10th Jul 2006 07:01
St. Modwen Properties PLC10 July 2006 St. Modwen Properties PLC Interim results for the half year ended 31 May 2006 St. Modwen Properties PLC is a regeneration specialist. It has four particularareas of specialism: town centre regeneration; partnering industry in itsrestructuring; brownfield land renewal; and restoring heritage Highlights * Profit before tax increased by 11% to £43.9m (2005: £39.6m) * Earnings per share increased by 6% to 26.8p (2005: 25.2p) * Net asset value per share increased by 20% since May 2005 to 289.4p * Dividend increased by 17% to 3.4p (2005: 2.9p) Anthony Glossop, Chairman, comments: "The investment market continues to remain strong as does the market forresidential land. The occupational market is more patchy, but there is businessto be won on acceptable terms if the product and the price is right. We remainon course to grow in line with our long-term financial objective of doubling thenet asset value per share of the company every five years and I look forwardwith confidence to a strong second half." 10 July 2006 ENQUIRIES: St. Modwen Properties PLC www.stmodwen.co.ukAnthony Glossop, Chairman On 10 July 020 7457 2020Bill Oliver, Chief Executive thereafter - 0121 222 9400Tim Haywood, Finance Director College Hill www.collegehill.comGareth David 020 7457 2020Matthew Gregorowski A presentation for analysts will be held at 11.00am today at College Hill, 78Cannon Street, London, EC4N ST MODWEN PROPERTIES PLC Interim results for the half year ended 31 May 2006 CHAIRMAN'S STATEMENT Results I am pleased to report on another strong first half performance by your company. You will see that the results are presented in a very different format from thatto which you have been accustomed. This arises from the introduction ofInternational Financial Reporting Standards ("IFRS"), the principal effects ofwhich, apart from purely presentational ones, are that revaluations are shown onthe face of the income statement and deferred tax provision on revaluations isincluded in both the income statement and the balance sheet. In addition, the introduction of IFRS has led us to make a couple of otherchanges. In common with most other quoted property companies, we are nowundertaking half-yearly revaluations and, as many of our schemes are now takingplace over many years, we have reclassified a large part of our work-in-progressas investment properties which have, therefore, been included in therevaluation. Prior year comparatives have been restated in the IFRS format and to reflecthalf-yearly revaluations and the work-in-progress reclassification so that thefigures presented are on a like for like basis. On the IFRS basis, the profit before tax has increased by 11% to £43.9m (2005:£39.6m) which includes an unrealised property valuation gain, including ourshare of joint venture gains, of £21.9m (2005: £22.2m). The net asset value ofthe company is £349.5m (2005: £290.9m), an increase of 20%. The increase in thefirst half alone is £25.5m, an increase of 8%. On the traditional accountingbasis, the pre-tax profit would have been £23.0m (2005: £22.8m). Dividends In the light of this strong performance and the prospects for the full year, theboard has declared an interim dividend of 3.4p per ordinary share (2005: 2.9p),an increase of 17%, which will be paid on 1st September 2006 to shareholders onthe register at 4th August 2006. People Richard Froggatt, who has been a main board executive director since 1995, hasresigned to pursue other interests and will be leaving the company around theend of July. He has played a significant part in the growth of the hopper and Iwould like to thank him for his contribution and wish him well for the future. We continue to be active in strengthening the team. Tim Seddon has joined usfrom Land Securities to be the London and South East Regional Director, and wehave made significant new appointments in the regions, and in the constructionteam. We will not be replacing Richard on a like for like basis. Much of his work hasnow been taken over by the regional teams, and we will be undertaking furtherrecruitment to help us meet our demanding financial objectives ST MODWEN PROPERTIES PLC Interim results for the half year ended 31 May 2006 CHAIRMAN'S STATEMENT (Cont'd) Prospects The investment market continues to remain strong as does the market forresidential land. The occupational market is more patchy, but there is businessto be won on acceptable terms if the product and the price is right. We remainon course to grow in line with our long-term financial objective of doubling thenet asset value per share of the company every five years and I look forwardwith confidence to a strong second half. ANTHONY GLOSSOP Chairman 10 July 2006 ST MODWEN PROPERTIES PLC INTERIM RESULTS FOR THE HALF YEAR ENDED 31 MAY 2006 BUSINESS REVIEW We remain committed to our business model and strategy. We are at heart aproperty development company, the aim being that no property should be heldunless significant value can be added to that property by the company's ownefforts in a flat market over a five to fifteen year horizon. The key to the strategy is the hopper, which is a bank of long-term developmentopportunities, broadly based, geographically spread, and focused uponregeneration. The opportunities are sourced by and serviced through a network ofregional offices, and are often the outcome of working in partnership. Development and performance of the business Trading An 11% increase in profit before tax was driven by a 13% increase in propertydisposals, including our share of joint ventures and a £0.8m improvement inother income. Twenty-six property disposals were completed in the period with 4projects contributing profits of over £1m. Net rental income, again includingour share of joint ventures, declined by 18% to £17.3m (2005: £21.2m). This wasexpected, and reflects the sales made last year and the reduced income on theLongbridge property. Trentham Lakes, Stoke-on-Trent, saw