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RNS
Harworth Group PLC  -  HWG   

Half-year Report

Released 07:00 06-Sep-2017

RNS Number : 9079P
Harworth Group PLC
06 September 2017
 



HARWORTH GROUP PLC

UNAUDITED INTERIM RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2017

 

Harworth Group plc ("Harworth" or the "Group"), the brownfield land and property developer & investor, announces its interim results for the half year ended 30 June 2017.

 

 

Six months to 30 June 2017

Twelve months to 31 December 2016

Six months to 30 June 2016

Net Asset Value ("NAV") per share (p) (1)

117.4

114.6

103.7

EPRA NNNAV per share (p) (1)

118.0

114.6

103.7

EPRA NAV per share (p) (1)

120.1

119.8

108.3





Profit from operations (£'m) (2)

1.0

2.2

0.9

Value gains (£'m) (3)

7.8

43.7

7.4

Value gains (including development properties) (£'m) (4)

10.1

43.7

7.4





Earnings per share (p)

5.4

3.5

0.3

Notes: (1) Following the March 2017 equity capital raise to accelerate the acquisition of strategic land for development and the further evolution of our strategy, £77.7m of property was re-categorised from investment to development.  Balance sheet measures will now include NAV, EPRA NNNAV which includes the market value of development properties (£2.3m), less deferred tax (£0.4m), and EPRA NAV which is EPRA NNNAV excluding deferred tax (£6.5m) and the mark to market movement on financial instruments (£0.2m)

(2) Profit from operations comprises operating profit before exceptionals (£8.8m) less value gains (£7.8m) and pension costs (£nil)

(3) Value gains comprise profits on sale of investment properties (£0.2m), assets held for sale (loss £0.4m) and development properties (£0.3m) plus increase in fair value of investment properties (£7.7m)

(4) Value gains (including development properties) comprises value gains (£7.8m) plus the increase in the fair market value of development properties (£2.3m)

 

Financial Highlights

·  Full year financial forecasts are in line with the Board's expectations but, as usual, weighted towards the second half


Ø Continued double-digit growth in NAV (13.2%, 13.8% and 10.9% increases in NAV, EPRA NNNAV and EPRA NAV respectively from H1 2016), supported by NAV uplift in the first half.  As at 31 June 2016, NAV, EPRA NNNAV and EPRA NAV respectively were £377.0m, £379.0m and £385.7m

Ø Profit from operations(2) increased to £1.0m (H1 2016: £0.9m) and value gains (including development properties)(4) increased to £10.1m (H1 2016: £7.4m) reflecting positive management actions

Ø Increases in earnings per share to 5.37p (H1 2016: 0.30p) and underlying earnings per share 5.17p (H1 2016: 2.04p) reflect positive improvements in the deferred tax position.  Dividend per share of 0.253p (H1 2016: 0.23p)

Ø Strong financial footing following £27.1m capital raise in March 2017 and increase in bonding line to £15.0m.  Policy of prudent gearing maintained with net loan to value 2.5% (FY 2016: 9.9%)

 

Strategic and Operating Highlights

·  Focus remains on Northern and Midlands regeneration markets with current emphasis on "beds and sheds" sectors which: provide flexibility; have consistent demand; and remain attractive for the long-term

 

Ø Continuing benefits from management action led model with over 80% of first half value gains as a result of milestone delivery as opposed to reliance on market movements

Ø Outline planning agreed at Kellingley (1.45m sq. ft commercial space) and Swadlincote (42k sq. ft commercial space).  Further planning success targeted in the second half of the year with more decisions due which will underpin the expected full year value gains

 

·  Significant advances made in successfully deploying £27.1m equity capital raised in March 2017.  On track to have committed entire proceeds by year-end

 

Ø Three acquisitions made in August 2017 across the Midlands and North West - all above expected target rate of return.  Total consideration of £16.3m (plus costs) with further infrastructure investment planned to bring the sites forward

Ø Options signed on two sites in the North West and preferred bidder positions secured on a further four sites in the North West, Yorkshire and the Midlands.  It is expected that all the £27.1m capital raised in March will be committed by the year end towards strategic land

 

 

·  Excellent progress with sales and deals

 

Ø On track with disposals with almost 50 per cent of targeted full year sales completed in the first half.  These first half sales comprised 358 residential plots and up to 564k sq. ft of commercial space, achieving an overall profit on sale.  The majority of the remaining targeted full year sales have been agreed and good progress has already been made with 2018 sales

Ø Innovative deals undertaken during the period to drive value whilst demonstrating the benefit of refocusing the portfolio, including:

A joint venture with Lancashire County Pension Fund to deliver a new commercial scheme at Logistics North in Bolton;

A joint venture with Dransfield Properties to deliver a new 193,722 sq. ft local centre at Waverley in Rotherham; and,

Long-term letting of a 225,000 sq. ft unit to Whistl on behalf of M&G Real Estate at Logistics North, following the unit's forward funding

 

Harworth's Chief Executive, Owen Michaelson, said:

"We have had another strong first half, with good progress being made in all of our key business areas.  We have executed a number of market leading deals at our flagship Advanced Manufacturing Park and Logistics North developments that further grow our commercial development capabilities, both directly and in partnership.  We have also continued to make progress in securing planning consents to grow the value of the portfolio, most notably at Kellingley. 

 

"We are well advanced with deploying the new capital raised in March and expect to have committed all the proceeds by the year end on strategic land sites.  Our future acquisitions pipeline remains strong and we continue to rationalise our portfolio, with the intention of reducing our sites under management to less than 100 within two years.

 

"The economic potential of the regions in which we operate remains good and the long-term market fundamentals are solid.  Based on current market conditions, we expect our full-year performance to be in line with our expectations."

 

-ENDS-

 

Enquiries: 

 

Harworth Group plc

Tel: +44 (0) 114 349 3131

Owen Michaelson, Chief Executive

 

Andrew Kirkman, Finance Director

 

 

 

Cardew Group

Shan Shan Willenbrock

Tel: +44 (0)20 7930 0777

ABOUT HARWORTH GROUP PLC

Listed on the main market, Harworth Group plc (LSE: HWG) is a leading brownfield land and property developer & investor which owns and manages a portfolio of approximately 21,000 acres of land on just under 140 sites located throughout the Midlands and North of England. The Group specialises in the regeneration of former coalfield sites and other brownfield land into new residential developments, employment areas and low carbon energy projects. (http://www.harworthgroup.com)

Chairman's Statement

Overview

I am pleased to present our report for the half year ended 30 June 2017.  We have had a strong start to the year, with a pipeline of sales already agreed, planning permissions secured and positive development progress across our sites.  As usual, we expect NAV growth to be weighted to the second-half and our full year results to reflect the momentum created in the first half, as agreed sales complete and planning and site development feed through to value gains.  The Group's full year forecast remains in line with the Board's expectations.

 

Strategy, business model and markets

Strong fundamentals persist in our residential and commercial property markets in the North and Midlands.  The Group's strategy, business model and markets continue to evolve to provide flexibility and resilience notwithstanding a backdrop of macro-economic and political uncertainty.  

 

Our performance in the first half of the year continues to demonstrate the validity of our business model which places emphasis on management action, including sales, planning and/or development milestones.  We have also continued to make progress in strengthening the Group's recurring income base.

 

Maintaining long-term growth

Our consistent progress in developing and realising value from the existing portfolio highlights the importance of acquiring new sites to maintain long-term NAV growth.  In March 2017, we raised approximately £27m of additional equity, by way of a share placing, to accelerate previously identified acquisitions.  Since the placing, we have completed acquisitions of sites at Coalville in Leicestershire, Chatterley Valley in Staffordshire and Wingates in Bolton committing £16.3m in consideration.  Negotiations and due diligence on our other acquisition target sites are progressing well and we therefore expect to commit the balance of the placing proceeds before the end of the year.

 

Performance and results 

Following the March 2017 equity capital raise to accelerate the acquisition of strategic land for development and in recognition of our evolving plans for certain sites, we have updated the categorisation of some of our sites from investment to development.  This is reflected in our half-year results.

 

NAV per share grew in the first half from 114.6p to 117.4p per share, which takes into account the capital raised and shares issued in our equity raise in March 2017.  Over the twelve months from 1 July 2016 to 30 June 2017, NAV increased by 13.2% continuing to meet our targeted double digit NAV growth.  Operating profit before exceptionals in the first half was £8.8m (H1 2016: £8.3m), including profit from operations of £1.0m (H1 2016: £0.9m), aggregate profit derived from sales of £0.1m (H1 2016: loss of £0.5m) and revaluation gains of £7.7m (H1 2016: £7.9m).

 

We have seen good performance in the first half from sales, lettings and planning across both our Capital Growth and Income Generation segments.  This has included some notable successes: the announcement of joint ventures with Lancashire Country Pension Fund at Logistics North and Dransfield Properties at Waverley; and planning permission being secured at Kellingley in North Yorkshire, the country's last deep mine to close.  This momentum has been carried into the second half of the year with McLaren Automotive taking a 20-year lease on a new facility that we will build on their behalf at the Advanced Manufacturing Park.

