REG - Harworth Group PLC - Full Year Results for year ended 31 December 2022
14/03/2023 07:15
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RNS Number : 8366S Harworth Group PLC 14 March 2023
14 March 2023
Harworth Group plc
Full Year Results for the 12 months ended 31 December 2022
A year of operational and strategic progress despite a rapidly changing market
backdrop in H2
Harworth Group plc ("Harworth" or the "Group"), a leading regenerator of land
and property for sustainable development and investment, today announces its
results for the 12 months ended 31 December 2022.
Key Non-Statutory Measures((1)) 2022 2021 Key Statutory Measures 2022 2021
Total Return (%) 0.1 24.6 Operating profit (£m) 44.5 121.9
EPRA NDV per share (p)((2)) 196.5 197.6 Net asset value (£m) 602.7 578.0
Value gains (£m) (2.0) 160.5 Total dividend per share (p)((3)) 1.3 1.2
Net loan to portfolio value (%) 6.6 3.4 Net debt (£m) 48.4 25.7
Lynda Shillaw, Chief Executive of Harworth, commented: "We continued to make
significant operational progress during the year, delivering increased levels
of direct development, accelerated land sales and targeted acquisitions in
line with our strategy to become a £1bn business by 2027. We ended the year
in a strong financial position, with a low LTV and significant available
liquidity. Following a significant increase in valuations during the first
half, we saw market-driven outward yield shifts across our Investment
Portfolio and more mature industrial & logistics development sites during
the second half. Over the course of the year, our management actions have
largely offset market movements, and resulted in our valuations, and therefore
EPRA NDV, remaining broadly flat year-on-year.
"At this early stage in the year we remain cautious about the economic
backdrop for 2023. While there have been some recent positive indicators,
uncertainty is likely to remain in our markets until interest rates reach
their peak, and inflation falls back to manageable levels, creating the
conditions for growth and improved investor confidence. Against this backdrop,
our focus markets of residential and industrial & logistics continue to be
drivers of economic growth and have robust fundamentals, while there remains
an acute shortage of high-quality consented land.
"Harworth is a long-term through-the-cycle business, which means that we look
through near-term market conditions. We control our landbank, where and when
we invest, and have a highly experienced management team who are focused on
execution. We are confident that our strategy is the right one to deliver
long-term value to stakeholders while progressing our Net Zero Carbon
commitments, and our strong financial position, differentiated products, and
the scale and mix of our portfolio, position us well to realise the full
potential of our sites."
Record direct development of Grade A space within 35.0m sq. ft industrial
& logistics pipeline, with good occupier demand remaining
· Completed 332,000 sq. ft development at Bardon Hill in Leicestershire
in September, which achieved Net Zero Carbon ('NZC') in construction status
and is now part of the Investment Portfolio: 65% of space currently let or in
heads of terms
· Completion after year-end of 110,000 sq. ft at Gateway 36 in Barnsley:
90% of space currently let or in heads of terms
· After year-end, agreed terms for a 73,000 sq. ft built-to-suit unit
at the Advanced Manufacturing Park in Rotherham, to be retained in the
Investment Portfolio after completion
Robust housebuilder demand and management actions drove significant growth in
residential plot sales in line with, or ahead of, book value, with potential
to deliver a further 29,311 plots from pipeline
· Completed residential land sales representing 2,236 plots (2021:
1,411 plots); H2 sales were at prices in line with, or ahead of, June 2022
valuations
· First residential serviced land sale at Ironbridge development in
Shropshire, to Barratt and David Wilson Homes, for the delivery of the initial
110 of the planned 1,000 houses at the site
