Final Results

27th Feb 2009 07:00



St. Modwen Properties PLC

St. Modwen Properties PLC, the UK's leading regeneration specialist, announces

annual results for the year ended 30th November 2008.

HIGHLIGHTS

Trading profit of £8.2m (2007: £50.9m)

Net assets per share decline of 14% to 333p per share since 30th November 2007 (387p) 

Impact of property revaluations mitigated by £64.8m (54p per share) of added value actions

Compliant with banking covenants and forecast to remain compliant throughout 2009

All major banking facilities secured through to 2011

Continued success in adding new schemes to the hopper

Good progress in marshalling projects for future delivery

Anthony Glossop, Chairman, comments:

 

"Market confidence in the underlying strength of our business and in our reputation as the UK's leading regeneration specialist was further underlined this year by our continued selection as preferred developer on major sites across the country, including BP's 2,500 acre portfolio of disused sites. 

"We continue to transact a steady flow of business, and since 30 November 2008, we have agreed forward sales or the disposal of pre-let properties with a value of some £90m, and have rent roll increases, completed or in solicitors' hands, of £4.9m (£2.6m net of vacations and tenant failures).

"Despite the very difficult current economic environment our confidence in the longer-term is undiminished. The market for residential land will eventually return and investment yields will stabilise as the benefits from lower interest rates are realised. When this occurs, the company's 5,000 acre hopper and experienced management team will provide an exceptional foundation for a return to growth."

27 February 2009

 

ENQUIRIES:

St. Modwen Properties PLC	0121 222 9400 www.stmodwen.co.uk
Bill Oliver, Chief Executive
Tim Haywood, Finance Director
Charlotte McCarthy- Regional media enquiries
College Hill	020 7457 2020
Gareth David	07774 444 762

A presentation for analysts and investors will be held at 9.30 a.m. today at the offices of Numis Securities, 10 Paternoster Square, London, EC4M 7LT.

  Chairman's Statement 

Results

I am pleased to report that, despite experiencing the most difficult year for property in decades, we made a trading profit (excluding revaluation write-downs and mark to market adjustments of our interest rate hedges - see Financial Review) of £8.2m (2007: £50.9m). 

The outcome for the past year, including those items, is a loss for the year of £50.7m (2007: £93.7m profit) and, taking into account the payment of dividends, a decline in the net asset value of the company of 14% to 333p per share (2007: 387p). 

Trading and valuations

The broad range and regional spread of our activities enabled us to continue to find business despite the economic turbulence. We achieved property sales of £146m, completing 104 transactions, and have grown our rent roll, with rental income in the second half 8% higher than in the first half.

Our valuations at 30th November 2008 reflect a year of considerable uncertainty in the real estate investment market. The yields used for valuing our properties have continued to weaken. The results for the year include a negative yield shift on average of 1%. The value of our commercial land has also been reduced to reflect the declining values of developments that will be undertaken on the land. Additionally, the valuation of our residential land has been significantly reduced to reflect the current housing market. For the majority of our sites that have consent for residential development, carrying values are now at similar levels to that for employment land without such consent.

However our strategy of constantly seeking to add value helped to mitigate the unavoidable market value write-downs. Market related adjustments of £129.4m were therefore tempered by added value gains of £64.8m. 

We continue to transact a steady flow of business, and since 30 November 2008, we have agreed forward sales or the disposal of pre-let properties with a value of some £90m, and have rent roll increases, completed or in solicitors' hands, of £4.9m (£2.6m net of vacations and tenant failures)

Financing

We have adequate lines of credit in place which do not require any material refinancing before 2011. Interest cover covenants have been redefined to include the realisation of historical revaluation surpluses, which gives us greater flexibility in meeting them. The company is trading within all its banking covenants and its forward projections show a continuation of that position. Although there is uncertainty around forecast property valuations, we believe we will mitigate any downward movements, in part, through continued marshalling activity.

We continue to assess the full range of options to provide additional financial flexibility, including generating trading profits, cash management and cost control and disposals from our investment portfolio, as well as possible equity raising.

Dividend

Your board is not recommending a final dividend for the year, (although an interim dividend of 3.9p per share has been paid). We believe that the funds are currently better used in the operations of the business, until market conditions are clearer and more positive.

Strategy

In the current economic downturn, where bank and investor liquidity is limited, and the market for residential land is at an historic low, we have adapted our activities to suit the changing conditions. Therefore during the year we have scaled-back speculative schemes, whilst continuing to marshal sites for development on the back of pre-let or pre-sold opportunities. We have also continued to dispose of those mature assets to which we can add no further significant value.

Our aim has been to bring debt and gearing levels down, which I am pleased to report is being achieved - borrowings have now peaked and we expect that the next period will see a gradual reduction in our debt.

Notwithstanding our focus on cash generation, we continue to seek, and to find, long-term opportunities for the hopper. During the year, we made 20 acquisitions adding 318 acres of developable land to our hopper. Our selection by BP for the acquisition of Coed Darcy is a good example of this: the acquisition will be self-financing; it will entail a 20-year development horizon that will enable the company to utilise fully its brownfield land remediation expertise.

Looking ahead, we remain confident that the company's strategy is valid in the long-term, despite the current weakness in the market. We will continue to build on our reputation as the UK's leading regeneration specialist. We will continue to add value across our geographically and sector-diversified Hopper through our network of regional offices. We will continue to work in partnership with communities and local authorities to bring innovative regeneration to those areas which need it most. And in doing all this, I believe that the company will return to the longstanding historical trend of providing sector-leading returns to our shareholders.

Prospects

Property market prospects for 2009 are uncertain. The economy is in recession, with little business confidence. 

However, we are well prepared for such conditions: our financial position is sound; our business model will continue to create value even in difficult times; and we anticipate that there will be attractive opportunities to add further to the Hopper.

Our business has never been based on a concept of automatic rental growth or new headline rents, but on constantly providing value for money. Even in today's market this approach bears fruit.

 

Our confidence in the longer-term is undiminished. The market for residential land will eventually return and investment yields will stabilise as the benefits from lower interest rates are realised. When this occurs, the company's 5,000 acre hopper and experienced management team will provide an exceptional foundation for a return to growth.

ANTHONY GLOSSOP

Chairman

26 February 2009

  Business Review

Our Market

We are the UK's leading regeneration specialist, operating within all sectors of the property market.

The property market is experiencing the worst trading conditions for decades.

The occupational market continues to be vulnerable to further economic downturn. The retail market is undoubtedly weaker, although occupancies in our existing town centre schemes are holding up well. The business park market has also remained difficult, but we have continued to make progress in the small office unit market and our business innovation centres have achieved good early results. The industrial market remains the strongest, with a number of large bespoke requirements supplementing owner-occupier demand for smaller units.

The market for residential land, however, which has been important for us in recent years, has collapsed. There are currently no substantial private sector buyers for residential land, as house builders struggle to move existing housing stocks and to shore up their over-stretched balance sheets. However, having incurred a significant write-down in the carrying values of our residential land during 2008, we believe that our further exposure in this area is limited.

Our long-term strategy should continue to mitigate the worst effects of a difficult market on St. Modwen. As well as a prudent approach to appraising schemes, an emphasis on adding value, and our exposure to a wide range of property sectors and geographic areas, we also benefit from:-

The size and diversity of the hopper, enabling us to align our development activities to market conditions. 

An unrivalled experience in brownfield land regeneration

A strong and experienced management, development and construction team.

Competitive and Regulatory Environment 

The UK property market is normally extremely competitive. Natural barriers to entry are generally low. Finance is usually readily available and advantages of scale, although they do exist, are limited. In recent years it has been rare, therefore, for the company not to be in serious competition whether it has been seeking to make an acquisition, to achieve selection as preferred developer, or to secure an occupier. 

In the current credit crunch market, however, conditions are different: the lack of readily-available finance has restricted the appetite and ability to compete of many developers; and the dislocation of the residential market, combined with falling investment returns, and increasing levels of caution amongst occupiers has undermined the viability of a number of proposed schemes. As a result, development and acquisition activity has fallen to low levels.

By contrast, the regulatory environment remains restrictive. Numerous attempts to simplify and speed up the planning process have not worked and the cost and timescale involved in obtaining planning permission continue to escalate with every new initiative, guidance and regulation. 

  

Two recent regulatory innovations, purportedly introduced to speed up the planning process and to facilitate property occupation, are cases in point. The Area Action Plan process which is being trialled at Longbridge took more than three years before the masterplan for this massively important regeneration scheme was finally approved in February 2009, despite close collaboration with the relevant local authorities. In the meantime, plans for the creation of 10,000 jobs, 1,400 homes, and a new town centre on the site of the former MG Rover car factory, have remained unrealised. 

A second initiative, the imposition of business rates on empty buildings, which became effective in April 2008, has had similarly unintended consequences. This tax represents a significant additional burden to which the rational response of the property owner is likely to be to demolish those second hand buildings that cannot immediately be let (thereby removing a source of affordable space. This was exemplified at Longbridge, where we reluctantly demolished a 750,000 sq ft former factory in order to avoid a £700,000 annual tax charge). Furthermore, the speculative development of new facilities for small and start-up businesses, such as our innovation centres, are now unlikely to proceed without public sector funding, thereby depriving these businesses of a source of usable space ready for immediate occupation.

