert their 2008 cash bonuses into shares and
undertake not to sell them for two years. The exercise of
discretion had thus not been oneway.
The deferred bonus target was set in 2003, at a time of steeply
rising market values, and was not subsequently reviewed. The
company’s current remuneration schemes require all targets to
be set taking account of current market conditions.
NAV growth of 24.1% over the performance period was an
exceptionally good result in relative terms. NAV’s in the property
sector as a whole are forecast to have declined by an average of
24.3% over the corresponding threeyear performance period.
The Committee was mindful of shareholders’ concern that the
executive team should be retained.
For Bill Oliver and Tim Haywood, the deferred bonus target required
NAV growth over three financial years between 2006–2008 to exceed
RPI plus 5% per annum, which equated to a target of 31.3%. Over
this period, NAV grew by 24.1%.
The vested amounts are Bill Oliver £217,000 and Tim Haywood
£123,000. No decision has been taken on payment of the deferred
bonuses earned in 2006 and due to be paid in 2010.
St. Modwen Properties
FTSE 350 Real Estate
FTSE 250
350
300
250
200
150
100
50
0
Nov 03
Aug 04
Apr 05
Jan 06
Sept 06
Jun 07
Feb 08
Nov 08
The company’s total shareholder return is shown in the graph above against a broad equity market index. Since the company was a
constituent of the FTSE 250 and FTSE Real Estate indices during the year, these are considered to be appropriate benchmarks for the graph.
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59
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SHARE OPTION PERFORMANCE AND AWARDS
As referred to above, the threshold NAV growth performance
condition applying to the award of share options due to vest in 2009
has not been met. The Remuneration Committee has determined
that the grant of share options will lapse.
In the current economic climate, it is also expected that NAV growth
will fall substantially short of the targets set for performance share
awards in 2007 .
PERFORMANCE SHARE PLAN (‘PSP’)
PSP awards to executive directors were granted in 2008 over shares
to a value of 150% of base salary The shares will vest after three
years, subject to achievement of performance targets over three
financial years ending 30th November 2010. Performance will be
measured against two targets.
The first is cumulative real growth in net asset value per share (“net
asset growth”). Net asset growth of 9% will earn PSP shares worth
31.5% of base salary at date of the award and growth of 44% will
earn shares worth 125% of base salary at date of the award. These
levels of growth are lower than those set for the PSP award granted
in 2007 but, in accordance with the rules of the Plan, were agreed by
the Committee, after very careful consideration, to be as
challenging in the more difficult economic climate. They were
notified to major shareholders before the 2008 AGM and were set
out in the remuneration report which was approved at the AGM.
The second target is the company’s absolute total shareholder
return (“TSR”). If TSR over the three financial years ending
30th November 2010 is 75% or more, the PSP grant 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 PSP targets is that vesting of shares
worth 25% of base salary would be achieved for net asset growth of
9% over the three year period, and the maximum vesting would be
worth 150%. Beneath 9% growth, no vesting will occur.
Executive directors may also participate in the company’s savings
related share schemes on the same terms as all other employees.
EXECUTIVE DIRECTORS’ REMUNERATION IN 2009
The Committee considered carefully the executive remuneration
arrangements for 2009 having regard to operational and strategic
priorities in a difficult market, seeking to balance shareholders’
interests with the need to incentivise the executive team.
Executive directors’ remuneration for 2009 comprises:
BASE SALARIES
Base salaries were reviewed having regard to market conditions and
the salary review being implemented for other staff which was
budgeted at a 3% increase. Salaries effective from 1st December
are Bill Oliver — £424,360; Steve Burke — £280,000; Tim Haywood
— £248,230. Bill Oliver and Tim Haywood received salary increases
of 3% in line with other staff and Steve Burke received an increase
of 21.7% reflecting the continuing increase in his contribution since
joining the board and external benchmarks. Base salaries continue
to be below the market median for companies of a similar size in
the property sector.
PENSIONS AND BENEFITS
No changes have been made to policy and practice.
2009 BONUS SCHEME
In current market conditions, it is essential to set clear, stretching
and realistic targets which relate directly to the company’s strategy
for both the short and longer term.
The Committee agreed the following performance conditions for the
2009 annual bonus:
— net asset value
— covenant compliance
— gearing levels
—
— marshalling activity
— personal elements including cost management.
land and property acquisitions and disposals
The targets for each element are based on the budget agreed by the
board and are considered by the Committee to be stretching in
current market conditions.
Payment of bonus will not be dependent on achievement of any single
target, since the targets are all of key importance to the short and longer
term health of the company. The potential maximum award is 125% of
base salary, and the Committee will have regard to the value which has
been created for shareholders when determining bonus awards at the
end of 2009.
PERFORMANCE SHARE PLAN
The 2009 grant of shares under the PSP will vest according to
performance in the three financial years from 2008 to 2011.
The potential maximum award has been reduced from 150% of base
salary to 125%.
The Committee gave extensive consideration to the performance
conditions to be set. The rules of the performance share plan approved
by shareholders in 2007 require the Committee to set performance
conditions for each annual grant which reflect current market
conditions and the company’s strategy. The company’s goal continues to
be the growth of net asset value per share. However, forecasts for net
asset growth in the sector as a whole have been revised sharply
downwards for the mediumterm.
The Committee decided that for 2009, only half the award should be
linked to absolute NAV growth targets. It set targets at levels which were
lower than in the last two years, but which it considered to be stretching
in the light of medium term prospects. The award has a maximum
cumulative NAV target of 15% growth , which would earn 50% of the
total PSP grant and which the Committee considers to be exceptionally
stretching in the light of current forecasts. After consultation with
shareholders, the minimum target has been set at 2% growth to ensure
that executive directors are only rewarded for performance which
delivers a positive return to shareholders. Net asset values are expected
to fall across the market in the next one or even two years. The targets
will therefore require positive growth of considerably more than the
stated range of 2%–15% in 2010 or 2011. Achieving the minimum target
will secure shares equivalent to only 12.5% of the potential PSP award,
compared with 25% in the previous year.
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The Committee decided that the other half of the award should be
subject to a measure of total shareholder return relative to the FTSE 350
Real Estate Index. For this portion of the award, minimum vesting is
achieved for performance equal to the index (earning 12.5% of the total
PSP grant), and maximum vesting (earning 50% of the total grant) for
performance at 120% of the index. This approach will ensure that
vesting of a significant proportion of the award will be dependent on out
performance by the company relative to its peers.
The absolute TSR adjustment which was applied to the PSP awards in
2007 and 2008 will not apply.
Share awards made to executive directors and other employees will
remain within the overall limits allowed by the rules of the relevant plans.
NONEXECUTIVE DIRECTORS’ FEES
The level of nonexecutive directors’ fees is recommended to the board
by the Chairman and executive directors, having taken independent
advice on market practice. For 2008 the level of the basic fee paid was
£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.
For the year commencing 1st December 2008, nonexecutive directors’
fees will be held at the same levels.
The Chairman’s fee for 2008 was set at £281,000. The board agreed that
from 1st December 2008 Anthony Glossop would take on a more typical
nonexecutive Chairman role for a company the size of St Modwen.
A review was carried out of the fees appropriate to this new role and his
fees from 1st December 2008 were set at £125,000 per annum.
Audited Information:
EXECUTIVE SHARE OPTION SCHEMES(i)
Date of Grant
November 1999
September 2002
August 2003
August 2004
August 2005
August 2006(ii)
As at 30th November 2008
C.C.A. Glossop
500,000
—
—
—
—
—
500,000
W.A. Oliver
—
60,000
112,000
89,500
87,250
—
348,750
S.J. Burke
—
—
—
39,250
33,750
—
73,000
T.P. Haywood Exercise Price
99p
134p
200p
279p
443p
478p
—
—
—
—
39,500
—
39,500
Exercise Period
Nov 2003–Nov 2009
Sept 2005–Sept 2012
Aug 2006–Aug 2013
Aug 2007–Aug 2014
Aug 2008–Aug 2015
n/a
(i) All share options granted in 1999 to 2005 have vested in full having met the performance conditions.
(ii) All share options granted in 2006 will lapse because they have not met the performance condition for NAV growth over the three years to
30th November 2008.
No Executive Share options were granted to directors in 2007 or 2008, nor were any exercised by directors during 2008.
PERFORMANCE SHARE PLAN
Directors’ maximum entitlements, subject to the satisfaction of performance conditions, are as follows:
Date of Grant
1st May 2007
12th February 2008
Total
W.A. Oliver
87,235
129,072
216,307
S.J. Burke
45,317
72,055
117,372
T.P. Haywood
Exercise Period
50,981 May 2010–April 2017
75,501
Feb 2011–Feb 2018
126,482
The average share price for the three days preceding 12th February 2008, the date of the 2008 grant, was 478.8p.
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61
SAVINGS RELATED SCHEMES
C.C.A. Glossop
W.A. Oliver
S.J. Burke
T.P.Haywood
Balance at
30th Nov 2007
6,072
3,713
3,383
7,497
Granted
—
—
—
2,424
Exercised
—
—
—
(3,500)
Lapsed
—
(3,713)
(3,383)
—
Balance at
30th Nov 2008
6,072
—
—
6,421
Exercise Price
248p–434p
434p
484p
248p–269p
Exercise Period
Oct 2009–Mar 2012
n/a
n/a
Oct 2009–Mar 2013
Details of Savings Related Share options exercised by directors during the year are as follows:
T.P. Haywood
Market price
at date of
exercise
201p
Number
of options
exercised
3,500
Date of exercise
October 2008
Gain
£’000
1
The share price as at 30th November 2008 was 114p. The highest price during the year was 532p and the lowest price was 86p.
Unaudited information
SERVICE CONTRACTS
All of the executive directors have service contracts of no fixed term,
with notice periods of twelve months.
Unless specifically approved by the board, executive directors are
not permitted to hold external nonexecutive directorships.
The nonexecutive directors have Letters of Apppointment with
notice periods of three months.
The dates of the executive directors’ service contracts are as
follows:
No director has any rights to compensation on loss of office (apart
from payment in lieu of notice, where appropriate).
W.A. Oliver
S.J. Burke
T.P. Haywood
24th January 2000
1st January 2006
11th April 2003
Audited information
SENIOR MANAGEMENT REMUNERATION
For the year under review, the total remuneration of the members of the Property Board, who are the senior management of the business
but not on the board, was as follows:
C
O
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P
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N
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No. of executives
3
2
2
£’000
100–200
200–300
300–400
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DIRECTORS’ REMUNERATION
The remuneration of the directors for the year ended 30th November 2008 was as follows:
Executive
W.A. Oliver
S.J. Burke
T.P. Haywood
NonExecutive
C.C.A. Glossop
S.W. Clarke
M.E. Francis
R.I. MenziesGow
D.P. Rigg
C.E. Roshier
J.H. Salmon
Salary/Fees
£’000
Annual
bonus
£’000
Benefits
£’000
412
230
241
281
37
46
37
37
43
46
1,410
258
138
108
—
—
—
—
—
—
—
504
34
16
21
22
—
—
—
—
—
—
93
Total emoluments
excluding
pensions and pension
contributions
2008
£’000
704
384
370
303
37
46
37
37
43
46
2,007
2007
£’000
886
463
509
373
35
43
35
35
40
43
2,462
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.