· Placemaking continues across sites: planning secured for new retail
provision at South East Coalville in Leicestershire and a medical centre at
Waverley, and planning submitted for new forest schools at South East
Coalville and Thoresby Vale in Nottinghamshire
· Selected preferred investment and construction partners for
development by Harworth of a single-family Build-to-Rent ('BTR') portfolio
Acquisitions further strengthened pipeline, with several significant sites
progressing through the planning system
· Acquisitions added 2,643 plots and 8.5m sq. ft to the pipeline:
includes option agreements to deliver up to 3.0m sq. ft at a site in North
Yorkshire, and up to 1.6m sq. ft adjacent to Junction 15 of the M1 in
Northamptonshire
· Secured planning permission for 248 residential units across four
sites during the year, and for 278,000 sq. ft of industrial & logistics
space after year-end across two sites
· Applications for 5.6m sq. ft of industrial & logistics space in
the planning system at year-end
Investment Portfolio at 18% Grade A (31 December 2021: 11%): strong
operational metrics resulting from ongoing occupier demand and rising rents
· Vacancy rate((4)) of 8.3% at year-end, reduced to 2.7% by excluding
recently completed Bardon Hill site (31 December 2021: 4.1%); 99% of rent
collected for 2022 to date
· Leasing activity added £1.7m of annualised rent: new lettings at
an average 10% premium to estimated rental values ('ERVs'), and renewals on
average 8% ahead of previous passing rent
· After year-end, completed the sale of two sites for a total of
£12.6m, broadly in line with or ahead of December 2022 valuations, as part of
strategy to transition the Investment Portfolio to Grade A
Management actions largely offset market-driven yield shifts, leading to
market outperformance for Total Return
· Total Return((1)) of 0.1% (2021: 24.6%), reflecting the marginal
decline in EPRA NDV
· EPRA NDV((1)(2)) per share broadly flat at 196.5p (31 December
2021: 197.6p), as a result of market-driven outward yield movements in the
valuation of the Investment Portfolio and our more mature industrial &
logistics major development sites, offset by management actions
· EPRA NDV broadly flat at £633.8m (31 December 2021: £637.5m)
· An increase of 10% in the final dividend to 0.929p per share, in
line with the Group's dividend policy, bringing the total dividend for the
year to 1.333p per share
Focus maintained on sustainability and plans to be NZC by 2040 (and by 2030
for operations)
· All direct development retained in Investment Portfolio constructed
to Harworth's sustainable commercial building specification
· Launch of NZC pathway, with specific targets for development and
Investment Portfolio activities from now until 2040
Strong balance sheet and financial position, with a low net loan to portfolio
value ('LTV') and significant available liquidity
· Year-end net debt of £48.4m (31 December 2021: £25.7m),
representing LTV of 6.6% (31 December 2021: 3.4%)
· Available liquidity of £175.6m (31 December 2021: £128.0m); no
major refinancing requirements until 2027
Notes:
(1) Harworth discloses both statutory and alternative performance
measures ('APMs'). A full description of, and reconciliation to, the APMs is
set out in Note 2 to the financial statements
(2) European Public Real Estate Association Net Disposal Value
(3) The Ex-dividend date, Record date and Payment date for the 2022
dividend can be found in the Shareholder Information section of this
announcement
(4) Calculated using the EPRA Best Practices Recommendations
Guidelines, with comparator recalculated on the same basis
For further information
Harworth Group plc
Lynda Shillaw (Chief Executive) T: +44 (0)114 349 3131
Kitty Patmore (Chief Financial Officer) E: investors@harworthgroup.com
Tom Loughran (Head of Investor & Stakeholder Relations)
FTI Consulting
Dido Laurimore T: +44 (0)20 3727 1000
Richard Gotla E: Harworth@fticonsulting.com
Eve Kirmatzis
Results presentation
Harworth will host a presentation for analysts and investors at 9.30am today.
