Final Results

ST. MODWEN PROPERTIES PLC

("St. Modwen" or the "Company")

ST. MODWEN DELIVERS STRONG RESULTS WITH 34% INCREASE IN PROFIT BEFORE TAX AND NAV RISE OF 9%

Financial highlights

·; Profit before tax up 34% to £50.4m (2010: £37.5m).

·; Shareholders' NAV up 9% to 232p per share (2010: 213p per share), and EPRA NAV up 9% to 250p per share (2010: 229p per share).

·; Realised property profits up 9% to £23.8m (2010: £21.9m)

·; Net rents up 5% to £35.5m. (2010: £33.7m).

·; Valuation gains of £34m (2010: £23m) in a flat market, of which £33m (2010: £18m) of these gains were driven by active management and planning gain.

·; Gearing at year end of 73% (2010: 72%). All corporate on-balance sheet facilities extended until at least 2014.

·; Terms agreed for new five year debt facilities on KPI joint venture.

·; Dividends for the year increased 10% to 3.3p per share.

Operational highlights

·; Secure development programme for 2012 with commercial developments already on site to deliver in excess of £15m profit in 2012.

·; Positive outlook for residential land with good levels of housing sales already achieved and strong on-going demand.

·; Excellent relationship with principal partners Persimmon, Vinci and Salhia: well placed to deliver growing returns in 2012 and beyond.

·; Substantial future pipeline in place, with significant opportunities emerging at:

o Elephant & Castle

o Swansea University

o Longbridge

o Project MoDEL

Bill Oliver, Chief Executive of St.Modwen, commented:

"We have had a very successful year despite the challenges posed by the market conditions, significantly growing profits and completing transactions across the portfolio, and we have the foundations in place to deliver very good results in 2012. Our commercial developments in progress together with our active housebuilding sites will deliver property profits to underpin our results for 2012 and beyond. We can also see clear opportunities to add value to our assets through the planning process and our active management of our income producing portfolio is producing a resilient income stream.

"Although the wider economic environment remains unpredictable and there may still be further challenges for the sector we are confident that our asset portfolio and development pipeline will provide us with many opportunities to add significant value for our shareholders."

Enquiries:

St. Modwen Properties PLC Tel: 0121 222 9400

Bill Oliver, Chief Executive

Michael Dunn, Group Finance Director

Menna Rees-Steer, PR Manager

www.stmodwen.co.uk

FTI Consulting Tel: 020 7831 3113

Stephanie Highett

Richard Sunderland

Will Henderson

[email protected]

A presentation for analysts and investors will be held at 9.30am today at the offices of FTI Consulting, Holborn Gate, 26 Southampton Buildings, London, WC2A 1PB. If you would like to attend, please contact Will Henderson at FTI +44 (0)20 7269 7238 direct / +44 (0)7930 371 924 mobile or [email protected]

Chairman's Statement

Dear Shareholders,

I am very pleased that, in my first statement to you as Chairman, I am able to report a strong set of results for the year, with the Company delivering increased profit at both an operating and Group level in a difficult economic environment.

Profit before tax increased by 34% to £50.4m (2010: £37.5m) with shareholders' equity net asset value per share growing 9% to 232p per share (2010: 213p) after paying dividends of 3.1p per share during the year (2010: 1.0p).

The basis of these results is the continuing and resilient rental income stream from our assets, consistent development profits and an excellent record of adding value to our portfolio through asset management and planning initiatives, a particularly valuable attribute in a flat market.

We have also continued to improve our funding position with all the Group corporate debt maturities extended until at least 2014 and agreement reached for all our required extensions for our joint venture debt facilities. With our gearing levels held at 73% (2010: 72%), we have a solid foundation for the future.

Dividends

Given the strong set of results for the year, your Board is recommending a 10% increase in the final dividend for the year to 2.2p per share (2010: 2.0p per share), making a total distribution for the year of 3.3p (2010: 3.0p). This final dividend will be paid on 4th April 2012 to shareholders on the register at 9th March 2012.

Strategy

Our strategy remains unchanged: we aim to add significant long-term value to the properties that we control. Through our market leading expertise, we add value through remediation, management of the planning process, asset management, development and delivery. In particular, our regional teams focus on opportunities where our regeneration expertise enables us to generate profits in commercial and residential development.

Our timescales for investment are long- term, often up to 10 years, so we ensure that our business is underpinned by the reliable long-term revenue stream generated by our portfolio of income producing properties. These assets are typically held both for income and their prospects for future development. Our asset management in this area is an area of core expertise for the business and is proving very successful with net rental income having increased again this year to £35.5m (2010: £33.7m). The cash from this income stream pays for substantially all of the cash costs of our overheads and interest charges.

Our commercial development activities are underpinned by our substantial land bank with land acquired at low values providing the opportunities for commercial development. It is pleasing that we have been able to continue to deliver good results through this strategy even in a difficult marketplace, with a large proportion of our current development opportunities for 2012 being executed on land acquired more than five years ago.

We continue to create and extract value from residential land. The value of our residential land assets is increasing as we manage land through the remediation and planning processes and we have been able to crystallise significant value during the year. Through our joint venture with Persimmon and our St. Modwen Homes residential arm we have also benefitted from development profits from house building, and our success to date gives us increasing confidence that this will be a growing source of income in years to come. We continue to believe that residential land in England and Wales will prove increasingly valuable in the medium to long-term, further improving the attractiveness of this section of our portfolio.

People

When I took over as Chairman in March 2011, I succeeded Anthony Glossop. Anthony had been key in establishing a positive legacy visible in the intellectual capital and the potential residing in our land assets.

In my visits to our sites and offices I have been impressed that the business has a key differentiator in the market place due to the expertise and commitment of our people. Their effort and dedication has produced strong results for your Company and will no doubt be an important asset as we address the opportunities and challenges of the year to come.

I would like to take this opportunity on behalf of the Board to thank our people for their hard work that has enabled us to produce these good results.

Prospects

Although the wider economic environment remains unpredictable and there may still be further challenges for the property sector, your Company remains well positioned for sustainable growth. Our results for 2011 have demonstrated our ongoing track record of delivering predictable and growing income streams while managing our costs and keeping our balance sheet in good shape.

At the same time, looking forward, we can see attractive opportunities to generate further value from our assets and pipeline. Our balance sheet is well structured, our regional teams continue to be successful in improving asset and land values and we are generating profitable commercial and residential developments from our substantial land bank.

