Standard Motor Products
Annual Report 2010

Plain-text annual report

nortHern HoMe CoUntieS First Floor, Unit E1 The Courtyard Alban Park Hatfield Road St Albans Hertfordshire AL4 0LA 01727 732690 St. Modwen ProPertieS PLC Company Number 349201 HeAd oFFiCe & MidLAndS reGionAL oFFiCe Sir Stanley Clarke House 7 Ridgeway Quinton Business Park Birmingham B32 1AF 0121 222 9400 www.stmodwen.co.uk info@stmodwen.co.uk reGionAL oFFiCeS: London & SoUtH eASt 180 Great Portland Street London W1W 5QZ 020 7788 3700 SoUtH weSt & SoUtH wALeS Green Court King’s Weston Lane Avonmouth Bristol BS11 8AZ 0117 316 7780 YorKSHire & nortH eASt Ground Floor, Unit 2 Landmark Court Elland Road Leeds LS11 8JT 0113 272 7070 nortH StAFFordSHire The Trentham Estate Management Suite Stone Road Trentham Stoke-on-Trent ST4 8AX 01782 281844 nortH weSt Chepstow House Trident Business Park Daten Avenue Risley Warrington WA3 6BX 01925 825950 S t M o d w e n P r o P e r t i e S P L C A n n u A l R e p o R t f o R t h e y e A R e n d e d 3 0 n o V e M B e R 2 0 1 0 the uK’s leading Regeneration Specialist St. Modwen ProPertieS PLC www.stmodwen.co.uk StoCK Code: SMP St Modwen ProPertieS PLC AnnuAl RepoRt foR the yeAR ended 30 noVeMBeR 2010 18573-04 16/02/2011 Proof 7 18573-04 16/02/2011 Proof 7 St. Modwen Properties PLC Annual Report 2010 welcome to St. Modwen Contents www.stmodwen.co.uk resource Centre St. Modwen is the uK’s leading regeneration specialist. over the last 30 years we have built up a land bank of over 5,700 developable acres and have transformed the uK landscape via thoughtfully planned sustainable communities, mixed-use and town centre schemes, district centres and business and employment developments. our schemes act as the catalyst for wide scale comprehensive regeneration in the areas that need it the most. With each development we seek to leave a legacy by providing the right physical and economic infrastructure where businesses and communities can evolve and develop. We have a strong presence across the uK and our diverse property portfolio of over 180 sites means we are not over exposed to a single scheme, tenant or sector. this portfolio is largely divided into three specific areas of focus: income producing, residential land and commercial land. Business review Page 07 Operational and financial performance in 2010 and prospects for 2011. 08 Chairman’s Statement 10 Chief Executive’s Review 12 Operating and Financial Review Corporate Governance Page 21 Information regarding the Board and how they have run the business for the benefit of the shareholders. 22 Corporate Social Responsibility 28 Board Members and Senior Management 31 Corporate Governance Report 38 Directors’ Remuneration Report Financial Statements Page 45 Detailed analysis of financial performance. 46 Directors’ Responsibilities Statement 47 Independent Group Auditors’ Report 48 Group and Company Accounts 88 Independent Auditors’ Report 89 Five Year Record 90 Notice of Annual General Meeting 94 Glossary of Terms 95 Information for Shareholders 96 Development Projects Reports and Publications St. Modwen’s reports and publications are available to view online or download from www.stmodwen.co.uk You can order St. Modwen’s printed publications, free of charge from: UK and Rest of World Sir Stanley Clarke House 7 Ridgeway Quinton Business Park Birmingham B32 1AF Industrial St. Modwen’s reports and publications are available to view online or download from www.stmodwen.co.uk Retail Registered office Sir Stanley Clarke House 7 Ridgeway Quinton Business Park Birmingham B32 1AF Company number 349201 Website www.stmodwen.co.uk Joint Stockbrokers JP Morgan Cazenove Numis Securities 18573-04 16/02/2011 Proof 7 18573-04 16/02/2011 Proof 7 www.stmodwen.co.uk Highlights of 2010 01 Profit before tax £37.5m (2009: loss of £119.4m) Our return to profit was driven by significant progress in property profits and a recovery in valuation gains. Net assets per share 218p (2009: 200p) Net asset value has increased by 9%. (£73.1m) £37.5m 251p* 200p 218p 2008 (£119.4m) 2009 2010 2008 2009 2010 Trading profit** £17.4m (2009: £8.4m) Our core rental and other income covers the running costs of the company and provides a stable base from which the Group can maximise its development activities. Gearing 72% (2009: 80%) Our cash flow management has enabled us to reduce our gearing to 72%. £19.5m £17.4m 105% 80% 72% £8.4m 2008 2009 2010 2008 2009 2010 * Adjusted for equity issue in 2009 ** See note 2 of the financial statements The statutory 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 Read more online at www.stmodwen.co.uk 18573 16/02/2011 PROOF 7 02 St. Modwen Properties PLC Annual Report 2010 Business review our Strategy Our strategy is to add value to all land and property assets we hold by marshalling an extensive bank of development opportunities and by delivering development schemes across all sectors of the property market. THe HoPPer Our hopper of future development opportunities comprises over 5,700 developable acres and 16 Town Centre projects. We acquire these opportunities in their rawest state, ensuring that we can add maximum value as we work through the planning process towards delivery and ultimately disposal. We aim to replace the land used every year to enable the Company’s long-term growth. STaGe 1 • We now have a land bank of 5,736 developable acres of which 375 acres were acquired in 2010 MarSHaLLiNG Our development and construction teams, supplemented with skilled external professionals, have a proven track record of marshalling a wide range of projects through the planning process. We have particular expertise in site assembly, remediation, master planning and public consultation. STaGe 2 • We continued to secure many important planning consents in 2010, including over 1,400 residential units and over 1 million sq. ft. of commercial space DeLivery With planning permissions secured, schemes are built-out or the land sold in response to market conditions. 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. STaGe 3 • We achieved over 50 disposals in the year, realising over £125m with a profit of £21.9m 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk 03 We also recycle the capital raised from the disposal of those assets to which we can no longer add value into the acquisition of new opportunities. This is all underpinned by £525m of income producing property assets and managed estates. Branston East Staffordshire BP Portfolio South Wales openshawe East Manchester raF Uxbridge Greater London Long Marston estate Warwickshire South ockendon Essex Connah’s Quay Flintshire Warwickshire College Warwickshire edmonton Green London 18573 16/02/2011 PROOF 7 04 St. Modwen Properties PLC Annual Report 2010 our Strategy continued Share of Portfolio There are three main areas of focus for our business, each supported by our proven strategy. InCOME pROduCInG pROpERTIES Income Producing Properties 50% Residential Land 38% Commercial Land 12% Our active land bank is underpinned by over £500m of retained assets and managed estates that provide us with a regular and secure income stream whilst we marshal our schemes through the planning and construction process. Key FaCTS: • Book value — £525m • Diversified rent roll (1,650 tenants) providing annual rent of £45.7m See case study on page 13 RESIdEnTIAL LAnd COMMERCIAL LAnd A key strand to our business has always been to Our ability to marshal land through the planning acquire and develop land with potential for residential process and offer ‘oven ready’ sites for development development. Value is realised through land sales, means that we are well placed to take advantage development with joint venture partners and via our of a growing demand for pre-let / design and build own in-house development team. opportunities arising from a decreasing supply of Key FaCTS: • Book value — £400m; 1,550 acres • 24,805 units; 20,724 with a recognised planning consent of which 3,700 are in London and South East See case study on page 14 stock. Key FaCTS: • Book value — £130m; 2,794 acres • Many large pre-sold construction projects underway or completing in 2011 See case study on page 19 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk 05 Our business activities and our hopper are controlled through a network of seven regional teams of highly skilled professionals. Our regional presence provides us with national and local knowledge and expertise that keep us in tune with the needs of the local community and ensures that we remain politically and economically sensitive to each individual area. At a time of pressure on public finances, we believe our regional presence and extensive regeneration expertise will prove crucial in building on our established relationships with Local Authorities across the country who can continue to look to us to reliably deliver regeneration. Regional presence yorKSHire & NorTH eaST NorTH WeST NorTH STaFForDSHire MiDLaNDS NorTHerN HoMe CoUNTieS SoUTH WeST & SoUTH WaLeS LoNDoN & SoUTH eaST For a list of development projects see page 96 18573 16/02/2011 PROOF 7 06 St. Modwen Properties PLC Annual Report 2010 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk 07 Chairman’s Statement Chief Executive’s Review Operating and Financial Review 08 10 12 18573 16/02/2011 PROOF 7 08 St. Modwen Properties PLC Annual Report 2010 Business review Chairman’s Statement “In my final statement to you as Chairman, I am pleased to report on a strong recovery by your Company with a return to profit and NAV growth.” Anthony Glossop Chairman  The Trentham Estate and Gardens, where visitor levels increased by almost 50% to 315,000 in 2010. 18573 16/02/2011 PROOF 7 09 Directors and Employees At the forthcoming Annual General Meeting Ian Menzies-Gow will retire after nine years service, the last two as Senior Independent Director. His robust and incisive contribution to Board debate was always of the greatest assistance and I would like to thank him for his considerable help. It is intended that Ian will be replaced as Senior Independent Director by David Garman who joined us in April 2010 as a non-executive director. David has a broad range of industrial experience both in an executive and non-executive capacity, which I expect to be of great assistance to the Company. I will also step down as Chairman at the same time and I would like to welcome Bill Shannon who joined us in November 2010 as my designated successor. He had a long and successful executive career with Whitbread PLC before establishing himself as a respected non-executive. We also welcome Michael Dunn as Group Finance Director. He joined in December 2010 to replace Tim Haywood who left us last year after almost eight years’ service with the Company. Michael, who joined us from May Gurney, has extensive experience of working for publicly listed companies in the construction and outsourcing sectors and will be a great asset to the Company. The fact that the Company has emerged from the undoubted challenges of the past three years in such good shape is largely due to the expertise and drive of the Company’s employees at all levels in the organisation. Their dedication and skill has been of the highest order. They have been a pleasure to work with. Prospects Although the property market and broader economic prospects remain uncertain, and the impact of spending cuts has yet to be fully felt, we are nevertheless confident of the prospects for the Company. We have a long track record of generating value from our traditional activities of regeneration and the proactive management of ‘secondary’ assets, and the results for the year to 30th November 2010 demonstrate that we have been able to manage our business and assets through the global crisis while continuing to progress our portfolio of development projects to ensure the company is well positioned to deliver value for our shareholders. As we look forward, our financial position is sound; our business model will increasingly create value; our valuations are prudent, and our recurring income is robust. We are also in a good position to seize attractive opportunities to add further to the hopper, our regional teams continue to find opportunities to generate value and we are seeing a gradual recovery of liquidity in our key markets. I am confident that I leave the Company in capable hands and that 2011 will be a year of further progress. anthony Glossop Chairman 4th February 2011 *including our share of joint ventures and associates as detailed in note 2. www.stmodwen.co.uk Dear Shareholder, In my final statement to you as Chairman and as predicted in our half year and interim management statements, I am pleased to be able to report on a strong recovery by your Company with a return to profit and NAV growth. Profit before tax was £37.5m (2009: loss of £119.4m) with net asset value per share growing by 9% to 218p (2009: 200p). These results were driven by significant progress in property profits* to £21.9m (2009: £7.6m) and a recovery in valuation gains* of £23.0m (2009: (£122.3m)), of which £17.6m were attributable to asset management initiatives, progressing our projects through the planning and development stages (“marshalling”) and other added value activities. These achievements resulted in a 7% increase in our diluted EPRA net asset value, which now stands at 234p per share (2009: 219p), and helped generate a positive operational cashflow and enabled us to reduce our gearing to 72% (2009: 80%). Our active approach to asset management has led to an increase in recurring income and our rent roll, and vacancy levels within our portfolio have reduced to 12% (2009: 17%). Our financial position has been further improved by active management of our funding requirements, through adding to and extending our existing banking facilities. Dividends On the back of this recovery, dividend payments were resumed at the half year and your Board is now recommending a final dividend of 2p (2009: nil) per ordinary share, making a total distribution for the year of 3p (2009: nil). This final dividend will be paid on 4th April 2011 to shareholders on the register on 11th March 2011. Strategy Our strategy is a long-standing and consistent one: to add value to the properties we control through remediation, marshalling, asset management, development and delivery by our first rate regional teams, focusing on areas where our regeneration and brownfield expertise enables us to generate profits in commercial and residential development. Our business model has evolved over many years to ensure that our longer-term development activities are underpinned by a reliable recurring income stream (and capital appreciation) generated by our portfolio of rent-producing properties. These assets are now valued at over £500m, representing 50% by value of our total portfolio, and ensure we can progress our developments in a controlled and profitable manner. In addition, we own an extensive landbank (our “hopper”) of over 5,700 developable acres, 38% of which comprises land earmarked for residential development. During the course of this year, many commentators have focused their attention on the prospects for ‘prime’ assets. It is therefore pleasing that we have been able demonstrably to deliver against our strategy and business model and record healthy year on year growth in profits, property valuations and net asset values. Our development and remediation activity levels have improved; we have continued to progress our schemes successfully through the planning process to ensure a pipeline of future activity and added value, and the hopper of development opportunities has increased to record levels through a programme of selective acquisitions. We are always looking to challenge and improve this strategy. Our groundbreaking joint venture with Persimmon, which covers 2,000 plots on seven sites, is a clear example of how we are able to extract value (and cash) from the longer-term residential assets in the hopper, accelerating the use of our residential land stock and improving profitability. 18573 16/02/2011 PROOF 7 10 St. Modwen Properties PLC Annual Report 2010 Business review Chief executive’s review “Looking ahead we are confident that St. Modwen’s long-established strategy will once again give us the opportunity to provide sector leading returns to shareholders.” Bill Oliver Chief Executive  Progress at Longbridge — the 250,000 sq. ft. Bournville College, on target for completion in 2011. 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk 11 We are proud to be recognised as the UK’s leading regeneration specialist. Our regeneration activities and the complex schemes we deliver make a real and lasting difference and provide an economic boost to many deprived areas across the country. Our return to profit is testament to the strength of our business, the hard work and skill of our employees and our proven strategy of adding value to the portfolio of properties we own and manage. The performance is also a result of our regional presence which differentiates us from many of our competitors and has kept us in tune with the needs of local communities and businesses. It has also enabled us to continue to access sites that offer us the potential to apply our expertise to create value for our shareholders, partners and stakeholders. Our balanced business model ensures that our development activities are underpinned by a reliable recurring income stream from our £525m portfolio of rent-producing properties. This enables us to fund our cost base and progress our longer-term regeneration projects in a risk-averse and profitable manner. Our extensive and very diverse hopper of over 5,700 developable acres is controlled and managed through a network of seven teams across the UK, comprising highly skilled and experienced professionals. This enables us to adopt a detailed and hands-on approach to all aspects of our schemes, enabling us to deliver sector-leading results. Our long- standing emphasis on value creation enables us to deliver more than market valuation movements for our portfolio, as we marshal assets from our hopper through the planning process to higher value uses. There are three main areas of focus for our business, each supported by our proven business strategy: 1. Income producing investments – representing 50% by value of our portfolio. Our recurring income, generated from an extensive and diversified rent roll, enables us to continue to operate profitably, meeting the running and financing costs of the business. 2. Residential land – 38% by value of our portfolio. We acquire and develop land with the potential for residential development. Our asset management skills enable us to add value throughout the development process, realising value through land sales or by development either in joint ventures or solely through our in-house development teams. Our skills in driving our landholdings through the planning process, brownfield land remediation and other aspects of regeneration and development make us an attractive partner to landowners, local authorities and central government agencies. 3. Commercial land – 12% by value of our portfolio. Our ability to marshal land through the planning process and offer ‘oven ready’ sites for development means that we are able to meet occupiers’ demands swiftly and take advantage of a growing demand for pre-let and design and build opportunities arising from a decreasing supply of stock across the UK. Our Market We have witnessed some improvement in market conditions over the last 12 months. Our broad range and our regional spread of development and regeneration activities has enabled us to continue to secure business across a wide variety of sectors, achieving property sales, including our share of JVs, of £125m. Our levels of development activity are still lower than we are used to historically but we do compare well to the rest of the marketplace, with a good programme of activity in place for 2011 and beyond. As we forecast last year, our valuations at 30th November 2010 were reflective of more stable market conditions after a long period of uncertainty, with an average positive yield shift of 0.5%. The value of our commercial land has stabilised, while the valuation of our residential land has encouragingly recovered a small element of the values previously written off. We believe this may reflect the start of a recovery in the market for residential land, as evidenced by the transactions we have completed during the year and since the year-end. Competitive and Regulatory Environment The lack of readily available finance and the continuing drive to de-gear and de-risk their businesses has restricted many developers’ appetite and ability to compete for new development schemes. Speculative development remains almost non-existent and there are still very few developers who are both willing to bid for, and able to finance, new schemes. By contrast, in this new competitive landscape, we are operating in our chosen regional and secondary markets from a position of strength. We are identifying an increasing stream of opportunities, both for acquisitions and for developments which offer clear potential to create and enhance value for our shareholders. As a result, we are able to report on yet another very successful year for our hopper, which at over 5,700 acres, once again stands at record levels. Despite some of the gloomier forecasts to the contrary, we have also continued to benefit from the relative resilience of our occupier markets, underpinned by our own focus on specific active asset management initiatives. This year we have been highly successful in both reducing void levels and increasing the rent roll. Our secondary retail centres in particular are continuing to perform strongly, with high occupancy and robust rental levels. We are also seeing an increased level of enquiries for new development space, with a number of sizeable opportunities now coming to fruition; for example we are in advanced discussions with Siemens in Lincoln to develop a new 127,000 sq. ft. manufacturing facility. On face value, the regulatory environment remains cumbersome and complex. However, we remain optimistic that the latest planning process reforms will not have an adverse impact while local authorities seek to make sense of their new-found powers and responsibilities including the proposed abolition of regional spatial strategies, the replacement of Regional Development Agencies with Local Enterprise Partnerships and the merger of the Housing and Communities Agency with English Partnerships. One of the Company’s key skills is being able to work our schemes through the planning system in a responsive and time-efficient manner. For this reason, the more restrictive a system becomes, the more our skills are needed, and potentially, the greater the value that is created by our marshalling activities. Furthermore, sites with a secured planning consent (of which we have many, including 20,724 residential plots with a recognised planning status) should command an increasing premium while the system adjusts to operate in the more efficient way intended. Outlook Looking ahead, we are confident that St. Modwen’s long-established strategy will once again give us the opportunity to provide sector-leading returns to shareholders. We continue to adopt a cautious, but opportunistic, stance to changing conditions. The expertise and knowledge that we have built up over many years in diverse markets across the UK will ensure that we are strongly placed to continue to identify and secure opportunities in the markets that are most active and offer the best potential to create value. We have a strong balance sheet and a landbank that is full of latent value. Our development pipeline for 2011 and beyond is strengthening and a number of significant schemes are being marshalled for delivery in future years. Our asset management capability is proving invaluable in maintaining occupancy and rent levels, and we are confident that we will be able to continue with the positive progress in this area that we have demonstrated in the past two years. As a result, we believe that we are well positioned to deliver profit and net asset value growth in 2011, despite the ongoing uncertain market conditions. Bill oliver Chief Executive 4th February 2011 18573 16/02/2011 PROOF 7 12 St. Modwen Properties PLC Annual Report 2010 Business review operating and Financial review OPERATINg REVIEW Business Model and Strategy Our established business strategy is to add maximum value to the land and property assets we own through remediation, marshalling, asset management and development and subsequently to recycle the capital released on sale into the acquisition of new opportunities. We operate predominantly in locations where we are able to offer value for money to occupiers and undertake substantial planning or remediation activities to transform asset values. It is in these locations, via our regeneration activities, where we can make a positive and lasting difference by providing the right physical and economic infrastructure for businesses and communities to evolve and develop. Regardless of recent generic market commentary, we continue to experience improving market conditions for the type of secondary properties in our portfolio which are proving remarkably robust in terms of rental and occupation levels. Obtaining control of opportunities through self-financing transactions has always been part of our hopper strategy. This year, our total expenditure on new acquisitions was only £31m which added 375 acres of developable land to our portfolio, of which 318 acres were via options and development agreements. As a result, our hopper now stands at the record level of 5,736 developable acres. This landholding is very broadly based, comprising over 180 separate schemes, across all sectors of the property market. During the past year, we have not undertaken any speculative development, but have continued to advance sites for development on the back of pre-let or pre-sold opportunities. Our strategy of constantly seeking to add value to the properties we own (whether through asset management, remediation or driving them through the planning process) has also continued to deliver tangible progress. During the year, we achieved a number of important planning consents and advanced the status of several of our key schemes, generating added value gains of £18m (2009: £27m). We have also continued to dispose of mature assets and those developed specifically for sale. We have completed over 50 disposals in the year realising £125m which includes our share of JVs and £22m of disposal profits, enabling us to reinvest in new long-term opportunities. Employees St. Modwen’s business model is based on a hands-on approach in all areas: asset management; marshalling; remediation; construction and development. As a result, the skill of our people is fundamental to our success. Therefore, as we emerge from financially-constrained times, we will continue to retain and incentivise and to grow the abilities of the talented people who will be the drivers of the Company’s future expansion. Hopper analysis (acres) Developable Retail and leisure Employment Residential Unspecified 2010 2009 368 2,927 1,550 891 5,736 433 2,735 1,564 872 5,604  The 300,000 sq. ft. waste treatment and recycling facility for New Earth Solutions at Access 18, Avonmouth. 