Business Model and Strategy

The underlying purpose of all St. Modwen's activity is to add value to the properties it controls. The aim is that no property should be acquired or retained unless it is believed that significant value can be added to that property by the company's own efforts - asset management, refurbishment or redevelopment - over a five to fifteen year horizon.

In a declining market, such as the one we are currently facing, the challenge is even greater. We seek to meet this challenge by a strategy which emphasises value creation, cost control and local market knowledge. Through a network of regional offices, supported by a strong central construction management team, we create a broadly-based programme of activity, pulling out of the hopper the projects for which there is a current market opportunity. The key to our strategy remains the continuing acquisition of well located opportunities to top-up the hopper, which currently comprises more than 5,000 acres of developable land.

Employees

We take a hands-on approach to all aspects of our business: asset management; marshalling; and development. And as such, the skill of our people is fundamental to enable us to add value to the assets in the hopper. Consequently, even in these difficult times, we have continued to invest in our own bespoke management development programme for all senior staff, which enables us to continue to grow the abilities of the talented people who will be the drivers of the company's future expansion. 

It was, therefore, with reluctance that we decided in October that the continued fall in activity levels required us to reduce our headcount. As a result, 30 staff were made redundant from our property functions, and a further 16 from our leisure operation at Trentham. 

Financial Objectives and Key Performance Indicators

In the current UK economic and property market conditions, our previously stated financial objectives for NAV and dividend growth, or for specified returns on equity, are in the short-term largely meaningless. 

  

Our current financial objectives are more simple, namely: to manage through the downturn by running the business for cashflow; and to be in the best possible shape to profit from the opportunities that will undoubtedly arise. 

Both of these objectives require the same thing: adapting our activities to changing conditions. We are doing this by reducing expenditure; seeking to drive down debt and gearing levels; selling assets to which we can no longer add value; eliminating speculative development activity, and minimising any other non-funded commitments. 

For us, as for all property companies, adherence to our banking covenants is paramount. Consequently, our key performance indicators are currently those set by those covenants, namely:

 

	Covenant		Actual		Actual
			2008		2007
Gearing1	< 125%		105%		86%
Net assets2	> £350m		£402m		£468m
Interest cover3	> 150%		162%		307%
Loan to value4	< 70-80%		46%		53%

1 Gearing = net debt as a percentage of shareholders' funds

2 Net assets - the definitions of net assets in our banking facilities vary, the most stretching definition excludes minority interests 

3 Interest cover = 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 swaps)

4 Loan to value = the amount of loan secured against specific portfolios of properties, as a percentage of the market value of those properties. This is tested separately for each of our bank loans. The table above shows the company-wide ratio of our drawn facilities to our total available security.

The company is trading within all its banking covenants and its realistic forward projections show a continuation of that position. 

Development and Performance of the Business

The Hopper - assembly and acquisition

Despite the financial constraints on the business, 2008 was another excellent year for acquisitions, yet without significant cash outlay. Obtaining control of opportunities through self-financing transactions has always been part of our hopper strategy, and this year our skills in deal structuring have enabled us to continue to build for the future without compromising the short-term requirements of the business. 

Our total expenditure on new acquisitions (including 100% of joint ventures) during the year was only £18m. However, this enabled us to add 318 acres of developable land to the hopper. As a result, the hopper (including 100% of joint ventures) now stands at 8,702 acres, of which 5,020 is developable. The hopper is very broadly based, comprising some 162 separate schemes, across all sectors of the property market. 

Significant acquisitions during the period included: 

Coed Darcy - a 1,000 acre former oil refinery site near Neath, South Wales. Working closely in partnership with BP, The Welsh Assembly Government, Neath Port Talbot County Borough Council, and the Prince's Foundation for the Built Environment, we have commenced extensive remediation works prior to creating a sustainable urban village community of some 4000 homes on the site.

Sunderland - a 10 acre former Pyrex factory site with 350,000 sq ft of buildings, identified as a priority regeneration site by the city's urban regeneration company, Sunderland arc. Subsequent to the year end we acquired an adjoining 7 acre former Corning glassworks facility.

Weston Super Mare - selected as the preferred developer for the former RAF Locking site, now known as Locking Parklands, by South West RDA and English Partnerships. The site will become a new 200 acre mixed use community. 

Letchworth - a 5 acre former RWE power station site in Letchworth Garden City, acquired from Letchworth Heritage Foundation for development into an 80,000 sq ft office and industrial park.

Additionally, in November we were selected by BP as preferred developer for a 2,500 acre portfolio of brownfield sites in South Wales, Scotland, the Midlands and South East England. We are currently documenting the acquisition of the portfolio, before commencing an extensive programme of remediation works, funded by a dowry from BP. The sites are likely to be redeveloped for predominantly employment-led commercial uses. 

This important portfolio acquisition exemplifies much of our business model, namely:

This portfolio will take its place in our widespread and diversified hopper, being marshalled over a 10-15 year horizon to deliver a regular contribution in future years, and continuing the reinforcement of our reputation as the UK's leading regeneration specialist.

Marshalling 

We have continued to make good progress in marshalling projects for future delivery, as evidenced by the quantity and quality of planning permissions obtained in the year, as detailed in the table below.

Planning permissions obtained in the year

	#		Sq Ft		Units
Residential	5		-		4,425
Retail	5		151,000		-
Commercial	22		1,295,000		-
Office	11		399,000		-

In particular, we obtained planning consent on the following major schemes:

Project MoDEL - Planning permission was obtained on two of the remaining four former MoD sites: at Bentley Priory, Stanmore, for a new museum commemorating the Battle of Britain and 103 new homes; and at Victoria House in Woolwich, South East London, for a 75-bedroom care home.

Coed Darcy - planning consent has been obtained for 4,000 dwellings and 500,000 sq ft of employment space together with retail and community facilities, and the Section 106 obligations and outline remediation strategy have been agreed.

Darlington - An agreement has been signed with Darlington Borough Council to open up 70 acres of land within the Faverdale Employment Area to create a £50 million major industrial park capable of providing 1,500 jobs. We have received a resolution to grant planning consent for up to 1.1 million sq ft of predominantly distribution space.

Connah's Quay, Flintshire - Planning consent has been obtained for the redevelopment of the Deeside district centre, comprising a 52,000 sq ft foodstore, which has been pre-let to Morrisons and 20,000 sq ft of further retail space

Stoke-on-Trent - planning consents have been obtained for the regeneration of the historic former Royal Doulton site in Nile Street, Burslem (a mixed use scheme comprising a 70,000 sq ft Enterprise Centre and 140 homes), and for a 21,000 sq ft district centre at Trentham South

Elsewhere we continue to move forward the planning position on major sites:

Long Marston - Our proposed Middle Quinton development on this former MoD site is one of twelve nationally shortlisted potential eco-towns. The site recently received a Grade B rating in the Department of Communities and Local Government Sustainability Assessment (which classified the site as 'Might be a suitable location subject to meeting specific planning and design objectives.'), and remains on track for selection some time in 2009. In the meantime, we continue to work up alternative proposals for a mixed use employment-led redevelopment of the site in accordance with the existing local plan.

Longbridge - Four separate planning applications, representing £750 million of mixed use development, have been submitted to Birmingham City Council and Bromsgrove District Council for the regeneration of the 468 acre former MG Rover Works. The applications comprise 1.8 million sq ft of employment space, together with 1,980 new homes, a new town centre and extensive community facilities. In addition, there will be a new learning quarter on the site, anchored by Bournville College which announced in 2008 that it will relocate to a new purpose-built £84 million educational facility at Longbridge in 2011. 

Hednesford - We are currently working up a 124,000 sq ft retail scheme, anchored by a foodstore, with planning due for submission in Autumn 2009.

Sunderland - A planning application is shortly to be submitted for a mixed use scheme comprising 25,000 sq ft of office accommodation and 285 family homes, following the successful assembly of this 17 acre site.

Significant achievements on our major town centre projects include:

Farnborough - One of a very limited number of retail development schemes coming on stream nationally in the period 2009-2010. Following demolition and infrastructure works, we have commenced on the first phase of the town centre redevelopment which will provide 190,000 sq ft of new retail space, a new Sainsbury's store, Travelodge and leisure facilities, together with 115 private apartments and 56 apartments for affordable housing in partnership with Thames Valley Housing Association and Pavilion Housing Association.

Although scaled back in response to current market conditions, our construction programme continues to deliver new schemes:

Stoke on Trent - work has started on a pre-let £30m call centre for Vodafone. The innovatively-designed 80,000 sq ft building should secure jobs for about 1,100 people in the area. Work has also begun on a 7,850 sq ft self-contained two-storey office for Hanley Economic Building Society, part of the fourth phase of the highly successful Festival Park where over 220 acres have already been developed.

 Whitley, Coventry - the first phase of development at the 93-acre business park has been completed, providing 42,000 sq ft of grade A offices with "very good" BREEAM sustainability rating. This flagship mixed use business environment is being created on land recently acquired from Jaguar and Coventry City Council, and will eventually provide 1.1 million sq ft of business space and generate more than 2,000 new jobs.

Evolution Park, Blackburn - a 44,000 sq ft Innovation Centre and a 22,500 sq ft grow-on facility have been completed, targeted at start-up and growing enterprises within the medical, knowledge, science and technology sectors. This is our third innovation centre, following the successful developments at Cranfield and, more recently, at Longbridge.

