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RNS
Harworth Group PLC   -  HWG   

UNAUDITED INTERIM RESULTS

Released 07:00 10-Sep-2019

RNS Number : 7265L
Harworth Group PLC
10 September 2019
 

HARWORTH GROUP PLC

UNAUDITED INTERIM RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2019

 

 STRONG SALES PROGRESS AND BENEFITS OF REGIONAL OPERATING MODEL

UNDERPIN SOLID FIRST HALF

 

Harworth Group plc ("Harworth" or the "Group"), a leading regenerator of land and property for development and investment, announces its interim results for the half year ended 30 June 2019.

 

 

30 June 2019 

30 June 2018 

Change (%) 

31 December 2018 

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

141.3 

128.6 

9.9% 

137.5 

EPRA NNNAV per share (p) (1) 

147.3 

130.8 

12.6% 

145.2 

EPRA NAV per share (p) (1) 

150.6 

133.4 

12.9% 

148.3 

 

 

 

 

 

Operating profit (£'m) 

13.3 

6.0 

120.7% 

33.0 

Operating profit before exceptional items plus joint ventures (£'m) 

19.7 

8.9 

120.9% 

37.4 

Value gains (£'m) (1) 

17.7 

7.7 

130.9% 

27.6 

Value gains (including development properties) (£'m) (1) 

11.1 

10.5 

5.5% 

51.3 

Profit excluding value gains (£'m) (1) 

2.0 

1.3 

58.6% 

9.8 

 

 

 

 

 

Earnings per share (p) 

4.67 

1.71 

173.1% 

10.61 

Dividend per share (p) 

0.304 

0.278 

9.4% 

0.911 

 

Harworth's Chief Executive, Owen Michaelson, said:

 

"Harworth has made good progress against its strategic priorities, benefiting from our focus on placemaking to capitalise on the continued strength of our regional markets.  Demand for consented land in our core markets remains strong, with land for 1,091 residential plots sold alongside the completion or exchange of a further 55 acres for commercial development.  Proceeds from these sales will be reinvested into the wider portfolio for ongoing site remediation and infrastructure works, alongside new strategic land and income-producing acquisitions.

 

"The appointment of Ian Ball as our first Chief Operating Officer, who has oversight of our new regional teams in the North West, Midlands and Yorkshire & Central, was the latest evolution of our business model that has already begun to deliver results.  Six sites were purchased in our core regions, comprising a mix of strategic land and income producing opportunities, for a total consideration including costs of £18.8m.  Alongside this we have continued to refine the portfolio, with the disposal of a further 1,400 acres of agricultural and former surface mining land with little development potential, allowing us to focus management time on the highest value-add opportunities.

 

"The May local elections, which resulted in the change of political control of some local authorities, is delaying the determination of a handful of our live outline planning applications and has prompted changes to the planning strategy for a small number of sites within our pipeline.  We are confident that these are short-term headwinds and I expect that our carefully considered applications, our track record and our expertise in delivering high-quality regeneration schemes will overcome these hurdles.

 

"As in previous years, our overall performance remains weighted towards the second half.  As things stand, we expect year-end performance to be broadly in line with the Board's expectations, but local political volatility now creates greater uncertainty surrounding the timing of certain value gains than existed previously.

 

"We remain confident in the Group's strategy both to replenish our strategic landbank and to grow the value of our underlying land and property portfolio, supported by low gearing, substantial financial headroom and the cultivation of new relationships by our regional teams in the North West, Midlands and Yorkshire & Central.  The resilient outlook of the residential and commercial markets in our core regions also supports our aim to maintain our above market average total return to shareholders across the cycle."

 

STRONG FINANCIAL METRICS REFLECTING GOOD OPERATIONAL PERFORMANCE 

·   

A positive six months resulting in total return (EPRA NNNAV growth plus dividends per share) on an annual basis of 13.3% (H1 2018: 11.5%)

·   

EPRA NNNAV growth per share over the last twelve months of 12.6% (H1 2018: 10.9%) and 1.4% (H1 2018: 1.5%) during the period

·   

Profit excluding value gains increased by 58.6% (H1 2018: 23.8%), reflecting the impact of additional income generated from acquisitions in 2018

·   

Operating profit of £13.3m (H1 2018: £6.0m)

·   

Interim dividend per share increased by 9.4% to 0.304p (H1 2018: 0.278p) in-line with our progressive policy  

·   

Policy of prudent gearing maintained.  Net loan to value of 10.1% (FY 2018: 12.3%) or 28.2% when calculated against the income portfolio (FY 2018: 34.3%), reflecting strong sales in the first half 

·   

As at 30 June 2019 cash and facility headroom of £53.4m, providing substantial firepower for further land and property acquisitions

 

REGIONAL MODEL UNDERPINNING OPERATIONAL PROGRESS

·   

PROPERTY SALES: As at today, over 70% of budgeted sales for the full year have already been completed, exchanged or agreed, reflecting the underlying strength of the "beds and sheds" markets in Harworth's core regions and its commitment to place-making 

 

76 acres of engineered residential land sold, with the total above book value, to national and regional housebuilders across four sites for a total consideration of £45.6m, projected to deliver 1,091 new homes

 

Commercial sales at Gateway 45 Leeds 50/50 joint venture with Evans Property Group that will generate £30.3m (£15.2m Harworth share):

§ 10 acres of fully serviced commercial land sold to Leeds University;

§ 2.5 acres sold to Leeds City Council for an extension to its existing park and ride facility; and

§ Contracts exchanged with PLP UK Logistics Venture (UKLV) for the sale of 43 acres at Gateway 45 to deliver 855k sq. ft of speculative distribution space

 

·   

ACQUISITIONS: Move to a regional operating model (within our capital growth segment) delivering increased range of opportunities

 

o  Six strategic land and income acquisitions made in the first half, of which four were in the North West and Midlands regions, for a total consideration including costs of £18.8m

 

These acquisitions have the potential to deliver a further 2,483 residential plots and 0.1m sq. ft of commercial space

 

·   

INCOME: New acquisitions and delivery of lease milestones supporting income portfolio growth 

 

A £6.5m acquisition delivering additional net rent roll of £0.7m per annum

 

18 new or renewed lettings achieved delivering annualised income of £0.9m

 

Four of the nine "Multiply" units built in joint venture with Lancashire County Pension Fund at Logistics North are now let on long-term leases and strong interest reported on the remaining five

 

·   

PLANNING: Live applications for 1,715 residential plots and c.3.2m sq. ft of commercial space awaiting determination at half-year end

 

In early July, outline permission granted at Bardon Hill in Leicestershire for 356k sq. ft of commercial space

 

Following the outcome of May's local elections, which led to a change of control in a number of our local authorities, delays are expected in the determination of certain live applications as new administrations get up to speed.   The quantum of anticipated value gains from these projects remains unchanged but timings of decisions are now more uncertain

 

Applications for a further 2,150 residential plots and 200k sq. ft of commercial space are being prepared, including for the former Ironbridge power station that was purchased in June 2018

 

ROBUST STRATEGY & STRONG FINANCIAL POSITION TO SUPPORT LONG-TERM GROWTH

·   

With a portfolio of consented sites representing 9,842 residential plots (H1 2018: 10,638) and 10.0m sq. ft of commercial space (H1 2018: 12.1m sq. ft), Harworth's strategic focus remains firmly positioned on the "beds and sheds" sectors in the North and the Midlands.  Its longer term pipeline of sites carries the potential for a further 12,140 residential plots and 11.0m sq. ft of commercial space

·   

In order to drive overall total returns, the Company will continue the stated policy of selling down remaining land in the North East and former surface mining sites with little development potential as well as selective sales of low-yielding agricultural land to enable management to focus on the strongest value-add opportunities in its core regions

·   

The new regional operating model is expected to facilitate further acquisition opportunities in H2, with Harworth in exclusive negotiations on sites within each of our core regions.  This is supported by cash and facility headroom of £53.4 million, providing substantial firepower for further acquisitions

·   

Acquisition focus is resolute: purchasing major brownfield and potential urban extension sites from corporate vendors, administrators and the public sector; securing options on medium to long term development opportunities or on adjacent land to existing Harworth developments; and agreeing PPAs(2) of scale in our core regions.  Selective income-led purchases with active asset management opportunities and long-term strategic land potential will also be actively considered

 

Footnotes:

(1) Harworth discloses both statutory (standard font) and alternative performance measures (italic font) with the most important measures in bold. A full description and reconciliation of the alternative performance measures is set out in Note 2 to the condensed consolidated interim financial statements 

(2) Planning Promotion Agreements ("PPAs") are contracts with landowners by which Harworth incurs the cost and risk of promoting land through planning.  If successful, Harworth shares some of the value gain, after first recovering its costs, when the land is sold 

 

-ENDS-

Enquiries: 

Harworth Group plc

FTI Consulting

Owen Michaelson, Chief Executive

Dido Laurimore

Jenny Cutler, Interim Finance Director

Richard Gotla

Iain Thomson, Head of Communications & IR

  

Eve Kirmatzis

 

 

Tel: +44 (0)114 349 3131

investors@harworthgroup.com

 

Tel: +44 (0)20 3727 1000

Harworth@fticonsulting.com

 

 

Results Presentation

Harworth will be holding a presentation for analysts and investors starting at 09.30am today at the offices of Peel Hunt LLP, Moor House, 120 London Wall, EC2Y 5ET. If you would like to attend, please contact FTI Consulting on 020 3727 1000, or email harworth@fticonsulting.com

 

A live webcast will also be available which can be accessed via the following link:

https://webcasting.brrmedia.co.uk/broadcast/5d4c318ba98d141c9d04bcf5

 

There will also be a conference call facility available. The dial-in details are as follows:

Participants, Local - London, United Kingdom:

+44 (0)330 336 9411

Confirmation Code:

8209736

 

ABOUT HARWORTH GROUP PLC

Listed on the premium segment of the main market, Harworth Group plc (LSE: HWG) is a leading regenerator of land and property for development and investment which owns, develops and manages a portfolio of approximately 20,000 acres of land on around 120 sites located throughout the North of England and Midlands. The Group specialises in the regeneration of large, complex sites, in particular former industrial sites, into new residential developments and employment areas (harworthgroup.com).

 

Operational Review

 

OVERVIEW


I am pleased to report on another strong set of interim results, demonstrating our robust strategy and business model, the expertise of our team and the continued strength of our core property markets in the North of England and the Midlands.  EPRA NNNAV per share as at 30 June 2019 was 147.3p (H1 2018: 130.8p), delivering a total return (EPRA NNNAV growth plus dividends per share) over the last twelve months of 13.3% (H1 2018: 11.5%).