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk 13 Case Study Income Producing — ETP Portfolio We have purchased an eleven-site portfolio of industrial estates for £21.4m from Citi Property Investors. With a rental income of £2.2m, this represents a net initial yield of 10.3%. The portfolio comprises 610,000 sq. ft. of multi-let industrial assets located throughout the Midlands and North of England, including Birmingham, Sheffield and Stoke-on-Trent. It includes 75 occupational leases, let to 60 tenants, with a void level of 3%. In line with our business strategy, it is our intention to retain these sites for income until we maximise their value. Income raised from their disposal will be invested into other development projects, land acquisition or the purchase of other income producing assets. Financial Objectives St. Modwen’s financial objectives over the past year have been to deliver positive NAV growth and resume dividend payments; to grow the recurring income; to optimise the Company’s cashflow and financing position; and to be in the best possible shape to capture new acquisition or development opportunities. With the stabilisation of property valuations, we are pleased to have returned to profitability, reporting a profit before tax of £37.5m (2009: £119.4m loss). Our NAV per share has grown 9% to 218p per share and the EPRA equivalent 7% to 234p (2009: 219p). Our recurring gross rent roll has grown to £45.7m (2009: £43.0m) with voids reduced to 12% (2009: 17%). This, and our confidence in the robustness of our net asset value and our prospects for the coming year, enabled us to resume the payment of dividends during the year. An interim dividend of 1p per share was paid in September, and the Board is recommending a final dividend of 2p. In the current more cautious market, our business model is - perhaps counter-intuitively - particularly appropriate. Our prudent approach to financing, excellent relationships with our key banks and strengthened balance sheet following the Placing and Placing and Open Offer in 2009 has given us a stable financial footing and ensured we have significant capacity for growth as market conditions improve. The Company is trading within all its banking covenants and our forward projections show a continuation of that position. A further key objective for the year was to renew and extend the maturity of our banking facilities to ensure that sufficient funding remained in place for the Company’s medium-term requirements. We have realised this aim and renewal dates for the majority of our existing facilities have been extended to 2014/15 with no changes to the existing terms and conditions. The earliest significant maturity date is now September 2012 and the weighted average maturity of the Group’s facilities at the date of this report is now 3.7 years (November 2009: 3.0 years). Income Producing Investments Hands-on asset management is a very significant part of our business model. Our regional teams have been very active during the period, working closely with tenants to mitigate the impact on our rent roll of the current difficult market conditions. The effect of asset disposals, tenant failures and vacations was more than offset by our successes in letting void space and newly-completed developments giving us an overall increase in net rental income. The benefit of this pragmatic and hands-on approach is shown by the fact that our like-for-like gross rent roll has increased by £1.9m to £45.7m since 30th November 2009. This reflects our success in achieving £7.8m of new lettings to offset rent lost of £5.7m due to vacations and £0.2m due to tenant failures in the period. This activity has enabled us to reduce our overall portfolio void to 11.8% and reduce the level of unsold stock to £66.3m. Rental income by sector Industrial 55% (2009: 52%) Offices 10% (2009: 9%) Retail 35% (2009: 39%) While we may see continued pressure on our net rents in 2011, as the macro-economic conditions continue to give rise to increased unemployment and a reduction in consumer spending, our rents are at the affordable end of the scale. We believe this will provide some insulation from the effect of further tenant failures. 18573 16/02/2011 PROOF 7 14 St. Modwen Properties PLC Annual Report 2010 Business review operating and Financial review continued Case Study Residential Land — Persimmon JV 1.4m sq. ft. Innovation Centre Income producing investments — key highlights during the year: • During the year we acquired the ETP portfolio, an eleven-site portfolio of industrial estates (see page 13 for case study). • Testament to the fact that well located and well managed secondary retail property can prove to be a reliable investment is the Elephant and Castle Shopping Centre in London. The Centre now comprises 82 tenants and occupancy has increased from 93% to 98% during 2010. As a result of 15 new lettings and lease renewals, the net rent receivable has increased by 3.2% during the year to £3.8m per annum. Outlook We continue to seek opportunities to add to our income producing portfolio. Our regional presence, flexible funding and appetite for assets that generate income but have the potential for future development is enabling us to move quickly which provides us with an advantage in the current marketplace. We anticipate acquiring further income producing assets at attractive yields, and believe that our active asset management will continue to add value. Residential Land The gradual recovery of the residential market, and the consequent erosion of housebuilders’ landbanks and housing stock levels has seen a re-emergence of demand for residential land, particularly for our type of ‘oven-ready’ consented sites that can be brought quickly into production. This is demonstrated by our disposal of 40 acres during the year and the signing of the strategic joint venture with Persimmon to develop an initial seven sites. This JV will unlock considerable value and cash from our residential land bank as well as delivering development profit from house sales. As an example of our acquisition activity in the year, we have concluded an agreement with Branston Properties Ltd to acquire, subject to planning, a 280 acre site near Burton-upon-Trent. We anticipate the site being brought forward for a mixed use development of 500 new homes and 650,000 sq. ft. of employment space. Marshalling The planning position on our residential land bank is now: In August 2010, we entered into a joint venture with Persimmon PLC initially to develop 2,000 homes on seven of our sites across Planning status Allocated in local plan or similar Resolution to grant permission Outline permission granted Detailed permission granted Sub-total No planning recognition TOTAL Nov 10 Nov 09 Acres Units Acres Units 309 6,550 231 6,134 39 794 68 1,210 340 1,550 806 12,239 1,129 20,724 4,081 24,805 323 517 32 1,103 440 1,543 5,230 7,887 833 20,084 4,956 25,040 the country: — goodyear, Wolverhampton — glan Llyn, Newport, South Wales (pictured) — Pallion New Road, Sunderland — Whessoe Road, Darlington — Longbridge East, Birmingham — Long Marston, Warwickshire — Coed Darcy, Neath, South Wales It is expected that the development across 120 acres of land will take up to five years to complete and will have an end value of over £300m. Further schemes may be added to the joint venture as planning permission is obtained by St. Modwen. We are already making good progress with the joint venture and have recently submitted detailed planning applications at the former goodyear site in Wolverhampton and at glan Llyn in Newport, South Wales. We will shortly submit applications at Darlington, Sunderland and Longbridge East. 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk 15 Planning progress — key highlights during the year: • Two sites at Longbridge and Weston-Super-Mare have received detailed planning consent for residential development totalling 215 new homes. With the benefit of HCA funding, demonstrating our ability to actively manage development without major use of our own funds, these sites are being developed directly by the Company under its house-building brand, St. Modwen Homes. • South Ockendon, Essex — we received outline planning permission for 650 homes on a 31 acre former car factory which we acquired from Ford in 2006. This scheme will form a key part of the delivery of new housing in the Thames Gateway region. In addition, the following major planning applications are being progressed in 2011: • Mill Hill — as part of a consortium with neighbouring landowners, we have submitted plans for a comprehensive development of our 83 acre former MoD site comprising 2,174 new homes, 11,800 sq. ft. of new retail, 37,000 sq. ft. of commercial space, a GP surgery, an energy centre and two primary schools. • Uxbridge — plans for the extensive development of this 108 acre former MoD site includes 1,373 new homes, 31,000 sq. ft. of new retail and 145,000 sq. ft. of new office space, together with a 77 bed retirement home, a 1,200 seat theatre, a 6,300 sq. ft. community / museum use, an energy centre, a GP surgery, a 90 bed hotel and three primary schools, for which outline planning was granted in January 2011. Delivery and disposal — key examples: • One of the key transactions during the year was the signing of a joint venture agreement with Persimmon PLC to develop 2,000 homes on seven of our sites. The structure of the JV accelerates the realisation of value from our hopper, and also enables us to share in the future value of the houses built. We anticipate that the transaction will be cash positive for us in 2011, and will remain so throughout the duration of the JV (see page 14 for case study). • We have sold 29 acres of residential land for a total consideration of £40.5m at values equal to, or ahead of book value: 20 acres at the former MoD site at Bentley Priory, Stanmore to Barratt Developments; four acres at Haywards Heath to Crest Nicholson and five acres at Newton le Willows to Jones Homes. Outlook Our ability to be flexible and innovative gives us confidence that we will continue to unlock the value from our substantial and diverse landbank. Our developments in progress should generate increases in NAV over the coming years while our landbank should prove a valuable long-term asset as the housing market recovery accelerates. Commercial Land Development In line with the rest of the market, we are not currently undertaking any speculative development. However, our regional structure enables us to continue to drive our land holdings through the planning process and offer occupiers ‘oven ready’ sites for development means that we are well placed to take advantage of the resulting and growing demand for pre-let and design and build opportunities. Our brownfield remediation expertise makes us an attractive proposition to landowners who trust us implicitly to remove the risk from their sites.  The first phase of housing at Coed Darcy, South Wales where planning is shortly to be submitted for a further 300 houses as part of our Persimmon JV. 18573 16/02/2011 PROOF 7 16 St. Modwen Properties PLC Annual Report 2010 Business review operating and Financial review continued Acquisitions — key examples during the year: • Hednesford — a vehicle component factory from ATP Industries Group, in a deal which unlocks the development potential of the £50m Hednesford Gateway scheme in Cannock Chase, Staffordshire (see page 19 for case study). • The 300,000 sq. ft. waste treatment and recycling facility at Avonmouth for New Earth Solutions is on target for completion in Spring 2011. • Works have also commenced on the construction of the pre-sold 48,000 sq. ft. office complex for Manchester City Council in Wythenshawe. • Crawley - an option to acquire, subject to planning, a 100 acre site at Copthorn adjacent to the M23 near Crawley and Gatwick for employment- led development. Planning progress — key highlights: • Exeter — outline planning consent has been obtained for our £120m Skypark development near Exeter Airport, together with detailed consent for the first phase. Funded by the Low Carbon Infrastructure Fund of HCA, the innovative first phase is set to comprise a £20m Energy Centre — the first of its kind on this scale in the UK - which will be run by E.ON, and which will provide sustainable energy for the entire scheme and the neighbouring community of Cranbrook. • Longbridge Town Centre — Proposals have been submitted for the £70m next phase of the town centre which include 80,000 sq. ft. of retail space, a major 85,000 sq. ft. foodstore, an hotel and 40 two- bedroom apartments, together with community space access roads and continued local road improvements to join the town centre with the newly-built £66m Bournville College. Delivery and disposal — key examples: Some of the principal disposals, which were all made at or above book value, in the period were: • Catford Shopping Centre and parade of shops - sold to Lewisham Borough Council for £11.5m. • The Malls, Basingstoke — our joint venture, KPI, sold its 65% share in this 300,000 sq. ft. shopping centre to Basingstoke & Deane Borough Council (who owned the remaining 35%) for £15.3m. Key employment schemes include: We have also made significant progress on a number of important town centre, retail and public sector schemes: • Wembley — Our Wembley Central scheme will provide 135,000 sq. ft. of retail and leisure space, together with 117 private apartments and 85 affordable homes already completed on site. During 2010, 23,000 sq. ft. of office space in Ramsey House was refurbished; the fitting out of the first phase of 117 apartments was completed, of which 50 have been sold or let; Co-Op have completed a lease on 10,000 sq. ft. and will commence trading in March 2011; and terms have been agreed with Travelodge for a new 86 bed hotel. • We have completed the 72,000 sq. ft. retail scheme at Connah’s Quay, Flintshire including a new 52,000 sq. ft. Morrisons food store which commenced trading in November 2010. Over 300 new jobs have been created at the Ffordd Llanarth site, which has attracted lettings from a wide range of national retailers including Greggs, Bargain Booze, Just Go Travel, and Home Bargains. • We completed and handed over the 150,000 sq. ft. Warwickshire College at our Rugby site in time for the first intake of students in September 2010. Work is also progressing on schedule and budget towards completion of the flagship six storey 250,000 sq. ft. £66m Bournville College at Longbridge to be opened to over 10,000 students in September 2012. Outlook Our developments in progress should continue to generate value. While we do not foresee returning to speculative development in the near future, our regional presence is enabling us to find development opportunities that can be satisfied by our existing landbank. We are currently in negotiations to secure a number of opportunities that should enable us to continue to create value and generate good profits over the next few years.  The completed 52,000 sq. ft. Morrison’s foodstore at Connah’s Quay, Flintshire. This is part of our Quay Shopping Centre development. 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk 17 FINANCIAL REVIEW Income statement Our business model is based on core rental and other income covering the running costs of the Company (property outgoings, overheads and interest), which provides a stable base from which the Group can maximise its development activities. Trading profit (£m) Net rental income Property profits Other income Administrative expenses Bank interest Trading Profit (see Note 2 of the financial statements) 2010 33.7 21.9 3.1 (17.1) (24.2) 17.4 2009 33.5 7.6 1.8 (14.1) (20.4) 8.4 Net rental income During the course of the year we have focused on our asset management activity in order to safeguard our future rental returns. At 30th November 2010 the like-for-like gross rent roll, including our share of rent from joint ventures, had increased from £43.0m to £45.7m. At the year-end our overall voids had been reduced considerably to 12% (2009: 17%). Furthermore we have increased our weighted average lease length to 5.1 years (2009: 4.3 years). Property profits Property profits, including our share of joint ventures, were £21.9m (2009: £7.6m), with significant contributions from our remediation contracts with BP at Coed Darcy and Baglan Bay, a number of pre-let and pre-sold developments (including for Manchester City Council, New Earth Solutions, Morrisons and Bournville and Rugby Colleges), as well as the disposal of residential land. Property valuations All of our investment properties (including land) are valued every six months by King Sturge LLP at market value, and our work in progress is also independently assessed, where appropriate, for any impairment issues. Property portfolio (£m) Residential land Commercial land Income producing Retail Offices Industrial Total 2010 400 130 194 60 271 2009 339 155 197 63 253 1,055 1,007 • including the Group’s share of joint ventures and associates (excluding minimum lease payments). • valuation numbers include investment properties and legally owned properties held in inventory (except for those inventory properties already contracted for transfer under the Project MoDEL agreements). The valuation of our investment properties reflects both market movements and the value added by our own activities, including the achievement of marshalling milestones in the planning process. The calculation of this added value reflects the present value of future cash flows, based on existing land prices and the current best estimate of costs to be incurred. 2010 was another year of uncertainty in the real estate investment market, but one in which values recovered some of the losses of the previous two years. Our valuations at 30th November 2010 reflect a stabilised secondary property market, with our investment property valuations having increased overall by £29m (3%) during the year. In the first half of the year, we saw the gradual return of some real estate investor appetite and an increasing level of housebuilding activity, resulting in an overall uplift of £24m. In the second half, these trends had stabilised and both investment yields and underlying land values were more stable with a movement of £5m. Throughout the year, we produced significant gains through our marshalling and asset management efforts which added value to the underlying market movements, the beneficial impact of this can be seen in the table below: investment property valuation movements (£m)* Market value movement Marshalling and asset management Total H1 9 15 24 2010 H2 2 3 5 Total 11 18 29 2009 Total (134) 27 (107) *including the Group’s share of joint ventures and associates The valuation of our residential land portfolio was thoroughly market- tested during the year by the sale of land and the formation of the joint venture with Persimmon over a further seven sites: in all cases, our carrying values were proven by these market transactions. Furthermore, our ability via this Persimmon JV to participate in the future housebuilding profits implies that there is a further stream of value to come from this portfolio which has not yet been fully recognised. Of the overall investment property valuation movements of £29m, our valuers consider that over 60%, or £18m, is due to value added by our own management of the assets. This is an achievement consistent with our expectations and one that gives us confidence in our future valuations. Administrative expenses We continue to maintain close control over underlying costs. Underlying recurring costs have remained stable. We have, however, incurred £2.2m of restructuring costs in the year as we rationalised our properties and reorganised our internal legal structure in line with approved tax planning activities. Due to the successful outcome to the year we have also re- introduced the staff bonus scheme. As a consequence of the factors above, administrative expenses (including our share of joint ventures) have moved during the year to £17.1m (2009: £14.1m). Joint ventures and associates Our share of the post tax results of joint ventures and associates is shown on the income statement as one net figure. A full analysis of the underlying details is disclosed in Note 10. The principal joint venture in which the Group is involved is Key Property Investments Limited, which recorded a profit of £16.6m of which our share was £8.3m (2009: £22.1m loss). Finance costs and income Net finance charges (including our share of joint ventures) have reduced to £26.4m (2009: £26.7m). The level of charges was due to the following principal factors: lower borrowing levels; reduced mark-to- market costs; partly offset by increased borrowing costs. 18573 16/02/2011 PROOF 7 18 St. Modwen Properties PLC Annual Report 2010 Business review operating and Financial review continued As a result of low and stable interest rates and the renegotiating of some of our hedging contracts (at zero cost) with our banks, the revaluation of our interest rate swap contracts (which have a weighted average cost before margin of 4.6%) to market value at year-end resulted in a net credit to the Income Statement of £0.1m (2009: charge £5.9m). The impact of the renegotiation of our banking covenants mid way through 2009 was to increase the weighted average margin on our facilities by 113 basis points to 199 basis points. Net finance charges also include a charge of £1.6m (2009: £0.2m) for the amortisation of the discounted deferred consideration payable to the MoD in respect of Project MoDEL. operational cashflow (£m) Net rent Property disposals Property acquisitions Capital expenditure Working capital and other movements Overheads, interest and tax Net cash inflow/(outflow) (see Note 2 of the financial statements) 2010 26.4 92.9 (30.5) (80.1) 33.9 (36.5) 6.1 2009 26.1 100.9 (12.9) (79.7) (6.3) (27.0) 1.1 During 2010, the Group continued to expense all interest as it has arisen, and has not capitalised any interest on its developments or its investments. Profit before tax With the stabilisation of property valuations, we are pleased to have returned to profitability, reporting a profit before tax of £37.5m (2009: £119.4m loss). Taxation and profits after tax The effective tax credit for the year, including our share of joint ventures, is £0.8m (2009: £17.7m). This rate is substantially lower than the standard rate of UK Corporation Tax due to the utilisation of previous years’ tax losses and allowances. It is anticipated that, with the continued utilisation of these losses and of other tax allowances, and the benefit in future years of approved tax planning activities, the effective rate of tax on future profits will be lower than the standard rate of UK Corporation Tax. We now have total Group facilities of £539m (2009: £519m). Year-end net debt is £315m (2009: £319m), giving us gearing of 72% (2009: 80%) and headroom of over £200m to meet future commitments. Including joint ventures, total banking facilities are £784m (2009: £764m), net debt is £504m (2009: £527m) and gearing is 94% (2009: 106%). The maturity of both hedges and facilities is aligned with individual schemes where applicable. Following the repayment of £101.6m of borrowings after the equity issue during 2009, the amount of our debt at fixed rates rose to 99% and is currently 98%. This will gradually reduce during 2011 as a number of the hedging contracts mature. We are keeping our hedging positions under review. Covenants We are operating well within the covenants that apply to our banking facilities. These are: • net assets must be greater than £250m (actual £437m); • gearing must not exceed 175% (actual 72%); and Benefit from tax planning activities is only recognised when the outcome is reasonably certain. • interest cover ratio (which excludes non-cash items, such as revaluation movements) must be greater than 1.25x (actual 1.8x). Taking into account these tax rates, profit after tax has risen to £38.3m (2009: loss of £101.7m). Financial Structure Financing Following the refinancing of the business in 2009, we continue to operate well within our banking covenants and have substantial headroom within our existing facilities to cover all of our current and proposed development and acquisition programmes. We have also taken a number of steps during the year to renew and extend our banking facilities. During the financial year we renewed facilities with Barclays, Royal Bank of Scotland and Bank of Ireland. Following the year-end, but before the date of this report, we have also renewed facilities with HSBC and put in place a new facility with Santander, further increasing the weighted average expiry to 3.7 years at the date of this report (November 2009: 3.0 years). This has been done with no material impact on borrowing costs. The Company’s cash flow was again an area of significant focus during the year as we realised £93m 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, interest, and a £111m development and capital expenditure programme, whilst delivering a net reduction in borrowings from trading cash flows. The following table shows an additional analysis of the operational cash flow of the business. Although current economic conditions still have an element of uncertainty, we have considered available market information, consulted with our advisers and applied our own knowledge and experience to the Group’s property portfolio. As a result of this, we believe covenant levels are more than adequate for our worst-case scenarios. Financial statistics and key performance indicators 2010 Net Borrowings Gearing Gearing, incl share of JV debt Average debt maturity Interest cover £315m 72% 94% 3.7 years 1.8x 2009 £319m 80% 106% 3.0 years 1.7x Balance Sheet Net assets At the year end, net asset value per share was 218p, an increase of 18p (9%). 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 following table. EPRA adjusted net assets per share were 234p at 30th November 2010, an increase of 15p (7%) in the year. 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk 19 Net assets (£m) Net assets, beginning of year Issue of new shares Profit/(loss) after tax Dividends paid Other Net assets, end of year Deferred tax on capital allowances and revaluations Mark-to-market of interest rate swaps Fair value of inventories Diluted EPRA NAV — total — per share 2010 401.0 — 38.3 (2.0) (0.5) 436.8 9.4 16.7 5.3 468.2 234p 2009 402.2 101.6 (101.7) — (1.1) 401.0 18.0 19.3 438.3 219p Investment properties The total value of investment properties under our control, including 100% of joint ventures, increased by £66m during the year to £1,101m (2009: £1,035m). The independent valuations during the year-ended 30th November 2010 resulted in net revaluation gains, including our share of joint ventures, of 3% (£29m), compared with the previous year-end. Our properties are currently valued at the following weighted average yields: Weighted average yields Equivalent Net initial Retail Office Industrial Total 2010 8.6% 9.0% 9.2% 9.0% 2009 9.9% 8.7% 9.4% 9.5% 2010 7.4% 7.1% 7.4% 7.4% 2009 8.4% 5.7% 8.4% 8.0% Inventories Inventories have reduced in the year from £193m to £173m, reflecting the completion of the development programme started in previous years (including £88m relating to Project MoDEL) and the effect of disposals or transfers into investment properties of completed schemes. Assets held in inventories principally comprise development projects that are on site and under construction and have not been pre-sold, and other assets that are held for resale at the period end. Assets held in inventories are not included in the annual valuation, but are assessed for impairment and net realisable value issues using independent external advice where appropriate. As a result, we have written down certain of our assets for resale and work in progress balances to reflect their net realisable value in current market conditions. The total provided in the year amounted to £6.1m in the Group and £0.3m in joint ventures. Pension scheme Our defined benefit pension scheme continues to be fully funded on an IAS19 basis. The next triennial valuation is due in 2011 but as the scheme is closed to new entrants and closed to future accrual we do not anticipate any significant increase in scheme contributions. Financial Outlook Our business is in a robust financial position. Active management of our portfolio is enabling us to generate profits, our valuations are prudent and our financial structure is solid. We are continuing to recycle our portfolio and generate cash and this, together with the headroom in our financial structure, enables us to continue to invest in opportunities that offer the potential to create and enhance shareholder value. Given the opportunities in the current markets this gives us a sound platform for future growth. Case Study Commercial Land — Hednesford, Cannock In 2004 we were selected as preferred developer by Cannock Chase District Council to redevelop two Town Centre sites in Hednesford, totalling 13 acres. The £50m retail-led scheme, known as Hednesford gateway, is set to be one of the most significant projects in the town’s history and comprises two phases known as Rugeley Road and Victoria Street. Rugeley Road — an 8.8 acre site will be anchored by an 80,000 sq. ft. foodstore, with associated car parking alongside 38,000 sq. ft. of non-food retail units and community facilities. Victoria Street — a 4.6 acre site will be anchored by a 16,900 sq. ft. discount foodstore, with 7,500 sq. ft. of retail units and an additional 5,650 sq. ft. of additional retail space within the town centre. The town’s existing Bingo Club and Drill Hall will be relocated to this site. Progress to date includes securing planning permission for Rugeley Road and we have already started to unlock the development potential of this part of the site, having purchased a factory from ATP Industries group which will be demolished in 2011. Construction works to the new 80,000 sq. ft. foodstore are due to start in 2011. Regarding Victoria Street, planning permission has already been secured and we have commenced ground investigation works. 