SMP.L Regulatory News (SMP)

12 Feb 2007 07:01

St. Modwen Properties PLC12 February 2007 St. Modwen Properties PLC Preliminary results for the year ended 30 November 2006 St. Modwen posts record results for fourteenth successive year St. Modwen Properties PLC is a regeneration specialist which focuses on towncentre regeneration; partnering industry in its restructuring; brownfield landrenewal; and restoring heritage Highlights * Profit before tax increased by 17% to £96.9m (2005: £82.9m) * Earnings per share up 11% to 61.6p (2005: 55.4p) * Net assets per share increased by 20% to 323p (2005: 268p) * Proposed final dividend of 6.8p per share (2005: 5.9p) increasing total dividends for the year by 16% to 10.2p (2005: 8.8p) * Significant progress in marshalling future major projects Anthony Glossop, Chairman, comments: "On the back of our marshalling programme, we move into the present year with astrong, if demanding, target. The present year has started well, but the resultswill be more second-half orientated than in the past. Overall I would expect itto be a year of continued progress and we remain on track to meet our corporatefinancial target of doubling net asset value per share every five years." 12 February 2007 ENQUIRIES: St. Modwen Properties PLC www.stmodwen.co.ukAnthony Glossop, Chairman On 12 February - 020 7457 2020Bill Oliver, Chief Executive thereafter - 0121 222 9400Tim Haywood, Finance Director College Hill www.collegehill.co.ukGareth David 020 7457 2020 A presentation for analysts and investors will be held at 11.00am today atCollege Hill, 78 Cannon Street, London EC4 Chairman's Statement Results I am pleased to report on a fourteenth successive year of record results; a yearin which we have not only produced a strong trading and revaluation performancebut have also made significant additions to the hopper and good progress inmarshalling future projects. Profits before tax increased by 17% to £96.9m (2005:£82.9m) earnings per sharegrew by 11% to 61.6p (2005:55.4p) and net assets per share increased by 20% to323p (2005:268p). Our key performance measurement of total pre-tax return on average shareholders'equity was 27.5% (2005:28.5%). Dividend Your board is recommending a final dividend of 6.8p (2005:5.9p) per ordinaryshare, making a total distribution for the year of 10.2p (2005:8.8p), anincrease of 16%. This final dividend will be paid on 4th May 2007 toshareholders on the register on 13th April 2007. International Financial Reporting Standards ("IFRS") As advised in the Interim Report, our results are now presented in a verydifferent format from that to which you have been accustomed. This arises fromthe introduction of IFRS, the principal effects of which, apart from purelypresentational ones, are that revaluations are shown on the face of the IncomeStatement and that the deferred tax provision on revaluations is included inboth the Income Statement and the Balance Sheet. The substance of the business is not affected by the introduction of IFRS.However, bringing revaluations on to the Income Statement may make futurereported results more variable. The revaluations reflect pure market movementsin addition to those which have arisen from our own efforts and to that extentare less within our control. In the recent past, we have benefited in ourrevaluations from a strong market but a flat or weak market would not give ussuch a benefit. Historically, this would have been seen only in our BalanceSheet but it is now recognised in the Income Statement. Strategy Your company's strategy remains unaltered. We are regeneration specialists,operating through a network of six regional offices, with four particularspecialisations: town centre regeneration, partnering industry in itsrestructuring, brownfield land renewal, and heritage restoration. Much of theprogramme is carried out with partners from both the public and private sectors. We are not a sectoral specialist. We have the skills to serve the full rangeof market sectors: distribution, industrial, leisure, office, residential andretail. Our real skill is in the process of taking challenging regenerationopportunities and seeing them through to the completion of a successful builtdevelopment, whatever the mix of uses the opportunity deserves. The key to the strategy is the continuing acquisition of well-locatedopportunities to top-up the hopper. In this year, we have acquired a goodnumber of opportunities, two of which are particularly noteworthy, namely ourparticipation with Vinci PLC in Project MoDEL, a rationalization of part of theMinistry of Defence estate in London, and our selection by West LancashireDistrict Council and English Partnerships to be their preferred partners for theredevelopment of Skelmersdale Town Centre. These two schemes demonstrate just how far your company has come in the twentyyears of its existence as a property operation. We are now able to putourselves forward in competition for the most challenging regeneration projectsand be selected. We remain differentiated from many of our peers by our determination to growthrough realised profits rather than just revaluations and to obtain both therealised profits and the revaluations by actually adding value ourselves ratherthan by relying on market movement. The latter is obviously a very pleasantaddition when it is available but we do not see it as a reliable feature onwhich to build the business. Governance We have always sought to manage our affairs to the highest standards ofintegrity and business competence and your board takes proper cognisance ofcorporate governance initiatives. Any departures, however minor, will be forgood reasons in the spirit of the regulations and will be fully and openlyexplained. We recognise that our projects have a considerable impact on the areas in whichthey are located. We genuinely believe that our projects improve those areasbut, as is the nature of most projects, the outcome is a balance betweeneconomic viability and community aspirations. Directors and Employees The continued run of record results and the good prospects for the future couldnot have been achieved without a committed and highly competent team at alllevels in the organisation. My thanks go to everyone for the efforts they haveput in to achieving yet another successful year. The company continues to benefit from a strong board. The executive team issupported by committed non-executives who are not afraid to question andchallenge. I am delighted that Steve Burke, our construction director, has been appointedto the board. Steve joined us in November 1995 and, recruiting an excellent teamof construction managers, lifted our delivery process to a higher level. Hiscontribution has been a major factor in our winning a number of the majorschemes where he has been able to give confidence to our customers and partners. Prospects On the back of our marshalling programme, we move into the present year with astrong, if demanding, target. The present year has started well, but the resultswill be more second-half orientated than in the past. Overall I would expect itto be a year of continued progress and we remain on track to meet our corporatefinancial target of doubling net asset value per share every five years. ANTHONY GLOSSOPChairman 12 February 2007 BUSINESS REVIEW Our Market The company's core operation is within the UK property development andinvestment market. The investment property market remains very strong but it will be interesting tosee how much further, if at all, yields can fall, particularly as interest ratesare trending upwards. The occupational market remains variable but stilloffers opportunities for an active developer. In some retail areas we areseeing weaker demand or at least harder negotiations and the business officepark market in the Midlands remains flat. However, overall, we are continuingto find profitable opportunities across the entire range of our activities. Competitive and Regulatory Environment The UK property market is extremely competitive. Natural barriers to entry arelow. Finance is usually readily available and advantages of scale, althoughthey do exist, are limited. It is rare, therefore, for the company not to be inserious competition whether it is seeking to make an acquisition, to achieveselection as preferred developer, or to secure an occupier. By contrast, the regulatory environment is restrictive and becoming increasinglymore so. Attempts to simplify and speed up the planning process have notworked and the cost and timescale involved in obtaining planning permission arecontinuing to escalate. The process of recycling brownfield land is becomingsteadily more challenging with risk based environmental assessments requiring avery high level of understanding of the remediation process. To a considerable extent, the regulatory challenges create an opportunity inwhich a developer with appropriate skills and determination can build along-term viable business. Business Model and Strategy The underlying purpose of all St. Modwen's activity is to add value to theproperties it controls. Even those activities referred to as operating venturesare integral to that core purpose. The aim is that no property should beacquired or retained