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 £29,560
were provided by the Company during the year to the widow of Sir
Stanley Clarke (comprising mainly the provision of a car and driver).
With effect from 1st December 2008 all such payments have ceased.
PENSIONS
The company operates a pension scheme with both a defined
benefit and defined contribution section, covering the majority of
employees, including executive directors. In relation to the defined
benefit section, benefits are based on years of credited service and
final pensionable pay. The maximum pension generally payable
under the scheme is twothirds of final pensionable pay. The defined
benefit 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.
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DIRECTORS’ REMUNERATION REPORT
63
Pension benefits earned by the directors who are members of the defined benefit scheme:
Age at
30th November 2008
67
49
Accrued pension
2007
2008
£’000 p.a.
248
22
240
19
Transfer Value
2008
4,546
286
£’000
2007
3,961
203
C.C.A. Glossop
S.J. Burke
Change in
transfer value to
30th November 2008
less member
contributions
585
74
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).
7. Pension payments in respect of service in the Scheme after
5th April 1997 increase annually by the lower of the RPI
increase and 5%. Pension in respect of service prior to 6th April
1997 increases annually by the lower of the RPI increase
and 3%.
Notes relating to the defined 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 2008.
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.
8. Pensionable salary increases are capped at RPI plus 3% per
annum cumulatively (effective 1st December 2004). Scheme
members within five 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).
Contributions made on behalf of the remaining directors who are
members of the defined contribution section of the Pension Scheme
amounted to:
W.A Oliver
T.P. Haywood
2008
£’000
62
36
2007
£’000
58
34
Further information on the company’s pension scheme is shown in
note 19 to the accounts.
Approved by the board and signed on its behalf by
Mary E. Francis
Chairman, Remuneration Committee
26th February 2009
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FINANCIAL STATEMENTS
66 Directors’ responsibility statement
67 Independent group auditors’ report
68 Group and company accounts
110 Independent company auditors’ report
111 Five year record
112 Notice of annual general meeting
115 Glossary of terms
116 Shareholder information
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66
DIRECTORS’ RESPONSIBILITY
STATEMENT
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
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 IFRS 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. However, 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 are 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 judgments 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;
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
that disclose with reasonable accuracy at any time the financial
position of the company and enable them to ensure that the parent
company financial statements comply with the Companies Act 1985.
They are also responsible for safeguarding the assets of the
company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of
the corporate and financial information included on the company’s
website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
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
2)
of which the company’s auditors are unaware; and
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, for the reasons set out on
pages 19 and 20, 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. We confirm to the best of our knowledge:
the group financial statements (prepared in accordance with
International Financial Reporting Standards as adopted by the
EU) and the parent company balance sheet (prepared under
United Kingdom Generally Accepted Accounting Practice) give a
true and fair view of the assets, liabilities, financial position and
profit or loss of the company and the undertakings included in
the consolidation taken as a whole; and
the business review, which is incorporated into the directors'
report, includes a fair review of the development and
performance of the business and the position of the company
and the undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and
uncertainties they face.
By order of the Board
Bill Oliver
Chief Executive
26th February 2009
Tim Haywood
Finance Director
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FINANCIAL STATEMENTS
67
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF ST. MODWEN PROPERTIES PLC
We have audited the group financial statements of St. Modwen
Properties PLC for the year ended 30th November 2008 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 2008.
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 parts of the directors’ remuneration report described as having
been audited have 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.
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 parts 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 parts 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
parts 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 2008 and of its
loss 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 parts of the Directors’ Remuneration Report described as
having been audited 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 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.
Deloitte LLP
Chartered Accountants and Registered Auditors
Birmingham, United Kingdom
26th February 2009
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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.
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68
GROUP INCOME STATEMENT
FOR THE YEAR ENDED 30TH NOVEMBER 2008
Revenue
Net rental income
Development profit
Gains on disposal of investments/investment properties
Investment property revaluation (losses)/gains
Other net income
(Losses)/profits of joint ventures and associates (posttax)
Administrative expenses
(Loss)/profit before interest and tax
Finance cost
Finance income
(Loss)/profit before tax
Tax credit/(charge)
(Loss)/profit for the year
Attributable to:
Equity shareholders of the company
Minority interests
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
FOR THE YEAR ENDED 30TH NOVEMBER 2008
(Loss)/profit for the year
Pension fund:
— actuarial losses
— deferred tax thereon
Total recognised income and expense
Attributable to:
— Equity shareholders of the company
— Minority interests
Total recognised income and expense
Notes
1
1
1
7
1
9
2
3
3
4
17
18
Notes
5
5
Notes
19
19
18
18
2008
£m
146.5
25.7
9.0
0.1
(49.7)
7.3
(8.9)
(14.0)
(30.5)
(49.3)
6.7
(73.1)
22.4
(50.7)
(51.7)
1.0
(50.7)
2008
pence
(42.8)
(42.8)
2008
£m
(50.7)
(0.4)
0.1
(51.0)
(52.0)
1.0
(51.0)
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
2007
£m
93.7
(3.3)
0.9
91.3
86.0
5.3
91.3
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GROUP BALANCE SHEET
AS AT 30TH NOVEMBER 2008
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
FINANCIAL STATEMENTS
69
Notes
7
8
9
10
11
10
12
13
4
12
13
4
16
17
17
17
17
18
2008
£m
814.3
4.3
64.2
20.6
903.4
228.1
48.5
12.7
289.3
(131.1)
(0.4)
(5.7)
(137.2)
(201.4)
(433.8)
(18.1)
(653.3)
402.2
12.1
9.1
0.3
371.3
(0.1)
392.7
9.5
402.2
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
F
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These financial statements were approved by the board of directors on 26th February 2009 and were signed on its behalf by Anthony Glossop
and Tim Haywood.
Anthony Glossop
Chairman
Tim Haywood
Finance Director
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70
GROUP CASH FLOW STATEMENT
FOR THE YEAR ENDED 30TH NOVEMBER 2008
Operating activities
(Loss)/profit before interest and tax
Gains on the disposal of investments
Losses/(gains) on investment property disposals
Share of (losses)/profits of joint ventures and associates (posttax)
Investment property revaluation losses/(gains)
Depreciation
Increase in inventories
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
Share options and share awards
Employer pension contributions
Tax (received)/paid
Net cash inflow/(outflow) from operating activities
Investing activities
Investment property disposals
Investment property additions
Disposal of investments
Property, plant and equipment additions
Investment in associate
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 (outflow)/inflow from financing activities
(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
Notes
9
7
8
4(c)
9
6
18
2008
£m
(30.5)
(0.3)
0.2
8.9
49.7
0.5
(19.7)
(3.1)
53.3
3.9
(0.1)
(4.8)
58.0
44.4
(89.1)
0.9
(0.9)
(2.3)
2.5
4.0
(40.5)
(14.1)
(1.0)
(22.0)
—
23.5
(9.1)
(22.7)
(5.2)
17.9
12.7
2007
£m
129.0
(6.7)
(4.7)
(12.6)
(60.3)
0.6
(109.2)
19.1
1.2
0.1
(0.2)
1.8
(41.9)
44.4
(141.9)
17.7
(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
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ACCOUNTING POLICIES
FOR THE YEAR ENDED 30TH NOVEMBER 2008
FINANCIAL STATEMENTS
71
BASIS OF PREPARATION
The group’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the
EU as they apply to the group for the year ended 30th November 2008 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.
VSM Estates (Holdings) Limited is 50% owned by St Modwen Properties PLC; however, under the funding agreement the group obtains the
majority of the benefits of the entity and also retains the majority of the residual risks. This entity is therefore consolidated in accordance with
SIC 12 “Consolidation — Special Purpose Entities”.
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 that are not held by the group and are presented separately within
equity in the group balance sheet.
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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.
PROPERTIES
Investment properties
Investment properties, being freehold and leasehold properties held to earn rental income, for capital appreciation and/or for undetermined
future use, 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 the basis of market value. 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 commences, 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.
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72
ACCOUNTING POLICIES
FOR THE YEAR ENDED 30TH NOVEMBER 2008
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.
Investment properties are not depreciated.
Inventories
Inventories principally comprise properties held for sale, properties under construction and land under option.
Cost comprises land, direct materials and, where applicable, direct labour costs that have been incurred in bringing the inventories to their
present location and condition. When inventory includes a transfer from investment properties, cost is recorded as the book value at the date
of transfer. Net realisable value represents the estimated selling price less any further costs expected to be incurred to completion and
disposal.
FINANCE COSTS
Interest incurred is 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
of each asset evenly over its expected useful life as follows:
Leasehold operating properties
Plant, machinery and equipment — over 2 to 5 years
— over the shorter of the lease term and 25 years
Freehold properties, which comprise land, are not depreciated.
LEASES
The group as lessee
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.
Freehold interests in 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.
The group as lessor
Rental income from operating leases is recognised in the income statement on a straightline basis over the lease term.
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FINANCIAL STATEMENTS
73
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.
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M
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N
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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.
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 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.
Contributions to defined contribution schemes are recognised in the income statement in the year in which they become payable.
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74
ACCOUNTING POLICIES
FOR THE YEAR ENDED 30TH NOVEMBER 2008
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
assets 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 in accordance with the group’s accounting policy on construction contracts
(see below).
Rental income
Rental income arising from investment properties is accounted for on a straightline basis over the lease term.
Interest income
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the
rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.
Dividend income
Dividend income from joint ventures is recognised when the shareholders’ rights to receive payment have been established.
CONSTRUCTION CONTRACTS
Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of
completion of the contract activity at the balance sheet date. The extent to which the contract is complete is determined by the total costs
incurred to date as a percentage of the total anticipated costs for the entire contract. Variations in contract work, claims and incentive
payments are included only to the extent they have been agreed with the purchaser.
Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs
incurred where it is probable they will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.
GOVERNMENT GRANTS
Government grants relating to property are treated as deferred income and released to profit or loss over the expected useful life of the assets
concerned.
SHAREBASED PAYMENTS
When employee share options are exercised the employee has the choice of whether to have the liability to them settled by way of cash or the
retention of shares. As it has been the company’s practice to satisfy the majority of share options in cash and new shares are not issued to
satisfy employee share option plans, the group accounts for its share option schemes as cashsettled. 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.
