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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 : 8300B
St. Modwen Properties PLC
04 February 2020
Date of issue: 4 February 2020
LEI: 213800WMV4WVES8TQH05
ST. MODWEN PROPERTIES PLC
("St. Modwen" or "the Company")
Results for the year ended 30 November 2019
St. Modwen delivers continued progress on focused growth strategy
Mark Allan, Chief Executive of St. Modwen, commented:
"2019 has been a positive year for St. Modwen. Following our major portfolio repositioning, our focus shifted to growth, building on the substantial opportunities in our existing portfolio. This resulted in another year of strong growth in housebuilding volumes and growing momentum in industrial and logistics development, where structural growth drivers remain positive. Underpinned by a solid balance sheet and continued capital recycling, we expect the delivery of our strategy to drive a meaningful improvement in return on capital and, with 22% growth in 2019, we are well on track to broadly double our adjusted EPRA EPS in the medium term."
Financial highlights
Non-statutory measures(1) 2019 2018 Statutory measures 2019 2018 ------------------------------ ----- ----- ------------------------ ----- ----- EPRA NAV per share (pence)(2) 504.2 484.0 NAV per share (pence)(2) 484.2 470.2 Underlying total accounting Total dividend per share return (%) 6.3 6.0 (pence) 8.7 7.1 Adjusted EPRA earnings Profit for the year (GBPm) 38.7 31.7 (GBPm) 49.5 60.5 Adjusted EPRA EPS (pence) 17.4 14.3 Basic EPS (pence) 22.8 27.1 See-through loan-to-value (%) 19.6 16.9 Group net debt (GBPm) 314.1 274.3 ------------------------------ ----- ----- ------------------------ ----- -----
-- NAV per share up 3.0% to 484.2 pence (2018: 470.2 pence)(2) despite 7.8 pence exceptional provision.
-- Underlying total accounting return of 6.3% (2018: 6.0%), before impact of 1.7ppt of exceptional provision.
-- Adjusted EPRA EPS up 21.7% to 17.4 pence (2018: 14.3 pence) reflecting successful delivery of strategy.
-- Total dividend for the year up 22.5% to 8.7 pence (2018: 7.1 pence) due to strong growth in earnings.
-- Profit for the year of GBP49.5m after GBP18.5m exceptional cost, with basic EPS of 22.8 pence (2018: 27.1 pence).
-- Conservative see-through LTV of 19.6% (2018: 16.9%) providing ample headroom for future investment.
Operational highlights
Strong progress across each of our three business units in delivering our growth-focused strategy, building on our existing deep pipeline of opportunities in three sectors with good structural growth prospects.
-- Industrial & Logistics: building leasing momentum; growing development activity
o Grown industrial and logistics exposure to 44% of total portfolio by value (2018: 33%), driven by successful developments and underlying growth.
o Delivered 0.9m sq ft of new space of which 97% will be retained (2018: 0.9m sq ft and 69%), with 58% of associated GBP5.5m ERV let or under offer, up from 54% for our 2018 completions this time last year.
o Expect to deliver 1.5-1.7m sq ft of new space during 2020, of which 1.5m sq ft is already committed, 94% of which is set to be retained with an expected ERV of GBP9.5m, 18% of which is pre-let.
o Grown total future pipeline to c. 19m sq ft, 45% of which already has planning with an associated ERV of c. GBP56m, providing substantial medium- and longer-term growth potential.
-- St. Modwen Homes: growing volume and margins; delivering high quality and customer service
o Delivered 25% growth in volumes with 1,060 units sold during the year (2018: 848) and grown margins to 14.8% (2018: 14.4%), driving 28% growth in operating profit to GBP40.1m (2018: GBP31.3m).
o Home Builders Federation customer satisfaction rating tracking over 90%, equivalent to 5* status, and net promotor score of 76 (2018: 63), underlining high quality and focus on customer service.
o Pipeline in place to grow volumes by up to 20% p.a. to 2021 and opportunity to grow further, at a more normalised rate, beyond that, with clear steps identified to grow margins to c. 16-17% in medium term.
o Current trading remains strong, with 34.0% of targeted full-year private sales forward sold (Feb 2019: 34.6%) and broadly similar improvement in margins expected for 2020 as for 2019.
-- Strategic Land & Regeneration: recycling capital; progressing longer-term opportunities
o Sold GBP65m of non-core assets, including more than half of residual non-core retail, reducing non-core retail to just 2% of total portfolio by value, down from 16% at start of 2018.
o Agreed sale of GBP30m of residential land (2018: GBP53m) in-year, and 663 plots at two large sites in South Wales for GBP25m since the year-end, with c. 900 plots across both sites in advanced legal discussions.
o Prepared next phases of development at Longbridge for start on site in 2020, delivered latest phase of development at Swansea Bay Campus and progressed longer-term mixed-use opportunities.
-- On track to broadly double adjusted EPRA EPS from 2018 level of 14.3 pence in medium term and deliver on ambition to grow total return to low-double digit levels over time, assuming markets remain stable, capitalising on significant growth potential embedded in existing pipeline and capital base.
Enquiries: St. Modwen Properties PLC Mark Allan, Chief Executive Tel: +44 (0)121 222 9400 Rob Hudson, Chief Financial Officer www.stmodwen.co.uk Tom Gough, Head of External Communications and Stakeholder Relations FTI Consulting Dido Laurimore Tel: +44 (0)20 3727 1000 Ellie Sweeney stmodwen@fticonsulting.com
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)330 336 9125 Password: 6989266 Webcast link: https://webcasting.brrmedia.co.uk/broadcast/5dd7ea168e9f38744a57e501
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 notes 2 and 3 to the Group financial statements.
(2) Following the adoption of IFRS 9 Financial Instruments during the year ended 30 November 2019, the comparative values of EPRA NAV per share and NAV per share at 30 November 2018 have been reduced by 0.1 pence and 0.2 pence respectively to reflect the retrospective restatement required for recognising provisions against trade and other receivables using an expected credit loss rather than an incurred loss model. The Group has also adopted IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases during the year ended 30 November 2019, but there has been no impact on the reported measures as a result of the adoption of these standards. Further detail is given in the accounting policies note to the Group financial statements.
This announcement contains certain forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "expects", "intends", "plans", "goal", "target", "aim", "may", "will", "would", "could" or "should" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. Forward-looking statements 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.
CHAIR'S STATEMENT
2019 has been a positive year for St. Modwen, with a continued increase in momentum in delivering our growth-focused strategy. During the year we restructured our internal organisation to fully align this to our three strategic objectives: build a high-quality industrial and logistics business, grow our residential and housebuilding business, and leverage our regeneration reputation - all of which is built around our core purpose, 'Changing places. Creating better futures.' In delivering on this purpose, we aim to create value for all our stakeholders, be it through bringing to life unloved, disused sites to create thriving new communities; delivering affordable, high-quality houses and a first-rate experience to customers looking for a new home; developing modern logistics and industrial space for businesses to grow and jobs to be created; or investing in our own people.
The positive momentum has been visible in each of our three business units, with a 25% increase in volumes in St. Modwen Homes; 85% growth in leasing and an over 60% step-up in development planned for 2020 in Industrial & Logistics; and GBP133m of disposals and good development progress in Strategic Land & Regeneration. We delivered a 21.7% increase in our adjusted EPRA EPS in 2019, driving a 22.5% increase in our dividend for the year to 8.7 pence per share. Our underlying total accounting return improved to 6.3%, which is stated before the impact of 1.7ppt due to the exceptional provision for a legacy project the Group developed and sold c. 15 years ago. This reduced our NAV by 1.6% but despite this, our NAV per share increased 3.0% during the year and our balance sheet remains strong, with a low 19.6% see-through LTV, even after further investments in growth.
Board changes
At the AGM in March I took over as Chair from Bill Shannon, who stepped down following eight years in the position. In September we announced the appointment of Sarah Whitney as non-executive director, who brings a wealth of experience in the real estate and corporate finance sectors to the Board, especially with respect to public private partnerships.
In November we announced that Mark Allan would be stepping down as Chief Executive during 2020 to take up the role of CEO at Land Securities plc. Mark will stay with the business until 30 April and gradually hand over responsibilities to our CFO, Rob Hudson, who will take on the role of interim Chief Executive until a new Chief Executive joins the business. A search process is well underway, focusing on external candidates, and we will provide an update on this as and when appropriate.
On behalf of the Board, I would like to wish Mark well in his new role and thank him for his substantial contribution to St. Modwen over the last three years. Under his leadership the business has seen a major transformation in culture, people agenda and purpose, which is reflected in our new Responsible Business ambitions, and it embarked on a successful growth strategy in three key sectors which are supported by long-term structural growth characteristics. While we remain alive to any future changes in the external environment, the Board is highly supportive of this strategy and therefore does not intend for this strategy to change. Our financial leverage is low, and we have a portfolio full of opportunity and a highly skilled team in place, so our focus is on delivering on the substantial growth potential we have in each of the three parts of our business.
People and culture
In my first year as Chair of St. Modwen, I have had the pleasure of meeting many talented people across all levels of our organisation. This confirmed to me that St. Modwen truly is a unique business, with an expertise rooted in its long, successful history but also an ambition to innovate and lead the way through the delivery of our purpose. How we do business is an important part of this and to create a clear link between our strategy and our ESG efforts, we will be launching our Responsible Business ambitions in early 2020. Our people are key to the success of our business, so it is important we maintain our positive, supportive culture and values. For us as a Board, this is paramount, and I would like to thank everyone for their valued contribution to our success.
Prospects
The external environment may be less unsettled than it was but having formally left the EU at the end of last month, the UK still faces uncertainty as it looks to establish new trading relationships with our international partners. Nevertheless, the outlook for St. Modwen is positive. Through the repositioning of our business in the last few years, we have materially improved our portfolio quality, reduced our borrowings and aligned our organisational design. Our capital base is strong, our strategy is focused on growth in three sectors which are supported by positive long-term fundamentals and in each of these areas we have a substantial pipeline of opportunities in place. As such, we are confident that delivery against this strategy will continue to create value for all our stakeholders, thereby truly delivering on our purpose: 'Changing places. Creating better futures.' Building on our successful track-record and unique expertise, we therefore look to the future with confidence.
CHIEF EXECUTIVE'S REVIEW
Overview
2019 for St. Modwen has been a year of growing momentum in the strategy we set out in spring 2017. The first phase of this strategy was focused on repositioning our portfolio and strengthening our balance sheet, resulting in the sale of over GBP800m of assets by the end of 2018 and a reduction in LTV from 33.1% to 16.9%. Since the start of 2019 our focus has been on the next phase of our strategic plan - driving growth in each of our three focus areas: industrial and logistics; housebuilding; and strategic land and regeneration. Each of these sectors is underpinned by structural growth characteristics and in each area we have a deep pipeline of opportunities in our existing portfolio. Momentum has been positive in all three parts of our business, with 25% volume growth in St. Modwen Homes, terms agreed on 58% of the space we completed during the year in Industrial & Logistics, and the agreed sale of 663 plots of residential land in Wales, with a further c. 900 in advanced legal discussions.
Our underlying results are in line with our expectations and show our strategy is starting to deliver an improvement in returns. However, as announced in December, an exceptional provision for a legacy project reduced our total accounting return by 1.7ppt, while valuation weakness in our small amount of non-core retail reduced this by a further 2.0ppt to 4.6% (2018: 6.0%). Still, NAV per share increased 3.0% to 484.2 pence (2018: 470.2 pence)(1) and EPRA NAV per share grew 4.2% to 504.2 pence (2018: 484.0 pence)(1) . Despite lower rental income due to our large amount of non-core disposals during 2018, growth in housebuilding profits and lower interest costs meant adjusted EPRA earnings increased 22.1% to GBP38.7m (2018: GBP31.7m). Adjusted EPRA EPS rose 21.7% to 17.4 pence (2018: 14.3 pence), leaving us well on track to broadly double this in the medium term and driving a 22.5% increase in dividend to 8.7 pence per share (2018: 7.1 pence). After GBP18.5m of exceptional costs, profit for the year was GBP49.5m (2018: GBP60.5m), with basic EPS of 22.8 pence (2018: 27.1 pence).
Hot Features
Premium
Key financial performance metrics 2019 2018 Change
%
----------------------------------------- ----- ----- -------
NAV per share (pence)(1) 484.2 470.2 +3.0
EPRA NAV per share (pence)(1) 504.2 484.0 +4.2
Dividend per share (pence) 8.7 7.1 +22.5
Underlying total accounting return (%) 6.3 6.0 +0.3ppt
Profit for the year (GBPm) 49.5 60.5 -18.2
Adjusted EPRA earnings (GBPm) 38.7 31.7 +22.1
Basic earnings per share (pence) 22.8 27.1 -15.9
Adjusted EPRA earnings per share (pence) 17.4 14.3 +21.7
See-through net borrowings(2) (GBPm) 290.6 236.9 +22.7
See-through loan-to-value(2) (%) 19.6 16.9 +2.7ppt
----------------------------------------- ----- ----- -------
(1) Following the adoption of IFRS 9 Financial Instruments during the year ended 30 November 2019, the comparative values of EPRA NAV per share and NAV per share at 30 November 2018 have been reduced by 0.1 pence and 0.2 pence respectively to reflect the retrospective restatement required for recognising provisions against trade and other receivables using an expected credit loss rather than an incurred loss model.
(2) Including the Group's share of net borrowings (being net debt at amortised cost less lease liabilities) and property held in joint ventures and associates.
People and organisation
The positive momentum in our business is a clear reflection of the hard work and dedication of our people. In order to strengthen the alignment between individual roles and our strategic objectives, we changed our organisational design during 2019 from what had historically been a regional structure to a functional structure with three dedicated business units: Industrial & Logistics, St. Modwen Homes and Strategic Land & Regeneration. Our purpose 'Changing places. Creating better futures.' sits at the heart of everything we do in each part of our business. This new organisational design has further enhanced our culture of empowerment and accountability and with these results we have also aligned our financial reporting to this, with new segmental balance sheets, income statements and returns on capital for each business unit. Our people are pivotal in delivering on the opportunities our strategy offers, so we will continue to invest in every part of our workforce.
Bringing our purpose to life
Having substantially completed the repositioning of our portfolio and internal organisation, the next phase of our strategy provides a clear opportunity to really bring to life our core purpose: 'Changing places. Creating better futures.' To remain successful as a business in the long term, financial results must be delivered in tandem with a meaningful, positive impact on society and the environment. We have been working on many social and environmental initiatives across the business for years but there is an opportunity to bring our ESG efforts together and establish a sustainable approach for the long term. In early 2020 we will therefore be launching six Responsible Business ambitions, based around net carbon reduction, with the aim to become operationally net zero carbon by 2025 and fully net zero carbon by 2040; biodiversity and sustainable environments; diversity and inclusion; education and future skills; health and wellbeing; and responsible operating practices and partnerships. All of these are aimed at truly bringing our purpose to
life in every part of our business.
Industrial & Logistics
Our Industrial & Logistics business had a positive year in 2019, as we continued to reinvest the proceeds from our non-core disposals into our substantial development pipeline in this growth sector. As such, industrial and logistics assets now make up 44% of our portfolio, up from 19% when we launched our new strategy in mid-2017. We expect this to grow further in the coming years, as we accelerate the delivery of our attractive pipeline.
Similar to last year, we completed 0.9m sq ft of developments during 2019, but we retained 97% of this space for our own portfolio (2018: 69%), improving the build-up of income. We have seen momentum in leasing build, so of the GBP5.5m ERV related to space we completed in 2019, 58% is let or under offer (early 2019: 54% of ERV completed in 2018), and we are seeing good interest in the remaining space.
We expect development completions to increase materially in 2020, to 1.5-1.7m sq ft, which allowing for some lease-up time, is expected to drive strong income growth for 2021 in particular. 1.5m sq ft of this is already committed, with a total development cost of GBP133m. We expect to retain 94% of this, which with an associated ERV of GBP9.5m is expected to deliver a yield on cost of 7.6% once fully let. Around 80% of this is focused on small to medium sized units of less than 150,000 sq ft, leaving us well positioned to benefit from the growing demand for last mile delivery space, as evidenced by our recent lettings to Ocado and DHL, and warehouse space near urban locations. Reflecting the growing leasing momentum, 18% of this is already pre-let (early 2019: 2%).
During the year we have expanded our pipeline, so our total pipeline now has the potential to deliver c. 19m sq ft of space in the long term, of which 45% has planning. We estimate the latter could deliver c. GBP56m of ERV, which with a c. 8% yield on cost and a c. 9% yield on incremental capex offers room for substantial development upside and income growth in future years.
St. Modwen Homes
Our housebuilding business St. Modwen Homes, which makes up 26% of our property assets, had another year of strong growth in 2019. We sold 1,060 units, marking an increase of 25% compared to the prior year (2018: 848 units); at the top end of our target to grow volumes by up to 25%. In line with our target, our operating margin increased to 14.8% (2018: 14.4%) and while the private average sales price reduced 3.2% compared to 2018 due to changes in sales mix and location, like-for-like sales prices increased 3.1%. Importantly, this growth was underpinned by an improvement in quality and customer experience, as we are on track to achieve 5* HBF housebuilder status and saw an increased net promoter score to 76, while our focus on the safety of our people resulted in a further reduction in our accident frequency rate, to less than one-tenth of the industry average.
Since the year end, demand for high-quality new homes in the regions, where most of our activity is focused, has remained strong so we have forward-sold 34.0% of our targeted private unit sales for the year (Feb 2019: 34.6%). We are currently sales-active on 21 outlets and will be opening a further six in the coming weeks (early 2019: 20). As such, we remain on track versus our medium-term growth ambitions yet having more than doubled our sales over the last three years, the annual rate of growth will naturally start to moderate as the business grows. We anticipate volumes to grow by up to 20% p.a. to 2021 and margins to improve by a broadly similar amount as last year during 2020. Beyond 2021, our existing 6,200-plot pipeline (excluding strategic land held by the Group), provides a solid base for further growth. We plan to selectively supplement this with the acquisition of a small number of oven-ready sites, to smooth the timing of larger strategic sites and grow volumes at a more normalised rate, and we remain on track to improve margins to c. 16-17% over time.