considerable activity with the completion ofa 437,000 sq ft warehouse for Glen Dimplex, the construction of a 64,000 sq ftwarehouse let to Portmeiron which has been pre-sold, and an extension to thePets at Home facility which has been pre-sold to Prudential together with anumber of smaller transactions. At Centre 38, Burton-upon-Trent, our joint venture with Prologis, we completedand sold the 70,000 sq ft facility let to Intier. At Hilton, Derby, we areconstructing a 70,000 sq ft facility for Daher Sawley which has been pre-sold,and at Quedgeley West, Gloucester, we are constructing a 95,000 sq ft facilityfor Prestoplan which has also been pre-sold. The Edmonton and Wembley town centre schemes saw further progress inconstruction or site clearance and we took the opportunity of the stronginvestment market to sell two small investment properties in Urmston and London. Two significant residential land sales took place in the period of 12 acres atBestwood, north of Nottingham, and 11 acres at Hilton, Derby. At Etruria Valley, Stoke-on-Trent, the first two buildings in the 45,000 sq ftoffice village scheme have been sold shortly after the end of the period, thesebeing the units let to the Probation Service and the Crown Prosecution Service.The remaining building which is to be in multiple occupancy, is either let or insolicitors' hands and should be available for sale in the second half. This year we have introduced half-yearly valuations and have reclassified muchof our work-in-progress as investment properties. This brings us into line withmost other quoted property companies and reflects the long-term nature of mostof our schemes. The impact of the reclassification of certain work in progresswas £24.4m, of which £6.8m related to the current period and £17.6m to earlierperiods. Our valuers continue to adopt a conservative approach to revaluations,particularly in the area of change of use where they do not tend to recogniseincreased value until some significant milestone, such as the actual grant ofplanning permission or the signing of a development agreement, is achieved. Marshalling (projects in active preparation) We have continued to make good progress in marshalling projects for the secondhalf of 2006 and beyond. • At Trentham Gardens, the construction of the major sectionof the second phase retail is well advanced and lettings are going well. Anagreement for lease has also been exchanged with Golden Tulip Hotels for a 120bedroom hotel and planning negotiations are at an advanced stage. • At Guiseley, a favourable planning resolution was obtainedfor eight acres of residential development subject to a Section 106 agreement. • Planning was obtained for a major mixed-use scheme atNorton Fitzwarren, Taunton. This will provide 550 homes and 170,000 sq ft ofemployment space. The development joint venture with AXA is in the process ofbeing finalised. • In Wolverhampton, a favourable planning resolution wasobtained for the Goodyear site for 46 acres of residential development and33,000 sq ft of new or refurbished employment space subject to signing a Section106 agreement. • In February, Nanjing Automotive Group UK Ltd took anassignment of the remaining 33 years on 105 acres of MG Rover's lease atLongbridge. This assignment is subject to a six month break clause aimed atgiving Nanjing the time to complete its operational plans to restart motormanufacturing. This cleared the way for the masterplanning of the majoremployment-led mixed-use scheme on the remaining 238 acres on which we have beenworking closely with the two local authorities involved, and have commencedpublic consultation. • In Newham, we have exchanged a development agreement withthe local authority for the scheme at Upton Park. • We are one of three parties short-listed by the LondonBorough of Southwark for the overall Elephant & Castle scheme. Phase 3submissions in the selection process are expected to be required by this autumn.In the meantime, we are managing the shopping centre so as to maximise incomewhilst facilitating its future redevelopment and have, therefore, relaunchedHannibal House which was vacated by the Department of the Environment as abusiness centre. Acquisitions We continued to add to the hopper with net acquisitions in the first half,increasing the hopper by 220 acres to 7,150 acres, of which some 4,900 acres aredevelopable. In addition to the acquisition at Melton Park, Hull, which was referred to inthe 2005 Annual Report, we have acquired this year a 23.4-acre employment sitein Worcester which will be launched as Great Western Business Park. We have also acquired seven former Kwiksave properties from Somerfield. Apartfrom one in Hull which will be developed by our new Yorkshire office, theremainder were in the North West. In addition, we have been selected as preferred developer by Ford and CoventryCity Council for a 57.5 acre employment development at Whitley, Coventry. AtCannock, Staffordshire we have entered into a development agreement on an 8-acresite fronting the A5 suitable for car showrooms, a trade park or other highvalue uses. We have also been selected as preferred developer for a 223,000 sq ft businesspark in Blackburn by Blackburn with Darwen Council and have entered into adevelopment agreement with Knowsley Borough Council for a 12-acre businessvillage in Prescot. Most significantly, we have been selected with our partners Vinci plc as theMoD's preferred development partner for MoDEL which encompasses the £150mredevelopment of RAF Northolt and the marshalling and disposal of 250 acres ofMoD's London Estate. For further information, please visit our website www.stmodwen.co.uk ST MODWEN PROPERTIES PLC Interim results for the half year ended 31 May 2006 Group income statement for the period to 31st May 2006 Notes Unaudited Unaudited Audited 31st May 31st May 30th November 2005 2006 2005 £m £m £mRevenue 1 64.6 55.5 98.4 Net rental income 1 12.6 15.9 29.5Development profit 1 6.4 12.1 14.1Gains on investment property