 

Our growing track record for placemaking has been central to our sales success in the first half of the year.  1,091 residential plots across four of our major developments were sold to a range of mainly repeat housebuilding customers, reflecting the popularity of our de-risked land parcels and our major development sites.  This was supplemented by the completion or exchange of a further 55 acres for commercial development at our Gateway 45 Leeds joint venture.

 

The move to a regional operating model, with a Regional Director being responsible for the acquisition, promotion and development of sites in our three core regions has begun to deliver results by opening up new acquisition opportunities.   Six sites were purchased in the first half, comprising a mix of strategic land and income producing opportunities, for a total consideration including costs of £18.8m.  With all teams now reporting into Ian Ball as our first Chief Operating Officer, I anticipate even greater collaboration between them, to keep driving market-leading returns.

 

This confidence has to be tempered however by heightened political risk at a local authority level, which saw the febrile political environment contributing to a change of political control of a number of local authorities in May.  This in turn is leading some administrations to delay the determination of some live planning applications or to put a pause on the production of their local plans.  The knock-on effect for Harworth is a delay in the determination of a handful of our live outline planning applications and changes to the planning strategy for a small number of sites within our pipeline.  We are confident that these are short-term headwinds and that our carefully considered masterplans, alongside the recognition of our experience as a trusted master developer, will help us overcome them.

 

We anticipate full-year results to be broadly in line with the Board's expectations, whilst accepting greater uncertainty surrounding the timing of certain value gains than existed previously.  As in prior years, we expect performance to be second half weighted, as agreed sales complete and both infrastructure and development works are accelerated over the summer months, driving value gains prior to the year-end. 

 

DEVELOPMENT PORTFOLIO

 

We continue to extract optimum value from our underlying land portfolio in the North of England and the Midlands through three principal management actions: preparing and securing planning consents on major schemes; preparing land for redevelopment; and delivering sales above book value for future residential and commercial development.  Good progress has been made in each area in the first half.

 

Sales

 

Careful planning of the disposal of consented land remains a central part of our strategy.  We aim to achieve sales  above book value and to reinvest the proceeds to accelerate the development of our sites, using our well-developed technical skills to de-risk sites as much as possible and to use our placemaking skills to enhance the attraction of our development sites. 

 

During the first half of the year, we sold 76 acres of land to accommodate 1,091 residential plots at four major development sites to national and regional housebuilders for a total consideration of £45.6m, in total, above book value. At our flagship development at Waverley, we made two disposals in June: 10.7 acres of land to Taylor Wimpey for the construction of 175 new homes, alongside the sale of 11.7 acres to Barratt to build 177 homes. Both housebuilders are repeat buyers and the success of our extensive masterplanning and placemaking at Waverley is demonstrated by the fact that, since 2012, a total of 110 acres across 16 separate phases have been sold that will deliver a combined total of 1,570 new homes, delivering around one sixth of all new homes built in Rotherham each year during that period.

 

Three other deals were completed in the first half.  At our Cadley Park, Swadlincote development, 26 acres of engineered land were sold to Avant Homes, where it plans to deliver 400 homes, our single largest plot sale to date.  Avant also purchased a further 8.0 acres at our Prince of Wales development in Pontefract for the construction of 89 new homes.  Finally, at our nearby Flass Lane development in Castleford, we sold 19.5 acres of land to regional housebuilder, Strata Homes, its first purchase from us, for the delivery of 250 new homes.

 

Solid demand for prepared commercial land also remains, evidenced by The Aire Valley Land LLP, our 50/50 joint venture with Evans Property Group, agreeing three separate sales at Gateway 45 Leeds that will eventually generate a total consideration of £30.3m (£15.2m to Harworth). The first involved the sale of 10 acres of fully serviced commercial land to the University of Leeds to build out their Institute for High Speed Rail, earmarked as the UK's advanced rail education facility.  This completed in March. In February, 2.5 acres were also sold to Leeds City Council for an extension to its existing park and ride facility. Contracts were also exchanged with PLP UK Logistics Venture (UKLV) for the sale of 43 acres to deliver 855k sq. ft of speculative distribution space. We expect this deal to complete in the second half of the year.

 

These disposals mean that as of today, over 70% of budgeted sales for the year were completed, exchanged or agreed, reflecting the underlying strength of the "beds and sheds" markets in our core regions.

 

Planning

 

A large part of our planning promotion work in the first half of this year has been the preparation of new commercial applications and engagement with local authorities to facilitate the determination of live applications. We had applications in respect of 1,715 residential plots and c.3.2m sq. ft of commercial space awaiting determination at half-year end.  Further applications for an additional 2,150 residential plots and 200k sq. ft of commercial space are also being prepared, including for the former Ironbridge power station in Shropshire and we expect to submit these in the second half of the year.

 

In July we achieved planning success in Leicestershire with outline permission being granted at our 53-acre Bardon Hill development for 356k sq. ft of new commercial space.  The site, within two miles of Junction 22 of the M1, now has a consent for an indicative layout of five industrial units and is already in an established commercial location, with nearby occupiers including Barratt Homes and Eddie Stobart.

 

As I commented in my introduction, May's local elections led to a change of control in many local authorities. As a consequence, we have seen some delays in the determination of certain live applications as new administrations get up to speed. The quantum of anticipated value gains from these projects remains unchanged but there is a greater uncertainty as to their timing.  Whilst I am clearly disappointed by factors outside of our control holding up our ability to deliver badly needed new land for residential and commercial purposes in our regions, I believe that our reputation, track record and the thought that has been put into each of our planning applications will ultimately stand the business in good stead to realise our plans for these sites.

 

Acquiring land and property

 

Our new regional operating model enables us to identify an increased range of acquisition opportunities. We made six strategic land and income acquisitions in the first half for a total consideration, including costs, of £18.8m.  These acquisitions have the potential to deliver a further 2,483 residential plots and 0.1m sq. ft of commercial space, whilst also adding £0.7m of rental income per annum.

•     We made three purchases in the North West, two for residential development and the other as an income-producing asset.  We purchased a 169-acre scheme in Chester in March for long-term strategic land promotion, whilst also acquiring a further 13 acres at our Moss Nook development in St Helens to support the build-out of up to 900 homes across the wider site, in line with its outline planning consent.

 

In addition, we purchased the 10.4-acre Etherow Industrial Estate in June for £6.5m plus acquisition costs reflecting a net initial yield of 9.8%.  More information on Etherow is provided within the 'Investment Portfolio' section below.

 

•    In the Midlands, we acquired a 128-acre site in Leicestershire that is now being promoted as a major urban-edge extension close to East Midlands Airport.

 

•   Finally, in Yorkshire & Central, two sites totalling 63 acres were acquired to bolster our existing landholdings at Cinderhill and Swadlincote for promotion as future residential sites, leveraging our existing relationships with Amber Valley and South Derbyshire District Councils respectively.

 

The development portfolio at half-year end

 

As at 30 June 2019, the total number of consented residential plots in the portfolio was 9,842 (H1 2018: 10,638 plots) alongside 10.0m sq. ft of consented employment space (H1 2018: 12.1m sq. ft).  When combined with land within our identified planning pipeline, Harworth could potentially deliver a total of 21,982 residential plots (H1 2018: 20,416 plots) alongside 21.0m sq. ft of new commercial space (H1 2018: 22.4m sq. ft), forming a key land supply to support the ongoing economic development and regeneration of the areas in which we operate.

 

INVESTMENT PORTFOLIO

 

Our investment portfolio, through the efforts of our Income Generation team, continues to make a vital contribution to the business, providing the recurring income required to cover our overhead costs as we grow as a business and a source of EPRA NNNAV growth through proven asset management techniques.

 

Business Space

 

Our Business Space team has continued to improve the resilience of Harworth's recurring income in the first half of the year.  18 new and renewed lettings have been agreed across our existing Business Space portfolio in H1 2019, generating approximately £0.9 million per annum.

 

This was supplemented in June by the acquisition of the 10.4-acre Etherow Industrial Estate for £6.5 million plus acquisition costs on a net initial yield of 9.8%, utilising headroom within our existing £100m Revolving Credit Facility (RCF).  Situated two miles east of Junction 4 of the M67, with excellent access to Greater Manchester, Lancashire, Cheshire and Derbyshire, the site comprises 202k sq. ft of built space comprising a mixture of manufacturing, warehouse, trade counter and office units.  The fifteen tenants already on-site currently generate a passing rent of over £682k per annum.  We are now using our asset management capabilities to generate additional income and EPRA NNNAV growth, including the letting of vacant space and refurbishment to improve its underlying value.  The site's relatively low site coverage of 44.5% also provides an opportunity for the build-out of new commercial space in the future.

 

Tenants continue to be sought for the c.28k sq. ft direct development unit we own at the Advanced Manufacturing Park in Rotherham. This is alongside five "Multiply Logistics North" units totalling 270k sq. ft that have been built in joint venture with the Lancashire County Pension Fund at Logistics North. Reported interest at both sites from manufacturers and distributors is high and we anticipate announcing further lettings progress in the second half.    

 

Business Space revenue in H1 2019 was £6.3m (H1 2018: £5.3m). The weighted average unexpired lease term ("WAULT") across the portfolio now stands at 13.0 years (H1 2018: 12.3 years), whilst the vacancy rate is now 15% (H1 2018: 11%).

 

Natural Resources & Operations

 

Our revenues for the period were also bolstered by the work of our Natural Resources and Operations teams. A total of 154.2MW (H1 2018: 159.7MW) of low carbon energy capacity remains installed on our land, providing a long-term income stream from a combination of ground rents and royalties. The team's focus continues to be growing future income from alternative technologies and maintaining income from our tipping and recycling operations, which has the added benefit of supporting site remediation at major developments including Waverley, and Pheasant Hill Park in Doncaster.

 

Our Operations team also continues to undertake demolitions across the portfolio to support the ongoing clean-up and remediation of former industrial sites, including the final buildings at the former Kellingley Colliery.  It has also commenced managing the demolition of the former Ironbridge Power Station, a necessary pre-condition to support the site's wider redevelopment. Our capability continues to be a unique selling point for Harworth when engaging with vendors of complex, former industrial sites.

 

Portfolio Refinement  

 

We are continuing to dispose of assets which offer limited potential for further value gains and non-core assets with 1,400 acres of such land sold in the first half.  This programme of disposals of agricultural sites and of a number of sites in the North East frees up management time and capital to focus on those sites with the highest value enhancement potential.