The strong results for 2011 give us further confidence that the Company has the resources and expertise to meet whatever challenges and opportunities result from the current economic uncertainty and has a robust strategy to deliver value and future growth for its shareholders.

Bill Shannon

Non-executive Chairman

Chief Executive's Review

We have had a very successful year in which the application of the experience, skills and expertise in our business has resulted in almost all areas of the business performing well, despite the challenges posed by the market conditions.

Through our intensive and active asset management we have improved rental income streams, added value to existing assets by undertaking enhancement works and, through management of the planning process, we have continued to be active in development. This has included creating a strong pipeline of opportunities for future years, and successfully continuing to recycle our assets.

As a result of these efforts, profits before tax are up 34%, we have strong visibility on a pipeline of healthy opportunities for future years and we are strongly placed to take advantage of those prospects.

Strategy Overview

As a business we have always sought to add significant value to the assets that we hold. We have a long and successful track record which demonstrates our ability to achieve this and we are very pleased that 2011 has been another year in which we have generated significant value for our shareholders.

We acquire assets where we can see future development opportunities. Consequently, we are constantly working to add value to these assets through remediation, development, asset management or through our careful management of the planning process. Our regionally based teams assess each asset and evolve the strategy to suit local market conditions; so, even in difficult markets, we are able to drive good performance from our assets. Our portfolio of income producing assets (each of which also has development potential) substantially covers our business funding and running costs, while we additionally invest in commercial and residential assets that can deliver significant long-term returns.

As a result of this strategy, we hold a portfolio from which we are confident we can create future value and, while we are not able to accurately predict the effects of the current Eurozone crisis on future property values, our track record has shown that we can continue to do this even in difficult markets.

Market Overview

The wider economic environment remains challenging. The Eurozone macroeconomic issues in the second half of 2011 have restricted confidence in the UK economy and reduced the funding appetite of UK banks. Consequently the transaction levels for most property asset types remain limited.

Despite these negatives, good opportunities do exist. The strength of our business, our regional organisation, our land bank and our funding structure means that we are very much open for business with both the capacity and the will to develop. Many of our previous competitors have dropped away over recent years and so we are able to secure an increased share of a reduced market. Furthermore, the challenging market conditions also affect our suppliers and contractors, meaning that we can pass on cost savings to our customers while maintaining our own profitability.

The UK planning environment continues to evolve with the localism agenda counteracting the need for simplification of the planning system. While some unnecessary complexities look set to be removed, it remains likely that new complications will emerge. One of the Company's key strengths is its ability to guide schemes effectively through the planning process, managing the many stakeholders and their interests as well as overcoming any legal complications.

These skills, and the resources necessary to deploy them, remain scarce, particularly away from London and we are confident that this ensures we have a sustainable market advantage in progressing development across the UK.

The UK house building market is much reduced from its peak levels, but remains active. Well located and ready-to-use land remains in demand and realises sensible values. While mortgage availability is reduced, the combined factors of the long-term housing shortage in the UK, the more vibrant South East of England economy and Government initiatives to support the housing market mean that there remains a good market for new homes.

Through our agreements with Persimmon and our own St. Modwen Homes developments we are able to capitalise on this demand, with all of our sites generating house sales at rates and prices exceeding our previous expectations.

Operating Review

Portfolio

There are three main areas for our business, each supported by a proven business strategy:

Residential

37% by value of our portfolio.

Commercial Land and Development

13% by value of our portfolio.

Income Producing Property

50% by value of our portfolio.

Portfolio Shape

Over the last year we have focused our investment into active developments or into income producing assets. Where we have acquired residential or commercial land we have used capital efficient development agreements or acquired the land at very low value with long-term plans in mind. The value of our residential asset portfolio has generally been increased through our own asset management initiatives, particularly in the South East of England where almost 50% by value of our residential assets are located.

Once we can no longer see opportunities to add significant value to an asset, we aim to realise the asset and recycle the money into our portfolio. During 2011 we have realised £95m from asset disposals and spent £96m on acquisitions and capital expenditure.

Developable acres analysis

Residential

Strategy

We acquire sites with the potential for residential development, and our asset management skills enable us to add value to the land throughout the development process, realising value through land sales or by development in joint venture or in-house. Our skills in remediating and developing land, managing our landholdings through the planning process, and balancing commercial and local needs make us an attractive partner to landowners and public bodies.

During this financial year we have been able to add significant value by managing our assets through the planning process, have sold assets effectively, and have commenced active development on two sites for St. Modwen Homes and three held through our joint venture with Persimmon.

We have also been able to progress future opportunities; we are progressing with the development of a further four sites by our Persimmon joint venture, have identified opportunities to create significant further value through our VSM joint venture with Vinci UK plc and have targeted public sector opportunities where our strengths can lead to major value creation for both ourselves and the public sector.

Driving Value Through Active Management

During the course of the 2011 financial year our independent valuers, Jones Lang LaSalle, have assessed that our work has added £26m of value to our residential portfolio. The properties where these gains have principally been made include:

·; Llanwern/Glan Llyn, Newport, South Wales where construction commenced on 311 homes. The site has outline consent for 4,000 homes, the first phase of which has been commenced by Persimmon.

·; Coed Darcy, Neath, South Wales, having resolved Compulsory Purchase Order issues, detailed planning applications were submitted for further development with an increased outline consent for up to 4,000 homes.

·; Long Marston, Stratford-upon-Avon, Warwickshire with outline planning consent secured for the development of up to 500 homes.

·; Longbridge, Birmingham with detailed planning applications submitted for further development of 229 homes in addition to the 113 homes already under construction by St. Modwen Homes and strong levels of initial sales.

Future Opportunities

·; Branston, Burton on Trent - planning application submitted for 660 homes and employment space on 280 acres of land for mixed use development.

·; Pye Green, Hednesford, Cannock - planning application submitted for up to 700 high quality homes on a 142 acre development to the north of Cannock Town Centre.

·; Melton Park, Hull - proposals being worked up to adapt part of the 100 acre Melton Park for residential development in response to the current need for new family homes.

·; South Ockendon, Essex - outline planning permission obtained for 650 homes on a 31 acre former car factory site acquired from Ford in 2006. The scheme will form a key part of the delivery of new housing in the Thames Gateway.

Within our VSM joint venture two key sites remain: Uxbridge and Mill Hill. Our strategy for both of these sites is well developed.