unless it is believed that significant value can be addedto that property by the company's own efforts - asset management, refurbishmentor redevelopment - in a flat market over a five to fifteen year horizon. A classic challenge for a company such as yours is how to achieve a constant orrising stream of profits from an activity which some see as inevitably cyclicaland the Chairman's Statement notes how bringing revaluations on to the IncomeStatement may in future make that Statement more variable. St. Modwen hassought to meet this challenge by a consistent and long-term strategy. Through anetwork of six regional offices we create a broadly-based programme of activity,much of which is carried out with partners from both the public and privatesectors. Our public sector partnerships include: long-term joint companies, developmentagreements or leases with local authorities and regional development agencies. We also participate in a number of partnerships with other property companies. The key to our strategy is the continuing acquisition of well locatedopportunities to top-up the hopper. The hopper is a bank of development opportunities. It is:- • long term - We seldom source properties for development within threeyears. The normal development horizon is five years or more; • broadly based - St. Modwen is not a sectoral specialist. We cansuccessfully deliver a wide range of outputs. St. Modwen can, therefore, adjustthe mix of its development programme to match market opportunities; • geographically spread - Operating through its regional offices, St.Modwen combines the strength of a local developer with the power of a nationalcompany; • focused upon regeneration - St. Modwen goes where it is needed,rather than where it is fashionable, undertaking town centre regeneration,partnering industry in its restructuring, brownfield land renewal, and heritagerestoration: • acquired in its rawest state - Most added value and more flexibilitycan be achieved if a developer tackles property and risk from the outset of theregeneration process. The hopper now comprises more than 5,000 acres of developable land This business model requires hands on management, a skilled committed team and aflexible medium-term programme of marshalling projects from the hopper throughto the shorter-term development programme. The consistency of future performancedepends on the successful interaction of these elements. All development and property management activity is undertaken by the regionaloffices, supported and supplemented by a strong central team, providingconstruction, planning, financial, and commercial expertise. Employees One of the major challenges for the company is to recruit and retain a teamcapable of handling the fast-growing and ever-more complex range of projectswhich we undertake. Many of our key staff have been with us for many years, butthat core needs regular replenishment with recruits of as good, if not better,quality. We now employ 267 staff, including 12 surveyors, property andconstruction managers who joined us during the year. Financial Objectives and Key Performance Indicators The company has a straightforward economic model with a target to double netasset value per share every five years. This has been achieved for over adecade, and still remains the company's key target. We also measure return on shareholders' equity as a key performance indicator.This has remained within a band of 25% to 29% over the past five years. Year Net Asset Return on per share Shareholders' Growth(1) Equity(2) 2006 20.3% 27.5%2005 22.0% 28.5%2004 23.7% 28.0%2003 16.4% 25.6%2002 17.5% 26.9% Cumulative 149% Average 27.3% Target 100% 25% (1) Net asset figures prior to 30th November 2004 are restated on an IFRS basis, but do not reflect the reclassification of certain work in progress assets and their subsequent revaluation. (2) Return on shareholders' equity = profit before tax as a percentage of average shareholders' equity. The company's other key performance indicator is to replace opportunities usedin the year by new acquisitions at a rate of 120%. The growth in the hopper inrecent years has evidenced the achievement of this target. Development and Performance of the Business The Hopper - assembly and acquisition Despite a highly competitive market, 2006 was a record year for acquisitions. Our total expenditure on acquisitions (including 100% of joint ventures)during the year was £267m, the vast majority of which is on deferred paymentterms, including £231m in respect of Project MoDEL. As a result, the hopper(including 100% of joint ventures) was boosted by 807 acres to 7,578 acres, ofwhich 5,058 is developable. Since 1999 the size of the hopper has increased, as follows: 1999 2005 2006 Total Acres 3,239 6,771 7,578 Developable- Retail and Lesiure 105 312 325- Employment 702 2,165 2,298- Residential 652 922 1,203- Unspecified - 999 1,232 1,459 4,398 5,058 Possibly the most significant transaction in the year was Project MoDEL. The UK Ministry of Defence (MOD) and VSM Estates - a partnership between VinciPLC and St. Modwen - reached financial close on Project MoDEL in early August.This project enables the MOD real estate in north-west London to be consolidatedon a single site at RAF Northolt. The £150m redevelopment by VSM of RAF Northolt will create the MOD's firstintegrated core site in London providing service personnel with new living,working and messing accommodation plus sports, social, health and welfarefacilities. The surplus sites released through the project comprise some 250 acres in sixlocations: - RAF Uxbridge;- RAF Bentley Priory;- RAF Eastcote;- RAF West Ruislip;- Inglis Barracks, Mill Hill;- Victoria House, Woolwich VSM will marshal these opportunities through the planning process over the nextfive years with a view to realising their considerable potential forpredominantly residential redevelopment. The project is being funded via an innovative new procurement methodology calledPrime Plus Contracting which combines traditional property finance with projectfinance and PFI models. As reported in last year's Annual Report, in January 2006 we acquired MeltonPark, Hull, a 234 acre development opportunity, and Pegasus Business Park, a 31acre former Rolls Royce factory site in Glasgow. In addition to these, we also completed 17 other acquisitions in the yearincluding: seven former Kwik Save stores from Somerfield PLC; and a 23 acreemployment site in Worcester. Many of the assets in our hopper are, however, not acquired outright, withcontrol being obtained in a variety of ways that optimise our financial gearing.This trend continued during 2006 with our selection as preferred developer for anumber of important projects, including:- • Skelmersdale - selected by West Lancashire District Council and English Partnerships as preferred developer for the mixed use redevelopment of Skelmersdale Town Centre. This £350m project covers some 250 acres and will contain significant retail, leisure, office and community elements, first-rate public realm and new residential provision to connect the existing town centre with outlying residential estates. • Blackburn Medipark - selected by Blackburn with Darwen Council as preferred developer for the creation of a 15-acre business park specialising in providing facilities for medical, technology and knowledge-based firms. • Prescot - development agreement signed with Knowsley Borough Council to create a 215,000 sq ft managed workspace and business village. The first phase is now under construction. • Yalding, Kent - agreement signed with Syngenta Ltd for the remediation and redevelopment of its 100 acre former agro-chemical plant site. • Bognor Regis - selected by Arun District Council as its preferred developer for two town centre mixed use regeneration projects, with an end value in excess of £100m Marshalling Progress made on marshalling projects in 2006 will contribute to performance in2007 and beyond. Our Edmonton development remains on programme and on budget. In 2006 we havecompleted the construction of the bus station, the leisure centre, the primarycare facility and the concourse retail, and are currently fitting out theleisure centre and residential apartments. At Wembley we have demolished thecentral section of the Wembley Central Square Shopping Centre and have commencedwork on the scheme's social housing element as the first stage in thelong-awaited redevelopment of the centre. More than 50 planning consents were obtained in the year for a wide variety ofprojects, including: - Outline planning consent for 550 homes and 170,000 sq ft ofindustrial development at Taunton Trading Estate, a 63-acre former Ministry ofDefence site, - Outline planning consent for up to 800,000sq ft of industrial/distribution uses on 55 acres of the 212-acre Access 18scheme in Avonmouth, Bristol. This could provide recycling/ecopark facilitiesthat could play a major role in Bristol's waste management strategy - Outline planning consent for 200 homes and 25,000 sq ft of employmentfacilities at Guiseley, West Yorkshire. - Detailed planning consent for 550 homes, a downsized Goodyearfacility and retained offices, 20,000 sq ft of neighbourhood retail, a 3 acresports and social club, and