18573 16/02/2011 PROOF 7 20 St Modwen Properties PLC Annual Report 2010 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk Corporate Governance 21 Corporate Social Responsibility Board Members and Senior Management Corporate Governance Report Directors’ Remuneration Report 22 28 31 38 18573 16/02/2011 PROOF 7 22 St. Modwen Properties PLC Annual Report 2010 Corporate Governance Corporate Social responsibility INTRODUCTION Regeneration goes beyond bricks and mortar; it is about breathing new life into areas that need it the most and bringing about positive and genuine changes to communities, the environment and the economy alike. Therefore, we take Corporate Social Responsibility (“CSR”) very seriously and ensure it forms an integral part of what we do. Our CSR activities are grouped into three specific areas: Waste management Our principal aim when dealing with waste is to reduce our reliance on landfill sites and ensure that we introduce effective waste management systems across all sites built directly by us. For those projects delivered by contractors and subcontractors on our behalf, we only employ companies who comply with our strict criteria for dealing with waste management. WarWiCKSHire CoLLeGe — Sustainability and the Environment — Community and Economy — Charities and Awards SUSTAINABILITY AND THE ENVIRONMENT Environmental initiatives We are always looking at ways in which we can support or instigate local initiatives that bring benefit to our sites and the surrounding environment. Where possible, we seek to involve the local community in these initiatives which not only helps to build understanding and trust in our work but makes development more accessible. CryMLyN BUrroWS, SoUTH WaLeS The development of the new Warwickshire College and the access road to this 82 acre site is a typical example of our approach to waste management. Here, we instigated a rigorous process that led to only 4% of the waste produced being sent to landfill. To facilitate the process, we appointed one company who would control the waste management for the entire site. All contractors and subcontractors were instructed to use this company only. Waste was segregated into six channels; inert matter, wood waste, cardboard/paper, scrap metal, plastic and general waste and a total of 10,000 m3 was produced, of which 96% was retained on-site and re-used within the site for structural fill. Sustainable buildings We look for the most environmentally effective solutions for our occupiers in terms of the whole life cost of a building and take several factors into consideration. These range from the use of renewable materials, employment of specific design standards and employing a highly skilled team of sustainability advisors who ensure that we are always using the most technically advanced and efficient sustainability techniques. We welcome the introduction of the code for sustainable homes and understand that beyond reducing carbon dioxide emissions, we need to deliver buildings in a way that minimises their other environmental impacts such as the water they use, the waste they generate and the materials they are built from. We also encourage innovative energy saving measures across all of our sites which have broader positive implications for the surrounding communities and regions as a whole. At Crymlyn Burrows in South Wales, a Site of Special Scientific Interest, and part of the 2,500 acre former BP Portfolio we acquired in 2009, we joined marine biologists, Oakley International, local school children and other community volunteers in a search for shark, skate and ray egg cases along this important strip of Welsh coastline. This work is crucial to the Shark Trust, facilitating vital research into these elusive breeds of fish. As part of the same initiative, a special beach clean-up to remove litter from the beach and surrounding areas was carried out. This followed publication of a Marine Conservation Society Beachwatch Report claiming that rubbish found on 73 Welsh shorelines was up by 21% on the previous year. 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk 23 So far, the remediation efforts have restricted landfill consumption significantly and almost 100% of all material generated during the pre- development and remediation works has been retained on site for reuse. With another 50 acres of site to prepare for development, this sustainable remediation approach is being continued with the support of both Wolverhampton City Council and the Environment Agency. Remediation and reclamation Remediation, or the preparation of land for development, is perhaps the most important part of the regeneration cycle; allowing for disused sites to be brought back to life and minimising development on greenfield land. Almost 100% of our building activity takes place on brownfield sites and we adopt a thorough and ruthless approach to remediation which ensures that the land is cleaned up extensively before any development occurs. Similarly, across our entire portfolio, over 95% of all waste and materials either reclaimed on-site or created due to demolition works are retained and re-used as part of the development. This approach ensures we avoid any unnecessary off-site disposal, reduce our reliance on landfill and minimise the need for mining for new materials. GooDyear SiTe, WoLverHaMPToN Our regeneration of the 90 acre former Goodyear site in Wolverhampton into an £80m mixed-use community is a classic example of how we deal with remediation and reclamation on-site: Prior to commencing any redevelopment works, we carried out extensive environmental and geotechnical assessments of the site which revealed the historic tyre manufacturing processes had resulted in localised contamination to the ground and to the groundwater beneath the site. A three acre on-site tip was also uncovered which had been used to dispose of industrial waste. Upon discovery of these elements, we immediately developed a detailed remediation strategy and validation plan that was subsequently agreed with Wolverhampton City Council and the Environment Agency. Phase 1 of the remediation works covered an initial 16 acres and comprised slab/foundation removal, re-profiling earthworks, treatment of hydrocarbon impacted soils and groundwater, processing and treatment of asbestos contaminated soils and processing of buried industrial waste materials for re-use within the site. 65,500 sqm of former factory slabs, yard areas and foundations were  Approximately 30,000 tonnes of concrete was generated by grubbed up and removed to enable the redevelopment of the Phase 1 area to be initiated. these works, this material was crushed to 6f1 and 6f2 specifications for roadway construction and reuse within the build platform. Relic sub-surface infrastructure comprising structures extending  Approximately 35,000 tonnes of concrete was generated by these works; this material was crushed to a 6f2 specification to depths in excess of 6m below ground level were excavated for reuse within the redevelopment. and removed. Oil contaminated soils resulting from historical site operations were  Approximately 4,000 tonnes of soils treated by bio-remediation delineated, excavated and treated on-site under license. methods, this material was validated and integrated beneath the build platform. Re-profiling works across Phase 1 of the site comprised the excavation, validation, laying and compaction of ‘site won’ soils.  Approximately 16,000 tonnes of soils was excavated, environmentally and geotechnically classified and reused to form the redevelopment profile. 1,259 tonnes of asbestos impacted soils were identified, excavated  760 tonnes of soils were recovered following processing and and processed under strict environmental licensed control conditions. integrated beneath the redevelopment footprint. Former site tip contents were segregated, processed and validated  Approximately 25,000 tonnes of material was recovered for for reuse within the redevelopment. reuse to achieve required formation levels within the development. Oil impacted perched water was removed from excavations and relic sub-surface infrastructure.  1.2m litres of water was recovered during the works and pre-treated prior to discharge to foul sewer. Environmental monitoring and control measures were implemented  In excess of 500 environmental samples were obtained during throughout the works comprising the sampling of air, soils, recycled materials and water. the successful completion of the works. 18573 16/02/2011 PROOF 7 24 St. Modwen Properties PLC Annual Report 2010 Corporate Governance Corporate Social responsibility continued Sustainability targets We remain committed to reducing our carbon footprint. Until the Government has produced clear guidance on the future of the Carbon Reduction Commitment Energy Scheme, we will continue to monitor and measure our Co2 emissions and investigate appropriate mitigation measures right across our portfolio. To ensure our commitment to sustainability is both real and evidenced, we have in place a series of sustainability targets and continue to demonstrate improvement across the board every year. Sustainability 2010 target 2010 achieved Remediated materials re-used or recycled Demolition products retained for retention on-site or recycling Construction project waste re-used or recycled Energy consumption better than required by building regulations* Building projects with at least 10% of power from a renewable energy source Schemes with water usage reduction technologies Schemes with water recycling technology 91 91 60 n/a 8% 100 30 96 95 75 n/a** 17% 100 33 2009 99 94 75 100 33% 100 36 * on speculative projects in excess of 50,000 sq. ft. for industrial buildings and 25,000 sq. ft. for offices ** no speculative projects have been constructed during 2010 Re-using and preserving buildings Recycling buildings reduces the environmental impact of development and therefore we only demolish those that no longer add any value to a specific site. In particular, it is our duty to retain any buildings with historical significance or that play an important part in a site or area’s heritage. Similarly, with our larger sites, we try to use land that is not currently under development for other uses such as car parking, car storage and hosting any community events. BeNTLey Priory St. Modwen, as part of its VSM Estates joint venture, has sup- ported the preservation of Bentley Priory, famous for its pivotal role as Fighter Command Headquarters during the Battle of Britain in World War Two. VSM Estates was granted detailed planning and listed building consent by Harrow Council in 2008 for its sensitive redevelopment. The site has now been sold to Barratt Homes, who will build the majority of new homes at the site, together with City & Country who will develop the new homes and museum within the Priory building. As part of this development, St. Modwen agreed that circa £9.5m would be made available to create, maintain and run the Battle of Britain Museum in the Grade II* listed mansion house. The museum will educate future generations about the unique heritage and significance of Bentley Priory to the nation and allow its historic rooms to be open to the public for the first time in 80 years. The museum will also pay respect to the bravery and sacrifice of RAF pilots and ground staff who helped turn the tide against Nazi Germany during World War Two. 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk 25 COMMUNITY AND ECONOMY Initiatives Whether it is supporting a crime awareness day at a London shopping centre or donating money to a local nature reserve in Yorkshire, we make sure that all of the initiatives in which we get involved create real value for the community and make development more accessible. WarWiCKSHire CoLLeGe, rUGBy Public realm We know from experience that a little extra attention to detail can make all the difference to a new development. Placing special focus on public realm goes a long way in making the communities we build a more pleasant place to live, work and relax. Whether supporting a specially commissioned work of art in Manchester, sponsoring a tree planting exercise in South Wales or sponsoring a photography competition in Edmonton Green, through public realm we seek to instill a special sense of pride in the area. CoNNaH’S QUay, FLiNTSHire We recently completed the development of a 52,000 sq. ft. Morrison’s supermarket at our £15m Quay Shopping Centre scheme in Connah’s Quay, Flintshire. To celebrate the new face of Connah’s Quay, we donated £20,000 towards the creation of a piece of public art. Local councillors and school children sat on an art panel that eventually commissioned a sculpture made of old shopping trolleys. Known as ‘Spirit of the Quay’, the sculpture acknowledges the town’s long association with its steel works whilst also pointing towards the development of the new shopping centre. To make way for the new £30m Warwickshire College at our site in Rugby, we were required to move an existing War Memorial to another part of the site. Acutely aware of the sensitive nature of this work, we ensured the Ex-Servicemen’s Association was involved in this process from the very start. To symbolise the relocation of the memorial, it was agreed that on Remembrance Day a ceremony would be held and a time capsule, created by local school children, would be buried beneath the memorial alongside an existing time capsule dating back to just after World War One. In doing so, young and old were united in celebrating the lives of ex-servicemen on this very important day. 18573 16/02/2011 PROOF 7 26 St. Modwen Properties PLC Annual Report 2010 Corporate Governance Corporate Social responsibility continued Social Inclusion and job creation Our regeneration projects and development activities breathe new life into neglected communities and transform disused brownfield sites into green and pleasant places to live and work. This makes us a key driver of regional economic growth and means that we play a major role in creating thousands of job opportunities for people across the UK. CHARITY AND AWARDS Across the UK, our network of regional offices support a broad range of local and national charities and this year we have raised tens of thousands of pounds towards many worthy causes. Lands end to John o’Groats sponsored cycle ride HrH The Prince of Wales at Coed Darcy in 2010 We seek to employ local contractors to carry out works across our projects and use sustainable building techniques wherever possible to ensure that our sites are at the forefront of sustainable development. For example, at Coed Darcy in South Wales, we are working closely with The Prince’s Foundation for the Built Environment to ensure that local skills and local materials are being used when developing the site. In June 2010 HRH The Prince of Wales visited Coed Darcy and met with many local tradesmen who were showcasing their skills at a specially organised event. The Prince was then taken on a tour of the developed areas of the site to see sustainable development in practice. We also seek to promote the growth of new businesses through the development of our innovation centres which are designed to encourage SMEs, growing businesses and specific sectors, in various areas across the UK. Each centre provides an environment where these businesses can evolve and develop. They provide flexible leases and a full range of ready made business services. We are rolling out a series of these centres as part of our national regeneration programme and work closely with Local Authorities in each area to ensure that they are in line with local demand. We have already built three — in Cranfield, Longbridge and Blackburn — where over 200 businesses are now working and flourishing. Further centres are planned in Exeter and Weston-super-Mare. Community consultation With the Localism Bill featuring high on the Government’s agenda, it is our responsibility to ensure that we seek to engage with local communities on as many levels as possible so that they have a real stake in our developments. Community consultation will therefore grow in importance as a means for us to hear the views of local residents, businesses and politicians. Perhaps the most high profile charity event was a sponsored cycle ride from Lands End to John O’Groats. The team, comprising Regional Director Mike Herbert, Senior Development Surveyor Mike Murray and development surveyors Jonathan Green and Andrew Cox, completed the task in just ten days and raised, with the help of St. Modwen, over £25,000 for the challenge’s four nominated charities — The Donna Louise Children’s Hospice Trust; Breast Cancer Campaign; The British Heart Foundation and the James Whale Fund for Kidney Cancer. St. Modwen Environmental Trust Our other charity work includes the St. Modwen Environmental Trust. Now in its fourth year, the Trust continues to provide valuable support to community and environmental projects across the UK. Affiliated to the Government’s Landfill Tax Credit Scheme and regulated by ENTRUST, the Environmental Trust seeks to support projects where alternative funding is unlikely to be available, targeting not-for-profit organisations such as community groups and charities. In 2010 we have committed £200,000 to 15 projects across the UK and an example of these projects is situated in close proximity to our £100m Town Centre regeneration project in Wythenshawe, Manchester where we donated £10,000 to the clean up of Park Wood. This is a cause which was also sponsored by Greening Greater Manchester and Manchester City Council’s Working Neighbourhood Fund. Our grant helped to pay for the restoration of the pathways which criss-crossed the wood, signage, clearing of litter and safety improvements around the wood’s panels. The proceeds also included regular litter picking events which attracted around 70 local residents each time and the creation of two carved wooden sculptures. Councillor Richard Cowell, Executive Member of the Environment at Manchester City Council said: ‘This project is part of the Council’s regeneration work at Wythenshawe and means that an area of natural beauty is litter-free and has been preserved so that it can be enjoyed long-term by residents and visitors’. 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk 27 Awards Our track record as the UK’s leading regeneration specialist, continues to be recognised by the number of awards we have secured in 2010: The 2010 Chartered Institute of Architectural Technologists’ National Awards – Highly Commended The £30m Vodafone Contact Centre in Stoke-on-Trent which St. Modwen’s North Staffordshire team completed in early 2010 was recognised for technical excellence in these national awards. Midlands Insider Awards 2010 – Developer of the Year Having completed another very active year, the judges felt that this prestigious title should be awarded to St. Modwen’s Midlands team. Specifically, progress at the £1 billion Longbridge regeneration scheme and the completion of the £30m Warwickshire College in Rugby were acknowledged. South West Insider Awards 2010 – Commercial Developer of the Year St. Modwen’s South West team was shortlisted for this important award in recognition of its development activities across the region, amongst which includes the £150m Access 18 scheme in Avonmouth, the £120m regeneration of Skypark in Exeter and the £210m regeneration of Firepool in Taunton. ISO14001 This international standard was awarded to The Meads Shopping Centre in Farnborough and demonstrates St. Modwen’s commitment to environmental best practice in recycling, energy, waste and water use. The accreditation requires a monthly check on all environmental aspects of shopping centre operations and states that all suppliers must source goods ethically. RHS Tatton Park Show 2010 — Silver Award The ‘Sound Garden’ from The Trentham Estate and Gardens was awarded a silver medal at this year’s Tatton Show, organised by the Royal Horticultural Society. This interactive, sensory garden, designed by Clive Mollart, was one of the few show gardens to receive one of the top awards. The European Garden Heritage Network 2010 — European Award for Garden Restoration In recognition of its transformation into one of the finest gardens in the British Isles, The Trentham Estate achieved this prestigious award in the category of ‘exceptional achievements in garden culture’. The European Garden Heritage Network is led by The Centre for Garden Art and Landscape Design in Germany, and is supported by a number of local, regional and national organisations. North West Property awards 2010 — inaugural Strategic alliance award The Strategic Alliance Award was established in 2010 to recognise the importance of partnership working at a time when finance is hard to come by. The judges presented St. Modwen and its partner Halton Borough Council with this award in recognition of over a decade’s worth of regeneration to Widnes Town Centre. Organisers of the event referred to the project as a shining example of the value of partnership working, delivering employment, leisure and laying foundations for further growth. The award coincided with our announcement that in 2011, we would be commencing the development of Venture Fields; the £10m leisure scheme on the edge of Widnes and the final piece of the jigsaw for the Town Centre’s regeneration. The scheme is already over 95% pre-let. In the last ten years, Widnes Regeneration Ltd has completely transformed and revitalised the Town Centre, leading to substantial new investment in adjoining areas: — 40,000 sq. ft. of local shopping; — 80,000 sq. ft. foodstore; — 50,000 sq. ft. retail and leisure development; — 76 social housing units; — 150 private homes; — 150,000 sq. ft. of employment space; — The creation of over 900 jobs. 18573 16/02/2011 PROOF 7 28 St. Modwen Properties PLC Annual Report 2010 Corporate Governance Board Members 01 04 02 05 03 06 01 aNTHoNy GLoSSoP MA† NON-ExECUtivE ChAiRMAN A director since 1976 and Chief Executive from 1982 to 2004. Executive Chairman from 2004 to 2008, and non-executive Chairman since February 2008. He is also a non-executive director of Robinson PLC., and a member of the Regeneration and Development Committee of the British Property Federation. 02 BiLL SHaNNoN NON-ExECUtivE ChAiRMAN (designate) Appointed as a non-executive director and Chairman Designate in October 2010 and will become Chairman following the company’s AGM in March 2011. He is Chairman of AEGON plc and a non-executive director of Johnson Service Group plc and Rank Group plc. Previously he was non-executive director of Barratt Developments plc, Matalan plc and an executive director of Whitbread plc. 03 BiLL oLiver BSc, FCA ChiEF ExECUtivE Joined the Company as Finance Director in 2000. Appointed Managing Director in 2003 and Chief Executive in 2004. He has over 30 years’ experience within the housebuilding and property sectors. 04 iaN MeNZieS-GoW MA*† A non-executive director appointed in 2002. Senior Independent Director since February 2009. Formerly Chairman of Geest PLC and Derbyshire Building Society and prior to that held senior executive positions within the Hanson Group. 05 DaviD GarMaN BA FCiLt*† A non-executive director appointed in April 2010. Formerly Chief Executive of TDG plc and the Allied Bakeries subsidiary of Associated British Foods plc. Currently Senior Independent Director of Carillion plc and a non-executive director of Phoenix IT Group plc. 06 MiCHaeL DUNN BSc, FCA GROUP FiNANCE DiRECtOR Joined the Company in December 2010. Michael joined St. Modwen from May Gurney Integrated Services plc, the AIM listed infrastructure support services business, where he spent five years as Group Finance Director. A chartered accountant, Michael was Finance Director of Carillion Building and Carillion Private Finance prior to joining May Gurney. 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk 29 07 10 08 11 09 12 07 STeve BUrKe CONStRUCtiON DiRECtOR Joined the Company as Construction Director in 1995 and appointed to the main Board as a director in November 2006. Previously contracts director and construction manager with a number of national contracting companies (including Balfour Beatty and Clarke Construction). 10 LeSLey JaMeS CBE, MA, CCiPD *† A non-executive director appointed in October 2009. Chairman of the Remuneration Committee. Formerly HR Director of Tesco PLC and a non-executive director of Queens Moat Houses plc; Care UK plc; Alpha Airports Group plc; Inspicio plc; Liberty International plc; and Selfridges plc. Currently a non-executive director of Anchor Trust and the West Bromwich Building Society. 08 SiMoN CLarKe *† A non-executive director appointed in 2004. Chairman of private company, Dunstall Holdings Ltd. Previously Deputy Chairman of Northern Racing PLC and a director and the Vice-Chairman of the Racecourse Association. 11 JoHN SaLMoN FCA*† A non-executive director appointed in 2005. Chairman of the Audit Committee. Formerly a partner of PricewaterhouseCoopers LLP, and a member and former Deputy Chairman of their supervisory board. Currently a trustee and council member of the British Heart Foundation. 09 LaDy KaTHeriNe iNNeS Ker MA, DPhil*† A non-executive director appointed in October 2009. Formerly a non-executive director of The Television Corporation PLC, Fibernet Group plc, Williams Lea PLC, Gyrus Group PLC, Shed Media PLC, Bryant Group plc, Ordnance Survey, ITVDigital plc, Oakley Capital Limited, Marine Farms ASA and Taylor Wimpey PLC. Currently Senior Independent Director of Tribal Group plc and a non-executive director of Go-Ahead Group plc. 12 reeTa SToKeS ACiS COMPANy SECREtARy Joined the Company in November 2009. Previously a senior manager in the secretariat of Alliance & Leicester plc, and ran her own practice providing company secretarial services to public and private companies. Prior to that, was Deputy Company Secretary of McKechnie plc. * member of Audit and Remuneration Committees † member of the Nomination Committee 18573 16/02/2011 PROOF 7 30 St. Modwen Properties PLC Annual Report 2010 Corporate Governance regional Directors 03 06 02 01 05 04 07 08 01 JoHN DoDDS BSc, FRiCS REGiONAL DiRECtOR — MiDLANDS 02 GUy GUSTerSoN BSc, MBA RESiDENtiAL DiRECtOR 06 TiM SeDDoN BSc, MRiCS REGiONAL DiRECtOR — LONDON & SOUth EASt 07 MiCHeLLe TayLor BSc, MRiCS REGiONAL DiRECtOR — NORth WESt 03 MiKe HerBerT REGiONAL DiRECtOR — NORth StAFFORDShiRE 08 rUPerT WooD BSc, MRiCS REGiONAL DiRECtOR — NORthERN hOME COUNtiES 04 rUPerT JoSeLaND BSc, MRiCS REGiONAL DiRECtOR — SOUth WESt & SOUth WALES 05 STePHeN ProSSer BSc, MRiCS REGiONAL DiRECtOR — yORKShiRE & NORth EASt 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk Corporate Governance Corporate Governance report 31 The Board is committed to maintaining high standards of corporate governance within the Company. Throughout the year ended 30th November 2010, the Company has complied with Section 1 of the Combined Code on Corporate Governance issued in 2008 (the ‘Code’) except in relation to the following matters: • The Code asks the Board to identify each non-executive director it considers to be independent. Of the eight non-executive directors at the end of 2010, the Board considers Bill Shannon, Ian Menzies- Gow, David Garman, Lesley James, Katherine Innes Ker, and John Salmon to be fully independent. The Board recognises that Simon Clarke does not meet the criteria for a fully independent director under the Code, although his position as a representative of the Clarke and Leavesley families who together hold 49.1m shares (24.52%) 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 non-executive directors. Each of these Committees comprises all of the non-executive members of the Board. 