At Mill Hill we have entered into a joint venture with the adjoining landowners Annington Holdings plc and the London Borough of Barnet. The site obtained planning consent in 2011 for 2,174 residential units of which VSM's share is 57.55%. We have released the first two phases for sale and have been encouraged by the level of interest and land values which clearly demonstrates the appetite for well located, de-risked residential land.

At Uxbridge we have obtained planning permission for 1,340 units plus approximately 200,000 sqft of B1/retail space. As with Mill Hill the site is well located within the M25 and we expect demand to be strong when we release the first phase for sale in 2012.

Residential Development

We continue to see an active market for residential land. Over 80% (more than 20,000 plots) of our portfolio has either planning permissions or allocations within local plans with significant further value anticipated to be extracted from this land bank over future years.

During the course of 2011 we sold residential land to the value of £45m with an additional £27m of land being contracted within the Persimmon joint venture. All of these transactions were conducted at or above book value.

Persimmon Joint Venture

Our view that the residential land market remains active is reinforced by the continued appetite for our land by Persimmon and by the positive customer response to the two joint venture sites that we have initially started marketing, at Goodyear in Wolverhampton and Glan Llyn in Newport, South Wales.

We are currently progressing for the inclusion of a further four sites into the joint venture, making a total of about 2,000 plots. The combination of these new sites plus the three existing sites should provide us with a recurring consistent stream of cash-backed income and profit for the next four to six years.

St. Modwen Homes

Our initial St. Modwen Homes sites at Park View in Birmingham and Locking Parklands in Weston-super-Mare have also seen very good initial success, with both volumes and prices being ahead of our expectations. While this part of our business is unlikely ever to generate sales of more than 500 units per year, it helps to prove the value of our projects and provides a useful additional skill set and a route to market that can be undertaken using St. Modwen's own capabilities and resources.

Residential Development Sales

Across all of our active residential development sites (both in the Persimmon joint venture and through St. Modwen Homes) both the sales rates and prices have been above our expectations with, excluding 54 pre-sold social housing units, an average of over 1.5 units confirmed reservations per site per week to date.

Residential Outlook

Our current activities should provide profitability in future years because our land is well located and represents the type of land that is currently in demand. In addition, our valuations do not factor in any future increase in values and assume standard house builder margin. Our ability to add value through the planning process is clearly visible and our current development activities are proving successful. Consequently, we believe that we will generate significant value in this area in future years.

Commercial Land and Development

Strategy

Our long-term view allows us to acquire land for reduced capital outlay and manage its development through the remediation and planning processes, taking advantage of local market conditions to release the land for development at the most appropriate time. This strategy means that we hold a lot of land at relatively low values, giving us access to a wide variety of development opportunities without taking on unnecessary obligations.

In the current market the extent of our land bank, again coupled with our local expertise, means that that we are able to identify and meet occupiers' demands quickly and efficiently. This gives us a distinct advantage over many of our competitors, meaning that we are able to consistently generate good cash-backed profits from commercial development even in a subdued marketplace.

Market Commentary

The UK commercial development market is subdued, particularly outside of London and the South East. Few potential tenants have the confidence to make substantial investment, and those that do often expect an attractive commercial deal. We are, however, seeing increasingly limited competition in this area. There is a general unwillingness to invest in short-term commercial land and there is restricted availability of bank funding for developers.

Despite the lack of growth in the wider economy and individual retailer issues there continues to be occupier demand from retailers, particularly for foodstores. We have two major foodstores currently in development and have active negotiations or discussions in place for more in future years. Wider retailer demand for space in attractive developments is also present.

Where industrial and commercial occupiers have pressing needs for new premises through business growth, lease expiry or new location requirements, we are well placed to service this demand. Our existing land bank continues to provide us with opportunities and we are able to replenish our land bank for minimal initial capital outlay. Our funding structure does not rely on development finance and our local presence means that we can be alive to opportunity.

Consequently, we continue to find good commercial development opportunities that are not reliant on speculative development. Furthermore, our activity level means that we are able to secure excellent terms from financially stable main contractors, providing attractive terms for occupiers while preserving our profit levels.

Active Developments

·; Hednesford Town Centre & Tesco Foodstore, Staffordshire

·; Longbridge Town Centre & Sainsbury's Foodstore, Birmingham

·; myplace, Youth Centre, Longbridge, Birmingham

·; Viridor Office Facility, Firepool, Taunton

·; Skypark, Exeter

·; Phoenix Retail Park, Longton, Stoke-on-Trent

·; Siemens PLC Office & Production Facility, Teal Park, Lincoln

·; The Vine, St. Matthew's Quarter, Walsall

·; North Square, Edmonton, London

Developments Completed During the Year

·; Etrop Court, Wythenshawe, Manchester - 48,000 sq. ft. office complex let to Manchester City Council. Investment sale completed.

·; Bournville College, Longbridge, Birmingham - 250,000 sq. ft., six storey educational facility for over 15,000 students occupying 4.2 acres of the new Longbridge Town Centre; including a learning resource centre, business school, construction workshop and leisure and sport facilities.

·; The Hive Leisure Park (Venture Fields), Widnes - 100,000 sq. ft. leisure complex with attractions including a five-screen Reel Cinema, 16 lane Widnes Superbowl plus Nando's restaurant and 60 bedroom Premier Inn with adjoining Brewers Fayre family pub and restaurant. Investment sold.

·; Connah's Quay, Flintshire - 72,000 sq. ft. retail scheme including a 52,000 sq. ft. Morrisons foodstore, creating over 300 new jobs with lettings to a wide range of national retailers including Greggs, Bargain Booze, Just Go Travel and Home Bargains. Investment sold.

·; Travelodge Hotel - 73 room hotel at Edmonton, London.

Future Opportunities

Significant current commercial development opportunities with planning recognition on land owned or controlled by St. Modwen include:

·; Swansea University - creation of a new campus.

·; Elephant & Castle, Southwark, London - Regeneration of the existing shopping centre with the opportunity for up to 1,000 residential units above.

·; Great Homer Street, Liverpool - 80,000 sq. ft. foodstore plus 50,000 sq. ft. of further retail.

Land Bank Comments

During the course of the year we have increased our developable land bank from 5,736 to 5,762 acres. The main movements during the year have been:

·; 65 acres of developable land have been used or sold for development during the course of the year.