 

Dividend

In line with our dividend policy the Group will pay an interim dividend of 0.253p per share (H1 2016: 0.230p) equivalent to £813k (H1 2016: £672k).  This dividend will be paid on 13 October 2017 to shareholders on the register at the close of business on 15 September 2017.  The ex-dividend date will be 14 September 2017.

 

Succession

I said at the Annual General Meeting (AGM) in May that, having led the former UK Coal plc through its 2012 restructuring and then the Group in its re-acquisition of Harworth Estates in 2015, I feel that this is the right time to plan my succession to a new Chair.  I announced my intention to step down from the Board no later than the 2018 AGM.  The process is well underway to identify my successor, led by Lisa Clement, our Senior Independent Director, alongside our other independent Non-Executive Directors. We will make a further announcement in due course.

 

People

I would like to thank all our colleagues in the business for their hard work in delivering another strong start to the year.  As ever, it is our people who maximise the value from our portfolio and I look forward to them carrying that momentum into the second half of the year.

 

Jonson Cox

Chairman

6 September 2017

Chief Executive's Statement

Overview

I am pleased to report another robust set of interim results to shareholders, reflecting a strong start to the year by both of our Capital Growth and Income Generation business segments.  These results demonstrate the underlying strength of our business, with over 80% of first half value gains achieved as a result of management actions rather than market movements.   NAV as at 30 June 2017 was £377.0m (H1 2016: £303.0m).

 

As in previous years, we anticipate performance to be second half weighted, as agreed sales formally complete and both infrastructure and development works are accelerated over the summer months, driving value gains prior to the year-end.

 

Reflecting the strategic evolution of the business and expected activities going forward, we have changed the categorisation of some parts of our sites to development rather than investment.

 

Capital Growth

We continue to make good progress in extracting optimal value from our portfolio in the North of England and the Midlands through our masterplanning, placemaking and technical expertise.  This includes a strong emphasis on residential and logistics development ("beds and sheds" sectors) which continue to benefit from consistent demand in the regions in which we operate and remain attractive to the Group in the long-term.  Our strategy of refocussing our portfolio in these areas, particularly through the reduction of our historic agricultural land holdings, continues and we intend to reduce our sites under management to less than 100 within two years.

 

During the six-month period, outline planning consents were granted for 1,492,000 sq. ft. of commercial space, the main element of which was 1,450,000 sq. ft at Kellingley - the last of the UK's deep mines, which is located in North Yorkshire.  Live planning applications for a further 910 freehold plots, 855 partnership plots and 1,815,000 sq. ft of commercial space are also in place, with determination on all expected by the end of 2017.  If successful, these applications are likely to make a significant contribution to expected full year value gains and will strengthen the position of the business going forward.

 

A bedrock of our strategy continues to be the careful planning of the disposal of properties to extract the maximum value from our land portfolio, with the aim of achieving gains against book value to invest in accelerating the redevelopment of our sites.  In the first half of the year we sold 358 residential plots across three development parcels to regional housebuilders.   Further additional sales to housebuilders and commercial occupiers have also been agreed for completion during the second half of the year, meaning that by 30 June 2017 we had completed, exchanged or agreed 95% of budgeted sales for 2017.  Good progress has also been made in preparing land and agreeing terms for eventual 2018 sales.

 

As at 30 June 2017, the total number of consented residential plots in the portfolio was 9,171 alongside 10.9m sq. ft of consented employment space.  Furthermore, should all of our identified future residential and commercial planning applications come to fruition, this would deliver a total of 19,705 residential plots alongside 18.5m sq. ft of new commercial space for the regions.

 

Income Generation

We have made further selected moves to capture development profits to generate increased value for our shareholders, in particular increasing the number of direct build, commercial developments that we are undertaking in some of our strongest locations.  This has been in response to a continued undersupply of smaller commercial units in the North of England and supports our efforts to build income and drive net asset value growth from our income-producing portfolio.

 

At Logistics North, a joint venture known as 'Multiply Logistics North' between Harworth and the Lancashire County Council Pension Fund was agreed in May 2017.  This partnership has now begun constructing the first three of ten planned industrial units totalling approximately 564k sq. ft across 31.2 acres over the next two years.  This follows our direct development of two industrial units from internal funds, totalling 52,250 sq. ft, elsewhere on-site. 

 

The occupational market for these units remains robust, evidenced by our experience elsewhere at Logistics North.  Following the completion of 400,000 sq. ft of Grade 'A' commercial space on behalf of M&G Real Estate in December 2016, we secured a ten-year lease for the 225,000 sq. ft unit in January 2017 with Whistl to act as its new North West distribution facility. 

 

In April, we also reached practical completion on six new units totalling 51,750 sq. ft at the Advanced Manufacturing Park (AMP) in Rotherham, with a leading advanced manufacturer becoming our first new tenant for a 12,100 sq. ft unit.  As announced in July, immediately post the period end, this was followed by a pre-let to McLaren Automotive, which is taking a 20-year lease on a new 75,000 sq. ft unit at the AMP that we will be building on their behalf.  Both deals reflect the strength of the manufacturing sector in the North of England and the attractiveness of the AMP to meet this need.

 

In the Spring, we also announced a new Joint Venture with Dransfield Properties Limited, to deliver a new retail, office and leisure scheme at Waverley.  A planning application for a total of 193,722 sq. ft was submitted to Rotherham Metropolitan Borough Council in July and we hope to secure a full planning consent during H2.

 

Progress has also been made in generating income from our existing Business Parks.  We signed 16 new commercial lettings or renewals in the six months to 30 June 2017, with an annualised rent roll of £367,700 per annum. 

 

Our revenues for the period were also supplemented by the installation of another 5MW of additional capacity from low carbon energy schemes, bringing total capacity in our portfolio to 148.5MW.  Finally, the sale of coal fines from former colliery sites to energy companies to supplement our income has continued, with more tonnes being sold in the first half of this year compared with last year.  As previously reported however, we do not see the sale of coal fines underpinning our revenues in the medium to long-term as demand falls in line with the closure of the remaining coal fired power plants by 2025.

 

Acquisitions

The successful completion of the £27.1m equity raise in March to accelerate the continued expansion of our strategic landbank was a key milestone in funding our future growth prospects and significant advances have since been made in deploying the proceeds.

 

We made three acquisitions in August 2017 for a total consideration of £16.3m plus costs on sites identified as part of the equity placing, with a projected rate of return in each case above our target rate.  The first, Coalville in Leicestershire, is a 145-acre site purchased for £11.8m plus costs.  It neighbours our existing Coalville development and already benefits from an existing planning permission for 914 new homes.  This creates a combined site with planning permission for over 2,000 new residential plots and provides a 15-year development pipeline.

 

The second, Chatterley Valley in Staffordshire, is an 88-acre site purchased for £2.6m plus costs that borders our existing 24-acre freehold site.  The entire site benefits from Government Enterprise Zone status and an extant planning permission to deliver up to 1.2m sq. ft of new commercial development.

The final acquisition, Wingates in Bolton, involved the freehold purchase or option to purchase three land parcels totalling 73 acres.  The land is adjacent to Junction 6 of the M61, close to our existing Logistics North development, and borders 221 acres of land that we already own.  When all of this land is combined, it could deliver a further 2.4m sq. ft of commercial employment space.

 

Good progress has also been made on our other identified acquisition targets, with: options signed at two sites in the North West; a purchase price being agreed for a large site in Yorkshire; and preferred bidder status being secured on a further four sites totalling over 400 acres in the North West, Yorkshire and the Midlands.  We therefore expect that all of the £27.1m capital raised in March will be committed by the year end.

 

Market Outlook

The outlook in our target markets remains healthy.  The stability of the regional markets we operate in is driven by comparatively low prices, a continuing lack of housing land supply and the need for high quality new commercial space in regions where good quality stock is scarce.  Sentiment is further strengthened by national Government policy, which continues to support the redevelopment of brownfield sites through the Housing White Paper, published in February 2017, and the developing Industrial Strategy.


Overall, trading remains in line with our expectations, with strong momentum continuing into the second half of 2017.

 

Owen Michaelson

Chief Executive Officer

6 September 2017

 

Financial Review

Business model and Property categorisation

Harworth has become more firmly established in recent years, particularly as a result of the effective re-listing in March 2015 and the development of a successful track record.  At the same time, our business model has matured and evolved, notably with moves into adjacent activities such as direct development and forward funding deals.  As a consequence, following the capital raise in March 2017 which was to accelerate the acquisition of strategic land for development, we reviewed our most advanced and active sites and re-categorised certain properties to reflect the intentions for the sites.  The majority of Waverley, Logistics North and Prince of Wales have been re-categorised as development sites and as such are now disclosed within inventory.  Development sites are held on the balance sheet at cost rather than fair/market value, albeit at the point of re-categorisation the property is transferred at market value.