disposals 14.4 6.8 22.4Investment property revaluation gains 17.8 12.2 26.9Other income 1 1.0 0.2 0.6Joint ventures and associates (post tax) 2 5.2 8.6 19.6Administrative expenses (7.8) (8.8) (16.8) Profit before interest and tax 49.6 47.0 96.3Finance cost 3 (7.0) (7.5) (14.3) Finance income 3 1.3 0.9 0.1Profit before tax 43.9 39.6 82.9Taxation (11.0) (8.7) (15.5)Profit for the period 32.9 30.9 67.4 Attributable to: 32.4 30.3 66.7Equity shareholders 0.5 0.6 0.7Minority interests 32.9 30.9 67.4 Basic and diluted earnings per share (pence) 4 26.8 25.2 55.4 Dividend per share (pence) 3.4 2.9 8.8 Group statement of recognised income and expense Unaudited Unaudited Audited 31st May 2006 31st May 2005 30th November 2005 £m £m £mProfit for the period 32.9 30.9 67.4Pension fund:- actuarial gains and losses - (0.4) (0.8)- deferred tax - 0.1 0.3Total recognised income and expenditure 32.9 30.6 66.9 Attributable to: 32.4 30.0 66.2Equity shareholders 0.5 0.6 0.7Minority interests 32.9 30.6 66.9 Group balance sheet as at 31st May 2006 Notes Unaudited 31st Unaudited 31st Audited May 2006 May 2005 30th November £m £m 2005 £mNon-current assetsInvestment properties 531.6 451.6 481.2Operating property, plant and equipment 4.0 3.4 4.0Investments in joint ventures and associates 73.7 57.6 68.5Trade and other receivables 0.9 0.2 0.1 610.2 512.8 553.8Investment properties held for resale - 26.5 - Current assetsTrade and other receivables 26.0 16.7 20.7Stocks and work in progress 49.6 36.3 36.1Cash and cash equivalents 0.3 1.5 0.7 75.9 54.5 57.5 Current liabilitiesTrade and other payables (44.9) (46.0) (36.0)Borrowings (4.3) (18.8) (2.9)Tax payables (6.6) (5.1) (1.7) (55.8) (69.9) (40.6) Non-current liabilitiesTrade and other payables (6.2) (6.4) (5.8)Borrowings (233.5) (192.1) (205.6)Deferred tax (41.1) (34.5) (35.3) (280.8) (233.0) (246.7) Net assets 349.5 290.9 324.0 Capital and reservesShare capital 12.1 12.1 12.1Share premium 9.1 9.1 9.1Capital redemption reserve 0.3 0.3 0.3Retained earnings 5 324.6 266.6 299.3Own shares (0.5) (0.7) (0.4) Shareholders' equity 345.6 287.4 320.4Minority interests 3.9 3.5 3.6Total equity 6 349.5 290.9 324.0 Group cash flow statement for the period to 31st May 2006 Unaudited Unaudited Audited 31st May 31st May 30th November 2006 2005 2005 £m £m £mOperating activitiesProfit before interest and tax 49.6 47.0 96.3Gains on investment property disposals (14.4) (6.8) (22.4)Share of profit of joint ventures and associates (5.2) (8.6) (19.6)(post tax)Investment property revaluation gains (17.8) (12.2) (26.9)Depreciation 0.3 0.2 0.5 12.5 19.6 27.9Changes in stocks and work in progress (13.5) 11.8 21.6Changes in trade and other receivables (4.8) (3.7) (7.9)Changes in trade and other payables 9.0 13.3 4.7Interest paid (7.0) (6.6) (13.9)Interest received - 0.1 0.4Tax paid - (6.8) (16.9)Net cash (out)/inflow from operating activities (3.8) 27.7 15.9 Investing activitiesInvestment property disposals 32.5 18.3 73.1Investment property additions (50.7) (23.0) (60.3)Property, plant and equipment additions (0.3) (0.5) (1.4)Dividends received - 1.5 1.6Net cash (out)/inflow from investing activities (18.5) (3.7) 13.0 Financing activitiesDividends paid (7.3) (9.9) (6.4)(Purchase)/sale of own shares (0.1) 0.3 0.5Net drawing/(repayment) of borrowings 27.9 (23.4) (24.9)Net cash in/(out) flow from financing activities 20.5 (29.5) (34.3) Decrease in cash and cash equivalents (1.8) (5.5) (5.4)Cash and cash equivalents at start of year (1.8) 3.6 3.6Cash and cash equivalents at end of year (3.6) (1.9) (1.8) ACCOUNTING POLICIES Basis of preparation For the year ended 30th November 2006 the group will be required to prepareconsolidated financial statements under International Financial ReportingStandards ("IFRS") as adopted by the European Commission. These interim resultshave therefore been prepared in accordance with the IFRS accounting policiesexpected to apply at 30th November 2006. The results of prior periods have beenrestated using IFRS so that proper comparison can be made with the results forthe current period. As permitted, this interim announcement has been prepared in accordance with theUK listing rules and not in accordance with IAS34 "Interim Financial Reporting"and is therefore not fully compliant with IFRS. The group's IFRS accounting policies are set out below. Reconciliations of theresults for the periods to 31st May 2005 and30th November 2005 from UK GAAP to IFRS are set out in note 8. Basis of consolidation The group financial statements consolidate the financial statements of St.Modwen Properties PLC and the entities it controls (its subsidiaries). Subsidiaries are consolidated from the date of their acquisition, being the dateon which the group obtains control, and continue to be consolidated until thedate that such control ceases. The financial statements of subsidiaries areprepared for the same reporting year as the parent company, using consistentaccounting policies. Minority interests represent the portion of profit or loss and net assets insubsidiaries that is not held by the group and is presented separately withinequity in the consolidated balance sheet. Interests in joint ventures The group recognises its interest in joint ventures' assets and liabilitiesusing the equity method of accounting. Under the equity method, the interest inthe joint venture is carried in the balance sheet at cost plus post-acquisitionchanges in the group's share of its net assets, less distributions received andless any impairment in value of individual investments. The group incomestatement reflects the group's share of the jointly controlled entity's resultsafter tax. Financial statements of jointly controlled entities are prepared for the samereporting period as the group. Where necessary, adjustments are made to bringthe accounting policies used into line with those of the group. Interests in associates The group's interests in its associates, being those entities over which it hassignificant influence and