Strategic Land & Regeneration
Our Strategic Land & Regeneration business unit sits at the heart of our activities and combines the delivery of residential land for St. Modwen Homes or third-party housebuilders, often through substantial regeneration, and the delivery of major regeneration projects, which frequently have a large residential element.
Our focus for strategic residential land, which makes up 17% of our assets excluding land held by St. Modwen Homes, remains to monetise the value in our existing land bank and grow our activities through capital-light opportunities, to improve our return on capital. We agreed the sale of 896 plots to third-party housebuilders for GBP30m during the year (2018: GBP53m) but since the year end we agreed the disposal of 663 plots across our two sites in South Wales for GBP25m and we are in advanced legal discussions on the sale of a further c. 900 plots across both sites. Assuming these deals complete, the transfer of land would be phased but this would leave c. 40% of these two sites completed, under construction or controlled by housebuilders for near-term development.
Our focus in regeneration is to accelerate the delivery of projects in our existing portfolio, again to improve our return on capital. We have seen a clear pick-up in momentum at Longbridge, following our work on enhancing the vision for this major scheme and we anticipate starting on site with several public realm investments and mixed-use developments in 2020. At Swansea Bay Campus, we completed the latest phase of 411 student beds which we subsequently sold for GBP38m and at New Covent Garden Market, we continue the multi-year process of relocating the existing market facilities. Following the sale of our interests in Kirkby and Skelmersdale, we are working with both local councils on delivering the retail development-led regeneration local stakeholders look for, having released all our capital for reinvestment in our core sectors. We also continue to progress early stage discussions on other long-term, mixed-use urban opportunities in our portfolio, including Wythenshawe, Manchester.
Our Strategic Land & Regeneration business unit also covers the small amount of non-core assets we have left following our major portfolio repositioning during 2017-2018. We sold a further GBP65m of non-core assets in 2019, slightly ahead of our plans, including more than half of our residual non-core retail assets. A fall in retail values reduced our underlying total accounting return for the year by 2.0ppt to 6.3%, but after having already sold GBP177m of retail assets at a less than 1% discount to book value during 2018, non-core retail is now only 2% of our portfolio (early 2018: 16%) and other non-core commercial assets are down to 3% (early 2018: 17%). We continue to expect to sell these assets over the next two years.
Looking forward
Since we launched our new strategy in spring 2017, we have achieved an enormous amount. We have sold GBP950m of assets, equivalent to more than half of our initial portfolio, reduced our net borrowings by half and accelerated our development activity. Meanwhile, over the last three years we have grown our adjusted EPRA EPS by 79%, our dividend by 45% and our NAV per share by 12%. These results are testimony to the hard work of all our people and it is this quality and breadth of our team which defines the strength of St. Modwen.
Our strategy is focused on three clear objectives - build a high-quality industrial and logistics business, grow our residential and housebuilding business, and leverage our regeneration reputation - and our organisational structure, with its three dedicated business units, is fully aligned to this. Importantly, each of these three areas is supported by long-term structural growth drivers: demographic growth, on top of an existing shortage of housing, means there is a need for more high-quality, affordable houses; the digitalisation of shopping and changes in the way people work continues to fuel demand for modern, well-located industrial and logistics space; and ongoing urbanisation will require the regeneration of inefficiently used land in urban locations.
Positively, the General Election in December reduced political uncertainty in the UK for the time being and the new Government appears supportive to stimulating growth across the regions. Nevertheless, uncertainties around the general economic outlook remain and even though the UK formally left the EU at the end of January, the shape of our future trading relationships with the rest of the world is unclear. As such, we remain mindful of the uncertainty this could cause in the near term and the potential effects in the long term. While we will therefore maintain a conservative level of borrowings and we have the flexibility to adjust our activity quickly in case of any unexpected changes in demand due to the short-cycle nature of our developments, the positive structural growth characteristics in our key sectors provide us with confidence to continue to invest.
With a low see-through LTV of 19.6% and a significant pipeline of opportunities in our existing portfolio, we remain well-placed to deliver a meaningful improvement in return on capital and earnings over time. 2020 is therefore set to be another year of growth and delivery against our three strategic objectives. The return on capital employed in our Industrial & Logistics business for 2019 was at 12.4% ahead of St. Modwen Homes at 11.4% and in particular Strategic Land & Regeneration at 2.9%, but as we continue to accelerate our development activity and reduce our exposure to land and non-core assets, improving the return on capital employed in the latter two segments underpins our ambition to deliver a sustainable, low double-digit total return over time. Moreover, we remain on track to broadly double our adjusted EPRA EPS from the 2018 level of 14.3 pence in the medium term and expect to make further progress on this level in 2020. As I will leave the Company on 30 April, I am therefore confident to be handing over the business in
such a strong position.
PORTFOLIO AND OPERATIONAL REVIEW
Portfolio overview
Investments & disposals
At the start of 2019 we signalled that, having sold over GBP800m of assets over the preceding 18 months, disposals would slow, and our focus was shifting to growth. Accordingly, during 2019 we invested GBP134m in developments (excluding housebuilding) and GBP36m in land for near-term development starts, mostly via existing development agreements, the largest of which being at Gatwick. Further optimising our portfolio, we sold over half of our non-core retail for GBP36m and 17 other non-core assets for GBP29m. We also sold the latest phase of student housing at Swansea for GBP38m and GBP30m of residential land. On average our disposals were 5.9% below book value, which was solely driven by non-core retail, as our other disposals were on average slightly ahead of book value.
Looking forward, we aim to sell the remaining GBP74m non-core assets over the next two years and while we will consider other selective disposals where we believe forward returns are below our requirements, overall, we expect disposals to be relatively modest. We remain open to new opportunities in each of our three sectors but given the opportunities in our existing pipeline we will remain selective when it comes to acquisitions. We continue to aim to grow the share of income producing assets in our portfolio to c. 60-65% over time (2019: 42%) by reducing our exposure to land and retaining our industrial and logistics developments.
EPRA net Initial
Amount(1) yield(2)
GBPm %
------------------------------ --------- ----------------------------------
Acquisitions during 2019
Industrial and logistics land 20 N/A
Residential land 16 N/A
Total 36 N/A
------------------------------ --------- ----------------------------------
Disposals during 2019(3)
Industrial and logistics 6 7.1
Non-core retail 36 6.8
Non-core other 29 5.8
Residential land 30 N/A
Swansea Student Accommodation 38 4.6
Total 139 5.9
------------------------------ --------- ----------------------------------
Disposals post year end(3)
------------------------------ --------- ----------------------------------
Residential land 25 N/A
------------------------------ --------- ----------------------------------
Total 164 N/A
------------------------------ --------- ----------------------------------
(1) Based on the Group's share of amounts relating to joint ventures and associates.
(2) Based on income producing assets excluding land.
(3) Excluding land transfers to St. Modwen Homes and completed home sales.
Portfolio valuation
Our portfolio value rose to GBP1.48bn during 2019, representing an increase of 4.1% adjusted for investments and disposals. Our industrial and logistics assets make up 44% of this (2018: 33%), including the industrial assets which are part of our Longbridge regeneration site, and we expect this share to continue to grow over the coming years. The rest of our regeneration assets and strategic land make up 25%, while St. Modwen Homes work in progress and land comprises a further 26%. Non-core retail assets now make up only 2% of our portfolio, down from 16% two years ago, and other non-core commercial assets are 3%, down from 17%.
Our Industrial & Logistics assets saw an 8.3% increase in value during 2019, with developments up 21.3% and existing assets up 1.3%. ERVs increased 2.6% on a like-for-like basis and yields were on average broadly stable, as expected. The small amount of GBP30m non-core retail assets that we have left saw a 31% fall in value, vindicating the sale of GBP177m of non-core retail assets during 2018 at a less than 1% discount to the 2017 book value. Our other Strategic Land & Regeneration assets were up 2.6%, driven by upside from planning improvements at some of our residential sites.
Looking forward, we remain of the view that capital value growth in industrial and logistics will be chiefly reliant on rental value growth and developments. We expect upside in residential land values to remain limited, with upside from house price inflation largely offset by build cost inflation. We expect retail property values to continue to soften, but representing 2% of our assets, non-core retail is only a minor part of our current portfolio.
EPRA net LFL equivalent
Portfolio Valuation initial Equivalent yield shift(1) LFL ERV
value movement yield(1) yield(1) growth(1)
GBPm % % % bps %
------------------ --------- --------------------- ---------- ---------- --------------- ----------
Industrial &
Logistics 588 8.3 4.5 6.6 - 2.6
------------------ --------- --------------------- ---------- ---------- --------------- ----------
St. Modwen Homes 384 -
------------------ --------- --------------------- ---------- ---------- --------------- ----------
Residential land 259 5.5
Retail-led
regeneration 84 (1.9) 8.2 9.1 100 (5.7)
Other regeneration 96 (2.0) 5.9 7.1 (10) 4.8
Non-core retail 30 (31.1) 10.5 12.6 260 (17.3)
Non-core other 44 6.0 6.1 6.9 (40) 4.0
------------------ --------- --------------------- ---------- ---------- --------------- ----------
Strategic Land &
Regeneration 513 (0.2) 7.9 8.9 70 (6.4)
------------------ --------- --------------------- ---------- ---------- --------------- ----------
Total portfolio 1,485 4.1 5.5 7.2 20 (1.2)
------------------ --------- --------------------- ---------- ---------- --------------- ----------
(1) On completed investment assets only, excluding current developments and land.
Operational performance
At the end of 2019 the annualised passing rent on our portfolio amounted to GBP38.4m, excluding GBP3.0m of contracted rent which is currently subject to rent-frees. This marked a slight reduction vs the GBP39.4m at the end of 2018, principally as new development lettings were offset by the loss of rental income associated with disposals. Like-for-like rental income was down 2.0%, as 1.2% growth in Industrial & Logistics was offset by a reduction in income on some future development assets in Strategic Land & Regeneration. Industrial and logistics now makes up 57% of our overall passing rent, up from 46% a year ago.
Our overall vacancy increased to 20.8% during the year, up from 18.9% at the end of 2018. However, excluding the impact of disposals and developments, our like-for-like occupancy improved 1.1ppt during the year. Around half of the vacancy at the end of November comprised newly developed industrial and logistics space, of which around one-third is currently under offer, and we expect the remaining space to be largely let during the current year. Around one-fifth of our vacant space is deliberately held back for future development.
We signed 1.9m sq ft of new leases and lease renewals during the year, generating GBP11.1m of annualised rental income. On average, re-lettings and renewals were agreed 4% above previous passing rent and in line with ERV. The average lease term to first break of our portfolio increased from 4.1 years to 4.7 years.
Passing rent(1) ERV Vacancy
GBPm GBPm %
------------------------------ --------------- ---- -------
Industrial & Logistics 22.0 34.0 25.1
------------------------------ --------------- ---- -------
St. Modwen Homes - - -
------------------------------ --------------- ---- -------
Residential land 1.3 1.2 26.0
Retail-led regeneration 6.7 7.4 9.2
Other regeneration 3.3 3.7 3.4
Non-core retail 3.9 4.2 20.8
Non-core other 1.2 1.4 19.4
------------------------------ --------------- ---- -------
Strategic Land & Regeneration 16.4 17.9 12.7
------------------------------ --------------- ---- -------
Total portfolio 38.4 51.9 20.8
------------------------------ --------------- ---- -------
(1) Excluding GBP1.0m of annualised turnover rent at Trentham Gardens.
Industrial & Logistics
Development completions
We invested GBP86m in industrial and logistics capex during 2019. We completed 0.9m sq ft of space, of which we will retain 97%. With an associated ERV of GBP5.5m and total development cost of GBP70m, these projects are set to deliver a yield on cost of 7.9% once fully let. Momentum in leasing has continued to build, so we have already let 47% of this ERV, with a further 11% under offer - up from this time last year, when 38% of our 2018 completions were let and 17% was under offer. Key completions during the year included a 151,000 sq ft unit in Avonmouth which we let to Ocado on a 17-year fixed contract; 173,000 sq ft across three units at Gloucester, the first of which we let to a UK engineering firm; 103,000 sq ft at the third phase of our successful scheme in Burton; and 95,000 sq ft across two units in Lincoln which we let to DHL and an international food manufacturer.
In total, we signed GBP5.3m of development lettings during the year, up from GBP2.8m last year. Our 2018 completions are 73% let or under offer, as two smaller developments we started prior to our strategic review in mid-2017 still have space available, although the amount of rent associated with this is modest. We are seeing good customer interest in our recent and current projects and are in active discussions on virtually all of the remaining space from our 2019 pipeline, so we expect this to be substantially let over the next six months.
Current developments
We expect development completions to increase from 0.9m sq ft in 2019 to 1.5-1.7m sq ft in 2020. Our committed pipeline stands at 1.5m sq ft, with a total development cost of GBP133m. We intend to retain 94% of this with an associated ERV of GBP9.5m, representing an expected yield on cost of 7.6% once fully let. This is slightly below the yield on cost on last year's development completions, partly reflecting the first phase of development at Gatwick, as valuation yields around London are lower than in the rest of the UK. During 2019, we pre-let the first 100,000 sq ft phase at this site to Gatwick Airport on a 15-year fixed term. In total, 18% of our committed pipeline is pre-let, up from 2% at the start of 2019, reflecting the growing leasing momentum in the business.
Around 80% of the space in our committed pipeline comprises units below 150,000 sq ft, with an average unit size of 40,000 sq ft. This leaves us well-positioned to meet the growing demand for last mile delivery space, as evidenced by our recent lettings to DHL and Ocado, and modern warehouses near urban locations and good availability of labour. While availability in the overall logistics market has increased over the last two years, this has been driven by the delivery of speculative mega-box units over 400,000 sq ft, as availability at the smaller 100,000-200,000 sq ft end of the market has remained stable. We continue to avoid speculative development of mega-box space, as we continue to see better long-term prospects at the small to medium end of the market.
Expected Total Current Future Yield
Size Units completion Let/pre-sold(1) dev cost book value capex ERV on cost
Project 000 sq % GBPm GBPm GBPm GBPm %
ft
----------------------- ------ ----- ----------- --------------- --------- ----------- ------ ---- --------
Avonmouth 65 2 H2 2020 -
Burton Gateway 217 4 H2 2020 -
Bury 79 8 H1 2020 -
Chippenham 106 1 H2 2020 -
Doncaster 74 2 H1 2020 -
Tamworth 321 1 H1 2020 -
Stoke Central 43 1 H1 2020 -
Lincoln 80 2 H2 2020 33
Gatwick 100 1 H2 2020 100
Stoke South 102 2 H2 2020 -
Stoke South 81 3 H2 2020 -
Worcester 96 3 H1 2020 -
----------------------- ------ ----- ----------- --------------- --------- ----------- ------ ---- --------
Industrial & Logistics
- to be retained 1,364 30 18 126 61 80 9.5 7.6
----------------------- ------ ----- ----------- --------------- --------- ----------- ------ ---- --------
Bury 43 4 H1 2020 100
Stoke Central 43 1 H1 2020 100
----------------------- ------ ----- ----------- --------------- --------- ----------- ------ ---- --------
Industrial & Logistics
- to be sold 86 5 100 7 3 5
----------------------- ------ ----- ----------- --------------- --------- ----------- ------ ---- --------
Longbridge - 3
Devon Way 21 1 H1 2020 100
----------------------- ------ ----- ----------- --------------- --------- ----------- ------ ---- --------
Other - to be retained 21 1 100 5 5 1
----------------------- ------ ----- ----------- --------------- --------- ----------- ------ ---- --------
Total 1,471 36 21 138 69 86
----------------------- ------ ----- ----------- --------------- --------- ----------- ------ ---- --------
(1) Based on ERV for projects to be retained and total development cost for projects to be sold.
Future pipeline
During 2019 we secured two new development opportunities, which, subject to planning, could cater for c. 2.2m sq ft of space in the long term. Our total pipeline therefore now stands at c. 19m sq ft, of which c. 45% has planning. In addition to our 1.5m sq ft committed pipeline, we have a further 7.3m sq ft of consented space in our future pipeline, which could deliver c. GBP47m of ERV. With future capex of GBP500-550m and total development cost including land we already own of GBP570-620m, this could deliver a c. 9% yield on incremental capex and c. 8% yield on cost. However, having backed ourselves to establish our Industrial & Logistics business unit's market presence through speculative development over the last two years, we aim to further grow our pre-let activity in the coming years, which means we will be pragmatic about the trade-off between risk and return. We aim to grow our development activity to up to c. 2m sq ft p.a. in the near future, which, given the substantial premium of development yields over marginal financing costs and valuation yields, is expected to drive meaningful growth in earnings and development upside.
St. Modwen Homes
Development completions
We have continued to see good demand for our high-quality new homes, in particular in the regions, where the bulk of our activity is focused, and we sold 1,060 homes during the year. This represents a 25% increase versus last year (2018: 848 units); at the high end of our target to grow volumes by up to 25%. The safety of our people and the quality and overall experience we deliver to our customers remain paramount in growing our business, so we are pleased our HBF home builder status is on track for a 5* rating, our net promotor score increased from 63 to 76 and our accident frequency rate reduced further, to less than one-tenth of the industry average.
Our private average sales price reduced 3.2% to GBP273,000 (2018: GBP282,000), as a 3.1% increase in like-for-like sales prices was offset by changes in the mix of units and sites. Our operating margin increased to 14.8% (2018: 14.4%), in line with our target to grow margins by c. 0.5ppt. We are currently sales active on 21 outlets with a further six opening in the coming weeks (early 2019: 20) and our private sales rate was stable at 0.8 (2018: 0.8).
Operational performance metrics 2019 2018 Change % -------------------------------- ----- ---- -------- Total units sold 1,060 848 25.0 Private units sold 920 709 29.8 Affordable units sold 140 139 0.7 Private sales rate 0.8 0.8 - Private ASP (GBPk) 273 282 (3.2) Affordable ASP (GBPk) 135 118 14.4 Operating margin (%) 14.8 14.4 0.4ppt -------------------------------- ----- ---- --------
Current developments
Since the end of the year, trading activity has remained strong hence we forward-sold 34.0% of our targeted private unit sales for the year (Feb 2019: 34.6%). Having more than doubled our sales volumes over the last three years, the annual rate of volume growth is naturally bound to moderate over the coming years as the business grows, although we remain on track versus our medium-term growth ambitions. We plan to add 11 sales outlets this year and aim to grow volumes by up to 20%, whilst we expect margins to improve by a broadly similar amount as in 2019. We continue to evolve our product and have recently opened our first dual-selling site where we will offer an alternative range of new homes, alongside our existing product. We have also started our first inner-city apartment scheme, around half a mile from Birmingham New Street station, which will provide 170 apartments by 2020-21. We also recently partnered with a shared-ownership and registered provider, which alongside part-exchange will further expand our offering to customers and diversify our sales from Help to Buy.