Woodingdean Business Park, Brighton - a further 30,000 sq ft of office accommodation has been completed at this 9.5 acre former bakery site. To date, over 75,000 sq ft of industrial and office space has been delivered on the Business Park. 

Heron Business Park, Widnes - The second phase of this development, supported by Halton Borough Council and North West Development Agency and ERDF funding, is scheduled to complete in early 2009 and comprises 19 business units providing 73,700 sq ft of modern industrial, suitable for office, light industrial and general manufacturing uses.

Delivery

Despite the difficult market conditions, we have completed 104 transactions in the year and realised disposal proceeds of £146m, benefiting from the wide range, varied lot sizes, and realistic pricing of our products.

In the industrial/distribution sector we completed 987,000 sq ft of new buildings and 517,000 sq ft of refurbishments, including:-

Quedgeley West Business Park, Gloucester - a 102,000 sq ft distribution facility built for CM Downton, together with a further 120,000 sq ft of industrial and distribution facilities speculatively developed, of which 65% has already been let and sold to investors 

Avonmouth - a 165,000 sq ft distribution centre built for Nisbetts, together with 78,000 sq ft of speculatively developed industrial buildings sold to owner occupiers

In the office and business park sector, a number of developments were successfully completed, including:

Trentham Lakes, Stoke on Trent - a 37,000 sq ft business quarter of small offices, of which 75% has been sold to owner-occupiers

Melton Park, Hull - a first phase of 75,000 sq ft industrial and 25,000 sq ft office space of this 116 acre mixed use development

Quinton Business Park - a 33,000 sq ft office building let to Business Link was acquired by Advantage West Midlands, and a further building was let to Linpac

We have also continued our longstanding policy of disposing of those assets to which we can add no further value, seeking to recycle capital for use on other projects:

Trentham Gardens, Staffordshire - the 119-bedroom Premier Inn Hotel at our popular tourist and leisure destination near Stoke on Trent was sold to Habro Properties Group for £10m

Edmonton Green, Enfield - the 21,500 sq ft primary care trust was sold to Forest Vale Fundo Ltd for £5.5m

Bridge Retail Park, Runcorn - a 29,000 sq ft retail park including a Homebase and Dreams store, was sold to Hornbill Ltd, a private property company for £4.6m

Stafford - a 200,000 sq ft industrial/warehouse building and a 40,000 sq ft office building were sold to Areva T&D UK Limited for £6.9m

Liebig Court, Widnes - a development of 38 apartments and 6 retail units was sold to Places for People, a not-for-profit property management and development company, for £3.1m

Kempton Point, Sunbury on Thames - a 35,000 sq ft office building was sold to Arlo Holdings for £3.4m

We continue to devote considerable resources to creating additional value and enhancing the income of the property we own through a variety of asset management activities. During the year, our in-house team undertook:-

96 lease renewals, securing rent roll of £2.6m

235 rent reviews, achieving an uplift in rents of £1.5m ( 9.9%) and 

456 new lettings, producing additional rent roll of £10.6m, which more than offset the 332 vacations (rent roll reduction £8.9m).

At Trentham, despite another year of very poor weather, the gardens attracted 108,000 visitors (2007: 122,000) and a trading profit before interest of £0.8m (2007: £0.9m) was achieved. The highlights of last year were the new maze and Eastern pleasure ground development. This year's features are the Potter's Wheel and the iconic new garden restaurant. Further expansion of the retail village will be undertaken as pre-lets are achieved. 

Post year end sales and lettings 

Since the year end we have continued to make good progress, with over £90m of revenue secured either from sales of existing stock or from contracts for new buildings. Furthermore, our asset management activities have generated an additional £2.6m of annual rental income from new lettings and pre-lets for buildings under construction (net of vacations and tenant failures in the period). 

[For further details of projects referred to in this business review, and other projects, see our website www.stmodwen.co.uk]

Financial Review

In the trading profits table and throughout the financial review, certain numbers are quoted which include the group's share of joint ventures and associates as detailed in note 7

Trading profit

In very difficult conditions, we are pleased to have delivered a trading profit of £8.2m for the year. Our business model is based on core rental and other income covering the running costs of the company (property outgoings, overheads and interest), so that even when development profits are reduced, the company is still able to meet its commitments.

(£m)*	2008		2007		Var
Net rental income	33.2		34.9		(1.7)
Property profits1	9.6		54.5		(44.9)
Other income	7.3		2.5		4.8
Administrative expenses	(14.1)		(16.5)		2.4
Bank interest2	(27.8)		(24.5)		(3.3)
Trading Profit	8.2		50.9		(42.7)

* including the group's share of joint ventures and associates.

1  comprises development profits and gains on disposal of investment properties.

2 excluding mark to market adjustments and other non-cash items of £20.8m (2007: £10.5m) in the group and £2.9m (2007: £0.3m) in joint ventures.

Net rental income 

The fall in net rental income was principally due to the £1.1m impact of disposals, and the loss of £0.3m of rent due to vacancies being created for development (particularly at Wembley). The effect of tenant failures and vacations in the year was offset by a number of notable successes from our asset management activities.

At 30th November 2008, the gross rent roll, including our share of rent from joint ventures, had increased to £43.2m (2007: £41.2m). At the year end our overall voids were 16.8% (2007: 15.2%), reflecting the completion of certain, as yet unlet, developments during the year. 

Property profits

Property profits, including our share of joint ventures, fell to £9.6m (2007: £54.5m). However, this still represented a considerable level of activity with more than 100 individual property disposals being completed in the period. 

Property Valuations

All of our investment properties (including land) are valued every six months by King Sturge and Co. at market value.

The valuation of our investment properties reflects both market movements and the value added by the company's activities. The latter includes the achievement of marshalling milestones in the planning process (including allocations in local plans, obtaining planning permissions, and resolution of Section 106 agreements). The calculation of this added value incorporates the present value of future cash flows, based on existing land prices and the current best estimate of costs (incorporating appropriate contingencies) to be incurred.

  

2008 was a year of considerable uncertainty in the real estate investment market, and our valuations at 30th November reflect this. The yields used for valuing our properties have continued to weaken. The results for the year include a negative yield shift on average of 1%. The value of our commercial land has also been reduced to reflect the declining values of developments that will be undertaken on the land. Additionally, the valuation of our residential land has been significantly reduced to reflect the current housing market. For the majority of our sites that have consent for residential development, carrying values are now at similar levels to that for employment land without such consent. We believe that this does not reflect the long-term value of residential land which we consider will return to more realistic levels once a functioning housing market is re-established

The impact of these significant adverse movements was partly mitigated by gains achieved from our marshalling, re-development and asset management activities which added value of £64.8m in the year.

Property Valuations (£m)

	2008		2007
Marshalling milestones	11.5		62.3
Asset management and development	53.3		32.7
Market yield movement	(129.4)		(32.2)
Total	(64.6)		62.8

Administrative expenses

Towards the end of the year, we took action to reduce our cost base to reflect the lower activity levels in the business. The impact of the resulting redundancy programme is an annualised saving of £3m. The £0.6m cost of implementing these savings has been charged to profit in the current year.

Administrative expenses (including our share of joint ventures) have decreased during the year by £2.4m to £14.1m, due primarily to a substantial (£2.9m) reduction in the cost of employee share options following a period where the share price has fallen significantly (in line with the quoted real estate sector as a whole).

 

Joint ventures and associates

Our share of the 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 7. The principal joint venture in which the group is involved is Key Property Investments Limited, which recorded a post-tax loss, of which our share was £7.2m (2007: £11.1m profit). 

Finance costs and income

Net finance charges (including our share of joint ventures) have increased to £51.5m (2007: £35.3m). 

During the year average group borrowings increased by £82m to £430m, and average LIBOR (upon which our borrowing costs are based) decreased by approximately 30 basis points. As a result, interest payable on bank borrowings increased by £4.1m.

  

As a result of the recent dramatic reduction in interest rates, the revaluation of our interest rate swap contracts (which have a weighted average cost before margin of 4.99%) to market value at year end resulted in a charge to the Income Statement of £18.3m (2007: £1.0m), recognising the decreasing market value of such contracts in the prevailing climate of falling interest rates.

The positive aspect of this recent reduction in interest rates, however, can be seen in our average rate of interest payable, which at 30th November 2008 had fallen to 4.9% (2007: 6.5%).

Net finance charges also include a charge of £5.6m (2007: £9.9m) for the amortisation of the discounted deferred consideration payable to the MoD in respect of Project MoDEL. 

During 2008 the group has continued to expense all interest as it has arisen, and has not capitalised any interest on its developments or its investments.

Taxation

The effective rate of tax credit for the year, including our share of joint ventures, and with full provision for deferred taxation, is 36.7% (2007: 8.9% charge). 

This rate is substantially better than the standard rate of UK Corporation Tax due primarily to the benefits of approved tax planning activities and land remediation and indexation allowances.

It is anticipated that, with the continued utilisation of these allowances and the benefit in future years of approved tax planning activities, the effective rate of tax will remain below the standard rate of UK Corporation Tax.

Benefit from tax planning activities is only recognised when the outcome is reasonably certain. 

Financing, covenants and going concern

Financing

The company entered the downturn with adequate secured facilities and excellent banking relationships, but also with a high level of gearing. During the year we have focussed the business on cash generation, and have worked closely with our banks to ensure that appropriate covenants are in place. In both of these areas we have achieved considerable success.