 

PEOPLE

 

In addition to the appointment of Ian Ball as Chief Operating Officer on 1 May, we are very pleased to have announced the appointment of Kitty Patmore as our new Chief Financial Officer.  Kitty, who takes up her new role on 1st October, has a strong capital markets background, with 14 years of finance, banking and real estate lending experience drawn from roles at Harwood Real Estate, DRC Capital and Barclays Bank PLC.

 

Our regional operating model has now been rolled out across our three core regions, with final staffing appointments to be made in the second half. 

 

MARKET OUTLOOK

 

The outlook for our target markets is healthy. The stability of the regional markets in which we operate is secured by comparatively low prices, a continuing lack of consented and engineered land for housing, and the need for new commercial space where good quality stock is scarce, particularly for units under 100k sq. ft.  As a result, growth forecasts for the "beds and sheds" markets in our regions remain solid. The Midlands and the North West are forecast to have stronger house price growth than most other regions over the next five years and the industrial sector is projected to continue to outperform both the retail and office market in the short and medium-term.  Our portfolio of approximately 20,000 acres of land, therefore, remains a source of significant latent value.

 

Local political risk is undoubtedly higher for the reasons highlighted which creates greater uncertainty about the timing of some of the projected returns on a small number of sites. However this does not detract from the continued strong Central Government support for both residential and commercial development.  Incentives to support home ownership, such as Help-to-Buy, have been extended (albeit in more limited form) to 2023, whilst the Government's continued commitment to regional devolution in the form of new powers and monies to regional mayors has been actively supported by the new Prime Minister. Once further monies have been devolved, this should help unlock major new residential and commercial development through new infrastructure investment, without having to resort to Central Government assistance.

 

Our half-year cash and RCF facility headroom of £53.4 million provides substantial firepower for further land and property acquisitions to take advantage of any downturn and our regional operating model increases our confidence in deploying this capital effectively to maintain our market-leading returns.  Our acquisition focus is resolute: purchasing major brownfield and potential urban extension sites from corporate vendors, administrators and the public sector; securing options on medium to long-term development opportunities or on land adjacent to existing Harworth developments; and agreeing PPAs of scale in our core regions.  Selective income-led purchases with active asset management opportunities and long-term strategic land potential will also be actively considered.

 

As in previous years, value gains are expected to be weighted towards the second half of the current financial year. Overall, trading remains broadly in line with our expectations, whilst acknowledging that some local political headwinds mean there is now greater uncertainty surrounding the timing of certain value gains than existed previously.

 

Owen Michaelson

Chief Executive Officer

10 September 2019

Financial Review

 

OVERVIEW
 

Harworth has continued to make progress across the business in the first half of 2019.  Total return (EPRA NNNAV growth plus dividends) per share over the last twelve months was 13.3% (H1 2018: 11.5%)

 

 

As at 30 June 2019

As at 30 June 2018

Growth since 30/06/18

As at 31 December 2018

Growth since 31/12/18

 

Per share

£m

Per share

£m

Per share

£m

EPRA NNNAV

147.3p

£473.3m

130.8p

£420.4m

12.6%

145.2p

£466.5m

1.4%

EPRA NAV

150.6p

£484.1m

133.4p

£428.7m

12.9%

148.3p

£476.5m

1.6%

NAV

141.3p

£454.3m

128.6p

£413.2m

9.9%

137.5p

£441.9m

2.8%

12 month Total Return

13.3%

11.5%

 

13.3%

 

 

We continue to use a number of consistent Alternative Performance Measures ("APMs") alongside statutory measures. We believe that these provide stakeholders with additional useful information on the underlying trends, performance and position of the Group. Note 2 to these condensed consolidated interim financial statements gives a full description of our APMs and a reconciliation to statutory measures. Further details about our APMs can also be found in note 2 to the 2018 Financial Statements.

 

In H1, operating profit before exceptional items contributing to growth in EPRA NNNAV was £13.1m (H1 2018: £11.8m). This comprised the following items:

 

 

H1 2019

£m

H1 2018

£m

Operating profit before exceptional items

13.3

6.6

Share of profits from joint ventures

6.4

2.3

Unrealised gains on development property

-

2.9

Less previously unrealised gains on development property released on sale

(6.6)

-

Operating profit before exceptional items contributing to growth in EPRA NNNAV

13.1

11.8

 

The operating profit before exceptional items which contributed to growth in EPRA NNNAV growth for the first half of 2019 is best understood as being composed of two elements:

 

·   

Value gains (£11.1m; H1 2018: £10.5m) - profits on disposals of investment, development, and available for sale properties totalling £4.7m (H1 2018: £0.1m) and revaluation gains on our property portfolio of £6.4m (H1 2018: £10.4m).  Revaluation gains comprise: share of profit from joint ventures of £6.4m (H1 2018: £2.3m), increase in fair value of investment properties of £nil (H1 2018: £6.7m) and revaluation movements on development properties of £nil (H1 2018: £1.4m). Profits from joint ventures are included within this measure as our joint ventures conduct similar operations to Harworth, albeit in different ownership structures.

 

·   

Profit excluding value gains (£2.0m; H1 2018: £1.3m) - this represents the ongoing profitability of the business which is not reliant on property value gains or profits from the sales of properties and is therefore less susceptible to movements in the property cycle. Profit excluding value gains rose by 58.6% in the first six months of 2019 compared to last year reflecting acquisitions made to improve income quality and resilience.

 

Earnings per share, which increased by 173.1% to 4.67p (H1 2018: 1.71p), reflect the strong first half sales performance.  The 2019 interim dividend per share has been increased by 9.4% to 0.304p (H1 2018: 0.278p) creating a total return (EPRA NNNAV growth plus dividends) per share over the last twelve months of 13.3% (H1 2018: 11.5%).

 

The Group has a £100.0m Revolving Credit Facility ("RCF") with RBS and Santander expiring in February 2023. Cash and undrawn facilities as at 30 June 2019 were £53.4m.  Net debt at £53.1m or 10.1% net loan to value (FY 2018: £64.4m and 12.3%) reflects our prudent gearing approach and is in line with our stated 10% - 15% target range.

 

H1 RESULTS

The table below shows the results of the business, on an alternative performance measure basis to tie to EPRA NNNAV, split between Capital Growth, Income Generation and Central Overheads:

 

 

H1 2019

H1 2018

 

Capital
Growth
£m

Income Generation

£m

Central Over-

heads
£m

Total

£m

Capital
Growth
£m

Income Generation

£m

Central Over-heads
£m

Total

£m

Revenue

46.6

11.9

-

58.6

11.1

10.8

-

21.9

Cost of sales

(36.2)

(3.9)

-

(40.0)

(13.0)

(3.3)

-

(16.3)

Overheads

(1.1)

(1.1)

(4.1)

(6.3)

(1.2)

(1.3)

(3.4)

(5.9)

Notional development property gross (profit)/loss (2)

(10.1)

-

-

(10.1)

1.6

-

-

1.6

(Loss)/profit excluding value gains

(0.8)

6.9

(4.1)

2.0

(1.5)

6.2

(3.4)

1.3

Revaluation (loss)/gains (2)

-

-

-

-

(1.5)

6.7

-

5.2

Profit/(loss) on disposals (2)

10.2

1.1

-

11.3

(0.1)

0.1

-

0.1

Operating profit/(loss) before exceptional items

9.4

8.0

(4.1)

13.3

(3.1)

13.0

(3.4)

6.6

Exceptional expense

-

-

-

-

-

-

(0.6)

(0.6)

Operating profit/(loss)

9.4

8.0

(4.1)

13.3

(3.1)

13.0

(4.0)

6.0

Share of profit of joint ventures

6.4

-

-

6.4

-

2.3

-

2.3

Operating profit/(loss) before exceptional items plus JVs

15.8

8.0

(4.1)

19.7

(3.1)

15.3

(3.4)

8.9

Revaluation gains on development properties

-

-

-

-

2.9

-

-

2.9

Development property gains released on sales

(6.6)

-

-

(6.6)

-

-

-

-

Operating profit/(loss) before exceptional items which contributed to EPRA NNNAV

9.2

8.0

(4.1)

13.1

(0.2)

15.3

(3.4)

11.8

Value gains (including JVs and development properties)

10.0

1.1

-

11.1

1.3

9.1

-

10.5

Notes: (1) A full description and reconciliation of the alternative performance measures in the above table is included in Note 2 to these condensed interim financial statements

(2) The income statement has been re-presented to show the profit on development property sales (£10.1m; H1 2018 £0.1m loss) within profit on disposals and development property impairment (£0.0m; H1 2018 £1.5m) within revaluation gains.  The notional gross (profit)/loss is the reversal of these amounts

(3) There are minor differences on some totals due to rounding
 


STATUTORY OPERATING PROFIT


Revenues in the first half of 2019 were £58.6m (H1 2018: £21.9m), split between revenue from operations £12.8m (H1 2018: £10.9m) and revenue from the disposal of development properties £45.8m (H1 2018: £11.0m). Revenue from operations is split between: Income Generation £11.9m (H1 2018: £10.8m), where revenue mainly comprises rental and royalty income together with some sales of coal fines and salvage; and Capital Growth £0.9m (H1 2018: £0.1m). The increase in revenue from Income Generation reflected business space acquisitions made in 2018 including Nufarm and Flaxby. The increase in revenue from Capital Growth reflected the amounts received from the Group`s first planning promotion agreement.

 

Cost of sales comprises the inventory cost of development property sales and the operating costs for business space, natural resources, agricultural land and coal fines activities. Cost of sales increased to £40.0m (H1 2018: £16.3m) of which £35.7m related to the inventory cost of development property sales (H1 2018: £12.6m).

 

Total overheads, which include the overhead costs of the Capital Growth and Income Generation segments and central costs, amounted to £6.3m (H1 2018: £5.9m) and were in line with expectations, reflecting increased costs due to expansion of the business in the regions. 

