A DEVELOPER says the residential sector offers grounds for optimism after it suffered a sharp fall in profits.

St Modwen says housebuilding, allied to commercial market support, can provide scope to overcome a “turbulent” period, which saw annual profit before all tax drop nearly £200m to £60.8m.

The company is known for buying Billingham town centre in a £14.25m deal more than two years ago, where it has since welcomed new tenants including supermarket Aldi.

However, bosses said latest annual profits were stung by “cyclical” markets, the lingering impact of the Brexit vote and the absence of significant valuation gains booked a year previously.

According to financial results covering the year to November 30, released yesterday, trading profit was down from £63.3m to £56.1m.

The numbers were hit by a fall in commercial development profits, which dipped to £30.4m, and a change in market movements in the value of St Modwen’s portfolio, which dipped from £35.7m to £12.6m.

The company also suffered from the impact of changes to Stamp Duty Land Tax rates on commercial property and what it described as “the absence of the significant valuation gains” booked for its New Covent Garden Market holding in London.

However, Mark Allan, chief executive, said the business had enjoyed a “good year”, adding housebuilding, where profits were marginally up at £27.1m, should prove fruitful in the coming years, despite a reduction in activity across a joint venture with construction firm Persimmon.

He said: “The broader economic environment is likely to remain unsettled throughout 2017 as a range of factors, such as Brexit, continue to play out.

“(However), we cannot seek to predict outcomes and will manage the business in a prudent manner.

“Active commercial property development and asset management, coupled with a strongly performing and growing residential arm, contributed to another good year, despite the turbulent market during 2016.

“The broader market remains supportive of regional housebuilding and we see significant potential for growth in our St Modwen Homes business in the years ahead.”

St Modwen owns and manages Billingham after taking it over with the promise of overhauling shops, leisure and business sites.

It previously sold an area to budget supermarket Aldi, welcomed Costa Coffee, and extended leases with tenants, such as clothing retailer M&Co.