The company's cash flow has been adversely affected by the illiquidity of a number of our markets, but we have nevertheless been able to realise £146m from our ongoing programme of asset disposals. This, together with our recurring net rental income, and close management of our working capital, enabled us to meet our administrative expenses and interest, to pay an interim dividend, and to meet the requirements of a £202m development and capital expenditure programme, with only a £20m increase in borrowings. 

Although the level of our net debt has risen in the year, this was due to the completion of already committed developments. We consider that our debt and gearing levels have now peaked, and that they will reduce over the next year as the full impact of our cash management activities is delivered.

  

At 30 November 2008, the group's banking facilities were £619m (2007: £569m), with no material maturities before 2011, and with a weighted average maturity of 4 years (2007: 5 years). Current net debt is £422m (2007: £402m), giving us a gearing of 105% (2007: 86%) and a headroom to meet future commitments of £197m. Including joint ventures, total banking facilities are £871m (2007: £815m), net debt is £625m (2007: £580m) and gearing 118% (2007: 105%). A £46m facility in our Sowcrest joint venture is due for renewal or refinancing in September 2009.

The weighted average margin of our facilities is 86 basis points (2007: 81 b.p.) over LIBOR. Our strategy has been to hedge two thirds of all borrowings, with the maturity of both hedges and facilities being aligned with individual schemes where applicable. As a result, the interest cost of 57% of our debt is fixed by hedging contracts (2007: 68%). The weighted average fixed interest payable under these hedges is 4.99 %.

Covenants

At the start of the year we initiated a review of all of our banking covenants, in anticipation of changing times. As a result of this, we have been able to obtain, at no additional cost, significant improvements and clarifications. Most importantly, the interest cover covenant (which was our principal constraint) has been refined to exclude non-cash items (particularly valuation movements) and to include the cash realisation of previous years' revaluations. This change provides us with considerably more headroom, as a number of currently planned , and recently completed disposals would unlock sizeable historic revaluation surpluses.

Our covenants have also been aligned across all of our banking relationships. The key measurements are gearing; net asset value; interest cover; and loan to value - as shown in the Financial Objectives and Key Performance Indicators section of the Business Review. 

Current forecasts and projections, taking account of our view of reasonably possible changes in property valuations, and anticipated marshalling gains, show that the group should be able to operate within its current facilities and comply with its banking covenants. 

The interest cover covenant is expected to be met from a combination of the company's strong rent roll, selective asset disposals to unlock historical revaluation surpluses, and from a reducing interest charge as rates fall.

The net asset value covenant is expected to be met by limiting the impact of further market yield movements with mitigating actions across the company's property portfolio, including development, asset management, and the achievement of marshalling milestones.

The current economic conditions create uncertainty over likely market yield movements. We have considered available market information, consulted with our advisers and applied our own knowledge and experience to the group's property portfolio. If property values were to decline below that which has been assumed in the group's current forecasts, the group may not be able to meet all of its covenants when tested in the future. Should a covenant breach become likely, we believe that constructive discussions with our banks would enable the debt to be refinanced. This could result in increased costs to the business.

Going Concern

The Directors, in their consideration of going concern, have considered the factors described above, reviewed the group's future cash forecasts and valuation projections, which they believe are based on realistic assumptions, and believe, based on those forecasts and assumptions, that it is appropriate to prepare the financial statements of the group on the going concern basis.

  

Financial Statistics

	2008		2007
Net Borrowings	£422m		£402m
Gearing	105%		86%
Gearing, incl share of JV debt	118%		105%
Average debt maturity	4 years		5 years
% debt hedged	57%		68%
Interest cover	1.62x		3.07x
Undrawn committed facilities	£185m		£150m

Balance Sheet

Net assets

At the year end, net asset value per share was 333p, a reduction of 54p (14%). In common with other property companies, we also use the diluted EPRA NAV measure of net assets which analysts also use in comparing the relative performance of such companies. The adjustments required to arrive at our adjusted net assets measure are shown in the table below.

Adjusted net assets per share were 375p at 30th November 2008, a reduction of 55p (13%) in the year.

Net Assets

		2008		2007
		£m		£m
Net Assets beginning of year		467.7		389.8
Profit after tax		(50.7)		93.7
Dividends paid		(15.1)		(13.5)
Other		0.3		(2.3)
Net assets, end of year		402.2		467.7
Deferred tax on capital allowances		4.3		2.8
Deferred tax on revaluations		31.2		48.4
Mark to market of interest rate swaps		14.6		0.7
Diluted EPRA NAV	- total	452.3		519.6
	- per share	375p		430p

In calculating the EPRA net asset value, the directors consider the fair value of inventories to be their book value.

Investment properties 

The total value of investment properties under our control, including 100% of joint ventures, fell by £32m during the year to £1,102m.

The independent valuations during the year ended 30th November 2008 resulted in net revaluation losses, including our share of joint ventures, of 5.9% (£65m), compared with the previous year end. Our properties are currently valued at the following weighted average equivalent yields:-

  

	2008		2007
Retail	7.8%		6.7%
Industrial	8.8%		8.0%
Office	7.9%		7.6%

Inventories

Inventories have increased in the year from £209m to £228m reflecting the completion of the committed development programme (including £73m relating to Project MoDEL). Assets held in inventories principally comprise development projects that are on site and under construction and have not been 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.

The Future

The company's hopper remains an underlying strength, even in difficult economic conditions, and will provide a stream of future profitability once an active market is re-established. 

We expect that markets will gradually return to normality, although the timescale is unpredictable. 

In the meantime, the company's focus will continue to be on cash and asset management, on making the selective disposals necessary to remain within our banking covenants and to maintain cash flow, and on marshalling our long-term projects through the planning process to ensure that schemes are in good shape for the eventual recovery.

We believe that the long-term prospects for the company remain good, and that the net asset value is robust, with realistic valuations in place.

BILL OLIVER	TIM HAYWOOD
Chief Executive	Finance Director

26 February 2009

 

  Directors' Responsibility Statement

We confirm to the best of our knowledge:

The financial information contained within this announcement has been prepared on the basis of the accounting policies applied in the year ended 30th November 2008 which are set out below. Whilst the information included in this announcement has been computed in accordance with International Financial Reporting Standards ("IFRS"), this announcement does not itself contain sufficient information to comply with IFRS as adopted by the European Union. The financial information contained in this announcement does not constitute the company's statutory accounts for the years ended 30th November 2008 or 2007, but is derived from those accounts. Those accounts give a true and fair view of the assets, liabilities, financial position and profit and loss of the company and the undertakings in the consolidation taken as a whole. 

Statutory accounts for 2007 have been delivered to the Registrar of Companies and those for 2008 will be delivered following the company's annual general meeting. The auditors have reported on these accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report, and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. 

The Chairman's Statement, Business Review, Financial Review and the principal risks and uncertainties faced by the company within this announcement are extracted from the company's annual report which gives a fair review of the business and the position of the company and the undertakings included in the consolidation taken as a whole.

The company expects to post full financial statements that comply with IFRS to shareholders, and on its website at www.stmodwen.co.uk, on or before 2nd March 2009. The full financial statements will be sent to the Document Viewing Facility on the same date.

Signed on behalf of the Board on 26 February 2009

BILL OLIVER	TIM HAYWOOD
Chief Executive	Finance Director

  

Group income statement

For the year ended 30th November

		2008		2007
	Notes	£m		£m
Revenue	1	146.5		127.5
Net rental income	1	25.7		26.3
Development profit	1	9.0		32.4
Gains on disposal of investments/ investment properties		0.1		11.4
Investment property revaluation (losses)/gains	5	(49.7)		60.3
Other net income	1	7.3		2.4
(Losses)/profits of joint ventures and associates (post tax)	7	(8.9)		12.6
Administrative expenses		(14.0)		(16.4)
(Loss)/profit before interest and tax		(30.5)		129.0
Finance cost	2	(49.3)		(32.5)
Finance income	2	6.7		3.6
(Loss)/profit before tax		(73.1)		100.1
Tax credit/(charge)	3	22.4		(6.4)
(Loss)/profit for the year		(50.7)		93.7
Attributable to:
Equity shareholders of the company	12	(51.7)		88.4
Minority interests	13	1.0		5.3
		(50.7)		93.7
	Notes	2008		2007
		Pence		pence
Basic (loss)/earnings per share	4	(42.8)		73.3
Diluted (loss)/earnings per share	4	(42.8)		72.4

  

Group statement of recognised income and expense 

For the year ended 30th November

		2008		2007
	Notes	£m		£m
(Loss)/profit for the year		(50.7)		93.7
Pension fund:
- actuarial losses		(0.4)		(3.3)
- deferred tax thereon		0.1		0.9
Total recognised income and expense		(51.0)		91.3
Attributable to:
- Equity shareholders of the company	13	(52.0)		86.0
- Minority interests	13	1.0		5.3
Total recognised income and expense		(51.0)		91.3

  