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. He will be retiring after the Company’s Annual General Meeting on 22nd March 2011. Bill Shannon, who was deemed to be independent on appointment, will take over as 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 non-executive Chairman, three executive directors and seven non-executive directors. The composition of the Board provides an appropriate blend of experience and qualifications, and the number of non-executives provides a strong base for ensuring appropriate corporate governance of the Company. The Board’s decisions are implemented by the executive directors. The Board met 11 times during the year and the Chairman and the non-executive 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. Presentations on business and operational issues are made regularly to the Board by senior management. The non-executive directors are encouraged to communicate directly with the executive directors between formal Board meetings and in addition to these regular Board meetings, the Board holds an annual strategy meeting at which it discusses the future direction of the Company as part of the business planning process. Ian Menzies-Gow is the Senior Independent Director. He is available for consultation by shareholders, whenever appropriate. He will be retiring after the Company’s Annual General Meeting on 22nd March 2011. David Garman will be appointed the Senior Independent Director on that date. The Company’s Articles of Association provide that all directors are subject to re-election at least every three years. In addition, all directors are subject to re-election by shareholders after their initial appointment. The reappointment of non-executive directors is not automatic. It is intended that appointments will be for an initial term of three years, which may be extended by mutual agreement. Prior to each non- executive director offering himself to the members for re-election his reappointment must be confirmed by the Chairman (or the Senior Independent Director in relation to 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 non-executive directors’ performance is reviewed by the Chairman and Chief Executive. The performance of the Board as a whole is assessed in the context of the Company’s achievement of its strategic objectives and total shareholder return targets. Feedback on the Company is sought through external surveys from shareholders, analysts and other professionals within the investment community following 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, www.stmodwen.co.uk: a) Audit Committee The Audit Committee currently comprises all of the non-executive directors. 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. 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 Group’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 Group used in preparing its financial statements. • Monitoring the integrity of the financial statements of the Group and formal announcements relating to the Group’s financial performance, and reviewing significant financial reporting judgements contained therein. 18573 16/02/2011 PROOF 7 32 St. Modwen Properties PLC Annual Report 2010 Corporate Governance Corporate Governance report continued • Reviewing the effectiveness of the Group’s internal audit function. • Reviewing and monitoring the independence and objectivity of the Group’s external auditors. • Monitoring the scope, cost effectiveness and objectivity of the audit. • Monitoring the Group’s policy on non-audit services provided by the b) Nomination Committee The Nomination Committee comprises Anthony Glossop (as chairman of the Committee), Ian Menzies-Gow, John Salmon, Lesley James and Katherine Innes Ker together with David Garman and Bill Shannon who joined on 19th April and 1st November 2010 respectively. Paul Rigg resigned on 26th March 2010. external auditors. The Committee is responsible for: • Making an annual assessment of the external auditors and recommending, or not, their reappointment. • Reviewing “whistle-blowing”arrangements within the Company. • Reviewing its own performance, constitution and terms of reference to ensure it is operating at maximum effectiveness and recommending any changes it considers necessary to the Board for approval. During the year, the Committee was assisted in the performance of these duties by the Company’s internal auditor, tasked with auditing the documented internal control procedures and ensuring compliance. The Committee’s policy on the provision of non-audit services by the external auditors is that, whilst it is appropriate and cost effective for the external auditors to provide tax compliance and tax planning services to the Group, other services should only be provided where alternative providers do not exist or where it is cost effective or in the Group’s interest for the external auditors to provide such services. In all cases the provision of non- audit services is carefully monitored by, and subject to the prior approval of, the Committee. The external auditors would not be invited to provide any non-audit services where it was felt that this could conflict with their independence or objectivity. Such services would include the provision of internal audit and management consulting services. • Evaluating the balance of skills, knowledge and experience on the Board and the structure, size and composition of the Board and its Committees. • Annually reviewing the performance of non-executive directors and Board Committees. • Recommending and reviewing new appointments to the Board as they become due. • Reviewing and approving Board and Committee succession. During the year external consultants Zygos Partnerships were engaged to assist in a search for two new non-executive directors to replace the Chairman and Senior Independent Director. Following a rigorous assessment process, the Committee recommended the appointments of Bill Shannon and David Garman to the Board and they were duly appointed. The Committee also endorsed the appointment during the year of Michael Dunn as Group Finance Director and he was appointed on 1st December 2010.  c) Remuneration Committee The composition and functions of the Remuneration Committee are set out in the Directors’ Remuneration Report on page 38. BOARD AND COMMITTEE ATTENDANCE The attendance at Board or Committee meetings during the year to 30th November 2010, was as follows: Audit Remuneration Nominations Committee Committee Committee — — 3* — 3 3 3 3 1 3 2 1 3 4* — — 4* 4 4 4 4 1 4 2 — 4 2 — — 1* 2 2 2 2 1 2 1 — 2 C.C.A. Glossop S.J. Burke T.P. Haywood (resigned 26.11.10) W.A. Oliver S.W. Clarke L. James K. Innes Ker R.I. Menzies-Gow D.P. Rigg (resigned 26.3.10) J.H. Salmon D. Garman (appointed 19.4.10) W.M.F.C. Shannon (appointed 1.11.10) No. of meetings during the year * In attendance, but not a member of the committee. Board 11 10 11 11 11 10 10 11 4 10 7 1 11 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk 33 BOARD EFFECTIVENESS The Code recommends that the Board undertake 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 2008-09. The principal findings of the review were that although there had been a significant improvement in risk management, communication with shareholders and stakeholders and a shared sense of vision, areas that required further review were succession planning and clarity of Board agenda and papers. During 2009-10 a number of changes were made to the composition of the Board, including the appointment of Chairman Designate and Senior Independent Director Designate and the Group Finance Director was replaced on 1st December 2010. Evaluations of the Board process continue to be carried out by the Chairman Designate and Company Secretary and it is intended that the next Board evaluation which is due later in 2011, will be undertaken externally. 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 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. The Group has put in place its own internal audit function. Internal audit work is focused on the controls that mitigate the principal risks faced by the Group. The internal audit reports are prepared for the executive management and the findings are reported to the Group’s Audit Committee. 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 adequacy of information systems and control procedures; and The Company’s policies with respect to its: • the manner in which any required corrective action is to be taken. 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 cashflow risk, are contained in Note 16 to the accounts. 18573 16/02/2011 PROOF 7 34 St. Modwen Properties PLC Annual Report 2010 Corporate Governance Corporate Governance report continued Risks and Uncertainties St. Modwen recognises that the identification, assessment, monitoring and response to business risks is essential to the delivery of the Group’s objectives. St. Modwen has policies and procedures in place that are designed to enable the business to manage and mitigate its corporate, operational and financial risks. This is reinforced by a management structure that seeks to reduce risks in the business. Risk Area Description of Risk Risk Mitigation Assessment Economic and Property Lack of demand for space from occupiers or land from housebuilders restricts business development. Regional spread and portfolio diversity mitigates sector or location specific risks. Financial Declining rental yields reduce profitability and cash flow. Reduced availability of well funded property purchasers reduces profits and restricts cash flow. Market investment yield movements reduce profitability and affect property portfolio valuations. Active portfolio management achieves a better than market utilisation of assets. Professionally conducted and conservative property valuations. Funding constraints restrict growth and development of the business. Unforeseen significant changes to cash flow requirements limit the ability of the business to meet its ongoing commitments. Interest rate changes cause unforeseen financial loss. Recurring income from rental provides funding for ongoing overhead and interest costs. Regular and detailed cash flow forecasting enables monitoring of performance and management of future cash flows. Headroom is maintained in high quality banking facilities. Business Organisation and People Shortage of skilled and experienced people. Poor succession planning. IT failure prevents business operation. Failure to Secure Appropriate Schemes Poor market intelligence on schemes or competitors prevents successful bids or causes the selection of inappropriate schemes. Lack of availability of finance limits potential scheme development. Inaccurate reputation with clients reduces ability to secure schemes. Performance against budget is assessed monthly. Hedging policy contains interest rate risk. Targeted recruitment with competitive, performance driven remuneration packages. Succession planning reviewed at Board level. Dedicated IT team monitor performance of all information systems. Regional offices in touch with their local market. Dedicated central resource to support regional teams. Flexible and innovative approach to acquisitions and schemes in order to adapt as market conditions change. Financial headroom maintained to provide flexibility. Projects, acquisitions and disposals are reviewed (and financially appraised) within clearly defined authority limits. Business wide PR programme in place. We have chosen to operate only in one geographical area, the UK, which is subject to relatively low- risk, low-returns from a stable and mature, albeit cyclical economy and property market. By involvement with all sectors of that economy and that property market, we are as diversified as possible, without venturing overseas. Our cautious approach to forward commitments, speculative development and asset disposals has enabled us to optimise operational cash flows, and to offset the impact of fluctuating market conditions. Furthermore, we have once again recorded a trading profit in the year, demonstrating our ability to succeed in varying markets. Our banking facilities have been extended, our gearing reduced and interest rate risk hedged. Vacancies are few, and are generally filled promptly, indicating the attractiveness of the Company and remuneration packages. To support the long-term financial objectives, we will need to continue to improve the skills of our employees. With improving economic conditions, pension contributions, payment of bonuses and modest salary increases have been reintroduced. The excellent reputation and restored financial capacity of the Company have enabled us to win a number of schemes and to grow the hopper to record levels, even in the current financially-constrained climate. We anticipate that the number of opportunities will increase as vendor expectations become more realistic and lenders begin to address the issues in their loan books. In this environment, with a reduced number of active competitors, we expect to be able to continue to source attractive acquisitions. 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk Risk Area Construction Reputational Regulatory Social, Ethical and Environmental Description of Risk Risk Mitigation Assessment 35 Financial or reputational damage from inappropriate quality or timeliness. Inaccurate initial project assessments of contamination, development cost or contractor status prevent effective delivery causing financial loss. Strong internal construction management team. Use and close supervision of a preferred supply chain of high quality trusted suppliers and professionals, including assessment of their financial viability. Lack of trusted contractor and sub-contractor resources available for increased post-recession activity. Clearly defined formal tender process that evaluates qualitative and quantitative factors in bid assessment. Proven experience of completing schemes successfully despite contractor failure. Difficulty in securing appropriate partnerships and schemes if reputation with influential third parties negatively affected. Investor perception damaged. Monthly review of performance to identify if senior management intervention is required. Regular feedback obtained from clients, advisers and investors. Recruitment and retention of key staff impacted. Planning regime changes limit ability to secure viable permissions. Lack of compliance with complex tax regulations causes financial loss. Use of high quality professional advisers. Compliance training programmes in place. Programme of regular high level meetings with influential public bodies. Serious injury or death of an employee, a client or a member of the public. Environmental pollution leading to financial penalties or loss of reputation. Inappropriate ethical or business behaviour causing legal risks or loss of reputation. Performance indicators are reviewed monthly. Defined business processes and authority levels to manage transactions. Any issues dealt with openly and promptly. 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. In current markets there is an increased risk of contractor failure. Our panel of contractors is assessed for stability and suitability but is not immune to wider economic risks. Using a sufficiently broad mix of contractors, for whom our work is important, mitigates the impact of a single failure. 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. The very nature of our business, however, means that there will always be an element of local controversy, thus exposing us to reputational damage. 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. We continue to remain vigilant on health and safety issues. The initial assessment of environmental costs (and the subsequent optimising of remediation solutions) is an integral part of our acquisition and post-acquisition 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 the underpinning of a simple but rigorous set of operating commitments. 18573 16/02/2011 PROOF 7 36 St. Modwen Properties PLC Annual Report 2010 Corporate Governance Corporate Governance report continued 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 are included in Note F to the Company Financial Statements. BUSINESS REVIEW The Company is required by the Companies Act 2006 to include a business review in this report. This information can be found on pages 08 to 19, which is incorporated in this report by reference. DIVIDENDS The directors recommend a final dividend of 2p per ordinary share to be paid on 4th April 2011 to ordinary shareholders on the register on 11th March 2011 which, together with the interim dividend of 1p paid on 6th September 2010, makes a total of 3p for the year (2009: nil). DIRECTORS’ INTERESTS IN ORDINARY SHARES The interests of the directors in the issued share capital of the Company, are shown below: 30th November 30th November 2009 2010 Beneficial S.J. Burke S.W. Clarke C.C.A. Glossop T.P. Haywood (resigned on 26.11.10) L. James R.I. Menzies-Gow W.A. Oliver D.P. Rigg (retired on 26.3.10) J.H. Salmon D. Garman (appointed 19.4.10) W.M.F.C. Shannon (appointed on 1.11.10) Non-beneficial C.C.A. Glossop 174,643 6,112,657 1,708,792 — 10,000 14,814 391,093 — 25,000 10,000 40,000 112,123 7,122,657 1,757,292 155,324 10,000 14,814 314,157 2,812 18,000 — — 180,000 180,000 Mr. M. E. Dunn who was appointed as Group Finance Director on 1st December 2010, held 30,000 shares on 30th November 2010. The above interests do not include shares held under the share option schemes described in the Directors’ Remuneration Report on pages 39 to 41. There has been no change in these beneficial interests between 30th November 2010 and the date of this report. SUBSTANTIAL INTERESTS As at 4th February 2011 the Company had been notified of the following interests in more than 3% of its issued share capital: Shareholder Number of Percentage of Ordinary Share Capital Ordinary Shares Held 18,543,382 J.D. Leavesley and connected parties Lady Clarke and family holdings 24,462,539 (excluding S.W. Clarke) 14,429,368 Aberforth Partners Co-operative Asset Management 9,640,359 Morgan Stanley Investment Management 9,533,648 9,515,186 Kempen Capital Management 7,520,923 BlackRock 7,269,244 CBRE Global Real Estate Securities AXA Investment Managers 7,182,457 Legal & General Investment Management 6,488,153 9.25% 12.21% 7.20% 4.81% 4.76% 4.75% 3.75% 3.63% 3.58% 3.24% REAPPOINTMENT OF DIRECTORS The directors listed on pages 28 to 29 constituted the Board during the year. David Garman and Bill Shannon, having been appointed since the last Annual General Meeting (‘AGM’), offer themselves for election. Anthony Glossop and Ian Menzies-Gow will retire from the Board and are not seeking re-election. Michael Dunn, who was appointed Director on 1st December 2010, will also offer himself for election. In accordance with a new provision included in the Governance Code, all other directors will seek re-election at the next Annual General Meeting. Although this provision of the Governance Code would not apply to the Company until the financial year ending 30th November 2011, the Board has decided to comply this year. DIRECTORS’ INTERESTS IN CONTRACTS No contract existed during the year in relation to the Company’s business in which any director was materially interested, with the exception of those detailed in Note 21. QUALIFYINg THIRD PARTY INDEMNITY PROVISIONS As at the date of this report, there are qualifying third party indemnity provisions governed by the Companies Act 2006 in place, under which the Company has agreed to indemnify the directors, former directors and the Company Secretary of the Company, directors and former directors of any member of the Group or of an associated company or affiliate company and members of the Executive Committee, to the extent permitted by law and the Articles against all liability arising in respect of any act or omission in their duties. In addition the Company has in place Directors’ and Officers’ liability insurance for each officer of the Company and its associated companies. 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 2010 trade creditors represented an average of 32 days’ purchases (2009: 31 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. KEY PERFORMANCE INDICATORS Details of the Group’s Key Performance Indicators can be found on page 18. gOINg CONCERN In consideration of the basis of going concern, the directors have considered the factors described in the Business Review and reviewed the Group’s future cash forecasts and valuation projections, which the directors believe are based on realistic assumptions. On these grounds the Board has continued to adopt the going concern basis for the preparation of the financial statements. 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. 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk 37 ELECTRONIC COMMUNICATIONS Each year the Company produces and posts annual reports to all of its shareholders, at considerable cost to the Company and the environment. In an effort to reduce the cost and the environmental burden and provide instant access, the Board has agreed to make more use of electronic and website communication. All shareholder documentation will continue to be published directly on our website (www.stmodwen.co.uk). Shareholders will be notified by email or post each time a document is published on the website and how to find it. The interim management statements will continue to be available via the website. Shareholders who prefer to receive a printed copy will be able to elect to do so (those who have elected to receive a printed copy already will continue to do so). Shareholders who have elected to receive electronic communications can at any time change their election and require the Company to send them a paper copy of any document or information which has been posted on the Company website. Although electronic communications will become the default option, the Company reserves the right to send printed documents by post, should the information be more suited to that format. If the Company is required to restrict the sending of any documents or information to any shareholder due to the local laws of the jurisdiction in which the shareholder is resident or located and as a result, the Company is not permitted to use electronic means to communicate with shareholders, it will send hard copies of the documents or information. 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. The Group operates a non-discriminatory employment policy under which full and fair consideration is given to disabled applicants, to the continued employment of staff who become disabled, and to their continued career development and promotion. 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 18 of the financial statements. 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, excluding donations made by the St. Modwen Environmental Trust, totalled £12,000 (2009: £14,000). 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 Lesley James, 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. The number of proxy votes cast in resolutions is announced at the Annual General Meeting and published on the Company’s website. To simplify and encourage participation in voting on resolutions at our Annual General Meeting, the Company provides the opportunity to vote electronically through CREST (for further details see pages 92 and 93). In addition, shareholders will also be able to appoint a proxy electronically via the Company Share Registrar’s website, www. shareview.co.uk. 18573 16/02/2011 PROOF 7 38 St. Modwen Properties PLC Annual Report 2010 Corporate Governance Directors’ remuneration report This remuneration report has been prepared in accordance with Schedule 8 of the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008 (S.I.2008/410) (the ‘Regulations’), the Listing and Disclosure Rules and the principles relating to directors’ remuneration of the UK Corporate Governance Code and will be subject to an advisory vote at the AGM. The information, the headings of which have been noted with an asterisk (*), are subject to audit in accordance with the Regulations. COMPOSITION AND FUNCTION OF THE REMUNERATION COMMITTEE The Remuneration Committee (the ‘Committee’) comprises Lesley James (Chairman), Simon Clarke, Ian Menzies-Gow, Katherine Innes Ker, John Salmon, David Garman and Bill Shannon. David Garman and Bill Shannon joined in April and November 2010 respectively. Paul Rigg was a member until his resignation in March 2010. The Committee is responsible for all aspects of the executive directors’ remuneration and administers the Company’s share schemes. This includes an annual review of the incentive plan to ensure that it remains appropriate to the Company’s current circumstances and prospects and that, in particular, the policy adopted is aligned with and based on the creation of value for shareholders and provides appropriate incentives for management to achieve this objective. The remuneration of the non-executive directors is considered by the Board following recommendations by the executive directors. No directors participate in setting their own remuneration. The Committee also reviews and notes annually the remuneration trends across the Company and any major changes in employee benefit structures. The Committee’s terms of reference are available for inspection on the Company’s website at www.stmodwen.co.uk. During the year, Hewitt New Bridge Street (‘HNBS’) replaced Towers Watson as the Committee’s independent remuneration advisers. HNBS do no other work for the Company. The Committee was also assisted in its deliberations by the Chairman, the Chief Executive and the Company Secretary, who were not present when their own remuneration arrangements 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 performance-related elements with demanding targets, in order to align the interests of directors and shareholders and to appropriately reward financial success. The overall aim is that executive directors’ remuneration should be market competitive relative to comparable companies with a significant element being performance-related and, therefore, only payable if stretching short-term and long-term performance targets are achieved. 