·; We have acquired at agricultural prices 62 acres of former Coal Board land in the Midlands that we believe has the potential for long-term development.

·; We have successfully concluded a development agreement with Dyson Group plc for 105 acres of ex-industrial land that we believe will offer commercial and residential opportunities over the medium term.

Commercial Land and Development Outlook

While this market is currently difficult we have sufficient developments underway and sufficient opportunities identified to give us confidence in our ability to generate a stream of development profits in the years to come. While demand may fluctuate we typically hold our land at low values or through development agreements and so do not expect our balance sheet to be materially affected by any reductions in commercial land values. The land bank that we hold, our local expertise and our ability to manage planning processes and local stakeholders means that we remain confident of future returns in this area.

Income Producing Properties

Strategy

While all our assets are ultimately held because of the prospect of generating significant future value, we ensure that a major proportion of these assets also generate income while we hold them prior to development. We aim for the cash received from this income to pay for all of the cash expenses and financing costs of running the overall business.

Efficiency in managing this portfolio of income carries a high priority for the business. We invest in a locally based asset management capability that enables us to effectively manage tenancies, receipts and outgoings, identify opportunities to improve values and to find new tenants.

Despite the problematic economic environment we continue to be very successful in this area, and we have consistently been able to improve our gross and net rental income. Our gross and net rental income has increased again in 2011 and the income from this portfolio of properties continues to substantially cover all of our cash outgoings for running the business (see Note 2 to the accounts).

Income Producing Portfolio Analysis

The development opportunity oriented nature of our portfolio means that we typically hold properties that have high yields and low affordable rents on relatively short tenancies. At the year end we held over 100 income producing properties with a book value of £550m (2010: £525m). The average lease length at the year end was 4.6 years (2010: 5.1 years) while our active asset management means that occupancy levels have been increased to 87.9% (2010: 87.6%). Administrations have been kept to a low level and we have attracted more new tenants than have left our assets. Generally like-for-like valuations have been flat, with changes in values as a result of our asset management.

Portfolio Yield Analysis

Industrial

Industrial assets make up 49% of the income producing assets (25% of the Group's overall property portfolio). These are often older assets with a variety of future opportunities, including potential conversion through the planning process to other uses. Our active asset management and the often flexible nature of the properties has meant that we have continued to be successful in this section of the market.

While the UK industrial environment is far from buoyant, industrial initial yields have been consistent from year to year. We have had some notable letting successes such as at Parkside in Doncaster and Long Marston in Warwickshire. Since the year end we are also pleased that our largest individual lease, for Shanghai Automotive at Longbridge in Birmingham, which is currently producing rent at £1.5m per year, will now extend until at least 2024 following the expiry of a break notice period.

Retail

Retail assets make up 38% of the income producing portfolio (19% of the Group's overall property portfolio). We invest in well located retail assets where we believe we can create significant future value through a combination of development and effective asset management. This strategy means that we have tended to invest in retail assets where there is a high footfall of shoppers spending on essential purchases, rather than in destination shopping centres.

This strategy has meant that our retail assets have continued to perform well in the current economic environment, with retailers attracted to our centres, shoppers continuing to spend on their essential purchases and ongoing developments to improve the retail centres being successful. Credit control in this area remains a high priority.

Nevertheless we continue to see opportunity. In the last year we have taken advantage of development opportunities at Wythenshawe in Manchester and at Edmonton in North London. We have invested in a new asset at Farnworth in Bolton, which we believe has asset management and development potential. We have also made significant progress in the development plans for Elephant & Castle in Central London where we have signed a development agreement with the London Borough of Southwark and we are pursuing a residential and retail development opportunity.

Office

Office assets make up only 13% of the income producing portfolio (6% of the Group's overall property portfolio). We have in past years invested in office assets where we could see development opportunities or where the creation of a business technology centre assisted with a wider development. We have had some success in letting existing assets during the course of the year but due to the current economic climate we do not see this as an area for substantial future investment.

Income Producing Properties Outlook

Our ability to successfully manage our portfolio in difficult economic environments has been clearly demonstrated in recent years, and the 5% increase in net rental income in 2011 is very pleasing. It seems likely that the economic environment will continue to prove difficult in 2012, but our asset management ability and flexible portfolio give us every opportunity to maintain and improve our current position.

Where opportunities arise for investment in well located properties with the chance to add significant future value, then we will continue to use our local knowledge and flexible financial position to take advantage of the investment. Over the course of the next 12 months we anticipate that this is more likely to be in the area of industrial properties than retail, and unlikely to be in offices, but we will judge each opportunity on its own merits.

People

The St. Modwen business model is based on a hands-on and proactive approach. The core skills of our people in asset management, remediation, development and the management of the planning process are locally based and fundamental to our success. Their contribution in 2011 has driven our successful results. We continue to invest in and incentivise our people in order to grow their abilities, build their success and hence build the future success of the business.

Summary and Business Outlook

2011 has been a successful year for the business and we have the foundations in place to deliver successful results in 2012. Our developments in progress at Hednesford, Longbridge, Lincoln and a variety of others, plus our active house building sites give us a pipeline of property development profits that is potentially set to exceed the results achieved in 2011, with additional opportunities still being identified.

While we are unable to predict the impact of the Eurozone sovereign debt crisis on asset values we know that our asset portfolio will provide us with many opportunities to add significant value in the years to come.

We are in the process of delivering significant residential and development projects that underpin our property profits for 2012 and beyond. We can see clear opportunities to add value to our assets through the planning process.

Our asset management ability gives us confidence in our ability to make our property assets continue to perform well.

Financial review

Income Statement

Our business model is based on cash from core rental and other income covering the cash costs of running the business (property outgoings, overheads and interest). This provides a solid base from which the Group can drive profits from its development activities and add value to its existing assets through planning and asset management activities.

As we utilise a number of joint venture arrangements, the statutory financial statement disclosures do not always provide a straightforward way of understanding our business. To enable a better understanding we also provide information including the Group's share of joint ventures. A full reconciliation is provided in Note 2 to the accounts.

Trading Profit

Net Rental Income

Our focus on this core area of our business has continued over the last year and we are pleased to have increased the Group's share of net rental income to £35.5m, an increase of 5% year-on-year. This has been driven both by increasing gross annualised rental income from £45.7m to £46.4m, and by successfully managing our property outgoings.