Future pipeline
Excluding strategic land held by the Group, St. Modwen Homes' existing land bank comprises c. 6,200 plots. This provides us with visibility to grow volumes by up to 20% p.a. by 2021, in line with the medium-term target we set in 2017. Beyond that, our current pipeline allows us to maintain a volume of c. 1,300-1,400 units p.a. so we plan to selectively supplement the strategic land coming through from the Group with the acquisition of a small number of 'oven-ready' sites over the coming years, to smooth the timing of larger strategic sites and continue to grow volumes at a more normalised rate, depending on the opportunities we see.
As our land bank has been transferred from the Group to St. Modwen Homes at market value, upside from house price inflation and planning gains has historically been captured through revaluation gains elsewhere in the Group, which continues to reduce our margin by an estimated c. 2-3ppt relative to housebuilders who hold their land at historic cost. Nonetheless, we maintain our target to improve margins to c. 16-17% in the coming years due to an optimisation of site coverage, scale efficiencies and a range of other, smaller initiatives.
Strategic Land & Regeneration
Development completions
At Swansea Bay Campus we completed the latest phase of 411 student beds in early 2019 and subsequently sold these for GBP38m in November, crystallising a healthy development return. In Uxbridge, we completed and handed over the 207-unit PRS scheme we had forward sold for GBP75m in early 2018.
We agreed the sale of 896 plots of residential land to third-party housebuilders during the year for GBP30m. While this was less than in the prior year (2018: GBP53m), since the year end we agreed to sell more than 663 plots at our two largest sites in South Wales, Coed Darcy and Llanwern, for GBP25m and we are in advanced legal discussions on the sale of a further c. 900 plots across both sites. We agreed significant planning improvements on both sites during the year, which paved the way for these disposals and thereby an acceleration in buildout of both sites. Assuming both deals complete, the transfer of land would be phased over the coming years, but combined with the next phase for St. Modwen Homes, this would leave c. 40% of the plots at our two large South Wales sites completed, under construction or controlled by various housebuilders for near term development.
Current developments
At Longbridge, we are on site with the final 21,100 sq ft phase of our Devon Way office cluster, which is pre-let on a 15-year fixed term, and St. Modwen Homes and a third-party housebuilder are currently on site to deliver 355 new homes. At New Covent Garden Market, the relocation of the market facilities through our 50/50 JV with VINCI is ongoing, ahead of the release of 10 acres of residential development to the JV in the medium term.
Following the sale of our shopping centre in Kirkby to Knowlesley Borough Council in November, we have started the development of a 95,000 sq ft extension to the existing centre, and following the sale of our interests in Skelmersdale, we are about to start works to deliver a new 51,500 sq ft retail scheme for West Lancashire Borough Council. Acting as development manager, we will therefore deliver the regeneration local stakeholders are looking for, having released our capital for reinvestment in our core sectors.
Future pipeline
Our focus remains on monetising the value in our existing land bank, both through accelerating development and disposals, to improve our return on capital. Following a period of relatively subdued activity, we have seen a marked pick-up in momentum at Longbridge in 2019, where we have been working on enhancing the vision to fit our placemaking ambitions for this flagship scheme. In 2020, we plan to start on site with various public realm improvements, a pop-up style street-food dining facility, a 44-unit apartment scheme and a 48,000 sq ft office designed around flexible working, where we are already seeing strong interest. This should further support momentum as we bring forward the future opportunities at this scheme, which is currently c. 45% developed.
At Wythenshawe, Manchester, we have continued to progress our positive early-stage discussions with the council about a large-scale mixed-use redevelopment of our existing 1960's retail centre and we continue to explore other long-term, mixed-use urban opportunities in our existing portfolio. Following a large amount of development at Bay Campus in recent years, we continue our discussions with the university about the next medium-term steps at this successful scheme.
The Group's owned residential land bank at the end of November comprised c. 17,500 plots (2018: 18,400), of which 6,200 plots were held by St. Modwen Homes and 11,300 by our Strategic Land & Regeneration business. Of the latter, c. 3,100 plots comprise strategic land which is still subject to planning, while the remaining c. 8,200 plots are sites that we will continue to invest in to prepare for disposal to third-party housebuilders. These include the 663 plots in South Wales we agreed to sell since the year end and the further c. 900 plots we are in advanced legal discussions on. In addition, we control land via development agreements which could cater for a further c. 11,300 homes in the long term (2018: 11,800), around 40% of which is still subject to planning.
FINANCIAL REVIEW
Overview
Our underlying financial performance for the year shows our strategy is starting to deliver the improvement in earnings and returns we expect it to bring over time. Despite a GBP13.6m reduction in net rental income due to our non-core asset disposals over the last two years, adjusted EPRA earnings increased 22.1% to GBP38.7m (2018: GBP31.7m), driven by new lettings, growth in housebuilding profits and a reduction in interest costs. As a result, adjusted EPRA EPS grew 21.7% to 17.4 pence (2018: 14.3 pence), leaving us well on track to deliver on our target to broadly double adjusted EPRA EPS in the medium term from the 2018 level. As indicated at the start of the year, net borrowings increased due to the reinvestment of part of last year's disposal proceeds into our pipeline, but our see-through loan-to-value remains low at 19.6% (2018: 16.9%).
Underlying net profit for the year increased by 12.4% to GBP68.0m (2018: GBP60.5m). However, as per our announcement in early December, an exceptional provision for a potential claim related to a historical development project reduced statutory net profit to GBP49.5m, which reduced underlying basic EPS of 30.6 pence per share (2018: 27.1 pence) to 22.8 pence and NAV by 1.6%. While we sold the majority of our retail assets at less than 1% below book value in 2018, valuation weakness in our residual non-core retail, over half of which we have now sold as well, resulted in a further 1.9% reduction of NAV. Notwithstanding this combined 3.5ppt drag, NAV per share increased 3.0% to 484.2 pence per share (2018: 470.2 pence)(1) and EPRA NAV per share increased 4.2% to 504.2 pence (2018: 484.0 pence)(1) . Combined with dividends paid during the year, our underlying total accounting return for 2019 was 6.3% (2018: 6.0%), or 4.6% including the exceptional provision.
Our dividend policy is aligned to cash profitability and we intend to pay a dividend equivalent to c. 50% of adjusted EPRA EPS per year, with the aim of providing a sustainable, progressive dividend for our shareholders. Reflecting this, we will pay a final dividend of 5.1 pence per share, to be paid on 3 April 2020 to shareholders on the register as at 6 March 2020. This brings the total dividend for the year to 8.7 pence, marking an increase of 22.5% versus last year (2018: 7.1 pence).
(1) Following the adoption of IFRS 9 Financial Instruments during the year ended 30 November 2019, the comparative values of NAV per share and EPRA NAV per share at 30 November 2018 have been reduced by 0.2 pence and 0.1 pence respectively to reflect the retrospective restatement required for recognising provisions against trade and other receivables using an expected credit loss rather than an incurred loss model.
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 notes 2 and 3 to the Group financial statements. The Group has four material joint ventures; three of which are in partnership with VINCI, comprising 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, and one is in partnership with Salhia, Key Property Investments (KPI), which owns a portfolio of principally income-producing industrial assets.
During the year, the Group adopted three new accounting standards, being IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases. The 2018 results have been restated for IFRS 9 and IFRS 15, but they have not been restated for IFRS 16 as it has been applied from 1 December 2018 using the modified retrospective approach outlined in the standard. These restatements have had limited impact on the Group financial statements and there is no change to the summarised income statement presented below. Further detail is provided in the accounting policies note to the Group financial statements.
We use adjusted EPRA earnings and adjusted EPRA EPS as key performance measures, 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 are predominantly built to hold, commercial development profits are largely non-cash. As such, these are excluded from adjusted EPRA earnings, other than development fee income.
With these results, we have updated our segmental reporting to reflect the changes in our organisational structure during the year. As such, our financial reporting is now aligned to our three operational business units, Industrial & Logistics, St. Modwen Homes, and Strategic Land & Regeneration, with items which are not directly allocated to specific business activities, such as borrowings and interest costs, held centrally and presented separately. To allow operating costs to be allocated appropriately, we have split administrative expenses into business unit direct operating expenses and central administrative expenses. These changes have no impact on our net profit or adjusted EPRA earnings but provide better clarity on the returns in each part of our business.
2019 2018
--------------------------------------------------------------------
Industrial St. Modwen Strategic
& Logistics Homes Land & Regeneration Unallocated Total Total
GBPm GBPm GBPm GBPm GBPm(1) GBPm(1)
--------------------------------- ------------ ---------- -------------------- ----------- ------- -------
Gross rental income 22.2 - 26.4 - 48.6 59.7
Property outgoings (4.6) - (7.0) - (11.6) (12.9)
Other net income 1.1 - 2.0 - 3.1 2.2
--------------------------------- ------------ ---------- -------------------- ----------- ------- -------
Net rental & other income 18.7 - 21.4 - 40.1 49.0
Housebuilding profit - 51.4 4.1 - 55.5 44.7
Development fee income 1.1 - 3.3 - 4.4 3.4
Business unit direct operating
expenses (3.3) (11.3) (7.1) - (21.7) (20.6)
Central administrative
expenses - - - (22.4) (22.4) (22.7)
Net interest costs - - - (9.3) (9.3) (14.6)
Taxation on adjusted EPRA
earnings - - - (7.8) (7.8) (7.2)
Non-controlling interests
on adjusted EPRA earnings - - - (0.1) (0.1) (0.3)
--------------------------------- ------------ ---------- -------------------- ----------- ------- -------
Adjusted EPRA earnings 16.5 40.1 21.7 (39.6) 38.7 31.7
Property revaluation and
development gains 46.3 - 0.6 (22.5)(2) 24.4 48.4
Property disposal gains/(losses) 0.2 - (5.2) - (5.0) (7.1)
Change in discounted market
liability - - - - - 4.7
Net other finance costs - - (2.5) (4.5) (7.0) (12.7)
Tax on other earnings - - - (1.7) (1.7) (4.8)
Less non-controlling interests
on other earnings - - - 1.3 1.3 -
--------------------------------- ------------ ---------- -------------------- ----------- ------- -------
Profit attributable to
the owners of the Company 63.0 40.1 14.6 (67.0) 50.7 60.2
--------------------------------- ------------ ---------- -------------------- ----------- ------- -------
Basic earnings per share
(pence) 22.8 27.1
--------------------------------- ------------ ---------- -------------------- ----------- ------- -------
(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.
(2) Exceptional provision for a potential claim related to a legacy development project.
Net rental and other income
As expected, the Group's share of net rental and other income decreased to GBP40.1m (2018: GBP49.0m) due to the large amount of non-core disposals over the past two years. Industrial & Logistics net rental and other income increased to GBP18.7m (2018: GBP14.4m), due to GBP5.3m income from retained developments and GBP0.2m like-for-like income growth. Net rental and other income in Strategic Land & Regeneration reduced to GBP21.4m (2018: GBP34.6m), chiefly reflecting an GBP11.7m loss of rental income on non-core assets we sold. With asset disposals in 2019 weighted towards the end of the year and further non-core disposals to come, we expect Strategic Land & Regeneration net rental income to continue to reduce in 2020, but this to be offset by further growth in net rental income in Industrial & Logistics. As the effect of non-core sales subsides, we expect overall net rental income to grow more meaningfully in 2021 onwards.
Housebuilding profit
Gross profit from housebuilding activities increased 24.2% to GBP55.5m (2018: GBP44.7m). The majority of this comprises St. Modwen Homes where gross profit increased 22.1% to GBP51.4m (2018: GBP42.1m), while net operating profit increased 28.1% to GBP40.1m (2018: GBP31.3m). The Persimmon JV, which forms part of our Strategic Land & Regeneration business, delivered GBP4.1m of profit (2018: GBP2.6m) This JV is still anticipated to largely draw to a close by the end of 2020, but we expect the reduction in profit from this to be more than offset by continued growth in St. Modwen Homes profits.
Business unit direct operating expenses and central administrative expenses
Business unit operating expenses are costs which are directly linked to the operating activities of our three business units. During the year, these increased to GBP21.7m (2018: GBP20.6m), partly as a result of the growth in sales and build activity in St. Modwen Homes. We expect direct operating expenses to continue to grow, chiefly driven by the continued growth in St. Modwen Homes. Central administrative expenses for the year decreased slightly to GBP22.4m (2018: GBP22.7m) and are expected to grow broadly in line with inflation in 2020.
Interest and other finance costs
Net interest costs for the year fell to GBP9.3m (2018: GBP14.6m) on a see-through basis, principally due to a reduction in debt due to our disposals during 2018 and a reduction in average borrowing costs. We capitalised GBP3.3m of interest costs on commercial developments during the year (2018: GBP2.3m). We expect to be a net investor in 2020 due to the investments in our pipeline, although the impact of this on net interest cost is anticipated to be largely offset by a reduction in our average cost of borrowing during 2019.
Net other finance costs were down significantly to GBP7.0m (2018: GBP12.7m), largely reflecting GBP7.3m one-off expenses in the prior year related to our refinancing activity. Net other finance costs for 2019 includes a GBP2.5m charge for discount unwinds, principally on our share of the long-term commitment to deliver the NCGM project, and a GBP1.8m charge for the amortisation of arrangement fees in relation to our loan facilities. Combined, these costs have averaged c. GBP7m p.a. in recent years and are expected to recur at broadly similar levels. The final element of our other finance costs relates to the mark-to-market valuation of our derivatives, which is driven by the movement in swap rates and resulted in a GBP2.7m expense in the year.
Investment property revaluation, development and disposal gains/losses
All our investment properties are independently valued every six months by our external valuers, Cushman & Wakefield, who base their valuations upon open market transactions between a willing buyer and a willing seller at the balance sheet date. In accordance with accounting standards, valuation movements are reflected as gains or losses in the income statement. We also independently assess our work in progress for any impairment issues.
During 2019 our portfolio saw an underlying net revaluation and development gain of GBP46.9m, largely in line with the GBP48.4m gain in 2018. At GBP46.3m, virtually all of this was driven by Industrial & Logistics, as write-downs on non-core retail assets broadly offset other gains in Strategic Land & Regeneration. We recorded a GBP5.0m loss on disposals, compared to a GBP7.1m loss last year, which solely reflected a loss on the sale of non-core retail assets.
Exceptional item
We recognised an exceptional item of GBP22.5m to provide for a potential claim against the Company for a legacy project the Group developed and sold approximately 15 years ago, which adjusted for tax and non-controlling interests reduced our statutory net profit attributable to owners of the Company for the year by GBP17.3m, or 7.8 pence per share. To date, no detailed claim has been made by any of the parties involved and as such there is no certainty around the potential amount and timing of any future cash outflow. We anticipate we will be able to recover a meaningful part of any potential claim but as IFRS places a lower threshold on the recognition of potential future obligations than the recognition of potential future reimbursements, we cannot recognise any anticipated recoveries at this stage and therefore only recognised the provision element in our results. Following a thorough review of our historical projects we are confident that any alleged problem would be a one-off issue which is therefore not expected to have any impact on our strategy or medium-term return expectations.
Taxation and profit
Our underlying net profit before exceptional items for the year was GBP68.0m. Taking into account the above exceptional provision, our statutory net profit after tax of GBP49.5m (2018: GBP60.5m), while our total tax charge (including joint venture tax) for the year was GBP9.5m (2018: GBP12.0m).
As a property group, tax and its treatment is often an integral part of transactions. The outcome of tax treatments is recognised by the Group to the extent that the outcome is reasonably certain. Overall, the effective tax rate for the year of 16.1% was broadly stable (2018: 16.6%). As signalled previously, the effective tax rate is expected to remain at broadly similar levels, slightly below the standard rate of tax.
Return on capital
Including dividends of 7.6 pence per share paid during the year, our underlying total accounting return amounted to 6.3%, or 4.6% including the exceptional provision (2018: 6.0%). Our new segmental reporting below for the first time provides insight into how our three business units contribute to our overall Group returns. The return on capital employed for Industrial & Logistics is highest at 12.4%, driven by its large amount of development activity, ahead of St. Modwen Homes at 11.4% and Strategic Land & Regeneration at 2.9%.
We expect the difference in ROCE per business unit to narrow in the years ahead, as St. Modwen Homes reduces its land bank from c. 6 years to a level more in line with industry standards by growing its volumes, and Strategic Land & Regeneration monetises its surplus residential land, where the lack of income means returns are modest, and accelerates the delivery of its existing regeneration projects. We therefore remain on track towards our ambition to generate a low double-digit total accounting return over time, assuming markets remain stable.
2019 2018
---------------------------------------------------------------------
Industrial St. Modwen Strategic
& Logistics Homes Land & Regeneration Unallocated Total(1) Total(1)(2)
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------------ ---------- -------------------- ----------- -------- -----------
Property portfolio 588.1 384.2 512.3 - 1,484.6 1,403.3
Other assets 6.3 23.8 75.5 101.0 206.6 198.3
-------------------------- ------------ ---------- -------------------- ----------- -------- -----------
Gross assets 594.4 408.0 587.8 101.0 1,691.2 1,601.6
Net borrowings - - - (290.6) (290.6) (236.9)
Lease liabilities - - - (9.2) (9.2) (3.9)
Other liabilities (21.7) (53.6) (112.2) (123.5) (311.0) (310.8)
-------------------------- ------------ ---------- -------------------- ----------- -------- -----------
Gross liabilities (21.7) (53.6) (112.2) (423.3) (610.8) (551.6)
-------------------------- ------------ ---------- -------------------- ----------- -------- -----------
Net assets 572.7 354.4 475.6 (322.3) 1,080.4 1,050.0
Non-controlling interests - - - (4.7) (4.7) (5.9)
-------------------------- ------------ ---------- -------------------- ----------- -------- -----------
Equity attributable
to owners of the Company 572.7 354.4 475.6 (327.0) 1,075.7 1,044.1
-------------------------- ------------ ---------- -------------------- ----------- -------- -----------
Business unit ROCE(3) 12.4% 11.4% 2.9%
NAV per share (pence)(1) 484.2 470.2
EPRA NAV per share
(pence)(1) 504.2 484.0
-------------------------- ------------ ---------- -------------------- ----------- -------- -----------
(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) Following the adoption of IFRS 9 Financial Instruments during year ended 30 November 2019, the comparative values of NAV per share and EPRA NAV per share at 30 November 2018 have been reduced by 0.2 pence and 0.1 pence respectively to reflect the retrospective restatement required for recognising provisions against trade and other receivables using an expected credit loss rather than an incurred loss model. This restatement reduced other assets, gross assets, net assets and equity attributable to owners of the Company at 30 November 2018 by GBP0.3m.