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: a clear and direct incentive linked to annual performance targets. Bonus targets require performance based on financial, operational and strategic measures at company and personal levels. • Performance share plan: an annual award of shares which vest, subject to achievement 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. • Pensions and benefits: executive directors’ on-going pension benefits comprise a cash allowance or a Company contribution to 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 shares, at a minimum, worth one times base salary. EXECUTIVE DIRECTORS’ REMUNERATION The Committee, with the assistance of its independent advisers, undertook its annual review of executive directors’ remuneration. This review assessed existing pay arrangements in light of the Committee’s policy objectives, operational and strategic priorities, corporate governance best practice, relevant market developments and pay practice throughout the Company. Following this review, the Committee has agreed the following changes for 2010-11: Executive directors’ base salaries have been increased by 2% from 1st December 2010. This is consistent with the average 2% increase awarded to other staff. Pension provision for all employees was reduced in 2009-10 (the reduction for executive directors was from 15% to 5% of salary). Following the resumption of NAV growth, pension provision has been restored in 2010-11 for all employees to their previous level. A claw-back facility has been introduced to the annual bonus plan for 2010-11 to reflect current best practice. In recent years, awards granted under the performance share plan have been subject to a mixture of total shareholder return (‘TSR’) and NAV performance measures. To avoid potential overlap with the annual bonus plan, the Committee has decided that performance share plan awards in 2010-11 will be measured against absolute and relative TSR performance. Full details of these changes are set out below: Base salaries No increases to base salaries were given for the year beginning 1st December 2009, in line with the policy adopted for the majority of employees. Base salaries for the year beginning 1st December 2010 were reviewed having regard to market conditions and the salary review being implemented for other staff which was as a 2% increase. Salaries were set at the following levels: Bill Oliver (Chief Executive) — £432,847 (2% increase); Stephen Burke (Construction Director) — £285,600 (2% increase). Michael Dunn (the new Group Finance Director) was appointed on 1st December 2010 with a salary of £260,000. Pension Employer contributions to the defined contribution scheme were reduced for all employees from 1st September 2009 until 30th November 2010. For executive directors, this resulted in a reduction from 15% of salary to 5% of salary. The Board has approved the reinstatement of pension contributions across the Company with effect from December 2010 at the same rates applicable prior to their suspension in September 2009. Executive directors will, therefore, receive contributions of 15% of salary in 2010–11 either as a cash supplement or as a contribution to the defined contribution scheme. 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk 39 Annual Bonus Plan 2009-10 In 2009-10, the executive directors had the opportunity to earn a bonus of up to 125% of base salary, with performance measured against a range of criteria including NAV growth at the year end, covenant compliance, gearing levels, land and property acquisitions and disposals, marshalling activity and personal targets including cost management. Payment of bonus was not dependent on achievement of any single target in isolation, since the targets were all of key importance to the short and longer-term health of the Company and the Committee did not wish to distort behaviour by focusing on a single element. The executive directors’ performance was assessed individually by the Committee against the targets, relying on audited information where appropriate, and having regard to the value which has been created for shareholders. On the basis of the Committee’s assessment of corporate and individual performance, bonus payments made to each of the executive directors were: Bill Oliver 80% of maximum bonus (100% of salary); Steve Burke 80% of maximum bonus (100% of salary). Tim Haywood resigned on 26th November 2010 and did not receive any bonus. Payment of the bonus is conditional upon the executive directors undertaking to invest at least one third of the bonus received, after payment of income tax and national insurance, in Company shares and to retain those shares for a minimum period of three years. 2010-11 Following its review of remuneration arrangements, the Remuneration Committee has broadly maintained the structure of the existing bonus plan for 2010-11: • A mixture of corporate measures and personal targets will continue to determine bonus payments. • The corporate measures selected will be consistent with and complement the budget and strategic plan for the year. NAV performance will have the largest weighting amongst the corporate measures in 2010-11. Other measures will include dividend growth, gearing levels, marshalling activity and return on capital. • Notwithstanding performance against individual measures, the Committee will retain an overriding discretion to ensure that overall bonus payouts reflect its view of corporate performance during the year. • The maximum bonus potential will remain at 125% of salary with executive directors being required to invest at least one third of any bonus received in Company shares. • A new feature for the bonus plan in 2010-11 is that all bonuses paid will be subject to potential claw-back at the Committee’s discretion for a period of four years following the end of the bonus year in the event that a later restatement of accounts occurs or there is other discovered misconduct which, if known at the time, would have meant that a lower or nil bonus would have been paid. Performance Share Plan (“PSP”) Prior year awards Awards granted to executive directors in 2008 over shares worth 150% of salary were subject to a NAV growth target and a TSR multiplier. As the minimum NAV growth target has not been met, the Remuneration Committee has determined that these awards will lapse. Awards granted to executive directors in 2009 and 2010 over shares worth 125% of salary, half were subject to a NAV condition and half to a TSR condition both measured over a period of three financial years. • NAV condition — based on cumulative growth in NAV per share (“NAV growth”). NAV growth of 5% (2009 award)/7.5% (2010 award) will earn 12.5% of the shares awarded and growth of 20% (2009 award)/30% (2010 award) will earn 50% of the shares awarded. • TSR condition — based on TSR relative to the FTSE350 Real Estate Index. TSR equal to the Index over the three year performance period will earn 12.5% of the shares awarded and TSR of 120% of the Index will earn 50% of the shares awarded, with a straight-line correlation between these points. Tim Haywood resigned as Finance Director on 26th November 2010 and his share options have lapsed. 2010-11 awards In 2010-11, PSP awards to Bill Oliver and Steve Burke will be over shares worth 125% of salary. To reflect his recent recruitment, the Remuneration Committee has agreed a slightly larger award over shares worth 150% of salary to Michael Dunn. Noting the concern of some investors and the potential overlap with the annual bonus plan, PSP awards in 2010-11 will not be subject to a NAV related performance measure. Instead they will be subject wholly to TSR related measures measured over three financial years — half based on relative performance as in previous years and half based on absolute growth. The Committee believes that this combination provides alignment with the interests of shareholders and complements the focus on operational performance measures in the annual bonus plan. • Absolute TSR performance. TSR growth of 20% will earn 12.5% of the shares awarded and growth of 50% will earn 50% of the shares awarded. • Relative TSR performance. TSR equal to the FTSE 350 Real Estate Investment & Services Index over the three year performance period will earn 12.5% of the shares awarded and TSR of 120% of the Index will earn 50% of the shares awarded. In calculating TSR, a three month average will be used at both ends of the performance period to ensure that the calculation is not impacted by potential volatility arising from day-to-day share price fluctuations. Notwithstanding TSR performance the Committee also has to be satisfied that two new underpin conditions have been met before permitting 2010-11 PSP awards to vest, namely: • The Committee needs to be satisfied that the extent of vesting under the TSR conditions is appropriate given the general financial performance of the Company over the performance period; and • If no dividend has been paid on the last normal dividend date prior to the vesting date or if the Committee believes that no dividend will be paid in respect of the year in which the award vests, the award will not vest at that time and vesting will be delayed (subject to continued employment) until dividend payments are resumed. The Committee will review these performance conditions when deciding PSP grants in future years, in order to reflect changes in the outlook for the sector and the Company, and to ensure that awards remain challenging. Executive directors may also participate in the Company’s savings- related share schemes on the same terms as all other employees. 18573 16/02/2011 PROOF 7 40 St. Modwen Properties PLC Annual Report 2010 Corporate Governance Directors’ remuneration report continued PERFORMANCE gRAPH The Company’s total shareholder return is shown in the graph below 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. 180 160 140 120 100 80 60 40 20 0 St. Modwen FTSE 250 FTSE 350RE 2005 2006 2007 2008 2009 2010 Audited information* EXECUTIVE SHARE OPTION SCHEMES(i) Date of Grant August 2004* August 2005* W.A. Oliver S.J. Burke T.P. Haywood Exercise Price Exercise Period 105,610 46,315 — 236p 102,955 39,825 46,610 375p Aug 2007 –Aug 2014 Aug 2008 – Aug 2015 As at 30th November 2010 208,565 86,140 — (ii) (i) All share options have vested in full, having met the performance conditions. (ii)T.P. Haywood resigned on 26th November 2010 and as a result his share options have lapsed. * The exercise prices and numbers of shares under option have been adjusted to reflect the equity issue in June 2009. 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk 41 PERFORMANCE SHARE PLAN Directors’ maximum entitlements, subject to the satisfaction of performance conditions, are as follows: Date of Grant 12th February 2008*(i) 24th July 2009 22nd February 2010 Total W.A. Oliver S.J. Burke T.P. Haywood 152,305 85,025 89,091 294,694 194,444 172,381 282,154 186,170 165,046 729,153 465,639 — (ii) Exercise Period Feb 2011 –Feb 2018 July 2012 –July 2019 Feb 2013 –Feb 2020 * The numbers of shares have been adjusted to reflect the equity issue in June 2009. (i) PSP awards granted in 2008 have lapsed, performance conditions not having been met. (ii) T.P. Haywood resigned on 26th November 2010 and as a result his entitlement under the Performance Share Plan has lapsed. The share price on 22nd February 2010, the date of the latest grant, was 188p. SAVINgS RELATED SCHEMES Balance at 30th Nov 2009* Exercised Granted Balance at 30th Nov 2009 Exercise Price* Exercise Period C.C.A. Glossop W.A. Oliver T.P. Haywood S.J. Burke 876 6,941 7,025 6,941 — — — — — — — — 876 6,941 367p 224p 7,025** 224p–228p 6,941 224p Mar 2012 Oct 2014 –Mar 2015 Mar 2013 –Mar 2014 Oct 2014 –Mar 2015 * The exercise prices and numbers of shares under option have been adjusted to reflect the equity issue in the year. ** T.P. Haywood resigned on 26th November 2010 and as a result his option to purchase shares has lapsed. The share price as at 30th November 2010 was 135.4p. The highest price during the year was 218.7p and the lowest price was 135.4p. 18573 16/02/2011 PROOF 7 42 St. Modwen Properties PLC Annual Report 2010 Corporate Governance Directors’ remuneration report continued SERVICE CONTRACTS All of the executive directors have service contracts of no fixed term, with notice periods of 12 months. The non-executive directors have Letters of Appointment with notice periods of three months. No director has any rights to compensation on loss of office (apart from payment in lieu of notice, where appropriate). Unless specifically approved by the Board, executive directors are not permitted to hold external non-executive directorships. The dates of the executive directors’ service contracts are as follows: W.A. Oliver S.J. Burke 24th January 2000 1st January 2006 DIRECTORS’ REMUNERATION The remuneration of the directors for the year ended 30th November 2010 was as follows: Executive S.J. Burke T.P. Haywood (to 26.11.10) W.A. Oliver Non-Executive C.C.A. Glossop S.W. Clarke M.E. Francis (to 30.9.09) R.I. Menzies-Gow D.P. Rigg (to 26.3.10) C.E. Roshier (to 3.4.09) J.H. Salmon L. James K. Innes Ker D. Garman (from 19.4.10) W.M.F.C. Shannon (from 1.11.10) Salary/fees £’000 280 248 424 125 37 — 43 12 — 46 46 37 23 11 Annual bonus £’000 280 — 424 — — — — — — — — — — — 1,332 704 Total emoluments excluding pensions and pension contributions 2010 £’000 2009 £’000 Benefits £’000 25 21 33 13 — — — — — — — — — — 92 585 269 881 138 37 — 43 12 — 46 46 37 23 11 510 419 823 144 37 38 41 37 15 46 6 5 — — 2,128 2,121 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. Tim Haywood, who was appointed a Director in 2003, resigned on 26th November 2010. According to the terms of his contract of employment, he was obliged to give the Company twelve months’ notice, but by mutual consent, he received a payment of £248,230 which comprised one year’s basic salary. There were no other payments in relation to the loss of his benefits and his entitlements under the Executive Share Options Scheme and Performance Share Plan and the option to purchase the shares under the SAYE ShareSave Scheme have also lapsed. The amount paid has not been included in the table above. 18573 16/02/2011 PROOF 7 www.stmodwen.co.uk 43 PENSIONS The Company operates a pension scheme with both defined benefit and defined contribution sections, 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 two-thirds of final pensionable pay. The defined benefit section of the scheme was closed to new members in 1999, and to future accrual in 2009. 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. S.J. Burke became a deferred member of the Defined Benefit Section on 1st September 2009. Contributions made on behalf of the directors amounted to: W.A. Oliver S.J. Burke T.P. Haywood 2010 £’000 21 14 12 2009 £’000 53 3 31 With effect from 1st September 2009, Company contributions into the defined contribution section of the plan were reduced. The Company contributions resumed at the full rate on 1st December 2010. Further information on the Company’s pension scheme is shown in Note 18 of the financial statements. Approved by the Board and signed on its behalf by L. James Chairman, Remuneration Committee 4th February 2011 18573 16/02/2011 PROOF 7 44 St Modwen Properties PLC Annual Report 2010 www.stmodwen.co.uk 45 Directors’ Responsibilities Statement Independent Group Auditors’ Report Group Income Statement Group Balance Sheet Group Cash Flow Statement Group Statement of Comprehensive Income Group Statement of Changes in Equity Accounting Policies Notes to the Accounts Company Balance Sheet Notes to the Company Accounts Independent Company Auditors’ Report Five Year Record Notice of Annual General Meeting Glossary of Terms Information for Shareholders Development Projects 46 47 48 49 50 51 51 52 58 79 80 88 89 90 94 95 96 46 St Modwen Properties PLC Annual Report 2010 Financial Statements Directors’ Responsibilities Statement The directors are responsible for preparing the annual 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. Under that law the directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and 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). Under company law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the parent company financial statements, the directors are required to: • Select suitable accounting policies and then apply them consistently; • Make judgements and accounting estimates that are reasonable and prudent; • State whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and • Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. In preparing the Group financial statements, International Accounting Standard 1 requires that directors: • Properly select and apply accounting policies; • Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • 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; and • Make an assessment of the Company’s ability to continue as a going concern. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. 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 of the persons who is a director at the date of approval of this annual report confirms that: • So far as the director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and • The director has taken all the steps that he/she ought to have taken as a director in order to make himself/herself 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 s418 of the Companies Act 2006. Deloitte LLP have expressed their willingness to continue in office as auditors and a resolution to reappoint them will be proposed at the Annual General Meeting. Responsibility statement We confirm that to the best of our knowledge: • The financial statements, prepared in accordance with the relevant financial reporting framework, 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 management report, 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 that they face. By order of the Board Bill Oliver Chief Executive 4th February 2011 Michael Dunn Group Finance Director www.stmodwen.co.uk 47 Independent Group 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 2010 which comprise the Group Income Statement, the Group Balance Sheet, the Group Cash Flow Statement, the Group Statement of Comprehensive Income, the Group Statement of Changes in Equity and the related Notes 1 to 21. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 auditor’s 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 auditor As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. Opinion on financial statements In our opinion the Group financial statements: • give a true and fair view of the state of the Group’s affairs as at 30th November 2010 and of its profit for the year then ended; • have been properly prepared in accordance with IFRSs as adopted by the European Union; and • have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation. Separate opinion in relation to IFRSs as issued by the IASB As explained in Note 1 to the Group financial statements, the Group in addition to complying with its legal obligation to apply IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB). In our opinion the Group financial statements comply with IFRSs as issued by the IASB. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: • the Group financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: • the directors’ statement, contained within the Corporate Governance Statement, in relation to going concern; and • the part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review. Other matter We have reported separately on the parent company financial statements of St. Modwen Properties PLC for the year ended 30th November 2010 and the information in the Directors’ Remuneration Report that is described as being audited. Stephen Griggs FCA (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor Birmingham, United Kingdom 4th February 2011 48 St Modwen Properties PLC Annual Report 2010 Financial Statements Group Income Statement for the year ended 30th November 2010 Revenue Net rental income Development profit/(loss) Gains on disposal of investments/investment properties Investment property revaluation gains/(losses) Other net income Profits/(losses) of joint ventures and associates (post-tax) Administrative expenses Profit/(loss) before interest and tax Finance cost Finance income Profit/(loss) before tax Tax credit Profit/(loss) for the year Attributable to: Equity shareholders of the Company Non-controlling interests Basic and diluted profit/(loss) per share Notes 1 1 1 8 1 10 3 4 4 5 Notes 6 2010 £m 2009 £m 121.4 113.7 26.4 12.5 2.5 23.2 3.1 7.4 (16.8) 58.3 (24.0) 3.2 37.5 0.8 38.3 37.2 1.1 38.3 2010 pence 18.6 26.1 (9.3) 2.2 (81.7) 1.8 (22.9) (13.9) (97.7) (26.0) 4.3 (119.4) 17.7 (101.7) (101.1) (0.6) (101.7) 2009 pence (59.7) www.stmodwen.co.uk Group Balance Sheet as at 30th November 2010 Non-current assets Investment property Operating property, plant and equipment Investments in joint ventures and associates Trade and other receivables Current assets Inventories Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Borrowings Tax payables Non-current 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 Non-controlling interests Total equity 49 2009 £m 762.9 7.9 41.3 5.2 817.3 192.7 47.0 4.8 244.5 (139.2) (0.4) (7.7) (147.3) (188.9) (323.2) (1.4) (513.5) 401.0 20.0 102.8 0.3 269.6 (0.4) 392.3 8.7 401.0 Notes 8 9 10 11 12 11 13 14 5 13 14 5 17 2010 £m 828.0 7.4 49.4 8.2 893.0 171.6 45.3 11.3 228.2 (133.1) — (9.3) (142.4) (215.1) (326.2) (0.7) (542.0) 436.8 20.0 102.8 0.3 304.7 (0.6) 427.2 9.6 436.8 These financial statements were approved by the Board of directors on 4th February 2011 and were signed on its behalf by Bill Oliver and Michael Dunn. Bill Oliver Chief Executive Michael Dunn Group Finance Director 50 St Modwen Properties PLC Annual Report 2010 Financial Statements Group Cash Flow Statement for the year ended 30th November 2010 Operating activities Profit/(loss) before interest and tax Gains on investment property disposals Share of (profits)/losses of joint ventures and associates (post-tax) Investment property revaluation (gains)/losses Depreciation Impairment losses on inventories (Increase)/decrease in inventories (Increase)/decrease in trade and other receivables Increase/(decrease) in trade and other payables Share options and share awards Pension funding Tax received Net cash inflow from operating activities Investing activities Investment property disposals Investment property additions Property, plant and equipment additions Cash and cash equivalents acquired with subsidiary Interest received Net cash (outflow)/inflow from investing activities Financing activities Dividends paid Dividends paid to non-controlling interests Interest paid Net proceeds on issue of share capital New borrowings drawn Repayment of borrowings Net cash outflow from financing activities Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year Notes 10 8 9 12 5 (c) 7 2010 £m 58.3 (2.5) (7.4) (23.2) 0.7 6.1 (1.6) (12.5) 29.0 (0.2) — 1.7 48.4 27.5 (49.0) (0.3) — 0.6 (21.2) (2.0) (0.2) (21.1) — 33.1 (30.5) (20.7) 6.5 4.8 11.3 2009 £m (97.7) (2.2) 22.9 81.7 1.0 14.2 6.5 0.6 (13.5) (0.3) (0.8) 3.2 15.6 31.3 (28.0) (1.5) 0.4 1.4 3.6 — (0.2) (17.9) 101.6 44.2 (154.8) (27.1) (7.9) 12.7 4.8 www.stmodwen.co.uk Group Statement of Comprehensive Income for the year ended 30th November 2010 Profit/(loss) for the year Pension fund: — actuarial losses — deferred tax thereon Total comprehensive income for the year Attributable to: — Equity shareholders of the Company — Non-controlling interests Total comprehensive income for the year Group Statement of Changes in Equity for the two years ended 30th November 2010 51 2009 £m (101.7) (0.8) 0.2 (102.3) (101.7) (0.6) (102.3) Notes 18 18 2010 £m 38.3 (0.1) — 38.2 37.1 1.1 38.2 Share capital £m Share premium account £m Capital redemption reserve £m Retained earnings £m Own Shareholders’ equity £m shares £m controlling interest £m Total equity £m Non- 9.1 0.3 371.3 (0.1) 392.7 9.5 402.2 At 30th November 2008 Loss for the year attributable to shareholders — Pension fund actuarial losses (Note 18) — 12.1 Total comprehensive income Net shares acquired Dividends paid Issue of share capital — — — 7.9 At 30th November 2009 Profit for the year attributable to shareholders Pension fund actuarial losses (Note 18) 20.0 Total comprehensive income Net shares acquired Dividends paid — — — — — — — — — — 93.7 102.8 — — — — — — — — — — — (101.1) (0.6) (101.7) — — — 0.3 269.6 — — — — — 37.2 (0.1) 37.1 — (2.0) At 30th November 2010 20.0 102.8 0.3 304.7 — — — (0.3) — — (0.4) — — — (0.2) — (0.6) (101.1) (0.6) (101.7) (0.3) — 101.6 392.3 37.2 (0.1) 37.1 (0.2) (2.0) 427.2 (0.6) — (0.6) — (0.2) — 8.7 1.1 — 1.1 — (0.2) 9.6 (101.7) (0.6) (102.3) (0.3) (0.2) 101.6 401.0 38.3 (0.1) 38.2 (0.2) (2.2) 436.8 Own shares represent the cost of 259,414 (2009: 273,330) shares held by the Employee Benefit Trust. The open market value of the shares held at 30th November 2010 was £351,246 (2009: £580,280).         52 St Modwen Properties PLC Annual Report 2010 Financial Statements Accounting Policies for the year ended 30th November 2010 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 2010, applied in accordance with the provisions of the Companies Act 2006. 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 controlled 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 intra-Group transactions, balances, income and expense are eliminated on consolidation. Non-controlling 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. 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 post-acquisition changes in the Group’s share of its net assets, less distributions received, 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 comprehensive income 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. 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. All inventories are carried at the lower of cost and net realisable value. 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. www.stmodwen.co.uk 53 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 the shorter of the lease term and 25 years — over 2 to 5 years 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. Non-property 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. Non- property 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 long-term 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 straight-line basis over the lease term. The Group as lessor Rental income from operating leases is recognised in the income statement on a straight-line basis over the lease term. 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 the taxable result for the year. The taxable result differs from the result 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, joint ventures and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and — deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised. Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset is realised or liability is settled, based on tax rates and laws substantively enacted at the balance sheet date. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same authority and the Group intends to settle its current tax assets and liabilities on a net basis. Income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity. Otherwise, income tax is recognised in the income statement. Pensions The Group operates a pension scheme with both defined benefit and defined contribution sections. The defined benefit section is closed to new members and, from 1st September 2009, to future accrual. 54 St Modwen Properties PLC Annual Report 2010 Financial Statements Accounting Policies continued for the year ended 30th November 2010 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 long-term 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 comprehensive income 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. 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 IFRIC14. Contributions to defined contribution schemes are recognised in the income statement in the year in which they become payable. Own shares St. Modwen Properties PLC shares held by the Group are classified in shareholders’ equity and are recognised at cost. Dividends Dividends declared after the balance sheet date are not recognised as liabilities at the balance sheet date. Revenue recognition Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, VAT and other sales taxes or duty. The following criteria must also be met before revenue is recognised: Sale of property Revenue arising from the sale of property is recognised on legal completion of the sale. Where revenue is earned for development of property 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 straight-line 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 over 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. www.stmodwen.co.uk 55 Share-based payments When employee share options are exercised the employee has the choice whether to have the liability settled by way of cash or the retention of shares. As it has been the Company’s experience 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 cash-settled. The cost of cash-settled 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. 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 short-term 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. The effective interest rate method is used to charge interest to the income statement. Derivative financial instruments and hedging The Group uses derivative financial instruments such as interest rate swaps to hedge its risks associated with interest rate fluctuations. Such instruments are initially recognised at fair value on the date on which a contract is entered into and are subsequently remeasured at fair value. The Group has determined that the derivative financial instruments in use do not qualify for hedge accounting and, consequently, any gains or losses arising from changes in the fair value of derivatives are taken to the income statement. 