a neighbourhood park, at the former Goodyear site inWolverhampton. In addition, at both Llanwern and Longbridge, real progress has been made inbringing these sites through the planning process. At Llanwern, we submitted an application in March 2006 for some 4,000 new homes,phased over a 20-year period, together with 100 acres of new employment space,with approximately 1.5m sq ft of office, factory and warehouses. We areanticipating a decision on this application during the course of 2007. At Longbridge, we are working with Birmingham City Council, and BromsgroveDistrict Council on Area Action Plans which should crystallise the shape of thesite's future development. In the year, we have been involved in a majornew-style consultation exercise which we hope will lead to the identification ofa preferred option early this Spring and its adoption by late 2007. Steady progress is also being made on our existing development agreements,including those at: - Hatfield - resolution to grant planning consent has been obtained forthis £100m mixed use regeneration scheme of 200,000sq. ft of commercial space,including 45 shops, cafes and restaurants, a 532 space multi-storey car park, anew library, indoor market hall, leisure and community facilities, a businterchange and 296 residential units. CPO applications were submitted andSection 106 agreements advanced during the year. - Bedford Town Centre West - an application for outline planningconsent has been submitted for a mixed use scheme with 385,000 sq.ft retail,96,000 sq.ft leisure, a hotel, 330 residential units, a car park and a BusStation. - Great Homer Street - Good progress has been made on moving forwardthe outline planning application for a mixed use scheme comprising a 120,000sqft superstore, 70,000sq ft retail, 480 homes, 30,000 sq ft leisure, and 80,000sq ft of light industrial. A resolution to grant planning permission has beenreceived post year end from Liverpool City Council Finally, we are one of two on The London Borough of Southwark's shortlist to beselected as preferred developer for the major £1.5bn Elephant & Castle scheme,which is centred on the site of our existing shopping centre. We remainconfident that we will play a significant role in this project. PLANNING PERMISSIONS OBTAINED IN THE YEAR # Sq Ft Units Residential 10 2,512Retail 7 376,000Commercial 25 2,318,000Office 12 368,000 Delivery It has been a consistent policy of the company to recycle its capital resourcesby selling completed developments and any assets where it is no longer possiblefor us to add further significant value. During 2006 we completed 41 propertydisposals, including:- • Lyndon House, Birmingham, a 75,000 sq ft office block, the location ofour former head office, was sold on completion of an extensive refurbishment andasset management programme • The Mead, a 24,000 sq ft retail development in Farnborough town centrethrough Key Property Investments, was sold to Standard Life Investment Funds Ltdin a transaction which also enabled us to acquire from the Fund the siteopposite, which has development potential. • A 157,000 sq ft warehouse at The Cofton Centre, Longbridge, formerlyused for MG Rover's parts distribution, was sold to PRG Europe, the UK's leadingsupplier of lighting and projections solutions to the entertainment and eventsindustries. This represents the first deal to bring a major occupier to thissite since the company began its massive regeneration programme, and a firststep towards creating the targeted 10,000 jobs from the redevelopment In the industrial/distribution sector we completed over a million sq ft,including at our 400 acre Trentham Lakes site in Stoke on Trent:- • a 437,000 sq ft distribution facility for Glen Dimplex • a 120,000 sq ft warehousing and office extension to the existingdistribution centre for Pets At Home; • a 100,000 manufacturing facility for Rieter Automotive; and • a 64,000 sq ft warehouse building for Portmeirion Potteries; The business park office market has been quite difficult, and our activity inthat sector has been relatively subdued. We have nevertheless made goodprogress in completing and selling a number of projects, notably the 45,000 sqft Etruria Office Village development in Stoke on Trent. Residential land sales from our brownfield land renewal programme have againfigured prominently in the year with completions at: • Norton Park, Stoke on Trent (14 acres sold to Taylor Woodrow withplanning for 270 homes); • the former Bestwood colliery site in Nottingham (12 acres sold toGeorge Wimpey with planning for 175 homes); • Hilton, Derby (13 acres sold to George Wimpey for 272 homes, bringingto 700 the total of homes ultimately built on this former MoD site); 2006 has been a very active year for our construction team, who at the end ofthe year were on site with a large number of schemes including: • Edmonton Green (continuing progress with the retail, leisure andresidential elements of this £100m mixed use scheme); • Wembley (commencement of the £75m mixed use regeneration of theshopping centre); • St Matthews Quarter, Walsall (a 118,000 sq ft Asda foodstore, 1,000space multi-storey car park and 41 apartments for Accord Housing Association); • Longbridge Technology Park, (a £15m first phase comprising, a 45,000sq ft Innovation Centre which will provide serviced accommodation from 250 sq ftfor start-up technology based businesses and a 35,000 sq ft, building to providegrow-on space for companies wanting to expand and requiring accommodation of4,000 sq ft or more); We continue to devote considerable resources to improving both the value andincome of the property we own through a variety of asset management activities.We have a large and diverse tenant and property base, which suits our activeapproach to management. During the year ended 30th November 2006, our in-houseteam undertook:- • 265 rent reviews and lease renewals, achieving an uplift in rents of£3.9m and • 239 new lettings, producing additional rent roll of £7.3m, which morethan offset the 245 vacations (rent roll £5.0m) At Trentham, the gardens attracted 133,000 visitors (2005: 93,000) and, with atotal of 2.1m visitors to the site (2005:1.5m), a trading profit before interestof £0.3m (2005:£0.5m loss) was achieved. Extensive works continued on thisheritage restoration scheme, with the completion of the second 24,000 sq ftphase of heritage craft and leisure retail, together with the start on site ofthe 120-bedroom hotel that has been pre-let to Golden Tulip. Our other operating ventures also made good progress in the year. TheAvonmouth landfill made a contribution of £1.6m (2005:£0.9m), and the SolihullIce Rink £0.5m (2005:£0.3m). (For further details of projects referred to in this Business Review, and otherprojects, see our website www.stmodwen.co.uk). FINANCIAL REVIEW IFRS This is the first year that our results are reported under IFRS. Thecomparative figures for 2005 have been restated on the same basis. (In commonwith most listed companies we continue to present parent company informationunder UK GAAP). The principal impacts of adopting IFRS were described in our interim report andare reproduced in this report in note 14 to the accounts. An important point tounderstand is that IFRS affects accounting only. There is no operational impacton the underlying business or its cash flows. The main impacts on the financial statements are:- • Movements in the valuation of investment properties are included inthe Income Statement • Deferred tax is provided on net property revaluation surpluses • Certain properties, previously held in work in progress, have beenreclassified as investment properties and are now carried at independentvaluation, not at cost • Dividends are only recognised once they are approved As a result of these (and other smaller, adjustments described in note 14), thepreviously reported numbers for the year ended 30th November 2005 have beenrestated as follows:- Previously reported As restated UK GAAP IFRS Net assets 330.7m £324.0mProfit before tax 46.3m £82.9mEarnings per share 28.7p 55.4pNet assets per share 274p 268pGrowth in net assets per share 24% 22% Profit before tax Under IFRS, profit before tax represents the total pre-tax return (but after taxon joint ventures) to shareholders for the year, including both realised profitsand unrealised gains on the revaluation of investment properties (which hadpreviously been taken directly to reserves). The principal factors behind the17% increase in profit before tax in the year are shown in the table below: PROFIT BEFORE TAX £m Year ended 30th November 2005 82.9 Net rental income (7.0)Property profits 5.3Valuation gains 10.7Administrative expenses 1.2Finance charges (1.6)Joint venture tax 4.0Other items 1.4 Year ended 30th November 2006 96.9 Net rental income Net rental income for the year, including our share of rent from joint ventures,fell as expected by 17% to £33.2m (2005: £40.2m). The continuing stronginvestment market, while yielding good prices for sales of our completeddevelopments, makes the acquisition of income-producing properties with scopefor adding value increasingly challenging. As a result, the impact of disposalsand acquisitions on net rental income in the year was a reduction in net rent of£1.2m. The resolution of the uncertainty surrounding our Longbridge site, withNanjing Automotive Group UK Limited taking an assignment of the 33 yearremainder of MG Rover's lease over 105 acres, has resulted in the release ofsome 159 acres for development, but a reduction in net rental income of £1.6m.In addition, there were a number of special situations, such as the temporaryvacation of Hannibal House at Elephant & Castle, which led to a short-termreduction in our rent receivable. During early 2007, heads of terms have beenagreed that will result in Hannibal House being fully re-let. At 30th November 2006, the gross rent roll, including our share ofrent from joint ventures, was £35.3m (2005 - £40.8m). A number of our sitessuch as Farnborough Town Centre are currently being managed in such a way as toenable development to commence in the near future, and a number ofrecently-acquired sites (including South Ockendon, Essex, Pegasus Business Park,Glasgow and Brockton Business Park, Telford) were acquired vacant and have takenlonger to let than we had hoped. Consequently, during the year under review, ouroverall voids remained static at 18.5%, which is consistent with our developmentstrategy for the portfolio. Property profits Property profits, including our share of joint ventures, increased by 13% to£44.6m (2005:£39.3m). 