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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| St.modwen Properties Plc | LSE:SMP | London | Ordinary Share | GB0007291015 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 559.00 | 559.00 | 560.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMSMP
RNS Number : 9832D
St. Modwen Properties PLC
06 February 2018
Date of issue: 6 February 2018
LEI: 213800WMV4WVES8TQH05
This announcement contains inside information
ST. MODWEN PROPERTIES PLC
("St. Modwen" or "the Company")
Results for the year ended 30 November 2017
ST. MODWEN DELIVERS SOLID RESULTS AND MAKES GOOD PROGRESS IN EXECUTING NEW AND FOCUSED STRATEGY
Mark Allan, Chief Executive of St. Modwen, commented:
"2017 has been a positive year for us. Having established our new, more focused strategy, we started to shift our portfolio towards sectors with better structural growth characteristics, we increased commercial development activity, grew housebuilding profits and reduced net borrowings. This will continue in 2018 and beyond, so despite continuing uncertainty in the external environment, the significant potential in our existing pipeline means we expect to deliver a meaningful improvement in earnings and return on capital in the medium term."
Financial highlights
Hot Features
Premium
Non-statutory measures(1) 2017 2016 Statutory measures 2017 2016
-------------------------- ----- ----- --------------------- ----- -----
EPRA NAV per share
(pence) 471.2 460.5 NAV per share (pence) 450.9 431.0
Total accounting Total dividend per
return(2) (%) 6.0 5.6 share (pence) 6.28 6.00
Profit before tax
Trading profit (GBPm) 64.6 56.1 (GBPm) 70.3 66.9
Adjusted EPRA EPS(3)
(pence) 13.3 9.7 Basic EPS (pence) 26.9 24.1
See-through loan-to-value Group net borrowings
(%) 24.2 30.5 (GBPm) 433.8 470.0
-------------------------- ----- ----- --------------------- ----- -----
-- NAV per share up 4.6% to 450.9 pence (2016: 431.0 pence).
-- Total accounting return(2) for the year up 0.4ppt to 6.0% (2016: 5.6%).
-- Trading profit up 15.2% to GBP64.6m (2016: GBP56.1m).
-- Total dividend up 4.7% to 6.28 pence per share (2016: 6.00 pence per share).
-- See-through LTV down 6.3ppt to 24.2% (2016: 30.5%).
-- Successfully refinanced majority of debt facilities with new GBP475m unsecured facility post year end, providing greater flexibility and longer debt maturity at lower cost.
Operational highlights
Building momentum in executing our more focused strategy based on four strategic objectives, with a clear focus on sectors with long-term structural growth characteristics.
-- Portfolio focus and capital discipline:
o Good progress achieved in shifting portfolio mix by increasing exposure to income producing assets to 51% (2016: 45%), with intention to further increase this over time.
o Sold Nine Elms Square land for GBP190m net proceeds, GBP27m small assets, Swansea student housing for GBP87m net proceeds post year end and intend to sell GBP100-150m retail and small assets in 2018, with terms agreed on c. GBP40m of this.
-- Accelerate our commercial development activity:
o Delivered 1.4m sq ft new space with total GDV of GBP216m, including 0.9m sq ft industrial and logistics space of which we will retain GBP66m, with 1.6m sq ft committed pipeline at start of 2018 expected to grow further during the year.
o Prepared pipeline to deliver continued growth in 2019 and 2020 subject to tenant demand, with 7.5m sq ft medium term A1 industrial and logistics pipeline which has a GDV of c. GBP700m and ERV of c. GBP45m of which we expect to retain the majority.
-- Grow our residential and housebuilding business:
o Sold 54 acres of residential land to third party housebuilders for GBP56m (2016: GBP48m) at or above book value, with at least similar volume expected for 2018.
o Delivered 43% growth in St. Modwen Homes' volumes to 694 units sold (2016: 485), driving 52% growth in pre-tax profits to GBP23.3m (2016: GBP15.3m), with up to 25% growth in volumes expected for 2018.
-- Cement and grow our regeneration reputation:
o Started next phase of development of academic facilities and student housing at Bay Campus, Swansea, having released GBP87m of capital from the sale of the first phase.
o Progressed development of NCGM market facilities following the sale of the first ten acres of land and further phases of mixed-use development at Longbridge.
o Secured two major new residential schemes in Wantage and Buckover for combined 4,500 new homes on a 'capital light' basis.
Enquiries: St. Modwen Properties PLC Mark Allan, Chief Executive Tel: 0121 222 9400 Rob Hudson, Chief Financial Officer www.stmodwen.co.uk Kathryn Edwards, Interim Head of Corporate Communications FTI Consulting Dido Laurimore Tel: 020 3727 1000 Tom Gough stmodwen@fticonsulting.com Ellie Sweeney
A presentation for analysts and investors will be held at 9.30am today at FTI Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD.
If you would like to attend please contact Ellie Sweeney at FTI on +44 (0)20 3727 1622 or stmodwen@fticonsulting.com. A live webcast of the presentation will be available at www.stmodwen.co.uk and presentation slides will also be available to download.
Alternatively, details for the live dial-in facility are as follows:
Participants (UK): Tel: +44(0)20 3936 2999 Password: 18 08 40 Webcast link: http://www.investis-live.com/st-modwen/5a1ecf36e8b9da0b00ecece8/ubfs
This announcement contains inside information as set out in Article 17 of the Market Abuse Regulation (MAR).
(1) Reconciliations between all the statutory and non-statutory measures and the explanations as to why the non-statutory measures give valuable further insight into the Group's performance are given in note 2 to the Group financial statements.
(2) Our definition of total accounting return was revised in the year so that it now represents dividends paid in the year plus the movement in NAV per share in the year, rather than the movement in EPRA NAV per share. This change reflects that our strategy includes the repositioning and recycling of our portfolio towards sectors with strong structural growth, whereas the EPRA model assumes that properties are retained. An analysis of the effect of this change on the measures is included in note 2 to the Group financial statements.
(3) Our key performance metrics include a new measure of adjusted EPRA earnings and an associated adjusted EPRA EPS calculation. This is a measure of profits which excludes non-cash valuation movements and will be used as a reference for dividend payments in the future. A detailed analysis of how this measure is calculated and reconciled to our statutory figures is included in note 3 to the Group financial statements.
While the financial information included in this announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards as adopted by the EU (EU IFRSs), this announcement does not itself contain sufficient information to comply with EU IFRSs. The Company expects to publish full financial statements that comply with EU IFRSs by the end of February 2018.
This announcement contains certain forward-looking statements which, by their nature, involve risk and uncertainty because they relate to future events and circumstances. Actual outcomes and results may differ materially from any outcomes or results expressed or implied by such forward-looking statements. Any forward-looking statements made by or on behalf of the Company are made in good faith based on the information available at the time the statement is made; no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. The Company does not undertake to update forward looking statements to reflect any changes in its expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. Nothing in this announcement should be construed as a profit forecast.
CHAIRMAN'S STATEMENT
2017 was a productive year for St. Modwen. With a new Chief Executive in post we undertook a full review of our business and portfolio and launched a new, more focused, strategy in the summer. This strategy is intended to improve returns on capital and enhance our operational flexibility and we believe that it will leave us well placed in what is an uncertain external environment that we expect to present both risks and opportunities.
Alongside the strategy review, the business continued to perform well. We delivered 4.6% growth in NAV per share for the year to 450.9 pence which, together with dividends, resulted in a total accounting return of 6.0% (2016: 5.6%), and profit before all tax increased 10.2% to GBP67.0m. We also achieved some significant milestones on our major projects, most notably the sale of the Nine Elms Square development site at New Covent Garden Market in August, which released capital for reinvestment back into the business and enabled us to keep borrowing levels firmly under control.
Our strategy is built around a clearly defined core purpose: Changing places. Creating better futures. This captures the regeneration heritage of the business and acts as an important reference point for our future activities, ensuring that our strategic objectives are not simply financially defined but reflect the value we seek to unlock more broadly. This is, of course, only possible as a result of the expertise and efforts of our people and I would like to recognise and congratulate them on another year of positive performance.
Dividend
Following the launch of our new strategy we have reviewed our dividend policy and are now making some changes to ensure that it is more closely linked to cash-backed profits. To facilitate this we are introducing a new profit measure, adjusted EPRA earnings per share, which is closely aligned to cash- backed profits. From the 2017/18 financial year we intend to distribute approximately 50% of this measure each year by way of dividend with the aim of providing a sustainable, progressive dividend for our shareholders.
For the year ended 30 November 2017, we intend to pay a total dividend per share of 6.28 pence, which marks an increase of 4.7% compared to the 6.00 pence for 2016. Taking account of the interim dividend paid of 2.02 pence, we are therefore proposing a final dividend of 4.26 pence per share to be paid on 4 April 2018 to shareholders on the register as at 9 March 2018.
Board changes
We were shocked and saddened by the sudden passing of Steve Burke, our Group Construction Director, in March 2017. Steve had been with St. Modwen for over 20 years and was a valued friend and colleague to many. He is sorely missed and our thoughts remain with his family and friends.
We have also recently announced some other changes to our Board which will become effective over the next couple of months. Jamie Hopkins, Chief Executive of Workspace plc, will join the Board as a non-executive director on 1 March 2018 while Kay Chaldecott and Richard Mully will step down from their non-executive positions at the next AGM, having served nearly six and five years respectively. Ian Bull will be assuming Richard's responsibilities as Senior Independent Director.
Jenefer Greenwood, who joined the Board in June 2017, will assume the position of Chair of the Remuneration Committee at the next AGM taking over from Lesley James who will be retiring from the Board later in 2018 having served nine years.
I would like to thank Kay, Richard and Lesley for their significant contributions to the Board, and wish Jamie, Jenefer and Ian well in their new roles.
Finally, I have informed the Board of my intention to step down as Chairman at the AGM in March 2019, at which point I will have been in post for 8 years. Having recently overseen the appointment of a new Chief Executive and the launch of a new, more focused strategy, it is now appropriate that the Board considers my succession in an orderly and timely manner. I remain enthusiastic about the business and its prospects and will continue to support the Board and management team in delivering our strategy in the year ahead.
Prospects
As we enter 2018, St. Modwen is well placed. Our deep pipeline of projects underpins meaningful growth targets for both residential and commercial development, our planned portfolio rotation towards sectors with good structural growth prospects is underway and we are in a strong position financially. Although the external environment remains unsettled and is likely to remain so for some time, the combination of our focused strategy and unrivalled track record and expertise mean that we approach the future with confidence.
CHIEF EXECUTIVE'S REVIEW
Overview
2017 has been an important year for St. Modwen. Following a full review of our business, our portfolio and our pipeline, we are pursuing a more focused strategy, better suited to the external environment we operate in, and have begun to build momentum in executing this strategy. We can deliver this strategy over the next few years through a targeted approach to our existing portfolio of projects rather than needing to acquire more, an important source of advantage in investment markets which remain very competitive.
Our strategy is intended to improve returns on capital by concentrating our activities on sectors that have long-term structural growth characteristics while also enhancing our flexibility through tightly controlling leverage and reducing the proportion of our portfolio invested in land. This is captured through our four strategic objectives: portfolio focus and capital discipline; accelerate our commercial development activity; grow our residential and housebuilding business; and cement and grow our regeneration reputation.
Our results for the year were solid. We delivered 4.6% growth in NAV per share to 450.9 pence (2016: 431.0 pence) which, together with dividends paid during the year, resulted in a total accounting return of 6.0% (2016: 5.6%). Our EPRA NAV per share rose 10.7 pence over the year to 471.2 pence (2016: 460.5 pence) and profit before all tax increased to GBP67.0m (2016: GBP60.8m) with EPS of 26.9 pence (2016: 24.1 pence).
Key financial performance metrics 2017 2016 Change ------------------------------ ----- ----- -------- NAV per share (pence) 450.9 431.0 +4.6% EPRA NAV per share (pence) 471.2 460.5 +2.3% Dividend per share (pence) 6.28 6.00 +4.7% Total accounting return (%) 6.0 5.6 +0.4ppt Trading profit (GBPm) 64.6 56.1 +15.2% Adjusted EPRA earnings (GBPm) 29.4 21.5 +36.7% Profit before all tax (GBPm) 67.0 60.8 +10.2% Profit before tax (GBPm) 70.3 66.9 +5.1% Earnings per share (pence) 26.9 24.1 +11.6% Adjusted EPRA earnings per share (pence) 13.3 9.7 +37.1% See-through net borrowings(1) (GBPm) 388.2 517.0 -24.9% See-through loan-to-value(1) (%) 24.2 30.5 -6.3ppt See-through loan-to-value (excluding residential)(1) (%) 37.2 54.3 -17.1ppt ------------------------------ ----- ----- --------
(1) Including the Group's share of net borrowings and property held in joint ventures and associates.
We achieved strong progress against all key performance indicators for the year. Looking forward, we will continue to focus on total return, earnings and net borrowings as our key performance measures.
Our key performance metrics include a new measure of adjusted EPRA earnings and an associated adjusted EPRA EPS calculation. This is a measure of profits which excludes non-cash valuation movements and will be used as a reference for dividend payments in the future. With effect from the 2017/18 financial year we intend to pay a dividend equivalent to approximately 50% of adjusted EPRA EPS, with the aim to provide a sustainable, progressive dividend for our shareholders. We will cease to use profit before all tax as a key performance measure with effect from the 2017/18 financial year.
Enhancing our organisation's design and culture
Successful execution of our strategy relies on having an organisation that is closely aligned to our strategic objectives and where individuals and teams understand the role they play in helping deliver the strategy. With this in mind, during the second half of the year we restructured the business from seven to three regions, each focused on accelerating commercial development activity and bringing forward residential land for development; a new central asset management function responsible for shaping and managing our income producing portfolio; and St. Modwen Homes as a standalone housebuilder within the Group. These discrete business units are supported by central functions such as HR and finance. As part of this restructuring, and with our growth objectives in mind, we have identified a total of ten new senior roles into which we are recruiting during 2018.
We are also focusing on creating a culture of empowerment, accountability and support in order to deliver the strategy. This started in 2017 with the organisational design work described above to create clear, consistent structures, roles and responsibilities across the Group and will continue in 2018 with the launch of tailored management and leadership development programmes. Recognising the need for our culture and organisation to be appropriate for the future, we have also taken the opportunity to refresh our branding and visual identity, which will be rolled out during 2018.
Our teams have performed extremely well throughout the year and remain the bedrock of the business, possessing considerable skills and experience that can help us continue to create significant value for all our stakeholders. Our focus on creating the right organisational design and culture will help them flourish in the years ahead.
Portfolio focus and capital discipline: reshaping our portfolio
Reflecting our new, focused strategy the shape of our portfolio began to shift over the course of 2017 and this process will continue into 2018 and beyond. The successful disposal of the Nine Elms Square development site at New Covent Garden Market in August for a gross consideration of GBP470m (net St. Modwen share GBP190m) released significant capital into the business and contributed towards the overall reduction in value of our land assets, meaning that income producing assets now make up 51% of our portfolio, up from 45% a year ago. We intend to increase this level further. The capital released from the sale allowed us to reduce leverage and also begin to invest in our other strategic priorities.
During 2018 we expect to be active in the disposal of many of our smaller assets and also in reducing our exposure to retail assets. We are targeting asset sales of this type of between GBP100m and GBP150m in total across the course of the year and have already made progress with terms agreed on the disposal of approximately GBP40m of such assets. The proceeds from our disposal programme will be recycled into retaining the majority of assets from our industrial and logistics development programme.
In terms of capital discipline, see-through net borrowings at 30 November 2017 stood at GBP388m, down from GBP517m a year earlier and our see-through LTV reduced to 24.2% (2016: 30.5%). Excluding residential, which is our preferred measure, see-through LTV fell from 54.3% to 37.2% at the year end.
Since the year end we have also refinanced the majority of our debt facilities such that we are now financed on a fully unsecured basis, providing a cost effective, greater level of flexibility as we execute our strategy.
Accelerating our commercial development activity: committed pipeline up 38%
Across the course of 2017 we increased commercial development activity, completing 1.4m sq ft of new space with a completed value of GBP216m. Of this total, GBP102m was pre-sold or has since been sold and GBP41m is held pending sale. The GBP73m we retained principally comprises developments completed towards the end of 2017 where occupancy currently stands at 54% by rental value, with a further 11% under offer and full occupancy targeted during 2018.
Entering the 2017/18 financial year our committed development pipeline stands at 1.6m sq ft with an expected value on completion of GBP326m, up 38% compared to the GBP237m of completed value at the beginning of 2017. We expect the pipeline to grow throughout 2018 as planning consent is granted to future schemes, subject to market demand. Around 90% of our committed pipeline is focused on sectors with good structural growth characteristics, such as industrial and logistics, PRS or student accommodation, and this will remain a feature of our development activity going forward. Approximately 40% of our industrial and logistics pipeline is pre-let or pre-sold, compared to 21% a year earlier.
Approximately GBP700m of our medium-term pipeline relates to industrial and logistics projects with an estimated rental value of GBP45m. As part of our strategy to focus on sectors with growth characteristics underpinned by long term structural trends, we intend to retain the majority of this pipeline for the longer term.
Growing our residential and housebuilding business: Homes targeting c. 25% growth
Our residential activities performed well throughout 2017. In addition to the sale of Nine Elms Square, over 2,200 units of 'oven-ready' land were either transferred to St. Modwen Homes or sold in the open market, with a total value of GBP137m. Proceeds from third party sales totalled GBP56m (2016: GBP48m), with sales at or above book value. The market remains robust with a healthy outlook for 2018, for which we expect to secure at least a similar level of residential land sales.