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. 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, under the heading ‘Financial Structure’ and adoption of the going concern assumption is confirmed on page 36. 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, using appropriate levels of professional judgement for the prevailing market conditions. 56 St Modwen Properties PLC Annual Report 2010 Financial Statements Accounting Policies continued for the year ended 30th November 2010 Use of estimates and judgements continued 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. Management’s assessment of any resulting provision requirement, is where applicable, supported by independent information supplied by the external valuers. The estimates and judgements used were based on information available at, and pertaining to, 30th November 2010. Any subsequent adverse changes in market conditions may result in additional provisions being 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 of 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 the accounts reflect the extent to which management believe recovery is likely against latent gains and future profits anticipated to be realised on the Group’s property portfolio. Calculation of the net present value of pension scheme liabilities In calculating this liability it is necessary for actuarial assumptions to be made, including discount and mortality rates and the long-term rate of return upon scheme assets. The Group engages a qualified actuary to assist with determining the assumptions to be made and evaluating these liabilities. Adoption of New and Revised Standards Standards affecting the financial statements In the current year the following new and revised standards and interpretations have been adopted and have affected the amounts reported on the disclosures in these financial statements. IAS1 (revised) Presentation of Financial Statements IAS1 (revised) requires the production of a statement of comprehensive income setting out all items of income and expense relating to non-owner changes in equity. There is a choice between presenting comprehensive income in one statement or in two statements comprising an income statement and a separate statement of comprehensive income. The Group has elected to present comprehensive income in two statements. In addition, IAS1 (revised) requires the statement of changes in shareholders’ equity to be presented as a primary statement. The other revisions to IAS1 have not had a significant impact on the presentation of the Group’s financial information. IFRS8 Operating Segments IFRS8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker, which in the case of the Group is the Board, to allocate resources to the segments and to assess their performance and is effective in the EU for accounting periods beginning on or after 1st January 2009. In contrast, the predecessor Standard (IAS14 ‘Segment Reporting’) required the Group to identify two sets of segments (business and geographical), using a risk and rewards approach, with the Group’s system of internal financial reporting to key management personnel serving only as the starting point for the identification of such segments. The Group’s operating segments, whilst unchanged, are reported in accordance with IFRS8. IAS23 (revised) Borrowing Costs IAS23 (revised) requires the capitalisation of borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use) as part of the cost of the asset. The amendment removes the option of immediately expensing borrowing costs subject to an exemption for inventories manufactured in large numbers on a repetitive basis. The Group has evaluated its business processes and where developments are considered to fall under the requirements of IAS23 (revised) costs are capitalised. No interest was capitalised in the year ended 30th November 2010. IFRS2 (revised) Share-based payments The amendment to IFRS2 requires non-vesting conditions to be taken into account in the estimate of the fair value of the equity instruments. The adoption of the amendment has no impact on the Group’s financial statements. IFRS7 (amended) Improving disclosures about financial instruments IFRS7 (amended) requires disclosure of fair value measurement by level of a fair value measurement hierarchy. The required disclosures are in Note 16 to the financial statements. www.stmodwen.co.uk 57 Standards adopted not affecting the financial statements In addition the following standards and interpretations have been adopted but have had no impact on the amounts reported or the disclosures in the financial statements: IAS27 (revised 2008) Consolidated and Separate financial statements IAS32 (amended)/IAS1 (amended) Puttable Financial Instruments and Obligations Arising on Liquidation IAS39 Eligible Hedged Items IFRS1 (amended)/IAS27 (amended) Cost of a Subsidiary, Jointly Controlled Entity or Associate Payment Transactions IFRS3 (revised) Business Combinations IFRIC9 (amended)/IAS39 Embedded Derivatives IFRIC15 Agreements for the Construction of Real Estate IFRIC17 Distributions of Non-Cash Assets to Owners IFRIC18 Transfer of Assets from Customers 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 and endorsed by the EU but not yet effective: IAS24 (revised 2009) Related Party Disclosures IAS32 (amended 2009) Classification of Rights Issues IFRS1 (amended 2009) Additional Exemptions for First-time Adopters IFRS1 (amended 2010) Limited Exemption from Comparative IFRS7 Disclosures for First-time Adopters IFRS2 (amended 2009) Group Cash-settled Share-based Payment Transactions IFRIC14 (amended 2009) Prepayments of a Minimum Funding Requirement IFRIC19 Extinguishing Financial Liabilities with Equity Instruments In addition, Improvements to IFRSs, issued in April 2009, is the most recent tranche of the Improvements to IFRS project endorsed by the EU and has a number of minor amendments to existing IAS and IFRS which have not yet been implemented. 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. 58 St Modwen Properties PLC Annual Report 2010 Financial Statements Notes to the Accounts for the year ended 30th November 2010 1. ReveNUe AND GROSS PROFIT Revenue Cost of sales Gross profit Revenue Cost of sales Gross profit /(loss) Rental £m Development £m 35.1 (8.7) 26.4 79.9 (67.4) 12.5 Rental Development £m £m 34.3 (8.2) 26.1 74.5 (83.8) (9.3) 2010 2009 Other £m 6.4 (3.3) 3.1 Other £m 4.9 (3.1) 1.8 Total £m 121.4 (79.4) 42.0 Total £m 113.7 (95.1) 18.6 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 2010 was £129.1m (2009: £122.7m) and in addition to the amounts above included service charge income of £6.9m (2009: £6.1m), for which there was an equivalent expense, and interest income of £0.8m (2009: £2.9m). Cost of sales in respect of rental income as disclosed above comprise direct operating expenses (including repairs and maintenance) related to the investment property portfolio and include £0.2m (2009: £0.2m) in respect of properties that did not generate any rental income. 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 2010 £m 63.8 (50.8) 13.0 2009 £m 27.7 (25.3) 2.4 Amounts recoverable on contracts as disclosed in Note 11 comprise £11.6m (2009: £0.9m) of contract revenue recognised and £1.2m (2009: £1.4m) of retentions. Amounts due to customers of £nil (2009: £nil) were included in trade and other payables in respect of contracts in progress at the balance sheet date. 2. NON-STATUTORy INFORMATION a. Trading profit The non-statutory measure of trading profit, which includes the Group’s share of joint ventures and associates, has been calculated as set out below: Net rental income Development profit Gains/(losses) on disposal of investments/investment properties Other income Administrative expenses Finance costs Finance income Trading profit 2010 Joint ventures Group and associates £m £m 26.4 18.6 2.5 3.1 (16.8) (20.0) 0.6 14.4 7.3 0.3 0.5 — (0.3) (4.8) — 3.0 2009 Joint ventures Group and associates £m £m 26.1 4.9 2.2 1.8 (13.9) (17.5) 0.3 3.9 7.4 0.6 (0.1) — (0.2) (3.4) 0.2 4.5 Total £m 33.7 18.9 3.0 3.1 (17.1) (24.8) 0.6 17.4 Total £m 33.5 5.5 2.1 1.8 (14.1) (20.9) 0.5 8.4 Notes (1) (2) (3) (1) Stated before the deduction of net realisable value provisions of: Group £6.1m (2009: £14.2m); Joint ventures and associates £0.3m (2009: £1.6m). (2) Stated before mark-to-market of derivatives and other non-cash items of: Group £4.0m (2009: £8.5m); Joint ventures and associates £0.8m (2009: £1.8m). (3) Stated before mark-to-market of derivatives and other non-cash items of: Group £2.6m (2009: £4.0m); Joint ventures and associates £nil (2009: £nil). www.stmodwen.co.uk 59 2. NON-STATUTORy INFORMATION CONTINUED b. Property valuation gains/(losses) Property valuations, including the Group’s share of joint ventures and associates, have been calculated as set out below: Investment property revaluation gains/(losses) Net realisable value provisions Property valuation gains/(losses) c. Movement in net debt Movement in cash and cash equivalents Borrowings drawn Repayment of borrowings Movement in net debt 2010 Joint ventures Group and Associates £m £m 23.2 (6.1) 17.1 6.2 (0.3) 5.9 Total £m 29.4 (6.4) 23.0 2009 Joint Ventures Group and Associates £m £m (81.7) (14.2) (95.9) (24.8) (1.6) (26.4) 2010 £m 6.5 (33.1) 30.5 3.9 d. Trading cash flow Trading cash flows are derived from the Group cash flow statement as set out below: Total £m (106.5) (15.8) (122.3) 2009 £m (7.9) (44.2) 154.8 102.7 Total £m 26.4 92.9 (30.5) (80.1) 33.9 (36.5) 6.1 0.4 6.5 Total £m 26.1 100.9 (12.9) (79.7) (6.3) (27.0) 1.1 (9.0) (7.9) 2010 Operating activities £m Investing activities £m Financing activities £m 26.4 65.4 (6.4) (54.9) 33.9 (16.0) 48.4 — 48.4 — 27.5 (24.1) (25.2) — 0.6 (21.2) — (21.2) — — — — — (21.1) (21.1) 0.4 (20.7) 2009 Operating activities £m Investing activities £m Financing activities £m 26.1 69.6 — (63.1) (6.5) (10.5) 15.6 — 15.6 — 31.3 (12.9) (16.6) 0.2 1.4 3.4 0.2 3.6 — — — — — (17.9) (17.9) (9.2) (27.1) Total equity 2010 2009 Shareholders’ Equity 2009 2010 436.8 401.0 200,360,931 200,360,931 427.2 392.3 200,360,931 200,360,931 218.0 8.9% 200.1 213.2 195.8 8.9% Net rent Property disposals Property acquisitions Property expenditure Working capital and other movements Overheads, interest and tax Trading cash flow Non-trading cash flows Movement in cash and cash equivalents Net rent Property disposals Property acquisitions Property expenditure Working capital and other movements Overheads, interest and tax Trading cash flow Non-trading cash flows Movement in cash and cash equivalents e. Net assets per share Net assets (£m) Shares in issue (number) Net assets per share (pence) Percentage increase 60 St Modwen Properties PLC Annual Report 2010 Financial Statements Notes to the Accounts continued for the year ended 30th November 2010 3. OTheR INCOMe STATeMeNT DISCLOSUReS a. Administrative expenses Administrative expenses have been arrived at after charging: Depreciation Operating lease costs b. Auditors’ remuneration The analysis of auditors’ remuneration is as follows: Fees payable for the audit of the Company’s annual accounts The audit of subsidiary companies and joint ventures pursuant to legislation Total audit fees Other services pursuant to legislation Tax services Total non-audit fees Total fees 2010 £m 0.7 1.0 2009 £m 1.0 1.1 2010 £’000 2009 £’000 112 112 224 51 460 511 735 107 112 219 309 284 593 812 The above amounts include all amounts charged in respect of joint venture undertakings. Other services pursuant to legislation for 2009 included £259,000 in relation to the Firm Placing and Placing and Open Offer. c. employees The average number of full-time 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 Details of the directors’ remuneration is given in the directors’ remuneration report. 2010 Number 2009 Number 125 64 39 228 2010 £m 9.9 1.2 0.3 11.4 127 61 40 228 2009 £m 9.1 1.1 0.7 10.9 www.stmodwen.co.uk 61 3. OTheR INCOMe STATeMeNT DISCLOSUReS CONTINUED d. Share-based payments The Group has a save as you earn share option scheme open to all employees. Employees must remain in service for a period of five years from the date of grant before exercising their options. The option period ends six months following the end of the vesting period. The Group also has an executive share option scheme and performance share plan (PSP), full details of which are given in the directors’ remuneration report. The following table illustrates the 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. 2010 Weighted average price 2009 Weighted average price Number of options All options £ excluding PSP £ Number of options All options £ Excluding PSP £ Outstanding at start of year Re-basing of options following issue of share capital Granted Forfeited Lapsed Exercised Outstanding at end of year Exercisable at year end 6,459,991 — 2,603,001 (29,143) (2,548,328) (25,960) 6,459,561 1,068,363 2.00 — 1.46 (2.99) (2.30) (1.25) 1.66 2.77 2.46 — 1.78 (2.99) (2.92) (1.25) 4,920,691 716,635 2,815,046 (535,265) (513,700) (943,416) 2.01 6,459,991 2.77 1,144,467 2.88 (0.39) 1.42 (3.28) (4.78) (1.08) 2.00 2.70 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 2010 As at 30th November 2009 * Based on 90 day moving average. (Credit)/charge to income statement £m Risk-free interest rate % Expected volatility % (0.2) 0.6 0.7–2.4 54.4–67.5 0.1–2.2 0.1–80.2 Dividend yield % 1.8 — 3.17 (0.44) 1.86 (3.28) (4.78) (1.08) 2.46 2.70 Share price £* 1.65 2.28 The fair value of the balance sheet liability in respect of share options outstanding at the year end was £1.8m (2009: £1.8m) and included £1.1m (2009: £0.9m) 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 £1.94 (2009: £2.25). The executive share options outstanding at the year end had a range of exercise prices between 97p and 410p (2009: 97p and 456p) with PSP options exercisable at £nil (2009: £nil). Outstanding options had a weighted average maximum remaining contractual life of 8.1 years (2009: 6.5 years). 62 St Modwen Properties PLC Annual Report 2010 Financial Statements Notes to the Accounts continued for the year ended 30th November 2010 4. FINANCe COST AND FINANCe INCOMe Interest payable on borrowings Amortisation of loan arrangement fees 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 18) Total finance cost 2010 £m (19.8) (1.0) (1.6) (0.2) — (1.4) (24.0) 2009 £m (17.3) (0.7) (1.7) (0.2) (4.7) (1.4) (26.0) 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. Interest receivable on cash deposits Credit in respect of discount on deferred receivables Movement in fair value of interest rate derivatives Expected return on pension scheme assets (Note 18) Total finance income 5. TAxATION a. Tax on profit/(loss) on ordinary activities Tax (credit)/charge in the income statement Corporation tax Current year tax Adjustments in respect of previous years Deferred tax Reversal of temporary differences Impact of current year revaluations and indexation Impact of tax losses Adjustments in respect of previous years Total tax credit in the income statement Tax relating to items charged to equity Deferred tax Actuarial losses on pension schemes Tax credit in the statement of comprehensive income 2010 £m 0.6 0.2 0.9 1.5 3.2 2009 £m 1.4 1.5 — 1.4 4.3 2010 £m 2009 £m — (0.1) (0.1) (1.0) (1.9) 1.7 0.5 (0.7) (0.8) — — — (1.2) (1.2) 4.1 (17.9) (2.1) (0.6) (16.5) (17.7) (0.2) (0.2) www.stmodwen.co.uk 5. TAxATION CONTINUED b. Reconciliation of effective tax rate Profit/(loss) before tax Less: Joint ventures and associates Pre-tax profit/(loss) attributable to the Group Corporation tax at 28% (2009: 28%) Permanent differences Short-term timing differences Impact of current year revaluations and indexation Difference between chargeable gains and accounting profit Utilisation of tax losses not previously recognised Deferred tax asset not recognised Current year credit Adjustments in respect of previous years Effective rate of tax 63 2009 £m (119.4) 22.9 (96.5) (27.0) (0.3) — 5.0 (1.2) — 7.6 (15.9) (1.8) (17.7) 18% 2010 £m 37.5 (7.4) 30.1 8.4 (0.6) (0.9) (9.1) 6.9 (5.9) — (1.2) 0.4 (0.8) (3%) The post-tax results of joint ventures and associates are stated after a tax charge of £0.7m (2009: £0.8m credit). The effective tax rate for the Group including joint ventures and associates is a credit of 0.5% (2009: 15.4%). The Finance (No 2) Act 2010 was enacted on 21st July 2010 which reduced the main rate of corporation tax to 27% from 1st April 2011. Further reductions to the main rate are proposed to reduce the rate by 1% per annum to 24% by 1st April 2014. This has not been enacted at the balance sheet date and, therefore, is not included in these financial statements. The proposed reductions of the main rate of corporation tax by 1% per year to 24% by 1st April 2014 are expected to be enacted separately each year. If the deferred tax assets and liabilities of the Group were all to reverse after 2014, the effect of the changes from 27% to 24% would be to reduce the net deferred tax liability by £0.1m. c. Balance sheet Balance at start of the year Credit to the income statement Credit directly to equity Net refund Balance at end of the year An analysis of the deferred tax provided by the Group is given below: Property revaluations Capital allowances Appropriations to trading stock Unutilised tax losses Other temporary differences Asset £m — — — (5.3) (3.4) (8.7) 2010 Liability £m 4.1 4.7 0.6 — — 9.4 2010 2009 Corporation tax £m Deferred tax £m Corporation tax £m Deferred tax £m 7.7 (0.1) — 1.7 9.3 Net £m 4.1 4.7 0.6 (5.3) (3.4) 0.7 1.4 (0.7) — — 0.7 Asset £m — — — (13.2) (4.2) (17.4) 5.7 (1.2) — 3.2 7.7 2009 Liability £m 13.3 4.7 0.8 — — 18.8 18.1 (16.5) (0.2) — 1.4 Net £m 13.3 4.7 0.8 (13.2) (4.2) 1.4 64 St Modwen Properties PLC Annual Report 2010 Financial Statements Notes to the Accounts continued for the year ended 30th November 2010 5. TAxATION CONTINUED At the balance sheet date, the Group has: — unused tax losses in relation to 2010 and prior years of £6.6m (2009: £17.5m), of which £5.3m (2009: £9.9m) has been recognised as a deferred tax asset; and — deductions of £nil (2009: £3.3m) that will be available in subsidiary companies in future periods and have been recognised in full as a deferred tax asset. A deferred tax asset has been recognised on the basis that the losses or deductions will shelter the latent gains anticipated to be realised on the Group’s property portfolio including those reflected in the deferred tax liability for property revaluations and future trading losses. A deferred tax asset of £1.3m (2009: £7.6m) has not been recognised in respect of current and prior year tax losses as it is not considered certain that there will be taxable profits available in the short-term against which these can be offset. d. Factors that may affect future tax charges Based on current capital investment plans, the Group expects to be able to continue 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. 6. eARNINGS PeR ShARe The calculation of basic and diluted earnings per share is set out below: Weighted number of shares in issue Weighted number of dilutive shares Profit/(loss) attributable to equity shareholders (basic and diluted) Basic and diluted profit/(loss) per share Shares held by the Employee Benefit Trust are excluded from the above calculations. 2010 Number of shares 2009 Number of shares* 200,098,045 169,276,058 — 346,115 200,444,160 169,276,058 2010 £m 37.2 2010 pence 18.6 2009 £m (101.1) 2009 pence (59.7) The Group’s share options are accounted for as cash-settled share-based payments. In calculating diluted earnings per share, earnings have been adjusted for changes which would have resulted from share options being classified as equity-settled. Where applicable, the number of shares included in the calculation has also been adjusted accordingly. * In 2009 the Group undertook a Firm Placing and Placing and Open Offer resulting in the issue of 79,586,977 shares on 8th June 2009. The number of shares in issue used in the above calculation for 2009 reflects the lower number of shares in issue through to the date of the Firm Placing and Placing and Open Offer. 7. DIvIDeNDS Dividends paid during the year were in respect of the interim dividend for 2010. The proposed final dividend is subject to approval at the Annual General Meeting and has not been included as a liability in these financial statements. Paid Final dividend in respect of previous year Interim dividend in respect of current year Total Proposed Current year final dividend The Employee Benefit Trust waives its entitlement to dividends. 2010 2009 p per share £m p per share — 1.0 1.0 2.0 — 2.0 2.0 4.0 — — — — £m — — — — www.stmodwen.co.uk 65 8. INveSTMeNT PROPeRTy Fair value At 30th November 2008 Additions — new properties Other additions Net transfers from/(to) inventories (Note 12) Disposals Deficit on revaluation At 30th November 2009 Additions — new properties Other additions Net transfers from inventories (Note 12) Transfer on acquisition of residual freehold Disposals Gain on revaluation At 30th November 2010 Freehold investment properties £m Leasehold investment properties £m 467.1 15.2 13.8 15.4 (10.0) (45.6) 455.9 23.8 9.8 13.0 3.3 (8.9) 10.4 507.3 347.2 — 6.0 (0.7) (9.4) (36.1) 307.0 — 15.4 0.8 (3.3) (12.0) 12.8 320.7 Total £m 814.3 15.2 19.8 14.7 (19.4) (81.7) 762.9 23.8 25.2 13.8 — (20.9) 23.2 828.0 Investment properties were valued at 30th November 2010 and 2009 by King Sturge LLP, 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 LLP are professionally qualified independent external valuers and have recent experience in the relevant location and category of the properties being valued. The historical cost of investment properties at 30th November 2010 was £754.9m (2009: £717.7m). As at 30th November 2010, £709.4m (2009: £669.2m) of investment property was pledged as security for the Group’s loan facilities. Included within leasehold investment properties are £3.9m (2009: £3.9m) of assets held under finance leases. 9. OPeRATING PROPeRTy, PLANT AND eqUIPMeNT Cost At 30th November 2008 Additions Disposals At 30th November 2009 Additions Disposals At 30th November 2010 Depreciation At 30th November 2008 Charge for the year Disposals At 30th November 2009 Charge for the year Disposals At 30th November 2010 Net book value At 30th November 2008 At 30th November 2009 At 30th November 2010 Operating plant and equipment £m Operating properties £m 2.6 4.4 (0.1) 6.9 — — 6.9 0.4 0.1 — 0.5 0.1 — 0.6 2.2 6.4 6.3 5.0 0.4 (0.6) 4.8 0.3 (0.3) 4.8 2.9 0.9 (0.5) 3.3 0.6 (0.2) 3.7 2.1 1.5 1.1 Total £m 7.6 4.8 (0.7) 11.7 0.3 (0.3) 11.7 3.3 1.0 (0.5) 3.8 0.7 (0.2) 4.3 4.3 7.9 7.4 66 St Modwen Properties PLC Annual Report 2010 Financial Statements Notes to the Accounts continued for the year ended 30th November 2010 9. OPeRATING PROPeRTy, PLANT AND eqUIPMeNT CONTINUED Tenure of operating properties: Freehold Leasehold 2010 £m 3.6 2.7 6.3 2009 £m 3.6 2.8 6.4 10. JOINT veNTUReS AND ASSOCIATeS The Group’s share of the trading results for the year of its joint ventures and associates is: Key Property Investments Limited £m 2010 Other joint ventures and associates £m 2009 Key Property Investments Limited £m Total £m Other joint ventures and associates £m Income statements Revenue Net rental income Development profit/(loss) Gains/(losses) on disposals of investment properties Investment property revaluation gains/(losses) Administrative expenses Profit/(loss) before interest and tax Finance cost Finance income Profit/(loss) before tax Taxation Profit/(loss) for the year 14.4 6.6 — 0.4 6.2 (0.2) 13.0 (4.4) — 8.6 (0.3) 8.3 4.4 0.7 — 0.1 — (0.1) 0.7 (1.2) — (0.5) (0.4) (0.9) 18.8 7.3 — 0.5 6.2 (0.3) 13.7 (5.6) — 8.1 (0.7) 7.4 25.9 7.2 (1.0) (0.1) (24.4) (0.1) (18.4) (4.5) 0.2 (22.7) 0.6 (22.1) 1.2 0.2 — — (0.4) (0.1) (0.3) (0.7) — (1.0) 0.2 (0.8) Included in other joint ventures and associates above are profits from associated companies of £0.3m (2009: £0.2m losses). The Group’s share of the balance sheet of its joint ventures and associates is: Balance Sheets Non-current assets Current assets Current liabilities Non-current liabilities Net assets Equity at start of year Transfer from joint venture to subsidiary undertaking Profit/(loss) for the year Equity at end of year Key Property Investments Limited £m 2010 Other joint ventures and associates £m 2009 Key Property Investments Limited £m Total £m Other joint ventures and associates £m 119.5 11.7 (11.9) (74.9) 44.4 36.1 — 8.3 44.4 20.8 14.5 (10.1) (20.2) 5.0 5.2 0.7 (0.9) 5.0 140.3 26.2 (22.0) (95.1) 49.4 41.3 0.7 7.4 49.4 116.7 13.6 (12.0) (82.2) 36.1 58.2 — (22.1) 36.1 15.9 18.9 (6.4) (23.2) 5.2 6.0 — (0.8) 5.2 Total £m 27.1 7.4 (1.0) (0.1) (24.8) (0.2) (18.7) (5.2) 0.2 (23.7) 0.8 (22.9) Total £m 132.6 32.5 (18.4) (105.4) 41.3 64.2 — (22.9) 41.3 Included in other joint ventures and associates above are net assets of £2.7m (2009: £2.4m) in relation to associated companies. These net assets comprise total assets of £3.9m (2009: £3.6m) and total liabilities of £1.2m (2009: £1.2m). www.stmodwen.co.uk 67 10. JOINT veNTUReS AND ASSOCIATeS CONTINUED Joint venture companies and associates comprise: Name Key Property Investments Limited Barton Business Park Limited Sowcrest Limited Holaw (462) Limited Skypark Development Partnership LLP Chertsey Road Properties Limited St. Modwen Hungerford Limited Coed Darcy Limited Baglan Bay Company Limited Status Interest Activity Joint venture Joint venture Joint venture Joint venture Joint venture Joint venture Joint venture Associate Associate 50% 50% 50% 50% 50% 50% 50% 49% 25% Property investment and development Property development Property investment and development Property investment Property development Property investment Property development Property investment and development Property management Many of the joint ventures and associates contain change of control provisions, as is common for such arrangements. On 1st June 2010 the Group increased its shareholding in Shaw Park Developments Limited to 100%. No goodwill arose on increasing the stake of the Group in the entity, which is now accounted for as a subsidiary. 11. TRADe AND OTheR ReCeIvABLeS Non-current Other debtors Current Trade receivables Prepayments and accrued income Other debtors Amounts recoverable on contracts Amounts due from joint ventures IFRS7 disclosures in respect of financial assets included above are provided in Note 16. 12. INveNTORIeS Properties held for sale Properties under construction Land under option The movement in inventories during the two years ended 30th November 2010 is as follows: At 30th November 2008 Additions Net transfers to investment property (Note 8) Disposals (transferred to development cost of sales) (Note 1) At 30th November 2009 Additions Net transfers to investment property (Note 8) Disposals (transferred to development cost of sales) (Note 1) At 30th November 2010 2010 £m 8.2 2.3 7.3 10.2 12.8 12.7 45.3 2010 £m 37.6 112.6 21.4 171.6 2009 £m 5.2 6.7 7.9 24.4 2.3 5.7 47.0 2009 £m 55.2 115.3 22.2 192.7 £m 228.1 63.1 (14.7) (83.8) 192.7 60.1 (13.8) (67.4) 171.6 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 £6.1m (2009: £14.2m). As at 30th November 2010, £48.3m (2009: £67.8m) of inventory was pledged as security for the Group’s loan facilities. 68 St Modwen Properties PLC Annual Report 2010 Financial Statements Notes to the Accounts continued for the year ended 30th November 2010 13. 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 Non-current Other payables and accrued expenses Provision for share options Other payables on deferred terms Finance lease liabilities (head rents) 2010 £m 15.7 4.1 76.4 0.2 18.4 18.3 2009 £m 15.0 3.5 70.1 0.9 30.4 19.3 133.1 139.2 46.4 1.6 163.2 3.9 215.1 21.5 0.9 162.6 3.9 188.9 IFRS7 disclosures in respect of financial liabilities included above are provided in Note 16. The payment terms of the other payables on deferred terms are subject to contractual commitments. In the normal course of events the payments will be made in line with either the disposal of investment properties held on the balance sheet, or the commencement of development. Net cash outflows on the settlement of the deferred consideration will therefore be limited. 