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FINANCIAL STATEMENTS
75
F
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FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised on the group’s balance sheet when the group becomes a party to the contractual
provisions of the instrument. The group derecognises a financial asset only when the contractual rights to the cash flows from the asset
expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the
group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the
group recognises its retained interest in the asset and an associated liability for any amounts it may have to pay. If the group retains
substantially all the risks and rewards of ownership of a transferred financial asset, the group continues to recognise the financial asset and
also recognises a collateralised borrowing for the proceeds received. The group derecognises financial liabilities when, and only when, the
group’s obligations are discharged, cancelled, or they expire.
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.
Cash and cash equivalents
Cash and cash equivalents comprises cash balances and shortterm deposits with banks.
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 in finance income or finance
expense as appropriate.
Interest incurred is not capitalised, but written off to the income statement using the effective interest rate method.
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.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all its liabilities. Equity
instruments issued by the group are recorded at the proceeds received less direct issue costs.
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.
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76
ACCOUNTING POLICIES
FOR THE YEAR ENDED 30TH NOVEMBER 2008
The areas requiring the use of estimates and critical judgements that may significantly impact the group’s earnings and financial position are:
Going concern The financial statements have been prepared on a going concern basis. This is discussed in the Business Review on pages 19
and 20, under the heading ‘Financing, covenants and going concern’.
Valuation of investment properties Management has used the valuation performed by its independent valuers as the fair value of its
investment properties. The valuation is performed according to RICS rules, including an assumption as to the existence of willing
buyer/willing seller market evidence of transaction prices for similar properties and uses. The level of professional judgement applied by the
external valuers has been increased in the year as the market environment is such that there are lower levels of activity, providing fewer
directly comparable transactions.
Net realisable value of inventories The group has ongoing procedures for assessing the carrying value of inventories and identifying where
this is in excess of net realisable value. Given the current state of the property market, the level of judgement applied by management at
30th November 2008 was further increased from previous years. The estimates and judgements used were based on information available at,
and pertaining to, 30th November 2008. If the property market were to decline further from 30th November 2008 additional net realisable
value provisions may be required.
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. Any changes to these estimates may impact the carrying values on investment properties and/or
inventories.
The calculation of deferred tax assets and liabilities together with assessment of the recoverability of future tax losses. The recoverability of
tax losses has been assessed and management considers that there are sufficient latent gains and future profits anticipated to be realised on
the group’s property portfolio to recover these in full.
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 longterm 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.
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FINANCIAL STATEMENTS
77
IMPACT OF STANDARDS AND INTERPRETATIONS IN ISSUE BUT NOT YET EFFECTIVE
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these
financial statements were in issue but not yet effective:
IAS 1 (revised 2007) Presentation of Financial Statements
IAS 23 (revised 2007) Borrowing costs
IAS 27 (revised 2008) Consolidated and Separate Financial Statements
IAS 32 (amended)/IAS 1 (amended) Puttable Financial Instruments and Obligations Arising on Liquidation
IFRS 1 (amended)/IAS 27 (amended) Cost of Investment in a Subsidiary, Jointly Controlled Entity or Associate
IFRS 2 (amended) Sharebased Payment — Vesting Conditions and Cancellations
IFRS 3 (revised 2008) Business Combinations
IFRS 8 Operating Segments
IFRIC 4 Determining whether an Arrangement contains a lease
IFRIC 5 Rights to Interests Arising from Decommissioning Restoration and Environmental Rehabilitation Funds
IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies
IFRIC 8 Scope of IFRS 2
IFRIC 9 Reassessment of embedded derivatives
IFRIC 10 Interim reporting and impairments
IFRIC 11 IFRS 2 — Group and Treasury Share Transactions
IFRIC 12 Service Concession Arrangements
IFRIC 13 Customer Loyalty Programmes
IFRIC 14 IAS 19 — The Limit on a Defined Benefit Asset, Minimum Funding Requirement and their Interaction
IFRIC 15 Agreements for the Construction of Real Estate
IFRIC 16 Hedges of a Net Investment in a Foreign Operation
IFRIC 17 Distributions of NonCash Assets to Owners
The directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the
financial statements of the group.
IMPLEMENTATION OF IFRS 7
In the current financial year the group adopted IFRS 7 ‘Financial Instruments: Disclosures’ (IFRS 7) which is effective for annual reporting
periods beginning on or after 1st January 2007, and the related amendment to IAS 1 ‘Presentation of Financial Statements’ (IAS 1). The impact
of the adoption of IFRS 7 and the changes to IAS 1 has been to expand the disclosures provided in these financial statements regarding the
group’s financial instruments and management of capital.
F
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A
N
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T
A
T
E
M
E
N
T
S
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78
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30TH NOVEMBER 2008
1.
REVENUE AND GROSS PROFIT
Revenue
Cost of sales
Gross profit
Revenue
Cost of sales
Gross profit
£m
Rental Development
£m
101.8
(92.8)
9.0
33.7
(8.0)
25.7
Other
£m
11.0
(3.7)
7.3
2008
2007
Rental Development
Other
£m
30.3
(4.0)
26.3
£m
91.1
(58.7)
32.4
£m
6.1
(3.7)
2.4
Total
£m
146.5
(104.5)
42.0
Total
£m
127.5
(66.4)
61.1
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 2008 was £160.5m (2007: £138.2m) and in addition to the amounts above included service charge income of
£5.3m (2007: £4.9m), for which there was an equivalent expense, interest income of £4.7m (2007: £1.8m) and dividends received from joint
ventures of £4.0m (2007: £4.0m).
During the year the following amounts were recognised (as part of development revenue and cost of sales) in respect of construction contracts:
Revenue
Cost of sales
Gross profit
2008
£m
38.9
(33.4)
5.5
2007
£m
30.3
(26.5)
3.8
Amounts due from customers of £nil (2007: £1.8m) were included in trade and other receivables in respect of contracts in progress at the
balance sheet date.
Amounts due to customers of £nil (2007: £3.6m) were included in trade and other payables in respect of contracts in progress at the balance
sheet date.
Retentions due from customers in respect of construction contracts of £0.5m (2007: £0.3m) were included in trade and other receivables at
the balance sheet date.
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OTHER INCOME STATEMENT DISCLOSURES
2.
A. ADMINISTRATIVE EXPENSES
Administrative expenses have been arrived at after charging:
Depreciation
Operating lease costs
B. AUDITORS’ REMUNERATION
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 remuneration
Total fees
FINANCIAL STATEMENTS
79
2008
£m
0.5
1.3
2007
£m
0.6
0.8
2008
£’000
2007
£’000
115
122
58
124
—
419
105
90
25
167
86
473
F
I
N
A
N
C
I
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L
S
T
A
T
E
M
E
N
T
S
The 2007 figures above include fees paid to Deloitte LLP prior to their appointment as auditors. The above amounts include all amounts
charged by the group auditors in respect of joint venture undertakings.
C. EMPLOYEES
The average number of fulltime employees (including executive 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
2008
Number
137
74
50
261
2007
Number
129
68
44
241
2008
£m
11.3
1.4
0.8
13.5
2007
£m
12.1
1.5
0.8
14.4
D. SHAREBASED PAYMENTS
The group has a save as you earn share option scheme which is 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 56 to 63.
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80
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30TH NOVEMBER 2008
OTHER INCOME STATEMENT DISCLOSURES CONTINUED
2.
D. SHAREBASED PAYMENTS CONTINUED
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.
2008
Weighted average
price
Outstanding at start of year
Granted
Forfeited
Exercised
Outstanding at end of year
Exercisable at year end
Number of
options
3,616,437
1,816,505
(158,682)
(353.569)
4,920,691
1,462,003
All Excluding Number of
options
3,390,130
685,043
(12,838)
(445,898)
3,616,437
1,562,731
PSP £
3.23
2.80
(3.25)
(1.86)
3.17
2.12
options £
3.06
2.38
(3.25)
(1.86)
2.88
2.12
2007
Weighted average
price
All Excluding
PSP £
2.69
5.29
(2.48)
(1.55)
3.23
1.77
options £
2.69
3.88
(2.48)
(1.55)
3.06
1.77
Share options are priced using a Black–Scholes valuation model. The fair values calculated and the assumptions used are as follows:
As at 30th November 2008
As at 30th November 2007
* Based on 90 day moving average.
Credit
to income
Riskfree
statement interest rate
%
Expected
volatility
%
0.8–2.8 43.2–154.0
24.0–40.4
4.6–5.3
Dividend
yield
%
—
2.3
Share
price
£*
2.27
4.69
£m
3.3
0.4
The fair value of the balance sheet liability in respect of share options outstanding at the year end was £2.3m (2007: £6.2m) and included
£1.6m (2007: £4.7m) in respect of options that had vested at the year end.
In arriving at fair value it has been assumed that, when vested, shares options are exercised in accordance with historical trends. 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 £3.95 (2007: £5.90). The executive share options outstanding at the year end had
a range of exercise prices between 99.0p and 538.0p (2007: 99.0p and 538.0p) with PSP options exercisable at £nil. Outstanding options had a
weighted average maximum remaining contractual life of 5.5 years (2007: 6.1 years).
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3.
FINANCE COST AND FINANCE INCOME
Interest payable on borrowings
Amortisation of discount on deferred payment arrangements
Head rents treated as finance leases
Movement in fair value of interest rate derivatives
Interest on pension scheme liabilities (note 19)
Total finance cost
FINANCIAL STATEMENTS
81
2008
£m
24.3
7.8
0.2
15.4
1.6
49.3
2007
£m
20.2
9.9
0.2
0.7
1.5
32.5
The finance cost on interest rate derivatives derives from financial liabilities held at fair value through profit or loss. All other finance costs
derive from financial liabilities measured at amortised cost.
F
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A
N
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S
T
A
T
E
M
E
N
T
S
2008
£m
2.5
2.2
2.0
6.7
2007
£m
1.8
—
1.8
3.6
2008
£m
2007
£m
0.2
(2.0)
(1.8)
(2.9)
(13.1)
(3.2)
(1.4)
(20.6)
(22.4)
8.1
(0.1)
8.0
(11.7)
11.8
—
(1.7)
(1.6)
6.4
(0.1)
(0.1)
(0.9)
(0.9)
Interest receivable on cash deposits
Credit in respect of discount on deferred receivables
Expected return on pension scheme assets (note 19)
Total finance income
TAXATION
4.