A live webcast and playback of this can be accessed at the following link:
https://brrmedia.news/Harworth_FY_results
(https://brrmedia.news/Harworth_FY_results)
About Harworth
Listed on the Premium Segment of the Main Market, Harworth Group plc (LSE:
HWG) is a leading sustainable regenerator of land and property for development
and investment which owns, develops and manages a portfolio of over 13,000
acres of land on around 100 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 and industrial
& logistics developments. Visit www.harworthgroup.com for further
information. LEI: 213800R8JSSGK2KPFG21
Chair's statement
Lynda's Chief Executive's report clearly outlines the significant progress
achieved during 2022 in advancing the strategy that she outlined in the 2021
interim statement during her first full year as Chief Executive.
Notwithstanding the volatile market conditions experienced during the second
half of 2022, the sales, consents, and acquisitions achieved demonstrated our
ability to capitalise on the fundamental strength of our core industrial &
logistics and residential markets.
Harworth is a long-term business with a long-term strategy to build value for
our shareholders by creating sustainable places where people want to live and
work. By way of illustration of our long-term nature, our portfolio contains
sites such as Waverley where we started remediation of the former Orgreave
coking works 27 years ago and we anticipate it will be another four years
before everything there is complete from Harworth's perspective. It will then
have 3,038 homes and 2.1m sq. ft of commercial space with the potential for
4,000 jobs, 310 acres of green space, a medical centre and a school, and other
retail and leisure provision. Looking forward it is the same story: large
sites we buy today may still be delivering new homes and commercial property
in 10 or 15 years' time. As a Board we must, therefore, have a
'through-the-cycle' mindset whilst ensuring the business has the financial and
operational resilience to weather whatever the cycle may throw at us.
That our markets have turned down materially since we last reported six months
ago is very clear: how long this downturn will continue and what shape it will
be is uncertain and dependent on events outside of our, and to a great extent
the UK's, control. What is, however, certain is that over the long term
England needs 300,000 new homes every year and that the changing nature of our
economy, in particular in retail distribution and reducing dependence on long
complex international supply chains, will support demand for new energy
efficient commercial space. We, therefore, have the confidence to continue to
invest in opportunities for future development provided, of course, the
economics reflect the current market, and we have the financial resources to
hold assets where we consider today's markets apply an excessive discount for
the present uncertainty. The need to ensure our resilience will inevitably
reduce our risk appetite, particularly for direct development without the
commitment of an occupier, but such cautious deployment of our resources will
in turn enable us to consider whether to take advantage of the unexpected.
Everyone in Harworth is aligned with our shareholders in seeking to grow the
value of the business, and our senior executives are strongly aligned to do
this. Over the past two years we have materially extended the proportion of
our employees who receive shares under our various schemes. The Restricted
Share Plan scheme that we launched in 2019 to just the 21 most senior
executives is now offered to 65 of our executives and managers making up
around 50% of our employees. Beyond that we have an All Employee Share
Incentive Plan into which we introduced Partnership Shares and Matching Shares
in 2022. We all, therefore, share the frustration of our investors in the
discount currently applied by the stock market to our shares and those of many
other companies in our sector. However, we are clear from our previous
experience that the way to narrow this discount is to focus on trading
strongly by delivering a well thought through strategy and to communicate very
clearly our progress and potential to both current and future investors.
From the feedback that we receive from our investors and the wider market it
is evident that our strategy is clear, well understood, and supported - to
build on Harworth's long-established specialist expertise as a master
developer of large complex sites, moving faster through our sites by
broadening the tenures we offer and increasing our share of the value chain
through direct development. Lynda Shillaw and Kitty Patmore have invested
considerable time and energy over the past year developing this understanding
amongst investors both present and potential, seeking to ensure they can
fairly assess the inherent value of our business and its assets. The recent
volatility that has resulted in our sector being less attractive for investors
will not cause us to change our strategy although it may impact its speed of
implementation.
When I became Chair in March 2018 Harworth had 57 employees and a last
reported EPRA NDV* of £414.2m (and a statutory net asset value of £409.3m).