 

The balance sheet value of these three development sites at the point of re-categorisation was £77.7m.  The balance sheet value of these three development sites as at 30 June 2017 was £73.2m (reflecting sales in the period) and the market value was £75.5m.  In order to highlight the market value of development sites and be consistent with our investment properties, we are now also reporting EPRA NNNAV which includes the market value of development properties, less deferred tax.  We will continue to report EPRA NAV which is EPRA NNNAV excluding deferred tax and the mark to market movement on financial instruments.

 

Overview

The first half of 2017 saw further progress across both segments of our business, Capital Growth and Income Generation, demonstrated by our very good financial results.  NAV per share increased to 117.4p (£377.0m) as at 30 June 2017, which is a 13.2% increase on the NAV per share as at 30 June 2016 of 103.7p (£303.0m) and a 2.4% increase on the NAV per share as at 31 December 2016 of 114.6p (£334.9m).  EPRA NNNAV rose by 13.8% to 118.0p per share (£379.0m) compared to 103.7p per share as at 30 June 2016 (£303.0m) and rose by 3.0% compared to 114.6p per share as at 31 December 2016 (£334.9m)EPRA NAV rose by 10.9% to 120.1p per share (£385.7m) compared to 108.3p per share as at 30 June 2016 (£316.5m) and rose by 0.3% compared to 119.8p per share as at 31 December 2016 (£350.1m).

 

Operating profit before exceptional items in the first half increased to £8.8m (H1 2016: £8.3m) as a result of the delivery of milestones by management.  If revaluation gains on those properties now categorised as development were included, then value gains and operating profit would have been £2.3m higher in 2017 (H1 2016: £nil).  Earnings per share were 5.37p (H1 2016: 0.30p) reflecting positive advances allowing the recognition of further deferred tax assets and the interim dividend increased by 10.0% to 0.253p per share (H1 2016: 0.23p).  Finally, the balance sheet remains healthy following the £27.1m capital raise in March 2017, which is expected to be committed to acquisitions by the year end, but also reflects excellent progress with sales such that gearing on a net loan to value basis has reduced to 2.5% (H1 2016: 13.4%).  We have also increased our bonding line from £10m to £15m to support increased activity.

 

A certain degree of complexity remains in our results due to the 1 for 10 share consolidation which occurred in the first half of 2016 and the £27.1m capital raise in March 2017.  Consequently, earning per share are set out below on both a statutory and underlying basis. 

 

Operating profit

Revenues in the first half were £22.9m (H1 2016: £17.4m) split between revenue from operations £14.4m (H1 2016: £17.4m) and revenue from the sale of development properties £8.5m (H1 2016: £nil).  Revenue from operations is split between: Income Generation £8.7m (H1 2016: £7.8m), where revenue mainly comprises rental and royalty income together with some sales of coal fines and salvage; and Capital Growth £5.7m (H1 2016: £9.6m).  The increase in revenue from Income Generation reflected improved lettings and business space acquisitions made in 2016.  The reduction in revenue from Capital Growth reflected the completion in December 2016 of the two units at Logistics North which were forward funded by M&G Real Estate.  The revenue in 2017 reflected amounts received on completion of the work including a promote fee on the letting of the larger 225,000 sq. ft unit to Whistl in January 2017.  The smaller 175,000 sq. ft unit continues to be actively marketed.

 

Cost of sales now comprises three elements being: sales of development properties; operating costs for business space, natural resources and coal fines activities; and costs in relation to the M&G contract for construction and letting units.  Cost of sales increased to £15.3m (H1 2016: £11.9m) including some large movements being the first-time recognition of sales of development property of £8.2m (H1 2016: £nil) and a reduction of costs associated with the M&G contract to £4.8m (H1 2016: £9.5m).

 

Total overheads, which include the overhead costs of the Capital Growth and Income Generation segments and central costs, amounted to £6.6m (H1 2016: £4.7m).  The increase in costs reflected an increased accrual for the Executive Long Term Incentive Plan reflecting continued and expected NAV outperformance as well as increased staffing and business costs reflecting greater and more productive operational activity.  The table below shows the results of the business split between Capital Growth, Income Generation and Central Overheads:

 

Capital
Growth
£m

Income Generation

£m

Central Overheads
£m

H1 2017
Total

£m

H1 2016
Total
£m

Revenue

14.2

8.7

-

22.9

17.4

Cost of sales

(12.7)

(2.6)

-

(15.3)

(11.9)

Overheads

(1.0)

(0.9)

(4.6)

(6.6)

(4.7)

Profit from operations (1)

0.5

5.1

(4.6)

1.0

0.9

Revaluation gains

3.5

4.2

-

7.7

7.9

Profit/(loss) on disposals (1)

-

0.1

-

0.1

(0.5)

Pension credit

-

-

-

-

0.1

Operating profit, before exceptionals

4.0

9.4

(4.6)

8.8

8.3

Revaluation gains on development properties (2)

2.3

-

-

2.3

0.0

Notes:

(1) Profit from operations comprises operating profit before exceptionals (£8.8m) less pension costs (£nil) and value gains (£7.8m).  Value gains comprise profit/(loss) on disposals (being profits on sale of investment properties (£0.2m), assets held for sale (loss of £0.4m) and development properties (£0.3m)) plus increase in fair value of investment properties (£7.7m)

(2) This is the unrecognised mark to market gain since the properties were re-categorised into development properties

 

Set out below are value gains for 2016 and 2017, which comprise profit on disposals, revaluation gains on investment properties and revaluation gains on development properties:

£m

H1 2017

H1 2016

Profit on disposal

Revaluation gains

Total

Total

 

Management

Market

 

 

Major Developments

-

1.4

0.9

2.3

1.9

Strategic Land

-

3.3

-

3.3

1.5

Business Space

-

2.0

-

2.0

1.0

Natural Resources

0.3

1.0

-

1.3

3.4

Agricultural Land

(0.2)

0.7

0.7

1.2

(0.4)

Total

0.1

8.4

1.6

10.1

7.4

 

The Group made sales and conditional sales of £24.9m in H1 2017 (H1 2016: £13.3m), of which £15.2m of the consideration is deferred, with profit on disposal of £0.1m (H1 2016: loss of £0.5m).  The proceeds were split between residential serviced plots (£11.7m), commercial development (£10.8m) and other, essentially agricultural land (£2.4m).

 

The Group achieved revaluation gains, including revaluation gains on development properties, of £10.0m (H1 2016: £7.9m).  Revaluation gains for major developments were all for development sites totalling £2.3m (H1 2016: £nil).  We have split revaluation gains to reflect the contribution from management actions, £8.4m, and market movements, £1.6m. Whilst there is a degree of subjectivity in this split, it highlights that the majority of the value gains come from management actions.  The principal H1 2017 revaluation gains across the divisions were as follows:

 

·     Major Developments - Uplifts at Logistics North and Waverley as site values increase with maturity and buyer interest.  Updated market values at Prince of Wales;

 

·     Strategic Land - Outline planning consent granted at Kellingley and planning application submitted for Thoresby redevelopment;

 

·     Business Space - Completion of direct development at AMP and new lettings secured;

 

·     Natural Resources - Uplifts at Bilsthorpe and Kellingley due to expected future sales; and

 

·     Agricultural Land - Reduction in restoration liability of former surface mine sites.

 

The resulting operating profit for the Group, before exceptional items, was £8.8m (H1 2016: £8.3m).

 

Exceptional items

Exceptional items in the first half were composed of three separate items which, as before, relate to the Group's legacy activities.  The total amounts in H1 2017 were £0.1m (H1 2016: £nil).

 

In the first half of 2017, £0.2m was recognised as anticipated settlement from the administrator of Ocanti No.1 Limited which related to the reimbursement of management expenses incurred by Harworth (then known as Coalfield Resources plc) and a small positive amount was recognised for the recovery of VAT on deal fees relating to the March 2015 re-listing.  Offsetting this was the write-off of £0.2m related to a debtor for the settlement of a claim against Coalfield Resources plc regarding certain road repairs.

 

The amounts which were recognised in the first half of 2016 when aggregated netted to nil.  With regard to Harworth Insurance Company Limited, Harworth received £0.5m from the administrator, which essentially represented final settlement.  In addition, £0.2m was received from the administrator of Ocanti Opco Limited which related to the reimbursement of management expenses incurred by Harworth (then known as Coalfield Resources plc).  In respect of coal fines activities, an exceptional charge of £0.7m was taken to reflect the under recovery of amounts relating to the cessation of activities at Rugeley and a provision taken against the value of coal fines stocks to reflect reduced demand.

 

Taxation

The credit for taxation in the period was £8.9m (H1 2016: £1.4m charge) which comprises a deferred tax credit of £8.8m (H1 2016: £1.4m charge) and current year tax credit of £0.1m (H1 2016: £nil).  The breakdown was as follows:

·     further recognition of deferred tax assets of £7.5m (H1 2016: £nil) as a result of executing a contract which resulted in increased certainty that the losses would not be lost;

·     the deferred tax credit on forecast future capital gains arising on the investment property portfolio of £1.3m (H1 2016: £1.4m charge);

·     land remediation relief tax credit of £0.2m (H1 2016: £nil); and

·     a current year tax charge of £0.1m (H1 2016: £nil) resulting from profits on sales of development properties.