(3) Business unit returns on capital employed are calculated as the business unit profit before interest and tax for the year divided by the average business unit net assets, after adding back any business unit specific net borrowings, for the year.
Net asset value
The aforementioned exceptional provision reduced the net asset value attributable to shareholders of the Group for 2019 by GBP17.3m to GBP1,075.7m (2018: GBP1,044.1m)(1) . Notwithstanding the 7.8 pence per share, or 1.6%, reduction in net asset value related to this provision, net asset value per share increased 3.0% over the year to 484.2 pence (2018: 470.2 pence)(1) . EPRA NAV per share increased by 4.2% to 504.2. pence (2018: 484.0 pence)(1) .
Net borrowings and loan-to-value
Following a GBP151.3m reduction during 2018 net borrowings increased by GBP53.7m to GBP290.6m (2018: GBP236.9m) during 2019 as we, as planned, reinvested part of last year's disposal proceeds. This excludes GBP37.5m (representing our 50% share) held in a development account for the NCGM project delivery which continues to be held in a one-year deposit account and therefore does not qualify as cash in our net borrowings calculation.
As a result, our see-through LTV increased to 19.6% (2018: 16.9%), or 17.1% including the GBP37.5m held on one-year deposit. As such, our overall LTV remains comfortably below our target to keep our overall LTV in the mid to high-20's percent. Whilst we remain conservative in our approach to financial leverage, we expect see-through net borrowings to grow during 2020 as we continue to reinvest part of the proceeds from our non-core disposals into our pipeline.
2019(1) 2018(1)
Gross borrowings(2) (GBPm) 357.8 321.5
Net borrowings(2) (GBPm) 290.6 236.9
Loan-to-value(3) (%) 19.6 16.9
--------------------------- ------- -------
(1) Proportionally consolidated, including the Group's share of joint ventures and associates.
(2) Borrowings are stated at amortised cost and exclude lease liabilities.
(3) See-through loan-to-values are reconciled in note 2 to the Group financial statements.
Financing
During 2019, we drew down the GBP75m facility from the Homes England Home Building Fund we signed shortly before the end of 2018 and repaid our GBP100m convertible bond upon its maturity in March. We extended the maturity of GBP400m of our GBP475m unsecured revolving credit facility by one year to December 2024 and extended the maturity of our small GBP30m KPI JV facility (GBP15m our share) to January 2021. Aside from this, we have no debt maturing until December 2023 and our average debt maturity increased to 4.9 years (2018: 4.5 years).
2019 2018
---------------------------------- ----- -------
Available facilities (GBPm) 565.0 680.0
Average duration of facilities
(years) 4.9 4.5
Weighted average interest rate(1)
(%) 3.5 3.8
Percentage of gross borrowings
fixed or hedged (%) 65.7 66.9
----------------------------------- ----- -----
(1) The weighted average interest rate is calculated using current interest rates, commitment fees and hedging profile applied to the see-through gross borrowings at 30 November 2019, thereby assuming constant net borrowing levels for 2019.
Hedging and cost of debt
Our weighted average interest rate reduced slightly to 3.5% (2018: 3.8%) due to the drawdown of relatively cheaper borrowings. We aim to have predictable costs attached to our borrowings, so our policy is to hedge a significant portion of our interest rate risk. The proportion of borrowings which are fixed or hedged is 65.7% (2018: 66.9%) and we continue to manage our interest rate risk via a combination of caps and hedges.
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 an almost 40% fall in values before our tightest covenant would be breached.
Mark Allan Rob Hudson Chief Executive Chief Financial Officer
3 February 2020
GROUP INCOME STATEMENT
for the year ended 30 November 2019
2019 2018
Underlying Exceptional(1) Total Total
(restated)(2)
Notes GBPm GBPm GBPm GBPm
-------------------------------- ----- ---------- -------------- ------- -------------
Revenue 1 429.9 - 429.9 436.2
Costs 1 (331.1) (22.5) (353.6) (320.4)
Investment property disposal
(losses)/gains (5.2) - (5.2) 7.1
Investment property revaluation
gains 47.5 - 47.5 19.2
Net loss of joint ventures
and associates (post-tax) 11 (2.6) - (2.6) (3.1)
Administrative expenses 1 (43.8) - (43.8) (43.2)
-------------------------------- ----- ---------- -------------- ------- -------------
Profit before interest and
tax 94.7 (22.5) 72.2 95.8
Finance costs 6 (15.8) - (15.8) (25.8)
Finance income 6 2.5 - 2.5 2.4
-------------------------------- ----- ---------- -------------- ------- -------------
Profit before tax 81.4 (22.5) 58.9 72.4
Taxation (13.4) 4.0 (9.4) (11.9)
-------------------------------- ----- -------------- ------- -------------
Profit for the year 68.0 (18.5) 49.5 60.5
-------------------------------- ----- ---------- -------------- ------- -------------
Attributable to:
Owners of the Company 68.0 (17.3) 50.7 60.2
Non-controlling interests - (1.2) (1.2) 0.3
-------------------------------- ----- -------------
Profit for the year 68.0 (18.5) 49.5 60.5
-------------------------------- ----- ---------- -------------- ------- -------------
(1) Refer to note 5 for details of
the exceptional item.
(2) Revenue and costs have been restated following the adoption of
IFRS 15 Revenue from Contracts with Customers during the year ended
30 November 2019, as set out in the Group accounting policies note.
The restatements have had no impact on profit for the year.
2019 2018
Notes Pence Pence
-------------------------------- ----- ---------- -------------- ------- -------------
Basic earnings per share 8 22.8 27.1
Diluted earnings per share 8 22.6 25.5
-------------------------------- ----- ---------- -------------- ------- -------------
GROUP STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 November 2019
2019 2018
GBPm GBPm
---------------------------------------- ----- ----
Profit for the year 49.5 60.5
Items that will not be reclassified
to profit and loss:
Pension fund actuarial gains 0.1 -
Total comprehensive income
for the year 49.6 60.5
------------------------------------------- ----- ----
Attributable to:
Owners of the Company 50.8 60.2
Non-controlling interests (1.2) 0.3
------------------------------------------- ----- ----
Total comprehensive income
for the year 49.6 60.5
------------------------------------------- ----- ----
GROUP BALANCE SHEET
as at 30 November 2019
2019 2018
(restated)(1)
Notes GBPm GBPm
------------------------------------------------ ------ ------- -------------
Non-current assets
Investment properties 10 958.1 939.3
Property, plant and equipment and intangibles 26.7 17.4
Investments in joint ventures and associates 11 86.0 89.1
Trade and other receivables 12 11.3 6.7
Derivative financial instruments 0.2 0.9
1,082.3 1,053.4
------------------------------------------------ ------ ------- -------------
Current assets
Inventories 13 416.5 366.4
Assets held for sale 15.8 -
Trade and other receivables 12 88.5 89.9
Cash and cash equivalents 48.2 38.9
569.0 495.2
------------------------------------------------ ------ ------- -------------
Current liabilities
Trade and other payables 14 (140.4) (158.2)
Current tax liabilities 7 - (0.9)
Borrowings and lease liabilities 15 (1.4) (100.2)
Provisions 16 (24.5) -
(166.3) (259.3)
------------------------------------------------ ------ ------- -------------
Non-current liabilities
Trade and other payables 14 (14.8) (5.7)
Derivative financial instruments (3.3) (0.9)
Borrowings and lease liabilities 15 (360.9) (213.0)
Deferred tax 7 (25.6) (19.7)
(404.6) (239.3)
------------------------------------------------ ------ ------- -------------
Net assets 1,080.4 1,050.0
------------------------------------------------ ------ ------- -------------
Capital and reserves
Share capital 17 22.2 22.2
Share premium account 102.8 102.8
Retained earnings 901.4 869.5
Share incentive reserve 3.9 4.7
Own shares (0.8) (1.3)
Other reserves 46.2 46.2
------------------------------------------------ ------ ------- -------------
Equity attributable to owners of the Company 1,075.7 1,044.1
Non-controlling interests 4.7 5.9
Total equity 1,080.4 1,050.0
------------------------------------------------ ------ ------- -------------
(1) Current trade and other receivables, retained earnings and the
presentation of derivative financial instruments have been restated
following the adoption of IFRS 9 Financial Instruments during the
year ended 30 November 2019, as set out in the Group accounting policies
note.
GROUP STATEMENT OF CHANGES IN
EQUITY
for the year ended 30 November
2019
Equity
attribut-able
Share Share to owners
Share premium Retained incentive Own Other of 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
2017 (as
previously
reported) 22.2 102.8 825.7 5.1 (1.7) 46.2 1,000.3 5.7 1,006.0
Effect of
adoption of
IFRS 9
Financial
Instruments - - (0.3) - - - (0.3) - (0.3)
------------- -------
Equity at 30
November
2017
(restated)(1) 22.2 102.8 825.4 5.1 (1.7) 46.2 1,000.0 5.7 1,005.7
Profit and
total
comprehensive
income for the
year - - 60.2 - - - 60.2 0.3 60.5
Share-based
payments
expense - - - 1.8 - - 1.8 - 1.8
Deferred tax on
share-based
payments - - - (0.1) - - (0.1) - (0.1)
Settlement of
share-based
payments - - 0.3 (2.1) 0.4 - (1.4) - (1.4)
Dividends paid
(note
9) - - (16.4) - - - (16.4) (0.1) (16.5)
---------------
Equity at 30
November
2018
(restated)(1) 22.2 102.8 869.5 4.7 (1.3) 46.2 1,044.1 5.9 1,050.0
Profit for the
year - - 50.7 - - - 50.7 (1.2) 49.5
Pension fund
actuarial
gains - - 0.1 - - - 0.1 - 0.1
Total
comprehensive
income
for the year - - 50.8 - - - 50.8 (1.2) 49.6
Share-based
payments
expense - - - 1.4 - - 1.4 - 1.4
Settlement of
share-based
payments - - (2.0) (2.2) 0.5 - (3.7) - (3.7)
Dividends paid
(note
9) - - (16.9) - - - (16.9) - (16.9)
--------------- -------- -------- -------- --------- ------- --------- ------------- -------
Equity at 30
November
2019 22.2 102.8 901.4 3.9 (0.8) 46.2 1,075.7 4.7 1,080.4
--------------- -------- -------- -------- --------- ------- --------- ------------- ---------------- -------
(1) Equity has been restated following the adoption of IFRS 9 Financial
Instruments during the year ended 30 November 2019, as set out in the
Group accounting policies note.
Own shares represent the cost of 210,434 (2018: 345,744) shares held
by The St. Modwen Properties PLC Employee Share Trust. The open market
value of the shares held at 30 November 2019 was GBP1.0m (2018: GBP1.3m).
The other reserves comprise a capital redemption reserve of GBP0.3m
(2018: 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
(2018: GBP45.9m).
GROUP CASH FLOW STATEMENT
for the year ended 30 November 2019
2019 2018
Notes GBPm GBPm
---------------------------------------------------- ----- ------- -------
Operating activities
Profit before interest and tax 72.2 95.8
Net loss of joint ventures and associates
(post-tax) 11 2.6 3.1
Investment property disposal losses/(gains) 5.2 (7.1)
Investment property revaluation gains 10 (47.5) (19.2)
Depreciation and amortisation 3.7 1.0
Increase/(decrease) in net realisable value
provisions 13 3.9 (0.4)
Decrease/(increase) in inventories 2.9 (21.9)
Decrease/(increase) in trade and other receivables 12.5 (29.1)
Increase/(decrease) in trade and other payables 0.6 (27.0)
Increase in provisions 24.5 -
Pensions 0.2 -
Settlement less expense of share-based payments (2.3) 0.4
Tax paid 7 (4.4) (14.2)
Net cash inflow/(outflow) from operating activities 74.1 (18.6)
---------------------------------------------------- ----- ------- -------
Investing activities
Proceeds from investment property disposals 67.3 322.7
Investment property additions (139.3) (112.5)
Interest received 1.4 1.2
Capital injection into joint ventures and
associates (0.3) (0.4)
Property, plant and equipment and intangibles
additions (7.0) (6.3)
Dividends received from joint ventures and
associates 11 0.8 27.8
Net cash (outflow)/inflow from investing activities (77.1) 232.5
---------------------------------------------------- ----- ------- -------
Financing activities
Dividends paid 9 (16.9) (16.4)
Dividends paid to non-controlling interests - (0.1)
Interest paid (12.4) (17.6)
Repayments of obligations under lease arrangements (1.1) (0.5)
Refinancing outflows (1.3) (16.6)
Borrowings drawn 386.0 612.0
Repayment of borrowings (342.0) (736.3)
Net cash inflow/(outflow) from financing activities 12.3 (175.5)
---------------------------------------------------- ----- ------- -------
Increase in cash and cash equivalents 9.3 38.4
Cash and cash equivalents at start of year 38.9 0.5
Cash and cash equivalents at end of year 48.2 38.9
---------------------------------------------------- ----- ------- -------
GROUP ACCOUNTING POLICIES
for the year ended 30 November 2019
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 2019, applied in accordance with the provisions of the
Companies Act 2006.
The financial statements have been prepared on the historical cost
basis except for the revaluation of certain properties, derivative
financial instruments and the defined benefit section of the Group's
pension scheme.
The 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 2019, which are
not reproduced in this announcement, except as set out below. The
financial information contained within this announcement does not
constitute the Group's statutory accounts for the years ended 30 November
2018 or 30 November 2019, but is derived from those accounts.
Statutory accounts for 2018 have been delivered to the Registrar of
Companies and those for 2019 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.
In the current year the Group has adopted:
-- IFRS 9 Financial Instruments
-- IFRS 15 Revenue from Contracts with Customers
-- IFRS 16 Leases
-- IFRIC 22 Foreign Currency Transactions and Advance Consideration
-- Amendments to IFRS 2 Classification and Measurement of Share-based
Payment Transactions
-- Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with
IFRS 4 Insurance Contracts
-- Clarifications to IFRS 15 Revenue from Contracts with Customers
The impacts of adopting IFRS 9 Financial Instruments, IFRS 15 Revenue
from Contracts with Customers and IFRS 16 Leases is set out below,
with consequential amendments to the accounting policies made as required.
The adoption of the other interpretations and amendments has had no
material impact to the Group financial statements.
In addition, as detailed in note 4 to the Group financial statements,
the Group has amended the presentation of its operating segments to
reflect a restructure of the Group's activities to align to its three
strategic objectives during the year ended 30 November 2019. As required
by IFRS 8 Operating Segments, the comparative information has been
restated to reflect the Group's current operating segments.
IFRS 9 Financial Instruments
The Group has adopted IFRS 9 Financial Instruments in the year ended
30 November 2019 to all financial instruments that had not been derecognised
at 1 December 2018, replacing IAS 39 Financial Instruments: Recognition
and Measurement.
On adoption, the classification of all financial assets of the Group,
excluding derivative financial assets, has changed from loans and
receivables to amortised cost, but this has not had a quantitative
impact on the financial statements as loans and receivables have previously,
subsequent to initial recognition, been measured at amortised cost.
This classification has been determined appropriate as all such financial
assets are held to collect contractual cash flows, which consist only
of payments of principal and, where relevant, interest on the principal
outstanding. The classification of all other financial instruments
has remained unchanged.
IFRS 9 introduces an expected credit loss model for measuring the
impairment of financial assets, rather than an incurred loss model
previously applied. The introduction of an expected credit loss model
has resulted in the Group evaluating its provision against trade and
other receivables using a probability-weighted approach of a range
of possible outcomes on each class of financial asset, which differs
from the previous approach of providing against estimated irrecoverable
trade and other receivables past due. Credit losses are measured as
the present value of the difference between the contractual cash flows
due and the cash flows that the Group expects to receive. This has
resulted in an additional GBP0.3m being provided, reducing both trade
and other receivables and retained earnings by this amount, at each
of 30 November 2017 and 30 November 2018. The comparative results
presented in these Group financial statements have been retrospectively
restated in accordance with IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors. This restatement has no impact on
basic or diluted earnings per share in any of the comparative periods
presented in these Group financial statements.
The new hedging requirements of IFRS 9 are not applicable to the Group
as the Group does not currently hedge account and does not currently
intend to designate any hedging instruments in a hedging relationship
with hedged items.
As part of the implementation review of IFRS 9, the classification
of derivative financial instruments has been reviewed and these are
now presented as current if the instruments mature within 12 months
of the reporting date and non-current if the maturity date is greater
than 12 months after the balance sheet date. This presentation has
also been amended for the comparative balance sheet at 30 November
2018.
IFRS 15 Revenue from Contracts with Customers
The Group has adopted IFRS 15 Revenue from Contracts with Customers
in the year ended 30 November 2019 with effect from 1 December 2018.
This standard replaces a number of existing revenue standards and
interpretations (principally IAS 18 Revenue and IAS 11 Construction
Contracts) and introduces a five-step, principles-based, model for
the recognition of revenue. The Group has chosen to apply IFRS 15
retrospectively to each prior reporting period presented, taking the
practical expedient for not restating contracts that begin and end
within the same reporting period. The Group does not believe that
this practical expedient has any significant effect.