At St. Modwen Homes we continued to grow sales volumes materially while maintaining a focus on quality and on-site safety. In total we sold 694 new homes, up from 485 in 2016 and achieved 5-star status from the HBF and a Gold safety accreditation from RoSPA. Margins improved to 13.9% (2016: 13.4%), resulting in an operating profit of GBP23.3m, and the growth in profits from St. Modwen Homes more than offset the reduction in profits associated with the wind-down of our Persimmon Joint Venture (GBP8.1m of operating profit compared to GBP11.8m in 2016). Average private sales prices increased 19% to GBP259,000 for the year. Like-for-like sales prices were up 6%, with the balance reflecting an increase in average unit size and greater levels of activity at Uxbridge, Greater London.
Looking forward, we expect sales volumes for St. Modwen Homes to grow by up to 25% in 2018 and, with a robust outlook for regional house prices as well as a range of internal initiatives being pursued, we expect margins to improve by a similar level again across the course of the year. We will continue to prioritise quality and safety and, as these features become more firmly embedded, we are confident they will form a foundation from which financial performance can be improved further.
Cementing and growing our regeneration reputation: good progress across the board
We made important progress at each of our major regeneration projects during the year and were also successful in securing new opportunities focused on large scale residential development.
At Bay Campus, Swansea we successfully completed the most recent phase of student accommodation and commenced work on the next phase of academic facilities and accommodation. Significant development opportunities remain and we continue to work in close partnership with Swansea University to unlock them. Since the year end we have sold the completed first 2,005 beds of student accommodation to UPP for a net cash consideration of GBP87m, introducing an experienced operator onto the campus and releasing capital to invest in the next phases of development.
At Longbridge, 2017 saw the successful completion of 180 beds of medical accommodation pre-sold to the MoD's DIO, a 260 apartment Extracare retirement village and further phases of new homes. Longbridge is now approximately 50% developed and significant further opportunities remain, which we will be focused on during 2018.
At New Covent Garden Market, held in our VSM joint venture with VINCI, we successfully sold the first ten acres of surplus land at Nine Elms Square. We also progressed the redevelopment of the market facilities with completion of both the interim flower market and the interim delivery unit, all of which unlocks the next phases of redevelopment. At this important juncture of the project we have undertaken a detailed review of our future obligations, resulting in an increase of our share of the cost provisions on the project by GBP24.6m. This reflects our experience of the project to date and, in particular, the constraints imposed by operating in a live environment. This was partly offset by a GBP14.5m increase in the value of the land.
Outside of our three major projects we were also successful in securing two new large scale residential development opportunities that provide an opportunity to showcase our infrastructure and planning capabilities. We have been appointed as master developer at both Wantage, South Oxfordshire for the construction of 1,500 new homes with associated infrastructure and Buckover, South Gloucestershire for the construction of a new 3,000 home garden village with associated infrastructure. Both of these opportunities have been secured on a 'capital light' basis whereby land is drawn down from the land owner on a phased basis linked to the pace of development and our return is linked to a share of planning gains and a margin on infrastructure works.
Looking forward
2018 promises to be a year of growth, focus and portfolio transition for St. Modwen. Having established our new strategy in 2017 and put in place the appropriate organisation to deliver it, we are now focused firmly on execution.
From a development perspective, we are confident that our activities are focused in areas that benefit from positive growth fundamentals, particularly in industrial/logistics and regional housebuilding, and we are seeking to accelerate activity in both of these areas during 2018. Importantly, this acceleration is based on increasing the rate at which we progress our existing pipeline of projects from our existing capital base; we have no need to acquire assets in what is a very competitive market and we have no need to attract additional funding given the opportunities for recycling capital out of our existing portfolio. As a result, we anticipate a meaningful improvement in both earnings and return on capital in the medium term.
Our commercial investment portfolio is beginning a period of transition as we seek to shift our focus towards industrial and logistics through retaining a greater proportion of our development pipeline and reducing our exposure to both retail and smaller, less efficient assets. This planned portfolio rotation is likely to result in some short-term volatility to our rental income profile, and therefore earnings, but will ultimately leave us with a higher quality earnings stream and more focused portfolio. Longer term, this should also provide the foundations for a meaningful increase in the income component of our returns.
The external environment is uncertain and is likely to remain so for some time, but we believe that our more focused strategy is well suited to such an environment. Our business is focused primarily in the regions, where there are less pronounced Brexit-related headwinds for property markets than in Central London, and on sectors that benefit from good structural growth prospects and, in the case of regional housebuilding, supportive Government policy.
The combination of our focused strategy, deep pipeline of projects, financial strength and unrivalled track record and expertise leaves us well placed for the future.
PORTFOLIO AND OPERATIONAL REVIEW
Portfolio focus and capital discipline
Valuation performance
Our portfolio was valued at GBP1.7bn at the end of November 2017. Adjusted for investments and disposals, our portfolio value increased by 2.6% during the year. This valuation uplift was largely driven by development gains and an increase in the value of our industrial portfolio, partly offset by a modest weakening in retail values and the New Covent Garden Market (NCGM) cost provision.
The value of our income producing portfolio, which makes up 51% of our total portfolio (2016: 45%), increased by 1.5%. Industrial/logistics values increased 6.2%, reflecting a combination of yield compression and rental value growth. Retail values were down 2.1% as valuation yields softened and other assets (mostly PRS/student housing) were up 0.8%. Overall, our income producing portfolio was valued at an equivalent yield of 7.5% at the end of November, which was down 20bps for the year on a like-for-like basis.
The remainder of our portfolio consists of a combination of current developments (19%) and land earmarked for future development (30%). Commercial land values were up 3.5% during the year, whilst commercial developments were up 15.9%. Residential land values were up 1.1%, as increases in value of land at NCGM and other sites including South Ockenden were partly offset by the increased cost provision for NCGM.
Looking forward to 2018, we expect retail values will continue to see some further softening, but good investment and occupational demand continues to underpin industrial/logistics values. We expect upside in land values to be largely reliant on potential further planning gains.
LFL equivalent
Valuation Net initial Equivalent yield LFL ERV
Value movement(1) yield yield shift growth
GBPm % % % bps %
---------------------------- ----- ------------ ----------- ---------- -------------- -------
Industrial/logistics 306 6.2 6.7 8.2 (30) 3.9
Retail 343 (2.1) 6.4 7.7 10 (0.1)
Other 195 0.8 5.6 6.0 - 1.7
---------------------------- ----- ------------ ----------- ---------- -------------- -------
Income producing
portfolio 844 1.5 6.3 7.5 (20) 1.7
---------------------------- ----- ------------ ----------- ---------- -------------- -------
Of which high
yield 332 3.7 6.7 8.6 (40) 1.9
Of which investment 512 - 6.1 6.7 - 1.5
---------------------------- ----- ------------ ----------- ---------- -------------- -------
Residential developments(2) 203 N/A
Commercial developments 120 15.9
---------------------------- ----- ------------
Total developments(3) 323 15.9
Residential land 358 1.1
Commercial land 139 3.5
---------------------------- ----- ------------
Total land 497 1.7
Total portfolio 1,664 2.6
---------------------------- ----- ------------ ----------- ---------- -------------- -------
(1) Portfolio valuation movements exclude current residential developments.
(2) Includes land held by St. Modwen Homes for future development.
(3) Excludes inventories of GBP39m included within the income producing portfolio.
Operational performance
Our GBP844m income producing portfolio currently generates GBP60m in annualised passing rent. Like-for-like rent increased 3.3% during 2017, with 6.7% growth in industrial ahead of 1.2% growth in retail. Overall vacancy increased from 10.7% in November 2016 to 11.7% in November 2017, partly due to a number of larger lease expiries in assets which have been taken offline for planned refurbishment. Part of our vacancy is deliberately held back for future redevelopments.
Excluding developments, we signed almost two million sq ft of new leases and lease renewals during the year generating GBP11.6m of annualised rental income, on average 15% above previous passing rent and 1% above November 2016 ERVs. The overall ERV of our income portfolio currently stands at GBP74.8m. Our average remaining lease term to first break increased slightly to 5.3 years (2016: 5.2 years).
ERV Passing Vacancy LFL rent
rent(1) growth
GBPm GBPm % %
----------------------- ---- -------- ------- --------
Industrial/logistics 27.2 21.7 13.1 6.7
Retail 31.2 23.5 13.8 1.2
Other 16.4 15.0 6.5 0.9
----------------------- ---- -------- ------- --------
Total income producing
portfolio 74.8 60.2 11.7 3.3
----------------------- ---- -------- ------- --------
(1) Excluding GBP2.7m (ERV GBP3.6m) of passing rent on land and GBP0.8m of turnover rent at Trentham Gardens.
During the year we created a centralised asset management function as part of our new organisational design. Historically our income producing portfolio was largely held to cover the running cost of the business through its relatively high rental yield and to act as a source of future redevelopment potential, but over the next few years income producing assets will start to make up a much larger part of our portfolio and should become a performance driver in their own right. The planned sale of our c. 100 smallest assets of on average GBP1m each, retention of the majority of our industrial/logistics developments, disposal of more of our retail assets and focused asset management approach is expected to lead to opportunities to improve operational efficiency over the next few years. The effects of this will mostly become visible in 2019 and 2020 rather than 2018, as there is a time-lag before our current initiatives translate into actual results.
Investments and disposals
2017 has been an active year, marking the start of a significant shift in the shape of our portfolio. Excluding our housebuilding activities, we have invested GBP213m in developments and acquisitions, which was more than offset by GBP324m in disposals during the period and a further GBP165m since the year end.
As we have substantial potential to invest in our own pipeline at much higher returns than those available in the current investment market, we have been very selective in acquisitions. We acquired GBP68m of assets, of which GBP49m comprised land drawdowns under existing development agreements for near-term development starts, principally at Uxbridge and Wantage. We also acquired a GBP7m industrial asset in Speke (Merseyside) where we see potential to redevelop and significantly increase the current 368,000 sq ft space.
We have been very active on the disposal side, having sold GBP324m of assets during the year. The largest deal was the disposal of Nine Elms Square, New Covent Garden Market for a total consideration of GBP470m. This was in line with the May 2017 valuation and released GBP190m net proceeds for our share of the site. In addition, we have sold 25 small assets for a total amount of GBP27m (15% above book value), two industrial assets where we believe further upside was limited for GBP19m (18% above book value) and four non-industrial developments for GBP27m. We also stepped up the disposal of residential land and sold 54 acres of oven-ready land for the construction of 1,188 new homes for GBP56m (2016: GBP48m), capitalising on the continued good levels of demand from housebuilders.
Since the end of November 2017, we have completed the disposal of the existing 2,005-bed student accommodation at Bay Campus, Swansea University in a deal which releases GBP87m of capital, with gross proceeds of GBP139m partially offset by the transfer of the corresponding finance lease creditor. We have also disposed of an industrial asset in Eastleigh (GBP10m our share) and the last phase of residential land at Mill Hill, North London (GBP16m our share). On average, these deals were in line with the latest book value.
Amount(1) Initial yield(2)
GBPm %
--------------------------- --------- ----------------
Acquisitions during 2017
Residential land 47 N/A
Commercial land 14 N/A
Industrial 7 9.7
--------------------------- --------- ----------------
Total 68 9.7
--------------------------- --------- ----------------
Disposals during 2017(3)
Nine Elms Square, NCGM 190 N/A
Residential land 56 N/A
Commercial land 5 N/A
Industrial 19 6.8
Retail/PRS/other 27 N/A
Small assets 27 6.1
--------------------------- --------- ----------------
Total 324 6.4
--------------------------- --------- ----------------
Disposals post-year end(3)
Swansea University 139 5.7
Industrial 10 8.1
Residential land 16 N/A
--------------------------- --------- ----------------
Total 165 5.9
--------------------------- --------- ----------------
(1) Based on the Group's net share of amounts relating to joint ventures.
(2) Income producing assets excluding land.
(3) Excluding land transfers to St. Modwen Homes and completed home sales.
In 2018 we will continue to rebalance our portfolio to those sectors which offer the best return prospects. We expect to sell more of our remaining small asset portfolio, now comprising 80 assets valued at c. GBP80m, and more of our retail assets as we target a total disposal volume for these types of assets of around GBP100-150m. We plan to recycle this capital into retaining more of our industrial/logistics developments. We will also look to accelerate the release of capital from our land bank and plan to pursue new projects mostly on a 'capital light' development agreement basis where our initial capital outlay is limited. We have already increased our exposure to income producing assets to 51% (2016: 45%) and intend to grow this further over the next few years, recognising the significant cost of holding non-income producing land over time. We will remain very selective in terms of acquisitions, as we generally see better returns from investing our capital in our own developments than competing for existing assets.
Commercial development
In 2017 we invested GBP145m in commercial development, delivering GBP30.6m in profits (2016: GBP30.4m). Including 0.9m sq ft industrial/logistics space, we completed 1.4m sq ft of commercial projects, with a total GDV of GBP216m. We will retain GBP73m of this and have already secured 54% of the associated c. GBP6m ERV with a further 11% under offer. Around 60% of this was still held as development assets at 30 November 2017, whilst the rest has already been transferred to the income producing portfolio. Key completions included the latest 543-bed phase of student housing at Swansea, which we sold to UPP following the year end as part of a larger transaction, a 180-bed Royal Centre for Defence Medicine at Longbridge which we pre-sold to the MoD's DIO, 78,000 sq ft industrial space at Parkside which we let to Bosch and DB Schenker, and 153,000 sq ft logistics space at Tamworth which is currently being marketed and where we are seeing good levels of tenant interest.
Our current committed pipeline of 1.6m sq ft has a total GDV of GBP326m, development cost of GBP272m (2016: GBP198m) and a further GBP178m cost to complete. The majority of this 1.6m sq ft is focused on industrial and logistics, which we anticipate to deliver a yield on cost of c. 8% and a profit on cost of c. 20%, with an expected overall GDV of GBP126m, of which we expect to retain the majority. Around 90% of our committed pipeline is in sectors where the structural outlook is positive, including the next phase of development at Swansea Bay and PRS at Uxbridge. Reflecting the healthy occupational demand for our assets, our industrial and logistics committed pipeline is currently 40% pre-let/sold (2016: 21%), with key lettings of 164,900 sq ft to Spanish train manufacturer CAF at Celtic Business Park and 113,000 sq ft to global automotive manufacturing firm Grupo Antolin at Barton Business Park.
No. of Area Total Cost to ERV Pre-let/sold
cost(1) complete
projects msq GBPm GBPm GBPm %
ft
--------------------- -------- ---- -------- --------- ---- ------------
Industrial/logistics
- retained 8 0.7 61 46 5.1 19
Industrial/logistics
- other 4 0.3 40 23 76
--------------------- -------- ---- -------- --------- ---- ------------
Industrial/logistics
- total 12 1.0 101 69 40
Retail 2 0.1 28 23 49
Other 7 0.5 143 86 41
--------------------- -------- ---- -------- --------- ---- ------------
Total 21 1.6 272 178 41
--------------------- -------- ---- -------- --------- ---- ------------
(1) Including land.
As part of our strategic review during the year, we identified our existing commercial land bank had the potential to deliver 17.3m sq ft of industrial/logistics space in the long term. Of this, we identified 7.5m sq ft which could be delivered in the next five years based on planning and strength of location, most of which is located in the Midlands and South West. We plan to accelerate the delivery of this 7.5m sq ft over the next few years, but the short lead-time of these schemes means we retain flexibility should demand for space unexpectedly deteriorate. Including land preparation costs, the expected future capex on these projects is c. GBP490m, on top of a current land value of c. GBP90m. With an expected ERV of c. GBP45m these projects should deliver a yield on cost of c. 8% and profit on cost of c. 20%, with a yield on incremental capex investments of over 9%.
In 2018 we plan to grow the amount of industrial/logistics space we deliver by up to 25% subject to market demand and we will work on preparing our pipeline for 2019 and 2020 such that we maintain the potential to deliver a similar growth rate. Given the high quality of industrial and logistics assets we build and positive medium-term outlook for these locations, we intend to retain the majority of these developments. A large part of our development profits will therefore become non-cash revaluation gains, although this change has no impact on our overall profitability. We will also continue to progress our pipeline of PRS and student accommodation opportunities, but managing these assets efficiently in the long run requires a platform and scale we do not envisage building up ourselves. In addition, we intend to sharpen the focus of our commercial land holdings to those locations where we see most near-term development upside.
Residential development - housebuilding
The UK housebuilding market remains resilient, especially in the regions, which is where the bulk of our activities are focused. As such, we have continued to see good demand for new homes built by our housebuilding subsidiary St. Modwen Homes, which sold 694 units during the year. This marked a 43% increase for the year (2016: 485), whilst the average private sales price increased 19% to GBP259,000 (2016: GBP217,000). Like-for-like private sales prices increased 6%, reflecting the good demand for our high-quality houses, with the balance due to an increase in average unit size and the mix of sites, including Uxbridge.
St. Modwen Homes retained its 5-star customer service and quality status from the HBF and gained RoSPA Gold safety accreditation, demonstrating that growth does not have to come at the expense of quality or safety. This will remain a key focus going forward. Net operating margins increased to 13.9% (2016: 13.4%), but as we transfer land to St. Modwen Homes at market value instead of at historic cost and do so on a 'just in time' basis for development, we estimate this continues to artificially reduce margins by c. 3ppt.