Group balance sheet as at 30th November

			2008	2007
	Notes		£m	£m
Non-current assets
Investment property	5		814.3	846.9
Operating property, plant and equipment	6		4.3	3.9
Investments in joint ventures, associates and other investments	7		64.2	75.4
Trade and other receivables	8		20.6	8.9
			903.4	935.1
Current assets
Inventories	9		228.1	209.3
Trade and other receivables	8		48.5	31.6
Cash and cash equivalents			12.7	17.9
			289.3	258.8
Current liabilities
Trade and other payables	10		(131.1)	(127.3)
Borrowings	11		(0.4)	(0.4)
Tax payables	3		(5.7)	(12.3)
			(137.2)	(140.0)
Non-current liabilities
Trade and other payables	10		(201.4)	(128.0)
Borrowings	11		(433.8)	(419.4)
Deferred tax	3		(18.1)	(38.8)
			(653.3)	(586.2)
Net assets			402.2	467.7
Capital and reserves
Share capital			12.1	12.1
Share premium account	12		9.1	9.1
Capital redemption reserve	12		0.3	0.3
Retained earnings	12		371.3	437.4
Own shares	12		(0.1)	(0.7)
Shareholders' equity			392.7	458.2
Minority interests	13		9.5	9.5
Total equity			402.2	467.7

  Group cash flow statement for the year ended 30th November

		2008	2007
	Notes	£m	£m
Operating activities
(Loss)/profit before interest and tax		(30.5)	129.0
Gains on the disposal of investments		(0.3)	(6.7)
(Losses)/gains on investment property disposals		0.2	(4.7)
Share of losses/(profits) of joint ventures and associates (post-tax)	7	8.9	(12.6)
Investment property revaluation losses/(gains)	5	49.7	(60.3)
Depreciation	6	0.5	0.6
Increase in inventories		(19.7)	(109.2)
(Increase)/decrease in trade and other receivables		(3.1)	19.1
Increase in trade and other payables		53.3	1.2
Share options and share awards		3.9	0.1
Employer pension contributions		(0.1)	(0.2)
Tax (received)/paid	3 (c)	(4.8)	1.8
Net cash inflow/(outflow) from operating  activities		58.0	(41.9)
Investing activities
Investment property disposals		44.4	44.4
Investment property additions		(89.1)	(141.9)
Disposal of investments		0.9	17.7
Property, plant and equipment additions		(0.9)	(0.7)
Investment in associate		(2.3)	-
Interest received		2.5	1.8
Dividends received		4.0	4.0
Net cash outflow from investing activities		(40.5)	(74.7)
Financing activities
Dividends paid		(14.1)	(12.9)
Dividends paid to minorities	13	(1.0)	(0.6)
Interest paid		(22.0)	(18.1)
Purchase of own shares		-	(0.8)
New borrowings drawn		23.5	159.9
Repayment of borrowings		(9.1)	-
Net cash (outflow)/inflow from financing activities		(22.7)	127.5
(Decrease)/increase in cash and cash equivalents		(5.2)	10.9
Cash and cash equivalents at start of year		17.9	7.0
Cash and cash equivalents at end of year		12.7	17.9

  ACCOUNTING POLICIES

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. 

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.

Minority interests represent the portion of profit or loss and net assets that are not held by the group and are presented separately within equity in the group balance sheet.

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 and less any impairment in value of individual investments. The income statement reflects the group's share of the jointly controlled entities' results after interest and tax.

Financial statements of jointly controlled entities are prepared for the same reporting period as the group. Where necessary, adjustments are made to bring the accounting policies used into line with those of the group.

The group statement of recognised income and expense reflects the group's share of any income and expense recognised by the jointly controlled entities outside the income statement.

Interests in associates

The group's interests in its associates, being those entities over which it has significant influence and which are neither subsidiaries nor joint ventures, are accounted for using the equity method of accounting, as described above.

  

Properties

Investment properties

Investment properties, being freehold and leasehold properties held to earn rental income, for capital appreciation and/or for undetermined future use, are carried at fair value following initial recognition at the present value of the consideration payable. To establish fair value, investment properties are independently valued on the basis of market value. Any surplus or deficit arising is recognised in the income statement for the period.

Once classified as an investment property, a property remains in this category until development with a view to sale commences, at which point the asset is transferred to inventories at current valuation.

Where an investment property is being redeveloped for continued use as an investment property, the property remains within investment property and any movement in valuation is recognised in the income statement.

Investment property disposals are recognised on completion. Profits and losses arising are recognised through the income statement and the profit on disposal is determined as the difference between the sales proceeds and the carrying amount of the asset.

Investment properties are not depreciated.

Inventories

Inventories principally comprise properties held for sale, properties under construction and land under option.

Cost comprises land, direct materials and, where applicable, direct labour costs that have been incurred in bringing the inventories to their present location and condition. When inventory includes a transfer from investment properties, cost is recorded as the book value at the date of transfer. Net realisable value represents the estimated selling price less any further costs expected to be incurred to completion and

disposal.

Finance costs

Interest incurred is not capitalised, but written off to the income statement on an accruals basis.

Operating property, plant and equipment

Operating property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses. Such cost includes costs directly attributable to making the asset capable of operating as intended.

Depreciation is provided on all operating property, plant and equipment at rates calculated to write off the cost less estimated residual value of each asset evenly over its expected useful life as follows:

Leasehold operating properties - over the shorter of the lease term and 25 years

Plant, machinery and equipment - over 2 to 5 years

Freehold properties, which comprise land, are not depreciated.

  

Leases

The group as lessee

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

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 taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.

Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, using the rates of tax expected to apply based on legislation enacted or substantively enacted at the balance sheet date, with the following exceptions:

 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.

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 recognised income and expense in the year in which they occur. The defined benefit pension asset or liability in the balance sheet comprises the present value of the defined benefit obligation, less any past service cost not yet recognised and less the fair value of plan assets out of which the obligations are to be settled directly.

Contributions to defined contribution schemes are recognised in the income statement in the year in which they become payable.

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 through the expected life of the financial asset to that asset's net carrying amount.

Dividend income

Dividend income from joint ventures is recognised when the shareholders' rights to receive payment have been established.

Construction contracts

Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date. The extent to which the contract is complete is determined by the total costs incurred to date as a percentage of the total anticipated costs for the entire contract. Variations in contract work, claims and incentive payments are included only to the extent they have been agreed with the purchaser.

Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred where it is probable they will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

Government grants

Government grants relating to property are treated as deferred income and released to profit or loss over the expected useful life of the assets concerned.

  

Share-based payments

When employee share options are exercised the employee has the choice of whether to have the liability to them settled by way of cash or the retention of shares. As it has been the company's practice to satisfy the majority of share options in cash and new shares are not issued to satisfy employee share option plans, the group accounts for its share option schemes as 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 re-measured 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.

  

Interest incurred is not capitalised, but written off to the income statement using the effective interest rate method.

Derivative financial instruments and hedging

The group uses derivative financial instruments such as interest rate swaps to hedge its risks associated with interest rate fluctuations. Such instruments are initially recognised at fair value on the date on which a contract is entered into and are subsequently re-measured 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 'Financing, covenants and going concern'.

Valuation of investment properties Management has used the valuation performed by its independent valuers as the fair value of its investment properties. The valuation is performed according to RICS rules, including an assumption as to the existence of willing buyer/willing seller market evidence of transaction prices for similar properties and uses. The level of professional judgement applied by the external valuers has been increased in the year as the market environment is such that there are lower levels of activity, providing fewer directly comparable transactions.

Net realisable value of inventories The group has ongoing procedures for assessing the carrying value of inventories and identifying where this is in excess of net realisable value. Given the current state of the property market, the level of judgement applied by management at 30th November 2008 was further increased from previous years. The estimates and judgements used were based on information available at, and pertaining to, 30th November 2008. If the property market were to decline further from 30th November 2008 additional net realisable value provisions may be required.

  Estimation of remediation and other costs to complete for both development and investment properties. In making an assessment of these costs there is inherent uncertainty and the group has developed systems of internal control to assess and review carrying values and the appropriateness of estimates made. Any changes to these estimates may impact the carrying values on investment properties and/or

inventories.

The calculation of deferred tax assets and liabilities together with assessment of the recoverability of future tax losses. The recoverability of tax losses has been assessed and management considers that there are sufficient latent gains and future profits anticipated to be realised on the group's property portfolio to recover these in full.

Calculation of the net present value of pension scheme liabilities In calculating this liability it is necessary for actuarial assumptions to be made, including discount and mortality rates and the 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.

KEY RISKS AND UNCERTAINTIES

The key risks that have been identified, the management approach to each, and the assessment of the residual risk, are set out below: 

1. ECONOMIC/PROPERTY RISKS 

The risks identified included: 

- Availability of liquidity for potential property investors 

- Demand for land from housebuilders 

- Demand for space from occupiers 

- Investment yield movements and difficulties ascertaining market values in illiquid markets 

- Overexposure to single tenant/scheme/sector 

- Changing public sector requirements 

The principal mitigating actions are: 

- Use of realistic, but conservative, property valuations 

- The hopper and geographical spread gives flexibility and facilitates diversification 

- Emphasis on value creation through active property management and development 

Assessment - We have chosen to operate only in the UK, which is normally subject to relatively low-risk, low-returns from a stable and mature, albeit cyclical economy and property market. By involvement with many sectors of that economy and that property market, we are well diversified, without venturing overseas. 

The current volatile economic climate, and the resultant illiquidity of UK financial and property markets, has increased risk levels in this area significantly. Furthermore, existing property valuations, though undertaken with professional diligence by external experts, are now subject to higher degrees of volatility and uncertainty than in previous years. This is a macro-economic phenomenon that seriously affects our principal market. However, strong, well-run companies will survive this downturn, and will benefit from enhanced opportunities and reduced competition when conditions improve. In the meantime, we will address this higher risk profile by maintaining our conservative stance to funding, development and acquisitions. 