 

The Group is still utilising brought forward tax losses but as a result of categorising some sites from investment to development is likely to pay tax on future profitable sales.  In the current period, Harworth received cash in respect of the land remediation relief claim and recovery of VAT on deal fees of £0.3m (H1 2016: £nil).

 

At 30 June 2017, the Group had deferred tax liabilities of £21.8m (FY 2016: £23.3m), related to unrealised gains on investment properties and had recognised deferred tax assets of £15.7m (FY 2016: £8.4m).  The net deferred tax liability was £6.1m (FY 2016: £14.9m).

 

Earnings per share and Dividends

Earnings per share increased to 5.37p (H1 2016: 0.30p) and underlying earnings per share, using the closing number of shares, increased to 5.17p (H1 2016: 2.04p).  These increases reflect the positive progress made in the period with respect to profits and tax.

 

In line with our dividend policy the Group will pay an interim dividend of 0.253p per share (H1 2016: 0.230p) equivalent to £813k (H1 2016: £672k).  This dividend will be paid on 13 October 2017 to shareholders on the register at the close of business on 15 September 2017.  The ex-dividend date will be 14 September 2017.

 

Net assets

As set out below, NAV increased to £377.0m as at 30 June 2017 from £334.9m as at 31 December 2016 (£303.0m as at 30 June 2016).  This increase was as a result of movements in the period, being operating profit before exceptionals of £8.8m, the March 2017 equity capital raise of £27.1m, a tax credit of £8.9m, less interest costs of £1.2m, dividends of £1.7m and other movements of £0.2m.

 


30 June     2017             £m

31 December 2016

£m

30 June

2016

£m

Investment and development properties (including investments in joint ventures, assets held for sale, overages and occupied properties)

408.6

400.3

363.9

Cash

13.5

13.0

23.7

Other assets

18.9

25.2

21.8

Total assets

441.0

438.5

409.4

Gross borrowings

23.6

52.5

72.6

Deferred tax liability

6.1

14.9

12.8

Derivative financial instruments

0.2

0.4

0.7

Other liabilities

34.1

35.8

20.3

Net assets

377.0

334.9

303.0

Number of shares in issue

 321,250,750

 292,269,786

292,269,786

NAV per share

117.4p

114.6p

103.7p

EPRA NNNAV per share (1)

118.0p

114.6p

103.7p

EPRA NAV per share (2)

120.1p

119.8p

108.3p

Notes (1) NAV (£377.0m) plus market value of development properties (£2.3m) less deferred tax (£0.4m) divided by number of shares in issue

(2) EPRA NNNAV (£379.0m) excluding deferred tax liability (£6.5m) and mark to market movement on financial instruments (£0.2m) divided by number

 of shares in issue

 

Financing and funding strategy

The Group has a £75m non-amortising Revolving Credit Facility (RCF) with RBS which expires in February 2021, of which effectively £30m is fixed at an all-in rate of 2.955% (including fees) until June 2020 and the remainder is charged at LIBOR plus 2%.  The interest rate swap is hedge accounted with any unrealised movements going through reserves.  The Group's hedging strategy is to have roughly half of its debt at a fixed rate and half of its debt exposed to floating rates.

 

The Group also uses infrastructure funding, provided by public bodies to promote the development of major sites for employment and housing needs, in our funding strategy.  At 30 June 2017 the Group had six infrastructure facilities with all-in funding rates of between 2.5% and 4.0%.  After the half year, to assist with funding requirements associated with greater activities and continued growth, we secured an increase in our bonding line from £10.0m to £15.0m.

 

The Group's cash and cash equivalents at 30 June 2017 were £13.5m (FY 2016: £13.0m).  The Group had borrowings and loans of £23.6m at 30 June 2017 (FY 2016: £52.5m), being the RBS RCF of £9.2m (FY 2016: £37.1m) and infrastructure loans of £14.4m (FY 2016: £15.3m).  The resulting net debt was £10.1m (FY 2016: £39.5m).  The weighted average cost of debt, using 30 June 2017 balances and rates, was 3.5% with a 0.8% non-utilisation fee on undrawn RCF amounts (FY 2016: 2.9% with a 0.8% non-utilisation fee on undrawn RCF amounts).

 

The Group continues with its aim of balancing its cash flows by using disposal proceeds to fund infrastructure spend and investment in acquisitions to replenish the portfolio, as well as improving its focus on brownfield sites with greater value enhancement potential.  The Group is also maintaining its policy of prudent gearing with gross Loan To Value (LTV) of 5.7% (FY 2016: 13.1%) and net LTV of 2.5% (FY 2016: 9.9%).  However, Capital Growth sites are deliberately not geared, so if gearing is just assessed against the value of Business Space and Natural Resources properties this equates to gross LTV of 17.3% (FY 2016: 41.6%) and net LTV of 7.4% (FY 2016: 31.3%).

 

Harworth's policy of prudent gearing gives the Group the ability to complete acquisitions quickly, which is often a source of competitive advantage.  In addition, this policy of prudent gearing allows working capital swings to be appropriately managed given that infrastructure spend is usually in advance of sales and thus net debt can increase by over £20m during the year.

 

Andrew Kirkman

Finance Director

6 September 2017

 

Principal risks and uncertainties

A detailed explanation of the principal risks and uncertainties affecting the Group, and how it seeks to mitigate these risks, can be found on pages 40 to 44 of the Annual Report and Financial Statements for the year ended 31 December 2016, which is available at www.harworthgroup.com/investors.  These risks and uncertainties are expected to remain relevant for the second half of the financial year.  In some cases, there have been external developments or internal actions which could affect the likelihood and/or impact of certain risks.  These are listed below.

Whilst the Group is not immune to political and economic uncertainty particularly as negotiations continue in respect of the UK's departure from the EU and following the results of the General Election, the Directors do not consider that the prevailing situation materially increases the Group's exposure to market fluctuations.  This is further mitigated given the diversity of our portfolio and as our regional residential and commercial markets remain strong.

In July, the Government announced the next round of consultation on phase 2b of the HS2 route from Birmingham through to Leeds.  This includes a proposed rolling stock depot located in the vicinity of our Skelton Grange site and the adjoining Gateway 45 site, which is owned by The Aire Valley Land LLP, our joint venture with Evans Property Group.  As a consequence, both sites have been safeguarded until a final decision has been made after consultation.  This consultation with key local authorities and landowners will run through to 12 October 2017 with a final decision anticipated in either late 2017 or in early 2018.  This announcement will have a short-term, and potentially long-term, impact on our development plans across the two sites and we are working closely with HS2 to deliver its objectives whilst also ensuring that our current development plans can be brought forward unimpeded.

Certain of the value gains projected for the second half of the year are reliant on planning successes.  Whilst we are confident of achieving those successes, we have an increased risk associated with planning applications during this period compared with other periods.

Given the increased activities of the Group, both across our existing portfolio and in connection with acquisition targets, there continues to be capacity pressures across the business.  We are addressing this with recruitment into a number of new roles, much of which has been completed and/or is underway.  The additional staff costs resulting from this recruitment will be addressed by corresponding increases and improvements in our recurring income base, which are ongoing.  

 

Chris Birch

Group General Counsel and Company Secretary

6 September 2017

 

Consolidated income statement


Note

Unaudited

6 months ended

30 June
2017
£000

Unaudited

6 months ended 30 June
2016
£000

Audited
year ended
31 December

2016
£000

Revenue


22,920

17,405

33,693

Cost of sales


(15,014)

(11,864)

(20,905)

Gross profit


7,906

5,541

12,788

Administrative expenses


(6,570)

(4,802)

(10,455)

Increase in fair value of investment properties


7,689

7,900

33,713

Decrease in fair value of assets classified as held for sale


-

-

(224)

Profit/(loss) on sale of investment properties


217

(307)

9,166

Loss on sale of assets classified as held for sale


(399)

(192)

(375)

Other gains


17

56

747

Other operating (expense)/income


(24)

137

(204)

Depreciation of property, plant and equipment


(4)

-

(2)

Operating profit before exceptional items


8,832

8,333

45,154

Exceptional income

2

230

689

689

Exceptional expense

2

(168)

(682)

(682)

Operating profit


8,894

8,340

45,161

Finance income

4

15

242

247

Finance costs

4

(1,184)

(1,196)

(2,588)

Share of profit of joint ventures


-

-

 

647

Profit before tax


7,725

7,386

43,467

Tax

5

8,873

(1,422)

(3,566)

Profit for the period/year


16,598

5,964

39,901






Earnings per share from operations


pence

pence

pence

Basic and diluted

7

5.4

0.3

3.5

The notes on pages 19 to 32 are an integral part of these condensed consolidated interim financial statements.

All activities in the current period/year are derived from continuing operations.