St. Modwen Homes: key operating 2017 2016 Change metrics -------------------------------- ---- ---- ------ Private units sold 619 438 41.3% Affordable units sold 75 47 59.6% -------------------------------- ---- ---- ------ Total units sold 694 485 43.1% -------------------------------- ---- ---- ------ Private sales rate (units/week) 0.8 0.8 - Average sales-active sites 15 11 36.4% Average private selling price (GBPk) 259 217 19.4% Average affordable selling price (GBPk) 97 90 7.8% Operating margin (%) 13.9 13.4 0.5ppt -------------------------------- ---- ---- ------
Overall, housebuilding activities contributed GBP31.4m operating profit for the year (2016: GBP27.1m). Reflecting its strong growth, St. Modwen Homes delivered a 52% increase in operating profit to GBP23.3m (2016: GBP15.3m). This more than offsets the reduction in operating profit from our Persimmon JV to GBP8.1m (2016: GBP11.8m) as this continues to scale down its activities as planned, having sold 227 units during the year (2016: 402).
For 2018, we expect sales volumes for St. Modwen Homes to grow by up to 25%, but despite this strong growth our focus remains first and foremost on retaining our high quality and safety standards. St. Modwen Homes was actively selling on an average of 15 sites during 2017 (2016: 11), which we expect to increase to 20 in 2018. We expect volumes in the Persimmon JV to reduce by around half as it continues to wind down its activities over the next two years, but we expect the reduction in profits from this to be more than offset by growth in St. Modwen Homes' profits. We expect St. Modwen Homes' operating margins to improve by a similar level as in 2017 and still see room to improve margins by 2-3ppt over the medium term.
Residential development - residential land
During 2017 we secured planning consent for more than 2,000 new homes (2016: 1,670), including 370 at Longbridge and 200 at Victoria Ground, Stoke-on-Trent. At the end of 2017 our residential land bank comprised approximately 22,000 plots (2016: 25,000), mostly in the Midlands and South West, plus an additional 2,400 plots where development is subject to third party consent.
As part of our strategic review this year, we indicated that we intend to grow sales volumes in St. Modwen Homes by up to 25% per year over the next couple of years, but even at this pace it would take us well over 15 years to work through our current land bank. We therefore earmarked 7,700 plots for St. Modwen Homes and plan to sell most of the remaining plots to other housebuilders over the next few years to realise the value we have created. We already sold 1,188 plots during the year and we continue to see good demand from housebuilders. Notable deals included sales at Mill Hill (609 units) and Ellesmere Port (327 units). Combined with the sale of Nine Elms Square, the sale of the final phase of Mill Hill following the year end reduced the London exposure of our residential land bank from approximately 46% to 11%.
Major regeneration projects
In 2017 we have continued to make good progress at our three major regeneration projects, Longbridge, New Covent Garden Market and Swansea, whilst we agreed two new major residential-led projects in Wantage and Buckover which will deliver a total of 4,500 homes.
At Bay Campus, Swansea we successfully completed the latest 543-bed phase of student accommodation ahead of the 2017/18 academic year, taking the total number of students living on campus to approximately 2,000. Since the year end we have sold the existing student accommodation to UPP for gross proceeds of GBP139m, with net proceeds of GBP87m reflecting the transfer of the associated finance lease creditor. This transaction introduces an experienced operator on campus whilst releasing funds for us to invest in the next phases of development. We have started the development of the next phase of academic facilities and the next 400 of the remaining 2,000 beds of student accommodation, which will complete in summer 2018 and early 2019 and have a GDV of over GBP50m, and we continue to work closely with Swansea University to progress the remaining substantial future development opportunities.
Longbridge saw the completion of the development of 180 beds of key worker accommodation for the MoD's DIO, a 260-apartment Extracare retirement village and further new homes by St. Modwen Homes and other housebuilders. With the overall project c. 50% developed, we will continue to progress further development.
At New Covent Garden Market, via our JV with VINCI, we sold ten acres of land at Nine Elms Square for GBP470m, crystallising a substantial profit and releasing net proceeds of GBP190m for our 50% share. The JV continues to work on the relocation of the existing market facilities, which will be ongoing for a number of years. Following the disposal of Nine Elms Square we have undertaken a full review of the remaining works. The complicated nature of working on a site with a live market and an anticipated extended duration of the project have resulted in an increase in expected construction costs, with our share of this increase being GBP24.6m. This was partly offset by a GBP14.5m increase in the value of our land holdings. Our share of the remaining ten acres of land, which will be released upon completion of the market relocation, is now valued at c. GBP6m per acre.
During the year we secured two new large residential-led developments. At Kingsgrove, Wantage we signed a development agreement to deliver a mixed-use community of 1,500 homes over the next 10-15 years across a 227-acre site and St. Modwen Homes commenced works in late 2017. We also signed a development agreement to deliver Buckover Garden Village, a new community of up to 3,000 homes in Gloucestershire over the next 25 years, together with our development partner, the Tortworth Estate. We anticipate submitting a planning application for the 536-acre site during the second half of 2018.
Looking forward, we will continue to pursue new regeneration opportunities on a 'capital light' basis, but as these new projects are opportunistic by nature, it is difficult to make specific forecasts for this.
FINANCIAL REVIEW
Overview
During the year, we have delivered a solid performance in spite of the continuing uncertain market environment and have made strong progress in delivering upon the portfolio focus and capital discipline element of our strategy. NAV per share increased 4.6% to 450.9 pence (2016: 431.0 pence) and EPRA NAV per share increased 2.3% to 471.2 pence (2016: 460.5 pence) in spite of an 8.3 pence or 1.8% reduction as a result of deferred tax crystallising on the sale of land at Nine Elms Square. The underlying business performed well, as evidenced by trading profits of GBP64.6m (2016: GBP56.1m), and total valuation gains increased considerably to GBP34.6m (2016: GBP4.1m). As previously noted, the review of NCGM resulted in an increase in our share of the forecast market cost estimate of GBP24.6m. However, the GBP34.6m valuation gains above include our share of an uplift in the value of the land at Nine Elms Square of GBP14.5m, which together with the market cost increase results in a combined charge to the income statement of GBP10.1m.
Shortly after the year end, we refinanced GBP488m of bilateral secured debt facilities with a GBP475m unsecured revolving credit facility with an initial maturity of five years which can be extended to a maximum of seven years, subject to lender consent. In line with our strategic plans, the refinancing provides a reduced cost of debt and improved operational flexibility. The transition to unsecured debt financing provides us with the option to extend further our debt maturity profile and diversify our sources of unsecured finance ahead of the maturity of our GBP100m convertible bond and GBP80m retail bond in 2019.
Presentation of financial information
Due to the number of significant joint venture arrangements, the statutory financial statement disclosures do not always provide a straightforward way of understanding our business. Reconciliations between all the statutory and non-statutory measures and the explanations as to why the non-statutory measures give valuable further insight into the Group's performance are given in note 2 to the Group financial statements. In particular, profit before all tax is used because it reflects the way the Group is run on a proportionally consolidated basis, and because it also removes the taxation effects on equity accounted entities from the statutory profit before tax figure. The Group has four material joint ventures, three of which are in partnership with VINCI and one in partnership with Salhia. The VINCI joint ventures comprise the NCGM operation and joint ventures at Uxbridge and Mill Hill (the latter through The Inglis Consortium), both of which are engaged in the remediation and subsequent sale of land. The Salhia joint venture, Key Property Investments (KPI), owns a portfolio of principally income producing industrial assets acquired between 1998 and 2002.
Our key performance metrics include a new measure of adjusted EPRA earnings and an adjusted EPRA EPS calculation, which exclude non-cash valuation gains and losses. As our residential developments are built to sell, residential profits are cash-based and therefore included in this metric, but as our commercial developments will now be predominantly built to hold, commercial development profits will be largely non-cash in the future. As such, these are excluded from adjusted EPRA earnings, other than development fee income. This change has no impact on our overall profitability.
Our current dividend policy is linked to NAV growth, but this includes non-cash items which cannot directly fund dividends. In order to align our dividend policy to cash profitability we therefore intend to pay a dividend equivalent to approximately 50% of adjusted EPRA EPS from the year ending 30 November 2018, with the aim of providing a sustainable, progressive dividend for our shareholders.
Our total dividend payable for 2017 is 6.28 pence (2016: 6.00 pence), an increase of 4.7% in line with NAV growth.
2017 2016
Adjusted Adjusted
EPRA EPRA
Total(1) earnings Other Total(1) earnings Other
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- -------- --------- ------ -------- --------- -----
Gross rental and other
income 67.6 67.6 - 60.8 60.8 -
Property outgoings (13.8) (13.8) - (14.9) (14.9) -
Other net income 2.0 2.0 4.2 4.2
-------------------------------- -------- --------- ------ -------- --------- -----
Net rental and other
income 55.8 55.8 - 50.1 50.1 -
Commercial property profits 30.6 3.8 26.8 30.4 2.1 28.3
Residential property
profits 31.4 31.4 - 27.1 27.1 -
Administrative expenses (29.0) (29.0) - (29.3) (29.3) -
Net cash finance costs (24.2) (24.2) - (22.2) (22.2) -
-------------------------------- -------- --------- ------ -------- --------- -----
Trading profit 64.6 37.8 26.8 56.1 27.8 28.3
Investment property revaluation
gains 34.6 - 34.6 4.1 - 4.1
Change in cost to establish
market in Nine Elms (24.6) - (24.6) - - -
Net non-cash finance
costs (7.6) 0.1 (7.7) 0.6 0.1 0.5
-------------------------------- -------- --------- ------ -------- --------- -----
Profit before all tax 67.0 37.9 29.1 60.8 27.9 32.9
Taxation (6.9) (8.4) 1.5 (7.2) (6.3) (0.9)
-------------------------------- -------- --------- ------ -------- --------- -----
Profit for the year 60.1 29.5 30.6 53.6 21.6 32.0
Less non-controlling
interests (0.5) (0.1) (0.4) - (0.1) 0.1
-------------------------------- -------- --------- ------ -------- --------- -----
Profit attributable to
owners of the Company 59.6 29.4 30.2 53.6 21.5 32.1
-------------------------------- -------- --------- ------ -------- --------- -----
Earnings per share (pence) 26.9 13.3 24.1 9.7
-------------------------------- -------- --------- ------ -------- --------- -----
(1) This table is presented on a proportionally consolidated basis, including the Group's share of profits and losses of joint ventures and associates in the income statement categories to which they relate, rather than on a statutory basis as one line representing the share of net losses of those joint ventures and associates.
Net rental and other income
The Group's share of net rental and other income has increased in the year to GBP55.8m (2016: GBP50.1m). The disposal of our student accommodation at Swansea completed after the year end and will result in a reduction of c. GBP5.8m net rental income in 2018, offset by a reduction of GBP2.1m in finance lease interest due to the sale. Our target to dispose of GBP100m to GBP150m of retail and small assets this year will likely result in a further temporary reduction in net rental and other income, given the time lag in recycling these proceeds into our industrial/logistics developments.
Overheads
Administrative expenses for the year were GBP29.0m (2016: GBP29.3m) reflecting a GBP1.5m one-off credit relating to the closure of our insurance captive. With planned investment in our organisational capabilities to deliver our planned growth, we expect costs in 2018 to increase from the underlying level by c. 5% next year.
Cash finance costs and income
Finance costs have increased during the year in line with increases in the average levels of see-through net debt prior to the sale of the land at Nine Elms. See-through net cash finance costs increased to GBP24.2m (2016: GBP22.2m). For the coming year, we expect finance costs to reduce as a result of lower net debt, a lower cost of debt due to the recent refinancing and the reduction in finance lease interest from the Swansea sale.
Non-cash finance costs and income
Net non-cash finance costs were GBP7.6m (2016: GBP0.6m income). The elements of these non-cash costs which recur at reasonably constant levels are a GBP5.2m (2016: GBP5.6m) charge for discount unwinds, principally on our share of the long-term liability to deliver the NCGM project, and a GBP2.2m (2016: GBP1.5m) charge for the amortisation of arrangement fees in relation to our loan facilities.
The other material components of these non-cash costs are inherently less predictable, as they are dependent on market movements. These relate to the valuation of our convertible bond, where we would expect a charge if the likelihood of conversion increases (i.e. if the share price increases), and the valuation of the derivatives we use to hedge our interest rate risk, where we would expect a charge if swap rates are lower than the prevailing rates at the time we entered into the derivatives. For the year just ended, the net effect of these two items was minimal, whereas in the prior year, a large favourable movement in the convertible bond more than offset the charge for discount unwinds and amortisation of arrangement fees.
Property valuation
All of our investment properties are independently valued every six months by our external valuers Cushman & Wakefield and Jones Lang LaSalle (the latter for NCGM only). Our valuers base their 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 expected increases but discounts are applied to reflect any future uncertainties.
In accordance with accounting standards, valuation movements are reflected as gains or losses in the income statement. We will also independently assess our work in progress for any impairment issues. Valuations in all our asset classes have been validated wherever possible by open market transactions during the course of the year. The total valuation gain in the year was GBP34.6m, compared to GBP4.1m in 2016, for the reasons previously outlined.
Profit before all tax
Profit before all tax for the year was GBP67.0m (2016: GBP60.8m), and is stated before tax on joint venture income.
Taxation and profit after tax
Our total tax charge (including joint venture tax) for the year was GBP6.9m (2016: GBP7.2m) resulting in profit after tax on a proportionally consolidated basis of GBP60.1m (2016: GBP53.6m).
As a property group, tax and its treatment is often an integral part of transactions. The outcome of tax treatments, including tax planning, is recognised by the Group to the extent that the outcome is reasonably certain. Overall, the see-through effective rate of tax for the year was below the prior year at 10.3% (2016: 11.8%), resulting from a blend of a lower Group tax charge of 12.9% (2016: 14.0%) due to the reduction in the deferred tax rate, and a higher JV tax credit in the period. Following the freezing of indexation allowance from 31 December 2017 announced in the November budget, and as signalled in previous reporting updates, the effective tax rate is expected to move towards, but remain slightly below the standard rate of tax of 19%.
Balance sheet
At the year end the shareholders' equity value of net assets was GBP1,000.3m (2016: GBP955.2m) or 450.9 pence per share which represents a 4.6% increase over the year (2016: 431.0 pence per share). This growth is after the increased dividend payments (2017 interim and 2016 final) of GBP13.5m or 6.08 pence per share (2016: GBP12.8m or 5.79 pence per share). Our EPRA net asset value rose 2.3% to 471.2 pence per share from 460.5 pence per share in spite of an 8.3 pence or 1.8% reduction as a result of deferred tax crystallising on the sale of land at Nine Elms Square.
2017 2016
Group JVs Total(1) Total(1)
GBPm GBPm GBPm GBPm
--------------------------- ------- ------- -------- --------
Property portfolio 1,516.0 148.0 1,664.0 1,752.3
Other assets 85.5 82.0 167.5 170.6
--------------------------- ------- ------- -------- --------
Gross assets 1,601.5 230.0 1,831.5 1,922.9
Net borrowings (433.8) 45.6 (388.2) (517.0)
Finance leases (57.0) (0.9) (57.9) (57.7)
Other liabilities (224.3) (155.1) (379.4) (386.1)
--------------------------- ------- ------- -------- --------
Gross liabilities (715.1) (110.4) (825.5) (960.8)
--------------------------- ------- ------- -------- --------
Net assets 886.4 119.6 1,006.0 962.1
Non-controlling interests (5.7) 0.0 (5.7) (6.9)
--------------------------- ------- ------- -------- --------
Equity attributable to
owners of the Company 880.7 119.6 1,000.3 955.2
--------------------------- ------- ------- -------- --------
NAV per share (pence) 450.9 431.0
EPRA NAV per share (pence) 471.2 460.5
See-through LTV (%) 24.2 30.5
See-through LTV (excluding
residential) (%) 37.2 54.3
Total accounting return(2)
(%) 6.0 5.6
--------------------------- ------- ------- -------- --------
(1) This table is presented on a proportionally consolidated basis, including the Group's share of assets and liabilities of joint ventures and associates in the balance sheet categories to which they relate, rather than on a statutory basis as one line representing the share of net assets of those joint ventures and associates.
(2) Our definition of total accounting return was revised in the year so that it now represents dividends paid in the year plus the movement in NAV per share in the year, rather than the movement in EPRA NAV per share. This change reflects that our strategy includes the repositioning and recycling of our portfolio towards sectors with strong structural growth, whereas the EPRA model assumes that properties are retained. Using the revised definition results in a total accounting return of 6.0% (2016: 5.6%) as noted above. Under the previous definition, total accounting return would have been 3.6% (2016: 4.5%). Further information is included in note 2 to the Group financial statements.
Financing
During 2017 we achieved a significant reduction in our year end see-through net borrowing position, mostly through the Nine Elms Square sale. The year end figure also benefited from a GBP49.0m share of the cash held in a Development Account for delivery of the NCGM project.
Cash generated (before new investment, tax and dividends) was GBP542.7m (2016: GBP306.4m) and new investment was managed tightly such that net borrowings, including our share of JVs, decreased to GBP388.2m (2016: GBP517.0m). Whilst inventories increased by GBP125.8m to GBP361.9m (2016: GBP236.1m) around half of this increase results from accelerated activity and land transfers for St. Modwen Homes with the remainder reflecting increased commercial development in line with our strategy. See-through loan-to-value of 24.2% (2016: 30.5%) improved markedly upon the prior year. Excluding residential, the Group's see-through loan-to-value ratio fell to 37.2% (2016: 54.3%) and, whilst the Company's capital structure remains strong, we are aiming to continue to reduce this over time.
2017 2016
See-through borrowings (GBPm) 463.3 524.9
See-through net borrowings (GBPm) 388.2 517.0
See-through loan-to-value(1)
(%) 24.2 30.5
See-through loan-to-value (excluding
residential)(1) (%) 37.2 54.3
------------------------------------- ----- -----
(1) See-through loan-to-values are reconciled in note 2i to the Group financial statements.