 

VALUE GAINS

 

Set out below are value gains, on an alternative performance measure basis, for the first six months of 2019 and 2018, which comprise profits on disposals and revaluation gains:
 

 

£m

£m

 

 

H1 2019

H1 2018

 

      

Profit on disposals

Revaluation gains

Total

 

Profit on disposals

Revaluation gains

Total

Development/Capital Growth

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Major Developments

3.5

6.4

9.9

 

(0.0)

1.3

1.3

Strategic Land

0.1

-

0.1

 

(0.0)

0.1

0.1

 

 

 

 

 

 

 

Investment/Income Generation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Space

-

 

-

 

(0.1)

5.2

5.1

Natural Resources

0.2

-

0.2

 

0.3

3.7

4.0

Agricultural Land

0.9

-

0.9

 

(0.0)

0.0

0.0

Total value gains

4.7

6.4

11.1

 

0.1

10.4

10.5

                 

 

In the first half of 2019, the Group had revaluation gains of £6.4m (H1 2018: £10.4m) comprising:

 

 

£m

£m

 

H1 2019

H1 2018

Increase in fair value of investment properties

Net realisable value provision of development properties

-

-

6.7

(1.5)

Contribution to statutory operating profit

-

5.2

Share of profits from joint ventures

6.4

2.3

Unrealised gains on development properties

-

2.9

Total revaluation gains

6.4

10.4

 

In the first half of 2019, the revaluation gains reflected the progress made with sales at Gateway 45, a Major Developments site operated by The Aire Valley Land LLP, our 50/50 joint venture with Evans Property Group.  The revaluation gain cited in the table above reflects Harworth's share of profits from this joint venture.

 

PROPERTY SALES

 

The Group made sales of properties of £53.3m in the first six months of 2019 (H1 2018: £16.1m) achieving profits on disposals of £4.7m (H1 2018: £0.1m).  The sales were split between; residential serviced plots of £45.6m (H1 2018: £11.8m); commercial development of £2.9m (H1 2018: £3.8m); and other, essentially agricultural land, of £4.8m (H1 2018: £0.5m). 

 

Cash proceeds from the sale of development and investment properties were £29.0m (H1 2018: £15.4m) reflecting the sales of £53.3m (H1 2018: £16.1m), less deferred consideration on sales in the period of £40.5m (H1 2018: £6.9m), plus deferred consideration received from sales in prior years of £16.2m (H1 2018: £6.2m).

 

EXCEPTIONAL ITEMS

 

There are no exceptional items in the first half of 2019. Exceptional items in 2018 reflected a charge of £0.6m for the step-up from the Stock Exchange standard to premium listing.

 

TAXATION
 

The income statement charge for taxation in the period was £3.5m (H1 2018: £1.1m) which comprised a deferred tax charge of £1.3m (H1 2018: £1.2m) and a current period tax charge of £2.2m (H1 2018: £0.1m credit).  The deferred tax charge mainly relates to the increase in valuation of the investment properties and the gains on joint ventures.  The current tax charge primarily relates to the profits on disposal of development properties and assets held for sale.

 

At 30 June 2019, the Group had deferred tax liabilities of £13.5m (H1 2018: £14.3m), which largely related to unrealised gains on investment properties, and had recognised deferred tax assets of £7.2m (H1 2018: £7.6m).  The net deferred tax liability was £6.3m (H1 2018: £6.7m).

 

EARNINGS PER SHARE AND DIVIDENDS
 

Earnings per share increased to 4.67p (H1 2018: 1.71p) primarily due to the increase in sales of development properties during the first half of 2019.

 

An interim dividend of 0.304p per share (H1 2018: 0.278p) equivalent to £977k (H1 2018: £894k). The 9.4% rise in the 2019 interim dividend creates a total return (EPRA NNNAV growth plus dividends) per share over the last twelve months of 13.3% (H1 2018: 11.5%).  This dividend will be paid on 18 October 2019 to shareholders on the register at the close of business on 20 September 2019. 

 

PROPERTY CATEGORISATION


Until sites receive planning permission, our view is that the land is held for a currently undetermined future use and should thus be held as investment property. We categorise all properties/land that have received planning permission, and not being held for long term appreciation, as development properties.  Property categorisation is reviewed at 30 June and 31 December each year. There were no sites which received first-time planning permission in the first half of 2019 and hence no sites were re-categorised.  As at 30 June 2019, the balance sheet value of all development sites was £191.6m.  The market value of those sites was £211.0m if the £19.4m revaluation gains on development properties is included. In order to highlight the market value of development sites, and overages, and to be consistent with our investment properties, we use EPRA NNNAV, which includes the market value of development properties and overages less notional deferred tax, as our primary net assets metric.  We continue to report EPRA NAV which is EPRA NNNAV excluding deferred tax and the mark to market movement on financial instruments.

 

NET ASSETS

 

As set out below, EPRA NNNAV increased to £473.3m as at 30 June 2019 from £466.5m as at 31 December 2018 (£420.4m as at 30 June 2018).  This increase was as a result of movements in the period, being operating profit before exceptional items contributing to growth in EPRA NNNAV of £13.1m, interest costs of £1.2m, tax charges (including development properties notional deferred tax) of £2.3m, movement in the fair value of financial instruments of £0.5m and dividends of £2.0m plus other movements of £0.3m.

 

 

30 June 2019

£m

30 June 2018

£m

31 December 2018

£m

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

501.8

519.1

496.1

Cash

11.4

7.7

8.6

Other assets

74.5

35.5

69.6

Total assets

587.7

562.3

574.3

Gross borrowings

64.6

107.9

73.0

Deferred tax liability

6.3

6.7

5.0

Derivative financial instruments

0.6

-

0.1

Other liabilities

61.9

34.5

54.3

Net assets

454.3

413.2

441.9

Mark to market value uplift of development properties less notional deferred tax (1)

19.0

7.2

24.6

EPRA NNNAV(1)

473.3

420.4

466.5

Number of shares in issue less Employee benefit trust shares

321,430,851

321,314,989

321,314,989

NAV per share

141.3p

128.6p

137.5p

EPRA NNNAV per share(1)

147.3p

130.8p

145.2p

EPRA NAV per share(1)

150.6p

133.4p

148.3p

 

(1) A full description and reconciliation of the alternative performance measures in the above table is included in Note 2 to these condensed consolidated interim financial statements

 

 

The table below sets out our top ten sites by market value, which represent 47% of the total value of all our properties, split by their categorisation and showing the total acres, currently consented residential plots and commercial space:

 

 

 

 

Housing plots

Commercial space

Site

Type

Acres

Consented

Sold

Built

Consented

Built

Waverley (Resi)

Development

432

3,890

1,570

900

-

-

Coalville

Development

346

2,016

-

-

-

-

Nufarm

Investment

112

-

-

-

0.3m sq. ft

0.3m sq. ft

Waverley (AMP)

Investment

113

-

-

-

2.1m sq. ft

1.5m sq. ft

Thoresby

Development

460

800

-

-

0.3m sq. ft

0.0m sq. ft

Gateway 45

Joint Venture

110

-

-

-

2.6m sq. ft

0.0m sq. ft

Melton CP

Investment

141

-

-

-

0.3m sq. ft

0.3m sq. ft

Rossington

Development

307

1,200

522

170

0.1m sq. ft

0.1m sq. ft

Four Oaks BP

Investment

19

-

-

-

0.4m sq. ft

0.4m sq. ft

Chatterley

Development

129

-

-

-

1.2m sq. ft

0.0m sq. ft

 

TOTAL

2,169

7,906

2,092

1,070

7.3m sq. ft

2.6m sq. ft

 

FINANCING STRATEGY AND FUNDING


As has been consistently stated, Harworth's financing strategy is to be prudently geared, in particular not applying gearing against our Capital Growth properties being those which constitute Strategic Land and Major Developments sites. We believe that this gives the Group a number of advantages:

· 

allows working capital swings to be managed appropriately given that infrastructure spend is usually in advance of sales;

· 

gives the Group the ability to complete acquisitions quickly, which is often a differentiating factor in a competitive situation; and

· 

ensures that we do not combine financial gearing with Harworth's existing operational gearing derived from our planning, remediation/engineering, letting and sales risks.

 

Harworth's financing strategy also seeks to balance the Group`s cash flows by funding development spend and investment in acquisitions largely from disposal proceeds.

 

There were no changes in the period to the terms of the Group's £100m Revolving Credit Facility (RCF) with RBS and Santander.  The RCF is available until February 2023 at a cost of 2.1% over ICE LIBOR.  The Group continues to use infrastructure funding, provided by public bodies to promote the development of major sites for employment and housing needs.  During the period the Group repaid two infrastructure facilities and, at 30 June 2019, had two remaining infrastructure facilities in place with all-in funding rates of 3.3%.

 

The Group's hedging strategy is to have roughly half its debt at a fixed rate and half its debt exposed to floating rates.  The Group has a £45m fixed rate interest swap at an all-in cost of 1.235% (including fees) on top of the existing 210bps margin paid under the RCF. The interest rate swap expires in July 2022 and is hedge accounted with any unrealised movements going through reserves. 

 

At 30 June 2019 Harworth's gross Loan To Value ("LTV") was 12.3% (FY 2018: 13.9%) and net LTV was 10.1% (FY 2018: 12.3%).  However, as set out above, 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 a gross LTV of 34.3% (FY 2018: 38.9%) and a net LTV of 28.2% (FY 2018: 34.3%).

 

The Group had borrowings and loans of £64.6m at 30 June 2019 (FY 2018: £73.0m), being the RCF of £57.7m (FY 2018: £58.7m) and infrastructure facilities of £6.8m (FY 2018: £14.3m).  The Group's cash at 30 June 2019 was £11.4m (FY 2018: £8.6m).  The resulting net debt was £53.1m (FY 2018: £64.4m).  The weighted average cost of debt, using 30 June 2019 balances and rates, was 3.2% with a 0.84% non-utilisation fee on undrawn RCF amounts (FY 2018: 3.3% with a 0.84% non-utilisation fee on undrawn RCF amounts).  For the twelve months to 30 June 2019 Harworth's interest cover, as calculated by the RCF covenant calculation, was 4.76x against a covenant test of 1.5x (FY 2018: 4.65x).

 

RESTATEMENT OF FAIR VALUE AND RETAINED EARNINGS RESERVES

 

The fair value and retained earnings reserves have been restated at 1 January 2018, 30 June 2018 and 31 December 2018 to reallocate correctly fair value gains and losses between these reserves. This restatement has reallocated negative fair values from the fair value reserve to retained earnings and transferred fair value gains on properties disposed of from the fair value reserve to retained earnings. There has been no impact on the net assets of the Group or on the profit for the period to 30 June 2018 and year to 31 December 2018. Further details of this restatement are given in note 15 of these condensed consolidated interim financial statements.

 

Jenny Cutler

Interim Finance Director

10 September 2019

 

Principal risks and uncertainties

 

A detailed explanation of the principal risks and uncertainties affecting the Group, and the steps it takes to mitigate these risks, can be found on pages 36 to 44 of the Annual Report and Financial Statements for the year ended 31 December 2018, available at harworthgroup.com/investors.