which are neither subsidiaries nor joint ventures, areaccounted for using the equity method of accounting, as described above. Properties Investment properties Investment properties, being freehold and long leasehold properties, held forcapital appreciation and/or to earn rental income, are carried at fair valuefollowing initial recognition at cost. To establish fair value, investment properties are independently valued twice yearly on an open market basis. Anysurplus or deficit arising is recognised in the income statement for the period. Once classified as an investment property, a property remains in this categoryuntil development with a view to sale is authorised, at which point the asset istransferred to development properties at its current valuation. Where an investment property is being redeveloped for continued use as aninvestment property, the property remains within investment property and anymovement in valuation is recognised in the income statement. Stocks and work in progress Stocks and work in progress principally comprise development properties,properties under construction, and trading properties. Development properties and trading properties are recorded at the lower of costand net realisable value. Properties under construction are accounted for atcost plus attributable profit less payments received on account. Attributableprofit is ascertained based on the estimated outcome of the development and theamount of the work undertaken to date. Transfers from investment property are made at value not cost. Net realisablevalue is based on estimated selling price less any further costs expected to beincurred to completion and disposal. Properties held for sale Investment properties that are anticipated to be sold within twelve months ofthe balance sheet date continue to be valued as investment properties but areclassified as properties held for sale. Interest Interest incurred is not capitalised, but written off to the income statement onan accruals basis. Operating property, plant and equipment Operating property, plant and equipment is stated at cost less accumulateddepreciation and accumulated impairment losses. Such cost includes costsdirectly attributable to making the asset capable of operating as intended. Depreciation is provided on all operating property, plant and equipment at ratescalculated to write off the cost, less estimated residual value based on pricesprevailing at the balance sheet date, of each asset evenly over its expecteduseful life as follows: Leasehold land and buildings - over the lease term where less than 25 yearsPlant and equipment - over 2 to 5 years Leases Non-property assets held under finance leases are capitalised at the inceptionof the lease, with a corresponding liability being recognised for the fair valueof the leased asset or, if lower, the present value of the minimum leasepayments. Lease payments are apportioned between the reduction of the leaseliability and finance charges in the income statement so as to achieve aconstant rate of interest on the remaining balance of the liability.Non-property assets held under finance leases are depreciated over the shorterof the estimated useful life of the asset and the lease term. Leasehold investment properties are accounted for as finance leases with thepresent value of guaranteed minimum ground rents included within the carryingvalue of the property and within long term liabilities. On payment of aguaranteed ground rent virtually all of the cost is charged to the incomestatement, as interest payable, and the balance reduces the liability. Rentals payable under operating leases are charged in the income statement on astraight-line basis over the lease term. Lease incentives Lease incentives including rent-free periods and payments to tenants, areallocated to the income statement over the lease term. Trade and other receivables Trade receivables are recognised and carried at the lower of their originalinvoiced value and recoverable amount. Provision is made when there is evidencethat the group will not be able to recover balances in full. Balances arewritten off when the probability of recovery is assessed as being remote. Interest bearing loans and borrowings All loans and borrowings are initially recognised at fair value less directlyattributable transaction costs. After initial recognition, loans and borrowingsare measured at amortised cost. Gains and losses arising on the repurchase, settlement or otherwise cancellationof liabilities are recognised respectively in finance income and financeexpense. Income taxes Current tax assets and liabilities are measured at the amount expected to berecovered from or paid to the taxation authorities, based on tax rates and lawsthat are enacted by the balance sheet date. Deferred income tax is recognised on all temporary differences arising betweenthe tax bases of assets and liabilities and their carrying amounts in thefinancial statements, with the following exceptions: in respect of taxable temporary differences associated with investments insubsidiaries, associates and joint ventures, where the timing of the reversal ofthe temporary differences can be controlled and it is probable that thetemporary differences will not reverse in the foreseeable future; and deferredincome tax assets are recognised only to the extent that it is probable thattaxable profit will be available against which the deductible temporarydifferences, carried forward tax credits or tax losses can be utilised. Deferred income tax assets and liabilities are measured on an undiscounted basisat the tax rates that are expected to apply when the related asset is realisedor liability is settled, based on tax rates and laws enacted at the balancesheet date. Income tax is charged or credited directly to equity if it relates to items thatare credited or charged to equity. Otherwise income tax is recognised in theincome statement. Derivative financial instruments and hedging The group uses derivative financial