Refinancing
As noted above, shortly after the year end, we achieved a transformational refinancing, moving from bilateral secured facilities to an unsecured club structure. In doing so, we paid off the balance sheet liability for out of the money interest rate swaps for a cash outlay of GBP5.1m and entered into an interest rate cap. This hedging activity will result in initial annual savings of c. GBP2.5m. A non-cash expense of GBP3.4m will be recognised in the first half of the Group's 2018 financial year in respect of capitalised arrangement fees relating to the previous facilities. These actions increased our weighted average facility life to 4.1 years from 2.7 years at the year end (or to 5.5 years if the two one-year extensions are applied). With GBP690m of see-through committed facilities against see-through net borrowings of GBP388.2m, we have ample headroom to transact.
2017 pro
forma for
refinancing 2017 2016
------------------------------- ------------ ---- ----
Average duration of facilities
(years) 4.1 2.7 3.7
Weighted average interest
rate(1) (%) 3.7 4.4 3.8
Percentage of net borrowings
fixed or hedged (%) 88.5 82.8 50.0
------------------------------- ------------ ---- ----
(1) The weighted average interest rate is calculated using current interest rates and hedging profile applied to the Group net borrowings at 30 November 2017, thereby assuming constant net borrowing levels for 2018.
Hedging and cost of debt
We aim to have predictable costs attached to our borrowing and therefore hedge a significant portion of our interest rate risk. At the year end, 82.8% (2016: 50.0%) of our borrowings were fixed or hedged. Our ongoing interest rate risk will be managed via a combination of caps and hedges to maintain compliance with this policy.
Our spot year-end weighted average cost of borrowing increased to 4.4% (2016: 3.8%) as a result of lower borrowings at the lower marginal rates on our banking facilities. The refinancing actions described above shortly after the year end reduce this to 3.7%, despite the lower borrowings.
Corporate funding covenants
Covenant compliance continues at all levels and across all metrics and we continue to operate with considerable headroom against all measures. Our portfolio could withstand a 40% fall in values before our covenants would be breached.
Mark Allan Rob Hudson Chief Executive Chief Financial Officer
5 February 2018
GROUP INCOME STATEMENT
for the year ended 30 November 2017
2017 2016
Notes GBPm GBPm
--------------------------------------------- ----- ------ ------
Revenue 1 318.6 287.7
--------------------------------------------- ----- ------ ------
Net rental income 1 48.8 40.5
Development profits 1 58.9 51.7
Gains on disposals of investments/investment
properties 1 6.7 9.5
Investment property revaluation
gains 8 16.2 30.3
Other net income 1 2.0 4.2
Losses of joint ventures and associates
(post-tax) 9 (8.5) (28.2)
Administrative expenses (35.9) (33.0)
--------------------------------------------- ----- ------ ------
Profit before interest and tax 88.2 75.0
Finance costs 4 (30.0) (23.0)
Finance income 4 12.1 14.9
--------------------------------------------- ----- ------ ------
Profit before tax 70.3 66.9
Taxation 5 (10.2) (13.3)
--------------------------------------------- ----- ------ ------
Profit for the year 60.1 53.6
--------------------------------------------- ----- ------ ------
Attributable to:
Owners of the Company 59.6 53.4
Non-controlling interests 0.5 0.2
--------------------------------------------- ----- ------
Profit for the year 60.1 53.6
--------------------------------------------- ----- ------ ------
2017 2016
Notes Pence Pence
--------------------------------------------- ----- ------ ------
Basic earnings per share 6 26.9 24.1
Diluted earnings per share 6 26.7 19.8
--------------------------------------------- ----- ------ ------
GROUP STATEMENT OF COMPREHENSIVE
INCOME
for the year ended 30 November 2017
2017 2016
GBPm GBPm
------------------------------------ ----- -----
Profit for the year 60.1 53.6
Items that will not be reclassified
to profit and loss:
Pension fund actuarial losses (0.1) (0.1)
------------------------------------- ----- -----
Total comprehensive income for the
year 60.0 53.5
------------------------------------- ----- -----
Attributable to:
Owners of the Company 59.5 53.3
Non-controlling interests 0.5 0.2
------------------------------------- ----- -----
Total comprehensive income for the
year 60.0 53.5
------------------------------------- ----- -----
GROUP BALANCE SHEET
as at 30 November 2017
2016
2017 (restated)
Notes GBPm GBPm
----------------------------------------- ----- ------- -----------
Non-current assets
Investment properties 8 1,168.5 1,144.7
Operating property, plant and equipment 5.1 4.2
Investments in joint ventures and
associates 9 119.6 184.8
Trade and other receivables 10 2.3 8.2
1,295.5 1,341.9
----------------------------------------- ----- ------- -----------
Current assets
Inventories 11 352.7 229.7
Trade and other receivables 10 72.1 104.1
Derivative financial instruments 0.8 1.6
Cash and cash equivalents 0.5 4.2
426.1 339.6
----------------------------------------- ----- ------- -----------
Current liabilities
Trade and other payables 12 (176.0) (150.5)
Derivative financial instruments (4.8) (8.8)
Borrowings and finance lease obligations 13 (0.6) (0.4)
Current tax liabilities 5 (6.2) (7.1)
(187.6) (166.8)
----------------------------------------- ----- ------- -----------
Non-current liabilities
Trade and other payables 12 (20.1) (3.6)
Borrowings and finance lease obligations 13 (491.3) (527.0)
Deferred tax 5 (16.6) (22.0)
(528.0) (552.6)
----------------------------------------- ----- ------- -----------
Net assets 1,006.0 962.1
----------------------------------------- ----- ------- -----------
Capital and reserves
Share capital 14 22.2 22.2
Share premium account 102.8 102.8
Retained earnings 825.7 779.7
Share incentive reserve 5.1 4.9
Own shares (1.7) (0.6)
Other reserves 46.2 46.2
----------------------------------------- ----- ------- -----------
Equity attributable to owners of
the Company 1,000.3 955.2
Non-controlling interest 5.7 6.9
Total equity 1,006.0 962.1
----------------------------------------- ----- ------- -----------
GROUP STATEMENT OF CHANGES IN EQUITY
for the year ended 30 November
2017
Equity
attribute-able
to
owners
Share Share of
Share premium Retained incentive Own Other the Non-control-ling Total
capital account earnings reserve shares reserves Company interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- -------- -------- --------- ------- -------- -------------- ---------------- -------
Equity at 30
November
2015 22.2 102.8 739.3 5.2 (1.0) 46.2 914.7 6.8 921.5
Profit for the
year
attributable
to
shareholders - - 53.4 - - - 53.4 0.2 53.6
Pension fund
actuarial
losses - - (0.1) - - - (0.1) - (0.1)
Total
comprehensive
income for
the year - - 53.3 - - - 53.3 0.2 53.5
Share-based
payments - - - 1.6 - - 1.6 - 1.6
Deferred tax
on
share-based
payments - - - (0.8) - - (0.8) - (0.8)
Settlement of
share-based
payments - - (0.1) (1.1) 0.4 - (0.8) - (0.8)
Dividends paid
(note
7) - - (12.8) - - - (12.8) (0.1) (12.9)
--------------
Equity at 30
November
2016 22.2 102.8 779.7 4.9 (0.6) 46.2 955.2 6.9 962.1
Profit for the
year
attributable
to
shareholders - - 59.6 - - - 59.6 0.5 60.1
Pension fund
actuarial
losses - - (0.1) - - - (0.1) - (0.1)
Total
comprehensive
income for
the year - - 59.5 - - - 59.5 0.5 60.0
Share-based
payments - - - 1.8 - - 1.8 - 1.8
Deferred tax
on
share-based
payments - - - 0.3 - - 0.3 - 0.3
Settlement of
share-based
payments - - - (1.9) (1.1) - (3.0) - (3.0)
Dividends paid
(note
7) - - (13.5) - - - (13.5) (1.7) (15.2)
-------------- ------- -------- -------- --------- ------- -------- -------------- -------
Equity at 30
November
2017 22.2 102.8 825.7 5.1 (1.7) 46.2 1,000.3 5.7 1,006.0
-------------- ------- -------- -------- --------- ------- -------- -------------- ---------------- -------
Own shares represent the cost of 519,906 (2016: 269,334)
shares held by The St. Modwen Properties PLC Employee
Share Trust. The open market value of the shares held
at 30 November 2017 was GBP2,031,793 (2016: GBP754,135).
The other reserves comprise a capital redemption reserve
of GBP0.3m (2016: GBP0.3m) and the balance of net
proceeds in excess of the nominal value of shares
arising from an equity placing in 2013 of GBP45.9m
(2016: GBP45.9m).
GROUP CASH FLOW STATEMENT
for the year ended 30 November 2017
2017 2016
Notes GBPm GBPm
-------------------------------------------- ----- ------- -------
Operating activities
Profit before interest and tax 88.2 75.0
Gains on disposal of investments/investment
properties (6.7) (9.5)
Share of losses of joint ventures
and associates (post-tax) 9 8.5 28.2
Investment property revaluation
gains 8 (16.2) (30.3)
Depreciation 1.1 0.7
Impairment losses on inventories 11 2.0 0.3
Increase in inventories (97.7) (31.2)
Decrease/(increase) in trade and
other receivables 36.1 (14.3)
Increase in trade and other payables 17.4 4.3
Share options and share awards (1.2) -
Tax paid 5 (16.2) (10.7)
Net cash inflow from operating activities 15.3 12.5
-------------------------------------------- ----- ------- -------
Investing activities
Proceeds from investment property
disposals 60.1 64.3
Investment property additions (61.6) (90.0)
Interest received 12.3 5.4
Capital injection into joint ventures
and associates (1.4) -
Property, plant and equipment additions (2.0) (0.6)
Dividends received from joint ventures
and associates 9 58.1 14.3
Net cash inflow/(outflow) from investing
activities 65.5 (6.6)
-------------------------------------------- ----- ------- -------
Financing activities
Dividends paid 7 (13.5) (12.8)
Dividends paid to non-controlling
interests (1.7) (0.1)
Interest paid (26.1) (20.7)
(Repayments of obligations)/amounts advanced
under finance lease arrangements (3.3) 0.6
Net borrowings drawn 209.2 160.5
Repayment of borrowings (249.1) (134.0)
Net cash outflow from financing
activities (84.5) (6.5)
-------------------------------------------- ----- ------- -------
Decrease in cash and cash equivalents (3.7) (0.6)
Cash and cash equivalents at start
of year 4.2 4.8
Cash and cash equivalents at end
of year 0.5 4.2
-------------------------------------------- ----- ------- -------
GROUP ACCOUNTING POLICIES
for the year ended 30 November 2017
Basis of preparation
The Group's financial statements have been prepared
in accordance with International Financial Reporting
Standards (IFRSs) as issued by the International Accounting
Standards Board (IASB) and as adopted by the EU (EU
IFRSs) as they apply to the Group for the year ended
30 November 2017, applied in accordance with the provisions
of the Companies Act 2006.
The financial statements have been prepared on the
historical cost basis, except for the revaluation
of certain properties, derivative financial instruments,
the convertible bond and the defined benefit section
of the Group's pension scheme.
The financial information contained within this announcement
has been prepared on the basis of the accounting policies
applied in the Group's financial statements for the
year ended 30 November 2017, which are not reproduced
in this announcement. The financial information contained
within this announcement does not constitute the Group's
statutory accounts for the years ended 30 November
2016 or 30 November 2017, but is derived from those
accounts.
Statutory accounts for 2016 have been delivered to
the Registrar of Companies and those for 2017 will
be delivered and made available on the Company's website
www.stmodwen.co.uk following the Company's annual
general meeting. The auditor has reported on these
accounts; its report was unqualified, did not include
any matters to which the auditor drew attention by
way of emphasis without qualifying its report and
did not contain statements under sections 498(2) or
(3) of the Companies Act 2006.
Going concern
The Group's business activities, together with the
factors likely to affect its future development, performance
and position, are set out above. The directors have
considered these factors and reviewed the financial
position of the Group, including its joint ventures
and associates. The review included an assessment
of future funding requirements based on cash flow
forecasts extending for 18 months from the balance
sheet date, valuation projections and the ability
of the Group to meet covenants on existing borrowing
facilities. The directors are satisfied that the forecasts
and projections are based on realistic assumptions
and that the sensitivities applied in reviewing downside
scenarios are appropriate.
As described in note 15, having recently refinanced
all of the Group's bank debt facilities, the only
medium-term refinancing actions relating to the Group
facilities are to replace some, but not all, of the
liquidity provided by the Group's bonds ahead of their
2019 maturities. As a result, the directors are satisfied
that the Group will have sufficient ongoing facilities
available to meet its financing requirements. Based
on their assessment, the directors are of the opinion
that the Group has adequate available resources to
fund its operations for the foreseeable future and
so determine that it remains appropriate for the financial
statements to be prepared on a going concern basis.
Prior year restatement
During the year ended 30 November 2017, the presentation
of lease incentive assets arising from rent-free periods,
stepped rent agreements and cash tenant incentives
has been reviewed and compared with industry peers.
These assets were previously reported as a separate
receivable on the balance sheet and deducted from
the external property valuation in arriving at the
reported investment properties balance. In order to
better reflect the property portfolio balance reported
in note 2 and to align the presentation with that
adopted by many industry peers, these assets of GBP13.5m
have been reclassified from trade and other receivables
to investment properties in the year ended 30 November
2017.
As a result of this change in accounting policy, the
Group balance sheet as at 30 November 2016 has been
retrospectively restated in these financial statements
by reclassifying GBP11.7m from trade and other receivables
to investment properties. This restatement has had
no impact on the income statement, total assets, net
assets or any of the numbers or metrics disclosed
in note 2.
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 30 November
2017
1. Segmental information
a. Reportable segments
IFRS 8 Operating Segments requires the identification
of the Group's operating segments, defined as being
discrete components of the Group's operations whose
results are regularly reviewed by the chief operating
decision maker (being the Chief Executive) to allocate
resources to those segments and to assess their performance.
The Group divides its business into the following
segments:
* housebuilding activity through St. Modwen Homes and
the Persimmon joint venture; and
* the balance of the Group's portfolio of properties
which the Group manages internally, and reports, as a
single business segment.
The accounting policies of the reportable segments
are the same as the Group's accounting policies.
b. Segment revenues and
results
2017 2016
Portfolio House-building Total Portfolio House-building Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- --------- ----------------- ------ --------- ----------------- ------
Rental income 61.0 - 61.0 53.1 - 53.1
Development 57.8 195.3 253.1 77.8 150.0 227.8
Other income 4.5 - 4.5 6.8 - 6.8
Revenue 123.3 195.3 318.6 137.7 150.0 287.7
-------------------------------- --------- ----------------- ------ --------- ----------------- ------
All revenues in the table above are derived from
continuing operations exclusively in the UK.
In addition to the revenue stated above, the Group
recognised service charge income of GBP10.7m (2016:
GBP9.4m), for which there was an equivalent expense
and interest income of GBP8.1m (2016: GBP5.4m).
2017 2016
Portfolio House-building(1) Total Portfolio House-building(1) Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- --------- ----------------- ------ --------- ----------------- ------
Net rental income 48.8 - 48.8 40.5 - 40.5
Development profits 20.3 38.6 58.9 20.1 31.6 51.7
Gains on disposal of
investments/investment
properties 6.7 - 6.7 9.5 - 9.5
Investment property revaluation
gains 16.2 - 16.2 30.3 - 30.3
Other net income 2.0 - 2.0 4.2 - 4.2
Losses of joint ventures
and associates(2) (7.4) - (7.4) (18.4) - (18.4)
Administrative expenses (28.7) (7.2) (35.9) (28.5) (4.5) (33.0)
Allocation of administrative
expenses 3.9 (3.9) - 5.2 (5.2) -
Cash finance costs(3) (22.9) - (22.9) (19.2) - (19.2)
Cash finance income(4) 8.1 - 8.1 5.4 - 5.4
Attributable profit 47.0 27.5 74.5 49.1 21.9 71.0
-------------------------------- --------- ----------------- ------ --------- ----------------- ------
Other losses of joint ventures
and associates(2) (1.1) (9.8)
Non-cash finance costs(3) (7.1) (3.8)
Non-cash finance income(4) 4.0 9.5
Profit before tax 70.3 66.9
-------------------------------- --------- ----------------- ------ --------- ----------------- ------
(1) Operating profit from the housebuilding segment
of GBP31.4m (2016: GBP27.1m) is stated before the
allocation of administrative expenses of GBP3.9m (2016:
GBP5.2m). This comprises GBP23.3m (2016: GBP15.3m)
from St. Modwen Homes and GBP8.1m (2016: GBP11.8m)
from the Persimmon joint venture.
(2) Stated before non-cash finance costs and income
(being amortisation and movements in the fair value
of derivative financial instruments) and tax of GBP1.1m
(2016: GBP9.8m). These amounts are reclassified to
other losses of joint ventures and associates.
(3) Cash finance costs represent interest payable
on borrowings and finance lease obligations. Non-cash
finance costs represent non-cash items, being amortisation,
movements in the fair value of financial instruments
and interest on pension scheme liabilities, as set
out in note 4.
(4) Cash finance income represents interest receivable.
Non-cash finance income represents non-cash items,
being movements in the fair value of financial instruments
and interest on pension scheme assets, as set out
in note 4.
Other net income of GBP2.0m (2016: GBP4.2m) comprises
revenue of GBP4.5m (2016: GBP6.8m) less associated
costs of GBP2.5m (2016: GBP2.6m).
Cost of sales in respect of rental income comprise
direct operating expenses (including repairs and maintenance)
related to the investment property portfolio and total
GBP12.2m (2016: GBP12.6m), of which GBP0.7m (2016:
GBP0.3m) is 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:
2017 2016
GBPm GBPm
---------------------------- --------- -------------- ------- --------- -------------- -------
Revenue 28.0 27.5
Cost of sales (23.4) (21.5)
Gross profit 4.6 6.0
---------------------------- --------- -------------- ------- --------- -------------- -------
Amounts recoverable on contracts as disclosed in note
10 comprise GBP1.0m (2016: GBP12.1m) of contract revenue
recognised and GBP8.8m (2016: GBP3.2m) of retentions.