The new standard does not apply to the rental income revenue stream,
which is accounted for under IFRS 16 Leases, but does apply to the
remainder of the Group's revenue streams. The Group has reviewed all
its revenue streams and the disaggregation of the Group's revenue
is disclosed in note 1 to the Group financial statements. The revenue
accounting policies (as set out below) have also been updated to reflect
the adoption of IFRS 15, which include a description of the typical
performance obligations of each of the significant revenue streams.
The only quantitative impact arising from the Group's existing contracts
with customers relates to the recognition of revenue on the sale of
part-exchange properties. Revenue was previously recognised as a reduction
in housebuilding cost of sales as the purchase and subsequent sale
of part-exchange properties is considered an integral part of the
sale of the associated St. Modwen Homes unit. However, under IFRS
15, as the sale of a part-exchange property is a distinct contract
with a separate customer, the proceeds are now recognised as revenue.
This has no impact on the overall profit, cash flow or taxation of
St. Modwen Homes, but alters the presentation of its results. Accordingly,
the Group income statement for the year ended 30 November 2018 has
been restated to reflect an additional GBP3.2m of revenue and an equivalent
GBP3.2m of costs being recognised.
The Group considered the potential impact on adopting IFRS 15 of unbundling
contracts due to an assessment of the performance obligations to be
delivered to customers. The assessment varies depending on the terms
of the specific contracts entered into by the Group. However, the
Group's assessment concluded that this impact was immaterial for contracts
in progress at the date of implementation and therefore no transitional
adjustment to equity has been required.
IFRS 16 Leases
IFRS 16 Leases is not mandatorily effective for the Group until the
year ending 30 November 2020, but the Group has elected to early adopt
the standard at the same time as IFRS 9 Financial Instruments and
IFRS 15 Revenue from Contracts with Customers in the year ended 30
November 2019 with effect from 1 December 2018. The new standard removes
the existing distinction between leases and operating leases and requires
all lessee contracts, with exemptions taken for short-term and low-value
leases, to be recognised in the Group balance sheet as a right-of-use
asset, depreciated on a straight-line basis, and a lease liability
recognised at amortised cost, amortised using the effective interest
method. There is no impact on the Group's lessor accounting.
The Group has applied the modified retrospective approach under IFRS
16, whereby the cumulative effect of initially applying the standard
is recognised as an adjustment to the opening balance of retained
earnings at 1 December 2018. In doing so, the Group has elected to
measure the right-of-use asset at an amount equal to the lease liability
recognised on transition. Therefore, there is no impact on retained
earnings on adoption and comparative information has not been restated.
No practical expedients have been applied on transition.
The Group has recognised right-of-use assets and corresponding lease
liabilities at 1 December 2018 of GBP6.0m in respect of its leases
of certain office premises, motor vehicles and office equipment that
were previously accounted for as operating leases. This lease liability
reflects a weighted average incremental borrowing rate of 6.4%. The
lease liability recognised on transition is higher than the operating
lease commitments disclosed at 30 November 2018 discounted at the
incremental borrowing rate due to the treatment of break clauses within
the leases of buildings. The previous operating lease commitment disclosure
only included non-cancellable obligations, whereas under IFRS 16,
the Group has assessed whether for each lease it is reasonably certain
that these break clauses will not be exercised and therefore certain
buildings have a longer lease term under IFRS 16 than was assumed
for the previously disclosed operating lease commitment disclosure.
At 30 November 2019, the carrying value of right-of-use assets was
GBP5.3m, with the corresponding lease liabilities held at GBP5.4m.
Going concern
The financial statements have been prepared on a going concern basis.
The directors have considered the factors likely to affect the future
development, performance and position of the Group and reviewed the
current financial position of the Group, including its joint ventures
and associates. This review included an assessment of future funding
requirements, valuation projections and the ability of the Group to
meet covenants on its existing borrowing facilities, taking into consideration
the ability of the Group to robustly defend the short-term impacts
of a hard Brexit. As a result of this review, the directors believe
that the Group has adequate resources to fund its operations for the
foreseeable future and so have determined that it remains appropriate
for the financial statements to be prepared on a going concern basis.
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 30 November
2019
1. Detailed income statement
This note sets out the detail of the income statement by category
of revenue under IFRS 15 Revenue from Contracts with Customers and
to assist in reconciling the non-statutory disclosures in notes 2
and 3.
Year ended 30 November 2019
Reallocation
of joint
Statutory ventures
Revenue Costs profit/(loss) and associates Total
GBPm GBPm GBPm GBPm GBPm
-------------------------------------------- ------- ------- -------------- --------------- ------
Rental income 43.2 (10.3) 32.9 4.1 37.0
Other activities 5.6 (2.5) 3.1 - 3.1
Net rental and other income 48.8 (12.8) 36.0 4.1 40.1
-------------------------------------------- ------- ------- -------------- --------------- ------
Housebuilding developments 277.7 (223.4) 54.3 - 54.3
Housebuilding construction contracts 7.8 (6.9) 0.9 - 0.9
Other housebuilding activities 6.7 (6.4) 0.3 - 0.3
Housebuilding development profits 292.2 (236.7) 55.5 - 55.5
-------------------------------------------- ------- ------- -------------- --------------- ------
Non-housebuilding inventory developments(1) 38.2 (55.2) (17.0) 1.5 (15.5)
Pre-sold property construction
contracts 25.0 (24.5) 0.5 - 0.5
Property development (losses)/gains 63.2 (79.7) (16.5) 1.5 (15.0)
-------------------------------------------- ------- ------- -------------- --------------- ------
Inventory disposal gains 8.4 (7.6) 0.8 - 0.8
Investment property disposal
losses - - (5.2) (0.6) (5.8)
Property disposal losses 8.4 (7.6) (4.4) (0.6) (5.0)
-------------------------------------------- ------- ------- -------------- --------------- ------
Net realisable value provisions - (3.9) (3.9) - (3.9)
Investment property revaluation
gains/(losses) - - 47.5 (4.2) 43.3
Property valuation gains/(losses) - (3.9) 43.6 (4.2) 39.4
-------------------------------------------- ------- ------- -------------- --------------- ------
Development fee income 17.3 (12.9) 4.4 - 4.4
Total 429.9 (353.6)
-------------------------------------------- ------- -------
Housebuilding administrative
expenses (11.3) - (11.3)
Non-housebuilding administrative
expenses (32.5) (0.3) (32.8)
Administrative expenses (43.8) (0.3) (44.1)
-------------------------------------------- ------- ------- -------------- --------------- ------
Net loss of joint ventures and associates
(post-tax) (2.6) 2.6 -
Profit before interest and tax 72.2 3.1 75.3
Interest costs (11.0) (1.9) (12.9)
Other finance costs (4.8) (2.6) (7.4)
Finance costs (15.8) (4.5) (20.3)
-------------------------------------------- ------- ------- -------------- --------------- ------
Interest income 2.3 1.3 3.6
Other finance income 0.2 0.2 0.4
Finance income 2.5 1.5 4.0
-------------------------------------------- ------- ------- -------------- --------------- ------
Profit before tax 58.9 0.1 59.0
Taxation (9.4) (0.1) (9.5)
Profit for the year 49.5 (0.0) 49.5
-------------------------------------------- ------- ------- -------------- --------------- ------
(1) Includes the exceptional provision
of GBP22.5m as detailed in note 5.
Year ended 30 November 2018
Reallocation
of joint
Statutory ventures
Revenue Costs profit/(loss) and associates Total
(restated) (restated)
GBPm GBPm GBPm GBPm GBPm
----------------------------------------- ---------- ---------- -------------- --------------- ------
Rental income 53.5 (12.1) 41.4 5.4 46.8
Other activities 4.6 (2.4) 2.2 - 2.2
Net rental and other income 58.1 (14.5) 43.6 5.4 49.0
----------------------------------------- ---------- ---------- -------------- --------------- ------
Housebuilding developments 227.8 (183.1) 44.7 - 44.7
Other housebuilding activities 3.2 (3.2) - - -
Housebuilding development profits 231.0 (186.3) 44.7 - 44.7
----------------------------------------- ---------- ---------- -------------- --------------- ------
Non-housebuilding inventory developments 40.4 (10.2) 30.2 1.3 31.5
Pre-sold property construction
contracts 68.0 (62.5) 5.5 - 5.5
Property development gains 108.4 (72.7) 35.7 1.3 37.0
----------------------------------------- ---------- ---------- -------------- --------------- ------
Inventory disposal losses 23.2 (35.2) (12.0) - (12.0)
Investment property disposal
gains/(losses) - - 7.1 (2.2) 4.9
Property disposal gains/(losses) 23.2 (35.2) (4.9) (2.2) (7.1)
----------------------------------------- ---------- ---------- -------------- --------------- ------
Net realisable value provisions - 0.4 0.4 - 0.4
Investment property revaluation
gains/(losses) - - 19.2 (8.2) 11.0
Property valuation gains/(losses) - 0.4 19.6 (8.2) 11.4
----------------------------------------- ---------- ---------- -------------- --------------- ------
Development fee income 15.5 (12.1) 3.4 - 3.4
Total 436.2 (320.4)
----------------------------------------- ---------- ----------
Housebuilding administrative
expenses (10.8) - (10.8)
Non-housebuilding administrative
expenses (32.4) (0.1) (32.5)
Administrative expenses (43.2) (0.1) (43.3)
----------------------------------------- ---------- ---------- -------------- --------------- ------
Credit from increased discount
of market liability - 4.7 4.7
Net loss of joint ventures and associates
(post-tax) (3.1) 3.1 -
Profit before interest and tax 95.8 4.0 99.8
Interest costs (15.6) (2.8) (18.4)
Other finance costs (10.2) (3.5) (13.7)
Finance costs (25.8) (6.3) (32.1)
----------------------------------------- ---------- ---------- -------------- --------------- ------
Interest income 2.0 1.8 3.8
Other finance income 0.4 0.6 1.0
Finance income 2.4 2.4 4.8
----------------------------------------- ---------- ---------- -------------- --------------- ------
Profit before tax 72.4 0.1 72.5
Taxation (11.9) (0.1) (12.0)
Profit for the year 60.5 0.0 60.5
----------------------------------------- ---------- ---------- -------------- --------------- ------
All revenues in the table above are derived from continuing operations
exclusively in the UK.
Housebuilding operating profit is derived from the detailed income
statement as follows:
2019 2018
GBPm GBPm
----------------------------------------- ---------- ---------- -------------- --------------- ------
Housebuilding development profits 55.5 44.7
Housebuilding administrative
expenses (11.3) (10.8)
Housebuilding operating profit 44.2 33.9
----------------------------------------- ---------- ---------- -------------- --------------- ------
The table below provides further detail of each of the revenue categories
disclosed above, including a description of the revenue stream and
the relevant accounting policy under which revenue is recognised
for the category:
Revenue Disclosed revenue Accounting
type category policy Description
------------- ----------------------- ------------------ -------------------------------------------
Rental Rental income Leases - Income from tenants at owned properties
the Group governed by lease agreements and
as lessor recognised over the lease term
----------------------- ------------------ -------------------------------------------
Other rental N/A Income generated from investment
activities properties outside of a fixed tenancy
agreement and recognised when earned
------------- ----------------------- ------------------ -------------------------------------------
Housebuilding Housebuilding Sale of property Sales of dwellings built by St.
developments held in inventory Modwen Homes to private and affordable
customers and recognised on completion
of the sale
----------------------- ------------------ -------------------------------------------
Housebuilding Construction Revenue recognised over time by
construction contracts St. Modwen Homes on 'golden brick'
contracts contracts with registered providers
----------------------- ------------------ -------------------------------------------
Other housebuilding Sale of property Other revenue earned by St. Modwen
activities held in inventory Homes, including sales of part exchange
properties or land
------------- ----------------------- ------------------ -------------------------------------------
Development Development Development Revenue recognised over time on
fee income fee income master developer agreements where
the land is not owned by the Group
----------------------- ------------------ -------------------------------------------
Non-housebuilding Sale of property Sales of non-housebuilding developments
inventory developments held in inventory constructed as work in progress
----------------------- ------------------ -------------------------------------------
Pre-sold property Construction Revenue recognised over time on
construction contracts development work undertaken on a
contracts property previously owned by the
Group
------------- ----------------------- ------------------ -------------------------------------------
Disposals Inventory disposals Sale of property Sales of non-housebuilding work
held in inventory in progress on which no recent development
activity has been undertaken
------------- ----------------------- ------------------ -------------------------------------------
All revenue streams, except rental income, totalling GBP386.7m (2018:
GBP382.7m) are recognised in accordance with IFRS 15 Revenue from
Contracts with Customers.
Included within revenue recognised during the year ended 30 November
2019 was GBP0.1m (2018: GBPnil) of revenue that was included as a
contract liability at 30 November 2018.
There was no revenue recognised during the years ended 30 November
2019 or 30 November 2018 that related to performance obligations
satisfied in previous years.
Included within revenue for the year ended 30 November 2019 is variable
consideration within development fee income of GBP1.0m (2018: GBP1.2m).
This arises due to profit sharing arrangements with third-party land
owners on the residual land value of developments not controlled
by the Group. None of this revenue has been constrained on the basis
that the Group considers it highly probable that there will not be
a significant reversal in subsequent periods of the amounts recognised.
A total of GBP0.1m (2018: GBPnil) of costs incurred to obtain or
fulfil a contract were capitalised at 30 November 2019.
Cost of sales in respect of rental income comprises direct operating
expenses (including repairs and maintenance) related to the investment
property portfolio and totals GBP10.3m (2018: GBP12.1m), of which
GBP0.3m (2018: GBP0.3m) is in respect of properties that did not
generate any rental income.
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
in the strategic report) 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, together with the EPRA-based measures that are
discussed in note 3.
a. Income statement
The non-statutory measure of adjusted EPRA earnings, which includes
the Group's share of joint ventures and associates, is calculated
as set out below, with the reconciliation of the individual line items
to the statutory Group income statement detailed in note 1:
2019
Joint
ventures
Group and associates Total Exceptionals Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------ --------------- ------ ------------ ------
Gross rental income 43.2 5.4 48.6 - 48.6
Property outgoings (10.3) (1.3) (11.6) - (11.6)
Other net income 3.1 - 3.1 - 3.1
Net rental and other income 36.0 4.1 40.1 - 40.1
Housebuilding development profit 55.5 - 55.5 - 55.5
Development fee income 4.4 - 4.4 - 4.4
Business unit direct operating
expenses (21.7) - (21.7) - (21.7)
Central administrative expenses (22.1) (0.3) (22.4) - (22.4)
Interest costs (11.0) (1.9) (12.9) - (12.9)
Interest income 2.3 1.3 3.6 - 3.6
Taxation on adjusted EPRA earnings (7.4) (0.4) (7.8) - (7.8)
Less non-controlling interests on
adjusted EPRA earnings (0.1) - (0.1) - (0.1)
Adjusted EPRA earnings 35.9 2.8 38.7 - 38.7
Property revaluation gains/(losses) 43.6 (4.2) 39.4 - 39.4
Property development gains/(losses) 6.0 1.5 7.5 (22.5) (15.0)
Property disposal losses (4.4) (0.6) (5.0) - (5.0)
Other finance costs (4.8) (2.6) (7.4) - (7.4)
Other finance income 0.2 0.2 0.4 - 0.4
Taxation on other earnings (6.0) 0.3 (5.7) 4.0 (1.7)
Less non-controlling interests on
other earnings 0.1 - 0.1 1.2 1.3
------------------------------------- ------ --------------- ------------
Profit for the year attributable to
owners of the Company 70.6 (2.6) 68.0 (17.3) 50.7
------------------------------------- ------ --------------- ------ ------------ ------
2018
Joint
ventures
Group and associates Total
GBPm GBPm GBPm
------------------------------------ ------- --------------- ------- ---------- --------------- ----------
Gross rental income 53.5 6.2 59.7
Property outgoings (12.1) (0.8) (12.9)
Other net income 2.2 - 2.2
Net rental and other income 43.6 5.4 49.0
Housebuilding development profit(1) 44.7 - 44.7
Development fee income 3.4 - 3.4
Business unit direct operating
expenses(1) (20.6) - (20.6)
Central administrative expenses(1) (22.6) (0.1) (22.7)
Interest costs (15.6) (2.8) (18.4)
Interest income 2.0 1.8 3.8
Taxation on adjusted EPRA earnings (6.2) (1.0) (7.2)
Less non-controlling interests on
adjusted EPRA earnings (0.3) - (0.3)
Adjusted EPRA earnings 28.4 3.3 31.7
Property revaluation gains/(losses) 19.6 (8.2) 11.4
Property development gains 35.7 1.3 37.0
Property disposal losses (4.9) (2.2) (7.1)
Credit from increased discount of
market liability - 4.7 4.7
Other finance costs (10.2) (3.5) (13.7)
Other finance income 0.4 0.6 1.0
Taxation on other earnings (5.7) 0.9 (4.8)
Profit for the year attributable to
owners of the Company 63.3 (3.1) 60.2
--------------------------------------------- --------------- ------- ---------- --------------- ----------
(1) As disclosed in note 4, following the restatement of the segmental
analysis comparatives for the year ended 30 November 2018, administrative
expenses have been split between business unit direct operating expenses
and central administrative expenses and housebuilding administrative
expenses of GBP10.8m that were previously presented within housebuilding
operating profit are now presented within business unit direct operating
expenses.
b. 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:
2019 2018
Joint Joint
ventures ventures
Group and associates Total Group and associates Total
(restated) (restated)
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------- --------------- ------- ---------- --------------- ----------
Property portfolio 1,390.4 94.2 1,484.6 1,302.6 100.7 1,403.3
Other assets 126.7 79.9 206.6 118.0 80.3 198.3
Gross assets 1,517.1 174.1 1,691.2 1,420.6 181.0 1,601.6
Net borrowings (305.8) 15.2 (290.6) (271.1) 34.2 (236.9)
Leases (8.3) (0.9) (9.2) (3.0) (0.9) (3.9)
Other liabilities (208.6) (102.4) (311.0) (185.6) (125.2) (310.8)
Gross liabilities (522.7) (88.1) (610.8) (459.7) (91.9) (551.6)
------------------------------------ ------- --------------- ------- ---------- --------------- ----------
Net assets 994.4 86.0 1,080.4 960.9 89.1 1,050.0
Non-controlling interests (4.7) - (4.7) (5.9) - (5.9)
------------------------------------ ------- --------------- ------- ---------- --------------- ----------
Equity attributable to owners
of the Company 989.7 86.0 1,075.7 955.0 89.1 1,044.1
------------------------------------ ------- --------------- ------- ---------- --------------- ----------
c. 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:
2019 2018
Joint Joint
ventures ventures
Group and associates Total Group and associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------- --------------- ---------- ----------- --------------- -----------
Investment properties 958.1 82.9 1,041.0 939.3 92.0 1,031.3
Assets held for sale 15.8 - 15.8 - - -
Less assets held under leases(1) - - - (3.1) (0.9) (4.0)
Inventories 416.5 11.3 427.8 366.4 9.6 376.0
Property portfolio 1,390.4 94.2 1,484.6 1,302.6 100.7 1,403.3
--------------------------------- ------- --------------- ---------- ----------- --------------- -----------
(1) Assets held under leases are no longer excluded from the presentation
of the Group's property portfolio.