instruments such as interest rate swaps tohedge its risks associated with interest rate fluctuations. Such instruments areinitially recognised at fair value on the date on which a contract is enteredinto and are subsequently remeasured at fair value. The Group has determinedthat the derivative financial instruments in use do not qualify for hedgeaccounting, and consequently any gains or losses arising from changes in thefair value of derivatives are taken to the income statement. Pensions The group operates a pension scheme, which has both a defined contributionsection and a defined benefit section. The defined benefit section is closed tonew members. The cost of providing benefits under the defined benefit section is determinedusing the projected unit credit method, which attributes entitlement to benefitsto the current period (to determine current service cost) and to the current andprior periods (to determine the present value of defined benefit obligation) andis based on actuarial advice. Past service costs are recognised in the incomestatement immediately the benefits have vested. The interest element of the defined benefit cost represents the change inpresent value of scheme obligations. The expected return on plan assets is basedon an assessment made at the beginning of the year of long-term market returnson scheme assets, adjusted for the effect on the fair value of plan assets ofcontributions received and benefits paid during the year. The difference betweenthe expected return on plan assets and the interest cost is recognised in theincome statement as other finance income or expense. Actuarial gains and losses are recognised in full in the statement of recognisedincome and expense in the period in which they occur. The defined benefit pension asset or liability in the balance sheet comprisesthe present value of the defined benefit obligation, less any past service costnot yet recognised and less the fair value of plan assets out of which theobligations are to be settled directly. Contributions to defined contribution schemes are recognised in the incomestatement in the period in which they become payable. Own shares St. Modwen Properties PLC shares held by the group to satisfy share awards underthe various share option plans are classified in shareholders' equity and arerecognised at cost. Revenue recognition Revenue is recognised to the extent that it is probable that economic benefitswill flow to the group and the revenue can be reliably measured. Revenue ismeasured at the fair value of the consideration received, excluding discounts,rebates, VAT and other sales taxes or duty. The following criteria must also bemet before revenue is recognised: Sale of property Revenue arising from the sale of property is recognised on legal completion ofthe sale. Construction contracts Revenue arising from construction contracts is recognised only when the outcomeof the contract can be ascertained with reasonable certainty. The amount ofrevenue recognised is based on the prudently estimated outcome and the amount ofthe work undertakento date. Rental income Rental income arising from investment properties is accounted for on astraight-line basis over the lease term. Share based payments The group accounts for its share option schemes as cash-settled share-basedpayments as shares are not issued to satisfy employee share option plans. Thecost of cash-settled transactions is measured at fair value using an appropriateoption pricing model and amortised through the income statement over the vestingperiod. The liability is remeasured at each period end. Revisions to the fairvalue of the accrued liability after the end of the vesting period are recordedin the income statement of the period in which they occur. New standards and interpretations not applied The IASB and IFRIC have issued the following standards and interpretations withan effective date after the date of this financial information: Effective dateIFRS7 Financial Instruments: Disclosures 1st January 2007IAS1 Amendment - Presentation of Financial Statements: Capital Disclosures 1st January 2007 The directors do no anticipate that the adoption of these standards andinterpretations will have a material impact on the group's financial statementsin the period of initial application. Upon adoption of IFRS7, the group will have to disclose additional informationabout its financial instruments, their significance and the nature and extent ofrisks that they give rise to. More specifically the group will need to disclosethe fair value of its financial instruments and its risk exposure in greaterdetail. There will be no effect on reported income or net assets. ST MODWEN PROPERTIES PLC Interim results for the half year ended 31 May 2006 NOTES TO THE ACCOUNTS 1. Revenue Six months to 31st May 2006 Six months to 31st May 2005 Year to 30th November 2005 Revenue Costs Net income Revenue Costs Net Revenue Costs Net income income £m £m £m £m £m £m £m £m £mRental income 15.4 (2.8) 12.6 17.7 (1.8) 15.9 33.1 (3.6) 29.5Development 46.3 (39.9) 6.4 36.2 (24.1) 12.1 61.4 (47.3) 14.1propertyOther income 2.9 (1.9) 1.0 1.6 (1.4) 0.2 3.9 (3.3) 0.6Total 64.6 (44.6) 20.0 55.5 (27.3) 28.2 98.4 (54.2) 44.2 2. Joint ventures and associates Six months to 31st May 2006 Six months to 31st May 2005 Year to 30th November 2005 Rental Development Total Rental Development Total Rental Development Total Income property Income property Income property £m £m £m £m £m £m £m £m £mRevenue 5.9 3.5 9.4 6.2 2.2 8.4 12.2 10.8 23.0Costs (1.2) (2.8) (4.0) (0.9) (2.0) (2.9) (1.5) (8.0) (9.5)Net income 4.7 0.7 5.4 5.3 0.2 5.5 10.7 2.8 13.5 Investment 4.1 10.0 18.0propertyrevaluationgainsAdministrative - - (0.1)expenses Finance cost (2.2) (3.2) (6.1) Profit before 7.3 12.3 25.3taxTaxation (2.1) (3.7) (6.7)Profit after tax 5.2 8.6 18.6Post tax profits - - 1.0of associate Profit for the 5.2 8.6 19.6period 3. Finance cost Six months to Six months to Year to 31st May 31st May 30th Nov ember 2006 2005 2005 £m £m £mInterest payable on loans and 6.9 7.3 14.1overdraftsFinance charges on finance leases 0.1 0.1 0.2Derivative instruments fair value - 0.1 -adjustmentTotal finance costs 7.0 7.5 14.3 Interest receivable on cash deposits 0.1 0.1 0.4Derivative instruments fair value 1.2 - 0.3adjustment Net finance income on pension fund - - 0.2asset/liabilityTotal finance income 1.3 0.1 0.9Net finance cost 5.7 7.4 13.4 4. Earnings per share Earnings per share are calculated as follows: (a) Basic earnings per share are calculated by dividing the profit attributableto ordinary shareholders of £32.4m (May 2005: £30.3m, November 2005: £66.7m) bythe weighted average number of shares in issue during the year (which excludesthe shares held for share incentive schemes which are owned by the group) of120,644,491 (May 2005: 120,228,189, November 2005: 120,397,435). (b) As the group does not currently intend to issue shares to satisfyoutstanding share options, there will be no dilution of earnings arising fromthe exercise of employee share options. 5. Retained earnings £185.5m of the retained earnings at 31st May 2006 represents realised profits.In arriving at realised profits, revaluation movements in respect of investmentproperties, derivatives and the associated tax have been excluded. 6. Reconciliation of movements in equity Equity shareholders Minority interests TotalPeriod ended 31st May 2006 £m £m £m Total recognised income and expense 32.4 0.5 32.9Dividends paid (7.1) (0.2) (7.3) Own shares purchased (0.1) - (0.1)Equity at 30th November 2005 320.4 3.6 324.0Equity at 31st May 2006 345.6 3.9 349.5 Equity shareholders Minority interests TotalPeriod ended 31st May 2005 £m £m £m Total recognised income and expense 30.0 0.6 30.6Dividends paid (6.2) (0.2) (6.4)Own shares sold 1.2 - 1.2Equity at 30th November 2004 262.4 3.1 265.5Equity at 31st May 2005 287.4 3.5 290.9 Equity shareholders Minority interests TotalYear ended 30th November 2005 £m £m £m Total recognised income and expense 66.2 0.7 66.9Dividends paid (9.7) (0.2) (9.9)Own shares sold 1.5 - 1.5Equity at 30th November 2004 262.4 3.1 265.5Equity at 30th November 2005 320.4 3.6 324.0 7. Other information (i) The financial information contained in this interim statement, which isunaudited, does not constitute statutory accounts as defined in section 240 ofthe Companies Act 1985. The figures for the year ended 30th November 2005 havebeen derived from the UKGAAP statutory accounts, which have been filed with theRegistrar of companies and on which the auditors gave an unqualified auditopinion, as restated to comply with IFRS. (ii) The effective tax rate used for the period is 28.4% which is in line withthe expected full year rate. (iii) The interim statement was approved by the board on 10th July 2006. (iv) The proposed dividend of 3.4p per share will amount to £4.1m (6 months to31st May 2005 2.9p, £3.5m). 8. Transition from UK GAAP to IFRS 30th November 2004 31st May 2005 30th November 2005 £m £m £m(a) Equity reconciliationUK GAAP equity shareholders' funds 267.4 281.3 330.7Revaluation of investment properties 16.0 27.1 18.7Revaluation of derivatives (0.8) (0.9) (0.5)Pension fund actuarial gains and losses 0.6 0.4 0.2 Development profit recognition 0.3 - 1.0Employee share option valuation (0.6) (0.6) (0.4)Lease incentive recognition 0.2 0.2 0.3Dividends declared but not paid 6.1 3.5 7.1Taxation on revaluations and above (25.1) (28.7) (29.9)adjustmentsShare of joint venture IFRS adjustments (1.7) 5.1 (6.8)IFRS equity shareholders' funds 262.4 287.4 320.4 Six months to Year to 31st May 30th November 2005 2005 £m £m(b) Profit reconciliationUK GAAP profit attributable to equity shareholders 15.6 34.6Revaluation of investment properties 11.1 24.3Revaluation of derivatives (0.1) 0.3Pension fund net income 0.2 0.4Development profit recognition (0.3) 0.7Employee share option valuation - 0.2Lease incentive recognition - 0.1Taxation on above adjustments (3.0) (6.7)Share of joint venture IFRS adjustments 6.8 12.8IFRS profit attributable to equity shareholders 30.3 66.7 As noted in the Chairman's statement, the group is now required to prepare itsannual consolidated financial statements under IFRS. Although our business,strategy and cash flows have not changed, the way in which we are required toreport is significantly different. This note explains the main differencesbetween our financial statements as reported under IFRS and as previouslyreported under UK GAAP. IFRS 1 - First time adoption decisions IFRS 1 "First time adoption of International Financial Reporting Standards"provides certain choices on transition to IFRS. The significant decisions madeby the group under IFRS 1 are set out below: Investment properties held for resale - The group has chosen to apply IFRS 5 "Non current assets held for resale and discontinued operations" from the date oftransition to IFRS (30th November 2004). This is permitted by IFRS 1 as the information required toidentify assets for re-sale was available at the date of transition. Thisdecision has been taken to ensure consistency between accounting policies forthe years to 30th November 2005 and 30th November 2006. Employee benefits - The group has elected to recognise all cumulative actuarialgains and losses in relation to its defined benefit pension scheme throughequity at the date of transition to IFRS. Actuarial gains and losses arisingafter the date of transition to IFRS will also be recognised in full inaccordance with the Amendment to IAS 19. Share based payment transactions - The group has elected to apply IFRS 2 "Sharebased payments" to all share options not exercised at the date of transition. Comparative information - IAS 32 and IAS 39 - The group has decided not to takethe exemption allowed by IFRS 1 in relation to IAS 32 "Financial Instruments:Disclosure and Presentation" and IAS 39 "Financial Instruments: Recognition andMeasurement". As a result, these two standards have been applied from the dateof transition to IFRS. This decision was