 

The Group's principal risks and uncertainties are grouped into eight categories: markets, delivery, politics, finance, people, legal and regulatory, governance and internal controls, and communications and stakeholder management.  These risks and uncertainties are expected to remain relevant for the Group for the remaining six months of the financial year.

 

Council elections in May led to changes in political control of some local authorities within which our sites are located.  This has caused a delay in the determination of a handful of our live planning applications and has prompted a change in our planning promotion strategy for a small number of sites.  As such, there is now greater uncertainty surrounding the timing of certain value gains connected to planning promotion milestones.  This is reflected in a temporary increase in the risk status of our delivery and politics risk categories.

 

The overall status of all other risk categories remains unchanged.

 

As negotiations continue for the United Kingdom's withdrawal from the European Union, the Board expects that the Group will continue to operate in an uncertain economic and political climate in the short to medium term.  Whilst the Group is not immune to that uncertainty, it is mitigated by the continuing positive economic and consumer trends in our core markets, with the residential and industrial sectors in the North of England and the Midlands continuing to have solid fundamentals and favourable performance.

 

Chris Birch

Group General Counsel and Company Secretary

10 September 2019

  

Consolidated income statement

 

Note

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December

2018

£'000

Revenue

3

58,572

21,909

78,055

Cost of sales

3

(40,031)

(16,282)

(53,612)

Gross profit

3

18,541

5,627

24,443

Administrative expenses

3

(6,348)

(5,895)

(12,870)

Other gains

3

1,180

6,930

22,066

Other operating expenses

3

(29)

(27)

(70)

Operating profit before exceptional items

 

13,344

6,635

33,569

Exceptional expense

4

-

(590)

(590)

Operating profit

 

13,344

6,045

32,979

Share of profit of joint ventures

3

6,364

2,288

3,791

Net finance costs

5

(1,241)

(1,738)

(3,962)

Profit before tax

 

18,467

6,595

32,808

Tax

6

(3,467)

(1,108)

1,294

Profit for the period/year

 

15,000

5,487

34,102

 

 

 

 

 

Earnings per share from operations

 

Pence

pence

pence

Basic

8

4.7

1.7

10.6

Diluted

8

4.6

1.7

10.5

The notes on pages 21 to 41 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
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Profit for the period/year

15,000

5,487

34,102

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

 

 

 

Net actuarial loss in Blenkinsopp Pension scheme

(83)

82

(18)

Deferred tax on other comprehensive (expense) items

-

-

(1)

Other comprehensive income - items that maybe reclassified subsequently to profit or loss:

 

 

 

Fair value of financial instruments

(504)

125

13

Total other comprehensive (expense)/income

(587)

207

(6)

Total comprehensive income for the period/year

14,413

5,694

34,096

Consolidated balance sheet

ASSETS

Note

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Non-current assets

 

 

 

 

Property, plant and equipment

 

886

797

794

Right of use assets

 

123

-

-

Other receivables

 

-

2,000

-

Investment properties

9

265,376

256,276

254,409

Investments in joint ventures

 

29,875

22,428

25,830

Trade receivables

 

17,452

-

-

Derivative financial instruments

 

-

3

-

 

 

313,712

281,504

281,033

Current assets

 

 

 

 

Inventories

10

194,083

210,849

207,009

Trade and other receivables

 

54,331

34,008

66,699

Assets classified as held for sale

11

14,179

28,186

10,956

Cash

 

11,436

7,718

8,595

 

 

274,029

280,761

293,259

Total assets

 

587,741

562,265

574,292

LIABILITIES

 

 

 

 

Current liabilities

 

 

 

 

Borrowings

12

-

(7,648)

(5,291)

Trade and other payables

 

(57,944)

(31,534)

(52,555)

Lease liability

 

(44)

-

-

Current tax liabilities

 

(3,144)

(1,698)

(928)

 

 

(61,132)

(40,880)

(58,774)

Net current assets

 

212,897

239,881

234,485

Non-current liabilities

 

 

 

 

Borrowings

12

(64,572)

(100,242)

(67,747)

Trade and other payables

 

(300)

(760)

(300)

Lease liability

 

(77)

-

-

Derivative financial instruments

 

(613)

-

(109)

Deferred income tax liabilities

 

(6,263)

(6,743)

(4,964)

Retirement benefit obligations

 

(479)

(413)

(462)

 

 

(72,304)

(108,158)

(73,582)

Total liabilities

 

(133,436)

(149,038)

(132,356)

Net assets

 

454,305

413,227

441,936

SHAREHOLDERS' EQUITY

 

 

 

 

Called up share capital

13

32,151

32,150

32,150

Share premium account

 

24,359

24,351

24,351

Fair value reserve1

 

109,473

110,915

118,563

Capital redemption reserve

 

257

257

257

Merger reserve

 

45,667

45,667

45,667

Investment in own shares

13

(62)

(194)

(194)

Retained earnings1

 

227,460

194,594

187,040

Current year profit

 

15,000

5,487

34,102

Total shareholders' equity

 

454,305

413,227

441,936

 1The fair value and retained earnings reserves have been restated to reallocate fair value gains and losses between these reserves. See note 15 for further detail.

 

 

Consolidated statement of changes in shareholders' equity

 

Called up share capital £'000

Share

premium account

£'000

Own

shares

£'000

Fair

value

reserve

(restated)1

£'000

Capital redemption reserve

£'000

 

Merger reserve

£'000

Retained earnings

(restated)1

£'000

Total

equity

£'000

Balance at 1 January 2018 (audited)

32,150

24,351

(263)

105,064

257

45,667

202,085

409,311

Profit for the six months to 30 June 2018

-

-

-

-

-

-

5,487

5,487

Fair value gains

-

-

-

6,699

-

-

(6,699)

-

Transfer of unrealised gains on disposal of investment property

-

-

-

(848)

-

-

848

-

Other comprehensive income:

 

 

 

 

 

 

 

 

Actuarial loss in Blenkinsopp pension scheme

-

-

-

-

-

-

82

82

Fair value of financial instruments                                                       

-

-

-

-

-

-

125

125

Transactions with owners:

 

 

 

 

 

 

 

 

Dividend paid

-

-

-

-

-

-

(1,847)

(1,847)

Share issue

-

-

69

-

-

-

-

69

Balance at 30 June 2018 (unaudited)

32,150

24,351

(194)

110,915

257

45,667

200,081

413,227

Profit for six months to 31 December 2018

-

-

-

-

-

-

28,615

28,615

Fair value gains

-

-

-

16,539

-

-

(16,539)

-

Transfer of unrealised gains on disposal of investment property

-

-

-

(8,891)

-

-

8,891

-

Other comprehensive expense:

 

 

 

 

 

 

 

 

Actuarial loss in Blenkinsopp pension scheme

-

-

-

-

-

-

(100)

(100)

Fair value of financial instruments

-

-

-

-

-

-

(112)

(112)

Deferred tax on other comprehensive (expense)/income items

-

-

-

-

-

-

(1)

(1)

Transactions with owners:

 

 

 

 

 

 

 

 

Dividend paid

-

-

-

-

-

-

(893)

(893)

Share based payment IFRS 2 charge

-

-

-

-

-

-

1,200

1,200

Balance at 31 December 2018 (audited)

32,150

24,351

(194)

118,563

257

45,667

221,142

441,936

Profit for the six months to 30 June 2019

-

-

-

-

-

-

15,000

15,000

Transfer of unrealised gains on disposal of investment property

-

-

-

(9,090)

-

-

9,090

-

Other comprehensive expense:

 

 

 

 

 

 

 

 

Actuarial gain in Blenkinsopp pension scheme

-

-

-

-

-

-

(83)

(83)

Fair value of financial instruments                                                       

-

-

-

-

-

-

(504)

(504)

Transactions with owners:

 

 

 

 

 

 

 

 

Share based payment IFRS 2 charge

-

-

132

-

-

-

(150)

(18)

Dividend paid (note 7)

-

-

-

-

-

-

(2,035)

(2,035)

Share issue

1

8

-

-

-

-

-

9

Balance at 30 June 2019 (unaudited)

32,151

24,359

(62)

109,473

257

45,667

242,460

454,305

[1]The fair value and retained earnings reserves have been restated to reallocate fair value gains and losses between these reserves. See note 15 for further detail.

 

Consolidated statement of cash flows

 

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Cash flows from operating activities

 

 

 

Profit before tax for the period/year

18,467

6,595

32,808

Net interest payable

1,241

1,738

3,962

Other gains

(1,180)

(6,885)

(22,066)

Share of profit of joint ventures

(6,364)

(2,288)

(3,791)

Depreciation of property, plant and equipment

47

5

9

Pension contributions in excess of charge

(66)

(68)

(120)

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

12,145

(903)

10,802

Decrease in inventories

12,926

430

4,609

Increase in receivables

(5,084)

(3,593)

(36,284)

Increase /(decrease) in payables

5,488

(6,451)

13,598

Cash generated from/(used in) operations

25,475

(10,517)

(7,275)

Interest paid

(1,132)

(962)

(1,581)

Corporation tax (paid)/received

(1)

99

99

Cash generated from/(used in) operating activities

24,342

(11,380)

(8,757)

Cash flows from investing activities

 

 

 

Interest received

156

5

4

Repayment from/(investment in) joint ventures

2,318

(1,301)

(2,843)

Net proceeds from disposal of investment properties and assets held for sale

6,739

4,918

47,801

Loan arrangement fees paid

(62)

(782)

(566)

Expenditure on investment properties and assets classified as held for sale

(19,749)

(57,580)

(64,124)

Expenditure on property, plant and equipment

(125)

-

(1)

Cash used in investing activities

(10,723)

(54,740)

(19,729)

Cash flows from financing activities

 

 

 

Net proceeds from issue of ordinary shares

9

-

-

Proceeds from other loans

-

6,673

8,650

Repayment of other loans

(7,669)

(3,928)

(12,209)

Proceeds from bank loan

14,000

72,500

81,739

Repayment of bank loan

(15,000)

(8,000)

(46,730)

Investment in own shares

(67)

69

-

Payment in respect of leases

(16)

-

-

Dividends paid

(2,035)

(1,847)

(2,740)

Cash (used in)/generated from financing activities

(10,778)

65,467

28,710

Increase/(decrease) in cash

2,841

(653)

224

At 1 January

 

 

 

Cash

8,595

8,371

8,371

Increase/(decrease) in cash

2,841

(653)

224

 At period/year end

11,436

7,718

8,595

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

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

 

General information

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

 

The Company is a listed public company on the London Stock Exchange.

 

The condensed consolidated interim financial statements for the six months ended 30 June 2019 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 2018 were approved by the Board of Directors on 16 April 2019 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 not been audited.