14. BORROWINGS Current Floating rate unsecured loan notes Non-current Bank loans repayable between one and two years Bank loans repayable between two and five years 2010 £m — — 107.9 218.3 326.2 2009 £m 0.4 0.4 55.9 267.3 323.2 Each bank has their borrowings secured by a fixed charge over a discrete portfolio of certain of the Group’s property assets. www.stmodwen.co.uk 69 14. BORROWINGS CONTINUED 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 Interest rate swaps 2010 Drawn £m — 107.9 30.0 89.7 98.6 — 326.2 Drawn £m 0.4 55.9 162.4 28.0 76.9 — 323.6 Undrawn £m 5.0 56.1 40.0 35.3 56.4 — 192.8 Total £m 5.0 164.0 70.0 125.0 155.0 — 519.0 earliest termination £m %* Latest termination £m %* 4.79 5.43 4.81 4.80 2.69 4.32 4.63 60.0 80.0 20.0 — 40.0 60.0 260.0 4.83 5.54 4.65 — 2.69 4.51 4.63 80.0 90.0 10.0 10.0 40.0 30.0 260.0 2009 Floating rate borrowings Interest rate swaps Undrawn £m 5.0 34.1 91.6 42.0 23.1 — 195.8 Total £m 5.4 90.0 254.0 70.0 100.0 — 519.4 Earliest termination £m %* Latest termination £m %* 110.0 130.0 — — — — 240.0 5.36 4.67 — — — — 4.99 — 80.0 80.0 40.0 — 40.0 240.0 — 4.70 5.54 4.56 — 4.87 4.99 * Weighted average interest rate. † In addition to the principal amounts included above, £3.7m (2009: £3.7m) of interest payable was committed at the year end. These amounts all fall due within three months of the year end. Certain of the interest rate swaps are extendable at the bank’s option; therefore, the tables above show the dates of normal termination and extended termination. £22.6m (2009: £23.1m) of the undrawn committed bank facilities are ring fenced for VSM Estates (Holdings) Limited. The average rate of interest payable, before taking into account the effects of hedging, on borrowings outstanding during the year was 2.8% (2009: 2.9%). At 30th November 2010 the weighted average facility maturity of the bank debt was 3 years (2009: 3 years). Interest rate profile The interest rate profile of the Group’s borrowings after taking into account the effects of hedging is: Total £m 326.2 323.6 Floating Rate debt £m 66.2 83.6 Fixed Rate debt £m 260.0 240.0 Weighted average fixed interest rate (%) 4.63 4.99 Weighted maturity of derivatives (years)* 3.37 1.09 At 30th November 2010 At 30th November 2009 * Based on earliest termination dates. The Group’s derivative financial instruments, which are classified as fair value through profit or loss, consist of sterling denominated interest swaps from floating rate to fixed rate and range from 2.46% to 5.97% (2009: 4.32% to 5.97%). In addition the Group has a cap at 7.5% on a further £11m (2009: £55m) of floating rate debt. Details of the change in fair value of derivatives charged to the income statement are disclosed in Note 4. 70 St Modwen Properties PLC Annual Report 2010 Financial Statements Notes to the Accounts continued for the year ended 30th November 2010 15. 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 non-cancellable operating leases are as follows: In one year or less Between one and five years In five years or more 2010 £m 0.7 2.9 1.0 4.6 2009 £m 1.3 2.6 1.5 5.4 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 2010 £m 27.5 71.1 193.7 292.3 2009 £m 27.2 71.1 178.6 276.9 Contingent rents, calculated as a percentage of turnover for a limited number of tenants, of £0.4m (2009: £0.3m) were recognised during the year. Obligations under finance leases Finance lease liabilities payable in respect of 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 0.9 67.5 68.6 Minimum lease payments £m 0.2 0.9 67.7 68.8 2010 Interest £m Principal £m 0.2 0.9 63.6 64.7 2009 — — 3.9 3.9 Interest £m Principal £m 0.2 0.9 63.8 64.9 — — 3.9 3.9 Finance leases are for periods of up to 999 years from inception and a discount rate of 6.0% (2009: 6.0%) has been used to derive the fair value of the principal amount outstanding. All lease obligations are denominated in sterling. www.stmodwen.co.uk 16. FINANCIAL INSTRUMeNTS Categories and classes of financial assets and liabilities Financial assets 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) 71 2009 £m 4.8 36.4 41.2 2009 £m 19.3 323.6 62.2 193.0 3.9 602.0 2010 £m 11.3 25.8 37.1 2010 £m 18.3 326.2 90.3 181.6 3.9 620.3 a a b a a a a Trade and other receivables above comprise other debtors, trade receivables and amounts due from joint ventures as disclosed in Note 11, for current and non-current amounts, after deduction of £7.6m (2009: £7.9m) of non-financial assets. Trade and other payables above comprise trade payables, amounts due to joint ventures and other payables and accrued expenses as disclosed in Note 13, for current and non-current amounts, after deduction of £52.3m (2009: £47.9m) of non-financial liabilities. a) The directors consider that the carrying amount recorded in the financial statements approximates their fair value. b) Derivative financial instruments are carried at fair value. The fair value is calculated using quoted market prices relevant for the term and instrument. Fair value hierarchy of financial assets and liabilities Financial assets and financial liabilities that are measured subsequent to initial recognition at fair value, are required to be grouped into Levels 1 to 3 based on the degree to which the fair value is observable: • Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets; • Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and • Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset that are not based on observable market data (unobservable inputs). Derivative financial instruments held at fair value through profit or loss are the only financial instruments held by the Group at fair value. The net liability of £18.3m recognised as at 30th November 2010 (2009: £19.3m) is categorised as a Level 2 fair value measurement. Capital risk The Group manages its capital to ensure that the entities in the Group will be able to continue as a going concern whilst maximising the return to shareholders through the optimisation of the debt and equity balance. The capital structure of the Company consists of debt (as disclosed in Note 14), cash and cash equivalents and equity, comprising issued capital, reserves and retained earnings as disclosed in the Group statement of changes in equity. 72 St Modwen Properties PLC Annual Report 2010 Financial Statements Notes to the Accounts continued for the year ended 30th November 2010 16. FINANCIAL INSTRUMeNTS CONTINUED Market risk Market risk is the potential adverse change in Group income or the Group net worth arising from movements in interest rates or other market prices. Interest rate risk is the Group’s principal market risk and 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. Interest rate sensitivity: The following table details the Group’s sensitivity, after tax, to a 1% change in interest rates based on year end levels of debt. 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 2010 £m (2.3) 1.9 (0.4) 2010 £m 2.3 (1.9) 0.4 2009 £m (2.3) 1.7 (0.6) 2009 £m 2.3 (1.7) 0.6 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 £1.5m (2009: £2.2m) of gross rental income. 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 (2009: £1.0m) which is provided against as it represents estimated irrecoverable amounts. This allowance has been determined by a review of all significant balances that are past due 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 At start of year Impairment losses recognised Amounts written off as irrecoverable Impairment losses reversed At end of year 2010 £m 1.0 0.6 (0.5) (0.4) 0.7 2009 £m 0.7 0.7 (0.2) (0.2) 1.0 Trade and other receivables include £0.6m (2009: £2.4m) which are past due as at 30th November 2010 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 + 2010 £m 0.3 — 0.3 0.6 2009 £m 1.1 0.2 1.1 2.4 www.stmodwen.co.uk 73 16. 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 economic climate, although improved, continues to provide a difficult backdrop to the Group’s operations. As such, the focus continues to be on managing cash flows and forward commitments, whilst continuing to marshal sites through the planning and remediation process and undertaking development on largely pre-let or pre-sold opportunities. The maturity profile of the anticipated future cash flows for bank loans and overdrafts is shown in Note 14. The maturity profile for the Group’s other non-derivative financial liabilities, on an undiscounted basis is as follows: 2010 Trade and other payables Other payables on deferred terms 2009 Trade and other payables Other payables on deferred terms Less than one month £m 18.3 — 18.3 Less than one month £m 16.5 — 16.5 1–3 months £m 8.8 10.0 18.8 1–3 months £m 11.6 11.9 23.5 3 months to 1 year £m 13.3 8.4 21.7 3 months to 1 year £m 12.6 19.0 31.6 1–5 years £m 47.3 162.6 209.9 1–5 years £m 22.4 164.9 187.3 More than 5 years £m 67.7 5.0 72.7 More than 5 years £m 67.7 7.7 75.4 Total £m 155.4 186.0 341.4 Total £m 130.8 203.5 334.3 The Group’s approach to cash flow, financing and bank covenants is discussed further in the financial review section of the business review on page 18. 17. ShARe CAPITAL Authorised: Equity share capital At start and end of year Allotted and fully paid: Equity share capital At start and end of year See Note 3d for details of outstanding options to acquire ordinary shares. Ordinary 10p shares No. £m 250,000,000 25.0 200,360,931 20.0 74 St Modwen Properties PLC Annual Report 2010 Financial Statements Notes to the Accounts continued for the year ended 30th November 2010 18. PeNSIONS The Group operates a pension scheme with both defined benefit and defined contribution sections. The defined benefit section is closed to new members and, from 1st September 2009, is also closed to future accrual. The income statement includes: — a charge of £0.1m (2009: £0.5m credit) for the defined benefit section, incorporating a curtailment gain of £nil (2009: £0.7m); and — a charge of £0.1m (2009: £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, a funding level of 104%. The valuation was performed using the ‘Projected Unit Credit Method’ under IAS19. The main actuarial assumptions were: Investment rate of return: pre-retirement post-retirement Increase in earnings* Increase in pensions 6.3% p.a. 4.8% p.a. 6.6% p.a. 3.6% p.a. * Capped to 5.6% for certain members. The actuarial valuation of the defined benefit section, a final salary scheme, was updated to 30th November 2010 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 Pre 6th April 1997 benefits Post 5th April 1997 benefits Discount rate Inflation assumption 2010 — 2.8% 3.0% 3.5% 5.5% 2.8% 2009 — 3.6% 3.0% 3.6% 5.5% 3.6% 2008 4.8% 2.8% 2.8% 2.8% 6.2% 2.8% * Following the closure of the defined benefit section to future accrual, the assumption regarding the rate of increase in salaries is no longer applicable as retirement benefits will be based on salaries at 31st August 2009. Benefits earned up to the point of the scheme closure will be protected and will be increased in line with inflation, subject to a maximum of 5% per annum. From 2010 the basis of the inflation assumption has been amended, in line with market practice, from the Retail Price Index to the Consumer Price Index. 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 non retired members for 27.7 years, based on the normal retirement age of 60). The Group expects to make contributions of £0.2m to the defined benefit section of the scheme in 2011 and in future years. 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 2010 2009 2008 % 5.7 5.5 5.7 4.2 £m 10.3 7.6 8.5 0.8 27.2 (24.7) (2.5) — — — % 5.6 5.4 5.6 4.1 £m 17.0 1.4 8.4 0.3 27.1 (26.9) (0.2) — — — % 5.9 7.2 5.9 4.4 £m 13.3 0.5 9.9 1.2 24.9 (23.6) (1.3) — — — The cumulative amount of actuarial gains and losses (before unrecognised surplus of £2.5m) recorded in the Group statement of recognised income and expense is a gain of £0.2m (2009: £2.0m loss). www.stmodwen.co.uk 18. PeNSIONS CONTINUED Analysis of the amount (charged)/credited to operating profit Current service cost Curtailment gain Total operating (charge)/credit Analysis of the amount credited/(charged) to finance costs and income Expected return on pension scheme assets Interest on pension scheme liabilities 75 2008 £m (0.4) — (0.4) 2008 £m 2.0 (1.6) 0.4 2010 £m (0.2) — (0.2) 2010 £m 1.5 (1.4) 0.1 2009 £m (0.2) 0.7 0.5 2009 £m 1.4 (1.4) — The actual return on pension scheme assets was a gain of £2.4m (2009: £3.2m). 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 comprehensive income 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 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 Curtailment gain End of year 2010 £m 26.9 0.2 — 1.4 (1.3) (2.5) — 24.7 2010 £m 0.9 (0.7) 2.0 (2.3) (0.1) 2008 £m 29.0 0.4 0.1 1.6 (3.9) (3.6) — 2009 £m 1.8 3.7 (7.4) 1.1 (0.8) 2007 £m 31.1 0.5 0.1 1.5 (3.0) (1.2) — 2008 £m (8.9) (3.8) 7.6 4.7 (0.4) 2006 £m 29.8 0.5 0.1 1.5 — (0.8) — 2009 £m 23.6 0.2 0.1 1.4 3.7 (1.4) (0.7) 26.9 23.6 29.0 31.1 76 St Modwen Properties PLC Annual Report 2010 Financial Statements Notes to the Accounts continued for the year ended 30th November 2010 18. 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 Employee contributions Actuarial gains and losses Benefits paid End of year Surplus 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 (loss)/gain recognised in the statement of recognised income and expense Amount Percentage of present value of scheme liabilities Deferred taxation attributable to pension movements (Note 5) Pension scheme movement for the year net of deferred tax 2010 £m 27.1 1.5 0.2 — 0.9 (2.5) 27.2 2.5 (2.5) — 2010 £m 0.9 3.3% (0.7) 2.8% 2.0 (8.1%) (2.3) (0.1) (0.4%) — (0.1) 2009 £m 24.9 1.4 0.3 0.1 1.8 (1.4) 27.1 0.2 (0.2) — 2008 £m 35.0 2.0 0.4 0.1 (9.0) (3.6) 24.9 1.3 (1.3) — 2007 £m 33.9 1.8 0.6 0.1 (0.2) (1.2) 35.0 6.0 (6.0) — 2009 £m 2008 £m 2007 £m 1.8 6.6% (9.0) (35.7%) 3.7 (13.8%) (7.4) 27.5% 1.1 (0.8) (3.0%) 0.2 (0.6) (3.8) 16.1% 7.6 (32.2%) 4.7 (0.4) (1.7%) 0.1 (0.3) (0.2) (0.3%) (3.0) 10.3% 5.8 (20.0%) (6.0) (3.3) (11.4%) 0.9 (2.4) 2006 £m 29.3 1.6 1.1 0.1 2.6 (0.8) 33.9 2.8 — 2.8 2006 £m 2.6 8.0% (1.1) 3.5% 0.9 (2.9%) — 2.5 8.0% (0.7) 1.8 19. CAPITAL COMMITMeNTS At 30th November 2010 the Group had contracted capital expenditure of £18,159,000 (2009: £796,000). In addition the Group’s share of the contracted capital expenditure of its joint venture undertakings was £596,000 (2009: £1,593,000). All capital commitments relate to investment properties. 20. CONTINGeNT LIABILITIeS The Group has a joint and several unlimited liability with Vinci PLC and the Ministry of Defence under guarantees in respect of the financial performance of VSM Estates (Holdings) Limited (“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 expected 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 £16.0m (2009: £18.4m). www.stmodwen.co.uk 77 21. ReLATeD PARTy TRANSACTIONS Transactions between the Group and its non wholly owned subsidiaries, joint ventures and associates are all undertaken on an arms length basis and are detailed as follows: Key Property Investments Limited (‘KPI’) During the year the Group provided management and construction services to KPI for which it received fees totalling £10.9m (2009: £6.5m). The balance due to the Group at year end was £0.6m (2009: £0.3m). No interest is charged on this balance. holaw (462) Limited (‘holaw’) During the year Holaw repaid £nil of its loan (2009: £0.2m). The balance due to the Group at the year end was £0.3m (2009: £0.3m). No interest is charged on this balance. Barton Business Park Limited (‘Barton’) During the year the Group borrowed an additional £0.5m from Barton (2009: £nil). The balance due to Barton at the year end was £3.9m (2009: £3.4m). 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 £nil (2009: £0.2m). In addition, during the year £7.3m was paid to Sowcrest (2009: £3.6m) leaving an amount due from Sowcrest at the year end of £11.3m (2009: £4.0m). Interest is chargeable on £8.5m (2009: £1.4m) of the amount outstanding at a fixed rate of 10% (2009: 10%). Skypark Development Partnership (‘Skypark’) The balance due to the Group from Skypark at the year end was £0.6m (2009: £0.3m), of which £0.2m (2009: £0.2m) relates to loan notes issued to the Group in the year. The remaining £0.4m (2009: £0.1m) relates to purchase ledger funding provided by the Group. No interest is charged on these balances. Chertsey Road Properties Limited (‘CRP’) During the year CRP repaid £0.2m of its loan (2009: borrowed £0.3m). The balance due to the Group at the year end was £0.1m (2009: £0.3m). No interest is charged on this balance. St. Modwen hungerford Limited (‘hungerford’) During the year the Group loaned £nil to Hungerford (2009: £0.6m). The balance due to the Group at the year end was £0.6m (2009: £0.6m). No interest is charged on this balance. Coed Darcy Limited (‘CDL’) During the year CDL repaid £0.2m of its loan. The balance due to the Group at the year end was £nil (2009: £0.2m). No interest is charged on this balance. Branston Properties Limited (‘Branston’) During the year the Group entered into an option to acquire the entire issued share capital of Branston, a company in which the family of Simon Clarke has a financial interest, at market value. The price paid for the option was £0.1m and exercise of this is contingent on certain planning milestones being achieved. St. Modwen Pension Scheme The Group occupies offices owned by the pension scheme with a value of £0.5m (2009: £0.5m) with an annual rental payable of £0.1m (2009: £0.1m). The balance due to the Group at the year end was £nil (2009: £0.5m). 78 St Modwen Properties PLC Annual Report 2010 Financial Statements Notes to the Accounts continued for the year ended 30th November 2010 21. ReLATeD PARTy TRANSACTIONS CONTINUED Non-wholly 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: Stoke-on-Trent Regeneration Limited Stoke-on-Trent Regeneration (Investments) Limited Uttoxeter Estates Limited Widnes Regeneration Limited Trentham Leisure Limited Norton & Proffitt Developments Limited VSM Estates (Holdings) Limited Management fees Interest Balance 2010 £m — — — — — — 0.2 0.2 2009 £m — — — — 0.2 — 0.2 0.4 2010 £m (0.1) — — — 1.9 — — 1.8 2009 £m (0.1) — — 0.1 1.2 — — 1.2 2010 £m (3.9) (0.5) (0.6) 2.3 23.8 (0.2) (9.9) 11.0 2009 £m (7.4) (0.3) (0.2) 3.0 22.4 (0.3) (8.5) 8.7 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 £nil (2009: £0.7m). No guarantees have been given or received from related parties. Key management personnel The directors are considered to be the Group’s key management personnel and their remuneration is disclosed in the directors’ remuneration report. www.stmodwen.co.uk Company Balance Sheet as at 30th November 2010 Fixed assets Tangible fixed assets Investments held as fixed assets Current asset 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 79 2009 £m 0.7 239.3 240.0 475.0 0.2 (149.2) 326.0 566.0 (192.2) 373.8 20.0 102.8 0.3 164.7 86.4 (0.4) 373.8 Notes (E) (F) (G) (H) (H) (K) (L) (L) (L) (L) (L) 2010 £m 0.6 328.5 329.1 473.6 1.9 (149.4) 326.1 655.2 (216.1) 439.1 20.0 102.8 0.3 254.6 62.0 (0.6) 439.1 These financial statements were approved by the Board of directors on 4th February 2011 and were signed on its behalf by Bill Oliver and Michael Dunn. Bill Oliver Chief Executive Michael Dunn Group Finance Director 80 St Modwen Properties PLC Annual Report 2010 Financial Statements Notes to the Company Accounts for the year ended 30th November 2010 (A). ACCOUNTING POLICIeS Basis of preparation The accounts and notes have been prepared in accordance with applicable UK GAAP on a going concern basis. Compliance with SSAP19 “Accounting for Investment Properties” requires departure from the Companies Act 2006 relating to depreciation and an explanation of the departure is given below. Accounting convention The financial statements have been prepared under the historical cost convention except for the revaluation of certain 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 straight-line basis over the lease term. Interest receivable Interest receivable is recognised on an accruals basis. Tangible fixed assets Tangible fixed assets, other than investment properties, are stated at cost less accumulated depreciation and accumulated impairment losses. Such cost includes costs directly attributable to making the asset capable of operating as intended. Depreciation is provided on all plant, machinery and equipment at rates calculated to write off the cost less estimated residual value, based on prices prevailing at the balance sheet date, of each asset evenly over its expected useful life as follows: Plant, machinery and equipment — over 2 to 5 years Depreciation is not provided on investment properties which are subject to annual revaluations. Long leasehold investment properties In accordance with SSAP19, 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 2006 requires all properties to be depreciated. However, this requirement conflicts with the generally accepted accounting principle set out in SSAP19. 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 SSAP19 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 date, there is a binding agreement to dispose of the assets concerned. However, no provision is made where, on the basis of all available evidence at the balance sheet date, it is more likely than not that the taxable gain will be rolled over into replacement assets and charged to tax only where the replacement assets are sold; and — deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. www.stmodwen.co.uk 81 (A). ACCOUNTING POLICIeS CONTINUED 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. Share-based payment 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 Company accounts for its share option schemes as cash-settled. The cost of cash-settled 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 and, from 1st September 2009, to future accrual. 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 the 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 long-term market returns on scheme assets, adjusted for the effect on the fair value of plan assets of contributions received and benefits paid during the year. The difference between the expected return on plan assets and the interest cost is recognised in the profit and loss account as other finance income or expense. Actuarial gains and losses are recognised in full in the statement of total recognised gains and losses in the year in which they occur. The defined benefit pension asset or liability in the balance sheet comprises the present value of the defined benefit obligation, less any past service cost not yet recognised and less the fair value of plan assets out of which the obligations are to be settled directly. 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 16 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 straight-line basis over the lease term. Cash flow statement The Company has taken advantage of the exemption permitted by FRS1 not to present a cash flow statement. 82 St Modwen Properties PLC Annual Report 2010 Financial Statements Notes to the Company Accounts continued for the year ended 30th November 2010 (B). PROFIT FOR The FINANCIAL yeAR The Company has taken advantage of Section 408 of the Companies Act 2006 and has not included its own profit and loss account in these financial statements. The Company’s loss for the year ended 30 November 2010 was £22.3m (2009: £17.8m loss). (C). OPeRATING exPeNSeS (i) Audit fees The analysis of auditors’ remuneration is as follows: Fees paid to Deloitte LLP in respect of: Fees payable for the audit of the Company’s annual accounts Total audit fees Other services pursuant to legislation Tax services Total non-audit fees Total fees 2010 £’000 2009 £’000 112 112 51 210 261 373 107 107 305 109 414 521 (ii) employees The average number of full-time employees (including executive directors) employed by the Company during the year were as follows: Property Leisure and other activities Administration Wages and salaries Social security costs Pension costs 2010 Number 2009 Number 125 41 39 205 2010 £m 9.4 1.2 0.3 10.9 127 38 40 205 2009 £m 8.1 1.0 0.7 9.8 (D). DIvIDeNDS Dividends paid during the year were in respect of the interim dividend for 2010. The proposed final dividend is subject to approval at the Annual General Meeting and has not been included as a liability in these financial statements. Paid Final dividend in respect of previous year Interim dividend in respect of current year Total Proposed Current year final dividend The Employee Benefit Trust waives its entitlement to dividends. 2010 2009 p per share £m p per share £m — 1.0 1.0 2.0 — 2.0 2.0 4.0 — — — — — — — — www.stmodwen.co.uk (e). TANGIBLe FIxeD ASSeTS Cost or valuation At 30th November 2009 Additions At 30th November 2010 Depreciation At 30th November 2009 Charge for the year Disposals At 30th November 2010 Net book value At 30th November 2010 At 30th November 2009 83 Total £m 2.5 0.2 2.7 1.8 0.3 — 2.1 0.6 0.7 Long leasehold investment properties £m Plant, machinery and equipment £m 0.3 — 0.3 — — — — 0.3 0.3 2.2 0.2 2.4 1.8 0.3 — 2.1 0.3 0.4 Investment properties were valued at 30th November 2010 and 2009 by King Sturge LLP, 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 LLP 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 2009 Increase in entity holding from joint venture to subsidiary Revaluation of investments At 30th November 2010 Cost At 30th November 2010 and 30th November 2009 Investment in subsidiary companies £m Investment in joint ventures £m 192.4 (1.4) 83.5 274.5 46.9 0.7 6.4 54.0 Total £m 239.3 (0.7) 89.9 328.5 76.2 26.5 102.7 84 St Modwen Properties PLC Annual Report 2010 Financial Statements Notes to the Company Accounts continued for the year ended 30th November 2010 (F). INveSTMeNTS heLD AS FIxeD ASSeTS CONTINUED Subsidiary companies: At 30th November 2010 the principal subsidiaries, all of which were held directly by the Company, were as follows: Proportion of ordinary shares held Nature of principal business 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 St. Modwen Properties Sarl Stoke-on-Trent Regeneration Limited Uttoxeter Estates Limited Widnes Regeneration Limited Trentham Leisure Limited Norton & Proffitt Developments Limited VSM Estates (Holdings) Limited 100% 100% 100% 100% 100% 100% 100% 100% 100% 81% 81% 81% 80% 75% 50% Investment company Property investors Leisure operator Property investors Property developers Property investors Property developers Property investors Property investors Property developers Property developers Property developers Leisure operator Property developers Property developers All principal subsidiaries are registered and operated in England and Wales. Joint ventures At 30th November 2010 the principal joint ventures were: Key Property Investments Limited Barton Business Park Limited Sowcrest Limited Holaw (462) Limited Skypark Development Partnership LLP Chertsey Road Properties Limited St. Modwen Developments Hungerford Limited Percentage shareholding Nature of principal business 50% 50% 50% 50% 50% 50% 50% Property investment and development Property development Property development Property investment Property development Property investment 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 Corporation tax Deferred tax asset (see Note (J)) 2010 £m 0.1 437.4 12.6 6.8 3.1 7.9 5.7 473.6 2009 £m 0.1 446.9 5.0 7.8 2.6 6.5 6.1 475.0 www.stmodwen.co.uk 85 (h). CReDITORS Amounts falling due within one year: Trade creditors 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 Other creditors Accruals and deferred income All bank borrowings are secured by a fixed charge over the property assets of the Company and its subsidiaries. (I). BORROWINGS The maturity profile of the bank borrowings, all of which are wholly repayable within five years, is as follows: One to two years Two to five years Total (J). DeFeRReD TAxATION The amounts of deferred taxation provided and unprovided in the accounts are : 2010 £m 1.4 112.3 4.1 0.1 1.1 12.1 18.3 149.4 2010 £m 214.5 — 1.6 216.1 2010 £m 40.0 174.5 214.5 2009 £m 1.1 117.0 3.5 1.1 2.5 4.7 19.3 149.2 2009 £m 190.1 1.2 0.9 192.2 2009 £m 62.5 127.6 190.1 Provided Unprovided 2009 £m 2010 £m 2010 £m 2009 £m Capital allowances in excess of depreciation Other timing differences — (5.7) (5.7) 0.1 (6.2) (6.1) — 0.8 0.8 — 0.9 0.9 86 St Modwen Properties PLC Annual Report 2010 Financial Statements Notes to the Company Accounts continued for the year ended 30th November 2010 (J). DeFeRReD TAxATION CONTINUED Reconciliation of movement on deferred tax asset included in debtors Balance as at 30th November 2009 Profit and loss account Balance as at 30th November 2010 Reconciliation of deferred tax liability included in pension scheme asset Balance as at 30th November 2009 Profit and loss account Statement of total recognised gains and losses Balance as at 30th November 2010 (K). ShARe CAPITAL Authorised: Equity share capital At start and end of year Allotted and fully paid: Equity share capital At start and end of year £m (6.1) 0.4 (5.7) £m — — — — £m Ordinary 10p shares No. 250,000,000 25.0 200,360,931 20.0 See Note 3d of the Group financial statements for details of outstanding options to acquire ordinary shares. (L). ReSeRveS At 30th November 2009 Revaluation of investments (Note F) Retained loss for the year (Note B) Net share additions Dividends paid (Note D) Actuarial loss on pension scheme (Note M) At 30th November 2010 Share premium account £m Capital redemption reserve £m Revaluation reserve £m 102.8 — — — — — 102.8 0.3 — — — — — 0.3 164.7 89.9 — — — — 254.6 Profit & loss account £m 86.4 — (22.3) — (2.0) (0.1) 62.0 Own shares £m (0.4) — — (0.2) — — (0.6) Own shares represent the cost of 259,414 (2009: 273,330) shares held by the Employee Benefit Trust. The open market value of the shares held at 30th November 2010 was £351,246 (2009: £580,280). In addition the Employee Benefit Trust has £0.1m (2009: £0.1m) of cash and £9.0m (2009: £10.3m) due from the Company that can only be used for the benefit of employees. www.stmodwen.co.uk 87 (M). PeNSIONS The Company’s pension schemes are the principal pension schemes of the Group and details are set out in Note 18 of the Group financial statements. The directors are satisfied that this note, which contains the required IAS19 “Employee Benefits” disclosures for the Group, also covers the requirements of FRS17 “Retirement Benefits” for the Company. (N). OPeRATING LeASe COMMITMeNTS Operating lease commitments where the Company is the lessee Annual commitments under non-cancellable operating leases are as follows: Operating leases which expire: In one year or less Between one and five years In more than five years 2010 2009 Land and buildings £m — — 0.5 0.5 Other £m 0.1 0.3 — 0.4 Land and buildings £m — — 0.5 0.5 Other £m 0.1 0.6 — 0.7 (O). CONTINGeNT LIABILITIeS The Company has a joint and several unlimited liability with Vinci PLC and the Ministry of Defence under guarantees in respect of the financial performance of VSM Estates (Holdings) Limited (“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 expected 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 £16.0m (2009: £18.4m). Further, the Company guarantees the performance of its subsidiaries in the course of their usual commercial activities. 