Profits tumble for regeneration specialist St Modwen

Pre-tax profit levels have tumbled at Birmingham regeneration company St. Modwen with the business blaming external market factors and a failure to match 2015’s significant valuation gains for annual results well below those of the previous year.

For the year ended November 30, 2016, the Longbridge-based group reported a pre-tax profit of £60.8m (2015: £258.4m) and earnings per share of 24.1p (2015: 97.9p).

New chief executive Mark Allan, who only took over the reins of the business in November, has instigated a review into the company, which he said was still strong despite the tough climate.

Summing up the performance, he said: “Active commercial property development and asset management, coupled with a strongly performing and growing residential arm, contributed to another good year for St. Modwen. This is despite the turbulent market backdrop during 2016.

“Following my recent arrival as chief executive, we have commenced a review of what I already believe is a fundamentally strong business and portfolio to determine our strategy moving forward.

“We unquestionably have an opportunity to build on our existing strengths while ensuring that our activities are focused in the optimum way and I am excited about the prospects ahead.”

In outlook, the company said it was a long-term business but one which operated in cyclical markets and therefore had to plan and manage accordingly.

“The past 12 months have been unsettled in this respect and the outlook for 2017 and 2018 looks to be similarly uncertain, as a range of macro-economic factors play out both globally and more locally to the UK,” it said in its results statement.

“With this outlook, it is important that we continue to manage our balance sheet prudently while also seeking out appropriate new value creation opportunities and converting existing ones. This will require an innovative and agile approach but our track record suggests we remain well placed to succeed.”

Importantly, the business continued to generate healthy cash flows and net debt and gearing levels remain carefully controlled. Cash generated (before new investment, tax and dividends) was £306.4m (2015: £298.1m) and new investment was managed such that net borrowings, including its share of JVs, increased only marginally to £517.0m from £489.3m at the start of the year.

Regeneration remains at the heart of the business and it said its expertise in this area allowed it to continue to generate value from its substantial land bank of over 6,000 developable acres.

“Projects are well balanced between residential and commercial opportunities, with residential activities accounting for 47% of development profits for the year and commercial activities 53%, and the company is well diversified both geographically and from a sector perspective. This leaves us well placed to continue creating value for the longer term,” it added.

Stephen Prosser, Midlands Regional Director, St. Modwen On the group’s performance in its Midlands heartland, Stephen Prosser (left), Midlands director, said the region had experienced continued growth during 2016 with the majority of the group’s secondary industrial stock seeing increased demand, with a rise in occupier rates and an improvement in rentals.

“This demand was also present in relation to our speculatively delivered space and especially noticeable in the industrial and logistics market,” he added.

“This will continue to be an area of activity for us in 2017 as we progress with the development of 540,000 sq ft of space across the region.”

The residential land business also experienced good levels of activity, he added, and during the year the division agreed deals for more than 30 acres of land to third party housebuilders including Persimmon, Bellway and Taylor Wimpey.

“At our flagship development in Longbridge, the town centre development gained further national retailers such as Smyths Toys, Holland and Barrett, Specsavers and Carphone Warehouse which all saw trading up to Christmas improve substantially,” said Mr Prosser.

“Since the end of the financial year we also obtained planning permission for a further 800,000 sq ft of distribution warehouse space on land we control at junction 10 of the M42 at Tamworth and which provides an excellent pipeline of future development.

“As we move into 2017, the next 12 months look very promising for the Midlands as we progress with our growing development pipeline and secure further opportunities to generate value across the region.”