As a development business we will always hold a relatively high level of void as we prepare assets for development. Despite the difficult business environment we have been able to maintain our position with overall occupancy levels maintained at 88%. Our weighted average lease length also remains broadly constant at 4.6 years (2010: 5.1 years), before taking into account the impact of the extension of the Shanghai Automotive lease at Longbridge.

Property Profits

We have maintained our track record of recurring realised property profit delivery. Property profits, including our share of joint ventures, were £23.8m (2010: £21.9m). This included significant contributions from our portfolio of BP remediation sites and a broad portfolio of pre-let and pre-sold developments (including Bournville College, Manchester City Council and Travelodge). As well as realising profits from the disposal of residential land we are also pleased to realise the initial profits from our first St. Modwen Homes development at Park View in Birmingham.

Overheads

As a regional business with a spread of properties across England and Wales, our cost base is largely driven by the employment of skilled teams of professionals to manage the existing and potential assets. While we have gradually moved our skills towards the greater future opportunities in residential land and in the South East of England, we have been able to do this without altering our cost base. The Group's share, including joint ventures and associates of administrative expenses for 2011 is £16.7m (2010: £17.1m).

Finance Costs and Income

During the course of the year we have been able to replace or restructure a substantial proportion of our hedges and LIBOR swap arrangements without incurring any change costs. This has meant that the effect of a slightly higher net debt balance has been more than outweighed by the saving in overall interest costs. Consequently, net bank interest costs have been reduced by 5% to £23.0m (2010: £24.2m). The average cost of our debt for the year was 5.6% (2010: 5.8%).

Trading Profit for the Year

We are therefore pleased to report that our trading profit has increased by 31% to £22.8m, a result that is particularly pleasing given the current UK economic conditions.

Looking forward we can see predictable and consistent trading profit income streams and controllable costs. Our rental income and recurring other income covers substantially all of our overheads and interest and we retain the ability in the business to cope with an increased future development workload.

Property Valuation Movements in the Year

There are two principal components to property valuation movements: those movements resulting from activities that we undertake specifically to add value to our assets, and those resulting from changes in the overall property market. Jones Lang LaSalle provides this valuation split for us.

Valuation Improvements as a Result of St. Modwen Actions

An important part of our business model is to actively manage our asset base in order to add value to the existing portfolio. This year has delivered some successful results, particularly in managing residential land through the planning process.

Our success in attracting new tenants and in improving lease terms has also resulted in added value valuation gains for both our retail and industrial portfolios.

Based on the independent valuations from Jones Lang LaSalle we have been able to generate revaluation gains of £32.9m from our activities, an increase of 79% from 2010 (£18.4m). While 2011 has been a particularly good year we expect to continue to be able to consistently generate valuation improvements through our own activities in future years.

Property Valuation Movements in the Year

Market driven valuation movements

During the course of the year we have not materially benefited from any market driven improvement in the value of our portfolio, with a market driven gain of £1.0m (2010: £4.6m). Given the current UK economic environment we are not expecting any market driven valuation gains in 2012.

Profit Before Tax

Our profit before tax is also stated after movements in the market value of our interest rate derivatives (hedges and swaps). The valuations are based on the financial markets forward prediction curves for interest rates and over the second half of the year these have implied reduced expectation of future interest rate increases. Other finance cost and income items are broadly consistent with 2010. We therefore have a charge to theincome statement of £5.0m in 2011 (2010: £2.2m).

The combination of all the above factors means that profit before tax has increased by 34% to £50.4m (2010: £37.5m), a very pleasing result given the difficult economic environment.

Taxation and Profits After Tax

Our Group tax charge for the year of £4.9m reflects an effective rate of tax of 10%, which includes the utilisation of losses brought forward. Losses brought forward in 2010 resulted in a tax credit of £0.8m. Looking forward we expect tax rates to increase slightly given that the bulk of the losses brought forward have now been utilised.

Despite the increase in tax charge, profits after tax of £45.5m are 19% ahead of the equivalent period last year (2010: £38.3m). Similarly Earnings per Share have increased 17% to 21.7p (2010: 18.6p).

Funding

As a development business it is important for us to retain flexibility in our funding structures. We therefore maintain a series of bilateral revolving credit facilities with clearing banks that have a large UK presence. Where we have joint ventures we have funding arrangements in place as appropriate for each vehicle.

We have been active in development during the year and consequently have invested in developments in progress. This has meant that our net debt has increased in the year from £315m to £347m although gearing levels remain similar to the end of 2010 (2011: 73%, 2010: 72%).

Corporate Facilities

During the course of this year we have replaced or extended all of our corporate bilateral facilities. Facilities with Lloyds, Barclays and HSBC were renewed or extended during the 2011 financial year and a new facility was put in place with Santander. All Group bilateral facilities now extend until at least November 2014, giving us an average debt maturity of 3.5 years (2010: 3.3 years).

Headroom in Corporate Facilities

In total we have corporate debt facilities excluding VSM Estates of £434m against drawn debt of £303m at the year end, giving us substantial potential headroom to meet future development and funding needs.

Our VSM joint venture and its associated debt is treated as on balance sheet for the purposes of the financial accounts. We have reduced this facility in order to reduce the costs of unnecessary undrawn facilities, but still provide sufficient funding to meet future obligations. The facility extends until March 2014 and has £44m debt drawn against a remaining facility of £48m. Since the balance sheet date, VSM has received a further £10m of deferred land sale receipts with a further tranche of £14m due in January 2013.

Substantial headroom remains in our debt facilities to enable us to continue to pursue active development of our business.

Hedging & Cost of Debt

We aim to have predictable costs attached to our borrowing and so we hedge the majority of our interest rate risk. At the year end we were 86% hedged against our corporate debt (2010: 98%). Our hedging maturities are spread between 2012 and 2018 so that we are not overly exposed to re-hedging risks in any one year.

Corporate Funding Covenants

We are operating well within the covenants that apply to our corporate banking facilities. The covenants are:

·; Net assets must be greater than £250m (actual £476m);

·; Gearing must not exceed 175% (actual 73%); and

·; Interest cover ratio (that excludes non-cash items such as revaluation movements) must be greater than 1.25x (actual 2.0x).

Although the current economic conditions still have an element of uncertainty, we have considered available market information, consulted with our advisers and applied our own knowledge and experience. Consequently, we believe that covenant levels are adequate for our possible negative scenarios.