taken to ensure consistency betweenaccounting policies for the years to 30th November 2005 and 30th November 2006. The group has elected not to adopt hedge accounting in relation to existinginterest rate swaps. A significant proportion of the group's swaps are notclassified as effective under IAS 39 and therefore hedge accounting has not beenapplied. Description of IFRS adjustments Reclassification adjustments In preparing its financial statements under IFRS a number of presentationaladjustments have been made as set out below: Revaluation reserves - As investment property revaluation movements are nowreflected through the Income Statement, the balance on the revaluation reserverecorded under UK GAAP has been reclassified as retained earnings. Leasehold investment property - Under IAS 40 leasehold investment property heldunder operating leases may only be held at valuation if the head lease isclassified as a finance lease. Under IAS17 the net present value of guaranteedminimum lease rental payments is included in the value of leasehold properties.The resultant liability is disclosed as current/non current payables asappropriate. As a result of this change the guaranteed minimum head lease costpreviously disclosed within property outgoings under UK GAAP is now reclassifiedas a finance cost. Investment property held for resale - Under UK GAAP all investment propertieswere held in tangible fixed assets. IFRS 5 "Non current assets held for resaleand discontinued operations" creates a new category of asset that is neither acurrent asset nor a non-current asset. Investment properties that are in theprocess of being sold are moved to this new category and shown separately on thebalance sheet. Dividends - Under UK GAAP dividends were shown in the profit and loss account.IAS 1 "Presentation of Financial Statements" states that dividends payable areshown in equity. The dividends line has therefore been removed from the face ofthe Income Statement. Share of profit from joint ventures and associates - The group's share of profitand losses of joint ventures was formerly reflected in the group profit and lossaccount as part of turnover, operating profit, interest and tax. Under IAS 1 thepost tax result of the joint ventures and associates is shown as a single lineentry in arriving at profit before interest and tax. The UK GAAP comparativefigures have been reclassified to reflect this change. Creditors - IAS 1 states that current tax payable and financial liabilitiesshould be shown separately as line items in the balance sheet. These items havetherefore been split out from creditors and shown separately Cash flow statement - The transition to IFRS has no impact on the cashgeneration of the business. However, the format of the cash flow statement isdifferent under IAS 7 "Cash flow statements". IAS 7 only allows threeclassifications of cash flow being operating, investing and financing. As aresult the cash flow items disclosed under UK GAAP have been reclassified underthe most appropriate heading. The IFRS adjustments made to profit beforeinterest and tax in the Income Statement are reflected within the reconciliationof profit before interest and tax to cash flows from operations. Minority interests - Under UK GAAP minority interests were presented as part ofnet assets. Under IFRS minority interests are reclassified and shown as part oftotal equity. Changes affecting the reported result or net assets In restating its comparative financial statements under IFRS a number ofadjustments have been made which impact either the reported profit or net assetsof the group as set out below: Investment properties - Investment properties continue to be held at valuationunder IAS 40 "Investment Property" but the revaluation movement (and attendantdeferred tax, see below) are now reflected in the income statement. Under UKGAAP revaluations (but with no deferred tax) were reflected through equity. Under UK GAAP the company had carried land (and buildings) acquired forundetermined future use at cost within stocks. Under IAS 40, such assets areincluded within the definition of Investment Property. As a result assetsmeeting the definition have been reclassified from stock to investment propertyand have been valued by King Sturge, independent valuers. Where such assets aresold without being developed, the resulting profit has been classified withingains on investment property disposals in the IFRS financial statements. In theUK GAAP statements such transactions were included within property developmentprofits. 8. Transition from UK GAAP to IFRS (continued) Interim investment property valuation - As a consequence of recording therevaluation movement in the income statement, whilst not a requirement of IFRS,the group has for the first time this year obtained an interim valuation of itsInvestment Properties as at 31st May 2006. This was performed by King Sturge &Co on an open market, existing use basis. The comparative information for 31stMay 2005 has been provided by King Sturge & Co on the basis of market conditionsprevailing at that time and utilising industry indices. Deferred tax on investment property revaluation - Under UK GAAP no deferred taxwas recognised in respect of the unrealised surplus on the revaluation ofinvestment property unless there was a binding contract to sell the property atthe balance sheet date. In addition no provision was made for Capital Gains Taxon the disposal of properties where the gain was deferred through theapplication of capital gains roll over relief as no liability was expected tocrystallise. IAS 12 "Income Tax" states that deferred tax must be provided on all temporarydifferences between the tax base cost and the carrying value of assets. As aresult, a deferred tax liability has been recognised relating to the revaluationof investment properties and gains previously rolled over, through equity at thedate of transition and through the income statement thereafter. Lease incentives - Under UK GAAP lease