Consolidated statement of comprehensive income


Unaudited

6 months ended

30 June
2017
£000

Unaudited

6 months ended

30 June
2016
£000

Audited
year ended
31 December

2016
£000

Profit for the period/year

16,598

5,964

39,901

Other comprehensive income - items that will not be reclassified to profit or loss:




Net actuarial loss in Blenkinsopp Pension scheme

(31)

(25)

(269)

Fair value of financial instruments

142

(658)

(366)

Revaluation of Group occupied property

-

-

(17)

Deferred tax on actuarial loss

-

-

94

Total other comprehensive income/(expense)

111

(683)    

(558)

Total other comprehensive income for the period/year

16,709

5,281

39,343

Consolidated balance sheet

ASSETS

Note

Unaudited

6 months ended

30 June
2017
£000

Unaudited

6 months ended

30 June
2016
£000

Audited
year ended
31 December

2016
£000

Non-current assets





Property, plant and equipment


785

-

789

Other receivables


1,406

650

1,397

Investment properties

8

310,527

346,521

379,190

Investments in joint ventures and associates

9

11,768

9,798

10,549



324,486

356,969

391,925

Current assets





Inventories

10

74,010

565

733

Trade and other receivables


18,214

20,554

24,444

Cash and cash equivalents

11

13,484

23,692

13,007

Assets classified as held for sale

12

10,829

7,606

8,350



116,537

52,417

46,534

Total assets


441,023

409,386

438,459

LIABILITIES





Current liabilities





Borrowings

13

(2,319)

(1,938)

(1,819)

Trade and other payables


(31,984)

(17,612)

(33,719)



(34,303)

(19,550)

(35,538)

Net current assets


82,234

32,867

10,996

Non-current liabilities





Borrowings

13

(21,273)

(70,669)

(50,659)

Trade and other payables


(1,520)

(2,280)

(1,520)

Derivative financial instruments


(223)

(658)

(366)

Deferred income tax liabilities


(6,093)

(12,801)

(14,851)

Retirement benefit obligations

14

(562)

(404)

(602)



(29,671)

(86,812)

(67,998)

Total liabilities


(63,974)

(106,362)

(103,536)

Net assets


377,049

303,024

334,923

SHAREHOLDERS' EQUITY





Called up share capital

15

32,150

29,227

29,227

Share premium account

16

24,351

-

-

Fair value reserve


65,968

31,960

58,279

Capital redemption reserve


257

257

257

Merger reserve


45,667

45,667

45,667

Investment in own shares

15

(263)

-

-

Retained earnings


192,321

60,828

161,592

Other reserves


-

129,121

-

Current year profit


16,598

5,964

39,901

Total shareholders' equity


377,049

303,024

334,923

Consolidated statement of cash flows


Unaudited

6 months ended

30 June
2017
£000

Unaudited

6 months ended

30 June
2016
£000

Audited
year ended
31 December

2016
£000

Cash flows from operating activities




Profit for the period/year

7,725

5,964

43,467

Net interest payable

1,169

954

2,341

Fair value increase in investment properties

(7,689)

(7,900)

(33,713)

Fair value decrease in assets classified as held for sale

-

-

224

(Profit)/loss on disposal of investment properties

(217)

307

(9,166)

Loss on sale of assets classified as held for sale

399

192

375

Other gains

-

-

(747)

Share of profit of joint ventures

-

-

(647)

Depreciation of property, plant and equipment

4

-

2

Pension contributions in excess of charge and other gains

(71)

(63)

(102)

Operating cash inflows/(outflow) before movements in working capital

1,320

(546)

2,034

Decrease in inventories

4,457

30

359

Decrease/(increase) in receivables

9,332

(151)

(634)

(1,821)

3,428

3,715

Cash generated from operations

13,288

2,761

5,474

Loan arrangement fees paid

(97)

(47)

(150)

Interest paid

(707)

(742)

(1,861)

Cash generated from operating activities

12,484

1,972

3,463

Cash flows from investing activities




Interest received

15

242

247

Investment in joint ventures

(1,219)

(9,030)

(9,134)

Proceeds from disposal of investment properties and assets classified as held for sale

4,028

10,894

53,201

Expenditure on investment properties and assets classified as held for sale

(11,156)

(15,753)

(47,528)

Tax received

174

-

-

-

-

(25)

(8,158)

(13,647)

(3,239)

Cash flows from financing activities




Net proceeds from issue of ordinary shares

27,065

-

-

Proceeds from other loans

2,327

2,905

5,187

Repayment of other loans

(3,593)

(4,102)

(5,805)

Proceeds from bank loan

10,000

9,000

-

Repayment of bank loan

(38,000)

-

(12,000)

Investment in own shares

(177)

-

-

Other transaction costs

209

-

-

Dividends paid

(1,680)

-

(2,163)

Cash (used in)/generated from financing activities

(3,849)

7,803

(14,781)

477

(3,872)

(14,557)

At 1 January




Cash

13,007

27,564

27,564


13,007

27,564

27,564

Increase/(decrease) in cash

477

(3,872)

(14,557)


13,484

23,692

13,007

At period/year end




Cash

13,484

23,692

13,007

Cash and cash equivalents

13,484

23,692

13,007

 


Consolidated statement of changes in shareholders' equity


 

Called up share capital £000

Share

premium account

£000

Fair

value

reserve

£000

Capital redemption reserve

£000

 

Merger reserve

£000

Own

shares

£000

Retained earnings

£000

Total

equity

£000

Balance at 1 January 2016 (audited)

29,227

129,121

24,060

257

45,667

-

69,411

297,743

Transactions with owners:









Profit for the six months to 30 June 2016

-

-

-

-

-

-

5,964

5,964

Transfer of fair value gain on revaluation of investment properties

-

-

7,900

-

-

-

(7,900)

-

Transfer of share premium to other distributable reserves

-

(129,121)

-

-

-

-

129,121

-

Other comprehensive expense:









Actuarial loss in Blenkinsopp pension scheme

-

-

-

-

-

-

(25)

(25)

Fair value of financial instruments

-

-

-

-

-

-

(658)

(658)

Balance at 30 June 2016 (unaudited)

29,227

-

31,960

257

45,667

-

195,913

303,024

Transactions with owners:









Dividends paid

-

-

-

-

-

-

(2,163)

(2,163)

Profit for the six months to 31 December 2016

-

-

-

-

-

-

33,937

33,937

Transfer of fair value gain on revaluation of investment properties

-

-

25,813

-

-

-

(25,813)

-

Transfer of fair value decrease on assets classified as held for sale

-

-

(224)

-

-

-

224

-

Transfer of other gains

-

-

747

-

-

-

(747)

-

Other comprehensive (expense)/income:









Actuarial loss in Blenkinsopp pension scheme

-

-

-

-

-

-

(244)

(244)

Revaluation of group occupied property

-

-

(17)

-

-

-

-

(17)

Fair value of financial instruments

-

-

-

-

-

-

292

292

Deferred tax on actuarial loss on pension scheme

-

-

-

-

-

-

94

94

Balance at 31 December 2016 (audited)

29,227

-

58,279

257

45,667

-

201,493

334,923

Transactions with owners:









Profit for the six months to 30 June 2017

-

-

-

-

-

-

16,598

16,598

Transfer of fair value gain on revaluation of investment properties

-

-

7,689

-

-

-

(7,689)

-

Purchase of own shares

-

-

-

-

-

(263)

86

(177)

Dividend paid

-

-

-

-

-

-

(1,680)

(1,680)

Share issue

2,923

24,142

-

-

-

-

-

27,065

Other transaction costs

-

209

-

-

-

-

-

209

Other comprehensive (expense)/income:









Actuarial loss in Blenkinsopp pension scheme

-

-

-

-

-

-

(31)

(31)

Fair value of financial instruments                                                       

-

-

-

-

-

-

142

142

Balance at 30 June 2017 (unaudited)

32,150

24,351

65,968

257

45,667

(263)

208,919

377,049

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2017

1. Basis of preparation of the condensed consolidated interim financial statements

 

General information

Harworth Group plc (the 'Company') is a public limited company incorporated and domiciled in the UK. The address of its registered office is Advantage House, Poplar Way, Catcliffe, Rotherham, South Yorkshire, S60 5TR.

 

The Company is listed on the London Stock Exchange.

 

The condensed consolidated interim financial statements for the six months ended 30 June 2017 comprise the Company and its subsidiaries (together referred to as the 'Group').

 

These condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The Group financial statements for the year ended 31 December 2016 were approved by the Board of Directors on 19 April 2017 and delivered to the Registrar of Companies. The report of the auditor on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

 

These condensed consolidated interim financial statements have been reviewed not audited.

 

The condensed consolidated interim financial statements for the period ended 30 June 2017 were approved by the Board on 5 September 2017.

 

Basis of preparation

These condensed consolidated interim financial statements for the six months ended 30 June 2017 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority (previously the Financial Services Authority) and with IAS 34 'Interim Financial Reporting' as adopted by the European Union ('EU'). The condensed consolidated interim financial statements should be read in conjunction with the Group financial statements for the year ended 31 December 2016 which have been prepared in accordance with IFRSs as adopted by the EU.

 

Going-concern basis

These condensed consolidated interim financial statements are prepared on the basis that the Group is a going concern. In forming its opinion as to going concern, the Board prepares cash flow forecasts based upon its assumptions with particular consideration to the key risks and uncertainties as summarised in the 'How we manage our risks' section of the 2016 annual report, as well as taking into account the funding strategy and available borrowing facilities disclosed on page 30.