A. TAX ON (LOSS)/PROFIT ON ORDINARY ACTIVITIES
Tax (credit)/charge in the income statement
Corporation tax charge
Tax on current year (loss)/profit
Adjustments in respect of previous years
Deferred tax
Reversal of temporary differences
Impact of current year revaluations
Carry forward of tax losses
Adjustments in respect of previous years
Total tax (credit)/charge in the income statement
Tax relating to items charged to equity
Deferred tax
Actuarial losses on pension schemes (note 19)
Tax credit in the statement of total recognised income and expense
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82
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30TH NOVEMBER 2008
4.
TAXATION CONTINUED
B. RECONCILIATION OF EFFECTIVE TAX RATE
(Loss)/profit before tax
Less: Joint ventures and associates
Pretax (loss)/profit attributable to the group
Corporation tax at 28.67% (2007: 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 revaluations
Difference between chargeable gains and accounting profit
Current year (credit)/charge
Adjustments in respect of previous years
Effective rate of tax
2008
£m
(73.1)
8.9
(64.2)
(18.4)
1.6
—
—
—
(3.2)
1.0
(19.0)
(3.4)
(22.4)
35%
2007
£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%
The posttax results of joint ventures and associates are stated after a tax credit of £7.0m (2007: £2.8m charge). The effective tax rate for the
group including joint ventures and associates is 36.7% (2007: 8.9%).
The UK Government announced that balancing allowances and balancing charges on industrial buildings were to be abolished with effect
from 21st March 2007. Accordingly, temporary differences in respect of industrial buildings held for rental were released in the year ended
30th November 2007.
The UK Government announced that they would reduce the corporation tax rate for large companies to 28% with effect from 1st April 2008.
Accordingly, as at 30th November 2007, deferred tax adjustments were restated to 28% as this is the rate at which they were expected to
reverse.
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FINANCIAL STATEMENTS
83
TAXATION CONTINUED
4.
C. BALANCE SHEET
2008
Balance at start of the year
(Credit)/charge to the income statement
Credit directly to equity
Net (refund)/payment
Other
Balance at end of the year
An analysis of the deferred tax provided by the group is given below:
Corporation
tax
£m
12.3
(1.8)
—
(4.8)
—
5.7
Appropria
Deferred Corporation
tax
£m
3.7
8.0
—
tax
£m
38.8
(20.6)
(0.1)
—
—
18.1
1.8
(1.2)
12.3
Deferred tax liability/(asset) at start of year
(Credit)/charge to income statement
Credit directly to equity
Deferred tax liability/(asset) at end of year
Property
Capital
revaluations allowances
£m
2.8
1.5
—
4.3
£m
48.4
(17.2)
—
31.2
tions to
trading Unutilised
Other
temporary
tax losses differences
£m
(2.0)
(1.1)
(0.1)
(3.2)
£m
(11.8)
(3.4)
—
(15.2)
stock
£m
1.4
(0.4)
—
1.0
2007
Deferred
tax
£m
47.0
(1.6)
(0.9)
—
(5.7)
38.8
Total
£m
38.8
(20.6)
(0.1)
18.1
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
The group has recognised a deferred tax asset in respect of tax losses of £15.2m. Of this £7.4m (2007: £nil) relates to tax losses carried
forward in respect of 2008 and £7.8m (2007: £11.8m) to HMRC approved deductions available in subsidiary companies in future periods. The
total asset is fully recognised on the basis that the losses or deductions will shelter the latent gains anticipated to be realised on the group’s
property portfolio which are reflected in the deferred tax liability for property revaluations.
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.
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84
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30TH NOVEMBER 2008
EARNINGS PER SHARE
5.
The calculation of basic and diluted earnings per share is set out below:
Weighted number of shares in issue*
Weighted number of dilutive shares
(Loss)/earnings (basic and diluted)
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
2008
shares
2007
Number of Number of
shares
120,688,232 120,636,100
1,506,851
120,688,232 122,142,951
—
2008
£m
(51.7)
2008
pence
(42.8)
(42.8)
2007
£m
88.4
2007
pence
73.3
72.4
* Shares held by the Employee Benefit Trust are excluded from the above calculations.
The group’s share options are accounted for as cashsettled sharebased payments. In calculating diluted earnings per share, earnings have
been adjusted for changes which would have resulted from the option being classified as equitysettled. The number of shares included in the
calculation has also been adjusted accordingly.
DIVIDENDS
6.
Dividends paid during the year comprised the final dividend in respect of 2007 and the interim dividend in respect of 2008. No final dividend
is proposed.
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.
2008
2007
p per share
£m
p per share
£m
7.8
3.9
11.7
9.4
4.7
14.1
6.8
3.9
10.7
8.2
4.7
12.9
—
—
7.8
9.4
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7.
INVESTMENT PROPERTY
Fair value
At 30th November 2006
Additions — new properties
Other additions
Transfers to inventories (note 11)
Disposals
Surplus on revaluation
At 30th November 2007
Additions — new properties
Other additions
Transfers (to)/from inventories (note 11)
Disposals
Deficit on revaluation
At 30th November 2008
FINANCIAL STATEMENTS
85
Freehold Leasehold
investment
investment
properties properties
£m
£m
395.5
38.0
32.4
(13.2)
(21.6)
42.3
473.4
8.4
46.2
(14.0)
(9.7)
(37.2)
467.1
340.9
5.0
31.3
(20.9)
(0.8)
18.0
373.5
0.4
31.7
14.9
(60.8)
(12.5)
347.2
Total
£m
736.4
43.0
63.7
(34.1)
(22.4)
60.3
846.9
8.8
77.9
0.9
(70.5)
(49.7)
814.3
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
Investment properties were valued at 30th November 2008 and 2007 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. King Sturge & Co are
independent professionally qualified external valuers and have recent experience in the relevant location and category of the properties being
valued.
As at 30th November 2008 £776.8m (2007: £862.8m) of investment property was pledged as security for the group’s loan facilities.
Included within leasehold investment properties are £3.9m (2007: £3.9m) of assets held under finance leases.
Cost of sales in respect of rental income as disclosed in note 1 comprise direct operating expenses (including repairs and maintenance)
related to the investment property portfolio and includes £0.3m (2007: £0.3m) in respect of properties that did not generate any rental income.
Further details of the movements in investment property are given on pages 18 and 20 of the business review.
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86
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30TH NOVEMBER 2008
8.
OPERATING PROPERTY, PLANT AND EQUIPMENT
Cost
At 30th November 2006
Additions
At 30th November 2007
Additions
Disposals
At 30th November 2008
Depreciation
At 30th November 2006
Charge for the year
At 30th November 2007
Charge for the year
Disposals
At 30th November 2008
Net book value
At 30th November 2006
At 30th November 2007
At 30th November 2008
Tenure of operating properties:
Freehold
Leasehold
Plant,
machinery
Operating
and
properties equipment
£m
£m
2.6
—
2.6
—
—
2.6
0.4
—
0.4
—
—
0.4
2.2
2.2
2.2
3.6
0.7
4.3
0.9
(0.2)
5.0
2.0
0.6
2.6
0.5
(0.2)
2.9
1.6
1.7
2.1
2008
£m
0.3
1.9
2.2
Total
£m
6.2
0.7
6.9
0.9
(0.2)
7.6
2.4
0.6
3.0
0.5
(0.2)
3.3
3.8
3.9
4.3
2007
£m
0.3
1.9
2.2
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FINANCIAL STATEMENTS
87
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
JOINT VENTURES, ASSOCIATES AND OTHER INVESTMENTS
9.
The group’s share of the trading results for the year of its joint ventures and associates is:
2008
Key Property
Other joint
Investments ventures and
associates
£m
Limited
£m
Income statements
Revenue
Net rental income
Development profit
(Losses)/gains on disposals of investment properties
Investment property revaluation (losses)/gains
Administrative expenses
(Loss)/profit before interest and tax
Finance cost
Finance income
(Loss)/profit before tax
Taxation
(Loss)/profit for the year
10.6
7.6
0.4
(0.2)
(13.5)
(0.1)
(5.8)
(7.9)
0.1
(13.6)
6.4
(7.2)
5.3
(0.1)
0.3
—
(1.4)
—
(1.2)
(1.1)
—
(2.3)
0.6
(1.7)
2007
Key Property
Other joint
Investments ventures and
associates
£m
Limited
£m
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
(0.6)
—
2.2
(0.7)
1.5
Total
£m
15.9
7.5
0.7
(0.2)
(14.9)
(0.1)
(7.0)
(9.0)
0.1
(15.9)
7.0
(8.9)
Included in other joint ventures and associates above are profits from associated companies of £0.1m (2007: £0.1m).
The group’s share of the balance sheet of its joint ventures and associates, together with the cost of other investments, is:
2008
Key Property
Other joint
Investments ventures and
associates
£m
Limited
£m
Balance sheets
Noncurrent assets
Current assets
Current liabilities
Noncurrent liabilities
Net assets
Equity at start of year
Investment in associate
(Loss)/profit for the year
Dividends paid
Equity at end of year
Group’s share of joint ventures’ net assets
Investment in Stoke on Trent Community Stadium
Development Company Limited
131.6
24.1
(12.5)
(85.0)
58.2
69.4
—
(7.2)
(4.0)
58.2
12.4
23.9
(25.3)
(5.0)
6.0
5.4
2.3
(1.7)
—
6.0
2007
Key Property
Other joint
Investments ventures and
associates
£m
Limited
£m
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
Total
£m
144.0
48.0
(37.8)
(90.0)
64.2
74.8
2.3
(8.9)
(4.0)
64.2
64.2
—
64.2
Total
£m
41.1
8.6
6.3
4.4
2.5
(0.1)
21.7
(6.4)
0.1
15.4
(2.8)
12.6
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
Included in other joint ventures and associates above are net assets of £2.6m (2007: £nil) in relation to associated companies. These net
assets comprise total assets of £3.9m (2007: £nil) and total liabilities of £1.3m (2007: £nil).
During the year ended 30th November 2008 the group disposed of its entire shareholding in Stoke on Trent Community Stadium Development
Company Limited, realising a gain of £0.4m. This gain is recorded as part of gains on disposal of investments/investment properties.
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88
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30TH NOVEMBER 2008
JOINT VENTURES, ASSOCIATES AND OTHER INVESTMENTS CONTINUED
9.
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
Coed Darcy Limited
Status
Joint venture
Interest
50%
Joint venture
Joint venture
Joint venture
Joint venture
Associate
50%
50%
50%
50%
49%
Activity
Property investment
and development
Property development
Property development
Property investment
Property development
Property investment
and development
Many of the joint ventures contain change of control provisions, as is common for such arrangements.