41 property disposals were completed in the period, ofwhich 11 contributed profits over £1m. Investment property revaluation gains All of our investment properties are valued externally by King Sturge and Co. onan open market basis every six months. The adoption of IFRS led to the reclassification as investment properties ofcertain properties that had previously been held at cost in work in progress.Details of this are set out in note 14 to the accounts. The valuation of our investment properties reflects both market movements andthe value added by the company's activities. The latter includes the achievementof marshalling milestones in the planning process (including allocations inlocal plans, obtaining planning permissions, and resolution of Section 106agreements). The calculation of this added value incorporates the present valueof future cash flows, based on existing land prices and the current bestestimate of costs (incorporating appropriate contingencies) to be incurred, butalso allowing for a developer's profit to be realised at the point ofdevelopment. Total valuation gains of £55.6m (2005: £44.9m) (including our share of jointventures) were obtained through achieving such marshalling milestones, furtheryield compression and the value added by our re-development and asset managementactivities. During the year we also realised £10m of previous revaluation surpluses Administrative expenses Administrative expenses (including our share of joint ventures) have fallenduring the year by £1.2m to £15.7m, despite a continuing programme ofrecruitment and the regional expansion needed to match our increased activity.The main drivers of the cost reduction are a fall in the cost of employee shareoptions (compared with 2005, a year of exceptional share price rise), and therelease of deferred bonus provisions in respect of former employees. During the year we recruited extensively to strengthen our development, propertymanagement and construction teams. We now have 102 employees across our sixoffices, 66 undertaking site management and 99 in our operating ventures. We continue to adopt the policy of satisfying employee share options, whenexercised, without issuing new share capital, which would dilute returns forexisting shareholders. With 3.4m outstanding options (held by 195 employees),and a 25% share price increase in the year, the impact has been a charge to theprofit and loss account of £3.1m (2005:£5.0m). The company's option schemes(which comprise the SAYE scheme which is open to all employees, and theexecutive share option scheme, which is available to 42 senior executives)remain an important tool in the recruitment and retention of key staff, and inaligning employee interests with those of shareholders. Joint ventures and associates Under IFRS, our share of the post tax results of joint ventures and associatesis shown on the income statement as one net figure. A full analysis of theunderlying details is disclosed in note 7. The principal joint venture in whichthe group is involved is Key Property Investments Limited which made a post-taxreturn of £9.3m.Our 27.2% interest in the post tax results of our associate,Northern Racing PLC, is also included under this heading. Finance costs and income Net finance charges (including our share of joint ventures) have increased to£21.1m (2005: £19.5m) due principally to the net effect of the two market valueadjustments referred to below. Underlying bank interest costs however, were heldat 2005 levels, despite average group borrowings increasing by £24m to £235m anda 0.5% increase in base rates. This was in large part due to a combination ofsuccessful hedging and renegotiation of facilities. The overall result has beenan increase in the weighted average rate of interest payable as at 30th November2006 to 6.0% (2005: 5.6%). IFRS requires the revaluation of our interest rate swap contracts tomarket value. During the year this resulted in a credit to the Income Statementof £2.0m (2005:£0.3m), recognising the increasing value of such contracts in aclimate of rising interest rates. Net finance charges also includes a charge of £3.8m (2005: £nil) for theamortisation of the discounted deferred consideration payable to the MoD inrespect of Project MoDEL. The group has not in the year capitalised any interest on its developments or its investments, but has expensed all interest as it has arisen. Taxation The effective rate of tax charge for the year, including our share of jointventures, and with full provision for deferred taxation (including deferredtaxation on the revaluation of investment properties as required by IFRS), hasfallen to 23.8% (2005: 24.8%). This rate is lower than the 30% standard rate of UK Corporation Tax due to theavailability of time-expired industrial building allowances, and of landremediation relief for expenditure on brownfield renewal. It is anticipated that, with the continued utilisation of indexation allowancesand time- expired industrial building allowances, the effective rate of tax willremain below the standard rate of UK Corporation Tax. Benefit from tax planningactivities is only recognised when the outcome is reasonably certain. Cash Flow and Financing The company continues to produce a strong cash flow, based on recurring netrental income of £33m (including our share of joint ventures) and an ongoingprogramme of asset disposals, which generated £180m in the year. This enabledus, after meeting administrative expenses, dividends and interest, to invest ina £103m development programme and in property acquisitions (excluding those ondeferred payment terms) and capital expenditure of £95m during the year. Despite these substantial investments, gearing levels have remained modest. Onereason for this is that increased net asset value arising from valuation gainshas more than offset the growth in net debt. At the year end, group net borrowings had increased to £253m (2005: £208m), representing a gearing ratio of 65% (2005: 64%). Bank facilities,excluding joint ventures, totalled £458m at the year-end (2005: £308m). At thislevel, we have undrawn committed facilities of £198m, of which £79m isspecifically allocated for MoDEL In addition, the group's share of net debt within joint ventures, which is secured solely upon the assets within the relevant joint venture, was £93m (2005: £97m). Financing strategy and financial structure Our finance strategy is to maintain an appropriate gearing level to ensure that a good operational performance is converted into excellent shareholder returns. To this end, we target a preferred gearing range of 75% to 125%. Despite an extensive programme of investment during the year, our current gearing level of 65% remains below the target range. However, gearing including our share of joint venture debt is 88%. This still gives us ample headroom and flexibility to move swiftly to undertake further development and acquisitions. Interest cover (including our share of joint ventures) has improvedfrom 5.6 times in 2005 to 5.7 times in 2006. Excluding revaluation gains (a morerealistic measure of the Group's ability to service its debt), adjusted interestcover is 3.1 times (2005:3.3 times). Both measures indicate that the Group hassignificant additional capacity for debt. This capacity gives us confidence inour ability to continue to invest in an ambitious development programme. We also endeavour to have in place a financial structure that is both costeffective and flexible. The group is financed by shareholders' funds and bankdebt of varying maturity profiles, which is appropriate to the needs of thegroup and reflects the type of assets in which it invests. The majority of thebank debt is provided through bilateral revolving credit facilities, providingus with the flexibility to draw and repay loans, and sell and acquire assets asopportunities arise. At 30th November 