  

2. FINANCIAL RISKS 

The risks identified included: 

- Ability to manage business within existing banking covenants 

- Lack of available funds 

- Ability to balance cash flows to meet changing market conditions 

- Interest rates 

The principal mitigating actions are: 

- Detailed cash flow forecasting 

- Recurring rent roll enabling interest costs to be met when development activity declines 

- Acquisition transactions structured in self-financing manner 

- Small number of high-quality banking relationships 

- Hedging policy to contain interest rate risk 

- Redefinition of covenants to ensure in line with business capabilities 

Assessment - A breach of one or more of the covenants could result in the group's debt becoming subject to repayment on demand by its finance providers. Whilst this scenario is not currently envisaged, the group is subject to a number of risks and uncertainties which arise as a result of the current market conditions. In determining that the group is a going concern, we have considered these risks and uncertainties and have determined that they do not currently represent a significant threat to the group. 

As a result of the factors set out in the Financial Review, over the past year the focus has been on reducing forward commitments and speculative development and progressing selective asset disposals to optimise cash flow, and to enable us to operate within our existing resources. This will necessarily limit the extent of development undertaken during this period. 

3. ORGANISATIONAL/PEOPLE FACTORS 

The risks identified included: 

- Failure to retain or train skilled personnel 

- Succession planning and talent management 

- IT 

- Disaster planning 

- Need to manage cost base to meet lower activity levels 

The principal mitigating actions are: 

- Competitive remuneration packages 

- Regular assessment of performance and identification of training needs 

- Headcount reduction undertaken in period 

- Regular communication of strategic and tactical objectives 

- Properly resourced and structured IT solutions 

- Appropriate disaster recovery procedures 

Assessment - Employee turnover has historically been low, indicating good retention levels. Vacancies have been few, and are generally filled promptly, indicating the attractiveness of the company and remuneration packages. To support the long-term financial objectives, we will need to continue to improve the skills of our employees. In the short term, although we unfortunately had to implement a redundancy programme to reduce our cost base in line with activity levels, this was done without any adverse impact on our live schemes. 

  4. REGULATORY FACTORS 

The risks identified included: 

- Planning 

- Tax - 

Lease structures 

The principal mitigating actions are: 

- Being alert to policies being promoted 

- Use of high quality professional advisers 

- In-house expert resources in planning/residential/construction/tax/IT 

Assessment - Our daily exposure to all aspects of the planning process, and internal procedures for spreading best practice ensure we remain abreast of most developments. We have become more active in attempting to influence public policy debate, although meaningful and beneficial changes are very difficult to bring about, notwithstanding the formalities of extensive public consultation. 

5. FAILURE TO SECURE SCHEMES 

The risks identified included: 

- Availability of finance 

- Competition 

- Reputation 

The principal mitigating actions are: 

- Regional offices in touch with their local market 

- Dedicated central resource to support regional teams 

- Flexible and innovative approach to acquisitions in response to changing market conditions 

- Raising the profile of the company as the country's leading regeneration specialist 

Assessment - The increasing focus on the regions to deliver acquisitions and the growing reputation and financial capacity of the company have enabled us to win a large number of schemes and to grow the hopper to record levels, while selling completed schemes into a buoyant market. In the current financially constrained climate, opportunities are fewer as buyer and seller expectations differ widely. We have nevertheless continued to make a number of excellent, self-financing acquisitions, and anticipate that the number of opportunities will increase as the downturn intensifies. 

6. SOCIAL, ETHICAL AND ENVIRONMENTAL RISKS 

The risks identified included: 

- Health, safety & environment risk 

- Business ethics/internal controls 

- Customer satisfaction 

The principal mitigating actions are: 

- Systems of control procedures and delegated authorities 

- Regular and detailed operational and financial reporting 

- Regular dialogue with industry investors and commentators 

- Close supervision of transactions and key relationships 

- Proactive press/media contacts 

  Assessment - The initial assessment of environmental costs (and the subsequent optimising of remediation solutions) is an integral part of our acquisition and 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 an excellent reputation, which is underpinned by a simple set of operating commitments. 

7. REPUTATIONAL RISKS 

The risks identified included: 

- Failure to deliver on promises 

- Involvement with controversial schemes/partners 

- Failure to live up to expectations 

The principal mitigating actions are: 

- Adherence to system of principles and ethics 

- Thorough and proactive PR to get messages across clearly 

- Inclusion of reputational issues as an item in scheme selection process 

- A strong culture of propriety led from the board

- Regular top-level meetings with local authorities, RDAs, and other government or quasi governmental bodies 

Assessment - The company enjoys an excellent reputation with its stakeholders (including investors business partners and employees). This is based on, and reinforced by, a strong set of principles and consistent delivery of promises. 

8. CONSTRUCTION RISK 

The risks identified included: 

- Build quality 

- Remediation/contamination 

- Liability issues 

- Contractor failure 

The principal mitigating actions are: 

- A strong internal construction management team 

- Projects, acquisitions and disposals are reviewed (and financially appraised) in detail within clearly defined authorisation limits 

- Regular management reviews 

- Use and close supervision of high-quality trusted contractors and professionals 

- Contractual liability clearly defined 

- Close monitoring of contractors' performance and financial viability 

Assessment - The company is willing to accept a degree of environmental/contamination risk, enabling higher returns to be made for the perceived higher risks undertaken. These risks are passed on or minimised where possible, but cannot be eliminated. In our recent experience, the residual risks have been acceptably low.

  

1. Revenue and gross profit

	2008
	Rental	Development	Other	Total
	£m	£m	£m	£m
Revenue	33.7	101.8	11.0	146.5
Cost of sales	(8.0)	(92.8)	(3.7)	(104.5)
Gross profit	25.7	9.0	7.3	42.0
	2007
	Rental	Development	Other	Total
	£m	£m	£m	£m
Revenue	30.3	91.1	6.1	127.5
Cost of sales	(4.0)	(58.7)	(3.7)	(66.4)
Gross profit	26.3	32.4	2.4	61.1

The group operates exclusively in the UK and all of its revenues derive from its portfolio of properties which the group manages as one business. Therefore, the financial statements and related notes represent the results and financial position of the group's sole business segment.

The group's total revenue for 2008 was £160.5m (2007: £138.2m) and in addition to the amounts above included service charge income of £5.3m (2007: £4.9m), for which there was an equivalent expense, interest income of £4.7m (2007: £1.8m) and dividends received from joint ventures of £4.0m (2007:£4.0m).

During the year the following amounts were recognised (as part of development revenue and cost of sales) in respect of construction contracts:

			2008	2007
			£m	£m
Revenue			38.9	30.3
Cost of sales			(33.4)	(26.5)
Gross profit			5.5	3.8

Amounts due from customers of £nil (2007: £1.8m) were included in trade and other receivables in respect of contracts in progress at the balance sheet date.

Amounts due to customers of £nil (2007: £3.6m) were included in trade and other payables in respect of contracts in progress at the balance sheet date.

Retentions due from customers in respect of construction contracts of £0.5m (2007: £0.3m) were included in trade and other receivables at the balance sheet date.

  

2. Finance cost and finance income
	2008		2007
	£m		£m
Interest payable on borrowings	24.3		20.2
Amortisation of discount on deferred payment arrangements	7.8		9.9
Head rents treated as finance leases	0.2		0.2
Movement in market value of interest rate derivatives	15.4		0.7
Interest on pension scheme liabilities	1.6		1.5
Total finance cost	49.3		32.5

The finance cost on interest rate derivatives derives from financial liabilities held at fair value through profit or loss. All other finance costs derive from financial liabilities measured at amortised cost.

	2008		2007
	£m		£m
Interest receivable on cash deposits	2.5		1.8
Credit in respect of discount on deferred receivables	2.2		-
Expected return on pension scheme assets	2.0		1.8
Total finance income	6.7		3.6

  

3. Taxation

a. Tax on (loss)/profit on ordinary activities
	2008		2007
	£m		£m
Tax (credit)/charge in the income statement
Corporation tax
Tax on current year (loss)/profit	0.2		8.1
Adjustments in respect of previous years	(2.0)		(0.1)
	(1.8)		8.0
Deferred tax
Reversal of temporary differences	(2.9)		(11.7)
Impact of current year revaluations	(13.1)		11.8
Carry forward of tax losses	(3.2)		-
Adjustments in respect of previous years	(1.4)		(1.7)
	(20.6)		(1.6)
Total tax (credit)/charge in the income statement	(22.4)		6.4
Tax relating to items charged to equity
Deferred tax
Actuarial losses on pension schemes	(0.1)		(0.9)
Tax credit in the statement of total recognised income and expense	(0.1)		(0.9)

  b. Reconciliation of effective tax rate

		2008		2007
		£m		£m
(Loss)/profit before tax		(73.1)		100.1
Less: Joint ventures and associates		8.9		(12.6)
Pre-tax (loss)/profit attributable to the group		(64.2)		87.5
Corporation tax at 28.67% (2007: 30%)		(18.4)		26.3
Permanent differences		1.6		1.6
Release of temporary differences in respect of industrial buildings		-		(6.7)
Release of deferred tax following rate change from 30% to 28%		-		(2.9)
Recognition of deferred tax asset for losses previously unrecognised		-		(6.1)
Investment property revaluations		(3.2)		(3.3)
Difference between chargeable gains and accounting profit		1.0		(0.7)
Current year (credit)/charge		(19.0)		8.2
Adjustments in respect of previous years		(3.4)		(1.8)
		(22.4)		6.4
Effective rate of tax		35%		7%

The post tax results of Joint Ventures and Associates are stated after a tax credit of £7.0m (2007: £2.8m charge). The effective tax rate for the Group including Joint Ventures and Associates is 36.7% (2007: 8.9%).