Joint Venture Facilities

In addition to VSM we have two further joint venture facilities:

1 Key Property Investments ('KPI')

KPI, our 50:50 joint venture with Salhia Real Estate Company K.S.C., holds significant retail and commercial assets with the potential for future development. Asset profitability and sales have meant that our financing requirements have reduced over the last year. 'KPI' debt at November 2011 was £146m (2010: £165m) and this is expected to reduce further in the near-term. The existing £200m facility has very advantageous terms but expires in September 2012. Consequently, we are in the process of putting in place a new facility for 'KPI'. The new club has been identified, we have agreed terms and received credit approval and are currently in legal process to finalise a new five year facility.

2 Sowcrest & Holaw

These joint ventures are with Rotch Property Group Ltd and relate principally to our Wembley development. Over the course of the last year asset sales have significantly reduced the debt associated with this project to £22m at November 2011 (2010: £33m). We aim for the pace of asset sales to continue to accelerate over the coming months leaving a minimal level of debt requirement by May 2012.

We are in advanced negotiations with Rotch to acquire its share of the joint ventures. If we successfully conclude this transaction we expect the assets and remaining debt in both Sowcrest and Holaw to be wholly consolidated into St. Modwen's results.

Balance Sheet

Net Assets

At the year end the shareholders' equity value of net assets was £464m or 232p per share. This represents a 9% increase over the year (2010: £427m or 213p per share). In addition to this increase dividends of £6.2m or 3.1p per share were paid during 2011 (2010: £2.0m or 1p per share).

EPRA Net Asset Value

In line with industry best practice we also report net assets per share using the EPRA (European Public Real Estate Association) methodology. Our diluted EPRA net asset value also rose 9% from 229p per share to 250p per share.

A full reconciliation of our net assets is provided in Note 2 to the Group Financial statements.

Property Portfolio

We now have a property portfolio worth £1,103m (2010: £1,055m). Over the course of the year we have been actively managing our property portfolio with £96m having been spent on acquisitions and capital expenditure and £95m realised from asset disposals. In addition to these disposals we have committed £27m of land to our Persimmon arrangements. The sale of this land is only recognised in line with house completions and therefore remains part of our property portfolio.

The land committed to Persimmon is held as part of inventories. Assets held in inventories principally comprise of development properties where development has commenced and assets held for resale. Inventories also include RAF Northolt that has been pre-sold to the Ministry of Defence under Project MoDEL. As it is matched by an equal and opposite obligation within trade payables, we exclude this asset from our property portfolio. A full reconciliation of the property portfolio is provided in Note 2 to the Group Financial statements.

Movements in our property portfolio during the year:

Property Portfolio - Value Movements 2011

Property Valuation Bases

All our investment properties are independently valued every six months by Jones Lang LaSalle LLP, a global real estate professional services business, one of whose specialisations is property valuation. Jones Lang LaSalle based its valuations upon an open market transaction between a willing buyer and a willing seller at the balance sheet date. Therefore no value is taken for any future expectations of value increases but discounts are applied to reflect future uncertainties. Where appropriate we will also independently assess our work in progress for any impairment issues. In accordance with accounting standards valuation movements are put through the income statement as gains or losses.

Valuations in all our asset classes have been substantiated by open market transactions during the course of the year. Yields on our income producing properties have remained largely stable in the flat market during the year, with any movements reflecting our success in attracting tenants.

Weighted Average Yields on Income Producing Property

Trade Payables

Around two thirds of our trade payables balance relates to the deferred payment arrangements related to land owned by our VSM joint venture, including RAF Northolt as referred to above. As this joint venture progresses and land is sold off for development these payables amounts will naturally reduce. Other trade payables relate to development activities in the normal course of our business.

Pension Scheme

Our defined benefit pension scheme continues to be fully funded on an IAS19 basis. The results of the triennial valuation from April 2011 are well advanced and show a fully funded scheme. With the scheme being closed to new entrants and closed to future accrual we do not expect any significant material future increase in scheme contributions.

Financial Outlook

Our very good financial results for the year and strong pipeline of opportunities are backed by our solid financing structure and committed funding arrangements. While the times ahead will undoubtedly be challenging we believe that we are well equipped to meet those challenges and prosper.

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 2011 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 2011 or 2010, 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 2010 have been delivered to the Registrar of Companies and those for 2011 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 498 (2) or (3) of the Companies Act 2006.

- The Chairman's Statement, Chief Executive's 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 28th February 2012. The full financial statements will be available to view on National Storage Mechanism on the same date.

Signed on behalf of the Board on 6th February 2012

Risks and uncertainties

Risk & Impact

Economic & Market Risk

Uncertainty in the economic and market environment increases the risk attached to property valuation and development returns

Financial Risk

Our geared financial structure means that there are inevitable risks attached to the availability of funding and the management of fluctuations in our cash flows

Construction Risk

The management of developments is a complex process

Regulatory & Compliance Risk

Our work is undertaken in a complex environment with consequent compliance risks

Organisational Risk

Our activities require highly skilled and motivated people in order to deliver consistently and effectively

 Group Income Statement

for the year ended 30th November 2011

A reconciliation of non-statutory measures used in the Overview together with the Business and Financial Review is included in Note 2 to the Group financial statements.

Group Balance Sheet

as at 30th November 2011

Group Cash Flow Statement

for the year ended 30th November 2011

Group Statement of Comprehensive Income

for the year ended 30th November 2011

Group Statement of Changes in Equity

for the two years ended 30th November 2011

Own shares represent the cost of 215,754 (2010: 259,414) shares held by the Employee Benefit Trust. The open market value of the shares held at 30th November 2011 was £225,463 (2010: £351,246).

Accounting Policies

for the year ended 30th November 2011

Basis of consolidation

The Group's 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.

Non-controlling interests represent the portion of profit or loss and net assets that are not held by the Group and are presented separately within equity in the Group Balance Sheet.

Interests in joint ventures

The Group recognises its interests in joint ventures using the equity method of accounting. Under the equity method, the interest in the joint venture is carried in the balance sheet at cost plus post-acquisition changes in the Group's share of its net assets, less distributions received, less any impairment in value of individual investments. The income statement reflects the Group's share of the jointly controlled entities' results after interest and tax.

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

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

Interests in associates

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

Properties

Investment properties

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

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

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

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

Investment properties are not depreciated.

Inventories

Inventories principally comprise properties held for sale, properties under construction and land under option. All inventories are carried at the lower of cost and net realisable value.