 

The condensed consolidated interim financial statements for the period ended 30 June 2019 were approved by the Board on 9 September 2019.

 

Basis of preparation

These condensed consolidated interim financial statements for the six months ended 30 June 2019 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 2018 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 'Managing risk' section of the 2018 annual report, as well as taking into account the funding strategy and available borrowing facilities disclosed on page 14.

 

The key factor that has been considered in this regard is that the Group has a £100m revolving credit facility with The Royal Bank of Scotland and Santander, expiring February 2023, 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. Any 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 banks 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 2019
 

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, except as described below:

 

IFRS 16, 'Leases' addresses the definition of a lease, recognition and measurement of leases and establishes principles for reporting useful information to users of financial statements about the leasing activities of both lessees and lessors. A key change arising from IFRS 16 is that most operating leases will be accounted for on balance sheet for lessees. The standard replaces IAS 17 'Leases', and related interpretations. The standard became effective for annual periods beginning on or after 1 January 2019. The impact of IFRS 16 at 30 June 2019 is an increase in total assets and total liabilities of £0.1m. There is a negligible impact on operating profit for the six months to 30 June 2019.

 

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 2018.

 

 

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

2. Alternative Performance Measures ("APMs")

 

The APM's presented in these condensed consolidated interim financial statements are consistent in definition, calculation and presentation with those presented in note 2 of the consolidated financial statements for the year ended 31 December 2018. Set out below is a reconciliation of the APM's used in these results to the statutory measures.

 

1. Reconciliation to statutory measures

 

a. Revaluation gains

 

 

 

 

 

Note

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Increase in fair value of investment properties

3

-

6,699

21,483

Decrease in fair value of other receivables

3

-

-

(2,000)

Other gains

3

-

45

45

Share of profit of joint ventures

3

6,364

2,288

3,791

Net realisable value provision of development properties

3

-

(1,491)

(4,767)

Reversal of previous net realisable value provision of development properties

 

3

-

-

3,031

Amounts derived from statutory reporting

 

6,364

7,541

21,583

Unrealised gains on development properties

 

-

2,858

22,945

Unrealised gains on overages

 

-

-

3,541

Revaluation gains

 

6,364

10,399

48,069

 

 

 

 

 

b. Profit on sale

 

 

 

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Profit on sale of investment properties

3

314

1

176

2,374

Profit on sale of assets classified as held for sale

3

866

10

164

Profit/(loss) on sale of development properties

3

10,152

(64)

3,469

Amounts derived from statutory reporting

 

11,332

122

6,007

Previously unrealised gains on development properties released on sale

 

(6,597)

-

(2,794)

Profit on sale

 

4,735

122

3,213

 

 

 

 

 



c. Value gains

 

 

 

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Statutory reporting revaluation gains

 

6,364

7,541

21,583

Statutory reporting profit on sale

 

11,332

122

6,007

Amounts derived from statutory reporting

 

17,696

7,663

27,590

Unrealised gains on development properties

 

-

2,858

22,945

Unrealised gains on overages

 

-

-

3,541

Previously unrealised gains on development properties released on sale

 

(6,597)

-

(2,794)

Value gains (including development properties and overages)

 

11,099

10,521

51,282

 

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019

 

2. Alternative Performance Measures (continued)


 

d. Profit excluding value gains (PEVG)

 

 

 

 

 

Note

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Operating profit before exceptional items

3

13,344

6,635

33,569

Less other gains

3

(1,180)

(6,930)

(22,066)

Add other operating expenses

3

29

27

70

Less/add gross (profit)/loss from development properties

3

(10,152)

1,555

(1,733)

PEVG

 

2,041

1,287

9,840

 

 

 

 

 


e. Total property sales

 

 

 

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Revenue from development properties

3

45,780

11,032

44,825

Revenue from other property activities

3

893

106

7,629

Revenue from income generation activities

3

11,899

10,771

25,601

Amounts derived from statutory reporting

 

58,572

21,909

78,055

Less revenue from other property activities

3

(893)

(106)

(7,629)

Less revenue from income generation activities

3

(11,899)

(10,771)

(25,601)

Add financing element arising on deferred consideration

 

532

-

-

Add proceeds from sales of investment properties, assets held for sale and overages

7,018

5,046

48,338

Total property sales

 

53,330

16,078

93,163

 

 

 

 

 

f. Operating profit before exceptional items contributing to growth in EPRA NNNAV

 

 

 

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Operating profit before exceptional items

3

13,344

6,635

33,569

Share of profit on joint ventures

3

6,364

2,288

3,791

Amounts derived from statutory reporting

 

19,708

8,923

37,360

Unrealised gains on development properties

 

-

2,858

22,945

Unrealised gains on overages

 

-

-

3,541

Less previously unrealised gains on development properties released on sale

 

(6,597)

-

(2,794)

Operating profit before exceptional items contributing to growth in EPRA NNNAV

 

13,111

11,781

61,052

 

 

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

2. Alternative Performance Measures (continued)

 

g. Portfolio value

 

 

 

 

 

 

Note

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Land and buildings

                                                                                                                       

 

787

787

787

Other receivables

 

-

2,000

-

Investment properties

9

265,376

256,276

254,409

Investment in joint ventures

 

29,875

22,428

25,830

Assets classified as held for sale

11

14,179

28,186

10,956

Development properties

10

191,574

209,388

204,157

Amounts derived from statutory reporting

 

501,791

519,065

496,139

Cumulative unrealised gains on development properties as at period/year end

 

19,400

8,704

25,997

Cumulative unrealised gains on overage as at period/year end

 

3,541

-

3,541

Portfolio value

 

524,732

527,769

525,677

 

 

 

 

 

h. Net debt

 

 

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Gross borrowings

12

(64,572)

(107,890)

(73,038)

Cash

 

11,436

7,718

8,595

Net debt

 

(53,136)

(100,172)

(64,443)

 

 

 

 

 


i. Net loan to portfolio value (%)

 

 

 

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Net debt

 

(53,136)

(100,172)

(64,443)

Portfolio value

 

524,732

527,769

525,677

Net loan to portfolio value (%)

 

10.1%

19.0%

12.3%

 

 

 

 

 

j. Net loan to income generation portfolio value (%)

 

 

 

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Net debt

 

(53,136)

(100,172)

(64,443)

Income generation portfolio value (business space and natural resources)

9

188,352

184,881

187,648

Net loan to income generation portfolio value (%)

 

28.2%

54.2%

34.3%

 

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

2. Alternative Performance Measures (continued)

 


k. Gross loan to portfolio value (%)

 

 

 

 

 

 

 

 

Note

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Gross borrowings

12

(64,572)

(107,890)

(73,038)

Portfolio value

 

524,732

527,769

525,677

Gross loan to portfolio value (%)

 

12.3%

20.4%

13.9%

 

 

 

 

 

l. Gross loan to income generation portfolio value (%)

 

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Gross borrowings

12

(64,572)

(107,890)

(73,038)

Income generation portfolio value

 

188,352

184,881

187,648

Gross loan to income generation portfolio value (%)

 

34.3%

58.4%

38.9%

 

 

 

 

 


m. Number of shares used for per share calculations

 

 

 

Unaudited

6 months ended

30 June
2019

Unaudited

6 months ended

30 June

2018

Audited

year ended

31 December 2018

Number of shares in issue

13

321,508,546

321,496,760

321,496,760

Employee Benefit Trust Shares (own shares)

13

(77,695)

(181,771)

(181,771)

Number of shares used for per share calculations

13

321,430,851

321,314,989

321,314,989

 

 

 

 

 


n. Net Asset Value (NAV) per share

 

 

 

Unaudited

6 months ended

30 June
2019

Unaudited

6 months ended

30 June

2018

Audited

year ended

31 December 2018

NAV £'000

 

454,305

413,227

441,936

Number of shares used for per share calculations

13

321,430,851

321,314,989

321,314,989

NAV per share (p)

 

141.3

128.6

137.5

 

 

 

 

 

 

 

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

2. Alternative Performance Measures (continued)

 

2) Reconciliation to EPRA measures

 

a) EPRA NNNAV

 

 

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Net assets

454,305

413,227

441,936

Cumulative unrealised gains on development properties

19,400

8,704

25,997

Cumulative unrealised gains on overages

3,541

-

3,541

Notional deferred tax on unrealised gains

(3,900)

(1,537)

(5,021)

EPRA NNNAV

473,346

420,394

466,453

 

 

 

 

 

b) EPRA NAV

 

 

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

EPRA NNNAV

473,346

420,394

466,453

Notional deferred tax on unrealised gains

3,900

1,537

5,021

Deferred tax liability

6,263

6,743

4,964

Mark to market valuation of financial instrument

613

(3)

109

EPRA NAV

484,122

428,671

476,547

 

 

 

 

c) EPRA NNNAV per share (p)

 

 

Unaudited

6 months ended

30 June
2019

Unaudited

6 months ended

30 June

2018

Audited

year ended

31 December 2018

EPRA NNNAV £'000

473,346

420,394

466,453

Number of shares issued for per share calculations

321,430,851

321,314,989

321,314,989

EPRA NNNAV per share (p)

147.3

130.8

145.2

 

 

 

 

 

d) EPRA NAV per share (p)

 

 

Unaudited

6 months ended

30 June
2019

Unaudited

6 months ended

30 June

2018

Audited

year ended

31 December 2018

EPRA NAV £'000

484,122

428,671

476,547

Number of shares issued for per share calculations

321,430,851

321,314,989

321,314,989

EPRA NAV per share (p)

150.6

133.4

148.3

 

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

2. Alternative Performance Measures (continued)

 

Unaudited

12 months to

30 June
2019

Unaudited

12 months to

30 June

2018

Audited

year ended

31 December 2018

Opening EPRA NNNAV/share (p)

130.8

118.0

128.9

Closing EPRA NNNAV/share (p)

147.3

130.8

145.2

Movement in the year

16.5

12.8

16.3

EPRA NNNAV growth

12.6%

10.9%

12.6%

Dividends paid per share

 

0.9

0.8

0.9

Total return per share

17.4

13.6

17.2

 

 

Total return as a percentage of opening EPRA NNNAV

13.3%

11.5%

13.3%

 

 

 

 

f) Net loan to EPRA NNNAV

 

 

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Net debt

(53,136)

(100,172)

(64,443)

EPRA NNNAV

473,346

420,394

466,453

Net loan to EPRA NNNAV

 

11.2%

23.8%

13.8%

 

 

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

3.   Segment information

Unaudited 6 month period ended 30 June 2019

 