 

The key factor that has been considered in this regard is:

 

The Group has a £75m revolving credit facility with The Royal Bank of Scotland, expiring February 2021, on a non-amortising basis. The facility is in the form of a debenture security whereby there is no charge on the individual assets of the Group. The facility is subject to financial and other covenants.

 

The covenants are based upon gearing, tangible net worth, loan to property values and interest cover. Property valuations affect the loan to value covenants. Breach of covenants could result in the need to pay down in part some of these loans, additional costs, or a renegotiation of terms or, in extremis, a reduction or withdrawal of facilities by the bank concerned.

 

The Directors confirm their belief that it is appropriate to use the going concern basis of preparation for these condensed consolidated interim financial statements.

 Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2017

1. Basis of preparation of the condensed consolidated interim financial statements (continued)

 

Accounting policies

 

The same accounting policies are followed in these condensed consolidated interim financial statements as were applied in the Group's latest audited financial statements with the exception of;

 

Development properties

Development properties are inventory and are included in the consolidated balance sheet at the lower of cost and net realisable value. Net realisable value is the expected net sales proceeds of the developed property in the ordinary course of business less estimated costs to complete and anticipated selling costs.  Properties re-categorised to development properties from investment properties are transferred at deemed cost, being the fair value at the date of re-categorisation.

 

Since the 2016 annual accounts were published, the IASB have not issued any amendments or interpretations that are expected to have a material impact on the Group's reporting.

 

Estimates and judgements

The preparation of the condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

 

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2016, with the exception of changes in estimates that are required in determining the provision for income taxes.

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2017

 

2. Exceptional items

 



Unaudited

6 months ended 30 June
2017
£000

Unaudited

6 months ended

30 June
2016
£000

Audited
year ended
31 December

2016
£000

Settlement relating to Harworth Insurance Company Limited


-

500

500

Settlement relating to Ocanti Opco Limited


-

189

189

Settlement relating to Ocanti No.1 Limited


202

-

-

Recovery of VAT on bargain purchase previously written off


28

-

-

Settlement in relation to Juniper No.3 Limited


(168)

-

-

Under recovery relating to the cessation of coal fines activity at Rugeley and coal fines stock provision


-

(682)

(682)

Total exceptional items


62

7

7

 

Exceptional items in the six months ended 30 June 2017 were composed of three separate items which relate to the Group's legacy activities and totalled £0.1m (H1 2016; £nil, FY 2016; £nil).

 

In the six months ended 30 June 2017, £0.2m was recognised as anticipated settlement from the administrator of Ocanti No.1 Limited which related to the reimbursement of management expenses incurred by Harworth (then known as Coalfield Resources plc) and a small positive amount was recognised for the recovery of deal fees relating to the 2015 re-listing. Offsetting this was the write-off of a £0.2m debtor related to the settlement of a claim against Coalfield Resources plc regarding certain road repairs.

 

The amounts which were recognised in the six months ended 30 June 2016 when summed together netted to nil. With regard to Harworth Insurance Company Limited, Harworth received £0.5m from the administrator, which essentially represented final settlement. In addition, £0.2m was received from the administrator of Ocanti Opco Limited which related to the reimbursement of management expenses incurred by Coalfield Resources plc. In respect of coal fines activity, an exceptional charge of £0.7m was taken to reflect the under recovery of amounts relating to the cessation of activities at Rugeley and a provision taken against the value of coal fines stocks to reflect reduced demand.

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2017

3.   Segment information

               

30 June 2017

 

 

 

Capital
Growth

£000

Income
Generation

£000

Unallocated

costs

£000

 

Total

£000

Revenue from operations

5,712

8,685

-

14,397

Revenue from sale of development properties

8,523

-

-

8,523

Revenue

14,235

8,685

-

22,920

Gross profit/(loss) less administrative expenses

550

5,108

(4,631)

1,027

Gross profit from sale of development properties

309

-

-

309

Total gross profit/(loss) less administrative expenses

859

5,108

(4,631)

1,336

Increase in fair value of investment properties

3,443

4,246

-

7,689

(Loss)/profit on sale of investment properties

(59)

276

-

217

Loss on sale of assets classified as held for sale

(233)

(166)

-

(399)

Other operating expenses

-

-

(7)

(7)

Depreciation

-

-

(4)

(4)

Exceptional items

-

-

62

62

Operating profit/(loss)

4,010

9,464

(4,580)

8,894

Finance income




15

Finance costs




(1,184)

Profit before tax




7,725

 


Other information







Investment property additions:







- Direct acquisitions

-

-

-

-



- Subsequent expenditure

9,980

2,471

-

12,451


 

Segmental Assets

Capital
Growth

£000

Income
Generation

£000

Unallocated

 £000

 

Total

£000














Investment properties

159,553

150,974

-

310,527


Property, plant and equipment

-

-

785

785


Assets classified as held for sale

9,100

1,729

-

10,829


Inventories

74,010

-

-

74,010


Other receivables

1,406

-

-

1,406


Investments in joint ventures

891

10,877

-

11,768



244,960

163,580

785

409,325


Trade and other receivables



18,214

18,214


Cash and cash equivalents



13,484

13,484


Total assets

244,960

163,580

32,483

441,023


 

 

30 June 2016

 

 

 

Capital
Growth

£000

Income
Generation

£000

Unallocated

costs

£000

 

Total

£000

Revenue

9,580

7,825

-

17,405

Gross (loss)/profit less administrative expenses

(690)

4,626

(3,197)

739

Increase in fair value of investment properties

3,500

4,400

-

7,900

Loss on sale of investment properties and assets classified as held for sale

(137)

(362)

-

(499)

Other gains and operating income

-

137

56

193

Exceptional items

-

(682)

689

7

Operating profit/(loss)

2,673

8,119

(2,452)

8,340

Finance income




242

Finance costs




(1,196)

Profit before tax




7,386

Financial liabilities are not allocated to the reporting segments as they are managed and measured on a group basis.

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2017

3.  Segment information (continued)


Other information







Investment property additions:







- Direct acquisitions

903

2,822

-

3,725



- Subsequent expenditure

5,002

5,059

-

10,061








Segmental Assets

Capital
Growth

£000

Income
Generation

£000

Unallocated

£000

 

Total

£000








Investment properties

211,546

134,975

-

346,521


Assets classified as held for sale

258

7,348

-

7,606


Inventories

-

565

-

565


Other receivables

650

-

-

650


Investments in joint ventures

768

9,030

-

9,798



213,222

151,918

-

365,140


Trade and other receivables



20,554

20,554

 

Cash and cash equivalents



23,692

23,692

 

Total assets

213,222

151,918

44,246

409,386

 

 

Financial liabilities are not allocated to the reporting segments as they are managed and measured on a group basis.

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2017

 

3.  Segment information (continued)

31 December 2016

 

 

Capital

Growth

£000

Income

Generation

£000

Unallocated

costs

£000

Total
£000

Revenue

16,307

17,386

-

33,693

Gross (loss)/profit less administrative expenses

(1,425)

11,032

(7,274)

2,333

Increase in fair value of investment properties

23,433

10,280

-

33,713

Decrease in fair value of assets classified as held for sale

-

(224)

-

(224)

Profit on sale of investment properties

7,473

1,693

-

9,166

Loss on sale of assets classified as held for sale

-

(375)

-

(375)

Other gains

747

-

-

747

Other operating expenses

-

(117)

(87)

(204)

Depreciation

-

-

(2)

(2)

Exceptional items

-

(682)

689

7

Operating profit/(loss)

30,228

21,607

(6,674)

45,161

Finance income




247

Finance costs




(2,588)

Share of profit of joint venture




647

Profit before tax




43,467

 

Other information





Investment property additions:





 Direct acquisitions

-

22,524

-

22,524

 Subsequent expenditure

14,707

7,947

-

22,654

 

Capital

Growth

£000

Income

Generation

£000

Unallocated

£000

Total
£000

Investment properties

232,886

146,304

-

379,190

Property, plant and equipment

-

-

789

789

Assets classified as held for sale

6,152

2,198

-

8,350

Inventories

454

279

-

733

Other receivables

1,397

-

-

1,397

Investments in joint ventures

868

9,681

-

10,549


241,757

158,462

789

401,008

Trade and other receivables



24,444

24,444

Cash and cash equivalents



13,007

13,007

Total assets

241,757

158,462

38,240

438,459

Financial liabilities are not allocated to the reporting segments as they are managed and measured on a group basis.