As at December 2022 this had increased to £633.8m of ERPA NDV and £602.7m of
statutory net assets, despite the 12.6% reduction in the value of our estate
in the second half of last year. To deploy fully this significantly increased
scale we now have 118 employees, with the specialist skills needed to progress
the development of our expanded range of sites and support our strategic
drives into mixed tenure and direct development. It is testament to the
culture at Harworth and the values lived by its leaders, together with our
very progressive approach to pay, benefits, and terms of employment, that we
have built and retained the capabilities we need in a very challenging labour
market. Employers used to choose people to work for them and tell them where
and when to work: now people choose whom to work for and place high value on
flexibility both as to location and how to work! We held our Employee AGM in
September, which provided an opportunity for all our employees to engage
directly with our Non-Executive Directors. My colleagues and I were very
struck by the extent of understanding of the strategy evidenced at that
meeting and the depth of thought as to the implications of the then turbulent
macro-economic environment on our markets and, therefore, our business. To be
successful the vision cannot just be of the few who lead the business: it must
be shared by all as everyone has their part to play in achieving it - we came
away with the firm view that the Harworth vision, developed by Lynda and her
team, is widely shared by our people.
Alongside the rest of the market, planning what the business will aim to
achieve in 2023 has been as much art as science given the prevailing
uncertainty. However, whilst we cannot control markets, we can position
ourselves to make the most of what positive momentum may develop during the
year, progressing those sites that will be most in demand by housebuilders as
oven-ready product in strong locations, working with potential occupiers of
commercial space to tailor what we bring forward to meet their requirements
through build-to-suit and pre-let development. We will also seek to advance
sites through the planning process so that, when market conditions are right
to invest further in particular sites, we have the consents we need to
progress. 2023 will be no less demanding of our management and their teams
than 2022. However, although there will be both market headwinds and tailwinds
as we go through the cycle, fundamentally over the long term all of the value
created in the business will be due to management actions. It is the
effectiveness of management in these actions that we want our annual variable
bonus scheme to recognise. This is why you will see from our Remuneration
Committee Chair's letter that the Committee has this year specifically
reserved discretion, both positive and negative, to adjust the vesting outcome
for what is achieved against target for the Total Return* financial measure if
our underlying markets move materially differently to what we are currently
projecting within our business plan for 2023.
Last year saw a considerable advance in pulling together the elements of ESG
that are already embedded within our strategy into an overarching framework
for delivery, and in defining the keys steps and metrics of our NZC pathway.
Our Purpose of creating sustainable places where people want to live and work
makes ESG considerations central to everything we do. For every potential
development we assess its environmental and social implications: what it will
contribute to the communities it will serve; how it can be sustainable in both
construction and operation; and how we can optimise its impact on the
environment and maximise the resulting bio-diversity net gain. Being an
environmentally and socially focused developer is no longer a nice to have but
a must have to meet the aspirations of our many stakeholders: landed estates
mindful of their legacy; planners and regional development authorities;
investors seeking assets that will retain their value for the long term;
funders conscious of the ESG requirements of their own investors and
regulators; and our people who want more than a financial return from their
work, gaining the satisfaction of having made a difference to the world in
which we live. We have made good progress in understanding the carbon
emissions for which we are currently responsible, and what will arise in the
future if we deliver against our plans. With an understanding of the sources
and their quantum we know where to focus our efforts, and also those of our
suppliers and contractors, to minimise both operational and embedded emissions
as we work towards our target of NZC for all emissions by 2040. Having defined
the building blocks of our NZC pathway we will be able to report progress
against their implementation in subsequent years.
Our ESG Committee is now well established with a clear agenda focused on
agreeing the principal elements of our plans to achieve our ESG objectives,
measuring our progress in their delivery, and ensuring that we report this
clearly and accurately to our stakeholders. We were, therefore, delighted to
have Marzia Zafar join us in June as a Non-Executive Director and a member of
the ESG Committee. Marzia brings a wealth of knowledge and experience in the
area of sustainability, having spent over 20 years working on policies and
strategies to enable energy transition for regulators, business and not for
profit sectors. Since joining the Board she has been appointed as Deputy
Director of Strategy and Decarbonisation at Ofgem. The appointment to the
Board of someone from a different personal and professional background is
testament to our commitment to diversity and inclusion.