On 23rd May 2008 the group acquired a 49% holding in Coed Darcy Limited for £2.3m. No goodwill arose on the acquisition of the group’s
interest in this associate and the group share of the book value and provisional fair value of net assets acquired is detailed below:
Noncurrent assets
Current assets (including cash of £0.8m)
Current liabilities
Noncurrent liabilities (including debt of £0.6m)
Net assets
Book
Provisional
Value Adjustments Fair Value
£m
£m
3.0
(0.4)
0.9
—
(0.9)
(0.7)
2.3
£m
3.4
0.9
(0.3)
(0.7)
3.3
(0.6)
—
(1.0)
Further details of the movements in joint ventures, associates and other investments are given on page 18 of the business review.
10. TRADE AND OTHER RECEIVABLES
Noncurrent
Other debtors
Current
Trade receivables
Prepayments and accrued income
Other debtors
Amounts due from joint ventures
Derivative financial instruments
IFRS 7 disclosures in respect of financial assets included above are provided in note 15.
2008
£m
20.6
3.0
6.2
35.9
3.4
—
48.5
2007
£m
8.9
5.0
1.7
19.7
3.2
2.0
31.6
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11.
INVENTORIES
Properties held for sale
Properties under construction
Land under option
The movement in inventories during the two years ended 30th November 2008 is as follows:
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
Additions
Transfers to investment property (note 7)
Disposals (transferred to development cost of sales) (note 1)
Balance at 30th November 2008
FINANCIAL STATEMENTS
89
2008
£m
89.0
113.6
25.5
228.1
2007
£m
88.5
100.0
20.8
209.3
£m
65.9
168.0
34.1
(58.7)
209.3
112.5
(0.9)
(92.8)
228.1
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
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.
Included within disposals of inventories are net realisable value provisions made during the year of £10.1m (2007: £5.1m).
As at 30th November 2008 £112.3m (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
Provision for share options
Other payables on deferred terms
Derivative financial instruments
Noncurrent
Other payables and accrued expenses
Provision for share options
Other payables on deferred terms
Finance lease liabilities (head rents) (note 14)
2008
£m
20.2
3.5
68.2
0.9
23.7
14.6
131.1
21.3
1.4
174.8
3.9
201.4
2007
£m
5.6
4.1
41.1
4.8
70.5
1.2
127.3
1.7
1.4
121.0
3.9
128.0
IFRS 7 disclosures in respect of financial liabiities included above are provided in note 15.
The other payables on deferred terms, all relate to VSM Estates (Holdings) Limited, which is required to make payments under a contractual
timetable. In the normal course of events the payments will be made in line with the disposal of investment properties held on the balance
sheet, and as a result the overall arrangement will be at least cash neutral.
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90
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30TH NOVEMBER 2008
13. BORROWINGS
Current
Floating rate unsecured loan notes
Noncurrent
Bank loans repayable between two and five years
Bank loans repayable after more than five years
2008
£m
0.4
0.4
376.1
57.7
433.8
2007
£m
0.4
0.4
295.4
124.0
419.4
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:
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
Floating rate borrowings
Total
£m
5.4
—
Drawn Undrawn
£m
5.0
—
28.5
46.8
62.6
42.3
185.2
150.0
244.0
120.0
100.0
619.4
£m
0.4
—
121.5
197.2
57.4
57.7
434.2
2008
Interest rate swaps
Earliest termination
%*
4.70
£m
80.0
110.0
50.0
—
—
—
5.36
4.63
—
—
—
240.0
4.99
2007
Latest termination
%*
—
—
£m
—
—
80.0
80.0
40.0
40.0
240.0
4.70
5.54
4.56
4.87
4.99
Floating rate borrowings
Total
£m
5.4
—
Undrawn
£m
5.0
—
Drawn
£m
0.4
—
—
164.7
130.7
124.0
419.8
—
85.3
13.3
46.0
149.6
—
250.0
144.0
170.0
569.4
Interest rate swaps
£m
60.0
80.0
80.0
20.0
—
Earliest termination
%*
4.82
4.70
5.54
4.48
—
—
4.99
240.0
—
Latest termination
%*
£m
5.17
30.0
—
—
4.47
4.71
5.54
4.47
4.99
30.0
80.0
80.0
20.0
240.0
* Weighted average interest rate.
† In addition to the principal amounts included above, £2.2m (2007: £4.5m) of interest payable was committed at the year end. These amounts
all fall due within three months of the year end.
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FINANCIAL STATEMENTS
91
13. BORROWINGS CONTINUED
Most of the interest rate swaps are extendable at the bank’s option; therefore, the tables on the previous page show the dates of normal
termination and extended termination.
£42m (2007: £40m) 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 3.7% (2007: 7.1%) before taking into account the effects of hedging. At
30th November 2008 the weighted average facility maturity of the bank debt was 4 years (2007: 5 years).
INTEREST RATE PROFILE
The interest rate profile of the group’s borrowings after taking into account the effects of hedging is:
Floating
Fixed
Total Rate Debt Rate Debt
£m
£m
240.0
194.2
240.0
179.8
£m
434.2
419.8
Weighted
average
fixed Weighted
interest maturity of
rate derivatives
(%)
4.99
4.99
(years)*
1.31
1.75
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
At 30th November 2008
At 30th November 2007
* Based on earliest termination dates.
All derivative financial instruments, which are classified as fair value through profit or loss, consist of sterling denominated interest swaps
from floating to fixed rates ranging from 4.32% to 5.97%. In addition the group has a cap at 7.5% on a further £58m of floating rate debt.
Details of the change in fair value of derivatives charged to the income statement are disclosed in note 3.
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:
In one year or less
Between one and five years
In five years or more
2008
£m
0.9
2.8
1.5
5.2
2007
£m
0.8
0.7
0.2
1.7
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 non
cancellable operating leases are as follows:
In one year or less
Between one and five years
In five years or more
2008
£m
27.3
80.1
178.7
286.1
2007
£m
27.0
74.8
140.0
241.8
Contingent rents, calculated as a percentage of turnover for a limited number of tenants, of £0.4m (2007: £0.3m) were recognised during
the year.
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92
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30TH NOVEMBER 2008
14. LEASING CONTINUED
OBLIGATIONS UNDER FINANCE LEASES
Finance lease liabilities payable in respect of the freehold interest in certain leasehold investment properties are 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
67.9
68.9
Minimum
lease
payments
£m
0.2
0.8
68.1
69.1
2008
Interest
£m
0.2
0.8
64.0
65.0
2007
Principal
£m
—
—
3.9
3.9
Interest
Principal
£m
0.2
0.8
64.2
65.2
£m
—
—
3.9
3.9
Finance leases are for periods of up to 999 years from inception and a discount rate of 6.0% (2007: 6.0%) has been used to derive the fair value
of the principal amount outstanding. All lease obligations are denominated in sterling.
15. FINANCIAL INSTRUMENTS
Categories and classes of financial assets and liabilities are as follows:
Financial assets
Derivative financial instruments held at fair value through profit or loss
Loans and receivables:
Cash and cash equivalents
Trade and other receivables
Financial liabilities
Derivative financial instruments held at fair value through profit or loss
Amortised cost:
Bank loans and overdrafts
Trade and other payables
Other payables on deferred terms
Finance lease liabilities (head rents)
a
b
b
a
b
b
b
b
2008
£m
—
12.7
57.3
70.0
2008
£m
14.6
434.2
77.2
198.5
3.9
728.4
2007
£m
2.0
17.9
34.0
53.9
2007
£m
1.2
419.8
37.7
191.5
3.9
654.1
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FINANCIAL STATEMENTS
93
15. FINANCIAL INSTRUMENTS CONTINUED
Trade and other receivables above comprise other debtors, trade receivables and amounts due from joint ventures as disclosed in note 10, for
current and noncurrent amounts, after deduction of £5.6m (2007: £2.8m) in respect of nonfinancial assets.
Trade and other payables above comprise trade payables, amounts due to joint ventures and other payables and accrued expenses as
disclosed in note 12, for current and noncurrent amounts, after the deduction of £36.0m (2007: £18.8m) in respect of nonfinancial liabilities.
a)
Derivative financial instruments are carried at fair value. The fair value is calculated using quoted market prices relevant for the term
and instrument.
b)
The directors consider that the carrying amount recorded in the financial statements approximates their fair value.
The group’s capital, market, credit and liquidity risks are discussed below:
CAPITAL RISK
The group manages its capital to ensure that the entities in the group will be able to continue as a going concern while maximising the return
to stakeholders through the optimisation of the debt and equity balance. The capital structure of the company consists of debt (as disclosed in
note 13), cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained
earnings (as disclosed in notes 16 and 17).
MARKET RISK
Market risk is the potential adverse change in group income or the value of group net worth arising from movements in interest rates or other
market prices. The group’s exposure to market risk consists of interest rate risk which is considered below.
Interest rate risk management: The group is exposed to interest rate risk as it borrows funds at variable interest rates. The group uses a
combination of variable rate borrowings and interest rate swaps to manage the risk. As detailed in note 13, the use of bilateral facilities
provides the flexibility to draw and repay loans as required.
Interest rate sensitivity: The following table details the group’s sensitivity, on an after tax basis, to a 1% change in interest rates had the
floating rate liability outstanding at the balance sheet date been in place for a full 12 months:
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2008
£m
(3.1)
1.7
(1.4)
2008
£m
3.1
(1.7)
1.4
2007
£m
(2.9)
1.7
(1.2)
2007
£m
2.9
(1.7)
1.2
1% increase in interest rates
Interest on borrowings
Effect of interest rate swaps
1% decrease in interest rates
Interest on borrowings
Effect of interest rate swaps
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94
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30TH NOVEMBER 2008
15. FINANCIAL INSTRUMENTS CONTINUED
CREDIT RISK
Credit risk is the risk of financial loss where counterparties are not able to meet their obligations as they fall due.
The credit risk on the group’s liquid funds and derivative financial instruments is limited because the counterparties are banks with high
(generally AA) credit ratings. Bank deposits are only placed with banks in accordance with group policy that specifies minimum credit rating
and maximum exposure. Credit risk on derivatives is closely monitored.
Trade and other receivables consist of amounts due from a large number of parties spread across geographical areas. The group does not
have any significant concentrations of credit risk as the tenant base is large and diverse with the largest individual tenant accounting for £2m
of gross rental income. Whilst the risk of individual tenant default has increased from the prior year, the nature of the tenant base is such that
there is no significant change in the group’s overall exposure to credit risk or how this is managed.
The carrying amount of financial assets, as detailed above, represents the group’s maximum exposure to credit risk at the reporting date.
Included within trade and other receivables is £0.7m (2007: £0.7m) which is fully provided against as it represents estimated irrecoverable
amounts. This allowance has been determined by a review of all significant balances that are past due and considering the reason for non
payment and the creditworthiness of the counterparty. A reconciliation of the changes in this account during the year is provided below.