2006, the weighted average facilitymaturity was 5 years (2005:5 years). The group's borrowings are at variable rates of interest, although we activelymanage our interest rate exposure using interest rate swaps. At the year-end,62% of group borrowings were hedged in this way (2005:58%), and 62% of jointventure borrowings (2005: 62%). Our strategy is to hedge two thirds of allborrowings, with the maturity of both hedges and facilities being aligned withindividual schemes where applicable, or over a maximum of 5 years for revolvingfacilities. Balance Sheet Net assets At the year end, net asset value per share was 323p, an increase of55p (20%). In common with other property companies, we also use the diluted EPRANAV measure of net assets which analysts also use in comparing the relativeperformance of such companies. The adjustments required to arrive at ouradjusted net assets measure are shown in the table below. Adjusted net assets per share were 360p at 30th November 2006, an increase of 63p (21%) in the year. NET ASSETS Year ended 30 November 2006 2005 £m £m Net Assets beginning of year 324.0 265.5Profit after tax 75.9 67.4Dividends paid (11.5) (9.9)Other 1.4 1.0Net assets, end of year 389.8 324.0 Deferred tax on capital allowances 7.3 5.5Deferred tax on revaluation surpluses 39.2 29.5Mark to market of interest rate swaps (2.0) (0.3) Diluted EPRA NAV, - total 434.3 358.7 - per share 360p 297p Investment properties Following the reclassification of certain properties as part of the introductionof IFRS, the majority of the group's assets now fall in this category. The total value of investment properties, including 100% of joint ventures,increased by £240m during the year to £1,036m. During the year in the group, we sold a total of £88m of property, generating aprofit of £27m. We also had our most active year ever in terms of the value ofacquisitions, with total capital expenditure of £272m. The independent valuation at 30th November 2006 resulted in an uplift in the value of our portfolio including our share of joint ventures of 6.7% (£55.6m), compared with the previous year end. As well as benefiting from successful negotiation of planning consents and our hands-on approach to asset management, the revaluation increase reflects the continuing strong investment market for the type of secondary properties that are typical of our portfolio.During the year, we have seen yields continue to move in on all asset classes.As an example, we are now typically carrying our shopping centres at net initialyields of around 5.5 to 6%. Work in progress Assets held in work in progress principally comprise development projects thatare on site and under construction and have not been pre-sold, and other assetsthat are held for resale at the period end. Assets held in work in progress are not included in the annual valuation. Investments in associates - our 27.2% stake in Northern Racing PLC,an AIM-listed company, is classified as an equity-accounted associatedundertaking. The carrying value of our investment at 30th November 2006 is £11m.This represents the Group's share of the fair value of the assets acquired, pluspost acquisition profits. We are not able to recognise for accounting purposesthe AIM market value of our stake, which, at the share price of 179p on 30thNovember 2006, was £17m. Since the year end the stake has been transferred toThe St Modwen Properties PLC Employee Share Trust as part of a process ofreinforcing the security of the group's pension scheme and other employeebenefits. Financial Statistics 30 Nov 2006 30 Nov 2005 Net Borrowings £253m £208mGearing 65% 64%Gearing, incl share of JV debt 88% 94%Average debt maturity 5 years 5 years% debt hedged 62% 58%Interest cover, excluding valuation gains 3.1 3.3Undrawn committed facilities £198m £100mReturn on shareholders' equity 27.5% 28.5% THE FUTURE The company's hopper (details of which are set out above) is an underlyingstrength which should provide a stream of future profitability. The key issues determining the company's future performance are: • Whether we can continue to acquire sufficient opportunities to top up the hopper • How we marshal projects through land assembly, planning and construction to create annual development programmes, and • Whether the occupational market across the various sectors will be sufficiently strong to support those programmes We have strategies in place to address each of these issues: • Our network of regional offices and the long-term relationships that they build, gives us a good prospect of identifying and securing the right opportunities • Regular detailed reviews of all live projects mean that issues associated with marshalling schemes can be identified and addressed in a timely manner • By operating across a wide range of property sectors, we spread the risk of an occupational downturn in any particular sector The current view is that, subject only to macro-economic conditions, futureprospects are good. The current year has started well. The programme for the rest of the year istaking shape. In the light of this, the Chairman reports in his statement thathe is looking forward with confidence to another year of progress for yourcompany. 12 February 2007 Group Income Statement for the year to 30 November 2006 Notes 2006 2005 £m £m Revenue 1 128.1 98.4 Net rental income 1 24.3 29.5 Development profit 1 14.6 14.1 Gains on investment property disposals 27.2 22.4 Investment property revaluation gains 5 49.0 26.9 Other net income 1 2.4 0.6 Joint ventures and associates (post tax) 7 11.0 19.6 Administrative expenses (15.6) (16.8) Profit before interest and tax 112.9 96.3 Finance cost 2 (20.0) (15.6) Finance income 2 4.0 2.2 Profit before tax 96.9 82.9 Taxation 3 (21.0) (15.5) Profit for the year 75.9 67.4 Attributable to: Equity shareholders of the company 12 74.4 66.7 Minority interests 13 1.5 0.7 75.9 67.4 Notes 2006 2005 pence pence Basic and diluted earnings per share 4 61.6 55.4 Proposed final dividend per share 6.8 5.9 Interim dividend paid 3.4 2.9 Total dividend 10.2 8.8 Group Balance Sheet as at 30 November 2006 Notes 2006 2005 £m £mNon-current assets Investment property 5 736.4 481.2 Operating property, plant and equipment 6 3.8 4.0 Investments in joint ventures, associates and other 7 77.9 68.5investments Trade and other receivables 8 4.0 0.1 822.1 553.8 Current assets Stocks and work in progress 9 65.9 36.1 Trade and other receivables 8 58.4 20.7 Cash and cash equivalents 7.0 0.7 131.3 57.5 Current liabilities Trade and other payables 10 (109.3) (36.0) Borrowings 11 (49.2) (2.9) Tax payables 3 (3.7) (1.7) (162.2) (40.6) Non-current liabilities Trade and other payables 10 (143.7) (5.8) Borrowings 11 (210.7) (205.6) Deferred tax 3 (47.0) (35.3) (401.4) (246.7) Net assets 389.8 324.0 Capital and reserves Share capital 12.1 12.1 Share premium account 12 9.1 9.1 Capital redemption reserve 12 0.3 0.3 Retained earnings 12 364.3 299.3 Own shares 12 (0.8) (0.4) Shareholders' equity 385.0 320.4 Minority interests 13 4.8 3.6 Total equity 389.8 324.0 Group Cash Flow Statement for the year to 30 November 2006 Notes 2006 2005 £m £m Operating activities Profit before interest and tax 112.9 96.3 Gains on investment property disposals (27.2) (22.4) Share of profit of joint ventures and associates (post 7 (11.0) (19.6)tax) Investment property revaluation gains (49.0) (26.9) Depreciation 6 0.9 0.5 Changes in stocks and work in progress (24.8) 21.6 Changes in trade and other receivables 1.4 (8.2) Changes in trade and other payables (6.1) 5.1 Share options and share awards 0.3 0.5 Pension funding (0.7) (0.1) Tax paid 3 (c) (7.5) (16.9) Net cash (outflow)/inflow from operating activities (10.8) 29.9 Investing activities Investment property disposals 87.5 73.1 Investment property additions (95.5) (60.3) Property, plant and equipment additions (0.7) (1.4) Interest received 0.1 0.4 Dividends received 1.6 1.6 Net cash (outflow)/inflow from investing activities (7.0) 13.4 Financing activities Dividends paid (11.2) (9.7) Dividends paid to minorities 13 (0.3) (0.2) Interest paid (14.6) (13.9) Purchase of own shares (1.2) - New borrowings drawn 73.1 10.8 Repayment of borrowings (19.2) (35.7) Net cash inflow/(outflow) from financing activities 26.6 (48.7) Increase/(decrease) in cash and cash equivalents 8.8 (5.4) Cash and cash equivalents at start of year (1.8) 3.6 Cash and cash equivalents at end of year 7.0 (1.8) Cash 7.0 0.7 Bank overdrafts 11 - (2.5) Cash and cash equivalents at end of year 7.0 (1.8) Group Statement of Recognised Income and Expense 30 November 2006 Notes 2006 2005 £m £m Profit for the year 75.9 67.4 Pension fund: - actuarial gains and losses 2.5 (0.8) - deferred tax thereon (0.7) 0.3 Total recognised income and expense 77.7 66.9 Attributable to: - Equity shareholders of the company 13 76.2 66.2 - Minority interests 13 1.5 0.7 Total recognised income and expense 77.7 66.9 Basis of preparation The figures for the year ended 30th November 2006 have been extracted from theaudited financial statements of St. Modwen Properties PLC. These financialstatements have been prepared in accordance with International FinancialReporting Standards ("IFRS") as adopted by the European Union. This summary ofresults does not