In signing off on 2022 my very grateful thanks on behalf of our whole Board to
everyone within the business who did so much to achieve so much during the
year, and in particular to Lynda and her management team. We have moved a long
way in 12 months with much that was in planning a year ago to implement our
strategy now a reality. My thanks also to our investors who in very large part
have stayed the course with us: your ongoing support is critical to us as we
exist to create value for you. As a master developer we rely on many other
organisations to make possible what we deliver - my thanks to all our
suppliers, consultants, contractors, and partners, those with whom we work in
planning departments, and the agents with whose clients we transact on both
the buy and sell sides. We recognise fully how much we owe to all our
stakeholders and commit to help them achieve their objectives as we deliver
against our own.
Alastair Lyons
Chair
13 March 2023
(*)Harworth discloses both statutory and alternative performance measures
("APMs"). A full description of, and reconciliation to, the APMs is set out in
Note 2 to the financial statements
Chief Executive's review
Harworth has had another year of significant operational progress, delivering
against our strategy to become a £1bn business by 2027. We ended the period
in a strong financial position, with a low LTV, significant available
liquidity and no major refinancing requirements until 2027. This progress,
combined with the fact that we own the majority of our sites, and can,
therefore, determine the scale and pace of development to suit our risk
profile, provides us with significant flexibility as we navigate a more
uncertain period.
Our strategic plan spans five to seven years, and over this time period it was
possible that we would encounter a cyclical downturn given the strength of our
markets in the preceding years. While the triggers, timing and shape of a
shift in the cycle are difficult to predict, it became evident over the course
of the year that a downturn was materialising. Despite a strong first half
performance, the wider macroeconomic challenges facing global economies,
including rising interest rates and inflation, weighed on sentiment in the
second half. Our management actions to generate value largely offset the
resulting market-driven yield shifts, meaning that valuations and, therefore,
EPRA NDV remained broadly flat year-on-year, while our statutory net assets
increased slightly.
We remain confident in our strategy, the resilience of our products and focus
markets, and the ability of our through-the-cycle management actions to
realise the long-term potential of our sites and returns to shareholders, and
while there have been some positive market indicators so far in 2023, market
conditions remain uncertain. We have seen in recent years that our markets can
move quickly, and we remain closely attuned to the potential impacts that this
could have on our business, retaining the flexibility to adjust our plans
where necessary.
Our markets
Harworth's focus markets of residential and industrial & logistics both
continue to be characterised by good levels of demand, and constrained supply.
In the industrial & logistics sector, occupier demand is showing
resilience, and there is evidence of continued rental growth. Data from
Savills indicates that 2022 was the third-strongest year ever for take-up,
with 48m sq. ft of space transacted. However, it was very much a year of two
halves, with a record breaking first half giving way to a much weaker second
half, and take-up slowing markedly in the fourth quarter, albeit remaining
well above the 15-year average. An interesting picture emerges when looking at
the market sectors driving demand: online retailers saw their lowest take-up
in five years, while the third-party logistics sectors and manufacturing
sectors recorded their strongest years ever, likely driven by an increased
focus on supply chain stability, onshoring and near-shoring. Grade A space
accounted for 86% of take-up, a significantly higher proportion than the
long-term average and an endorsement of our strategic priority to transition
our Investment Portfolio to Grade A.
At the same time, supply of industrial & logistics space remains close to
an all-time low, at under 4% market-wide. Across many of our regions, supply
is even lower than the market average - according to Savills, both Yorkshire
& the North East and the West Midlands are seeing vacancy rates of around
3% and less than half a year of supply as calculated by average take-up in the
last three years.