incentives including rent free periodsand payments to tenants, are allocated to the income statement over the periodto the first rent review set out in the lease. Under SIC 15, the period overwhich the incentive is allocated is revised to be the lease term. Proposed dividends - Under UK GAAP dividends were accrued and shown as aliability when they were proposed. They were therefore accounted for in theperiod to which they related. IAS 10 "Events after the balance sheet date" states that dividends declaredafter the balance sheet date should not be shown as a liability. As a result theliability for proposed dividends has been reversed. Final dividends will nowonly be recognised when they are approved at the AGM and interim dividends whenthey are paid Interest rate derivatives - Under UK GAAP the group's interest rate derivativeswere held at amortised cost. Under IAS 39, "Financial Instruments: Recognitionand Measurement" the derivatives are stated at fair value and disclosed ascurrent/non current assets/liabilities as appropriate. Remeasurements of thederivatives are reflected in the income statement. Deferred tax is provided onthe remeasurements. Construction contracts - Under UK GAAP the group had elected to carry allproperty being developed with a view to sale at cost with full profit recognisedwhen the asset was sold. Under IAS 11 "Construction Contracts", the group nowrecognises profit in respect of construction contracts for pre-sold projectsusing the stage completion method. Provided the outcome of the contract can beassessed with reasonable certainty, income and profit on such contracts is nowrecognised in proportion to the costs. The project is carried in the balancesheet at cost plus recognised profit less payments received on account. Thisrevised profit recognition generates consequent adjustments to tax and minorityinterests. Defined benefit pension scheme - Under UK GAAP the cost of the defined benefitpension scheme was charged to the profit and loss account so as to spread thevariations in pension cost, which were identified as a result of actuarialvaluations, over the service lives of employees so that the pension cost was asubstantially level percentage of current and expected future pensionable pay. Under IAS 19 "Employee Benefits" actuarial gains and lossesarising are recognised in full. Actuarial variations in the scheme will berecognised through the Statement of Recognised Income and Expense with theregular pension cost and net finance cost related to the scheme reflected in theIncome Statement. There are consequent adjustments to deferred and current tax. Employee share option scheme - Under UK GAAP the group's exposure to its shareoption schemes was remeasured at each balance sheet date based on the differencebetween the average share price in the three months prior to the period end andthe exercise price of the option. To the extent that shares were held in theESOP trust which would be used to meet part of this liability the liability wasreduced accordingly. Under IFRS 2 "Share based payments" the liabilities arisingfrom the grant of share options have been evaluated using a Black Scholes optionpricing model. The existence of shares in the ESOP trust no longer impacts theliability. Tax - an adjustment has been made to the tax charge to reflect the tax effect ofthe IFRS adjustments where necessary. Investments in joint ventures & associates - in assessing the impact of IFRS onthe group, the impact on the group's joint ventures and associates has also beenassessed. There is no impact on the amounts recorded for associatedundertakings. The amounts recorded in respect of joint ventures has beenadjusted accordingly. Independent review report to St. Modwen Properties PLC Introduction We have been instructed by the Company to review the financial information forthe six months ended 31st May 2006 which comprise the Group Income Statement,Group Statement of Recognised Income and Expense, Group Balance Sheet, GroupCash Flow Statement, Accounting Policies and the related notes 1 to 8. We haveread the other information contained in the Interim Report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. This report is made solely to the Company in accordance with the guidancecontained in Bulletin 1999/4 "Review of interim financial information" issued bythe Auditing Practices Board. To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other than the Company for our work,for this report, or for the conclusions we have formed. Directors' responsibilities The Interim Report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the Interim Report in accordance with the ListingRules of the Financial Services Authority. As disclosed in the Accounting Policies, the next annual financial statements ofthe Group will be prepared in accordance with those IFRSs adopted for use by theEuropean Union. The accounting policies are consistent with those that thedirectors intend to use in the next financial statements. There is, however, apossibility that the directors may determine that some changes to these policiesare necessary when preparing the full annual financial statements for the firsttime in accordance with those IFRSs adopted for use by the European Union. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4"Review of interim financial information" issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of making enquiriesof Group management and applying analytical procedures to the financialinformation and underlying financial data, and based thereon, assessing whetherthe accounting policies have been applied. A review excludes audit proceduressuch as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with International Standards on Auditing (UK and Ireland) andtherefore provides a lower level of assurance than an audit. Accordingly, we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31st May 2006. Ernst & Young LLP Birmingham 10 July 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SMP.L