88 St Modwen Properties PLC Annual Report 2010 Financial Statements Independent Company Auditors’ Report to the Members of St. Modwen Properties PLC We have audited the parent company financial statements of St. Modwen Properties PLC for the year ended 30 November 2010 which comprise the Company Balance Sheet and the related Notes A to O. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 auditor’s 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 auditor As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. Opinion on financial statements In our opinion the parent company financial statements: • give a true and fair view of the state of the Company’s affairs as at 30 November 2010 and of its loss for the year then ended; • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and • the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the parent company financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the Group financial statements of St. Modwen Properties PLC for the year ended 30 November 2010. Stephen Griggs FCA (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor Birmingham, UK 4th February 2011 www.stmodwen.co.uk Five Year Record Net rental income* Property profits/(losses)* Revaluation surplus/(deficit)* Pre-tax 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 89 2010 £m 33.7 15.5 29.4 37.5 18.6 1.0 18.6 218.0 9% 828.0 49.4 171.6 (297.3) (314.9) 436.8 20.0 407.8 (0.6) 9.6 436.8 2006 £m 33.2 44.6 55.6 96.9 61.6 10.2 6.0 245.3 15% 736.4 77.9 65.9 (237.5) (252.9) 389.8 12.1 373.7 (0.8) 4.8 389.8 2007 £m 34.9 54.5 62.8 100.1 73.3 11.7 6.3 284.1 16% 846.9 75.4 209.3 (262.0) (401.9) 467.7 12.1 446.8 (0.7) 9.5 467.7 2008 £m 33.2 9.7 (64.6) (73.1) (37.3)‡ 3.9 (11.0) 251.4 (12%) 814.3 64.2 228.1 (282.9) (421.5) 402.2 12.1 380.7 (0.1) 9.5 402.2 2009 £m 33.5 (8.2) (106.5) (119.4) (59.7) — — 200.1 (20%) 762.9 41.3 192.7 (277.1) (318.8) 401.0 20.0 372.7 (0.4) 8.7 401.0 * † § Including share of joint ventures Including post-tax profit of joint ventures 2006 to 2008 restated for comparability purposes on the assumption that the 2009 Firm Placing and Placing and Open Offer had occurred on 1st December 2005 The figures above are all presented under IFRS. 90 St Modwen Properties PLC Annual Report 2010 Financial Statements Notice of Annual General Meeting Notice is hereby given that the seventieth Annual General Meeting of St. Modwen Properties PLC will be held at 12 noon on Tuesday 22nd March 2011 at the Marketing Suite, 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 2010. 2. To declare a final dividend of 2p per share. 3. To re-elect Steve Burke as a director. 4. To re-elect Simon Clarke as a director. 5. To re-elect Lady Katherine Innes Ker as a director. 6. To re-elect Lesley James as a director. 7. To re-elect Bill Oliver as a director. 8. To re-elect John Salmon as a director. 9. To elect Michael Dunn as a director. 10. To elect David Garman as a director. 11. To elect Bill Shannon as a director. 12. 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: 13. Ordinary Resolution That the Directors’ remuneration report for the year ended 30th November 2010 be approved. 14. Ordinary Resolution That the authority to allot relevant securities and equity securities conferred on the directors by Article 7.2 of the Company’s Articles of Association be and is hereby granted for the period ending on 22nd June 2012 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 551 amount shall be £4,963,907. 15. Special Resolution That the power to allot relevant securities and equity securities conferred on the directors by Article 7.2 of the Company’s Articles of Association be and is hereby granted for the period ending on 22nd June 2012 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 561 amount shall be £1,001,805. 16. Special Resolution That, in accordance with Article 9 of its Articles of Association and Section 701 of the Companies Act 2006, the Company be and is hereby granted general and unconditional authority to make market purchases (as defined in Section 693 of the Companies Act 2006) of any of its own ordinary shares on such terms and in such manner as the Board of directors may from time to time determine PROVIDED THAT the general authority conferred by this Resolution shall: (a) be limited to 20,036,093 ordinary shares of 10p each; (b) not permit the payment per share of more than 105% of the average middle market price quotation on the London Stock Exchange for the ordinary shares on the five previous dealing days or less than 10p (in each case exclusive of advance corporation tax (if any) and expenses payable by the Company); and (c) expire on 22nd June 2012 or at the conclusion of the next Annual General Meeting of the Company to be held after the date of the passing of this Resolution (whichever is the earlier), save that if the Company should before such expiry enter into a contract of purchase then the purchase may be completed or executed wholly or partly after such expiry. www.stmodwen.co.uk 91 17. Special Resolution To consider and, if thought fit, to pass the following as a special resolution: That a general meeting other than an annual general meeting may be called on not less than 14 clear days’ notice. By order of the Board Reeta Stokes Company Secretary 28th February 2011 Registered Office: 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 2010. 2 The performance of the Board as a whole, as well as the contribution made by the individual non-executive directors has been reviewed during the course of the year. After considering this evaluation, the Board believes that the individuals continue to demonstrate commitment to their roles and that their respective skills complement each other to enhance the overall operation of the Board. All of the directors offer themselves for re- election, proposed through separate resolutions 3 to 8. Biographical details of these directors can be found on pages 28 and 29. 3 Under the Company’s Articles of Association, any director appointed by the Board since the date of the last Annual General Meeting may only hold office until the next Annual General Meeting, at which time the director is required to stand for election by the shareholders. Accordingly, David Garman, Bill Shannon and Michael Dunn, having been appointed on 19th April, 1st November and 1st December 2010 respectively, offer themselves for election, under resolutions 9 to 11. Their biographies are shown on pages 28 and 29. 4 Resolution 12 is proposed to re-appoint 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. 5 Resolution 13 is to approve the Directors’ Remuneration Report, which is included on pages 38 to 43 and provides details of the Group’s remuneration policy for the directors and senior executives. In accordance with sections 439 and 440 of the Companies Act 2006, the vote on this resolution is advisory and no director’s remuneration is conditional upon the passing of this resolution. 6 The existing general authority of the directors to allot shares and the current disapplication of the statutory pre-emption rights granted at the Company’s 2010 Annual General Meeting expire at the conclusion of the forthcoming Annual General Meeting. Article 7.2 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 551 amount”) approved by a Special or Ordinary Resolution of the Company. Article 7.2 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 561 amount”). Resolution 14, which will be proposed as an Ordinary Resolution, provides for the Section 551 amount to be £4,963,907 (being an amount equal to the authorised but unissued share capital of the Company at the date of this report and representing 25% 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 15, which will be proposed as a Special Resolution, provides for the Section 561 amount to be £1,001,805 (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 22nd June 2012 if earlier, when the directors intend to seek renewal of the authorities. 7 Resolution 16 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. 92 St Modwen Properties PLC Annual Report 2010 Financial Statements Notice of Annual General Meeting continued 8. Changes made to the 2006 Act by the Shareholders’ Rights Regulations increase the notice period required for general meetings of the Company to 21 clear days unless shareholders approve a shorter notice period, which cannot however be less than 14 clear days. Annual General Meetings (“AGM”) will continue to be held on at least 21 clear days’ notice. Before the Shareholders’ Rights Regulations came into force on 3 August 2009, the Company was able to call general meetings other than AGMs on 14 clear days’ notice without obtaining such shareholder approval. In order to preserve this ability, Resolution 17 seeks such approval. The approval will be effective until the Company’s next AGM, when it is intended that a similar resolution will be proposed. 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) To be valid, the Form of Proxy and the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, must be received by the Company’s registrars before 12 noon on Sunday 20th March 2011, either in hard copy form by post, by courier or by hand to the Company’s registrars, Equiniti Aspect House, Spencer Road, Lancing, BN99 6DA. c) Any person to whom this notice is sent who is a person nominated under section 146 of the 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. d) The statement of the rights of members in relation to the appointment of proxies in Note (a) does not apply to Nominated Persons e) As at 25th February 2011 (being the last working day prior to the publication of this notice), the Company’s issued share capital consisted of 200,360,931 shares, carrying one vote each, which represents the total voting rights in the Company as at that date. f) 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 Marketing Suite, 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 Non-Executive Directors’ letters of appointment; and (iii) a copy of the Company’s Articles of Association g) In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, the Company gives notice that only those shareholders entered on the relevant register of members (the “Register”) for certificated or uncertificated shares of the Company (as the case may be) at 6 p.m. on Sunday 20th March 2011 (the “Specified Time”) will be entitled to attend or vote at the meeting in respect of the number of shares registered in their name at the time. Changes to entries on the Register after the Specified Time will be disregarded in determining the rights of any person to attend or vote at that meeting. Should the meeting be adjourned to a time not more than 48 hours after the Specified Time, that time will also apply for the purpose of determining the entitlement of members to attend and vote (and for the purpose of determining the number of votes they may cast) at the adjourned meeting. Should the meeting be adjourned for a longer period, then to be so entitled, members must be entered on the Register at the time which is 48 hours before the time fixed for the adjourned meeting or, if the Company gives notice of the adjourned meeting, at the time specified in the notice. h) Electronic proxy appointment through CREST CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the annual general meeting and any adjournment(s) thereof by using the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s (“EUI”) specifications and must contain the information required for such instructions, as described in the CREST Manual (available at www.euroclear.com/CREST). The message, regardless of whether it constitutes the appointment of a proxy or 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 RA19) 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. www.stmodwen.co.uk 93 CREST members and, where applicable, their CREST sponsors or voting service providers should note that EUI 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. i) Representatives of shareholders that are corporations will have to produce evidence of their proper appointment when attending the AGM.  Please contact our Registrars if you need any further guidance on this. j) Every shareholder 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). k) 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 this form (calls to this number are charged at 8p per minute from a BT landline, other telephony provider costs may vary. Overseas callers should dial +44 121 415 7047. Lines are open from 8.30am to 5.30pm Monday to Friday). 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. All forms must be signed and should be returned together in the same envelope. l) Shareholders who would prefer to register the appointment of their proxy electronically via the internet can do so through the Sharevote website, www.sharevote.co.uk, using their personal Authentication Reference Number (this is the series of numbers printed under the headings Voting ID, Task ID and Shareholder Reference Number on the Proxy Form). Alternatively, shareholders who have already registered with Equiniti Registrars’ online portfolio service, Shareview, can appoint their proxy electronically by logging on to their portfolio at www.shareview.co.uk and clicking on the link to vote under their St. Modwen Properties PLC holding details. Full details and instructions on these electronic proxy facilities are given on the respective websites. You may not use any electronic address provided in either this Notice of General Meeting or any related documents (including the Proxy Form) to communicate with the Company for any purposes other than those expressly stated. m) Any shareholder attending the meeting has the right to ask questions. The Company must cause to be answered any such question relating to the business being dealt with at the meeting but no such answer need be given if (a) to do so would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information, (b) the answer has already been given on a website in the form of an answer to a question, or (c) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered. n) A copy of this notice, and other information required by section 311A of the Companies Act 2006, can be found on the Company’s website at www.stmodwen.co.uk. 94 St Modwen Properties PLC Annual Report 2010 Financial Statements Glossary of Terms Annualised net rents are gross rents as at a reporting date plus, where rent reviews are outstanding, any increases to estimated rental value (as determined by the Group’s external valuers), less any ground rents payable under head leases. Interest cover is profit before interest and tax (excluding non-cash items such as investment property revaluations) plus the realisation of previous years’ revaluations, as a percentage of net interest (excluding non-cash items such as mark-to-market of interest rate swaps). BReeAM — Building Research Establishment Environmental Assessment Method — an industry-wide 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. Compulsory purchase order (CPO) is the compulsory acquisition of land by a planning authority, undertaken in the public interest and with pre- defined timescales and compensation arrangements. CSR — Corporate social responsibility. ePRA is the European Public Real Estate Association — a body that has put forward recommendations for best practice for financial reporting by real estate companies. ePRA net asset value (ePRA NAv) is the balance sheet net assets, excluding fair value adjustments for debt and related derivatives, deferred taxation on revaluation and capital allowances. ePRA net assets per share is EPRA net assets divided by the diluted number of shares at the period end. estimated rental value (eRv) is the Group’s external valuers’ opinion as to the open market rent which, on the date of valuation, could reasonably be expected to be obtained on a new letting or rent review of the property. equivalent yield is a weighted average of the initial yield and reversionary yield and represents the return a property will produce based on the timing of the income received. Gearing is the level of the Group’s bank borrowing (excluding finance leases) expressed as a percentage of net assets. hopper is the bank of property comprising all of the land under the Group’s control, whether wholly owned or through joint ventures or development agreements. IFRS — International financial reporting standards. Initial yield is the annualised net rent expressed as a percentage of the valuation. IPD is 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. Pre-sold projects are those projects where we are constructing buildings that have been specified by, and designed for, or adapted by, a specific client under a specific construction contract. On such projects, profit is recognised using the stage completion method. Property profits includes profits made on sales of investment properties, properties held for sale and properties under construction. Rent roll is the gross rent plus rent reviews that have been agreed as at the reporting date. 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. www.stmodwen.co.uk 95 Information for Shareholders Financial Calendar Annual General Meeting Announcement of 2011 interim results Announcement of 2011 final results Ordinary shareholdings at 30th November 2010 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 22nd March 2011 July 2011 February 2012 Shareholders Shares No. % No. (m) % 26 3,793 682 110 0.39 82.43 14.79 2.39 53,403,706 12,221,276 131,256,494 3,479,455 26.65 6.10 65.51 1.74 Shareholders Shares No. % No. (m) % 1,118 825 1,671 420 356 68 85 22 46 24.25 17.89 36.24 9.11 7.72 1.47 1.84 0.48 1.00 278,013 638,071 3,873,975 3,029,388 7,532,349 4,983,697 19,741,993 16,494,417 143,789,028 0.14 0.32 1.93 1.51 3.76 2.49 9.85 8.23 71.77 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 PLC shareholding online. Share dealing service Equiniti offer a telephone and internet share dealing service which allows you to buy or sell St. Modwen Properties PLC shares if you are a UK resident. Details can be found on their website www.shareview.co.uk/dealing. This arrangement is available at any time during market trading hours and provides an easy and convenient facility to trade shares offering real time prices through a range of market makers. Full terms and conditions for this service are available on the Shareview website. To trade over the telephone, please call 08456 037037. Registered office Sir Stanley Clarke House 7 Ridgeway Quinton Business Park Birmingham B32 1AF Company number 349201 Website www.stmodwen.co.uk Joint Stockbrokers JP Morgan Cazenove Numis Securities This annual report is printed on Claro Silk, comprising fibres sourced from sustainable forest reserves and bleached without the use of chlorine. The production mill for this paper operates to EMAS, ISO 14001 environmental and ISO 9001 quality standards. 96 St Modwen Properties PLC Annual Report 2010 Development Projects NORTh WEST NEWTON-LE-WILLOWS – Vulcan Works GLASGOW – Pegasus Business Park – Springburn PRESTON – Channel Way BLACkBuRN – Evolution Park SkELMERSDALE – Town Centre ECCLES – Lankro Way WIGAN – Enterprise Park MANChESTER – Wythenshawe – Trafford Park – Openshaw LIvERPOOL – East Lancs Road – Great Homer Street WIDNES – Economic Development Zone – Town Centre WARRINGTON – Trident Business Park PRESCOT CONNAh’S QuAY ELLESMERE PORT BuRNLEY YORkShIRE & NORTh EAST DARLINGTON – Whessoe Road SuNDERLAND huLL – Melton Park DONCASTER – Worcester Avenue – Parkside LINCOLN NORTh STAFFORDShIRE STOkE-ON-TRENT – Etruria Valley, Festival Park – Trentham Lakes – Fenton 25 & Berryhill – Phoenix Park – Blythe Vale Business Park – Victoria Park – Nile Street – The Trentham Estate & Gardens STONE – Meaford Business Park MIDLANDS DERBY – Hilton Depot STAFFORD – Lichfield Road – St. Leonard’s BuRTON-uPON-TRENT – Barton Business Park – Branston – Pirelli WOLvERhAMPTON – Goodyear TELFORD – Brockton Business Park – Queensway Business Park WALSALL – St. Matthew’s Quarter – Pelsall Road BIRMINGhAM – Washwood Heath – Quinton Business Park LONGBRIDGe RuGBY – Mill Road – Newbold Road WORCESTER – Shrub Hill Industrial Estate – Blackpole Trading Estate – Great Western Business Park – Gregorys Bank – Taylors Lane STRATFORD-uPON-AvON – Long Marston COvENTRY – Whitley Business Park CANNOCk – Hednesford Town Centre – Pye Green – Watling Street NOTTINGhAM – Bestwood Business Park SOuTh WEST & SOuTh WALES GLOuCESTER – Quedgeley Business Park LONDON & SOuTh EAST MILL hILL – Inglis Barracks uxBRIDGE – RAF Uxbridge ThuRROCk – South Ockendon LONDON – Elephant & Castle – Leegate – Wembley Central – Hounslow WOkING – The Planets BRIGhTON – Woodingdean FARNBOROuGh – Town Centre GuILDFORD – Henley Industrial Estate YALDING – Syngenta EASTLEIGh – Campbell Road POOLE – Discovery Court ESSEx – South Ockendon SuRREY – Copthorne NEWPORT, GWENT – Glan Llyn (Llanwern) – Celtic Business Park DuRSLEY – Littlecombe AvONMOuTh, BRISTOL – Access 18 TAuNTON – Langford Mead – Firepool NEATh – Coed Darcy ExETER – Skypark PORT TALBOT – Baglan Bay WESTON-SuPER-MARE – Westlands – Locking Parklands SWANSEA – Transit (Swansea University) CLEvEDON – Clevedon Business Park NORThERN hOME COuNTIES CRANFIELD – Technology Park BEDFORD – Thurleigh Airfield – Town Centre ENFIELD – Edmonton Green Town Centre MILTON kEYNES – Stratford Road hATFIELD – Town Centre LETChWORTh – Letchworth Business Park LuTON – Guildford Street hEMEL hEMPSTEAD – Maxsted Park St. Modwen Properties PLC Annual Report 2010 welcome to St. Modwen Contents www.stmodwen.co.uk resource Centre St. Modwen is the uK’s leading regeneration specialist. over the last 30 years we have built up a land bank of over 5,700 developable acres and have transformed the uK landscape via thoughtfully planned sustainable communities, mixed-use and town centre schemes, district centres and business and employment developments. our schemes act as the catalyst for wide scale comprehensive regeneration in the areas that need it the most. With each development we seek to leave a legacy by providing the right physical and economic infrastructure where businesses and communities can evolve and develop. We have a strong presence across the uK and our diverse property portfolio of over 180 sites means we are not over exposed to a single scheme, tenant or sector. this portfolio is largely divided into three specific areas of focus: income producing, residential land and commercial land. Business review Page 07 Operational and financial performance in 2010 and prospects for 2011. 08 Chairman’s Statement 10 Chief Executive’s Review 12 Operating and Financial Review Corporate Governance Page 21 Information regarding the Board and how they have run the business for the benefit of the shareholders. 22 Corporate Social Responsibility 28 Board Members and Senior Management 31 Corporate Governance Report 38 Directors’ Remuneration Report Financial Statements Page 45 Detailed analysis of financial performance. 46 Directors’ Responsibilities Statement 47 Independent Group Auditors’ Report 48 Group and Company Accounts 88 Independent Auditors’ Report 89 Five Year Record 90 Notice of Annual General Meeting 94 Glossary of Terms 95 Information for Shareholders 96 Development Projects Reports and Publications St. Modwen’s reports and publications are available to view online or download from www.stmodwen.co.uk You can order St. Modwen’s printed publications, free of charge from: UK and Rest of World Sir Stanley Clarke House 7 Ridgeway Quinton Business Park Birmingham B32 1AF Industrial St. Modwen’s reports and publications are available to view online or download from www.stmodwen.co.uk Retail Registered office Sir Stanley Clarke House 7 Ridgeway Quinton Business Park Birmingham B32 1AF Company number 349201 Website www.stmodwen.co.uk Joint Stockbrokers JP Morgan Cazenove Numis Securities 18573-04 16/02/2011 Proof 7 18573-04 16/02/2011 Proof 7 nortHern HoMe CoUntieS First Floor, Unit E1 The Courtyard Alban Park Hatfield Road St Albans Hertfordshire AL4 0LA 01727 732690 St. Modwen ProPertieS PLC Company Number 349201 HeAd oFFiCe & MidLAndS reGionAL oFFiCe Sir Stanley Clarke House 7 Ridgeway Quinton Business Park Birmingham B32 1AF 0121 222 9400 www.stmodwen.co.uk info@stmodwen.co.uk reGionAL oFFiCeS: London & SoUtH eASt 180 Great Portland Street London W1W 5QZ 020 7788 3700 SoUtH weSt & SoUtH wALeS Green Court King’s Weston Lane Avonmouth Bristol BS11 8AZ 0117 316 7780 YorKSHire & nortH eASt Ground Floor, Unit 2 Landmark Court Elland Road Leeds LS11 8JT 0113 272 7070 nortH StAFFordSHire The Trentham Estate Management Suite Stone Road Trentham Stoke-on-Trent ST4 8AX 01782 281844 nortH weSt Chepstow House Trident Business Park Daten Avenue Risley Warrington WA3 6BX 01925 825950 S t M o d w e n P r o P e r t i e S P L C A n n u A l R e p o R t f o R t h e y e A R e n d e d 3 0 n o V e M B e R 2 0 1 0 the uK’s leading Regeneration Specialist St. Modwen ProPertieS PLC www.stmodwen.co.uk StoCK Code: SMP St Modwen ProPertieS PLC AnnuAl RepoRt foR the yeAR ended 30 noVeMBeR 2010 18573-04 16/02/2011 Proof 7 18573-04 16/02/2011 Proof 7 

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