This sector is of course not recession proof. Rising interest rates, a tighter
lending environment and general economic uncertainty are undoubtedly weighing
on investment demand and are likely to continue to do so in the short term.
In the residential markets, house prices fell during each of the final four
months of the year, according to data from Nationwide, and all indicators
point to a slowdown in transactional activity across the sector as the
combined impact of higher mortgage rates, challenging affordability and
subdued consumer confidence has taken hold. As a result, supply of new homes
for sale reached around 42,000 in December 2022, its highest level since May
2021, and this figure is expected to grow further over the course of 2023.
Recent data suggests that average mortgage rates are recovering from the
disruption seen in the second half of 2022, although they remain some way off
recent historical averages, and that housebuilders have seen enquiry levels
regain some of the ground lost.
Reporting from housebuilders points to a reduction in construction volumes
over the coming year and a more selective approach to land acquisitions. We
are encouraged by the fact that we continue to see good levels of demand from
housebuilders, with many of whom we have long-term relationships, underscoring
the differentiated nature of our serviced and, therefore, de-risked land
product. It also reflects the reality that, given resource constraints and
differing priorities amongst local authorities, the pipeline of consented land
is becoming increasingly constrained.
The institutional BTR market continued its growth throughout 2022 as it
establishes itself as an important part of the wider private rental sector.
The latest data from the British Property Federation and Savills projects the
number of completed BTR homes to increase fivefold to 380,000 by 2032.
Investors are attracted to the highly defensive and consistent returns offered
and opportunities to create low carbon homes and sustainability-led rental
communities. Harworth's single-family BTR portfolio of sites represents a
highly attractive proposition for investors to access this market at scale,
with opportunities for further portfolios in the future.
In the second half of 2022, real estate capital markets were negatively
impacted by market headwinds, particularly in the industrials sector,
following a period of very significant growth. The MSCI-IPD index shows that
UK industrial assets saw a capital value decline of -18% during 2022, with a
decline of -27% during the last six months, as an average outward yield shift
of 130bps for the sector was only partially offset by rental growth of +10.3%.
Our valuation performance has for the most part outperformed these wider
trends, as our management actions, resilient occupational demand and strong
sales activity have so far largely offset valuers' adjustments to reflect the
effect of increased debt costs and outward yield movement on the pricing of
the end product. In the residential space, Knight Frank data shows that
English greenfield land values declined only -1.3% in 2022, as softening
market conditions for house purchases was partially offset by the ongoing
scarcity of appropriate development land, and the potential for low grade
agricultural land to be used for natural capital projects.
Operational performance
Our strategy, outlined in September 2021, set out a clear road map for our
ambition to grow EPRA NDV* to £1bn by 2027. As the table below shows, we
delivered across all areas of the strategy in 2022.
Growth driver 2015-2020 2021 Progress in 2022 Ambition by 2027
Increasing direct development of industrial & logistics stock 1.3m sq. ft developed over five years 51,000 sq. ft developed 432,000 sq. ft completed during the year 800,000 sq. ft completed on average per annum
203,000 sq. ft under construction at year-end
Accelerating sales and broadening the range of our residential products c.860 plots sold on average per year 1,411 plots sold 2,236 plots sold 2,000 plots sold on average per annum
Scaling up land acquisitions and promotion activities Land supply of 12-15 years Maintained 12-15 year land supply through acquisitions representing 8.5m sq. Maintain a land supply of 12-15 years
ft and 2,643 plots
Repositioning our Investment Portfolio to modern Grade A <10% of Investment Portfolio was Grade A 11% of the Investment Portfolio was Grade A at year-end 18% of the Investment Portfolio was Grade A at year-end 100% of the Investment Portfolio to be Grade A
The majority of the 432,000 sq. ft of completed direct development related to
our Bardon Hill site, which has achieved NZC in construction status and is
currently 65% let or in heads of terms. The year also saw the completion of a
100,000 sq. ft build-to-suit unit for a sportswear manufacturer at the AMP in
Rotherham. After year-end, we completed a further 110,000 sq. ft as part of
the next phase of Gateway 36, with one unit already let and another in heads
of terms. Given investment market conditions, our focus for 2023 will be on
built-to-suit and pre-let direct development opportunities, as well as land
sales to potential occupiers. In line with this strategy, we have pre-let a
73,000 sq. ft unit at the AMP to a technology occupier and submitted planning
for a 139,000 sq. ft unit at Gateway 36, which we intend to pre-let before
construction commences.