constitute the full financial statements within the meaning ofs240 of the Companies Act 1985. The Group's financial statements were previously prepared under UK GenerallyAccepted Accounting Principles ("UK GAAP"), which differs in a number of areasfrom IFRS. Therefore it has been necessary to amend certain presentation,accounting and valuation methods previously applied under UK GAAP, in order tocomply with IFRS for these financial statements. The group has prepared adetailed description of the transition to IFRS and the nature of the reconcilingitems from UK GAAP at the date of transition, and this is included in Note 14. The financial information for the year ended 30th November has been derived fromthe statutory accounts for that year which have been delivered to the Registrarof Companies. The auditors reported on those financial statements; their reportwas unqualified and did not contain a statement under s237 of the Companies Act1985. Details of the accounting policies applied in the year ended 30th November 2006and the restated year ended 30th November 2005 are set out in the Group'sInterim Report for the period ended 31st May 2006. NOTES 1. Revenue and gross profit 2006 Rental Development Other Total £m £m £m £m Revenue 29.4 92.9 5.8 128.1 Cost of sales (5.1) (78.3) (3.4) (86.8) Gross profit 24.3 14.6 2.4 41.3 2005 Rental Development Other Total £m £m £m £m Revenue 33.1 61.4 3.9 98.4 Cost of sales (3.6) (47.3) (3.3) (54.2) Gross profit 29.5 14.1 0.6 44.2 The group operates exclusively in the UK and all of its revenues derive from itsportfolio of properties which the group manages as one business. Therefore, thefinancial statements and related notes represent the results and financialposition of the group's sole business segment. 2. Finance cost and finance income 2006 2005 £m £m Interest payable on borrowings (14.3) (13.9) Amortisation of discount on deferred payment arrangements (3.8) - Amortisation of refinancing expenses (0.2) (0.2) Head rents treated as finance leases (0.2) (0.2) Interest on pension scheme liabilities (1.5) (1.3) Total finance cost (20.0) (15.6) Interest receivable on cash deposits 0.4 0.4 Movement in market value of interest rate derivatives 2.0 0.3 Expected return on pension scheme assets 1.6 1.5 Total finance income 4.0 2.2 3. Taxation 2006 2005 £m £m a. Tax on profit on ordinary activities Tax charged in the income statement Corporation tax charge Tax on current year profits 11.7 10.6 Adjustments in respect of previous years (1.7) (0.3) 10.0 10.3 Deferred tax Origination and reversal of temporary differences 0.6 0.9 Impact of current year revaluations 9.6 5.2 Adjustments in respect of previous years 0.8 (0.9) 11.0 5.2 Total tax charge in the Income Statement 21.0 15.5 Tax relating to items charged or credited to equity Deferred tax Actuarial gains and losses on pension schemes 0.7 (0.3) Tax charge/(credit) in the Statement of Total Recognised Income & Expense 0.7 (0.3) b. Reconciliation of effective tax rate 2006 2005 Corporation Deferred Total Corporation Deferred Total Tax Tax Tax Tax Tax Tax £m £m £m £m £m £m Profit before tax 96.9 - 96.9 82.9 - 82.9 Less: Joint venturesand associates (11.0) - (11.0) (19.6) - (19.6) Pre-tax profitattributable to the group 85.9 - 85.9 63.3 - 63.3 Corporation tax at 30% 25.8 - 25.8 19.0 - 19.0 Disallowed expenses andnon-taxable income 0.4 - 0.4 0.3 - 0.3 Capital allowances (1.7) 1.0 (0.7) (2.0) 1.0 (1.0) Short term temporarydifferences 2.7 (3.0) (0.3) 0.2 (0.5) (0.3) Investment propertyrevaluation gains (14.7) 14.7 - (8.0) 8.0 - Indexation allowance (1.1) (5.0) (6.1) (0.1) (2.7) (2.8) Other 0.3 2.5 2.8 1.2 0.3 1.5 Current year charge 11.7 10.2 21.9 10.6 6.1 16.7 Adjustments in respectof previous years (1.7) 0.8 (0.9) (0.3) (0.9) (1.2) 10.0 11.0 21.0 10.3 5.2 15.5 Effective rate of tax 24% 24% c. Balance sheet 2006 2005 Corporation Deferred Corporation Deferred Tax Tax Tax Tax £m £m £m £m Balance at start of the year 1.7 35.3 7.4 30.4 Charge to the Income 10.0 11.0 10.3 5.2Statement Charge directly to Equity - 0.7 - (0.3) Payments (7.5) - (16.9) - Other (0.5) - 0.9 - Balance at end of the year 3.7 47.0 1.7 35.3 An analysis of the deferredtax provided by the group isgiven below: 2006 2005 Asset Liability Net Asset Liability Net £m £m £m £m £m £m Property revaluations - 39.2 39.2 - 29.5 29.5 Capital allowances - 7.3 7.3 - 5.5 5.5 Appropriations to tradingstock - 1.4 1.4 - 1.4 1.4 Other temporary differences (5.4) 4.5 (0.9) (3.0) 1.9 (1.1) (5.4) 52.4 47.0 (3.0) 38.3 35.3 There is no unprovided deferred tax. d. Factors that may affect future tax charges Based on current capital investment plans, the group expects to continue to beable to claim capital allowances in excess of depreciation in future years. The benefits of any tax planning are not recognised by the group until theoutcome is agreed with HM Revenue and Customs. 4. Earnings per share The Group's share option schemes are accounted for as cash settled share basedpayments as it is the Group's practice not to issue new shares in satisfactionof employee options. The potential dilutive effect on earnings per share on theassumption that such shares were to be issued is set out below: 2006 2005 Number of Number of shares shares Weighted number of shares in issue* 120,628,368 120,397,435 Weighted number of dilutive shares** 76,550 - 120,704,918 120,397,435 2006 2005 £m £m Earnings 74.4 66.7 2006 2005 pence pence Basic earnings per share 61.6 55.4 Diluted earnings per share 61.6 55.4 *Shares held by the Employee Benefit Trust are excluded. ** In calculating diluted earning per share, earnings have been adjusted forchanges which have resulted from the option being classified as equity settled.The number of shares included in the calculation has also been adjustedaccordingly. The calculations show that the majority of shares under optionhave no dilutive impact on earnings per share. 5. Investment property Freehold Leasehold investment investment properties properties Total £m £m £m Fair value At 30 November 2004 338.6 115.6 454.2 Additions - new properties 30.0 - 30.0 Other additions 34.1 5.0 39.1 Transfers to work in progress (3.1) - (3.1) Disposals (64.4) (1.7) (66.1) Surplus on revaluation 13.7 13.2 26.9 Transfers from operating properties 0.2 - 0.2 At 30 November 2005 349.1 132.1 481.2 Additions - new properties 21.7 176.9 198.6 Other additions 51.3 21.7 73.0 Transfers to work in progress (5.1) - (5.1) Disposals (50.6) (9.7) (60.3) Surplus on revaluation 29.1 19.9 49.0 At 30 November 2006 395.5 340.9 736.4 Investment properties were valued at 30 November 2005 and 2006 by King Sturge &Co, Chartered Surveyors, in accordance with the Appraisal and Valuation methodof the Royal Institution of Chartered Surveyors, on the basis of open marketvalue. 6. Operating property, plant and equipment machinery Operating and properties equipment Total £m £m £m Cost At 30 November 2004 2.4 1.9 4.3 Additions 0.2 1.3 1.5 Transfers to investment (0.2) - (0.2)properties Disposals - (0.1) (0.1) At 30 November 2005 2.4 3.1 5.5 Additions 0.2 0.5 0.7 At 30 November 2006 2.6 3.6 6.2 Depreciation At 30 November 2004 0.2 0.8 1.0 Charge for the year - 0.5 0.5 At 30 November 2005 0.2 1.3 1.5 Charge for the year 0.2 0.7 0.9 At 30 November 2006 0.4 2.0 2.4 Net book value At 30 November 2004 2.2 1.1 3.3 At 30 November 2005 2.2 1.8 4.0 At 30 November 2006 2.2 1.6 3.8 Tenure of operating properties 2006 2005 £m £m Freehold 0.3 0.3 Leasehold 1.9 1.9 2.2 2.2 7. Joint ventures, associates and other investments The group's share of the trading results for the year of its joint ventures andassociates is:- 2006 2005 Key Key Property Property Other joint Investments Other joint Investments Limited ventures Total Limited ventures Total £m £m £m £m £m £m Income statements Revenue 10.7 3.9 14.6 11.8 11.2 23.0 Net rental income 8.7 0.2 8.9 10.4 0.3 10.7 Development profit (0.3) 1.2 0.9 - 2.8 2.8 Gains on investment propertydisposals 1.9 - 1.9 - - - Investment propertyrevaluation gains 6.1 0.5 6.6 18.0 - 18.0 Administrative expenses (0.1) - (0.1) (0.1) - (0.1) Profit before interest andtax 16.3 1.9 18.2 28.3 3.1 31.4 Finance cost (5.5) (0.3) (5.8) (5.9) (0.3) (6.2) Finance income 0.7 - 0.7 0.1 - 0.1 Profit before tax 11.5 1.6 13.1 22.5 2.8 25.3 Taxation (2.2) (0.5) (2.7) (6.0) (0.7) (6.7) Profit for the year 9.3 1.1 10.4 16.5 2.1 18.6 Group's share of associate's 0.6 1.0profit (27%) 11.0 19.6The group's share of the balance sheet of its joint ventures and associates, together with the costof other investments is :- 2006 2005 Key Property Other joint Key Property Other joint Investments Investments Limited ventures Total Limited ventures Total £m £m £m £m £m £mBalance Sheets Non-current assets 145.4 4.5 149.9 153.5 4.1 157.6 Current assets 21.0 7.8 28.8 3.0 10.1 13.1 Current liabilities (5.6) (0.9) (6.5) (1.8) (3.6) (5.4) Non-current liabilities (98.5) (7.4) (105.9) (100.3) (7.6) (107.9) Net assets 62.3 4.0 66.3 54.4 3.0 57.4 Equity at start of year 54.5 2.9 57.4 39.5 0.8 40.3 Profit for the year 9.3 1.1 10.4 16.5 2.1 18.6 Dividends paid (1.5) - (1.5) (1.5) - (1.5) Equity at end of year 62.3 4.0 66.3 54.5 2.9 57.4 Group's share of joint 66.3 57.4ventures' net assets Group's share of 11.0 10.5associate's net assets