The UK Government announced that balancing allowances and balancing charges on industrial buildings were to be abolished with effect from 21st March 2007. Accordingly, temporary differences in respect of industrial buildings held for rental were released in the year ended 30th November 2007.

The UK Government announced that they would reduce the corporation tax rate for large companies to 28% with effect from 1st April 2008. Accordingly, deferred tax adjustments were restated to 28% as this is the rate at which they were expected to reverse.

  c. Balance sheet

		2008			2007
		Corporation	Deferred		Corporation	Deferred
		Tax	tax		tax	tax
		£m	£m		£m	£m
Balance at start of the year		12.3	38.8		3.7	47.0
(Credit)/charge to the income statement		(1.8)	(20.6)		8.0	(1.6)
Charge directly to equity		-	(0.1)		-	(0.9)
Net (refund)/payment		(4.8)	-		1.8	-
Other		-	-		(1.2)	(5.7)
Balance at end of the year		5.7	18.1		12.3	38.8

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	Total
	£m	£m	£m	£m	£m	£m
Deferred tax liability/(asset) at start of year	48.4	2.8	1.4	(11.8)	(2.0)	38.8
(Credit)/charge to income statement	(17.2)	1.5	(0.4)	(3.4)	(1.1)	(20.6)
Credit directly to equity	-	-	-	-	(0.1)	(0.1)
Deferred tax liability/(asset) at end of year	31.2	4.3	1.0	(15.2)	(3.2)	18.1

There is no unprovided deferred tax.

The group has recognised a deferred tax asset in respect of tax losses of £15.2m. Of this £7.4m (2007: £nil) relates to tax losses carried forward in respect of 2008 an £7.8m (2007: £11.8m) to HMRC approved deductions available in subsidiary companies in future periods. The total asset is recognised on the basis that the losses or deductions will shelter the latent gains anticipated to be realised on the group's property portfolio which are reflected in the deferred tax liability for property revaluations.

d. Factors that may affect future tax charges

Based on current capital investment plans, the group expects to continue to be able to claim capital allowances in excess of depreciation in future years.

The benefits of any tax planning are not recognised by the group until the outcome is reasonably certain.

  4. Earnings per share

The calculation of basic and diluted earnings per share is set out below:

	2008		2007
	Number of		Number of
	Shares		shares
Weighted number of shares in issue*	120,688,232		120,636,100
Weighted number of dilutive shares	-		1,506,851
	120,688,232		122,142,951
	2008		2007
	£m		£m
(Loss)/earnings (basic and diluted)	(51.7)		88.4
	2008		2007
	pence		pence
Basic (loss)/earnings per share	(42.8)		73.3
Diluted (loss)/earnings per share	(42.8)		72.4

*Shares held by the Employee Benefit Trust are excluded from the above calculations.

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 the option being classified as equity settled. The number of shares included in the calculation has also been adjusted accordingly.   5. Investment property

	Freehold		Leasehold
	investment		investment
	properties		properties		Total
	£m		£m		£m
Fair value
At 30th November 2006	395.5		340.9		736.4
Additions - new properties	38.0		5.0		43.0
Other additions	32.4		31.3		63.7
Transfers to inventories	(13.2)		(20.9)		(34.1)
Disposals	(21.6)		(0.8)		(22.4)
Surplus on revaluation	42.3		18.0		60.3
At 30th November 2007	473.4		373.5		846.9
Additions - new properties	8.4		0.4		8.8
Other additions	46.2		31.7		77.9
Transfers (to)/from inventories	(14.0)		14.9		0.9
Disposals	(9.7)		(60.8)		(70.5)
Deficit on revaluation	(37.2)		(12.5)		(49.7)
At 30th November 2008	467.1		347.2		814.3

Investment properties were valued at 30th November 2008 and 2007 by King Sturge & Co, Chartered Surveyors, in accordance with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors, on the basis of market value. King Sturge and Co are independent professionally qualified external valuers and have recent experience in the relevant location and category of the properties being valued.

 

As at 30th November 2008 £776.8m (2007: £862.8m) of investment property was pledged as security for the group's loan facilities.

 Included within leasehold investment properties are £3.9m (2006: £3.9m) of assets held under finance leases.

  6. Operating property, plant and equipment

		Operating		Plant machinery and
		Properties		equipment		Total
		£m		£m		£m
Cost
At 30th November 2006		2.6		3.6		6.2
Additions		-		0.7		0.7
At 30th November 2007		2.6		4.3		6.9
Additions		-		0.9		0.9
Disposals		-		(0.2)		(0.2)
At 30th November 2008		2.6		5.0		7.6
Depreciation
At 30th November 2006		0.4		2.0		2.4
Charge for the year		-		0.6		0.6
At 30th November 2007		0.4		2.6		3.0
Charge for the year		-		0.5		0.5
Disposals		-		(0.2)		(0.2)
At 30th November 2008		0.4		2.9		3.3
Net book value
At 30th November 2006		2.2		1.6		3.8
At 30th November 2007		2.2		1.7		3.9
At 30th November 2008		2.2		2.1		4.3

Tenure of operating properties:
		2008		2007
		£m		£m
Freehold		0.3		0.3
Leasehold		1.9		1.9
		2.2		2.2

  7. Joint ventures, associates and other investments 

 The group's share of the trading results for the year of its joint ventures and associates is:

	2008				2007
	Key Property Investments Limited	Other joint ventures and associates	Total		Key Property Investments Limited	Other joint ventures and associates	Total
	£m	£m	£m		£m	£m	£m
Income statements
Revenue	10.6	5.3	15.9		35.6	5.5	41.1
Net rental income	7.6	(0.1)	7.5		8.5	0.1	8.6
Development profit	0.4	0.3	0.7		4.3	2.0	6.3
(Losses)/gains on disposals of investment properties	(0.2)	-	(0.2)		4.4	-	4.4
Investment property revaluation (losses)/gains	(13.5)	(1.4)	(14.9)		1.8	0.7	2.5
Administrative expenses	(0.1)	-	(0.1)		(0.1)	-	(0.1)
(Loss)/profit before interest and tax	(5.8)	(1.2)	(7.0)		18.9	2.8	21.7
Finance cost	(7.9)	(1.1)	(9.0)		(5.8)	(0.6)	(6.4)
Finance income	0.1	-	0.1		0.1	-	0.1
(Loss)/profit before tax	(13.6)	(2.3)	(15.9)		13.2	2.2	15.4
Taxation	6.4	0.6	7.0		(2.1)	(0.7)	(2.8)
(Loss)/profit for the year	(7.2)	(1.7)	(8.9)		11.1	1.5	12.6

Included in other joint ventures and associates above are profits from associated companies of £0.1m (2007: £0.1m).

  The group's share of the balance sheet of its joint ventures and associates, together with the cost of other investments is:

	2008				2007
	Key Property Investments Limited	Other joint ventures and associates	Total		Key Property Investments Limited	Other joint ventures and associates	Total
	£m	£m	£m		£m	£m	£m
Balance Sheets
Non-current assets	131.6	12.4	144.0		136.7	6.8	143.5
Current assets	24.1	23.9	48.0		26.2	17.7	43.9
Current liabilities	(12.5)	(25.3)	(37.8)		(10.4)	(5.5)	(15.9)
Non-current liabilities	(85.0)	(5.0)	(90.0)		(83.1)	(13.6)	(96.7)
Net assets	58.2	6.0	64.2		69.4	5.4	74.8
Equity at start of year	69.4	5.4	74.8		62.3	4.0	66.3
Investment in associate	-	2.3	2.3		-	-	-
(Loss)/profit for the year	(7.2)	(1.7)	(8.9)		11.1	1.4	12.5
Dividends paid	(4.0)	-	(4.0)		(4.0)	-	(4.0)
Equity at end of year	58.2	6.0	64.2		69.4	5.4	74.8
Group's share of joint ventures' and associates net assets			64.2				74.8
Investment in Stoke on Trent Community Stadium Development Company Limited			-				0.6
			64.2				75.4

Included in other joint ventures and associates above are net assets of £2.6m (2007: £nil) in relation to associated companies. These net assets comprise total assets of £3.9m (2007: £nil) and total liabilities of £1.3m (2007: £nil).

During the year ended 30th November 2008 the group disposed of its entire shareholding in Stoke on Trent Community Stadium development Company Limited, realising a gain of £0.4m. This gain is recorded as part of gains on disposals of investments/investment properties.

  Joint venture companies, associates and other investments comprise:

Name	Status	Interest	Activity
Key Property Investments Limited	Joint venture	50%	Property investment and development
Barton Business Park Limited	Joint venture	50%	Property development
Sowcrest Limited	Joint venture	50%	Property development
Holaw (462) Limited	Joint venture	50%	Property investment
Shaw Park Developments Limited	Joint venture	50%	Property development
Coed Darcy Limited	Associate	49%	Property investment and development

Many of the joint ventures contain change of control provisions, as is common for such arrangements.