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2017


4.  Finance (cost)/income


Unaudited

6 months ended 30 June
2017
£000

Unaudited

6 months ended 30 June
2016
£000

Audited
year ended
31 December

2016
£000

Interest expense




- Bank interest

(559)

(742)

(1,559)

- Amortisation of Facility and other fees

(370)

(249)

(545)

- Other interest

(255)

(205)

(484)


(1,184)

(1,196)

(2,588)

Interest received

15

242

247

Net finance costs

(1,169)

(954)

(2,341)

 

5.  Tax

The tax credit in the period is £8.9m (H1 2016: £1.4m charge; FY 2016: £3.6m charge), which comprises a current year tax credit of £0.1m (H1 2016: £nil; FY 2016: £nil) and a deferred tax credit of £8.8m using a tax rate of 17% (H1 2016: £1.4m charge at 18% tax rate and FY 2016: £3.6m charge at 17% tax rate) as the Group now has greater certainty of recoverability of previously unrecognised tax losses. Deferred tax assets of £9.2m as at 30 June 2017 have not been recognised (FY 2016: £19.7m).

The Group has a net deferred tax liability of £6.1m (H1 2016: £12.8m and FY 2016: £14.9m) primarily in respect of property revaluation gains where tax is expected to arise when the property is sold.

6.  Dividends


Unaudited

6 months ended 30 June
2017
£000

Unaudited

6 months ended 30 June
2016
£000

Audited
year ended
31 December

2016
£000





Final dividend of 0.523p per share proposed and paid May 2017

(1,680)

-

-

Interim dividend of 0.230p per share proposed and paid December 2016

-

-

(672)

Final dividend of 0.510p per share proposed and paid September 2016

-

-

(1,491)


(1,680)

-

(2,163)

An interim dividend of 0.253p per share was approved by the Board on 5 September 2017 and is payable on 13 October 2017 to shareholders on the register on 15 September 2017. The interim dividend is not recognised as a liability in the interim information.

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2017

 

7.  Earnings per share

Earnings per share has been calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of shares in issue and ranking for dividend during the period/year.


Unaudited

6 months ended 30 June
2017
£000

Unaudited

6 months ended

30 June
2016
£000

Audited
year ended
31 December

2016
£000

Profit for the period/year

16,598

5,964

39,901

Weighted average number of shares




In issue at start of period/year

292,269,786

2,922,697,857

2,922,697,857

Effect of share issues

       17,115,939

                       1

2

Effect of share consolidation

-

(939,438,598)

(1,789,553,526)

Effect of own shares purchased

(143,196)

-

-

Weighted average number of shares in period/year

309,242,529

1,983,259,260

1,133,144,333

Closing number of shares in underlying earnings calculations

321,250,750

292,269,786

292,269,786

Basic and diluted earnings per share (pence)

                5.4

                0.3

3.5

Underlying earnings per share (pence)

5.2

2.0

13.7

 

Underlying earnings per share have been calculated using profit for the period/year of £16.6m (H1 2016: £6.0m, FY 2016 £39.9m) and shares in issue at the end of the period/year.

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2017


8.  Investment properties

The Group holds five categories of investment property being agricultural land, natural resources, business space, major developments and strategic land in the UK, which sit within the operating segments of Income Generation and Capital Growth.

 


Income Generation


Capital Growth




Agricultural Land

£000

 

Natural

Resources

£000

Business Space

£000


Major

Developments

£000

Strategic Land

£000


 

Total
 £000

At 1 January 2016 (audited)

16,763

16,954

90,896


157,589

52,415


334,617

Direct acquisitions

493

-

2,329


-

903


3,725

Subsequent expenditure

141

389

4,529


3,649

1,353


10,061

Increase in fair value

-

3,400

1,000


2,000

1,500


7,900

Transfer to assets classified as held for sale

(1,531)

-

-


-

-


(1,531)

Disposals

(388)

-

-


(7,500)

(363)


(8,251)

At 30 June 2016 (unaudited)

15,478

20,743

98,754


155,738

55,808


346,521

Transfers

4,617

5,682

(25,424)


64,763

(49,638)


-

Direct acquisitions

897

-

18,805


-

(903)


18,799

Subsequent expenditure

145

1,274

1,469


7,574

2,131


12,593

(Decrease)/increase in fair value

(894)

1,803

4,971


10,103

9,830


25,813

Transfer to assets classified as held for sale

(149)

-

(477)


(6,153)

-


(6,779)

Transfer to property, plant and equipment

-

-

(783)


-

-


(783)

Disposals

12

(13)

(606)


(16,375)

8


(16,974)

At 31 December 2016 (audited)

20,106

29,489

96,709


215,650

17,236


379,190

Subsequent expenditure

1,508

582

381


7,725

2,255


12,451

Increase in fair value

1,592

654

2,000


-

3,443


7,689

Transfer to development properties

-

-

-


(77,734)

-


(77,734)

Transfer to assets classified as held for sale

(1,160)

-

-


(8,492)

(350)


(10,002)

Disposals

(887)

-

-


-

(180)


(1,067)

At 30 June 2017 (unaudited)

21,159

30,725

99,090


137,149

22,404


310,527

 

Valuation process


The properties have been valued by management who have exercised their experience and judgement in arriving at the increase in fair value at 30 June 2017 and 30 June 2016. The properties were valued by BNP Paribas Real Estate and Savills at 31 December 2016. Both are independent firms acting in the capacity of external valuers with relevant experience of valuations of this nature.

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2017

 

9.  Investments

Investments in joint ventures


£000

At 1 January 2016 (audited)

768

Acquisition

9,030

At 30 June 2016 (unaudited)

9,798

Acquisition

104

Share in profit of joint venture

647

At 31 December 2016 (audited)

10,549

Acquisitions and investments in joint ventures

1,219

At 30 June 2017 (unaudited)

11,768



The Group holds 50% of the issued ordinary shares of Bates Regeneration Limited, a joint venture with Banks Property Limited for the development of an investment property at Blyth, Northumberland. In addition, the Group purchased a 50% share of The Aire Valley Land LLP from Keyland Developments Limited for a consideration of £8.5m plus costs on 14 March 2016.  The Aire Valley Land LLP is a joint venture company. It controls 165 acres of land in Leeds that abuts existing landholding of the Group on the former Skelton Grange power station site. On 16 December 2016, the Group entered into a joint venture agreement with Dransfield Properties Limited to acquire a 50% share of Waverley Square Limited. On 26 April 2017, the Group entered into a joint venture agreement with Lancashire County Council to establish Multiply Logistics North Holdings Limited and Multiply Logistics North LP, to develop part of the site at Logistics North near Bolton.

The Group's share of the assets and liabilities are:

30 June 2017 (unaudited)

Country of incorporation

Assets
£000

Liabilities
£000

Interest held
%

Bates Regeneration Limited

England and Wales

1,213

(445)

50

The Aire Valley Land LLP

England and Wales

12,001

(2,320)

50

Waverley Square Limited

England and Wales

123

-

50

Multiply Logistics North Holdings Limited

England and Wales

-

-

20

Multiply Logistics North LP

England and Wales

1,196

-

20

31 December 2016 (audited)

Country of incorporation

Assets
£000

Liabilities
£000

Interest held
%

Bates Regeneration Limited

England and Wales

1,213

(445)

50

The Aire Valley Land LLP

England and Wales

12,001

(2,320)

50

Waverley Square Limited

England and Wales

100

-

50

30 June 2016 (unaudited)

Country of incorporation

Assets
£000

Liabilities
£000

Interest held
%

Bates Regeneration Limited

England and Wales

1,213

(445)

50

The Aire Valley Land LLP

England and Wales

7,798

(3,900)

50

The risks associated with these investments are as follows:

·   Decline in the availability and or an increase in the cost of credit for residential and commercial buyers

·   Decline in market conditions and values

The Group also owns a number of other joint ventures whose value is minimal. A full list of joint ventures can be obtained from the Group's registered office.

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2017

 

10.  Inventories

 


Unaudited

6 months ended 30 June
2017
£000

Unaudited

6 months ended

30 June
2016
£000

Audited
year ended
31 December

2016
£000

Development properties

73,247

-

-

Planning promotion agreements

622

-

454

Options

141

-

-

Finished goods

-

565

279


74,010

565

733

 

The movement in development properties is as follows:


£000

At 1 January 2017 (audited)

-

Transfer from investment properties

77,734

Subsequent expenditure

1,116

Disposals

(5,603)

At 30 June 2017 (unaudited)

73,247

 

The market value of these properties is £2.3m higher than their carrying value at 30 June 2017.

 

11.  Cash and cash equivalents


Unaudited

6 months ended 30 June
2017
£000

Unaudited

6 months ended

30 June
2016
£000

Audited
year ended
31 December

2016
£000

Cash held and other cash balances

13,484

23,692

13,007

 

12.  Assets classified as held for sale
Assets classified as held for sale relate to investment properties expected to be sold within twelve months.