The following table provides an analysis of the categorisation
of the Group's investment properties:
2019 2018
Joint Joint
ventures ventures
Group and associates Total Group and associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------- --------------- ---------- ----------- --------------- -----------
Industrial & Logistics 553.5 34.6 588.1 437.6 23.1 460.7
--------------------------------- ------- --------------- ---------- ----------- --------------- -----------
St. Modwen Homes 384.2 - 384.2 371.4 19.0 390.4
--------------------------------- ------- --------------- ---------- ----------- --------------- -----------
Residential land 218.4 40.3 258.7 182.3 23.4 205.7
Retail-led regeneration 83.6 - 83.6 85.3 - 85.3
Other regeneration 86.7 8.9 95.6 72.7 7.9 80.6
Non-core retail 21.8 8.3 30.1 73.9 13.9 87.8
Non-core other 42.2 2.1 44.3 79.4 13.4 92.8
Strategic Land & Regeneration 452.7 59.6 512.3 493.6 58.6 552.2
------- --------------- ---------- ----------- --------------- -----------
Property portfolio 1,390.4 94.2 1,484.6 1,302.6 100.7 1,403.3
--------------------------------- ------- --------------- ---------- ----------- --------------- -----------
Investment and commercial property assets as defined in our banking
facility agreement at 30 November 2019 was GBP642.5m (2018: GBP619.7m).
d. Total accounting return
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.
Total accounting return is calculated as set out below:
2019 2018
Underlying Exceptional Total Total
Pence
Pence Pence Pence per share
per share per share per share (restated)
--------------------------------- ------- --------------- ---------- ----------- --------------- -----------
Net asset value per share at
end of year (note 3) 492.0 (7.8) 484.2 470.2
Less net asset value per share at
start of year (note 3) (470.2) - (470.2) (450.7)
------------------------------------------ --------------- ---------- ----------- --------------- -----------
Increase in net asset value
per share 21.8 (7.8) 14.0 19.5
Dividend paid per share (note
9) 7.6 - 7.6 7.4
--------------------------------- ------- ---------------
Total accounting return per
share 29.4 (7.8) 21.6 26.9
--------------------------------- ------- --------------- ---------- ----------- --------------- -----------
Total accounting return 6.3% -1.7% 4.6% 6.0%
--------------------------------- ------- --------------- ---------- ----------- --------------- -----------
Total accounting return has been presented on an underlying and total
basis, with the impact on net asset value per share of the exceptional
item of 7.8 pence per share disclosed in note 8.
e. Movements in net borrowings and
net debt
The movements in net borrowings and net debt are
set out below:
2019 2018
Joint Joint
ventures ventures
Group and associates Total Group and associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ------- --------------- ------- ------- --------------- -------
Movement in cash and cash equivalents 9.3 (26.7) (17.4) 38.4 (28.9) 9.5
Borrowings drawn (386.0) (10.2) (396.2) (612.0) (15.0) (627.0)
Repayment of borrowings 342.0 17.9 359.9 736.3 32.5 768.8
(Increase)/decrease in net borrowings (34.7) (19.0) (53.7) 162.7 (11.4) 151.3
Fair value movement on convertible
bond 0.2 - 0.2 0.4 - 0.4
(Increase)/decrease in lease
liabilities (5.3) - (5.3) 54.0 - 54.0
-------------------------------------- ------- --------------- ------- ---------------
(Increase)/decrease) in net
debt (39.8) (19.0) (58.8) 217.1 (11.4) 205.7
-------------------------------------- ------- --------------- ------- ------- --------------- -------
f. Net borrowings and net debt
Net borrowing and net debt are calculated
as set out below:
2019 2018
Joint Joint
ventures ventures
Group and associates Total Group and associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ------- --------------- ------- ------- --------------- -------
Cash and cash equivalents 48.2 19.0 67.2 38.9 45.7 84.6
Borrowings due within one year - - - (100.2) - (100.2)
Borrowings due after more than
one year (354.0) (3.8) (357.8) (210.0) (11.5) (221.5)
Adjustment to restate convertible
bond at book value - - - 0.2 - 0.2
-------------------------------------- ------- --------------- ------- ---------------
Net borrowings (305.8) 15.2 (290.6) (271.1) 34.2 (236.9)
Reversal of adjustment to restate
convertible bond at book value - - - (0.2) - (0.2)
Lease liabilities due within
one year (1.4) - (1.4) - - -
Lease liabilities due after
more than one year (6.9) (0.9) (7.8) (3.0) (0.9) (3.9)
------- --------------- ------- ---------------
Net debt (314.1) 14.3 (299.8) (274.3) 33.3 (241.0)
-------------------------------------- ------- --------------- ------- ------- --------------- -------
g. Gearing and loan-to-value
The Group's capacity to borrow is primarily linked to the value of
the property portfolio. 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. These terms are defined
as follows:
Net borrowings: Total borrowings (at amortised cost and excluding
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
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 leases, calculated on a proportionally consolidated basis
(including the Group's share of its joint ventures and associates).
2019 2018
Joint Joint
ventures ventures
Group and associates Total Group and associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ------- --------------- ------- ------- --------------- -------
Property portfolio (note 2b) 1,390.4 94.2 1,484.6 1,302.6 100.7 1,403.3
Total equity 1,080.4 N/A 1,080.4 1,050.3 N/A 1,050.3
Net debt (note 2f) 314.1 (14.3) 299.8 274.3 (33.3) 241.0
Net borrowings (note 2f) 305.8 (15.2) 290.6 271.1 (34.2) 236.9
----------------------------- ------- --------------- ------- ------- --------------- -------
Gearing 29.1% 27.7% 26.1% 22.9%
Adjusted gearing 28.3% 26.9% 25.8% 22.6%
Loan-to-value 22.0% 19.6% 20.8% 16.9%
----------------------------- ------- --------------- ------- ------- --------------- -------
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 with industry peers and are explained in
detail below:
EPRA earnings (see note 3a): For investors in 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:
2019 2018
Joint Joint
ventures ventures
Group and associates Total Group and associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------ --------------- ------ ------ --------------- ------
Profit for the year 52.1 (2.6) 49.5 63.6 (3.1) 60.5
Less non-controlling interests 1.2 - 1.2 (0.3) - (0.3)
------------------------------------ ------ --------------- ------ ------ --------------- ------
Profit for the year 53.3 (2.6) 50.7 63.3 (3.1) 60.2
Investment property revaluation
(gains)/losses (47.5) 4.2 (43.3) (19.2) 8.2 (11.0)
Investment property disposal
losses/(gains) 5.2 0.6 5.8 (7.1) 2.2 (4.9)
Credit from increased discount
of market liability(1) - - - - (4.7) (4.7)
Housebuilding operating profit(2) (44.2) - (44.2) (33.9) - (33.9)
Non-housebuilding inventory
development losses/(gains) 17.0 (1.5) 15.5 (30.2) (1.3) (31.5)
Net realisable value provisions 3.9 - 3.9 (0.4) - (0.4)
Pre-sold property development
gains(3) (0.5) - (0.5) (5.5) - (5.5)
Inventory disposal (gains)/losses (0.8) - (0.8) 12.0 - 12.0
Amortisation of discount on
deferred payment arrangements(4) - 2.4 2.4 0.1 3.4 3.5
Taxation in respect of profits
or losses on disposal 6.1 0.1 6.2 11.2 1.5 12.7
Movement in fair value of financial
instruments 2.9 (0.2) 2.7 0.7 (0.6) 0.1
Early redemption of retail bond(5) - - - 3.7 - 3.7
Deferred tax in respect of EPRA
adjustments 3.0 (0.4) 2.6 1.9 (2.3) (0.4)
Non-controlling interests in
respect of the above (1.3) - (1.3) - - -
EPRA earnings (2.9) 2.6 (0.3) (3.4) 3.3 (0.1)
Housebuilding operating profit 44.2 - 44.2 33.9 - 33.9
Amortisation of loan arrangement
fees 1.7 0.2 1.9 5.3 0.1 5.4
Taxation in respect of company
specific adjustments (7.1) - (7.1) (7.4) (0.1) (7.5)
Adjusted EPRA earnings 35.9 2.8 38.7 28.4 3.3 31.7
------------------------------------ ------ --------------- ------ ------ --------------- ------
(1) The credit from increased discount of market liability and change
in estimated cost to establish a market in Nine Elms represent property
development gains and losses and therefore forms part of the profits
or losses on sale of trading properties that should be adjusted in
arriving at EPRA earnings.
(2) Housebuilding operating profit includes overheads directly attributable
to the 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) Pre-sold property development gains arise from property disposals
and their development and therefore should be adjusted in arriving
at EPRA earnings.
(4) The amortisation 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.
(5) The early redemption of the retail bond represents a material
close-out cost associated with debt and therefore should be 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:
2019 2018
Joint Joint
ventures ventures
Group and associates Total Group and associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- ------- --------------- ---------- ---------- --------------- ----------
Net rental and other income 36.0 4.1 40.1 43.6 5.4 49.0
Development fee income 4.4 - 4.4 3.4 - 3.4
Non-housebuilding administrative
expenses (32.5) (0.3) (32.8) (32.4) (0.1) (32.5)
Interest costs (12.7) (2.1) (14.8) (20.9) (2.9) (23.8)
Interest income 2.3 1.3 3.6 2.0 1.8 3.8
Taxation in respect of EPRA
earnings measures (0.3) (0.4) (0.7) 1.2 (0.9) 0.3
Non-controlling interests in
respect of the above (0.1) - (0.1) (0.3) - (0.3)
EPRA earnings (2.9) 2.6 (0.3) (3.4) 3.3 (0.1)
Housebuilding operating profit 44.2 - 44.2 33.9 - 33.9
Amortisation of loan arrangement
fees 1.7 0.2 1.9 5.3 0.1 5.4
Taxation in respect of company
specific adjustments (7.1) - (7.1) (7.4) (0.1) (7.5)
Adjusted EPRA earnings 35.9 2.8 38.7 28.4 3.3 31.7
----------------------------------- ------- --------------- ---------- ---------- --------------- ----------
2019 2018
Pence Percentage Pence Percentage
GBPm per share(1) movement GBPm per share(1) movement
----------------------------------- ------- --------------- ---------- ---------- --------------- ----------
Earnings 50.7 22.8 (15.9)% 60.2 27.1 0.7%
EPRA earnings (0.3) (0.1) N/A (0.1) - (100.0)%
Adjusted EPRA earnings 38.7 17.4 21.7% 31.7 14.3 7.5%
----------------------------------- ------- --------------- ---------- ---------- --------------- ----------
(1) The number of shares in issue used to calculate the earnings per
share is 222,084,656 (2018: 221,964,567), as disclosed in note 8,
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:
2019 2018
Joint Joint
ventures ventures
Group and associates Total Group and associates Total
(restated) (restated)
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- ------- --------------- ---------- ---------- --------------- ----------
Total equity 994.4 86.0 1,080.4 960.9 89.1 1,050.0
Less non-controlling interests (4.7) - (4.7) (5.9) - (5.9)
----------------------------------- ------- --------------- ---------- ---------- --------------- ----------
Net asset value 989.7 86.0 1,075.7 955.0 89.1 1,044.1
Adjustments of inventories to
fair value 11.8 - 11.8 6.7 0.7 7.4
----------------------------------- ------- --------------- ---------- ---------- --------------- ----------
EPRA triple net asset value 1,001.5 86.0 1,087.5 961.7 89.8 1,051.5
Deferred tax on capital allowances
and revaluations 27.8 2.3 30.1 20.5 2.2 22.7
Mark-to-market of derivative
financial instruments 2.6 - 2.6 0.2 0.2 0.4
-----------------------------------
EPRA net asset value 1,031.9 88.3 1,120.2 982.4 92.2 1,074.6
----------------------------------- ------- --------------- ---------- ---------- --------------- ----------
2019 2018
(restated)
Pence Percentage (restated) Pence Percentage
GBPm per share(1) movement GBPm per share(1) movement
----------------------------------- ------- --------------- ---------- ---------- --------------- ----------
Net asset value 1,075.7 484.2 3.0% 1,044.1 470.2 4.3%
EPRA triple net asset value 1,087.5 489.5 3.4% 1,051.5 473.6 3.4%
EPRA net asset value 1,120.2 504.2 4.2% 1,074.6 484.0 2.7%
----------------------------------- ------- --------------- ---------- ---------- --------------- ----------
(1) The number of shares in issue used to calculate the net asset
values per share is 222,166,554 (2018: 222,031,244), as disclosed
in note 17, excluding those shares held by The St. Modwen Properties
PLC Employee Share Trust.
4. 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.
As discussed in the strategic report and as indicated in the financial
statements for the year ended 30 November 2018, following the restructure
of the Group's operations to align to its three strategic objectives,
the Group has amended its operating segments for the year ended 30
November 2019. The Group now divides its business into the following
segments:
- Industrial & Logistics;
- St. Modwen Homes; and
- Strategic Land & Regeneration.
As the chief operating decision maker receives proportionally consolidated
reports, the information disclosed below reflects presentation of
results as set out in note 2, except for revenue, which is presented
for the Group as disclosed in note 1. Due to the way the Group manages
its support functions and treasury and tax affairs, certain balances
and transactions are not allocated to segments, including central
administrative expenses, net borrowings, interest and tax. However,
the direct operating expenses of each business unit are included within
the respective segmental result.
The Group has previously reported two 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
managed internally, and reported, as a single business segment.
As required by IFRS 8 Operating Segments, the comparative information
has been restated to reflect the Group's current operating segments.
As the business units that are reflected in these segments did not
exist during the year ended 30 November 2018, the restated comparative
information is based on assumptions and allocations for certain balances
and transactions where the underlying records are not available.
The accounting policies of the reportable segments are the same as
the Group's accounting policies.
b. Segment revenues and results
2019 2018
GBPm GBPm
---------------------------------------------------------- --------- --------
Industrial & Logistics 23.6 24.4
St. Modwen Homes 277.3 220.4
Strategic Land & Regeneration 129.0 191.4
Revenue 429.9 436.2
-------------------------------------------------------------- --------- --------
2019
Strategic
Industrial St. Modwen Land
& Logistics Homes & Re-generation Unallocated Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------------ ---------- ---------------- ----------- ------
Gross rental income 22.2 - 26.4 - 48.6
Property outgoings (4.6) - (7.0) - (11.6)
Other net income 1.1 - 2.0 - 3.1
Net rental and other income 18.7 - 21.4 - 40.1
Housebuilding development profit - 51.4 4.1 - 55.5
Development fee income 1.1 - 3.3 - 4.4
Business unit direct operating
expenses (3.3) (11.3) (7.1) - (21.7)
Business unit operating profit 16.5 40.1 21.7 - 78.3
Central administrative expenses - - - (22.4) (22.4)
Interest costs - - - (12.9) (12.9)
Interest income - - - 3.6 3.6
Taxation on adjusted EPRA earnings - - - (7.8) (7.8)
Less non-controlling interests on
adjusted EPRA earnings - - - (0.1) (0.1)
Adjusted EPRA earnings 16.5 40.1 21.7 (39.6) 38.7
Property valuation gains/(losses) 45.8 - (6.4) - 39.4
Property development gains/(losses) 0.5 - 7.0 (22.5) (15.0)
Property disposal gains/(losses) 0.2 - (5.2) - (5.0)
Other finance costs - - (2.5) (4.9) (7.4)
Other finance income - - - 0.4 0.4
Taxation on other earnings - - - (1.7) (1.7)
Less non-controlling interests on
other earnings - - - 1.3 1.3
------------------------------------- ------------ ---------- ---------------- ------
Profit for the year attributable
to owners of the Company 63.0 40.1 14.6 (67.0) 50.7
------------------------------------- ------------ ---------- ---------------- ----------- ------
2018
Strategic
Industrial St. Modwen Land
& Logistics Homes & Re-generation Unallocated Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------------ ---------- ---------------- ----------- ------
Gross rental income 17.2 - 42.5 - 59.7
Property outgoings (3.1) - (9.8) - (12.9)
Other net income 0.3 - 1.9 - 2.2
Net rental and other income 14.4 - 34.6 - 49.0
Housebuilding development profit - 42.1 2.6 - 44.7
Development fee income - - 3.4 - 3.4
Business unit direct operating
expenses (3.0) (10.8) (6.8) - (20.6)
Business unit operating profit 11.4 31.3 33.8 - 76.5
Central administrative expenses - - - (22.7) (22.7)
Interest costs - - - (18.4) (18.4)
Interest income - - - 3.8 3.8
Taxation on adjusted EPRA earnings - - - (7.2) (7.2)
Less non-controlling interests on
adjusted EPRA earnings - - - (0.3) (0.3)
Adjusted EPRA earnings 11.4 31.3 33.8 (44.8) 31.7
Property valuation gains/(losses) 23.1 - (11.7) - 11.4
Property development gains 22.9 - 14.1 - 37.0
Property disposal gains/(losses) 0.8 - (7.9) - (7.1)
Credit from increased discount of
market liability - - 4.7 - 4.7
Other finance costs - - (3.4) (10.3) (13.7)
Other finance income - - - 1.0 1.0
Taxation on other earnings - - - (4.8) (4.8)
Profit for the year attributable
to owners of the Company 58.2 31.3 29.6 (58.9) 60.2
------------------------------------- ------------ ---------- ---------------- ----------- ------
The following table sets out the calculation of operating margin
for the St. Modwen Homes business unit:
2019 2018
Volume Revenue Volume Revenue
Units GBPm Units GBPm
---------------------------------------- ------------ ---------- ---------------- ----------- -------
St. Modwen Homes developments 1,011 262.8 848 217.2
St. Modwen Homes construction
contracts 49 7.8 - -
Total St. Modwen Homes housebuilding(1) 1,060 270.6 848 217.2
----------------------------------------- ------------ ---------- ---------------- ----------- -------
St. Modwen Homes operating
profit 40.1 31.3
----------------------------------------- ------------ ---------- ---------------- ----------- -------
St. Modwen Homes operating
margin 14.8% 14.4%
----------------------------------------- ------------ ---------- ---------------- ----------- -------
(1) Excludes other activities in St. Modwen Homes
that do not relate to housebuilding.