 

Capital Growth

Income
Generation

£'000

Central Overheads

£'000

 

Total

£'000

 Sale of Development

Properties

£'000

    Other Property Activities

£'000

Revenue

45,780

893

11,899

-

58,572

Cost of sales

(35,628)

(560)

(3,843)

-

(40,031)

Gross profit

10,152

333

8,056

-

18,541

Administrative expenses

-

(1,184)

(1,065)

(4,099)

(6,348)

Other gains

-

62

1,118

-

1,180

Other operating expenses

-

-

-

(29)

(29)

Operating profit/(loss)

10,152

(789)

8,109

(4,128)

13,344

Share of profit of joint ventures

-

6,364

-

-

6,364

Net finance income/(costs)

126

-

-

(1,367)

(1,241)

Profit/(loss) before tax

10,278

5,575

8,109

(5,495)

18,467

 

Gross profit is analysed as follows:

 

 

 

 

 

Gross profit excluding sale of development properties

-

333

8,056

-

8,389

Gross profit on sale of development properties

9,106

-

-

-

9,106

Reversal of previous net realisable provision on development properties on sale

1,046

-

-

-

1,046

 

10,152

333

8,056

-

18,541

 

Other gains are analysed as follows:

 

 

 

 

 

Profit on sale of investment properties

-

67

247

-

314

(Loss)/profit on sale of assets held for sale

-

(5)

871

-

866

 

-

62

1,118

-

1,180

 

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

3.   Segment information (continued)

As at 30 June 2019 (unaudited)

 

 

 

 

Note

Capital
Growth

£'000

Income
Generation

£'000

Central overheads

 £'000

 

Total

£'000

Non-current assets

 

 

 

 

 

Property, plant and equipment

 

-

-

886

886

Right of use assets

 

-

59

64

123

Investment properties

9

66,412

198,964

-

265,376

Investments in joint ventures

 

20,014

9,861

-

29,875

Trade receivables*

 

17,452

-

-

17,452

 

 

103,878

208,884

950

313,712

Current assets

 

 

 

 

 

Inventories

10

188,869

5,214

-

194,083

Trade and other receivables

 

31,527

21,768

1,036

54,331

Assets classified as held for sale

11

896

13,283

-

14,179

Cash

 

-

-

11,436

11,436

 

 

221,292

40,265

12,472

274,029

Total assets

 

325,170

249,149

13,422

587,741

*Trade receivables due greater than one year relate to deferred consideration on the sale of development properties

Financial liabilities and derivative financial instruments 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 2019
 

3.   Segment information (continued)

Audited 12 month period ended 31 December 2018

 

Capital Growth

Income
Generation

£'000

Central overheads

£'000

 

Total

£'000

 Sale of Development

Properties

£'000

    Other Property Activities

£'000

Revenue

44,825

7,629

25,601

-

78,055

Cost of sales

(43,092)

(1,922)

(8,598)

-

(53,612)

Gross profit

1,733

5,707

17,003

-

24,443

Administrative expenses

-

(2,473)

(2,171)

(8,226)

(12,870)

Other gains

-

8,658

13,408

-

22,066

Other operating expenses

-

-

-

(70)

(70)

Operating profit/(loss) before exceptional items

1,733

11,892

28,240

(8,296)

33,569

Exceptional expenses

-

-

-

(590)

(590)

Operating profit

1,733

11,892

28,240

(8,886)

32,979

Share of (loss)/profit of joint ventures

-

(5)

3,796

-

3,791

Net finance costs

-

-

-

(3,962)

(3,962)

Profit/(loss) before tax

1,733

11,887

32,036

(12,848)

32,808

 

Gross profit is analysed as follows:

 

 

 

 

 

Gross profit excluding sale of development properties

-

5,707

17,003

-

22,710

Gross profit on sale of development properties

3,469

-

-

-

3,469

Net realisable provision on development properties

(4,767)

-

-

-

(4,767)

Reversal of previous net realisable provision on development properties

3,031

-

-

-

3,031

 

1,733

5,707

17,003

-

24,443

 

Other gains are analysed as follows:

 

 

 

 

 

Increase in fair value of investment properties

-

9,859

11,624

-

21,483

Decrease in fair value of other receivables

-

(2,000)

-

-

(2,000)

Profit on sale of investment properties

-

799

1,575

-

2,374

Profit on sale of assets classified as held for sale

-

 

164

-

164

Other gains

-

 

45

-

45

 

-

8,658

13,408

-

22,066

 

 

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

3.   Segment information (continued)

As at 31 December 2018 (audited)

 

 

 

 

Notes

Capital
Growth

£'000

Income
Generation

£'000

Central overheads

 £'000

 

Total

£'000

Non-current assets

 

 

 

 

 

Property, plant and equipment

 

-

-

794

794

Investment properties

9

55,019

199,390

-

254,409

Investments in joint ventures

 

1,087

24,743

-

25,830

 

 

56,106

224,133

794

281,033

Current assets

 

 

 

 

 

Inventories

10

206,635

374

-

207,009

Trade and other receivables

 

42,976

22,076

1,647

66,699

Assets classified as held for sale

11

2,775

8,181

-

10,956

Cash

 

-

-

8,595

8,595

 

 

252,386

30,631

10,242

293,259

Total assets

 

308,492

254,764

11,036

574,292

 

Financial liabilities and derivative financial instruments 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 2019
 

3.   Segment information (continued)

Unaudited 6 month period ended 30 June 2018

 

Capital Growth

Income
Generation

£'000

Central Overheads

£'000

 

Total

£'000

 Sale of Development

Properties

£'000

    Other Property Activities

£'000

Revenue

11,032

106

10,771

-

21,909

Cost of sales

(12,587)

(436)

(3,259)

-

(16,282)

Gross (loss)/profit

(1,555)

(330)

7,512

-

5,627

Administrative expenses

-

(1,153)

(1,327)

(3,415)

(5,895)

Other gains

-

94

6,836

-

6,930

Other operating expenses

-

-

-

(27)

(27)

Operating (loss)/profit before exceptional items

(1,555)

(1,389)

13,021

(3,442)

6,635

Exceptional expenses

-

-

-

(590)

(590)

Operating (loss)/profit

(1,555)

(1,389)

13,021

(4,032)

6,045

Share of (loss)/profit of joint ventures

-

(6)

2,294

-

2,288

Net finance costs

-

-

-

(1,738)

(1,738)

(Loss)/profit before tax

(1,555)

(1,395)

15,315

(5,770)

6,595

 

Gross (loss)/profit is analysed as follows:

 

 

 

 

 

Gross (loss)/profit excluding sale of development properties

-

(330)

7,512

-

7,182

Gross loss on sale of development properties

(64)

-

-

-

(64)

Net realisable provision on development properties

(1,491)

-

-

-

(1,491)

 

(1,555)

(330)

7,512

-

5,627

 

Other gains are analysed as follows:

 

 

 

 

 

Increase in fair value of investment properties

-

79

6,620

-

6,699

(Loss)/profit on sale of investment properties

-

(9)

146

-

137

Profit on sale of assets classified as held for sale

-

-

10

-

10

Profit on sale of overages

-

24

15

-

39

Other gains

-

-

45

-

45

 

-

94

6,836

-

6,930

 

 

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

3.   Segment information (continued)

 

As at 30 June 2018 (unaudited)

 

 

 

 

Notes

 

Capital
Growth

£'000

Income
Generation

£'000

Central overheads

 £'000

 

Total

£'000

Non-current assets

 

 

 

 

 

Property, plant and equipment

 

-

787

10

797

Other receivables

 

2,000

-

-

2,000

Investment properties

9

 

53,663

202,613

-

256,276

Investments in joint ventures

 

1,037

21,391

-

22,428

Derivative financial instruments

 

-

-

3

3

 

 

56,700

224,791

13

281,504

Current assets

 

 

 

 

 

Inventories

10

210,247

602

-

210,849

Trade and other receivables

 

23,199

4,803

6,006

34,008

Assets classified as held for sale

11

2,175

26,011

-

28,186

Cash

 

-

-

7,718

7,718

 

 

235,621

31,416

13,724

280,761

Total assets

 

292,321

256,207

13,737

562,265

 

Financial liabilities and derivative financial instruments 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 2019

4. Exceptional items

 

 

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Costs associated with the step-up from standard to premium listing

 

-

(590)

(590)

Total exceptional items

 

-

(590)

(590)

 

 

5.  Finance (costs)/income

                                                                                                                                 

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Finance costs

 

 

 

- Bank interest

(962)

(747)

(1,888)

- Amortisation of facility and other fees

(256)

(757)

(1,507)

- Other interest

(179)

(239)

(618)

 

(1,397)

(1,743)

(4,013)

Finance income

156

5

51

Net finance costs

(1,241)

(1,738)

(3,962)

 


6.  Tax

The income statement charge for taxation in the period was £3.5m (H1 2018: £1.1m) which comprised a deferred tax charge of £1.3m (H1 2018: £1.2m) and a current period tax charge of £2.2m (H1 2018: £0.1m credit).  The deferred tax charge mainly relates to the increase in valuation of the investment properties and the gains on joint ventures.  The current tax charge primarily relates to the profits on disposal of development properties and assets held for sale.

 

At 30 June 2019, the Group had deferred tax liabilities of £13.5m (H1 2018: £14.3m), which largely related to unrealised gains on investment properties and had recognised deferred tax assets of £7.2m (H1 2018: £7.6m).  The net deferred tax liability was £6.3m (H1 2018: £6.7m).

 

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019

7.  Dividends

 

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Full year dividend for financial year 2018 of 0.63p per share

2,035

-

-

Full year dividend for financial year 2017 of 0.58p per share

-

1,847

1,847

Interim dividend for six months ended 30 June 2018 of 0.28p per share

-

-

893

 

2,035

1,847

2,740


An interim dividend of 0.304p per share was approved by the Board on 9 September 2019 and is payable on 18 October 2019 to shareholders on the register on 20 September 2019. The interim dividend is not recognised as a liability in the interim condensed financial statements.