Movement in the allowance for doubtful debts
As at 1 December
Utilised
Amounts written off
2008
£m
0.7
(0.3)
0.3
0.7
2007
£m
0.7
(0.1)
0.1
0.7
Trade and other receivables include £1.8m which are past due as at 30th November 2008 (2007: £2.6m) for which for which no provision has
been made because the amounts are considered recoverable. The following table provides an ageing analysis of these balances.
Number of days past due but not impaired
1–30 days
31–60 days
60 days +
2008
£m
0.7
0.9
0.2
1.8
2007
£m
0.9
1.2
0.5
2.6
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FINANCIAL STATEMENTS
95
15. FINANCIAL INSTRUMENTS CONTINUED
LIQUIDITY RISK
Liquidity risk is the risk that the group does not have sufficient financial resources available to meet its obligations as they fall due. The group
manages liquidity risk by continuously monitoring forecast and actual cash flows, matching the maturity profiles of financial assets and
liabilities and through the use of bilateral facilities, overdrafts and cash with a range of maturity dates to ensure continuity of funding.
The current volatile economic climate has increased the group’s liquidity risk from the prior year. As a result the focus has been on reducing
forward commitments and speculative development and progressing selective asset disposals to optimise cash flow.
The maturity profile of the anticipated future cash flows for bank loans and overdrafts is shown in note 13. The maturity profile for the group’s
other nonderivative financial liabilities, on an undiscounted basis, is as follows:
2008
Trade and other payables
Other payables on deferred terms
2007
Trade and other payables
Other payables on deferred terms
Less than
1 month
£m
27.6
—
27.6
Less than
1 month
£m
16.6
—
16.6
1–3
months
£m
12.9
12.2
25.1
1–3
months
£m
9.5
—
9.5
3 months
to 1 year
£m
11.6
1–5 More than
5 years
£m
67.9
years
£m
23.5
11.6
23.2
182.0
205.5
—
67.9
3 months
to 1 year
£m
7.1
1–5 More than
5 years
£m
68.1
years
£m
5.5
72.6
79.7
131.5
137.0
—
68.1
Total
£m
143.5
205.8
349.3
Total
£m
106.8
204.1
310.9
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
The group’s approach to cash flow, financing and bank convenants is discussed further in the financial review section of the business review
on pages 19 to 20.
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.
2008
£m
2007
£m
15.0
15.0
12.1
12.1
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96
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30TH NOVEMBER 2008
17. RESERVES
Share
Capital
premium redemption
account
reserve
£m
£m
At 30th November 2006
Profit for the year attributable to shareholders
Pension fund actuarial losses (note 19)
Net share disposals
Dividends paid (note 6)
At 30th November 2007
Loss for the year attributable to shareholders
Pension fund actuarial losses (note 19)
Net share disposals
Dividends paid (note 6)
At 30th November 2008
9.1
—
—
—
—
9.1
—
—
—
—
9.1
0.3
—
—
—
—
0.3
—
—
—
—
0.3
Retained
earnings
Own
shares
£m
364.3
88.4
(2.4)
—
(12.9)
437.4
(51.7)
(0.3)
—
(14.1)
371.3
£m
(0.8)
—
—
0.1
—
(0.7)
—
—
0.6
—
(0.1)
‘Own shares’ represents the cost of 33,590 (2007: 137,854) shares held by the Employee Benefit Trust. The market value of the shares held at
30th November 2008 was £38,292 (2007: £584,501).
18. RECONCILIATION OF MOVEMENT IN EQUITY
Total recognised income and expense
Dividends paid
Net disposal of own shares
Equity at start of year
Equity at end of year
Equity
shareholders
£m
(52.0)
(14.1)
0.6
458.2
392.7
2008
Minority
interests
Equity
Total shareholders
£m
1.0
(1.0)
—
9.5
9.5
£m
(51.0)
(15.1)
0.6
467.7
402.2
£m
86.0
(12.9)
0.1
385.0
458.2
2007
Minority
interests
£m
5.3
(0.6)
—
4.8
9.5
Total
£m
91.3
(13.5)
0.1
389.8
467.7
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FINANCIAL STATEMENTS
97
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
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 £0.3m (2007: £0.4m) for the defined benefit section and £0.5m (2007: £0.4m) for the defined
contribution section.
The last formal actuarial valuation of the scheme was at 5th April 2008, when the market value of the net assets of the scheme was £32.9m.
The valuation was performed using the ‘Projected Unit Credit Method’ under IAS 19. The main actuarial assumptions were:
Investment rate of return:
preretirement
postretirement
Increase in earnings*
Increase in pensions
* Capped to 5.6% for certain members.
The valuation showed a funding level of 104%.
6.3% p.a.
4.8% p.a.
6.6% p.a.
3.6% p.a.
The actuarial valuation of the defined benefit section, a final salary scheme, was updated to 30th November 2008 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
Pre6th April 1997 benefits
Post5th April 1997 benefits
Discount rate
Inflation assumption
2008
4.8%
2.8%
2.8%
2.8%
6.2%
2.8%
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%
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 26.8 years and nonretired members for 27.7 years, based on the normal
retirement age of 65).
The group expects to make contributions of £0.5m to the defined benefit section of the scheme in 2009. 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, based on market expectations, were:
Equities
Bonds
Property
Cash and other assets
Actuarial value of liabilities
Unrecognised surplus
Surplus in the scheme
Related deferred tax liability
Fair value of pension asset net of deferred tax
2008
2007
2006
%
5.9
7.2
5.9
4.4
£m
13.3
0.5
9.9
1.2
24.9
(23.6)
(1.3)
—
—
—
%
6.1
5.8
6.1
4.6
£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
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98
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30TH NOVEMBER 2008
19. PENSIONS CONTINUED
When a pension asset (net surplus) arises and the directors consider it is controlled by the company such that future economic benefits will
be available to the company, it is carried forward in accordance with the requirements of IFRIC 14.
At the previous balance sheet date, a surplus existed but having reviewed the trust deed and scheme rules the directors were of the view that
the company did not have sufficient control and accordingly the surplus was not recognised. The directors have given further consideration to
how the company might be able to access the economic benefits inherent in an actuarial surplus in the scheme. This may enable the
company to recognise a surplus in future periods.
The cumulative amount of actuarial gains and losses (before unrecognised surplus of £1.3m) recorded in the group statement of recognised
income and expense is a loss of £0.1m (2007: £5.0m gain).
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
2008
£m
(0.4)
0.1
(0.3)
2008
£m
2.0
(1.6)
0.4
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
The actual return on pension scheme assets was a loss of £6.9m (2007: £1.7m gain). The expected return on pension scheme assets was
calculated assuming cash and gilts will make returns in line with the yield on the 20 year gilt index and that equities and properties will return
1.5% above this. Corporate bonds have been assumed to return in line with the yield on the iboxx over 15 year corporate bond index.
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 unrecognised 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
2008
£m
29.0
0.4
(0.1)
1.6
(3.7)
(3.6)
23.6
2007
£m
31.1
0.5
(0.1)
1.5
(2.8)
(1.2)
29.0
2008
£m
(8.9)
(3.8)
7.6
4.7
(0.4)
2006
£m
29.8
0.5
(0.1)
1.5
0.2
(0.8)
31.1
2007
£m
(0.1)
(3.0)
5.8
(6.0)
(3.3)
2005
£m
24.0
0.6
(0.1)
1.3
4.6
(0.6)
29.8
2006
£m
2.7
(1.1)
0.9
—
2.5
2004
£m
21.6
0.7
—
1.2
1.4
(0.9)
24.0
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FINANCIAL STATEMENTS
99
19. PENSIONS CONTINUED
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
Unrecognised surplus
Net surplus
HISTORY OF EXPERIENCE GAINS AND LOSSES
Difference between expected and actual return on scheme assets
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 unrecognised surplus
Total actuarial gain/(loss) recognised in the statement of recognised
income and expense
Amount
Percentage of present value of scheme liabilities
Deferred taxation attributable to pension movements (note 4)
Pension scheme movement for the year net of deferred tax
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2008
£m
35.0
2.0
0.4
(8.9)
(3.6)
24.9
1.3
(1.3)
—
2007
£m
33.9
1.8
0.6
(0.1)
(1.2)
35.0
6.0
(6.0)
—
2006
£m
29.3
1.6
1.1
2.7
(0.8)
33.9
2.8
—
2.8
2005
£m
24.0
1.5
0.6
3.8
(0.6)
29.3
(0.5)
—
(0.5)
2004
£m
20.2
1.3
2.1
1.3
(0.9)
24.0
—
—
—
2008
£m
2007
£m
2006
£m
2005
£m
2004
£m
(8.9)
(35.7%)
(0.1)
(0.3%)
(3.8)
16.1%
7.6
32.2%
4.7
(3.0)
10.3%
5.8
20.0%
(6.0)
(0.4)
(1.7%)
0.1
(0.3)
(3.3)
(11.4%)
0.9
(2.4)
2.7
8.0%
(1.1)
3.5%
0.9
2.9%
—
2.5
8.0%
(0.7)
1.8
3.8
13.0%
0.3
(1.0%)
(4.9)
(16.4%)
—
(0.8)
(2.7%)
0.3
(0.5)
1.3
5.4%
(0.9)
3.8%
(0.5)
(2.1%)
—
(0.1)
(0.4%)
—
(0.1)
20. CAPITAL COMMITMENTS
At 30th November 2008 the group had contracted capital expenditure of £3,093,000 (2007: £14,184,000). In addition, the group’s share of the
contracted capital expenditure of its joint venture undertakings was £162,000 (2007: £nil). All capital commitments relate to investment
properties.
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 performance
of VSM Estates (Holdings) Limited (VSM). This is a guarantee in the ordinary course of business and would require the guarantors to step into
VSM's place in the event of a default on Project MoDEL. Completion of the project is not considered onerous as the forecast revenues exceed
the anticipated costs and it is not anticipated that there would be any net outflow in this regard.
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.
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100
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED 30TH NOVEMBER 2008
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 £1.3m (2007: £2.4m).
HOLAW (462) LIMITED (‘HOLAW’)
During the year Holaw repaid £0.1m of its loan (2007: £0.1m). The balance due to the group at the year end was £0.5m (2007: £0.6m). No
interest is charged on the loan.
BARTON BUSINESS PARK LIMITED (‘BARTON’)
During the year the group repaid £0.1m of its loan to Barton (2007: nil). The balance due to Barton at the year end was £3.4m (2007: £3.5m).
No interest is charged on this balance.
SOWCREST LIMITED (‘SOWCREST’)
During the year the group provided management services to Sowcrest for which it received fees totalling £0.6m.