c. Segment assets and liabilities
2019
Strategic
Industrial St. Modwen Land
& Logistics Homes & Re-generation Unallocated Total
GBPm GBPm GBPm GBPm GBPm
---------------------------------------- ------------ ---------- ---------------- ----------- -------
Investment properties 572.6 - 468.4 - 1,041.0
Inventories 15.5 384.2 28.1 - 427.8
Assets held for sale - - 15.8 - 15.8
Property portfolio 588.1 384.2 512.3 - 1,484.6
----------------------------------------- ------------ ---------- ---------------- ----------- -------
Property, plant and equipment and
intangibles - - 3.3 23.4 26.7
Trade and other receivables 6.3 23.8 72.2 77.4 179.7
Derivative financial instrument
assets - - - 0.2 0.2
Other assets 6.3 23.8 75.5 101.0 206.6
----------------------------------------- ------------ ---------- ---------------- ----------- -------
Cash and cash equivalents - - - 67.2 67.2
Borrowings - - - (357.8) (357.8)
Net borrowings - - - (290.6) (290.6)
----------------------------------------- ------------ ---------- ---------------- ----------- -------
Trade and other payables (21.7) (53.6) (49.7) (68.2) (193.2)
Provisions and market liability - - (62.5) (22.7) (85.2)
Lease liabilities - - - (9.2) (9.2)
Derivative financial instrument
liabilities - - - (3.3) (3.3)
Current tax liabilities - - - (0.5) (0.5)
Deferred tax - - - (28.8) (28.8)
Other liabilities (21.7) (53.6) (112.2) (132.7) (320.2)
Net assets 572.7 354.4 475.6 (322.3) 1,080.4
Less non-controlling interests - - - (4.7) (4.7)
Net assets attributable to owners
of the Company 572.7 354.4 475.6 (327.0) 1,075.7
----------------------------------------- ------------ ---------- ---------------- ----------- -------
2018
Strategic
Industrial St. Modwen Land
& Logistics Homes & Re-generation Unallocated Total
GBPm GBPm GBPm GBPm GBPm
----------------------- ------------ ------------ ---------------- ---------------- ----------- ----------------
Investment properties 446.6 104.5 476.2 - 1,027.3
Inventories 14.1 285.9 76.0 - 376.0
Property portfolio 460.7 390.4 552.2 - 1,403.3
----------------------- ------------ ------------ ---------------- ---------------- ----------- ----------------
Property, plant and
equipment
and intangibles - - 3.4 14.0 17.4
Trade and other
receivables 5.3 15.2 102.4 57.1 180.0
Derivative financial
instrument
assets - - - 0.9 0.9
Other assets 5.3 15.2 105.8 72.0 198.3
----------------------- ------------ ------------ ---------------- ---------------- ----------- ----------------
Cash and cash
equivalents - - - 84.6 84.6
Borrowings - - - (321.5) (321.5)
Net borrowings - - - (236.9) (236.9)
----------------------- ------------ ------------ ---------------- ---------------- ----------- ----------------
Trade and other
payables (21.3) (54.5) (66.7) (69.3) (211.8)
Market liability - - (71.9) - (71.9)
Lease liabilities - - - (3.9) (3.9)
Derivative financial
instrument
liabilities - - - (1.3) (1.3)
Current tax liabilities - - - (2.1) (2.1)
Deferred tax - - - (23.7) (23.7)
Other liabilities (21.3) (54.5) (138.6) (100.3) (314.7)
Net assets 444.7 351.1 519.4 (265.2) 1,050.0
Less non-controlling
interests - - - (5.9) (5.9)
Net assets attributable to owners
of the Company 444.7 351.1 519.4 (271.1) 1,044.1
------------------------------------- ------------ ---------------- ---------------- ----------- ----------------
d. Segment returns
Segment returns on capital employed are calculated as the segmental
profit before interest and tax for the year divided by the average
segmental net assets, after adding back any segmental-specific net
borrowings, for the year, as set out in the table below:
2019 2018
Strategic Strategic
Industrial St. Modwen Land Industrial St. Modwen Land
& Logistics Homes & Re-generation & Logistics Homes & Re-generation
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------------ ------------ ---------------- ---------------- ----------- ----------------
Capital employed at
start of
year 444.7 351.1 519.4 366.8 315.3 873.6
Capital employed at end
of
year 572.7 354.4 475.6 444.7 351.1 519.4
Average capital
employed 508.7 352.8 497.5 405.8 333.2 696.5
----------------------- ------------ ------------ ---------------- ---------------- ----------- ----------------
Profit before interest
and
tax for the year 63.0 40.1 14.6 58.2 31.3 29.6
----------------------- ------------ ------------ ---------------- ---------------- ----------- ----------------
Return on capital
employed 12.4% 11.4% 2.9% 14.3% 9.4% 4.2%
----------------------- ------------ ------------ ---------------- ---------------- ----------- ----------------
5. Other income statement disclosures
a. Exceptional item
The Group income statement includes the expense of making a provision
in relation to a potential claim against the Group for a building
that the Group developed and subsequently sold a number of years ago
and in which various problems are said to have arisen. This has been
reported as an exceptional item as, in the opinion of the directors,
it meets the requirements of the Group's accounting policy for exceptional
items. The net impact of the exceptional item is set out below:
2019 2018
GBPm GBPm
---------------------------------------------------------------- ------- -----
Non-housebuilding inventory
developments 22.5 -
Taxation (4.0) -
Less non-controlling interests (1.2) -
-------------------------------------------------------------------- ------- -----
Net impact of exceptional item attributable to
owners of the Company 17.3 -
------------------------------------------------------------------- ------- -----
6. Finance costs and finance income
2019 2018
GBPm GBPm
------------------------------------------------------------ ---- ----
Interest costs
Interest payable on borrowings 9.7 14.3
Interest payable on lease liabilities 0.5 0.5
Interest on pension scheme liabilities 0.8 0.8
Interest costs 11.0 15.6
------------------------------------------------------------ ---- ----
Other finance costs
Amortisation of loan arrangement fees 1.7 5.3
Amortisation of discount on deferred payment arrangements - 0.1
Movement in fair value of derivative financial instruments 3.1 1.1
Early redemption of retail bond - 3.7
Other finance costs 4.8 10.2
------------------------------------------------------------ ---- ----
Total finance costs 15.8 25.8
------------------------------------------------------------ ---- ----
Interest of GBP3.3m (2018: GBP2.2m) was capitalised into investment
properties and inventories during the year ended 30 November 2019.
2019 2018
GBPm GBPm
------------------------------------------------------------ ---- ----
Interest income
Interest receivable 1.4 1.2
Interest income on pension scheme assets 0.9 0.8
Interest income 2.3 2.0
------------------------------------------------------------ ---- ----
Other finance income
Movement in fair value of convertible bond 0.2 0.4
Other finance income 0.2 0.4
------------------------------------------------------------ ---- ----
Total finance income 2.5 2.4
------------------------------------------------------------ ---- ----
7. Taxation
a. Tax on profit on ordinary activities
The tax charge in the Group income statement
is as follows:
2019 2018
GBPm GBPm
---------------------------------------------------------- ------ -----
Current tax
Current year tax 4.6 9.6
Adjustments in respect of previous
years (1.1) (0.7)
Total current tax 3.5 8.9
-------------------------------------------------------------- ------ -----
Deferred tax
Impact of current year revaluations, indexation
and disposals 7.8 2.3
Net use of tax losses 0.1 -
Other temporary differences (2.4) (1.4)
Change in rate for provision
of deferred tax (0.1) -
Adjustments in respect of previous
years 0.5 2.1
Total deferred tax 5.9 3.0
-------------------------------------------------------------- ------ -----
Total tax charge in the Group income
statement 9.4 11.9
----------------------------------------------------------- ------ -----
All of the Group's subsidiaries, joint ventures (other than those
in liquidation processes) and associates are resident in the UK for
tax purposes and therefore subject to full UK corporation tax.
b. Reconciliation of effective
tax rate
2019 2018
GBPm GBPm
--------------------------------------- ----- --------- ------- -------- --------- --------
Profit before tax 58.9 72.4
Net loss of joint ventures and associates
(post-tax) 2.6 3.1
Profit before tax attributable
to the Group 61.5 75.5
--------------------------------------- ----- --------- ------- -------- --------- --------
Corporation tax at 19.00% (2018:
19.00%) 11.7 14.3
Effect of non-deductible expenses and non-chargeable
income (1.4) (3.7)
Impact of indexation on investment
property (0.2) (0.1)
Change in rate used for provision
of deferred tax (0.1) -
---------------------------------------------- --------- ------- -------- --------- --------
Current year charge 10.0 10.5
Adjustments in respect of previous
years (0.6) 1.4
Tax charge for the year 9.4 11.9
--------------------------------------- ----- --------- ------- -------- --------- --------
Effective rate of tax 15.3% 15.8%
--------------------------------------- ----- --------- ------- -------- --------- --------
The post-tax results of joint ventures and associates are stated after
a tax charge of GBP0.1m (2018: GBP0.1m). The effective tax rate for
the Group including its share of joint ventures and associates is
16.1% (2018: 16.6%).
Legislation substantively enacted at 30 November 2019 included provisions
which reduce the main rate of corporation tax from 19% to 17% with
effect from 1 April 2020. Current tax has therefore been provided
at 19% and deferred tax at 17%.
c. Balance sheet
2019 2018
Current Deferred Current Deferred
tax tax tax tax
GBPm GBPm GBPm GBPm
--------------------------------------- ----- --------- ------- -------- --------- --------
At start of the year 0.9 19.7 6.2 16.6
Charged to the Group income
statement 3.5 5.9 8.9 3.0
Recognised within the Group statement of
changes in equity - - - 0.1
Net payment (4.4) - (14.2) -
At end of the year - 25.6 0.9 19.7
--------------------------------------- ----- --------- ------- -------- --------- --------
An analysis of the deferred tax provided
by the Group is given below:
2019 2018
Asset Liability Net Asset Liability Net
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------- ----- --------- ------- -------- --------- --------
Property revaluations - 25.3 25.3 - 17.2 17.2
Capital allowances - 2.5 2.5 - 3.3 3.3
Appropriations to trading stock - 2.2 2.2 - 0.8 0.8
Unutilised tax losses (0.8) - (0.8) - - -
Other temporary differences (3.6) - (3.6) (1.6) - (1.6)
Total deferred tax (4.4) 30.0 25.6 (1.6) 21.3 19.7
--------------------------------------- ----- --------- ------- -------- --------- --------
At the balance sheet date, the Group has unused tax losses in relation
to 2019 and prior years of GBP4.6m (2018: GBP0.1m). Deferred tax of
GBP0.8m (2018: GBPnil) has been recognised in respect of these losses.
8. Earnings per share
2019 2018
Number Number
of shares of shares
------------------------------------------ ---------- ----------- ----------- -----------
Weighted number of shares in issue(1) 222,084,656 221,964,567
Weighted number of diluted shares relating
to the convertible bond - 19,177,294
Weighted number of diluted shares relating
to share options 2,515,371 2,166,608
------------------------------------------------------ -----------
Weighted number of shares for the purposes of diluted
earnings per share 224,600,027 243,308,469
------------------------------------------------------------------- ----------- -----------
(1) Shares held by The St. Modwen Properties PLC Employee Share Trust
are excluded from the above calculation.
2019 2018
Underlying Exceptional Total Total
GBPm GBPm GBPm GBPm
------------------------------------------ ---------- ----------- ----------- -----------
Earnings for the purposes of basic
earnings per share, being profit for
the year attributable to owners of
the Company 68.0 (17.3) 50.7 60.2
Effect of dilutive potential ordinary
shares:
Interest on convertible bond (net
of tax) - - - 2.3
Movement in fair value of the convertible
bond - - - (0.4)
Earnings for the purposes of diluted
earnings per share 68.0 (17.3) 50.7 62.1
------------------------------------------ ---------- ----------- ----------- -----------
2019 2018
Underlying Exceptional Total Total
Pence Pence Pence Pence
------------------------------------------ ---------- ----------- ----------- -----------
Basic earnings per share 30.6 (7.8) 22.8 27.1
Diluted earnings per share 30.3 (7.7) 22.6 25.5
------------------------------------------ ---------- ----------- ----------- -----------
Note 3 sets out details of EPRA and adjusted EPRA
earnings per share.
9. Dividends
Dividends paid during the year were in respect of the final dividend
for 2018 and interim dividend for 2019. The proposed final dividend
of 5.1 pence per share is subject to approval at the Annual General
Meeting and has not been included as a liability in these financial
statements.
2019 2018
Pence per Pence per
share GBPm share GBPm
--------------------------------------------- ----------- ---- ---------- ----
Paid
Final dividend in respect of previous
year 4.00 8.9 4.26 9.5
Interim dividend in respect of current
year 3.60 8.0 3.10 6.9
Total paid 7.60 16.9 7.36 16.4
--------------------------------------------- ----------- ---- ---------- ----
Proposed
Current year final dividend 5.10 11.3 4.00 8.9
--------------------------------------------- ----------- ---- ---------- ----
The St. Modwen Properties PLC Employee Share Trust waives its entitlement
to dividends with the exception of 0.01 pence per share.
10. Investment properties
2019 2018
GBPm GBPm
--------------------------------------------------------------- -------- ----------
At start of year 939.3 1,168.5
Property acquisitions 24.3 9.1
Additions 117.9 95.5
Net transfers (to)/from inventories
(note 13) (87.4) 13.7
Net transfers to owner-occupied properties - (7.0)
Net transfers to assets held
for sale (15.8) -
Disposals (69.3) (360.4)
Movement in lease incentives 1.6 0.7
Gain on revaluation 47.5 19.2
----------
At end of year 958.1 939.3
------------------------------------------------------------------- -------- ----------
Investment properties were valued at 30 November 2019 and 30 November
2018 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.
As at 30 November 2019, GBP15.4m (2018: GBP15.0m) of investment property
was pledged as security for the Group's loan facilities.
11. Joint ventures and associates
a. Details of material joint
ventures
The Group has the following four material joint venture companies:
Name Status Interest Activity
---------------------------------- -------------- ----------- -----------------------------------------------
Key Property Investments Joint venture 50% Property investment and
Limited development
VSM Estates Uxbridge (Group) Joint venture 50% Property investment and
Limited development
VSM Estates (Holdings) Limited Joint venture 50% Property development
VSM (NCGM) Limited Joint venture 50% Property investment and
development
---------------------------------- -------------- ----------- -----------------------------------------------
The Group's share of the results for the year of its joint
ventures and associates is:
2019
VSM Estates Other
Key Property Uxbridge VSM Estates joint
Investments (Group) (Holdings) VSM (NCGM) ventures
Limited Limited Limited Limited and associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- ------------- ----------- ----------- ---------- --------------- -----
Net rental income 3.7 - - 0.3 0.1 4.1
Property development gains - - 1.4 - 0.1 1.5
Investment property disposals
losses (0.5) - (0.1) - - (0.6)
Investment property revaluation
(losses)/gains (3.3) (1.5) - 1.0 (0.4) (4.2)
Administrative expenses (0.2) - - (0.1) - (0.3)
----------------------------------- ------------- ----------- ----------- ---------- --------------- -----
(Loss)/profit before interest
and tax (0.3) (1.5) 1.3 1.2 (0.2) 0.5
Finance costs (0.7) (1.1) - (2.4) (0.3) (4.5)
Finance income 0.2 - 0.1 1.2 - 1.5
----------------------------------- ------------- ----------- ----------- ---------- --------------- -----
(Loss)/profit before tax (0.8) (2.6) 1.4 - (0.5) (2.5)
Taxation (0.5) 0.4 (0.3) 0.3 - (0.1)
------------- ----------- ----------- ---------- ---------------
(Loss)/profit for the year (1.3) (2.2) 1.1 0.3 (0.5) (2.6)
----------------------------------- ------------- ----------- ----------- ---------- --------------- -----
2018
VSM Estates Other
Key Property Uxbridge VSM Estates joint
Investments (Group) (Holdings) VSM (NCGM) ventures
Limited Limited Limited Limited and associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------------ ----------- ----------- ---------- --------------- -------
Net rental income 5.3 - - - 0.1 5.4
Development profits 1.3 - - - - 1.3
Investment property disposal
losses (1.8) - (0.4) - - (2.2)
Investment property revaluation
losses (7.3) (0.1) - (0.8) - (8.2)
Credit from increased discount
of market liability - - - 4.7 - 4.7
Administrative expenses (0.1) - - - - (0.1)
-------------------------------- ------------ ----------- ----------- ---------- --------------- -------
Profit/(loss) before interest
and tax (2.6) (0.1) (0.4) 3.9 0.1 0.9
Finance costs (1.4) (1.1) (0.1) (3.5) (0.2) (6.3)
Finance income 0.6 - 0.8 1.0 - 2.4
-------------------------------- ------------ ----------- ----------- ---------- --------------- -------
Profit/(loss) before tax (3.4) (1.2) 0.3 1.4 (0.1) (3.0)
Taxation (0.8) 0.8 0.1 (0.2) - (0.1)
Profit/(loss) for the year (4.2) (0.4) 0.4 1.2 (0.1) (3.1)
-------------------------------- ------------ ----------- ----------- ---------- --------------- -------
The Group's share of the balance sheet of its joint
ventures and associates is:
2019
VSM Estates Other
Key Property Uxbridge VSM Estates joint
Investments (Group) (Holdings) VSM (NCGM) ventures
Limited Limited Limited Limited and associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------------ ----------- ----------- ---------- --------------- -------
Property portfolio 55.9 18.6 - 8.9 10.8 94.2
Other assets 2.5 3.2 2.7 65.8 5.7 79.9
------------ ----------- ----------- ---------- ---------------
Gross assets 58.4 21.8 2.7 74.7 16.5 174.1
-------------------------------- ------------ ----------- ----------- ---------- --------------- -------
Net borrowings (3.2) 0.2 9.8 7.0 1.4 15.2
Leases (0.9) - - - - (0.9)
Other liabilities (5.3) (17.2) (4.0) (66.2) (9.7) (102.4)
Gross liabilities (9.4) (17.0) 5.8 (59.2) (8.3) (88.1)
-------------------------------- ------------ ----------- ----------- ---------- --------------- -------
Net assets 49.0 4.8 8.5 15.5 8.2 86.0
-------------------------------- ------------ ----------- ----------- ---------- --------------- -------
Equity at 30 November 2018 50.3 7.0 8.2 15.2 8.4 89.1
(Loss)/profit for the year (1.3) (2.2) 1.1 0.3 (0.5) (2.6)
Injection of capital - - - - 0.3 0.3
Dividends paid - - (0.8) - - (0.8)
Equity at 30 November 2019 49.0 4.8 8.5 15.5 8.2 86.0
-------------------------------- ------------ ----------- ----------- ---------- --------------- -------
2018
VSM Estates Other
Key Property Uxbridge VSM Estates joint
Investments (Group) (Holdings) VSM (NCGM) ventures
Limited Limited Limited Limited and associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------------ ----------- ----------- ---------- --------------- -------
Property portfolio 64.1 18.4 - 7.9 10.3 100.7
Other assets 3.6 3.2 9.5 58.0 6.0 80.3
------------ ----------- ----------- ---------- ---------------
Gross assets 67.7 21.6 9.5 65.9 16.3 181.0
-------------------------------- ------------ ----------- ----------- ---------- --------------- -------
Net borrowings (10.6) 5.9 13.0 24.8 1.1 34.2
Leases (0.9) - - - - (0.9)
Other liabilities (5.9) (20.5) (14.3) (75.5) (9.0) (125.2)
Gross liabilities (17.4) (14.6) (1.3) (50.7) (7.9) (91.9)
-------------------------------- ------------ ----------- ----------- ---------- --------------- -------
Net assets 50.3 7.0 8.2 15.2 8.4 89.1
-------------------------------- ------------ ----------- ----------- ---------- --------------- -------
Equity at 30 November 2017 59.5 7.4 30.6 14.0 8.1 119.6
(Loss)/profit for the year (4.2) (0.4) 0.4 1.2 (0.1) (3.1)
Injection of capital - - - - 0.4 0.4
Dividends paid (5.0) - (22.8) - - (27.8)
Equity at 30 November 2018 50.3 7.0 8.2 15.2 8.4 89.1
-------------------------------- ------------ ----------- ----------- ---------- --------------- -------
In the strategic report a series of commercial contracts with Persimmon
is 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.