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

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

Leases

The Group as lessee

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

Non-property assets held under finance leases are capitalised at the inception of the lease with a corresponding liability being recognised for the fair value of the leased asset or, if lower, the present value of the minimum lease payments. Lease payments are apportioned between the reduction of the lease liability and finance charges in the income statement so as to achieve a constant rate of interest on the remaining balance of the liability. Non-property assets held under finance leases are depreciated over the shorter of the estimated useful life of the asset and the lease term.

Freehold interests in leasehold investment properties are accounted for as finance leases with the present value of guaranteed minimum ground rents included within the carrying value of the property and within long-term liabilities. On payment of a guaranteed ground rent, virtually all of the cost is charged to the income statement, as interest payable, and the balance reduces the liability.

Rentals payable under operating leases are charged in the income statement on a straight-line basis over the lease term.

The Group as lessor

Rental income from operating leases is recognised in the income statement on a straight-line basis over the lease term.

Income taxes

Current tax assets and liabilities are measured at the amount expected to be recovered from, or paid to, the taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date.

The tax currently payable is based on the taxable result for the year. The taxable result differs from the result as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.

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

- in respect of taxable temporary differences associated with investments in subsidiaries, joint ventures and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and

- deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised.

Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset is realised or liability is settled, based on tax rates and laws substantively enacted at the balance sheet date.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity. Otherwise, income tax is recognised in the income statement.

Pensions

The Group operates a pension scheme with defined benefit and defined contribution sections. The defined benefit section is closed to new members and to future accrual.

The cost of providing benefits under the defined benefit section is determined using the projected unit credit method, which attributes entitlement to benefits to the current period (to determine current service cost) and to the current and prior periods (to determine the present value of defined benefit obligation) and is based on actuarial advice. Past service costs are recognised in the income statement immediately if the benefits have vested.

The interest element of the defined benefit cost represents the change in present value of scheme obligations resulting from the passage of time and is determined by applying the discount rate to the opening present value of the benefit obligation, taking into account material changes in the obligation during the year. The expected return on plan assets is based on an assessment made at the beginning of the year of long-term market returns on scheme assets, adjusted for the effect on the fair value of plan assets of contributions received and benefits paid during the year. The difference between the expected return on plan assets and the interest cost is recognised in the income statement as other finance income or expense.

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

When a pension asset (net surplus) arises and the directors consider it is controlled by the Company such that future economic benefits will be available to the Company, it is carried forward in accordance with the requirements of IFRIC14.

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

Own shares

St. Modwen Properties PLC shares held by the Group are classified in equity attributable to owners of the Company and are recognised at cost.

Dividends

Dividends declared after the balance sheet date are not recognised as liabilities at the balance sheet date.

Revenue recognition

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, VAT and other sales taxes or duty. The following criteria must also be met before revenue is recognised:

Sale of property

Revenue arising from the sale of property is recognised on legal completion of the sale. Where revenue is earned for development of property assets not owned, this is recognised when the Group has substantially fulfilled its obligations in respect of the transaction.

Construction contracts

Revenue arising from construction contracts is recognised in accordance with the Group's accounting policy on construction contracts (see below).

Rental income

Rental income arising from investment properties is accounted for on a straight-line basis over the lease term.

Interest income

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts over the expected life of the financial asset to that asset's net carrying amount.

Dividend income

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

Construction contracts

Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date. The extent to which the contract is complete is determined by the total costs incurred to date as a percentage of the total anticipated costs of 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 whether to have the liability settled by way of cash or the retention of shares. As it has been the Company's experience to satisfy the majority of share options in cash, and new shares are not issued to satisfy employee share option plans, the Group accounts for its share option schemes as cash-settled. The cost of cash-settled transactions is measured at fair value using an appropriate option pricing model and amortised through the income statement over the vesting period. The liability is remeasured at each balance sheet date. Revisions to the fair value of the accrued liability after the end of the vesting period are recorded in the income statement of the year in which they occur. If the Company's experience or expectations change, the Group may in future be required to amend its accounting to the equity-settled method.

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 expire.

Trade and other receivables

Trade receivables are recognised and carried at the lower of their original invoiced value or recoverable amount. Provision is made when there is evidence that the Group will not be able to recover balances in full. Balances are written off when the probability of recovery is assessed as being remote.

Cash and cash equivalents

Cash and cash equivalents comprises cash balances and short-term deposits with banks.

Trade and other payables

Trade and other payables on deferred payment terms are initially recorded by discounting the nominal amount payable to net present value. The discount to nominal value is amortised over the period of the deferred arrangement and charged to finance costs.

Interest bearing loans and borrowings

All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition, loans and borrowings are measured at amortised cost.

Gains and losses arising on the repurchase, settlement or otherwise cancellation of liabilities are recognised in finance income or finance expense as appropriate.

The effective interest rate method is used to charge interest to the income statement.

Derivative financial instruments and hedging

The Group uses derivative financial instruments such as interest rate swaps to hedge its risks associated with interest rate fluctuations. Such instruments are initially recognised at fair value on the date on which a contract is entered into and are subsequently remeasured at fair value. The Group has determined that the derivative financial instruments in use do not qualify for hedge accounting and, consequently, any gains or losses arising from changes in the fair value of derivatives are taken to the income statement.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all its liabilities. Equity instruments issued by the Group are recorded at the proceeds received less direct issue costs.

Use of estimates and judgements

To be able to prepare accounts according to generally accepted accounting principles, management must make estimates and assumptions that affect the asset and liability items and revenue and expense amounts recorded in the financial accounts. These estimates are based on the Group's systems of internal control, historical experience and the advice of external experts (including qualified professional valuers and actuaries) together with various other assumptions that management and the Board of directors believe are reasonable under the circumstances. The results of these considerations form the basis for making judgements about the carrying value of assets and liabilities that are not readily available from other sources.

The areas requiring the use of estimates and critical judgements that may significantly impact the Group's earnings and financial position are:

Going concern The financial statements have been prepared on a going concern basis as discussed in the Business and Financial Review. 

Valuation of investment properties Management has used the valuation performed by its independent valuers as the fair value of its investment properties. The valuation is performed according to RICS rules, using appropriate levels of professional judgement for the prevailing market conditions.

