St Modwen, the brownfield regeneration specialist and the company bringing new life to Longbridge, was able to put a positive spin on worsening interim losses of nearly £100million yesterday.
Plummeting land and property values saw the Birmingham-based developer slump to a pre-tax deficit of £98.3m for the six months to May 31 compared with an unaudited deficit of £20m at the same stage last year.
The company, along with every other in the sector, has been forced to write off millions of pounds as the book value of its land and property holdings dissolves in the recession.
Net assets per share, a key indicator of the success or otherwise of a property company, has fallen by 20 per cent to 266p since November 30 last year.
But St Modwen was able to point to a number of positives yesterday – including a £6.8m first-half trading profit and a successful £107.4 m share issue.
“There is a very important difference between a valuation issue and underlying cash flow and we have, like everyone, a valuation problem,” chief executive Bill Oliver said.
Another differentiator between St Modwen and some of its peers was that it owns sites that benefit from value-boosting planning permission. The company has also maintained a strong rent roll.
“The big plus for us is that, right throughout this period, we have made a cashflow operating profit,” Mr Oliver said.
The interim statement to shareholders said the company was acting to improve its financial position through cutting costs, suspending dividend payments and scaling back on speculative schemes. While raising fresh capital, it had also renegotiated terms with its banks to the extent that it does not have any “pressing re-financing issues”.
The extra headroom created by a revision of its banking covenants is “more than adequate for our worst-case scenarios” and means directors “will once again be able to manage our business for property, rather than bank covenant, reasons.”
The statement also said: “...we look forward to operating from a position of financial strength building on our reputation as the UK’s leading regeneration specialist.”
Chairman Anthony Glossop summed up, saying: “Our confidence in the longer term remains undiminished, despite the turbulence in the general economy and property sector.”
Despite that, further writedowns are expected over the next 18 months, according to Mr Oliver. “We are not calling the bottom of the market but we think the worst is behind us,” he added.
St Modwen, which has regeneration projects on the stocks throughout the country, said its West Midland showcase scheme at Longbridge was benefiting from the Learning and Skills Council’s recent decision to conditionally confirm funding for an £84m building for Bournville College on the site.
“This was a vote of confidence in Longbridge that will be a massive boost for Birmingham,” Mr Oliver said.
A growing risk for companies such as St Modwen is the growing failure rate among building contractors. It has had to take over work on the £35 m Warwickshire College scheme at Rugby after the main contractor, Ashford Construction, went into administration.
“The way we run projects is very hands-on and we are close to our contractors and their sub-contractors. We now have two guys on site at Rugby running the job,” said Mr Oliver.