Investment in Stoke on 0.6 0.6Trent Community StadiumDevelopment Company Limitedat cost 77.9 68.5 Joint venture companies, associates and other investmentscomprise :- Name Status Interest Activity Key Property Investments Limited Joint venture 50% Property investment and development Barton Business Park Limited Joint venture 50% Property development Sowcrest Limited Joint venture 50% Property development Holaw (462) Limited Joint venture 50% Property investment Shaw Park Developments Limited Joint venture 50% Property development Northern Racing PLC Associate 27% Racecourse operator Stoke on Trent Community Stadium Other investment 15% Stadium operatorDevelopment Company Limited Many of the joint ventures contain change of control provisions, as is commonfor such arrangements. The accounts of Northern Racing PLC are drawn up to 31st December each year. 8. Trade and other receivables 2006 2005 £m £m Non-current Derivative financial instruments 1.2 0.1 Pension fund surplus 2.8 - 4.0 0.1 Current Trade receivables 2.6 3.9 Prepayments and accrued income 2.6 1.7 Contract receivable 38.7 - Other debtors 6.3 9.6 Amounts due from joint ventures 7.6 5.3 Derivative financial instruments 0.6 0.2 58.4 20.7 9. Stocks and work in progress 2006 2005 £m £m Properties held for sale 37.9 22.7 Properties under construction 10.8 6.8 Land under option 17.2 6.6 65.9 36.1 The movement in stocks and work in progress during the two years ended 30November 2006 is as follows: £m Balance at 30 November 2004 48.1 Additions 32.2 Transfers from investment property 3.1 Disposals (47.3) Balance at 30 November 2005 36.1 Additions 103.0 Transfers from investment property 5.1 Disposals (78.3) Balance at 30 November 2006 65.9 10. Trade and other payables 2006 2005 £m £m Current Trade payables 4.9 5.2 Amounts due to joint ventures 0.1 0.4 Other payables and accrued expenses 43.8 30.0 Other payables on deferred terms 60.2 - Derivative financial instruments 0.3 0.4 109.3 36.0 Non-current Other payables and accrued expenses 1.9 2.0 Other payables on deferred terms 138.9 - Pension scheme deficit - 0.5 Derivative financial instruments - 0.4 Finance lease liabilities (head rents) 2.9 2.9 143.7 5.8 The payment terms of the other payables on deferred terms, all of which relateto VSM Estates (Holdings) Limited, are subject to contractual commitments whichare expected to allow for realisation of the related assets and settlement ofthe liability on a basis which is at least cash neutral over a mimimum period often years. 11. Borrowings 2006 2005 £m £m Current Bank overdrafts - 2.5 Bank loans 48.8 - Floating rate unsecured loan notes 0.4 0.4 49.2 2.9 Non-current Bank loans repayable between one and two years - 52.2 Bank loans repayable between two and five years 129.4 63.5 Bank loans repayable after more than five years 81.3 89.9 210.7 205.6 All bank borrowings are secured against the group's property assets. The bank loan disclosed in current liabilities is a five year revolving creditfacility due for renewal in June 2007. Following discussions with the bank, itis anticipated that this facility will be renewed on similar or more favourableterms. There are no unusual or onerous bank covenants. Maturity profile of committed bank facilities 2006 Floating rate borrowings Interest rate swaps Drawn Undrawn Total Earliest Latest £m £m £m £m %* £m %* Less than one year 48.8 16.2 65.0 - - - - One to two years - - - 60.0 4.82 30.0 5.17 Two to three years - - - 80.0 4.71 - - Three to four years 47.0 80.3 127.3 - - 30.0 4.47 Four to five years 82.4 22.6 105.0 20.0 4.47 80.0 4.71 More than five years 81.3 79.2 160.5 - - 20.0 4.47 Total 259.5 198.3 457.8 160.0 4.72 160.0 4.72 2005 Floating rate borrowings Interest rate swaps Drawn Undrawn Total Earliest Latest £m £m £m £m %* £m %* Less than one year 2.5 2.5 5.0 60.0 5.01 60.0 5.01 One to two years 52.2 11.2 63.4 10.0 7.31 10.0 7.31 Two to three years 3.3 - 3.3 50.0 4.32 20.0 4.09 Three to four years 24.7 18.6 43.3 - - - - Four to five years 35.5 67.8 103.3 - - 30.0 4.47 More than five years 89.9 - 89.9 - - - - Total 208.1 100.1 308.2 120.0 4.92 120.0 4.92 * Weighted average interest rate £79m (2005: £nil) of the undrawn committed bank facilities are ring fenced forVSM Estates (Holdings). At 30 November 2006 the weighted average facility maturity of the bank debt was5 years (2005: 5 years). Limited. The interest rate swaps are extendable at the banks option, therefore the tablesabove show the dates of normal termination and extended termination. Interest rate profile The interest rate profile of the group's borrowings after taking into accountthe effects of its interest rate derivative financial instruments is: Weighted Average Weighted Fixed Fixed Maturity of Total Floating Rate Rate Debt Interest Rate Derivatives Debt £m £m £m (%) (years) At 30 November 2006 259.5 99.5 160.0 4.72 2.25 At 30 November 2005 208.1 88.1 120.0 4.92 1.30 12. Reserves Share Capital Retained premium redemption Own account reserve earnings shares £m £m £m £m At 30 November 2004 9.1 0.3 242.8 (1.9) Profit for the year attributable to - - 66.7 -shareholders Pension fund actuarial gains and losses - - (0.5) - Net share disposals - - - 1.5 Dividends paid - - (9.7) - At 30 November 2005 9.1 0.3 299.3 (0.4) Profit for the year attributable to - - 74.4 -shareholders Pension fund actuarial gains and losses - - 1.8 - Net share acquisitions - - - (0.4) Dividends paid - - (11.2) - At 30 November 2006 9.1 0.3 364.3 (0.8) 'Own shares' represents the cost of 167,306 (2005: 149,114) shares held by theEmployee Benefit Trust. The open market value of the shares held at 30 November2006 was £951,971 (2005: £678,469). 13. Reconciliation of movement in equity 2006 2005 Equity Minority Total Equity Minority Total shareholders interests shareholders interests £m £m £m £m £m £m Total recognised incomeand expense 76.2 1.5 77.7 66.2 0.7 66.9 Dividends paid (11.2) (0.3) (11.5) (9.7) (0.2) (9.9) Net (purchase)/disposalof own shares (0.4) - (0.4) 1.5 - 1.5 Equity at start of year 320.4 3.6 324.0 262.4 3.1 265.5 Equity at end of year 385.0 4.8 389.8 320.4 3.6 324.0 14. Transition from UK GAAP to IFRS These are the group's first consolidated financial statements prepared inaccordance with IFRS as adopted by the European Union. The Accounting policiessection of the interim financial statements for the period ended 31 May 2006sets out the accounting policies that have been applied in preparing thefinancial statements for the year ended 30 November 2006, the comparativeinformation presented in these financial statements for the year ended 30November 2005 and in the preparation of an opening IFRS balance sheet at 30November 2004 (the group's date of IFRS transition). In preparing the opening IFRS balance sheet and the comparative information, thegroup has adjusted amounts previously reported in financial statements preparedin accordance with UK GAAP. An explanation of how the transition from UK GAAPto IFRS has affected the group's financial performance and financial position isset out below :- (a) Equity reconciliation Explanatory 30 November 2004 30 November 2005 note £m £m UK GAAP equity shareholders' funds 267.4 330.7 Revaluation of investment properties L 16.0 18.7 Revaluation of derivatives C,P (0.8) (0.5) Pension fund actuarial gains and losses A,R 0.6 0.2 Development profit recognition Q 0.3 1.0 Employee share option valuation B,S (0.6) (0.4) Lease incentive recognition N 0.2 0.3 Dividends declared but not paid O 6.1 7.1 Taxation on revaluations M (24.2) (29.5) Other tax adjustments T (0.9) (0.4) Share of joint venture IFRS adjustments U (1.7) (6.8) IFRS equity shareholders' funds 262.4 320.4 Year to (b) Profit reconciliation Explanatory 30 November 2005 note £m UK GAAP profit attributable to equity shareholders 34.6 Revaluation of investment properties L 24.3 Revaluation of derivatives C,P 0.3 Pension fund net income R 0.4 Development profit recognition Q 0.7 Employee share option valuation B,S 0.2 Lease incentive recognition N 0.1 Taxation on above adjustments M,T (6.7) Share of joint venture IFRS adjustments U 12.8 IFRS profit attributable to equity shareholders 66.7 14 Transition from UK GAAP to IFRS (continued) IFRS 1 - First time adoption decisions IFRS 1 "First time adoption of International Financial Reporting Standards"provides certain choices on transition to IFRS. The significant decisions madeby the group under IFRS 1 are set out below:- A. Employee benefits - The group has elected to recognise all cumulative actuarial gains and losses in relation to its defined benefit pension scheme through equity at the date of transition to IFRS. Actuarial gains and losses arising after the date of transition to IFRS will also be recognised in full in accordance with the Amendment to IAS 19. B. Share based payment transactions - The group has elected to apply IFRS 2 " Share based payments" to all share options not exercised at the date of transition. C. Comparative information - IAS 32 and IAS 39 - The group has decided not to take the exemption allowed by IFRS 1 in relation to IAS 32 "Financial Instruments: Disclosure and Presentation" and IAS 39 "Financial Instruments: Recognition and Measurement". As a result, these two standards have been applied from