Many of the shareholder agreements for joint ventures and associates
contain change of control provisions, as is common for such arrangements.
b. 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 a new market at Nine Elms
continues to have a significant impact on the results and net assets
of the joint venture.
The Group continues to regularly monitor the remaining works required
to establish the market. The Board of VSM (NCGM) Limited, including
representatives of VINCI and St. Modwen, engages an external quantity
surveyor to assess the costs of procuring the market facility. There
have been no significant changes to the timing or quantum of these
estimates during the year ended 30 November 2019. In the year ended
30 November 2018, there were changes to the phasing of the project
during the year that resulted in the recognition of a finance credit
in VSM (NCGM) Limited, with the Group's share of this credit being
GBP4.7m.
The liability of VSM (NCGM) Limited to establish a new market facility
at Nine Elms for CGMA has been calculated by:
- estimating the costs of procuring the market facility at current
rates;
- applying a current estimate of inflation for the period of the build
of 2.0%; and
- discounting the forecast cash flows to today's value using a discount
rate of 5.0%, considered by the Board of VSM (NCGM) Limited to appropriately
reflect the risks and rewards of the procurement.
12. Trade and other receivables
2019 2018
(restated)
GBPm GBPm
--------------------------------------------------------- ----- ------------
Non-current
Deferred consideration on property disposals 4.0 4.9
Amounts due from joint ventures and associates 5.6 -
Other receivables 1.7 1.8
Non-current receivables 11.3 6.7
--------------------------------------------------------- ----- ------------
Current
Trade receivables 15.7 14.1
Prepayments and accrued income 9.6 11.4
Deferred consideration on property disposals 11.0 10.4
Contract assets 19.6 23.4
Amounts due from joint ventures and associates 18.2 18.5
Other receivables 14.4 12.1
Current receivables 88.5 89.9
--------------------------------------------------------- ----- ------------
Included within trade receivables are GBP5.3m (2018: GBP2.8m) due
on the disposal of inventories and GBP1.7m (2018: GBP4.1m) billed
under construction and development contracts with customers.
Contract assets represent the total revenue recognised on the cumulative
spend incurred on the development of land not under the control of
the Group less the cumulative receipts in respect of such development.
Where this development is for the construction of assets on property
pre-sold by the Group, the construction expenditure and revenue receipts
profile are not materially different. On larger infrastructure projects
undertaken by the Group through a development agreement, there are
often limited receipts in the early phases of development and more
significant receipts as the project advances, resulting in contract
assets being recognised that reduce over time. The reduction in contract
assets during the year ended 30 November 2019 is due to receipts on
one such development agreement exceeding the revenue recognised during
the year.
13. Inventories
The movement in inventories during the two years ended 30 November
2019 is as follows:
2019 2018
GBPm GBPm
------------------------------------------------------------ -------- -------
At start of year 366.4 352.7
Acquisitions 11.8 51.7
Additions 214.3 207.0
Net transfers from/(to) investment property (note
10) 87.4 (13.7)
Disposals (259.5) (231.7)
(Increase)/decrease in net realisable value provisions (3.9) 0.4
At end of year 416.5 366.4
------------------------------------------------------------ -------- -------
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.
The value of inventories expensed during the year ended 30 November
2019 and included in development profits was GBP263.4m (2018: GBP231.3m).
14. Trade and other payables
2019 2018
GBPm GBPm
-------------------------------------------------------------- ------ ------
Current
Trade payables 50.0 44.7
Accruals and deferred income 54.2 71.1
Deferred consideration on property acquisitions 6.3 19.7
Contract liabilities 4.6 0.9
Amounts due to joint ventures and associates 20.2 18.3
Other payables 5.1 3.5
Current payables 140.4 158.2
-------------------------------------------------------------- ------ ------
Non-current
Accruals and deferred income 4.2 1.6
Deferred consideration on property acquisitions 4.1 4.1
Amounts due to joint ventures and associates 6.5 -
Non-current payables 14.8 5.7
-------------------------------------------------------------- ------ ------
Contract liabilities represent the cumulative revenue receipts in
respect of the development of land not under the control of the Group
less the total revenue recognised on such development expenditure.
This development is generally for the construction of assets on property
pre-sold by the Group and ordinarily the construction expenditure
and revenue receipts profile are not materially different on these
contracts. Liabilities can arise where performance obligations have
been satisfied, but invoices have not been received for works completed
or amounts due. The increase in contract liabilities during the year
is due to this circumstance arising on two completed contracts.
15. Borrowings and lease liabilities
2019 2018
GBPm GBPm
------------------------------------- ----- -----
Current
Convertible bond - 100.2
Lease liabilities 1.4 -
Current borrowings and lease
liabilities 1.4 100.2
-------------------------------------- ----- -----
Non-current
Bank loans 354.0 210.0
Lease liabilities 6.9 3.0
----- -----
Non-current borrowings and
lease liabilities 360.9 213.0
-------------------------------------- ----- -----
16. Provisions and contingent liabilities
Legal claims
GBPm
---------------------------------------------------------- ----------------
Reclassified from trade and other payables 1.4
Created 24.5
Utilised (1.4)
Carried forward 24.5
----------------------------------------------------------- ----------------
During the year ended 30 November 2019, a provision of GBP22.5m has
been made in relation to a potential claim against the Group for a
building that the Group developed and subsequently sold a number of
years ago and in which various problems are said to have arisen. No
detailed articulation of the claim has yet been made and there is
limited information available at this early stage. Therefore there
is significant estimation uncertainty over the amount and timing of
any outflow of economic benefits and therefore in the carrying value
of the provision. Further disclosure regarding this uncertainty is
provided in the Group accounting policies note.
Based on the limited evidence available at the date of signing these
financial statements, the range of reasonably possible outcomes of
the carrying amount of the provision for this matter is between GBP15.7m
and GBP27.7m. The Group contracted the design and development of the
building to third parties and there is the potential of some or a
significant proportion of any settlement being reimbursed by these
third parties. In accordance with IAS 37, no reimbursement asset has
been recognised at 30 November 2019 as reimbursement is not virtually
certain.
At 30 November 2019, the directors, having taken legal advice where
necessary, consider that the possibility of an outflow in settlement
of any unprovided legal claims is remote.
17. Share capital
2019 2018
Ordinary Equity Ordinary Equity
10p shares share capital 10p shares share capital
Number GBPm Number GBPm
------------------------- ----------- -------------- ----------- --------------
At start and end of year 222,376,988 22.2 222,376,988 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.
No shares were issued during the years ended 30 November 2019 or 30
November 2018.
Excluding 210,434 (2018: 345,744) of own shares held by The St. Modwen
Properties PLC Employee Share Trust, shares in issue at 30 November
2019 are 222,166,554 (2018: 222,031,244).
PRINCIPAL RISKS AND UNCERTAINTIES
for the year ended 30 November 2019
We have a well-defined system of internal controls, supported by a robust risk management framework, which enables the Group to identify and understand the risks encountered in the course of our business. Our transparent governance structure ensures we can effectively review existing and emerging risks, as well as the factors that mitigate them. We monitor these, alongside our key risk indicators, with the aim of remaining within our risk appetite.
The Board has considered and reviewed the principal risks and emerging risks that could impact the achievement of the Group's strategic objectives. While not exhaustive, the principal risks and uncertainties facing the Group in 2020 are set out below, along with their potential impact and plans to mitigate them.
1. Changes in economic and market conditions
----------------------------------------------------------------------------
Residual risk level: High Risk trend: Increasing Risk probability: Likely
-------------------------- ---------------------- ------------------------
Risk impact
* Portfolio valuation
* Customer and investor demand for our product
----------------------------------------------------------------------------
Risk monitoring undertaken
* Sales/cancellation rates
* House price trends
* Property valuation trends
* Speculative development exposure
* Occupier take-up
----------------------------------------------------------------------------
Principal risk
Economic factors including Government influence, supply and demand
for products, employment, international trade and inflation rates
may impact values and business operations; in particular our ability
to construct, import material, and access skilled resources, ultimately
impacting our ability to achieve the business model.
Mitigating controls
* Focus on sectors with structural growth drivers
* Annual review of strategy and business plan
* Scenario planning to stress-test plans and forecasts
* Monitoring of Brexit and macro level indicators
* Monitoring of property markets indicators
* Regular performance reviews
----------------------------------------------------------------------------
2. Social and technological change
------------------------------------------------------------------------------
Residual risk level: Medium Risk trend: No change Risk probability: Possible
--------------------------- --------------------- --------------------------
Risk impact
* Portfolio valuation
* Customer demand
* Development costs
* Development pipeline
* Future growth potential
------------------------------------------------------------------------------
Risk monitoring undertaken
* In-house expertise alongside leading external
analysis assess current and emerging risks, ensuring
St. Modwen can adapt to trends
Principal risk
The continued pace of both social and technological change affects
demand for, and location of, both homes and industrial and logistics
space and impacts delivery of the business plan.
Mitigating controls
* Focus on sectors with structural growth drivers
* Investment in new customer-focused roles
* Monitoring of market trends and customer demand
* Active engagement with occupiers
* Increased investment in digital technology
------------------------------------------------------------------------------
3. Product and service delivery
------------------------------------------------------------------------------
Residual risk level: Medium Risk trend: No change Risk probability: Possible
--------------------------- --------------------- --------------------------
Risk impact
* Financial loss
* Reputational damage
* Increased WIP exposure
* Development delay
* Delayed housing sales
------------------------------------------------------------------------------
Risk monitoring undertaken
* Monitoring of execution on existing projects
* Monitoring housebuilding customer satisfaction
Principal risk
Failing to successfully invest in, develop and deliver, innovative,
market-leading products and services, impacting future growth.
Mitigating controls
* Use of pool of specialists and high-quality partners
* In-house development and asset management capability
* Investment in new customer focused roles
* Development appraisals, detailed budgets, monitoring
of actuals and actioning of variances
* Regular performance reviews
* Brexit contingency planning, including accelerated
procurement of key risk items
------------------------------------------------------------------------------
4. Customer and supply chain management
------------------------------------------------------------------------------
Residual risk level: Medium Risk trend: No change Risk probability: Possible
--------------------------- --------------------- --------------------------
Risk impact
* Customer satisfaction
* Customer demand
* Quality of delivery
* Timeliness of delivery
* Cost of delivery
------------------------------------------------------------------------------
Risk monitoring undertaken
* Key performance indicators at business unit level to
monitor customer and supply chain management risk
* Robust due diligence processes ensure we take a
cautious approach to working with contractors
Principal risk
Inadequate assessment and planning with our partners leading to poor
relationships and products and an inability to meet customer demands.
Mitigating controls
* Partnering and working collaboratively with supply
chain
* Robust tendering programme
* Use of pool of specialists and high-quality partners
* Monitoring contractor/subcontractor performance
* Customer management
* Brexit contingency planning, including accelerated
procurement of key risk items
------------------------------------------------------------------------------
5. Management of health and safety
------------------------------------------------------------------------------
Residual risk level: Medium Risk trend: No change Risk probability: Possible
--------------------------- --------------------- --------------------------
Risk impact
* Injury or death
* Financial loss
* Reputational damage
* Development delay
------------------------------------------------------------------------------
Risk monitoring undertaken
* Accident Frequency Rate
* RIDDOR reportable incidents
Principal risk
Insufficient processes and controls in place increasing employee exposure
to hazards potentially resulting in harm and damage to our brand and
a reduction in customer interest in our products.
Mitigating controls
* Regularly reviewed health and safety policy and
procedures in place
* Defined business processes in place to proactively
manage issues arising
* Group Health and Safety Committee
* Regular reporting of performance against indicators
to the Executive Committee and the Board
* Dedicated in-house health and safety resource
* Staff training
* Annual cycle of audits
------------------------------------------------------------------------------
6. Environmental management
----------------------------------------------------------------------------------
Residual risk level: Medium Risk trend: No change Risk probability: Possible
----------------------------- ---------------------- ---------------------------
Risk impact
* Development delay
* Reputational damage
* Financial loss
* Unforeseen environmental issue
----------------------------------------------------------------------------------
Risk monitoring undertaken
* Annual environmental audit of the portfolio
Principal risk
Increase in pollution and exposure to harmful substances through mismanagement
of environmental risks during our construction and development activities
has a detrimental impact on our brand and reputation.
Mitigating controls
* Environmental risk assessments
* Environmental management and contamination
remediation plans post site acquisition
* Annual independent environment audits
* Warranties for professional and remediation contractors
----------------------------------------------------------------------------------
7. Financial
------------------------------------------------------------------------------
Residual risk level: Medium Risk trend: No change Risk probability: Possible
--------------------------- --------------------- --------------------------
Risk impact
* Liquidity
* Availability of funding
* Indebtedness
* Covenant compliance
------------------------------------------------------------------------------
Risk monitoring undertaken
* Loan-to-value
* Financial headroom
* Covenant metrics
Principal risk
Inability to access funding or control financial leverage leading
to a shortage of capital to deliver on our objectives.
Mitigating controls
* Capital recycling to control borrowings
* Regular engagement with financial institutions
* Focus on growing recurring income
* Regular and detailed cash flow forecasts
* Scenario planning to stress-test plans and forecasts
------------------------------------------------------------------------------
8. Management of the portfolio and future pipeline
------------------------------------------------------------------------------
Residual risk level: Medium Risk trend: No change Risk probability: Possible
--------------------------- --------------------- --------------------------
Risk impact
* Portfolio valuation
* Rental income
* Development delivery
------------------------------------------------------------------------------
Risk monitoring undertaken
* Speculative development exposure
* Leasing and sales
Principal risk
Inadequate or inappropriately located land bank and portfolio leading
to failure to attract customers for our product.
Mitigating controls
* Focus on sectors with structural growth drivers
* Disposal of non-core assets
* Ongoing review and assessment of market conditions
and geographic locations
* Monitoring of leasing and sales indicators
------------------------------------------------------------------------------
9. People
------------------------------------------------------------------------------
Residual risk level: Medium Risk trend: No change Risk probability: Possible
--------------------------- --------------------- --------------------------
Risk impact
* Lack of skills
* Cost and business disruption
* Growth potential
------------------------------------------------------------------------------
Risk monitoring undertaken
* Overall employee satisfaction
* Voluntary employee turnover
Principal risk
Inability to attract and retain talent to deliver on our strategy.
Mitigating controls
* Investment in our workforce to become an employer of
choice through training and development, promotion of
talent and competitive compensation
* Make our purpose and values core in everything we do
* Invest in graduate trainee and work experience
------------------------------------------------------------------------------
STATEMENT OF DIRECTORS' RESPONSIBILITIES
for the year ended 30 November 2019
The directors are responsible for preparing the annual report and Group and Company financial statements in accordance with applicable law and regulations and this statement has been prepared in connection with the annual report and Group and Company 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.
Under applicable law and regulations, the directors are responsible for preparing a strategic report, corporate governance statement, directors' remuneration report and directors' report that complies with that law and those 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 confirms 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 Group's position and performance, business model and strategy.
Approved by the Board and signed on its behalf by
Andrew Eames
General Counsel & Company Secretary
3 February 2020
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR EADADEALEEAA
(END) Dow Jones Newswires
February 04, 2020 02:01 ET (07:01 GMT)
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