In addition, during the year £1.2m was paid to Sowcrest (2007: £2.9m received from Sowcrest) leaving an amount due from Sowcrest at the
year end of £0.4m (2007: £0.8m due to 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 (2007: £2.2m). The loan is secured and interest is chargeable at 1.5%
(2007: 1.5%) above base rate.
ST. MODWEN PENSION SCHEME
No sales of property were made to the pension scheme during the year (2007: £2.1m). The group occupies offices owned by the pension
scheme with a value of £0.5m (2007: £0.6m).
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
2007
2008
£m
£m
—
—
—
—
—
0.8
—
0.2
1.0
0.3
0.4
0.7
—
—
—
Interest
Balance
2008
£m
(0.2)
—
—
0.1
1.6
—
—
1.5
2007
£m
(1.0)
0.1
—
0.3
1.5
—
—
0.9
2008
£m
4.2
0.2
(0.1)
(2.2)
(21.4)
0.9
6.5
(11.9)
2007
£m
(5.1)
0.2
—
3.7
24.5
9.1
(1.7)
30.7
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 (2007: £0.4m). No guarantees have been given or received from related parties.
KEY MANAGEMENT PERSONNEL
The directors and senior management are considered to be the group’s key management personnel and their remuneration is disclosed in the
directors’ remuneration report.
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COMPANY BALANCE SHEET
AS AT 30TH NOVEMBER 2008
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
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Revaluation reserve
Profit and loss account
Own shares
Equity shareholders’ funds
FINANCIAL STATEMENTS 101
Notes
(E)
(F)
(G)
(H)
(H)
(K)
(L)
(L)
(L)
(L)
(L)
2008
£m
1.4
344.3
345.7
465.9
7.4
(134.2)
339.1
684.8
(288.9)
395.9
12.1
9.1
0.3
269.7
104.8
(0.1)
395.9
2007
£m
1.1
389.0
390.1
400.2
17.0
(147.8)
269.4
659.5
(228.8)
430.7
12.1
9.1
0.3
314.5
95.4
(0.7)
430.7
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
These financial statements were approved by the board of directors on 26th February 2009 and were signed on its behalf by Anthony Glossop
and Tim Haywood.
Anthony Glossop
Chairman
Tim Haywood
Finance Director
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102
NOTES TO THE COMPANY ACCOUNTS
FOR THE YEAR ENDED 30TH NOVEMBER 2008
(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, derivative
financial instruments and the defined benefit section of the company’s pension scheme.
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 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.
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, 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.
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FINANCIAL STATEMENTS 103
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
Interest 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 PAYMENTS
When employee share options are exercised the employee has the choice of whether to have the liability to them settled by way of cash or the
retention of shares. As it has been the company’s practice to satisfy the majority of share options in cash and new shares are not issued to
satisfy employee share option plans, the group accounts for its share option schemes as cashsettled. 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.
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.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
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.
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.
OPERATING LEASES
Rentals payable under operating leases are charged in the profit and loss account on a straightline basis over the lease term.
CASH FLOW STATEMENT
The company has taken advantage of the exemption permitted by FRS 1 not to present a cash flow statement.
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104
NOTES TO THE COMPANY ACCOUNTS
FOR THE YEAR ENDED 30TH NOVEMBER 2008
(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 profit for the year ended 30th November 2008 was £23.8m (2007: £12.8m loss).
(C) OPERATING EXPENSES
(I) AUDIT FEES
Fees paid to Deloitte LLP in respect of:
— Fees payable for the audit of the company’s annual accounts
— Other services pursuant to legislation
— Tax services
— Other services
2008
£’000
2007
£’000
115
26
86
—
227
105
25
82
86
298
(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
2008
Number
137
47
50
234
2007
Number
129
44
44
217
2008
£m
10.8
1.3
0.8
12.9
2007
£m
11.7
1.4
0.8
13.9
(D) DIVIDENDS
Dividends paid during the year comprised the final dividend in respect of 2007 and the interim dividend in respect of 2008. No final dividend is
proposed.
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 entititlement to dividends.
2008
2007
p per share
£m p per share
7.8
3.9
11.7
9.4
4.7
14.1
—
—
6.8
3.9
10.7
7.8
£m
8.2
4.7
12.9
9.4
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(E) TANGIBLE FIXED ASSETS
Cost or valuation
At 30th November 2007
Additions
Disposals
Revaluation
At 30th November 2008
Depreciation
At 30th November 2007
Charge for the year
Disposals
At 30th November 2008
Net book value
At 30th November 2007
At 30th November 2008
FINANCIAL STATEMENTS 105
Long
leasehold
investment
properties
£m
Plant,
machinery
and
equipment
£m
0.6
—
—
(0.1)
0.5
—
—
—
—
0.6
0.5
1.8
0.8
(0.2)
—
2.4
1.3
0.4
(0.2)
1.5
0.5
0.9
Total
£m
2.4
0.8
(0.2)
(0.1)
2.9
1.3
0.4
(0.2)
1.5
1.1
1.4
Investment properties were valued at 30thj November 2008 and 2007 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. King Sturge & Co are professionally qualified
independent external valuers and have recent experience in the relevant location and category of the properties being valued.
Long leasehold investment properties are currently let under operating leases for the purpose of generating rental income.
(F)
INVESTMENTS HELD AS FIXED ASSETS
Valuation
At 30th November 2007
Revaluation of investments
At 30th November 2008
Cost
At 30th November 2008 and 30th November 2007
Investment
in subsidiary
companies
£m
Investment
in joint
ventures
£m
314.7
(38.7)
276.0
74.3
(6.0)
68.3
Total
£m
389.0
(44.7)
344.3
76.2
26.5
102.7
SUBSIDIARY COMPANIES
At 30th November 2008 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
All principal subsidiaries are registered and operated in England and Wales.
15751
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Proof 17
Proportion of ordinary
shares held
100%
100%
100%
100%
100%
100%
100%
100%
81%
81%
81%
80%
75%
50%
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
F
I
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A
N
C
I
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A
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E
M
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106
NOTES TO THE COMPANY ACCOUNTS
FOR THE YEAR ENDED 30TH NOVEMBER 2008
INVESTMENTS HELD AS FIXED ASSETS CONTINUED
(F)
JOINT VENTURES
At 30th November 2008 the joint ventures were:
Key Property Investments Limited
Holaw (462) Limited
Barton Business Park Limited
Sowcrest Limited
Shaw Park Developments Limted
Status Percentage shareholding
50%
Joint venture
Joint venture
Joint venture
Joint venture
Joint venture
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.
(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))
(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
2008
£m
—
452.1
3.1
3.3
1.6
—
5.8
465.9
2008
£m
10.4
96.5
3.5
—
2.3
6.9
14.6
134.2
2008
£m
287.5
1.4
288.9
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
All bank borrowings are secured by a fixed charge over the property assets of the company and its subsidiaries.
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FINANCIAL STATEMENTS 107
(I) BORROWINGS
The maturity profile of the bank borrowings is as follows:
Less than one year
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
(J) DEFERRED TAXATION
The amounts of deferred taxation provided and unprovided in the accounts are:
Capital allowances in excess of depreciation
Other timing differences
RECONCILIATION OF MOVEMENT ON DEFERRED TAX ASSET INCLUDED IN DEBTORS
Balance as at 30th November 2007
Profit and loss account
Balance as at 30th November 2008
RECONCILIATION OF DEFERRED TAX LIABILITY INCLUDED IN PENSION SCHEME ASSET
Balance as at 30th November 2007
Profit and loss account
Statement of total recognised gains and losses
Balance as at 30th November 2008
2008
£m
10.4
287.5
—
297.9
2008
£m
297.9
—
297.9
2007
£m
24.8
211.0
16.4
252.2
2007
£m
235.8
16.4
252.2
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
Provided
Unprovided
2008
£m
0.1
(5.9)
(5.8)
2007
£m
1.0
(2.2)
(1.2)
2008
£m
—
0.9
0.9
2007
£m
—
—
—
£m
(1.2)
(4.6)
(5.8)
£m
—
(0.1)
0.1
—
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108
NOTES TO THE COMPANY ACCOUNTS
FOR THE YEAR ENDED 30TH NOVEMBER 2008
(K) 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 2C of the group financial statements for details of outstanding options to acquire ordinary shares.
(L) RESERVES
Capital
Share premium redemption Revaluation
reserve
reserve
account
£m
At 30th November 2007
Surplus on revaluation of investments
Retained profit for the year (note B)
Net share disposals
Dividends paid (note D)
Actuarial loss on pension scheme (note M)
Movement on deferred tax relating to pension asset (note J)
At 30th November 2008
9.1
—
—
—
—
—
—
9.1
£m
0.3
—
—
—
—
—
—
£m
314.5
(44.8)
—
—
—
—
—
0.3
269.7
2008
£m
2007
£m
15.0
15.0
12.1
12.1
Profit
& loss
account
£m
95.4
—
23.8
—
(14.1)
(0.4)
0.1
104.8
Own
shares
£m
(0.7)
—
—
0.6
—
—
—
(0.1)
‘Own shares’ represents the cost of 33,590 (2007: 137,854) shares held by the Employee Benefit Trust. The market value of the shares held at
30th November 2008 was £38,292 (2007: £584,501). In addition, the Employee Benefit Trust has £1.7m of cash and £12.0m due from the
company that can only be used for the benefit of employees.
(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 addresses the requirements of FRS 17 “Retirement Benefits” for the company.
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FINANCIAL STATEMENTS 109
(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
In more than five years
2008
2007
Land and
buildings
£m
Land and
buildings
£m
Other
£m
0.3
—
0.5
0.8
0.1
0.6
—
0.7
—
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
performance of VSM Estates (Holdings) Limited (VSM). This is a guarantee in the ordinary course of business and would require the
guarantors to step into VSM's place in the event of a default on Project MoDEL. Completion of the project is not considered onerous as the
forecast revenues exceed the anticipated costs and it is not anticipated that there would be any net outflow in this regard.
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.
Further, the company guarantees the performance of its subsidiaries in the course of their usual commercial activities.
F
I
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A
N
C
I
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L
S
T
A
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M
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S
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110
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF ST. MODWEN PROPERTIES PLC
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 2008;
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 LLP
Chartered Accountants and Registered Auditors
Birmingham, United Kingdom
26th February 2009
We have audited the parent company financial statements of
St. Modwen Properties PLC for the year ended 30th November 2008
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 2008
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 the Report of
the Directors. 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.
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FIVE YEAR RECORD 111
FIVE YEAR RECORD
AS AT 30TH NOVEMBER 2008
Rental income*
Property profits*
Revaluation surplus/(deficit)*
Pretax profit/(loss)†
Earnings/(loss) per share (pence)
Dividends paid per share (pence)
Dividend cover (times)
Net assets per share (pence)
Increase/(decrease) 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
* Including share of joint ventures.