Contracts in progress at 30 November 2017 include
the aggregate amount of costs incurred of GBP1.7m
(2016: GBP17.2m), recognised profits less recognised
losses to date of GBP1.0m (2016: GBP8.6m) and advances
received of GBP3.4m (2016: GBP25.6m).
c. Segment assets and
liabilities
2017 2016
Portfolio House-building Total Portfolio House-building Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- --------- -------------- ------- --------- -------------- -------
Investment property 1,168.5 - 1,168.5 1,144.7 - 1,144.7
Inventories 161.1 191.6 352.7 103.5 126.2 229.7
Investments in joint
ventures and associates 119.6 - 119.6 184.8 - 184.8
Attributable assets 1,449.2 191.6 1,640.8 1,433.0 126.2 1,559.2
---------------------------- --------- -------------- ------- --------- -------------- -------
Operating property, plant
and equipment 5.1 4.2
Trade and other receivables 74.4 112.3
Cash and cash equivalents 0.5 4.2
Trade and other payables (196.1) (154.1)
Derivative financial
instruments (4.0) (7.2)
Borrowings and finance
lease obligations (491.9) (527.4)
Tax payable (6.2) (7.1)
Deferred tax (16.6) (22.0)
Net assets 1,006.0 962.1
---------------------------- --------- -------------- ------- --------- -------------- -------
Investment and commercial property assets as defined
in our banking facility agreement at 30 November 2017
were GBP958.2m (2016: GBP873.1m).
2. Non-statutory information
The purpose of this note is to explain, analyse and
reconcile a number of non-statutory financial performance
and financial position metrics, which are used extensively
by the Group to monitor its performance. These metrics
reflect the way in which the Group is run, that the
Group is in the real estate sector, and in particular
that the Group reviews and reports performance of
its joint ventures and associates in the same way
as it would if they were subsidiaries. This means
that proportionally consolidated measures (often referred
to as see-through) are particularly relevant whilst
also having the benefit of removing the taxation effects
on equity accounted entities from the statutory profit
before tax figure. A number of these measures are
explained below:
Profit before all tax (see note 2a): This proportionally
consolidated measure adjusts profit before tax to
remove taxation on joint venture and associate profits
from the profit before tax figure and as such, Group
profit before tax of GBP70.3m (2016: GBP66.9m) can
be reconciled to profit before all tax of GBP67.0m
(2016: GBP60.8m) by adjusting profit before tax for
the tax credit relating to joint ventures and associates
of GBP3.3m (2016: GBP6.1m).
Trading profit (see note 2a): Trading profit is derived
similarly to profit before all tax, but is stated
before the principal non-cash income statement items
included in this measure, being revaluation gains
and losses, changes in the estimate of the obligation
to establish the new Covent Garden flower market and
non-cash financing charges. For a property group with
a low depreciation charge and no intangible amortisation
charge, this therefore represents a more useful measure
than the EBITDA alternative performance measure used
by many other companies. A trading cash flow measure
is also disclosed in note 2f, which represents cash
flows before the non-trading items of finance leases,
net borrowings and dividends.
Property profits (see note 2a): This measure represents
proportionally consolidated development profits plus
proportionally consolidated gains on disposals of
investment properties and therefore, like profit before
all tax, ostensibly represents the proportionally
consolidated amounts in respect of these two income
statement lines, after an adjustment for net realisable
value provisions.
Total accounting return (see note 2e): The Group's
shareholders measure their returns in terms of both
the Group's growth and the dividend return and total
accounting return combines these two items. Whilst
this is often measured by Total Shareholder Return
which combines share price growth and dividend return,
in the real estate sector, it is also insightful to
consider net asset growth, which therefore directly
reflects the most recent valuation of assets.
The Group's definition of total accounting return
was revised in the year so that it now represents
the movement in net asset value per share for the
year plus dividends paid per share during the year,
expressed as a percentage of net asset value per share
at the start of the year. Previously, this measure
was defined using EPRA net asset value rather than
net asset value. This change reflects that the Group's
strategy includes the repositioning and recycling
of the Group's portfolio towards sectors with strong
structural growth, whereas the EPRA model assumes
that properties are retained.
In particular, the disposal of a property for its
carrying value in the financial statements and the
resulting payment of its recognised deferred tax liability
does not result in a change in net assets, but does
result in a decrease in EPRA net assets because the
deferred tax that crystallises on disposal is no longer
adjusted for in arriving at EPRA net assets. Note
2e sets out a total accounting return of 6.0% (2016:
5.6%) using the revised definition. Under the previous
definition, total accounting return would have been
3.6% (2016: 4.5%).
a. Trading profit and
profit before all tax
The non-statutory measures of trading profit and profit
before all tax, which include the Group's share of
joint ventures and associates, have been calculated
as set out below:
2017 2016
Joint Joint
ventures ventures
and and
Group associates Total Group associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------ ----------- ------ ------ ----------- ------
Gross rental income 61.0 6.6 67.6 53.1 7.7 60.8
Property outgoings (12.2) (1.6) (13.8) (12.6) (2.3) (14.9)
---------------------------------- ------ ------ -----------
Net rental income 48.8 5.0 53.8 40.5 5.4 45.9
Development profits(1)(2) 53.7 0.9 54.6 47.5 - 47.5
Gains on disposal of
investments/investment
properties 6.7 0.7 7.4 9.5 0.5 10.0
Other net income 2.0 - 2.0 4.2 - 4.2
Administrative expenses(2) (28.7) (0.3) (29.0) (28.5) (0.8) (29.3)
Cash finance costs(3) (22.9) (9.7) (32.6) (19.2) (9.2) (28.4)
Cash finance income(4) 8.1 0.3 8.4 5.4 0.8 6.2
Trading profit/(loss) 67.7 (3.1) 64.6 59.4 (3.3) 56.1
Investment property revaluation
gains/(losses)(1) 14.2 20.4 34.6 30.0 (25.9) 4.1
Change in estimated cost
to establish a market
in Nine Elms - (24.6) (24.6) - - -
Non-cash finance costs(3) (7.1) (5.3) (12.4) (3.8) (5.8) (9.6)
Non-cash finance income(4) 4.0 0.8 4.8 9.5 0.7 10.2
Profit/(loss) before
all tax 78.8 (11.8) 67.0 95.1 (34.3) 60.8
Taxation (10.2) 3.3 (6.9) (13.3) 6.1 (7.2)
---------------------------------- ------ ----------- ------ ------ ----------- ------
Profit/(loss) for the
year 68.6 (8.5) 60.1 81.8 (28.2) 53.6
---------------------------------- ------ ----------- ------ ------ ----------- ------
Effective tax rate 12.9% 28.0% 10.3% 14.0% 17.8% 11.8%
---------------------------------- ------ ----------- ------ ------ ----------- ------
(1) Stated before the deduction of net realisable
valuation provisions within the Group of GBP2.0m (2016:
GBP0.3m). These are reclassified to investment property
revaluation gains.
(2) Stated after the deduction of overheads directly
attributable to the housebuilding business within
the Group of GBP7.2m (2016: GBP4.5m). These are reclassified
from administrative expenses. Of the GBP53.7m (2016:
GBP47.5m) of development profits within the Group,
GBP31.4m (2016: GBP27.1m) is attributable to the housebuilding
segment, as set out in note 1.
(3) Cash finance costs represent interest payable
on borrowings and finance lease obligations. Non-cash
finance costs represent non-cash items, being amortisation,
movements in the fair value of financial instruments
and interest on pension scheme liabilities, as set
out in note 4.
(4) Cash finance income represents interest receivable.
Non-cash finance income represents non-cash items,
being movements in the fair value of financial instruments
and interest on pension scheme assets, as set out
in note 4.
b. Property valuations
Property valuations, including, the Group's share
of joint ventures and associates, have been calculated
as set out below:
2017 2016
Joint Joint
ventures ventures
and and
Group associates Total Group associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------ ----------- ------ ------ ----------- ------
Property revaluation
gains/(losses) 16.2 20.4 36.6 30.3 (25.9) 4.4
Net realisable value
provisions (2.0) - (2.0) (0.3) - (0.3)
Property valuation gains/(losses) 14.2 20.4 34.6 30.0 (25.9) 4.1
---------------------------------- ------ ----------- ------ ------ ----------- ------
c. Balance sheet
The balance sheet, including the Group's share of
joint ventures and associates, is derived from the
Group balance sheet as detailed below:
2017 2016
Joint Joint
ventures ventures
and and
Group associates Total Group associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------- ----------- ------- ------- ----------- -------
Property portfolio 1,516.0 148.0 1,664.0 1,370.5 381.8 1,752.3
Other assets 85.5 82.0 167.5 122.0 40.5 162.5
Gross assets 1,601.5 230.0 1,831.5 1,492.5 422.3 1,914.8
Net borrowings (433.8) 45.6 (388.2) (470.0) (47.0) (517.0)
Finance leases (57.0) (0.9) (57.9) (56.8) (0.9) (57.7)
Other liabilities (224.3) (155.1) (379.4) (188.4) (189.6) (378.0)
Gross liabilities (715.1) (110.4) (825.5) (715.2) (237.5) (952.7)
---------------------------- ------- ----------- ------- ------- ----------- -------
Net assets 886.4 119.6 1,006.0 777.3 184.8 962.1
Non-controlling interests (5.7) - (5.7) (6.9) - (6.9)
---------------------------- ------- ----------- ------- ------- ----------- -------
Equity attributable to
owners of the Company 880.7 119.6 1,000.3 770.4 184.8 955.2
---------------------------- ------- ----------- ------- ------- ----------- -------
d. Property portfolio
The property portfolio, including the Group's share
of joint ventures and associates, is derived from
the Group balance sheet as detailed below:
2017 2016 (restated)
Joint Joint
ventures ventures
and and
Group associates Total Group associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------- ----------- ------- ------- ----------- -------
Investment properties 1,168.5 139.7 1,308.2 1,144.7 376.3 1,521.0
Less assets held under
finance leases not subject
to revaluation (5.2) (0.9) (6.1) (3.9) (0.9) (4.8)
Inventories 352.7 9.2 361.9 229.7 6.4 236.1
Property portfolio 1,516.0 148.0 1,664.0 1,370.5 381.8 1,752.3
---------------------------- ------- ----------- ------- ------- ----------- -------
As at 30 November 2017 the Group had assets of GBP354.8m
(2016: GBP328.3m) included within the Group property
portfolio (excluding joint ventures and associates)
which were wholly owned, unencumbered and able to
be pledged as security for the Group's debt facilities.
The property portfolio, including the Group's share
of joint ventures and associates, can be split by
category as detailed below:
2017 2016
Joint Joint
ventures ventures
and and
Group associates Total Group associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------- ----------- ------- ------- ----------- -------
Industrial and logistics 244.2 61.6 305.8 224.3 59.2 283.5
Retail 328.7 14.1 342.8 327.9 14.3 342.2
Residential and other 187.9 7.0 194.9 151.6 9.4 161.0
Income producing property 760.8 82.7 843.5 703.8 82.9 786.7
Residential assets 504.1 57.1 561.2 460.2 281.8 742.0
Commercial assets 251.1 8.2 259.3 206.5 17.1 223.6
Property portfolio 1,516.0 148.0 1,664.0 1,370.5 381.8 1,752.3
---------------------------- ------- ----------- ------- ------- ----------- -------
e. Total accounting return
Total accounting return is calculated
as set out below:
2017 2016
Pence Pence
per per
share share
--------------------------- ----------- ----------- ----------- ------- ----------- -------
Net asset value per share
at end of year (note 3) 450.9 431.0
Less net asset value per share
at start of year (note 3) (431.0) (413.5)
---------------------------------------- ----------- ----------- ------- ----------- -------
Increase in net asset
value per share 19.9 17.5
Dividend paid per share
(note 7) 6.1 5.8
--------------------------- ----------- ----------- ----------- -------
Total accounting return
per share 26.0 23.3
--------------------------- ----------- ----------- ----------- ------- ----------- -------
Total accounting return 6.0% 5.6%
--------------------------- ----------- ----------- ----------- ------- ----------- -------
f. Trading cash flow
Trading cash flows are derived from the Group
cash flow statement as set out below:
2017
Joint
ventures
Operating Investing Financing and
activities activities activities Total associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ----------- ----------- ----------- ------- ----------- -------
Net rent and other income 50.8 - - 50.8 5.0 55.8
Property disposals 260.8 60.1 - 320.9 258.8 579.7
Property acquisitions (50.8) (17.5) - (68.3) - (68.3)
Property expenditure (246.8) (44.1) - (290.9) (15.5) (306.4)
Working capital and other
movements 53.5 (3.4) - 50.1 (80.1) (30.0)
Overheads and interest (36.0) 12.3 (26.1) (49.8) (9.7) (59.5)
Taxation (16.2) - - (16.2) (7.8) (24.0)
--------------------------- ----------- ----------- ----------- ------- -----------
Trading cash flow 15.3 7.4 (26.1) (3.4) 150.7 147.3
Finance leases - - (3.3) (3.3) - (3.3)
Net borrowings - - (39.9) (39.9) (21.7) (61.6)
Net dividends - 58.1 (15.2) 42.9 (58.1) (15.2)
Movement in cash and
cash equivalents 15.3 65.5 (84.5) (3.7) 70.9 67.2
--------------------------- ----------- ----------- ----------- ------- ----------- -------
2016
Joint
ventures
Operating Investing Financing and
activities activities activities Total associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ----------- ----------- ----------- ------- ----------- -------
Net rent and other income 44.7 - - 44.7 5.4 50.1
Property disposals 244.9 64.3 - 309.2 25.1 334.3
Property acquisitions - (38.5) - (38.5) - (38.5)
Property expenditure (208.8) (52.1) - (260.9) (10.1) (271.0)
Working capital and other
movements (25.3) - - (25.3) 3.8 (21.5)
Overheads and interest (32.3) 5.4 (20.7) (47.6) (9.2) (56.8)
Taxation (10.7) - - (10.7) (1.0) (11.7)
--------------------------- -------
Trading cash flow 12.5 (20.9) (20.7) (29.1) 14.0 (15.1)
Finance leases - - 0.6 0.6 (0.3) 0.3
Net borrowings - - 26.5 26.5 (2.8) 23.7
Net dividends - 14.3 (12.9) 1.4 (14.3) (12.9)
Movement in cash and
cash equivalents 12.5 (6.6) (6.5) (0.6) (3.4) (4.0)
--------------------------- ----------- ----------- ----------- ------- ----------- -------
Cash generated (before new investment, tax and dividends)
of GBP542.7m (2016: GBP306.4m) is derived from the
tables above by adjusting trading cash flow to exclude
property acquisitions, property expenditure and taxation
and to include finance leases.
g. Movement in net debt
The movement in net debt is
set out below:
2017 2016
GBPm GBPm
----------------------------- ------- ----------- ------- ------- ----------- -------
Movement in cash and
cash equivalents (3.7) (0.6)
Borrowings drawn (209.2) (160.5)
Repayment of borrowings 249.1 134.0
Decrease/(increase) in
net borrowings 36.2 (27.1)
Fair value movement on
convertible bond (4.2) 7.7
Finance leases (0.2) (1.7)
----------------------------- ------- ----------- ------- ------- ----------- -------
Decrease/(increase) in
net debt 31.8 (21.1)
----------------------------- ------- ----------- ------- ------- ----------- -------
h. Net borrowing and
net debt
Net borrowing and net debt are
calculated as set out below:
2017 2016
Joint Joint
ventures ventures
and and
Group associates Total Group associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ------- ----------- ------- ------- ----------- -------
Cash and cash equivalents 0.5 74.6 75.1 4.2 3.7 7.9
Bank overdraft - (4.5) (4.5) - (1.6) (1.6)
Borrowings due after
more than one year (434.9) (24.5) (459.4) (470.6) (49.1) (519.7)
Adjustment to restate
convertible bond at book
value 0.6 - 0.6 (3.6) - (3.6)
----------------------------- ------- ----------- ------- -----------
Net borrowings (433.8) 45.6 (388.2) (470.0) (47.0) (517.0)
Reversal of adjustment
to restate convertible
bond at book value (0.6) - (0.6) 3.6 - 3.6
Finance lease liabilities
due within one year (0.6) - (0.6) (0.4) - (0.4)
Finance lease liabilities
due after more than one
year (56.4) (0.9) (57.3) (56.4) (0.9) (57.3)
------- ----------- ------- -----------
Net debt (491.4) 44.7 (446.7) (523.2) (47.9) (571.1)
----------------------------- ------- ----------- ------- ------- ----------- -------
i. Gearing and loan-to-value
The Group's capacity to borrow is primarily linked
to the value of the property portfolio excluding assets
held under finance leases. Accordingly both adjusted
gearing and see-through loan-to-value are calculated
using the comparable measure of net borrowings and
see-through net borrowings respectively. Reflecting
that residential assets are less attractive for security
purposes, we also disclose see-through loan-to-value
(excluding residential) using the comparable measure
of see-through net borrowings. These terms are defined
as follows:
Net borrowings: total borrowings (at amortised cost
and excluding finance leases and fair value movements
on the Group's convertible bond) less cash and cash
equivalents.
See-through net borrowings: total borrowings (at amortised
cost excluding finance leases and fair value movements
on the Group's convertible bond) less cash and cash
equivalents (including the Group's share of its joint
ventures and associates). This includes the development
account beneficially owned by one of our joint ventures
VSM (NGCM) Limited, held for the purpose of funding
the establishment of a market at Nine Elms, which
would otherwise need to be funded by injecting cash
into the joint venture in the future.