£000

At 1 January 2016 (audited)



9,128

Transferred from investment properties



1,531

Disposals



(3,053)

At 30 June 2016 (unaudited)



7,606

Subsequent expenditure



1,588

Decrease in fair value



(224)

Transferred from investment properties



6,779

Disposals



(7,399)

At 31 December 2016 (audited)



8,350

Subsequent expenditure



188

Transferred from investment properties



10,002

Disposals



(7,711)

At 30 June 2017



10,829

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2017

13.  Borrowings and loans


Unaudited

6 months ended 30 June
2017
£000

Unaudited

6 months ended

30 June
2016
£000

Audited
year ended
31 December

2016
£000





Current:




Secured - other loans

(2,319)

(1,938)

(1,819)


(2,319)

(1,938)

(1,819)

Non-current:




Secured - bank loans

(9,164)

(58,100)

(37,142)

Secured - other loans

(12,109)

(12,569)

(13,517)


(21,273)

(70,669)

(50,659)

 

At 30 June 2017, the Group had bank borrowings of £9.2m net of borrowing costs (H1 2016: £58.1m, FY 2016: £37.0m) and a further £14.4m (H1 2016: £14.4m, FY 2016: £15.5m) of infrastructure loans, which resulted in total borrowings of £23.6m (H1 2016: £72.6m, FY 2016: £52.5m). The bank borrowings are part of a £75.0m revolving credit facility from The Royal Bank of Scotland. The facility is repayable on 13 February 2021 (five-year term) on a non-amortising basis and is subject to financial and other covenants.

 

The infrastructure loans of £14.4m (net of borrowing costs) (H1 2016: £14.4m, FY 2016: £15.5m) are provided by public bodies in order to promote the development of major sites. They comprise a £0.6m loan from Leeds LEP (H1 2016: £1.0m, FY 2016: £0.8m) in respect of the Prince of Wales site; £8.5m from the Homes and Community Agency in respect of Waverley (H1 2016: £11.4m, FY 2016: £11.6m) and £0.1m for Village Farm (H1 2016: £nil, FY 2016: £0.1m); £2.3m from Sheffield City Region JESSICA Fund for Gateway 36 (H1 2016: £0.6m, FY 2016: £2.3m) and £2.5m for the Advanced Manufacturing Park at Waverley (H1 2016: £nil, FY 2016: £0.7m); and £0.4m (H1 2016: £nil, FY 2016: £nil) from the North West Evergreen Limited Partnership for Units 4 and 5 at Logistics North.   At 30 June 2016, the Group had loans of £1.5m from Greater Manchester Investment Fund in respect of Logistics North. The loans are drawn as work on the respective sites is progressed and they are repaid on agreed dates or when disposals are made from the sites.

 

Current loans are stated after deduction of unamortised borrowing costs of £nil (H1 2016: £nil, FY 2016: £nil). Non-current bank and other loans are stated after deduction of unamortised borrowing costs of £1.0m (H1 2016: £1.1m, FY 2016: £1.1m).

 

14. Retirement benefit obligations

The Group has defined benefit obligations in respect of the Blenkinsopp Section of the Industry-Wide Mineworkers'  Pension Scheme (the Blenkinsopp scheme). This scheme is closed to new members.  The balance sheet amounts in respect of retirement benefit obligations are:


Unaudited

as at
30 June
2017

Unaudited

 as at
30 June

2016

Audited

as at
31 December
2016

Fair value of plan assets

2,159

2,023

2,117

Present value of funding obligations

(2,721)

(2,427)

(2,719)

Net liability recognised in the balance sheet

(562)

(404)

(602)

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2017

 

14. Retirement benefit obligations (continued)

 

The pension scheme has been valued by a qualified independent actuary for the purposes of IAS19 (revised) and the preparation of these condensed consolidated interim financial statements. The assumptions used are consistent with those derived at 31 December 2016, but updated for current market conditions. Contributions of £94,650 (H1 2016: £94,650, FY 2016: £189,300) have been made in the six months ended 30 June 2017. The main assumptions underlying the valuation of the Blenkinsopp scheme are:


Unaudited

as at
30 June
2017

Unaudited

as at
30 June

2016

Audited

as at
31 December
2016

Discount rate

2.50%

3.00%

2.55%

Rate of pension increases

2.25%

2.00%

2.30%

Rate of price inflation (RPI)

3.20%

2.95%

3.25%

Rate of cost inflation (CPI)

2.20%

1.95%

2.25%

Rate of cash commutation

20.00%

20.00%

20.00%

The amounts recognised in the consolidated income statement are:


Unaudited

6 months ended
30 June
2017
£000

Unaudited

6 months ended
30 June

2016
£000

Audited

year ended
31 December
2016
£000

Expenses

(15)

(33)

(74)

Interest costs

(9)

(6)

(13)


(24)

(39)

(87)

The net effect of re-measurements on the Blenkinsopp scheme charged to the consolidated statement of comprehensive income is a loss of £31,000 (H1 2016: loss of £25,000, FY 2016: loss of £269,000).

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2017

 

15.  Called up share capital

Issued and fully paid - £000

Unaudited

6 months ended
30 June
2017
£000

Unaudited

6 months ended
30 June

2016
£000

Audited

year ended
31 December
2016
£000

At start of period/year

29,227

29,227

29,227

Shares issued

2,923

-

-

At end of period/year

32,150

29,227

29,227

Own shares held

(263)

-

-

At end of period/year

31,887

29,227

29,227

 

Issued and fully paid - Number of shares

Unaudited

6 months ended
30 June
2017

Unaudited

6 months ended
30 June

2016

Audited

year ended
31 December
2016

At start of period/year

292,269,786

2,922,697,857

2,922,697,857

Shares issued

29,226,974

3

3

Share consolidation (10 for 1)

-

(2,630,428,074)

(2,630,428,074)

At end of period/year

321,496,760

292,269,786

292,269,786

Own shares held

(246,010)

-

-

At end of period/year

321,250,750

292,269,786

292,269,786

 

On 17 March 2017, the Group issued 29,226,974 new ordinary shares at 95 pence each.

On 26 April 2016, 3 ordinary shares were issued at 1 pence each and all shares in issue were consolidated from 1 pence shares into 10 pence shares.

16.  Share premium account

Issued and fully paid

Unaudited

6 months ended
30 June
2017
£000

Unaudited

6 months ended
30 June

2016
£000

Audited

year ended
31 December
2016
£000

At start of period/year

-

129,121

129,121

Shares issued

24,842

-

-

Costs relating to share issue

(700)

-

-

Other transaction costs

209

-

-

Transfer to other distributable reserve

-

(129,121)

(129,121)

At end of period/year

24,351

-

-

 

 

17.  Related party transactions

There have been no material changes in the related party transactions described in the 2016 Annual report and accounts.  The amendments to an existing joint venture with the Peel Group, which were approved at the Annual General Meeting on 24 May 2017 and the details of which were set out in the Notice of Annual General Meeting, have now been implemented. 

Responsibility Statement

The Directors who held office at the date of approval of these Financial Statements confirm that to the best of their knowledge:

1.      the Condensed Consolidated Interim Financial Statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union; and

2.      the Interim Management Report includes a fair review of the information required by:

(a)          Rule 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the half-year ended 30 June 2017 and their impact on the Condensed Consolidated Interim Financial Statements, and a description of the principal risks and uncertainties for the remaining second half of the year; and

(b)          Rule 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the half-year ended 30 June 2017 and that have materially affected the financial position or performance of the Group during that period, and any changes in the related party transactions described in the last Annual Report and Financial Statements that could do so.

The Board

The Directors serving during the half-year ended 30 June 2017 were as follows:

Jonson Cox

Chairman

Owen Michaelson

Chief Executive                        

Andrew Kirkman

Finance Director

Lisa Clement

Senior Independent Director

Anthony Donnelly

Independent Non-Executive Director

Andrew Cunningham

Independent Non-Executive Director

Steven Underwood

Non-Executive Director

Martyn Bowes

Non-Executive Director

 

The responsibilities of the Directors during their period of service were as set out on pages 54 and 55 of the Annual Report and Financial Statements for the financial year ended 31 December 2016.

By order of the Board

Chris Birch

Group General Counsel and Company Secretary

6 September 2017

 

Cautionary statement

This Interim Report contains certain forward-looking statements with respect to the financial condition, results, operations and business of Harworth Group plc.  These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future.  There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts.  Nothing in this Interim Report should be construed as a profit forecast.

Directors' liability

Neither the Company nor the Directors accept any liability to any person in relation to this Interim Report except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with section 90A of the Financial Services and Markets Act 2000.

Shareholder information

Financial calendar

Half-yearly results for the period ended 30 June 2017

 

Announced

6 September 2017

Interim dividend for the financial year ended 31 December 2017

 

Ex-dividend date

Record date

Payable

 

14 September 2017

15 September 2017

13 October 2017

Preliminary results for the year ended 31 December 2017

 

Announced

March 2018

Annual report and financial statements for the year ended 31 December 2017

 

Published

April 2018

2018 Annual General Meeting

 

 

May 2018

Final dividend for the year ended 31 December 2017

 

Payable

June 2018

 

Registrars

All administrative enquiries relating to shareholdings should, in the first instance, be directed to Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA (telephone: 0371 384 2301) and should clearly state the registered shareholder's name and address.

Dividend mandate

Any shareholder wishing dividends to be paid directly into a bank or building society should contact the Registrars for a dividend mandate form. Dividends paid in this way will be paid through the Bankers' Automated Clearing System (BACS).

Website

The Group has a website (www.harworthgroup.com) that gives further information on the Group.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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Half-year Report - RNS