† Including posttax profit of joint ventures.
The figures above are all presented under IFRS.
2004
£m
44.3
34.0
26.1
64.3
41.5
7.6
5.5
219.8
25%
454.2
49.9
48.1
(59.4)
(227.3)
265.5
12.1
252.2
(1.9)
3.1
2005
£m
45.2
39.3
44.9
82.9
55.4
8.8
6.3
268.3
22%
481.2
68.5
36.1
(54.0)
(207.8)
324.0
12.1
308.7
(0.4)
3.6
2006
£m
40.3
44.6
55.6
96.9
61.6
10.2
6.0
322.8
20%
736.4
77.9
65.9
(237.5)
(252.9)
389.8
12.1
373.7
(0.8)
4.8
2007
£m
34.9
54.5
62.8
100.1
73.3
11.7
6.3
387.3
20%
846.9
75.4
209.3
(262.0)
(401.9)
467.7
12.1
446.8
(0.7)
9.5
265.5
324.0
389.8
467.7
2008
£m
33.2
9.7
(64.6)
(73.1)
(42.8)
3.9
(11.0)
333.0
(14%)
814.3
64.2
228.1
(282.9)
(421.5)
402.2
12.1
380.7
(0.1)
9.5
402.2
F
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112
NOTICE OF
ANNUAL GENERAL MEETING
Notice is hereby given that the sixtyeighth Annual General Meeting
of St. Modwen Properties PLC will be held at 12.00 noon on Friday,
3rd April 2009 at the Innovation Centre, 1 Devon Way, Longbridge
Technology Park, Birmingham, B31 2TS for the following purposes:
ORDINARY BUSINESS
1. To receive and adopt the report of the directors and the
accounts for the year ended 30th November 2008.
(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
2. To reelect Anthony Glossop as a director.
(c) expire on 3rd July 2010 or at the conclusion of the next
3. To reelect Tim Haywood as a director.
4. To reelect Ian MenziesGow as a director.
5. To reappoint Deloitte LLP as Auditors of the company to hold
office until the conclusion of the next General Meeting at which
accounts are laid and to authorise the directors to determine
their remuneration.
SPECIAL BUSINESS
To consider and, if thought fit, pass the following resolutions:
6. Ordinary Resolution
That the directors’ remuneration report for the year ended
30th November 2008 be approved.
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 3rd July 2010 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 3rd July 2010 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:
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
Tim Haywood
Company Secretary
26th February 2009
Sir Stanley Clarke House
7 Ridgeway
Quinton Business Park
Birmingham, B32 1AF
Explanatory notes to the Resolutions
1 Resolution 1 is to receive the Accounts and the Reports of the
Directors and the Auditors for the year ended 30th November
2008.
2 Resolutions 2 to 4 concern the reelection of directors retiring in
accordance with the Articles of Association of the Company. At
this year’s Annual Geneal Meeting, the Directors to retire by
rotation will be Anthony Glossop, Tim Haywood and Ian
MenziesGow. Each of the directors has undergone, during the
year, a performance evaluation and the board remains satisfied
that each director proposed for reelection remains committed
to the role and continues to be an effective and valuable
member of the board. Biographical details of these directors
can be found on page 48.
3 Resolution 5 is proposed to reappoint Deloitte LLP as auditors
to hold office until the next general meeting of the company at
which accounts are presented and to authorise the directors to
determine the level of the auditors’ remuneration.
4 Resolution 6 is to approve the Directors’ Remuneration Report,
which is included on pages 56 to 63 and provides details of the
group’s remuneration policy for the directors and senior
executives. In accordance with the Directors’ Remuneration
Report Regulations 2002, the vote on this resolution is advisory
and no director’s remuneration is conditional upon the passing
of this resolution.
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NOTICE OF ANNUAL GENERAL MEETING 113
F
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S
5 The existing general authority of the directors to allot shares
and the current disapplication of the statutory preemption
rights granted at the company’s 2008 Annual General Meeting
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”).
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). The board has
no intention at present to exercise the authority to allot shares
under this resolution.
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 3rd July 2010 if earlier, when
the directors intend to seek renewal of the authorities.
6 Resolution 9 is to renew the authority for the company to
purchase certain of its own shares 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.
f)
The following notes explain your general rights as a
shareholder and your right to attend and vote at this AGM or to
appoint someone else to vote on your behalf.
a) A member entitled to attend and vote at this meeting may
appoint a proxy to attend, speak and vote on his/her behalf.
A member may appoint more than one proxy in relation to
the meeting provided that each proxy is appointed to
exercise the rights attached to a different share or shares of
the member. A proxy need not be a member but must attend
the meeting in person. Proxy forms should be lodged with
the registrar’s office or submitted not later than 48 hours
before the time for which the meeting is convened.
Completion of the appropriate proxy form does not prevent a
member from attending and voting in person if he/she is
entitled to do so and so wishes.
b) Any person to whom this notice is sent who is a person
nominated under s146 Companies Act 2006 to enjoy
information rights (“Nominated Person”) may, under an
agreement with the member who nominated him/her, have
a right to be appointed, or have someone else appointed, as
a proxy for the meeting. If a Nominated Person does not
have this right or does not wish to exercise it, he or she may
have a right under such an agreement to give the member
voting instructions.
c) The statement of the rights of members in relation to the
appointment of proxies in Note (a) does not apply to
Nominated Persons.
d) As at 26th February 2009 (being the last working day prior
to the publication of this notice), the company’s issued share
capital consisted of 120,773,954 shares, carrying one vote
each, which represents the total voting rights in the
company as at that date.
e) The following documents are available for inspection during
normal business hours at the registered office of the
company on any business day and may also be inspected at
the Innovation Centre, 1 Devon Way, Longbridge Technology
Park, Birmingham, B31 2TS at least 15 minutes prior to the
commencement of, and during the continuance of, the
Annual General Meeting:
(i) copies of the directors’ service contracts with the
company;
(ii) copies of the NonExecutive Directors’ letters of
appointment; and
(iii) a copy of the company’s current Memorandum and
Articles of Association.
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 1st April 2009 (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,
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114
NOTICE OF
ANNUAL GENERAL MEETING
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)
g) 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 appropriate CREST message (a
“CREST Proxy Instruction”) must be properly authenticated in
accordance with Euroclear UK’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 by the
Company’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
CREST Applications Host) from which the company’s agent is
able to retrieve the message by enquiry to CREST 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 Euroclear UK does
not make available special procedures in CREST for any
particular messages. Normal system timings and limitations
will therefore apply 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 sponsor or
voting service provider(s) take(s)) such action as shall be
necessary to ensure that a message is transmitted by means of
the 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)(a) of the
Uncertificated Securities Regulations 2001.
In order to facilitate voting by corporate representatives at the
meeting, arrangements will be put in place at the meeting so
that (i) 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 (ii) 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. The guidance includes a
sample form of appointment letter if the chairman is being
appointed as described in (i) above.
i) 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).
j) 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.
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GLOSSARY OF
TERMS
GLOSSARY OF TERMS 115
F
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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.
Initial yield is the annualised net rent expressed as a
percentage of the valuation.
Interest cover is profit before interest and tax (excluding
noncash items such as investment property revaluations)
plus the realisation of previous years’ revaluations, as a
prcentage of net interest (excluding noncash items such as
marktomarket of interest rate swaps).
IPD is the Investment Property Databank Ltd., a company
that produces an independent benchmark of property
returns.
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.
EPRA net assets per share is EPRA net assets divided by
the diluted number of shares at the period end.
Rent roll is the gross rent plus rent reviews that have been
agreed as at the reporting date.
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.
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.
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116
SHAREHOLDER
INFORMATION
Financial Calendar
Annual General Meeting
Announcement of 2009 interim results
Announcement of 2009 final results
Ordinary shareholdings at 30th November 2008
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
3rd April 2009
July 2009
February 2010
Shares
%
7.5
51.8
45.2
3.0
Shares
%
0.3
0.6
3.2
2.2
5.2
3.5
11.3
11.0
62.7
No. (m)
9.0
62.5
54.6
3.7
No. (m)
0.3
0.7
3.9
2.6
6.3
4.2
13.6
13.3
75.8
Shareholders
%
No.
11
3,916
688
115
0.2
83.0
14.6
2.4
Shareholders
%
No.
1,297
903
1,688
361
301
59
68
18
24
27.5
19.1
35.8
7.7
6.4
1.2
1.4
0.4
0.5
Registrars
The registrars to the company are Equiniti, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DH.
Shareholder enquiry line: 0871 384 2198. The registrars’ website is: www.shareview.co.uk. Registering on this website will enable you,
amongst other features, to view your St. Modwen Properties shareholding online.
ADVISERS
ADVISERS
Auditors
Deloitte LLP
Joint Stockbrokers
JP Morgan Cazenove
Numis Securities
REGISTERED OFFICE
Sir Stanley Clarke House
7 Ridgeway
Quinton Business Park
Birmingham
B32 1AF
COMPANY NUMBER
349201
This document has been produced on Mega Silk coated paper 350gm2 and 170gm2 with
50% recovered fibre and 50% total chlorine free pulp from sustainable sources.
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� INSIDE BACK COVER TRENTHAM
The Observatory Wheel at the Trentham
Estate, yet another facet to this popular
vistor attraction.
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ST. MODWEN PROPERTIES PLC
HEAD OFFICE & MIDLANDS
REGIONAL OFFICE
Sir Stanley Clarke House
7 Ridgeway
Quinton Business Park
Birmingham
B32 1AF
0121 222 9400
stmodwen.co.uk
info@stmodwen.co.uk
REGIONAL OFFICES:
LONDON & SOUTH EAST
180 Great Portland Street
London
W1W 5QZ
020 7788 3700
SOUTH WEST
King’s Weston Lane
Avonmouth
Bristol
BS11 8AZ
0117 316 7780
YORKSHIRE
Ground Floor, Unit 2
Landmark Court
Elland Road
Leeds
LS11 8JT
0113 272 7070
NORTH STAFFORDSHIRE
The Trentham Estate
Management Suite
Stone Road
Trentham
StokeonTrent
ST4 8AX
01782 281844
NORTH WEST
Chepstow House
Trident Business Park
Daten Avenue
Risley
Warrington
WA3 6BX
01925 825950
NORTHERN HOME COUNTIES
First Floor, Unit E1
The Courtyard
Alban Park
Hatfield Road
St Albans
Hertfordshire
AL4 0LA
01727 732690
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THE UK’S LEADING
REGENERATION SPECIALIST
www.stmodwen.co.uk
STOCK CODE: SMP
ST. MODWEN PROPERTIES PLC
ANNUAL REPORT 2008
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