Adjusted gearing: the ratio of
net borrowings to total equity.
See-through loan-to-value: see-through net borrowings
expressed as a percentage of the Group's property
portfolio excluding valued assets held under finance
leases, calculated on a proportionally consolidated
basis (including the Group's share of its joint ventures
and associates).
See-through loan-to-value (excluding residential):
see-through net borrowings expressed as a percentage
of the Group's property portfolio excluding valued
assets held under finance leases and residential land
and developments, calculated on a proportionally consolidated
basis (including the Group's share of its joint ventures
and associates).
2017 2016
Joint Joint
ventures ventures
and and
Group associates Total Group associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ------- ----------- ------- ------- ----------- -------
Property portfolio (note
2d) 1,516.0 148.0 1,664.0 1,370.5 381.8 1,752.3
Less valued assets held
under finance leases (59.0) - (59.0) (57.8) - (57.8)
------------------------- ------- ----------- ------- ------- ----------- -------
Net property portfolio 1,457.0 148.0 1,605.0 1,312.7 381.8 1,694.5
Less residential assets
(note 2d) (504.1) (57.1) (561.2) (460.2) (281.8) (742.0)
------------------------- ------- ----------- ------- -----------
Net property portfolio
(excluding residential) 952.9 90.9 1,043.8 852.5 100.0 952.5
------------------------- ------- ----------- ------- ------- ----------- -------
Total equity 1,006.0 N/A 1,006.0 962.1 N/A 962.1
Net debt (note 2h) 491.4 (44.7) 446.7 523.2 47.9 571.1
Net borrowings (note
2h) 433.8 (45.6) 388.2 470.0 47.0 517.0
------------------------- ------- ----------- ------- ------- ----------- -------
Gearing 48.8% 44.4% 54.4% 59.4%
Adjusted gearing 43.1% 38.6% 48.9% 53.7%
Loan-to-value 29.8% 24.2% 35.8% 30.5%
Loan-to-value (excluding
residential) N/A 37.2% N/A 54.3%
------------------------- ------- ----------- ------- ------- ----------- -------
3. EPRA performance measures
This note sets out two performance measures of the
European Public Real Estate Association (EPRA), calculated
in accordance with their Best Practices Recommendations
(BPR). These measures are intended to provide comparability
and are explained in detail below:
EPRA earnings (see note 3a): For investors of real
estate companies, a key measure of ongoing operational
performance and the extent to which dividend payments
are underpinned by earnings is the level of income
arising from operational activities. EPRA earnings
exclude unrealised valuation movements and profits
on disposal to provide an indicator of the leasing
and property management performance of a business.
Adjusted EPRA earnings (see note 3a): Whilst EPRA
earnings provides a comparable measure for investors,
it is not a relevant measure for housebuilders as
it excludes all profits from such activity. On the
basis that these profits are realised in cash and
represent a core ongoing activity for the Group, a
company specific adjustment is made to EPRA earnings
in respect of this profit. Furthermore, the amortisation
of loan arrangement fees represents a non-cash interest
charge on an ongoing basis and therefore a further
company specific adjustment is made for this. After
adjusting these two items for tax, EPRA earnings can
be reconciled to adjusted EPRA earnings, which provides
a relevant cash-based profit measure that underpins
the dividend policy of the Group.
EPRA net asset value (see note 3b): The objective
of EPRA net asset value is to highlight the fair value
of net assets on an ongoing, long-term basis. Assets
and liabilities that are not expected to crystallise
in normal circumstances such as the fair value of
derivative financial instruments and deferred taxes
on property valuation surpluses are therefore excluded,
which facilitates a more objective comparison with
peer companies.
a. Adjusted EPRA earnings
Adjusted EPRA earnings is calculated
as set out below:
2017 2016
Joint Joint
ventures ventures
and and
Group associates Total Group associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------ ----------- ------ ------ ----------- ------
Profit for the year 68.6 (8.5) 60.1 81.8 (28.2) 53.6
Less non-controlling
interests (0.5) - (0.5) (0.2) - (0.2)
------------------------------------- ------ ----------- ------ ------ ----------- ------
Profit for the year 68.1 (8.5) 59.6 81.6 (28.2) 53.4
Investment property revaluation
(gains)/losses (16.2) (20.4) (36.6) (30.3) 25.9 (4.4)
Gains on disposal of
investments/investment
properties (6.7) (0.7) (7.4) (9.5) (0.5) (10.0)
Change in estimated cost
to establish a market
in Nine Elms(1) - 24.6 24.6 - - -
Development profits(2) (51.7) (0.9) (52.6) (47.2) - (47.2)
Fee income(3) 3.8 - 3.8 2.1 - 2.1
Amortisation of discount
on deferred payment arrangements(4) 0.3 4.9 5.2 0.4 5.2 5.6
Taxation in respect of
profits or losses on
disposal 13.7 14.2 27.9 9.0 - 9.0
Movement in fair value
of financial instruments 1.1 (0.8) 0.3 (7.2) (0.4) (7.6)
Deferred tax in respect
of EPRA adjustments (5.0) (18.0) (23.0) 3.6 (6.0) (2.4)
Non-controlling interests
in respect of the above 0.4 - 0.4 0.1 - 0.1
EPRA earnings 7.8 (5.6) 2.2 2.6 (4.0) (1.4)
Residential development
profits 31.4 - 31.4 27.1 - 27.1
Amortisation of loan
arrangement fees 1.8 0.4 2.2 1.2 0.3 1.5
Taxation in respect of
company specific adjustments (6.3) (0.1) (6.4) (5.6) (0.1) (5.7)
Adjusted EPRA earnings 34.7 (5.3) 29.4 25.3 (3.8) 21.5
------------------------------------- ------ ----------- ------ ------ ----------- ------
(1) The change in estimated cost to establish a market
in Nine Elms represents a loss on property development
and therefore forms part of the profits or losses
on sale of trading properties that should be adjusted
in arriving at EPRA earnings.
(2) Development profits exclude overheads directly
attributable to the residential housebuilding business
as these form part of the profits or losses on sale
of trading properties that should be adjusted in arriving
at EPRA earnings.
(3) Fee income is included within development profits,
but does not meet the definition of profits or losses
on sale of trading properties and is therefore not
adjusted in arriving at EPRA earnings.
(4) The unwinding of discounts on deferred payment
arrangements are linked to the disposal of either
investment properties or inventory and are therefore
adjusted in arriving at EPRA earnings.
Whilst the BPR defines EPRA earnings with reference
to adjustments to the reported profit for the year,
it can also be presented in the form of an income
statement, comprising those items in the income statement
not adjusted for in the reconciliation above:
2017 2016
Joint Joint
ventures ventures
and and
Group associates Total Group associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------ ----------- ---------- ------ ----------- ----------
Net rental income 48.8 5.0 53.8 40.5 5.4 45.9
Fee income 3.8 - 3.8 2.1 - 2.1
Other net income 2.0 - 2.0 4.2 - 4.2
Administrative expenses (28.7) (0.3) (29.0) (28.5) (0.8) (29.3)
Finance costs(1) (25.5) (10.1) (35.6) (21.3) (9.8) (31.1)
Finance income(2) 9.0 0.3 9.3 6.4 1.1 7.5
Taxation in respect of
EPRA earnings measures (1.5) (0.5) (2.0) (0.7) 0.1 (0.6)
Non-controlling interests
in respect of the above (0.1) - (0.1) (0.1) - (0.1)
EPRA earnings 7.8 (5.6) 2.2 2.6 (4.0) (1.4)
Housebuilding development
profit 31.4 - 31.4 27.1 - 27.1
Amortisation of loan
arrangement fees 1.8 0.4 2.2 1.2 0.3 1.5
Taxation in respect of
company specific adjustments (6.3) (0.1) (6.4) (5.6) (0.1) (5.7)
Adjusted EPRA earnings 34.7 (5.3) 29.4 25.3 (3.8) 21.5
------------------------------ ------ ----------- ---------- ------ ----------- ----------
(1) Finance costs for the purposes of EPRA earnings
exclude movements in the fair value of financial instruments
and amortisation of discount on deferred payment arrangements,
as set out in note 4.
(2) Finance income for the purposes of EPRA earnings
excludes movements in the fair value of financial
instruments, as set out in note 4.
2017 2016
Pence Pence
per Percentage per Percentage
GBPm share(1) movement GBPm share(1) movement
------------------------------ ------ ----------- ---------- ------ ----------- ----------
Earnings 59.6 26.9 11.6% 53.4 24.1 N/A
EPRA earnings 2.2 1.0 (266.7)% (1.4) (0.6) N/A
Adjusted EPRA earnings 29.4 13.3 37.1% 21.5 9.7 N/A
------------------------------ ------ ----------- ---------- ------ ----------- ----------
(1) The number of shares in issue used to calculate
the earnings per share is 221,697,244 (2016: 221,368,096),
as disclosed in note 6, excluding those shares held
by The St. Modwen Properties PLC Employee Share Trust.
b. EPRA net asset value
EPRA net asset value is calculated
as set out below:
2017 2016
Joint Joint
ventures ventures
and and
Group associates Total Group associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ------- ----------- ---------- ------- ----------- ----------
Total equity 886.4 119.6 1,006.0 777.3 184.8 962.1
Less non-controlling
interests (5.7) - (5.7) (6.9) - (6.9)
----------------------------- ------- ----------- ---------- ------- ----------- ----------
Net asset value 880.7 119.6 1,000.3 770.4 184.8 955.2
Adjustments of inventories
to fair value 16.2 0.2 16.4 13.6 - 13.6
----------------------------- ------- ----------- ---------- ------- ----------- ----------
EPRA triple net asset
value 896.9 119.8 1,016.7 784.0 184.8 968.8
Deferred tax on capital
allowances and revaluations 18.8 4.2 23.0 24.5 23.4 47.9
Mark-to-market of derivative
financial instruments 5.0 0.7 5.7 2.4 1.4 3.8
-----------------------------
EPRA net asset value 920.7 124.7 1,045.4 810.9 209.6 1,020.5
----------------------------- ------- ----------- ---------- ------- ----------- ----------
2017 2016
Pence Pence
per Percentage per Percentage
GBPm share(1) movement GBPm share(1) movement
----------------------------- ------- ----------- ---------- ------- ----------- ----------
Net asset value 1,000.3 450.9 4.6% 955.2 431.0 4.2%
EPRA triple net asset
value 1,016.7 458.3 4.8% 968.8 437.2 4.4%
EPRA net asset value 1,045.4 471.2 2.3% 1,020.5 460.5 3.2%
----------------------------- ------- ----------- ---------- ------- ----------- ----------
(1) The number of shares in issue used to calculate
the net asset values per share is 221,857,082 (2016:
221,607,654), as disclosed in note 14, excluding those
shares held by The St. Modwen Properties PLC Employee
Share Trust.
4. Finance costs and finance income
2017 2016
GBPm GBPm
----------------------------------------------- ---- ----
Interest payable on borrowings 20.8 18.1
Interest payable on finance lease obligations 2.1 1.1
Amortisation of loan arrangement fees 1.8 1.2
Amortisation of discount on deferred payment
arrangements 0.3 0.4
Movement in fair value of convertible
bond 4.2 -
Movement in fair value of derivative financial
instruments - 1.3
Interest on pension scheme liabilities 0.8 0.9
Total finance costs 30.0 23.0
----------------------------------------------- ---- ----
2017 2016
GBPm GBPm
----------------------------------------------- ---- ----
Interest receivable 8.1 5.4
Movement in fair value of convertible
bond - 7.7
Movement in fair value of derivative financial
instruments 3.1 0.8
Interest income on pension scheme assets 0.9 1.0
Total finance income 12.1 14.9
----------------------------------------------- ---- ----
5. Taxation
a. Tax on profit on ordinary
activities
The tax charge in the Group income
statement is as follows:
2017 2016
GBPm GBPm
-------------------------------------------------- ------- ------
Current tax
Current year tax 12.7 11.9
Adjustments in respect
of previous years 2.6 (5.2)
Total current tax 15.3 6.7
------------------------------------------------------ ------- ------
Deferred tax
Impact of current year revaluations
and indexation (2.6) 2.9
Net use of tax losses - 0.5
Other temporary differences 1.2 1.1
Change in rate for provision
of deferred tax (2.4) -
Adjustments in respect
of previous years (1.3) 2.1
Total deferred tax (5.1) 6.6
------------------------------------------------------ ------- ------
Total tax charge in the Group
income statement 10.2 13.3
--------------------------------------------------- ------- ------
The tax charge relating to actuarial losses on pension
schemes in the Group statement of comprehensive income
is GBPnil (2016: GBPnil).
Following the sale of the student accommodation at
Swansea University Bay Campus post-year end as disclosed
in note 15 and excluding certain companies in the
process of being liquidated, all of the Group's subsidiaries,
joint ventures and associates are subject to full
UK corporation tax.
b. Reconciliation of
effective tax rate
2017 2016
GBPm GBPm
----------------------------- ----- --------- ------- -------- --------- --------
Profit before tax 70.3 66.9
Less loss/(profit) of joint ventures
and associates (post-tax) 8.5 28.2
Pre-tax profit attributable
to the Group 78.8 95.1
----------------------------- ----- --------- ------- -------- --------- --------
Corporation tax at 19.33%
(2016: 20.00%) 15.2 19.0
Effect of non-deductible expenses
and non-chargeable income 0.1 0.5
Impact of indexation
on investment property (4.0) (3.1)
Change in rate used for provision
of deferred tax (2.4) -
------------------------------------ --------- ------- -------- --------- --------
Current year charge 8.9 16.4
Adjustments in respect
of previous years 1.3 (3.1)
Tax charge for the year 10.2 13.3
----------------------------- ----- --------- ------- -------- --------- --------
Effective rate of tax 12.9% 14.0%
----------------------------- ----- --------- ------- -------- --------- --------
The post-tax results of joint ventures and associates
are stated after a tax credit of GBP3.3m (2016: a
credit of GBP6.1m). The effective tax rate for the
Group including joint ventures and associates is a
charge of 10.3% (2016: 11.8%).
Legislation substantively enacted at 30 November 2017
included provisions which reduced the main rate of
corporation tax from 20% to 19% from 1 April 2017
and 17% from 1 April 2020. Current tax has therefore
been provided at 19.33% and deferred tax at rates
from 17% to 19%. The GBP2.4m credit due to the change
in rate used for the provision of deferred tax is
predominantly due to reflecting the deferred tax arising
on the majority of the investment property portfolio
at the long-term rate of 17% rather than the previously
used rate of 19%.
c. Balance sheet
2017 2016
Current Deferred Current Deferred
tax tax tax tax
GBPm GBPm GBPm GBPm
----------------------------- ----- --------- ------- -------- --------- --------
Balance at start of the
year 7.1 22.0 11.1 15.4
Charged to the Group
income statement 15.3 (5.1) 6.7 6.6
Recognised within the Group statement
of changes in equity - (0.3) - -
Net payment (16.2) - (10.7) -
Balance at end of the
year 6.2 16.6 7.1 22.0
----------------------------- ----- --------- ------- -------- --------- --------
An analysis of the deferred tax provided by the Group
is given below:
2017 2016
Asset Liability Net Asset Liability Net
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ----- --------- ------- -------- --------- --------
Property revaluations - 13.8 13.8 - 19.4 19.4
Capital allowances - 5.0 5.0 - 5.1 5.1
Appropriations to trading
stock - 0.3 0.3 - 0.3 0.3
Other temporary differences (2.5) - (2.5) (2.8) - (2.8)
Total deferred tax (2.5) 19.1 16.6 (2.8) 24.8 22.0
----------------------------- ----- --------- ------- -------- --------- --------
At the balance sheet date, the Group has unused tax
losses in relation to 2017 and prior years of GBP0.5m
(2016: GBP0.8m), of which GBPnil (2016: GBPnil) has
been recognised as a deferred tax asset. A deferred
tax asset of GBP0.5m (2016: GBP0.8m) has not been
recognised in respect of current and prior year tax
losses as it is not considered sufficiently certain
that there will be taxable profits available in the
short term against which these can be offset. These
unrecognised losses arise predominantly within connected
parties, for which group relief is not available.
6. Earnings per share
2017 2016
Number Number
of shares of shares
--------------------------------------------------- ----------- -----------
Weighted number of shares in issue 221,697,244 221,368,096
Weighted number of diluted shares relating
to the convertible bond - 18,888,595
Weighted number of diluted shares relating
to share options 1,832,311 1,923,809
--------------------------------------------------- -----------
Weighted number of shares for the purposes
of diluted earnings per share 223,529,555 242,180,500
--------------------------------------------------- ----------- -----------
2017 2016
GBPm GBPm
--------------------------------------------------- ----------- -----------
Earnings for the purposes of basic earnings
per share, being profit for the year attributable
to owners of the Company 59.6 53.4
Effect of dilutive potential ordinary
shares:
Interest on convertible bond (net of
tax) - 2.3
Movement in fair value of the convertible
bond - (7.7)
Earnings for the purposes of diluted earnings
per share 59.6 48.0
--------------------------------------------------- ----------- -----------
2017 2016
Pence Pence
--------------------------------------------------- ----------- -----------
Basic earnings per share 26.9 24.1
Diluted earnings per share 26.7 19.8
--------------------------------------------------- ----------- -----------
Shares held by The St. Modwen Properties PLC Employee
Share Trust are excluded from the above calculation.
Note 3 sets out details of EPRA and adjusted
EPRA earnings per share.
7. Dividends
Dividends paid during the year were in respect of
the final dividend for 2016 and interim dividend for
2017. The proposed final dividend of 4.26 pence per
share is subject to approval at the Annual General
Meeting and has not been included as a liability in
these financial statements.