the date of transition to IFRS. This decision was taken to ensure consistency between accounting policies for the years to 30th November 2005 and 30th November 2006. The group has not adopted hedge accounting in relation to existing interest rateswaps. A significant proportion of the group's swaps are not classified aseffective under IAS 39 and therefore hedge accounting has not been applied. Reclassification adjustments In preparing its financial statements under IFRS a number of presentationaladjustments have been made as set out below :- D. Revaluation reserves - As investment property revaluation movements are now reflected through the Income Statement, the balance on the revaluation reserve recorded under UK GAAP has been reclassified as retained earnings. E. Leasehold investment property - Under IAS 40 "Investment Property" leasehold investment property held under operating leases may only be held at valuation if the head lease is classified as a finance lease. Under IAS 17 "Leases" the net present value of guaranteed minimum lease rental payments is included in the value of leasehold properties. The resultant liability is disclosed as current/non-current payables as appropriate. As a result of this change the guaranteed minimum head lease cost previously disclosed within property outgoings under UK GAAP is now reclassified as a finance cost. F. Investment property held for resale - Under UK GAAP all investment properties were held in tangible fixed assets. IFRS 5 "Non-current assets held for resale and discontinued operations" creates a new category of asset that is neither a current asset nor a non-current asset. Investment properties that are in the process of being sold are moved to this new category and shown separately on the balance sheet. There were no such assets at 30 November 2006 or 30 November 2005. G. Dividends - Under UK GAAP dividends were shown in the profit and loss account. IAS 1 "Presentation of Financial Statements" states that dividends payable are shown in equity. A dividend line is therefore not included on the face of the Income Statement. H. Share of profit from joint ventures and associates - The group's share of profit and losses of joint ventures was formerly reflected in the Group Profit & Loss Account as part of turnover, operating profit, interest and tax. Under IAS 1 the post tax result of the joint ventures and associates is shown as a single line entry in arriving at profit before interest and tax. The UK GAAP comparative figures have been reclassified to reflect this change. I. Creditors - IAS 1 states that current tax payable and financial liabilities should be shown separately as line items in the balance sheet. These items have therefore been split out from creditors and shown separately. J. Cash flow statement - The transition to IFRS has no impact on the cash generation of the business. However, the format of the cash flow statement is different under IAS 7 "Cash flow statements". IAS 7 only allows three classifications of cash flow being operating, investing and financing. As a result the cash flow items disclosed under UK GAAP have been reclassified under the most appropriate heading. The IFRS adjustments made to profit before interest and tax in the Income Statement are reflected within the reconciliation of profit before interest and tax to cash flows from operations. K. Minority interests - Under UK GAAP minority interests were presented as part of net assets. Under IFRS minority interests are reclassified and shown as part of total equity. Changes affecting the reported result or net assets In restating its comparative financial statements under IFRS a number ofadjustments have been made which impact either the reported profit or netassets of the group as set out below :- L. Investment properties - Investment properties continue to be held at valuation under IAS 40 "Investment Property," but the revaluation movement (and attendant deferred tax, see below) are now reflected in the Income Statement. Under UK GAAP revaluations (but with no deferred tax) were reflected through equity. Under UK GAAP the company had carried land (and buildings) acquired forundetermined future use at cost within stocks. Under IAS 40, such assets areincluded within the definition of investment property. As a result, assetsmeeting the definition have been reclassified from stock to investment propertyand have been valued by King Sturge & Co, Chartered Surveyors. Where such assetsare sold without being developed, the resulting profit has been classifiedwithin gains on investment property disposals in the IFRS financial statements.In the UK GAAP financial statements such transactions were included withinproperty development profits. M. Deferred tax on investment property revaluation - Under UK GAAP no deferred tax was recognised in respect of the unrealised surplus on the revaluation of investment property unless there was a binding contract to sell the property at the balance sheet date. In addition, no provision was made for Capital Gains Tax on the disposal of properties where the gain was deferred through the application of capital gains roll over relief as no liability was expected to crystallise. IAS 12 "Income Tax" states that deferred tax must be provided on all temporarydifferences between the tax base cost and the carrying value of assets. As aresult, a deferred tax liability has been recognised relating to the revaluationof investment properties and gains previously rolled over, through equity at thedate of transition and through the Income Statement thereafter. N. Lease incentives - Under UK GAAP lease incentives, including rent free periods and payments to tenants, are allocated to the Income Statement over the period to the first rent review set out in the lease. Under SIC 15, the period over which the incentive is allocated is revised to be the lease term. O. Proposed dividends - Under UK GAAP dividends were accrued and shown as a liability when they were proposed. They were therefore accounted for in the period to which they related. IAS 10 "Events after the balance sheet date" states that dividends declared after the balance sheet date should not be shown as a liability. As a result, the liability for proposed dividends has been reversed. Final dividends will now only be recognised when they are approved at the AGM and interim dividends when they are paid. P. Interest rate derivatives - Under UK GAAP the group's interest rate derivatives were not carried on the balance sheet. Under IAS 39 the derivatives are stated at fair value and disclosed as current/non current assets/liabilities as appropriate. Remeasurements of the derivatives are reflected in the Income Statement. Deferred tax is provided on the remeasurements. Q. Construction contracts - Under UK GAAP the group had elected to carry all property being developed with a view to sale at cost with full profit recognised when the asset was sold. Under IAS 11 "Construction Contracts", the group now recognises profit in respect of construction contracts for pre-sold projects using the stage of completion method. Provided the outcome of the contract can be assessed with reasonable certainty, income and profit on such contracts is now recognised in proportion to the costs. The project is carried in the Balance Sheet at cost plus recognised profit less payments received on account. This revised profit recognition generates consequent adjustments to tax and minority interests. R. Defined benefit pension scheme - Under UK GAAP the cost of the defined benefit pension scheme was charged to the Profit & Loss Account so as to spread the variations in pension cost, which were identified as a result of actuarial valuations, over the service lives of employees so that the pension cost was a substantially level percentage of current and expected future pensionable pay. Under IAS 19 "Employee Benefits" actuarial gains and losses arising are recognised in full. Actuarial variations in the scheme will be recognised through the Statement of Recognised Income & Expense with the regular pension cost and net finance cost related to the scheme reflected in the Income Statement. There are consequent adjustments to deferred and current tax. S. Employee share option scheme - Under UK GAAP the group's exposure to its share option schemes was remeasured at each balance sheet date based on the difference between the average share price in the three months prior to the period end and the exercise price of the option. Under IFRS 2 the liabilities arising from the grant of share options have been evaluated using a Black Scholes option pricing model. T. Tax - an adjustment has been made to the tax charge to reflect the tax effect of the IFRS adjustments where necessary. U. Investments in joint ventures & associates - in assessing the impact of IFRS on the group, the impact on the group's joint ventures and associates has also been assessed. There is no impact on the amounts recorded for associated undertakings. The amounts recorded in respect of joint ventures has been adjusted accordingly in respect of our share of the above adjustments which apply to the joint ventures. 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