 

8.  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
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Profit from continuing operations attributable to owners of the parent

15,000

5,487

34,102

Weighted average number of shares used for basic earnings per share calculation

321,373,086

321,252,525

321,284,013

Basic earnings per share (pence)

4.7

1.7

10.6

Weighted average number of shares used for diluted earnings per share calculation

323,534,963

323,723,364

323,754,853

Diluted earnings per share (pence)

4.6

1.7

10.5

 

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019

 

9.  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 2018 (audited)

22,327

31,300

119,801

 

20,000

23,132

 

216,560

Direct acquisitions

-

-

43,692

 

-

9,207

 

52,899

Subsequent expenditure

6

222

3,733

 

84

633

 

4,678

Disposals

-

(482)

-

 

-

(80)

 

(562)

Increase in fair value

-

3,700

2,920

 

-

79

 

6,699

Transfer from assets held for sale

349

-

-

 

-

608

 

957

Transfer to assets held for sale

(4,948)

(348)

(19,659)

 

-

-

 

(24,955)

At 30 June 2018 (unaudited)

17,734

34,392

150,487

 

20,084

33,579

 

256,276

Direct acquisitions

-

-

(41)

 

-

1,564

 

1,523

Subsequent expenditure

(6)

1,792

1,632

 

(11)

1,611

 

5,018

Disposals

-

(947)

-

 

(19,336)

(40)

 

(20,323)

(Decrease)/increase in fair value

(308)

5,013

299

 

3,001

6,779

 

14,784

Transfer between divisions

(1,401)

5,533

(12,528)

 

6,159

2,237

 

-

Transfers to development properties

220

182

(1,384)

 

(8)

-

 

(990)

Transfer from assets held for sale

276

496

3,707

 

-

-

 

4,479

Transfer to assets held for sale

(4,773)

(982)

(3)

 

-

(600)

 

(6,358)

At 31 December 2018 (audited)

45,479

142,169

 

9,889

45,130

 

254,409

Direct acquisitions

-

23

6,831

 

-

9,806

 

16,660

Subsequent expenditure

-

348

361

 

47

2,320

 

3,076

Disposals

(311)

(80)

-

 

-

(111)

 

(502)

Transfer between divisions

(819)

819

-

 

-

-

 

-

Transfer to assets held for sale

-

(7,598)

-

 

-

(669)

 

(8,267)

At 30 June 2019 (unaudited)

10,612

38,991

149,361

 

9,936

56,476

 

265,376

 

Valuation process


The properties were valued by BNP Paribas Real Estate and Savills at 31 December 2018 and 31 December 2017.  Both are independent firms acting in the capacity of external valuers with relevant experience of valuations of this nature. Management have reviewed the valuation of investment property portfolio at 30 June 2019 and have made no increases or decreases to the carrying value of this portfolio (H1 2018: £6.7m increase).

 

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019

10.  Inventories

 

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Development properties

191,574

209,388

204,157

Planning promotion agreements

1,148

1,147

1,773

Options

721

213

705

Finished goods

640

101

374

 

194,083

210,849

207,009

 

The movement in development properties is as follows:

 

£'000

At 1 January 2018 (audited)

210,471

Acquisitions

59

Subsequent expenditure

10,945

Disposals

(10,596)

Net realisable value provision

(1,491)

At 30 June 2018 (unaudited)

209,388

Acquisitions

3,392

Subsequent expenditure

12,375

Disposals

(21,743)

Net realisable value provision

(245)

Transfers from investment properties

990

At 1 January 2019 (audited)

204,157

Acquisitions

2,109

Subsequent expenditure

6,890

Disposals

(22,628)

Net realisable value provision

1,046

At 30 June 2019 (unaudited)

191,574

 

The market value of these properties is £19.4m higher than their carrying value at 30 June 2019 (30 June 2018 £8.7m).

 

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019


10.  Inventories (continued)

The movement in the net realisable value provision is as follows:

 

£'000

At 1 January 2018 (audited)

5,818

Increase in net realisable value provision

1,491

At 30 June 2018 (unaudited)

7,309

Net realisable value provision for the period

3,276

Reversal of previous net realisable provision

(124)

Disposals

(2,907)

At 31 December 2018 (audited)

7,554

Disposals

(1,046)

At 30 June 2019 (unaudited)

6,508

 

11.  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 2018 (audited)

 

 

7,688

Transferred from investment properties

 

 

24,955

Transferred to investment properties

 

 

(957)

Disposals

 

 

(3,500)

At 30 June 2018 (unaudited)

 

 

28,186

Transferred from investment properties

 

 

6,358

Transferred to investment properties

 

 

(4,479)

Subsequent expenditure

 

 

6

Disposals

 

 

(19,115)

At 31 December 2018 (audited)

 

 

10,956

Transferred from investment properties

 

 

8,267

Subsequent expenditure

 

 

13

Disposals

 

 

(5,057)

At 30 June 2019 (unaudited)

 

 

14,179

 

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019

 

12.  Borrowings and loans

 

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Current:

 

 

 

Secured - other loans

-

(7,648)

(5,291)

 

-

(7,648)

(5,291)

Non-current:

 

 

 

Secured - bank loans

(57,749)

(87,778)

(58,745)

Secured - other loans

(6,823)

(12,464)

(9,002)

 

(64,572)

(100,242)

(67,747)

Total current and non-current borrowings

(64,572)

(107,890)

(73,038)

 

Loans are stated after deduction of unamortised borrowing costs of £0.4m (H1 2018: £1.0m, FY 2018: £0.4m).

 

 

 

Unaudited

6 months ended

30 June
2019
£'000

Unaudited

6 months ended

30 June

2018

£'000

Audited

year ended

31 December 2018
£'000

Infrastructure loans

 

 

 

 

Homes and Communities Agency

Village Farm

-

(18)

-

Leeds LEP

Prince of Wales

-

(206)

-

Homes and Communities Agency

Waverley

-

(6,093)

(4,875)

Sheffield City Region JESSICA Fund

Advanced Manufacturing Park, Waverley

(2,786)

(7,432)

(2,766)

North West Evergreen Limited Partnership

Logistics North

-

(2,471)

(2,691)

Homes and Communities Agency

Simpson Park

(4,037)

(3,892)

(3,961)

 

 

(6,823)

(20,112)

(14,293)

Bank loan

 

(57,749)

(87,778)

(58,745)

Total loans

 

(64,572)

(107,890)

(73,038)

 

The bank borrowings are part of a £100.0m revolving credit facility ("RCF") from The Royal Bank of Scotland and Santander. On the 13 February 2018 the Group extended the terms of its existing RCF such that it now expires in February 2023 on a non-amortising basis and is subject to financial and other covenants.

 

The infrastructure loans are provided by public bodies in order to promote the development of major sites.  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 site.

 

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019

 

13.  Called up share capital

 

 

Issued and fully paid

Unaudited

6 months ended
30 June
2019
£'000

Unaudited

6 months ended
30 June

2018
£'000

Audited

year ended
31 December
2018
£'000

At start of period/year

32,150

32,150

32,150

Shares issued

1

-

-

At end of period/year

32,151

32,150

32,150

Own shares held

(62)

(194)

(194)

At end of period/year

32,089

31,956

31,956

 

 

 

Issued and fully paid - Number of shares

Unaudited

6 months ended

30 June
2019

 

Unaudited

6 months ended

30 June

2018

 

Audited

year ended

31 December 2018
 

At start of period/year

321,496,760

321,496,760

321,496,760

Shares issued

11,786

-

-

At end of period/year

321,508,546

321,496,760

321,496,760

Own shares held in Employee Benefit Trust

(77,695)

(181,771)

(181,771)

At end of period/year

321,430,851

321,314,989

321,314,989

 

14.  Related party transactions

There have been no material changes in the related party transactions described in the 2018 Annual Report and Financial Statements other than the sale of land to Multiply Logistics North LP (£2.2m) and purchase of land at Cinderhill from Banks Group of £2.6m (including costs).

 

15. Restatement of fair value and retained earnings reserves

 

The fair value and retained earnings reserves have been restated at 1 January 2018, 30 June 2018 and 31 December 2018 to reallocate correctly fair value gains and losses between these reserves.  This restatement has reallocated negative fair values from the fair value reserve to retained earnings and transferred fair value gains on properties disposed of from the fair value reserve to retained earnings. 

 

This restatement has no impact on the net assets of the Group at 1 January 2018, 30 June 2018 and 31 December 2018 or on the profit for the period to 30 June 2018 and year to 31 December 2018. The impact of the restatement has increased the fair value reserve from £90.3m to £110.9m at 30 June 2018 (31 December 2018: increase fair value reserve from £99.8m to £118.6m, and 1 January 2018 increase fair value reserve from £85.1m to £105.1m) and reduce the retained earnings reserve from £220.7m to £200.1m at 30 June 2018 (31 December 2018: reduce the retained earnings reserve from £239.9m to £221.1m, and 1 January 2018 reduce the retained earnings reserve from £222.0m to £202.1m).   

 

This restatement has no effect on dividends paid or on the ability of the Group to pay future dividends.

 

 

Directors' Responsibility Statement

For the six months ended 30 June 2019

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 2019 and their impact on the Condensed Consolidated Interim Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

 

b.          Rule 4.2.8R of the Disclosure and Transparency Rules, being related parties' transactions that have taken place in the half-year ended 30 June 2019 and that have materially affected the financial position or performance of the Group during that period, and any changes in the related parties' transactions described in the last Annual Report and Financial Statements that could do so.

 

The Directors serving during the half-year ended 30 June 2019 were as follows:

 

Alastair Lyons

Chair

Owen Michaelson

Chief Executive                        

Andrew Kirkman

Finance Director (resigned on 30 June 2019)

Lisa Clement

Senior Independent Director

Anthony Donnelly

Independent Non-Executive Director

Andrew Cunningham

Independent Non-Executive Director

Ruth Cooke

Independent Non-Executive Director (joined 19 March 2019)

Angela Bromfield

Independent Non-Executive Director (joined 1 April 2019)

Steven Underwood

Non-Executive Director

Martyn Bowes

Non-Executive Director

 

By order of the Board

 

Chris Birch

Group General Counsel and Company Secretary

10 September 2019

 

Cautionary statement

This report for the half-year ended 30 June 2019 contains certain forward-looking statements with respect to the Company's financial condition, results, operations and business.  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 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 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 report for the half-year ended 30 June 2019 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

 

Interim results for the period ended 30 June 2019

 

Announced

10 September 2019

Interim dividend for the financial year ended 31 December 2019

 

Ex-dividend date

Record date

Payable

 

19 September 2019

20 September 2019

18 October 2019

Preliminary results for the year ended 31 December 2019

 

Announced

17 March 2020

Annual report and financial statements for the year ended 31 December 2019

 

Published

April 2020

2020 Annual General Meeting

 

 

May 2020

Final dividend for the year ended 31 December 2019

 

Payable

June 2020

 

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 state clearly 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 (harworthgroup.com) that gives further information on the Group.  Detailed information for shareholders can be found at harworthgroup.com/investors.

 

 

 


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