Chairman's Statement

St. Modwen Properties PLC Chairman | Anthony Glossop

Results

I am pleased to report on a 15th successive year of record results. The success in achieving a significant increase in realised property profits and valuation uplifts arising from asset management and planning activities more than compensated for the valuation reductions arising from the correction in investment property yields which we suffered in the second half.

Net assets per share increased by 20% to 387p (2006: 323p). Profit before tax increased by 3% to £100.1m (2006: £96.9m). Earnings per share grew by 19% to 73.3p (2006: 61.6p).

Our key performance measurement of return on equity (now calculated after tax) was 21.9% (2006: 21.3%).

Dividend

Your board is recommending a final dividend of 7.8p (2006: 6.8p) per ordinary share, making a total distribution for the year of 11.7p (2006: 10.2p), an increase of 15%. This final dividend will be paid on 4th April 2008 to shareholders on the register on 14th March 2008.

Strategy

Your company’s strategy, being essentially long-term, is not altered because of the current weakness in the investment market, although its short-term implementation is obviously affected by market considerations.

This market weakness, in fact serves to highlight the differentiation of your company from many of its peers which I referred to in last year’s report. Growth through realised profits and revaluations based on actually adding value, has always been at the heart of our strategy and should stand us in good stead in this more difficult climate. Also our exposure to a broad range of market sectors and geographic areas through seven regional offices gives us the ability to take advantage of whatever opportunities there are.

We are now regarded as the UK’s leading regeneration specialist which is evidenced by our selection by BP as the developer of the Coed Darcy site and by West Lancashire District Council and English Partnerships as their partner for the redevelopment of Skelmersdale town centre.

In both these cases, our skills as a master developer which have been honed over the past two decades on schemes such as Hilton, Derbyshire (joint venture with MoD); Trentham Lakes, Stoke-on-Trent (joint venture with Stoke-on-Trent City Council); Longbridge, Birmingham and Llanwern, Newport proved attractive to the selecting organisations. With the acknowledged need for major regeneration initiatives, the recognition of our skills in this important area should help to underwrite your company’s future prosperity.

Two key elements of the strategy are the continued acquisition of well-located opportunities to top up the hopper and their marshalling through the planning and development process to ultimate delivery. In both areas, this year has seen continued success as is set out in the business review.

Availability of finance is a critical success factor for a property business. We have always operated a policy of reviewing our funding requirements on a regular basis and currently have all our facilities secured through to 2011 with a realistic degree of headroom and at competitive margins.

Sustainability

We remain committed to managing our affairs with the highest standards of integrity and to ensuring that communities and the environment are respected in our developments. In the CSR review included in the Annual Report, we set out how we go about achieving these commitments.

Directors and Employees

Achieving the results for the year in the current climate is a tribute to the quality and strength of the team at all levels in the organisation. My thanks go to everyone for the efforts they have put in to bring about another successful year.

We have been recruiting extensively to cope with the challenges of growth and the sheer scale of the hopper and I have been delighted with the quality of our new colleagues. At the same time, it has been a real pleasure to see how so many of our existing team have risen to the challenge and developed their own skills to take more responsibility within the organisation.

By way of example, Rupert Wood, who has been with us less than two years, has been promoted to head the new Northern Home Counties region and Rupert Joseland and Stephen Prosser who formed the new South West and Yorkshire offices three years ago, have been promoted to regional director.

The increased strength in depth in the company enables my own role to continue to evolve. I am now becoming non-executive. I will continue to give support to Bill Oliver and the executive in maintaining the company’s standing in the market as well as undertaking the normal role of a non-executive chairman.

Prospects

There will undoubtedly be some further deterioration in the market value of investment properties, particularly in the first half of 2008, and we cannot be immune from the effects of that. However, we are planning that overall the year will see growth in the company’s net asset value, albeit at a lower level than in the recent past, and we would expect to maintain our recent pattern of dividend growth. The company has a well-founded development and marshalling programme and we are achieving a regular flow of occupational transactions.

Our ambition remains to double net asset value per share on a 5-year basis. In the short-term, however, growing at that rate is clearly unrealistic whilst today’s market conditions prevail, and we will not be tempted to try to force the pace of growth faster than prudent market judgments will allow.

Our confidence in the longer-term is undiminished. We are continuing, therefore, to invest in people, regional offices and acquisitions for the hopper so that we will be in good shape when the market stabilises.

ANTHONY GLOSSOP
Chairman
11 February 2008