2017 2016
Pence Pence
per share GBPm per share GBPm
---------------------------- ---------- ---- ---------- ----
Paid
Final dividend in respect
of previous year 4.06 9.0 3.85 8.5
Interim dividend in respect
of current year 2.02 4.5 1.94 4.3
Total paid 6.08 13.5 5.79 12.8
---------------------------- ---------- ---- ---------- ----
Proposed
Current year final dividend 4.26 9.5 4.06 9.0
---------------------------- ---------- ---- ---------- ----
The St. Modwen Properties PLC Employee Share Trust
waives its entitlement to dividends with the exception
of 0.01 pence per share.
8. Investment property
Freehold Leasehold
investment investment
properties properties Total
GBPm GBPm GBPm
-------------------------------- ----------- ----------- -------
At 30 November 2015 (restated) 971.7 121.2 1,092.9
Property acquisitions 38.5 - 38.5
Additions 50.7 0.8 51.5
Net transfers to inventories
(note 11) (13.3) - (13.3)
Disposals (51.3) (3.7) (55.0)
Movement in lease incentives 0.3 (0.5) (0.2)
Gain on revaluation 24.0 6.3 30.3
---------------------------------- ----------- ----------- -------
At 30 November 2016 (restated) 1,020.6 124.1 1,144.7
Property acquisitions 24.8 - 24.8
Additions 42.7 2.8 45.5
Net transfers to inventories
(note 11) (3.0) - (3.0)
Disposals (58.1) (2.8) (60.9)
Movement in lease incentives 1.5 (0.3) 1.2
Gain on revaluation 16.2 - 16.2
At 30 November 2017 1,044.7 123.8 1,168.5
---------------------------------- ----------- ----------- -------
Investment properties were valued at 30 November 2017
and 30 November 2016 by Cushman & Wakefield, Chartered
Surveyors, in accordance with the Appraisal and Valuation
Manual of the Royal Institution of Chartered Surveyors,
on the basis of market value. Cushman & Wakefield
are professionally qualified independent external
valuers and had appropriate recent experience in the
relevant location and category of the properties being
valued.
The historical cost of investment properties at 30
November 2017 was GBP927.8m (2016 (restated): GBP891.3m).
As at 30 November 2017, GBP790.2m (2016: GBP800.5m)
of investment property was pledged as security for
the Group's loan facilities. This security has subsequently
been released as part of the Group's refinancing to
move to unsecured facilities in December 2017, as
disclosed in note 15.
Included within investment properties are GBP64.2m
(2016: GBP61.7m) of assets held under finance leases.
9. Joint ventures and
associates
The Group has the following four material joint venture
companies, for which information is provided separately
in this note:
Name Status Interest Activity
-------------------------------------------------------- ------------ ---------- --------------------------
Key Property Investments Joint Property investment
Limited venture 50% and development
VSM Estates Uxbridge Joint
(Group) Limited venture 50% Property investment
VSM Estates (Holdings) Joint
Limited venture 50% Property investment
Joint Property investment
VSM (NCGM) Limited venture 50% and development
-------------------------------------------------------- ------------ ---------- --------------------------
A series of commercial contracts with Persimmon is
commonly referred to as the 'Persimmon joint venture'.
This is not a statutory entity and the results from
these commercial contracts are not included in the
figures disclosed in this note. Revenue and profit
from the Persimmon joint venture are recognised in
Group development profit on legal completion of housing
unit sales to third-party customers.
The Group's share of the results for the
year of its joint ventures and associates
is:
2017
VSM Other
Key Estates VSM joint
Property Uxbridge Estates VSM ventures
Investments (Group) (Holdings) (NCGM) and
Limited Limited Limited Limited associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------------ --------- ----------- -------- ----------- ------
Net rental income 4.9 (0.1) - - 0.2 5.0
Development profits 0.9 - - - - 0.9
Gains/(losses) on disposal
of investments/investment
properties 0.1 - (0.2) 0.8 - 0.7
Investment property revaluation
gains/(losses) 9.5 (2.3) (1.5) 14.5 0.2 20.4
Change in estimated cost
to establish a market
in Nine Elms - - - (24.6) - (24.6)
Administrative expenses (0.1) - (0.1) (0.1) - (0.3)
-------------------------------- ------------ --------- ----------- -------- ----------- ------
Profit/(loss) before
interest and tax 15.3 (2.4) (1.8) (9.4) 0.4 2.1
Finance cost (2.0) (2.2) (1.9) (8.8) (0.1) (15.0)
Finance income 0.8 0.1 - 0.2 - 1.1
-------------------------------- ------------ --------- ----------- -------- ----------- ------
Profit/(loss) before
tax 14.1 (4.5) (3.7) (18.0) 0.3 (11.8)
Taxation (0.9) 0.5 (0.5) 4.2 - 3.3
------------ --------- ----------- -------- -----------
Profit/(loss) for the
year 13.2 (4.0) (4.2) (13.8) 0.3 (8.5)
-------------------------------- ------------ --------- ----------- -------- ----------- ------
2016
VSM Other
Key Estates VSM joint
Property Uxbridge Estates VSM ventures
Investments (Group) (Holdings) (NCGM) and
Limited Limited Limited Limited associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------------ --------- ----------- -------- ----------- ------
Net rental income 5.5 (0.1) - - - 5.4
Development profits - - - - - -
Gains/(losses) on disposal
of investments/investment
properties 0.8 - (0.2) - (0.1) 0.5
Investment property revaluation
gains/(losses) 1.2 (1.8) (1.1) (24.3) 0.1 (25.9)
Administrative expenses (0.3) - (0.1) (0.1) (0.3) (0.8)
-------------------------------- ------------ --------- ----------- -------- ----------- ------
Profit(loss) before interest
and tax 7.2 (1.9) (1.4) (24.4) (0.3) (20.8)
Finance cost (2.2) (3.4) (1.9) (7.3) (0.2) (15.0)
Finance income 0.4 0.4 0.7 - - 1.5
-------------------------------- ------------ --------- ----------- -------- ----------- ------
Profit/(loss) before
tax 5.4 (4.9) (2.6) (31.7) (0.5) (34.3)
Taxation (0.6) 0.9 (0.5) 6.3 - 6.1
Profit/(loss) for the
year 4.8 (4.0) (3.1) (25.4) (0.5) (28.2)
-------------------------------- ------------ --------- ----------- -------- ----------- ------
Included in other joint ventures and associates above
are results from associated companies of GBP0.1m (2016:
GBP0.1m).
The Group's share of the balance sheet of
its joint ventures and associates is:
2017
VSM Other
Key Estates VSM joint
Property Uxbridge Estates VSM ventures
Investments (Group) (Holdings) (NCGM) and
Limited Limited Limited Limited associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------------ --------- ----------- -------- ----------- -------
Property portfolio 90.1 29.8 9.8 8.5 9.8 148.0
Other assets 5.7 - 34.8 36.7 4.8 82.0
------------ --------- ----------- -------- -----------
Gross assets 95.8 29.8 44.6 45.2 14.6 230.0
---------------------- ------------ --------- ----------- -------- ----------- -------
Net borrowings (26.5) 3.1 9.1 58.4 1.5 45.6
Finance leases (0.9) - - - - (0.9)
Other liabilities (8.9) (25.5) (23.1) (89.6) (8.0) (155.1)
Gross liabilities (36.3) (22.4) (14.0) (31.2) (6.5) (110.4)
---------------------- ------------ --------- ----------- -------- ----------- -------
Net assets 59.5 7.4 30.6 14.0 8.1 119.6
---------------------- ------------ --------- ----------- -------- ----------- -------
Equity at 30 November
2016 56.3 11.4 34.8 75.3 7.0 184.8
Profit/(loss) for the
year 13.2 (4.0) (4.2) (13.8) 0.3 (8.5)
Injection of capital - - - - 1.4 1.4
Dividends paid (10.0) - - (47.5) (0.6) (58.1)
Equity at 30 November
2017 59.5 7.4 30.6 14.0 8.1 119.6
---------------------- ------------ --------- ----------- -------- ----------- -------
2016
VSM Other
Key Estates VSM joint
Property Uxbridge Estates VSM ventures
Investments (Group) (Holdings) (NCGM) and
Limited Limited Limited Limited associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------------ --------- ----------- -------- ----------- -------
Property portfolio 99.8 47.6 29.6 197.5 7.3 381.8
Other assets 3.4 4.5 28.3 0.5 3.8 40.5
------------ --------- ----------- -------- -----------
Gross assets 103.2 52.1 57.9 198.0 11.1 422.3
---------------------- ------------ --------- ----------- -------- ----------- -------
Net borrowings (37.3) (12.6) 1.1 0.6 1.2 (47.0)
Finance leases (0.9) - - - - (0.9)
Other liabilities (8.7) (28.1) (24.2) (123.3) (5.3) (189.6)
Gross liabilities (46.9) (40.7) (23.1) (122.7) (4.1) (237.5)
---------------------- ------------ --------- ----------- -------- ----------- -------
Net assets 56.3 11.4 34.8 75.3 7.0 184.8
---------------------- ------------ --------- ----------- -------- ----------- -------
Equity at 30 November
2015 65.8 15.4 37.9 100.7 7.5 227.3
Profit/(loss) for the
year 4.8 (4.0) (3.1) (25.4) (0.5) (28.2)
Dividends paid (14.3) - - - - (14.3)
Equity at 30 November
2016 56.3 11.4 34.8 75.3 7.0 184.8
---------------------- ------------ --------- ----------- -------- ----------- -------
Included in other joint ventures and associates above
are net assets in relation to associated companies
of GBP3.4m (2016: GBP3.3m).
New Covent Garden Market
The first parcel of land at Nine Elms, London, was
released to VSM (NCGM) Limited during the year ended
30 November 2017 and was subsequently sold. The remaining
liability to establish New Covent Garden Market continues
to have a significant impact on the results and net
assets of the Group's joint ventures.
Following the disposal during the year of the first
parcel of land, the Group has undertaken a full review
of the remaining works required to establish the market.
The complicated nature of working on a site with a
live market and an anticipated extended duration of
the project have resulted in an increase in expected
construction costs. Accordingly, VSM (NCGM) Limited
increased its liability for the estimate of this forecast
cost, with the Group's share of this increase being
GBP24.6m.
The liability of VSM (NCGM) Limited to establish a
new market facility for CGMA has been calculated by:
* the Board of VSM (NCGM) Limited, including
representatives of VINCI and St. Modwen, assessing
the costs of procuring the market facility at current
rates;
* applying a current estimate of inflation for the
period of the build of 2.5%; and
* discounting the forecast cash flows to today's value
using a discount rate of 5%, considered by the Board
of VSM (NCGM) Limited to appropriately reflect the
risks and rewards of the procurement.
10. Trade and other receivables
2016
2017 (restated)
GBPm GBPm
----------------------------------------------- ---- -----------
Non-current
Amounts due from joint ventures and associates - 6.0
Other receivables 2.3 2.2
Non-current receivables 2.3 8.2
----------------------------------------------- ---- -----------
Current
Trade receivables 8.5 8.2
Prepayments and accrued income 6.6 8.1
Amounts due from joint ventures and associates 26.5 62.2
Amounts recoverable on contracts 9.8 15.3
Other receivables 20.7 10.3
Current receivables 72.1 104.1
----------------------------------------------- ---- -----------
11. Inventories
2017 2016
GBPm GBPm
------------------------------------------------ ----- -------
Income producing property 38.3 2.4
Residential assets 202.6 141.1
Commercial assets 111.8 86.2
Inventories 352.7 229.7
------------------------------------------------ ----- -------
The movement in inventories during the two years
ended 30 November 2017 is as follows:
GBPm
------------------------------------------------ ----- -------
At 30 November 2015 183.7
Acquisitions and additions 208.8
Net transfers from investment property
(note 8) 13.3
Disposals (transferred to development
cost of sales) (176.1)
------------------------------------------------ ----- -------
At 30 November 2016 229.7
Acquisitions 67.4
Additions 246.8
Net transfers from investment property
(note 8) 3.0
Disposals (transferred to development
cost of sales) (194.2)
At 30 November 2017 352.7
------------------------------------------------ ----- -------
The directors consider all inventories to be current
in nature. The operational cycle is such that a proportion
of inventories will not be realised within 12 months.
It is not possible to determine with accuracy when
specific inventory will be realised as this will be
subject to a number of issues including the strength
of the property market.
Included within disposals of inventories are net realisable
value provisions made during the year of GBP2.0m (2016:
GBP0.3m).
As at 30 November 2017, GBP14.2m (2016: GBP19.7m)
of inventory was pledged as security for the Group's
loan facilities. This security has subsequently been
released as part of the Group's refinancing to move
to unsecured facilities in December 2017, as disclosed
in note 15.
12. Trade and other payables
2017 2016
GBPm GBPm
------------------------------------------------- ----- -----
Current
Trade payables 44.2 41.1
Amounts due to joint ventures and associates 31.9 17.8
Other payables and accrued expenses 79.5 82.9
Other payables on deferred terms 20.4 8.7
Current payables 176.0 150.5
------------------------------------------------- ----- -----
Non-current
Amounts due to joint ventures and associates 8.5 -
Other payables on deferred terms 11.6 3.6
Non-current payables 20.1 3.6
------------------------------------------------- ----- -----
The payment terms of the other payables on deferred
terms are subject to contractual commitments. In the
normal course of events the payments will be made
in line with either the disposal of investment properties
held on the Group balance sheet, or the commencement
of development. Net cash outflows on the settlement
of the deferred consideration will therefore be limited.
13. Borrowings and finance
lease obligations
2017 2016
GBPm GBPm
---------------------------------------------- ------- ------
Current
Finance lease liabilities
due in less than one year 0.6 0.4
Current borrowings and finance
lease obligations 0.6 0.4
------------------------------------------------ ------- ------
Non-current
Amounts repayable between
one and two years 194.4 -
Amounts repayable between
two and five years 240.5 470.6
Non-current borrowings 434.9 470.6
Finance leases liabilities
due after more than one
year 56.4 56.4
------- ------
Non-current borrowings and finance
lease obligations 491.3 527.0
------------------------------------------------- ------- ------
Where borrowings are secured, the individual bank
facility has a fixed charge over a discrete portfolio
of certain of the Group's property assets.
Note 15 gives details of the Group's refinancing exercise,
completed and announced post-year end in December
2017.
14. Share capital
2017 2016
Equity Equity
Ordinary share Ordinary share
10p shares capital 10p shares capital
Number GBPm Number GBPm
------------------- ----------- -------- ----------- --------
At start of year 221,876,988 22.2 221,876,988 22.2
Issue of shares 500,000 - - -
------------------- ----------- -------- ----------- --------
At end of year 222,376,988 22.2 221,876,988 22.2
------------------- ----------- -------- ----------- --------
The Company has a single class of share capital which
is divided into ordinary shares of 10 pence each,
all ranking pari passu. Each share carries the right
to one vote at general meetings of the Company. The
holders of ordinary shares are entitled to receive
dividends when declared.
During the year ended 30 November 2017, the Group
issued 500,000 Ordinary shares of 10p each at par.
The shares were allotted and issued to The St. Modwen
Properties PLC Employee Share Trust to satisfy the
exercise of awards made under the Company's share-based
incentive arrangements. No shares were issued during
the year ended 30 November 2016.
Excluding 519,906 (2016: 269,334) of own shares held
by The St. Modwen Properties PLC Employee Share Trust,
shares in issue at 30 November 2017 are 221,857,082
(2016: 221,607,654).
15. Subsequent events
Completion of refinancing
The Group completed its refinancing in December 2017,
replacing GBP488.0m of bilateral secured debt facilities
with a GBP475.0m unsecured revolving credit facility
with an initial maturity of five years which can be
extended to a maximum of seven years, subject to lender
consent. In line with our strategic plans, the refinancing
provides a reduced cost of debt and improved operational
flexibility.
The transition to unsecured debt financing provides
the Group with the option to extend further its debt
maturity profile and diversify its sources of unsecured
finance ahead of the maturity of the Group's GBP100.0m
convertible bond and GBP80.0m retail bond in 2019.
In doing so, the Group settled its balance sheet liability
for out of the money interest rate swaps for a cash
outlay of GBP5.1m and entered into an interest rate
cap. This hedging activity will result in initial
annual savings of circa GBP2.5m. A non-cash expense
of GBP3.4m will be recognised in the first half of
the Group's 2018 financial year in respect of capitalised
arrangement fees relating to the previous facilities.
These actions increased the Group's weighted average
facility life 2.7 years at 30 November 2017 to 4.1
years (or to 5.5 years if the two one-year extensions
are applied).
Sale of Swansea student accommodation
In February 2018, the Group completed the sale of
its 45-year leasehold interest in its purpose-built
student accommodation at Swansea University Bay Campus
for a total cash consideration of GBP87.3m to UPP
Group Limited, a specialist provider of on-campus
student accommodation infrastructure and support services.
The assets that have been sold comprise the Group's
interests in the completed student accommodation buildings,
including ancillary commercial leases. The sale is
by way of a disposal of the entire issued share capital
of St. Modwen Properties VIII S.à.r.l. and St.
Modwen (SAC 2) Limited and certain freehold interests.
The planned disposal follows a competitive sales process
and was broadly in line with book value. The gross
consideration for the 45-year leasehold asset is GBP139.3m,
representing a yield of 5.7%, with a cash consideration
of GBP87.3m reflecting the transfer of the associated
finance lease liability. The disposal will result
in the reduction of circa GBP5.8m of net rental income
compared to 2017, offset by the reduction of GBP2.1m
of interest payable on finance lease obligations.