On 23rd May 2008 the group acquired a 49% holding in Coed Darcy Limited for £2.3m. No goodwill arose on the acquisition of the group's interest in this associate and the group share of the book value and provisional fair value of the net assets acquired is detailed below:

	Book value	Adjustments	Provisional fair value
	£m	£m	£m
Non-current assets	3.4	(0.4)	3.0
Current assets (including cash of £0.8m)	0.9	-	0.9
Current liabilities	(0.3)	(0.6)	(0.9)
Non-current liabilities (including debt of £0.6m)	(0.7)	-	(0.7)
	3.3	(1.0)	2.3

  8. Trade and other receivables

	2007		2007
	£m		£m
Non-current
Other Debtors	20.6		8.9
Current
Trade receivables	3.0		5.0
Prepayments and accrued income	6.2		1.7
Other debtors	35.9		19.7
Amounts due from joint ventures	3.4		3.2
Derivative financial instruments	-		2.0
	48.5		31.6

9. Inventories

	2008		2007
	£m		£m
Properties held for sale	89.0		88.5
Properties under construction	113.6		100.0
Land under option	25.5		20.8
	228.1		209.3

The movement in inventories during the two years ended 30th November 2008 is as follows:

	£m
Balance at 30th November 2006	65.9
Additions	168.0
Transfers from investment property	34.1
Disposals (transferred to cost of sales)	(58.7)
Balance at 30th November 2007	209.3
Additions	112.5
Transfers to investment property	(0.9)
Disposals (transferred to development cost of sales)	(92.8)
Balance at 30th November 2008	228.1

  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 of £10.1m (2007: £5.1m).

As at 30th November 2008 £112.3m (2007: £12.4m) of inventory was pledged as security for the group's loan facilities.

  10. Trade and other payables

	2008		2007
	£m		£m
Current
Trade payables	20.2		5.6
Amounts due to joint ventures	3.5		4.1
Other payables and accrued expenses	68.2		41.1
Provision for share options	0.9		4.8
Other payables on deferred terms	23.7		70.5
Derivative financial instruments	14.6		1.2
	131.1		127.3
Non-current
Other payables and accrued expenses	21.3		1.7
Provision for share options	1.4		1.4
Other payables on deferred terms	174.8		121.0
Finance lease liabilities (head rents)	3.9		3.9
	201.4		128.0

The other payables on deferred terms, all relate to VSM Estates (Holdings) Limited, which is required to make payments under a contractual timetable. In the normal course of events the payments will be made in line with the disposal of investment properties held on the balance sheet, and as a result the overall arrangement will be at least cash neutral.

  11. Borrowings

	2008		2007
	£m		£m
Current
Floating rate unsecured loan notes	0.4		0.4
	0.4		0.4
Non-current
Bank loans repayable between two and five years	376.1		295.4
Bank loans repayable after more than five years	57.7		124.0
	433.8		419.4

All bank borrowings are secured by a fixed charge over the group's property assets.

Maturity profile of committed bank facilities

		2008
		Floating rate borrowings			Interest rate swaps
		Drawn	Undrawn	Total	Earliest termination		Latest termination
		£m	£m	£m	£m	%	£m	%
Less than one year	2009	0.4	5.0	5.4	80.0	4.70	-	-
One to two years	2010	-	-	-	110.0	5.36	-	-
Two to three years	2011	121.5	28.5	150.0	50.0	4.63	80.0	4.70
Three to four years	2012	197.2	46.8	244.0	-	-	80.0	5.54
Four to five years	2013	57.4	62.6	120.0	-	-	40.0	4.56
More than five years		57.7	42.3	100.0	-	-	40.0	4.87
Total		434.2	185.2	619.4	240.0	4.99	240.0	4.99

  

Maturity profile of committed bank facilities

		2007
		Floating rate borrowings			Interest rate swaps
		Drawn	Undrawn	Total	Earliest termination		Latest termination
		£m	£m	£m	£m	%	£m	%
Less than one year	2008	0.4	5.0	5.4	60.0	4.82	30.0	5.17
One to two years	2009	-	-	-	80.0	4.70	-	-
Two to three years	2010	-	-	-	80.0	5.54	30.0	4.47
Three to four years	2011	164.7	85.3	250.0	20.0	4.48	80.0	4.71
Four to five years	2012	130.7	13.3	144.0	-	-	80.0	5.54
More than five years		124.0	46.0	170.0	-	-	20.0	4.47
Total		419.8	149.6	569.4	240.0	4.99	240.0	4.99

  12. Reserves

	Share		Capital
	premium		redemption		Retained		Own
	account		reserve		earnings		shares
	£m		£m		£m		£m
At 30th November 2006	9.1		0.3		364.3		(0.8)
Profit for the year attributable to shareholders	-		-		88.4		-
Pension fund actuarial losses	-		-		(2.4)		-
Net share disposals	-		-		-		0.1
Dividends paid	-		-		(12.9)		-
At 30th November 2007	9.1		0.3		437.4		(0.7)
Loss for the year attributable to shareholders	-		-		(51.7)		-
Pension fund actuarial losses	-		-		(0.3)		-
Net share disposals	-		-		-		0.6
Dividends paid	-		-		(14.1)		-
At 30th November 2008	9.1		0.3		371.3		(0.1)

'Own shares' represents the cost of 33,590 (2007: 137,854) shares held by the Employee Benefit Trust. The market value of the shares held at 30th November 2008 was £38,292 (2007: £584,501).

13. Reconciliation of movement in equity

	2008				2007
	Equity shareholders	Minority interests	Total		Equity shareholders	Minority interests	Total
	£m	£m	£m		£m	£m	£m
Total recognised income and expense	(52.0)	1.0	(51.0)		86.0	5.3	91.3
Dividends paid	(14.1)	(1.0)	(15.1)		(12.9)	(0.6)	(13.5)
Net disposal of own  shares	0.6	-	0.6		0.1	-	0.1
Equity at start of year	458.2	9.5	467.7		385.0	4.8	389.8
Equity at end of year	392.7	9.5	402.2		458.2	9.5	467.7

  14. Related Party Transactions

Transactions between the group and its non-wholly owned subsidiaries, joint ventures and associates are as follows: 

KEY PROPERTY INVESTMENTS LIMITED ('KPI') 

During the year the group provided management services to KPI for which it received fees totalling £1.3m (2007: £2.4m). 

HOLAW (462) LIMITED ('HOLAW') 

During the year Holaw repaid £0.1m of its loan (2007: £0.1m). The balance due to the group at the year end was £0.5m (2007: £0.6m). No interest is charged on the loan. 

BARTON BUSINESS PARK LIMITED ('BARTON') 

During the year the group repaid £0.1m of its loan to Barton (2007: nil). The balance due to Barton at the year end was £3.4m (2007: £3.5m). No interest is charged on this balance. 

SOWCREST LIMITED ('SOWCREST') 

During the year the group provided management services to Sowcrest for which it received fees totalling £0.6m. 

In addition, during the year £1.2m was paid to Sowcrest (2007: £2.9m received from Sowcrest) leaving an amount due from Sowcrest at the year end of £0.4m (2007: £0.8m due to Sowcrest). No interest is charged on the loan. 

SHAW PARK DEVELOPMENTS LIMITED ('SPD') 

The balance due to the group from SPD at the year end was £2.2m (2007: £2.2m). The loan is secured and interest is chargeable at 1.5% (2007: 1.5%) above base rate. 

ST. MODWEN PENSION SCHEME 

No sales of property were made to the pension scheme during the year (2007: £2.1m). The group occupies offices owned by the pension scheme with a value of £0.5m (2007: £0.6m). 

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: 

  

	Management fees		Interest		Balance
	2008	2007	2008	2007	2008	2007
	£m	£m	£m	£m	£m	£m
Stoke-on-Trent Regeneration Limited	-	-	(0.2)	(1.0)	4.2	(5.1)
Stoke-on-Trent Regeneration (Investments) Limited	-	-	-	0.1	0.2	0.2
Uttoxeter Estates Limited	-	-	-	-	(0.1)	-
Widnes Regeneration Limited	-	-	0.1	0.3	(2.2)	3.7
Trentham Leisure Limited	0.8	0.4	1.6	1.5	(21.4)	24.5
Norton & Profitt Developments Limited	-	-	-	-	0.9	9.1
VSM Estates (Holdings) Limited	0.2	0.3	-	-	6.5	(1.7)
	1.0	0.7	1.5	0.9	(11.9)	30.7

With the exception of SPD, all amounts due to the group are unsecured and will be settled in cash. All amounts above are stated before provisions for doubtful debts of £0.4m (2007: £0.4m). No guarantees have been given or received from related parties. 

KEY MANAGEMENT PERSONNEL 

The directors and senior management are considered to be the group's key management personnel and their remuneration is disclosed in the directors' remuneration report contained within the full Annual Report.

  SHAREHOLDER INFORMATION

Registered Office: St. Modwen Properties PLC Sir Stanley Clarke House 7 Ridgeway Quinton Business Park Birmingham B32 1AF Telephone: +44 (0)121 222 9400 Website: www.stmodwen.co.uk Registered in England and Wales Company number: 349201

Results Timetable: Friday 27th February 2009  - Announcement of 2008 annual results Friday 3rd April 2009  - Interim Management Statement - Annual General Meeting to be held at: The Innovation Centre 1 Devon Way Longbridge Technology Park Birmingham B31 2TS July 2009  - Announcement of 2009 Half-year results

ENDFR EAPAKAEFNEFE

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