Net realisable value of inventories The Group has ongoing procedures for assessing the carrying value of inventories and identifying where this is in excess of net realisable value. Management's assessment of any resulting provision requirement is, where applicable, supported by independent information supplied by the external valuers. The estimates and judgements used were based on information available at, and pertaining to, 30th November 2011. Any subsequent adverse changes in market conditions may result in additional provisions being required.

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

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.

1. Revenue and gross profit

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 2011 was £116.9m (2010: £129.1m) and in addition to the amounts above included service charge income of £6.3m (2010: £6.9m), for which there was an equivalent expense and interest income of £1.0m (2010: £0.8m).

Cost of sales in respect of rental income, as disclosed above, comprises direct operating expenses (including repairs and maintenance) related to the investment property portfolio and includes £0.3m (2010: £0.2m) in respect of properties that did not generate any rental income.

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

Amounts recoverable on contracts as disclosed in Note 9 comprise £7.4m (2010: £11.6m) of contract revenue recognised and £1.5m (2010: £1.2m) of retentions.

There were no amounts due to customers (2010: £nil) included in trade and other payables in respect of contracts in progress at the balance sheet date.

2. Non-statutory information

(a) Trading profit

The non-statutory measure of trading profit, which includes the Group's share of joint ventures and associates, has been calculated as set out below:

(1) Stated before the deduction of net realisable value provisions to inventories of: Group £2.6m (2010: £6.1m); Joint ventures and associates £0.1m (2010: £0.3m).

(2) Stated before mark-to-market of derivative financial instruments and other non-cash items of: Group £6.7m (2010: £4.0m); Joint ventures and associates £0.1m (2010: £0.8m).

(3) Stated before mark-to-market of derivative financial instruments and other non-cash items of: Group £1.8m (2010: £2.6m); Joint ventures and associates £nil (2010: £nil).

(b) Property valuations

Property valuations, including the Group's share of joint ventures and associates, have been calculated as set out below:

The split of property valuation gains between added value and market movements is based on an analysis of total property valuation movements provided by our external valuers: Jones Lang Lasalle LLP, Chartered Surveyors for the year ended30th November 2011; and (prior to the merger of the two firms) by King Sturge LLP, Chartered Surveyors for the year ended 30th November 2010.

 (c) Property portfolio

The property portfolio, including the Group's share of joint ventures and associates, is derived from the balance sheet as detailed below:

(1) Represents the deduction of assets held under finance leases and the add back of lease incentive payments recognised in receivables.

(2) Represents deductions for pre-sold properties under construction, principally RAF Northolt as part of the Project MoDELarrangements between VSM Estates Limited and the Ministry of Defence.

The Group property portfolio, including its share of joint ventures and associates can be split by category as detailed below:

(d) Movement in net debt

 (e) Trading cash flow

Trading cash flows are derived from the Group cash flow statement as set out below:

 (f) Group balance sheet

VSM Estates (Holdings) Limited and its subsidiary undertakings ("VSM") are party to a series of contracts with the Ministry of Defence known as Project MoDEL. The property assets of VSM are subject to purchase on deferred terms and, to increase disclosure of the impact of these arrangements, the following additional split of the Group balance sheet, showing the proportion attributable to VSM has been provided:

(g) Net assets per share

Net assets per share are calculated as set out below:

 (h) Gearing and LTV

The following table shows the calculation of:

- Gearing, being the ratio of net debt to total equity; and

- Loan to Value, being the ratio of net debt to the property portfolio (representing amounts that could be used as security for that debt).

3. Finance cost and finance income

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

4. Taxation

(a) Tax on profit on ordinary activities

Corporation tax adjustments in respect of previous years include a £3.2m release of tax provisions, following the settlement of a number of open items with HMRC for periods ending on or before 30th November 2009. In aggregate £6.0m was paid against items for which £9.2m was provided at 30th November 2010.

 (b) Reconciliation of effective tax rate

The post tax results of joint ventures and associates are stated after a tax charge of £1.3m (2010: £0.7m). The effective tax rate for the Group including joint ventures and associates is a charge of 12.0% (2010: 0.3%).

The Finance Act 2011 was enacted on 5th July 2011 and included provisions which reduced the main rate of corporation tax to 26% from 1st April 2011 and 25% from 1st April 2012. Current tax has therefore been provided at 26.7% and deferred tax at 25%. Further reductions to the main rate are proposed to reduce the rate by 1% per annum to 23% by 1st April 2014. This has not been enacted at the balance sheet date and, therefore, is not included in these financial statements.

The proposed reductions of the main rate of corporation tax by 1% per year to 23% by 1st April 2014 are expected to be enacted separately each year. If the deferred tax assets and liabilities of the Group were all to reverse after 1st April 2014, the effect of the changes from 25% to 23% would be to reduce the net deferred tax liability by £0.7m.

(c) Balance sheet

An analysis of the deferred tax provided by the Group is given below:

At the balance sheet date, the Group has unused tax losses in relation to 2011 and prior years of £1.6m (2010: £6.6m), of which £nil (2010: £5.3m) has been recognised as a deferred tax asset. A deferred tax asset of £1.6m (2010: £1.3m) has not been recognised in respect of current and prior year tax losses as it is not considered certain that there will be taxable profits available in the short-term against which these can be offset.

(d) Factors that may affect future tax charges

Based on current capital investment plans, the Group expects to 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.

5. Earnings per share

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

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 share options being classified as equity-settled. Where applicable, the number of shares included in the calculation has also been adjusted accordingly.

6. DIVIDENDS

Dividends paid during the year were in respect of the final dividend for 2010 and interim dividend for 2011. The proposed final dividend is subject to approval at the Annual General Meeting and has not been included as a liability in these financial statements.

The Employee Benefit Trust waives its entitlement to dividends.

7. Investment property

Investment properties were valued at 30th November 2011 by Jones Lang LaSalle LLP, Chartered Surveyors; and at 30th November 2010 (prior to the merger of the firms) by King Sturge LLP, Chartered Surveyors, in accordance with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors, on the basis of market value. Jones Lang LaSalle LLP are professionally qualified independent external valuers and have recent experience in the relevant location and category of the properties being valued.

The historical cost of investment properties at 30th November 2011 was £744.1m (2010: £754.9m).

As at 30th November 2011, £756.9m (2010: £709.4m) of investment property was pledged as security for the Group's loan facilities.

Included within leasehold investment properties are £3.9m (2010: £3.9m) of assets held under finance leases.

8. Operating property, plant and equipment