PRINCIPAL RISKS AND UNCERTAINTIES
for the year ended 30 November 2017
St. Modwen's business model exposes the Group to a
variety of external and internal risks. At a macro
level, there is continued uncertainty due to political
and economic factors outside of the Group's control
which could have a significant impact, both positively
and negatively, on the business. These include Government
policy at both a national and local level, monetary
policy, investor confidence and the availability and
affordability of mortgages. The Group believes that
this macro level uncertainty will continue in the
medium term, particularly as the implications from
the UK withdrawing from the EU are still to be fully
understood. Whilst the Group's ability to influence
external factors remains limited, the business continues
to remain vigilant by proactively monitoring the wider
business environment, operating an agile delivery
model allowing the Group to respond quickly to changes
in the risk profile and maintaining a strong financial
position.
Following the Board's consideration of the Group's
principal risks against the revised strategic objectives,
the financial collapse or dispute with a key joint
venture partner, included as a principal risk in 2016,
is no longer considered to be a principal risk in
2017. This reflects the reduced risk as a consequence
of the scaling down of the joint venture with Persimmon
Homes and the sale of 10 acres at Nine Elms Square.
The risk exposure relating to the construction of
the New Covent Garden Market, which is being delivered
in partnership with VINCI, is reflected within the
risk of failing to manage major projects.
An additional risk has also been included within the
2017 principal risks and uncertainties, with respect
to significant disruption to the Group's assets and
business operations. This reflects the increased threat
from terrorism, social disturbances and severe weather
conditions as well as external cyber threats.
The following tables set out the principal risks which
could prevent the achievement of the Group's strategic
objectives and may have a material impact on the business.
The risk levels disclosed represent residual risk
after mitigation and references to strategic objectives
are to the following:
A - Accelerate our commercial development
B - Grow our residential housebuilding business
C - Cement and grow our regeneration reputation
D - Portfolio focus and capital discipline
Economic market and environment
1. Downturn in market and economic conditions
----------------------------------------------------------------------
Risk assessment: Strategic objectives: Trend:
High A,B,C
------------------------- -------------------------------- ---------
Impact
* Devaluation of assets
* Reduction in investor appetite
* Reduced occupier demand
----------------------------------------------------------------------
Example risk indicators
* Weighted development pipeline
* Residential reservation rate
* Void rate
----------------------------------------------------------------------
Commentary
During 2017 there has been continued uncertainty in
the UK property market and broader UK economy.
The refreshed strategic plan ensures that we continue
to focus on asset classes where there is continued,
sustainable appetite and demand and in a variety of
geographical regions. This diversification ensures
that we are not exposed to any one sector or region.
This is complemented by a considered medium-term disposal
programme of drier assets which will see proceeds
realised in tranches and reinvested in targeted asset
classes.
We are in continuous communication with occupiers
of our commercial assets to minimise the risk of rent
default and void periods and invest in our residential
sales team and customer services process to maximise
upsell opportunities.
----------------------------------------------------------------------
Mitigation
* Strategic focus on asset classes where there is the
greatest demand and appetite
* Regional spread reduces risk exposure to any one area
or location
* Active portfolio management of assets minimises
revenue loss and achieves better than market
utilisation of assets
* Extensive land bank with a continuing stream of
planning applications
* Regular monitoring of macro level indicators
----------------------------------------------------------------------
Construction, development and asset management
2. Changes to the planning framework at a national
and regional level
-------------------------------------------------------------------
Risk assessment: Strategic objectives: Trend: ->
Low A,B,C
---------------------- ----------------------------- ------------
Impact
* Failure to obtain planning permissions
* Failure to maximise returns from developments
* Loss of competitive advantage
-------------------------------------------------------------------
Example risk indicators
* Weighted development pipeline
* Proportion of land bank with outline planning
permission
-------------------------------------------------------------------
Commentary
Recent policy announcements by the current UK Government
have indicated a willingness to re-evaluate the planning
framework to support the continued demand for brownfield
development activity, particularly with respect to
residential development, creating potential opportunities.
There is a continued focus on bringing forward land
for redevelopment and our strategic plan and portfolio
will enable us to take advantage of this demand.
-------------------------------------------------------------------
Mitigation
* Regular dialogue with central and local government
* Active involvement in public consultations
* Use of high-quality professional advisors
* Constant monitoring of the planning framework by
in-house experts
-------------------------------------------------------------------
3. Failure to effectively manage major projects
----------------------------------------------------------------------
Risk assessment: Strategic objectives: Trend: ->
High A,B,C,D
----------------------- ------------------------------- ------------
Impact
* Significant financial loss
* Negative reputational impact
----------------------------------------------------------------------
Example risk indicators
* Speculative WIP exposure
* Commercial WIP exposure
----------------------------------------------------------------------
Commentary
We use our extensive knowledge and experience in remediation,
asset development and construction to manage our major
projects. A number of our major projects are joint
ventures which therefore shares the risk exposure
whilst benefiting from the considerable expertise
of both parties.
Major projects are subject to regular review by the
Chief Executive, Senior Leadership Executive and the
Board to ensure that we continue to manage these risks
effectively.
----------------------------------------------------------------------
Mitigation
* Joint ventures on a number of major projects reduce
the overall risk exposure
* Significant in-house development skills and expertise
* Sites are often prime locations allowing flexibility
over their use and increasing development options
* Regular performance review by Senior Leadership
Executive and the Board
----------------------------------------------------------------------
4. Unforeseen exposures or rising costs and liabilities
on projects
----------------------------------------------------------------------
Risk assessment: Strategic objectives: Trend: ->
High A,B,C
----------------------- ------------------------------- ------------
Impact
* Inability to deliver development scheme
* Financial loss on major projects
----------------------------------------------------------------------
Example risk indicators
* Speculative WIP exposure
* Future development profits secured
* Client claims
----------------------------------------------------------------------
Commentary
All developments are subject to financial appraisal
and are approved in accordance with defined authority
limits. Our contractor selection and management processes
are rigorous and we continue to favour financially
stable and robust contractors. Subcontractor packages
and direct material purchases are subject to our robust
procurement processes and are competitively tendered
to secure the best value.
All developments and cost forecasts are subject to
regular review and challenge at a regional level and
by the Senior Leadership Executive. Well-established
processes also exist acting as early warning indicators
for any potential claims or material increases in
cost forecasts.
To date, labour and material costs have remained in
line with expectations. It is, however, acknowledged
that fluctuations in the value of sterling and inflationary
pressures may lead to an increase in the cost of both
labour and materials in the medium term. We continue
to monitor this closely, with focus on the budgeting
and forecasting process and continuing close working
relationships with subcontractors.
----------------------------------------------------------------------
Mitigation
* Use and close supervision of a preferred supply chain
of high-quality trusted suppliers and professionals
* Robust procurement and purchasing processes in place
* Detailed budgets are established for each project
which are regularly monitored with significant
variances investigated
* Application of 'development' skills and expertise
* Projects, acquisitions and disposals are reviewed and
financially appraised in detail, with clearly defined
authority limits
* Contractual liability clearly defined
* Standard build specification continually reviewed
----------------------------------------------------------------------
5. Absence of high-quality contractors, consultants
and third parties
----------------------------------------------------------------------
Risk assessment: Strategic objectives: Trend:
Medium A,B,C
------------------------- -------------------------------- ---------
Impact
* Adverse impact on the quality of work
* Reduced customer satisfaction impacting on St.
Modwen's reputation
* Inability to meet demand and support the growth of
the business
* Financial impact on the returns achieved on
individual developments
----------------------------------------------------------------------
Example risk indicators
* Quality satisfaction scores
* Considerate contractor scores
----------------------------------------------------------------------
Commentary
The expansion of the business and increased volume
of work, particularly in residential housing, has
resulted in the need for additional contractors and
consultants to meet this demand. Additionally, in
the long term, any restriction on the movement of
labour, as a result of negotiations with the EU, may
result in the reduced availability of skills and expertise.
We continue to use trusted contractors and consultants
working in a partnership approach. We also seek to
continually develop our pool of third party expertise
and ensure value for money at both a national and
regional level through regular market testing. This
ensures we do not become overly reliant on a single
supplier.
----------------------------------------------------------------------
Mitigation
* Regular tendering is undertaken for new consultants
and contractors
* Reliance on a single consultant/contractor minimised
through the use of pools of specialists
* Close monitoring of contractor/consultant performance
and financial viability
----------------------------------------------------------------------
Financial
6. Reduced availability of funding and unforeseen
changes to cash flow requirements
-------------------------------------------------------------------
Risk assessment: Strategic objectives: Trend: ->
High A,B,C,D
---------------------- ----------------------------- ------------
Impact
* Lack of liquidity
* Adverse impact on the saleability of assets
* Limits the ability of the business to meet its
ongoing commitments
* Restricts the ability of the business to grow
-------------------------------------------------------------------
Example risk indicators
* Minimum headroom
* Future facilities
-------------------------------------------------------------------
Commentary
Our prudent approach to forward commitments, speculative
development and asset disposals has enabled us to
optimise operational cash flows and offset the impact
of fluctuating market conditions.
Our banking relationships are strong, which enabled
us, shortly after the year-end, to achieve one of
our long-term goals of transitioning our banking facilities
to unsecured from secured. This extended the maturities
of these facilities as well as providing us with greater
operational flexibility and access to more diverse
sources of funding in the future.
The sale of land at Nine Elms Square, in addition
to the sale of our residential assets at Swansea University
subsequent to the year-end, considerably reduced our
LTV whilst providing funds for additional development
activity and over 80% of our borrowings were fixed
or hedged at 30 November 2017.
At a regional level, we continue to focus on maximising
income through rent reviews and lease renewals, and
driving down operational cost.
-------------------------------------------------------------------
Mitigation
* Recurring income from rent broadly covers the
overhead and interest cost base
* Financial headroom is maintained to provide
flexibility
* Regular and detailed cash flow forecasts enable
monitoring of performance and management of future
cash flows
* Strong relationships with key banks; all corporate
debt refinanced until at least 2019
-------------------------------------------------------------------
Regulatory and compliance
7. A major health and safety incident occurs or non-compliance
with SHE legislation
--------------------------------------------------------------------
Risk assessment: Strategic objectives: Trend: ->
Medium A,B,C
----------------------- ----------------------------- ------------
Impact
* Serious injury or death to an employee, client,
contractor or member of the public
* Financial penalties
* Reputational damage
--------------------------------------------------------------------
Example risk indicators
* Accident frequency rate
--------------------------------------------------------------------
Commentary
The nature of our operations means that ensuring effective
health and safety arrangements remains a priority
as the Group has no appetite for health and safety
risk exposure. Health and safety is discussed at each
meeting of the Senior Leadership Executive and the
Board.
The SHE committee has continued to meet during 2017
and is chaired by a member of the Senior Leadership
Executive supported by a dedicated Health and Safety
team who support in the development of policies and
procedures, undertake health and safety audits and
monitor health and safety incidents.
Furthermore, during the year a revised health and
safety training programme was rolled out to all relevant
staff.
--------------------------------------------------------------------
Mitigation
* SHE Committee chaired by the St. Modwen Homes
Managing Director
* Regular reporting of performance against indicators
to the Senior Leadership Executive and the Board
* Dedicated in-house health and safety resource
* Annual cycle of SHE audits
* Defined business processes in place to proactively
manage issues arising
--------------------------------------------------------------------
8. Failure to manage long-term environmental issues
relating to brownfield and contaminated sites
--------------------------------------------------------------------
Risk assessment: Strategic objectives: Trend: ->
Low A,B,C
----------------------- ----------------------------- ------------
Impact
* Major environmental issue
* Financial and reputational damage
--------------------------------------------------------------------
Example risk indicators
* Proportion of the land bank rated high for
environmental risk factors
* Controllable reportable environmental incidents
--------------------------------------------------------------------
Commentary
In line with our risk appetite, we are willing to
accept a degree of environmental risk where opportunities
for higher returns exist. The inherent risks are minimised
or passed on wherever possible and the residual risk
remains acceptably low.
We continue to undertake annual environmental audits
of our portfolio to ensure we have visibility of,
and can manage, environmental issues effectively.
Actions arising from these audits are monitored through
to implementation.
--------------------------------------------------------------------
Mitigation
* Use of high-quality external advisors
* Risk assessments conducted as part of due diligence
process
* Contamination remediated immediately following
acquisition
* Cost plans allow for unforeseen remediation costs
* Annual independent audit of environment risk
* Full warranties for professional consultants and
remediation contractors
--------------------------------------------------------------------
Organisational
9. Inability to recruit and retain staff with the
necessary skills and expertise
---------------------------------------------------------------------
Risk assessment: Strategic objectives: Trend:
Medium A,B,C,D
------------------------- ------------------------------- ---------
Impact
* Significant disruption to the business
* Loss of intellectual property
* Adversely affects the ability to grow the business
---------------------------------------------------------------------
Example risk indicators
* Voluntary employee turnover
* Employee satisfaction
---------------------------------------------------------------------
Commentary
An HR Director was appointed in March 2017 to support
in the delivery of the strategic plan through the
'organisational structure and its people' work stream.
This has included the development of a detailed people
plan which has been presented to the Board.
During 2017 there have been changes in the Senior
Leadership Executive, supported by senior and experienced
staff within each region. This has further strengthened
the resilience of the business.
---------------------------------------------------------------------
Mitigation
* Succession planning monitored at Board level and
below
* Leadership and management development plans in place
* Regular review and benchmarking of remuneration
packages
* Targeted recruitment with competitive,
performance-driven remuneration packages to secure
highly-skilled and motivated employees
* Key information is documented to safeguard knowledge
---------------------------------------------------------------------
10. Significant disruption to our assets or business
operations
----------------------------------------------------------------------
Risk assessment: Strategic objectives: Trend:
High A,B,C
------------------------- -------------------------------- ---------
Impact
* Loss or corruption of data
* Inability to access St. Modwen assets
* Unavailability of IT systems
* Loss of revenue and potential financial penalties
----------------------------------------------------------------------
Example risk indicators
* IT System availability
* Internal or external reportable data breaches
----------------------------------------------------------------------
Commentary
Risk assessments are performed for those assets considered
to be exposed to a higher risk of a significant event,
such as terrorism, flood or fire occurring. Specific
terrorism insurance is also in place across our asset
portfolio.
Our IT resilience has been further strengthened during
the year through incident penetration and information
systems assessments. A GDPR Steering Group has been
established with executive sponsorship supported by
dedicated project resource to support the business
in meeting the requirements of GDPR by May 2018.
----------------------------------------------------------------------
Mitigation
* Asset risk assessments performed covering security,
environmental and health and safety
* Specific terrorism insurance in place over Group
portfolio
* Dedicated IT team to monitor IT security and
performance of information systems
* Penetration and information systems reviews performed
by independent third party
* Dedicated resource and project plan in place with
defined activities for completion ahead of GDPR
introduction in May 2018
----------------------------------------------------------------------
STATEMENT OF DIRECTORS' RESPONSIBILITIES
for the year ended 30 November 2017
The directors are responsible for preparing the annual
report and financial statements in accordance with
applicable law and regulations and this statement
has been prepared in connection with the annual report
and financial statements, certain parts of which are
not included within this announcement.
Company law requires the directors to prepare Group
and Company financial statements for each financial
year. Under that law the directors are required to
prepare the Group financial statements in accordance
with International Financial Reporting Standards (IFRSs),
as adopted by the European Union and Article 4 of
the IAS Regulation and have elected to prepare the
Company financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United
Kingdom accounting standards and applicable law),
including FRS 101 Reduced Disclosure Framework. Under
company law the directors must not approve the financial
statements unless they are satisfied that they give
a true and fair view of the state of affairs of the
Group and of the Company and of their profit or loss
for that period.
In preparing each of the Group and Company financial
statements, the directors are required to:
* select suitable accounting policies and then apply
them consistently;
* make judgements and estimates that are reasonable,
relevant, reliable and prudent;
* for the Group financial statements, state whether
they have been prepared in accordance with IFRSs, as
adopted by the EU;
* for the Company financial statements, state whether
applicable UK accounting standards have been followed,
subject to any material departures disclosed and
explained in the Company financial statements;
* assess the Group and Company's ability to continue as
a going concern, disclosing, as applicable, matters
related to going concern; and
* use the going concern basis of accounting unless they
either intend to liquidate the Group or the Company
or to cease operations, or have no realistic
alternative but to do so.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position
of the Company and enable them to ensure that the
financial statements comply with the Companies Act
2006. They are responsible for such internal control
as they determine is necessary to enable the preparation
of financial statements that are free from material
misstatement, whether due to fraud or error, and have
general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of
the Group and to prevent and detect fraud and other
irregularities.
The directors are responsible for preparing a strategic
report, corporate governance statement, directors'
remuneration report and directors' report that complies
with applicable law and regulations.
The directors are responsible for the maintenance
and integrity of the corporate and financial information
included on the Company's website www.stmodwen.co.uk.
Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ
from legislation in other jurisdictions.
Each of the directors in office as at the date of
this report confirm that to the best of their knowledge:
* the financial statements, prepared in accordance with
the applicable set of accounting standards, give a
true and fair view of the assets, liabilities,
financial position and profit or loss of the Company
and the undertakings included in the consolidation
taken as a whole; and
* the strategic report includes a fair review of the
development and performance of the business and the
position of the Company and the undertakings included
in the consolidation taken as a whole, together with
a description of the principal risks and
uncertainties that they face.
Each of the directors in office as at the date of
this report considers the annual report and financial
statements, taken as a whole, is fair, balanced and
understandable and provides the information necessary
for shareholders to assess the Company's position
and performance, business model and strategy.
Approved by the Board and signed on its behalf by:
Andrew Eames
General Counsel & Company Secretary (Interim)
5 February 2018
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EAFASEDKPEAF
(END) Dow Jones Newswires
February 06, 2018 02:00 ET (07:00 GMT)
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