We saw a record year for residential plot sales, with completed transactions
totalling 2,236 plots (2021: 1,411 plots) at prices in line with, or ahead of,
December 2021 valuations. These included our single largest serviced
residential land sale, to Barratt and David Wilson Homes at Waverley, and also
the first land parcel sale at our Ironbridge site, to the same housebuilder.
We also launched our first single-family BTR portfolio of sites for up to
1,200 homes, which has attracted significant levels of interest. Our preferred
investment and construction partners have now been selected and we are
progressing towards exchange. Offering this combination of 'Build-to-Sell' and
BTR products will allow us to accelerate the delivery, and enhance the
vibrancy, of our residential sites, as we target the sale of an average of
2,000 residential plots per annum across all tenure types by 2027.
Turning to acquisitions, we added 2,643 plots and 8.5m sq. ft of industrial
& logistics space to our pipeline during the year. These were achieved
through a combination of freehold acquisitions, options and Planning Promotion
Agreements ('PPAs'). Two significant options were signed to deliver up to 3.0m
sq. ft of industrial & logistics space at a site in North Yorkshire, and
up to 1.6m sq. ft adjacent to Junction 15 of the M1 in Northamptonshire. The
size of our landbank remains a key differentiator for us, providing
flexibility and the potential to smooth our returns profile at a portfolio
level, and unlocking exciting new opportunities for the business.
Our Investment Portfolio continued to deliver robust operational metrics, with
a vacancy rate of 8.3% at year-end (2.7% excluding Bardon Hill, which was only
completed in September) and 99% of rent so far collected for the year. We also
completed 622,000 sq. ft of lettings, in most cases at premiums to estimated
rental values ('ERVs') and passing rents. As Bardon Hill entered the
Investment Portfolio during the year, we also commenced the disposal of more
mature assets where we had already maximised value through asset management
and development initiatives, with the sale of two sites after year-end for a
total of £12.6m, broadly in line with or ahead of December 2022 valuations.
During the year, we also completed a review of our Natural Resources
portfolio, which comprises sites used for a wide range of energy production
and extraction purposes. The review aimed to determine how best to protect and
optimise value from this portfolio, while maximising the role these assets
play in realising our sustainability ambitions. The outcome has been to
develop an Energy & Natural Capital strategy, with the aim of developing,
with strategic partners, renewable energy generation solutions and other green
initiatives such as battery storage, district heating, and
reforestation/rewilding on Natural Resources assets. At the same time, the
Natural Resources team will have a wider responsibility for embedding these
energy concepts and principles across each of our development sites to
maximise energy availability and green capital for residents and occupiers and
fulfil Harworth's NZC ambitions.
Financial performance
Following a strong first half, the softening macroeconomic environment and
outward yield shift applied to property valuations at 31 December 2022
resulted in EPRA NDV per share* remaining broadly flat year-on-year at 196.5p,
which translated into a Total Return of 0.1% for 2022 (2021: 24.6%). Statutory
net asset value was £602.7m (2021: £578.0m).
Sales of serviced land and property, in addition to income from rent,
royalties and fees, resulted in Group revenue of £166.7m (2021: £109.9m).
This increase derived primarily from the sale of our Kellingley development
site for £54.0m and the acceleration of residential land sales particularly
during the first half, to take advantage of then buoyant market conditions.
The Board is proposing a final dividend of 0.929p per share, bringing the
total dividend per share for 2022 to 1.333p, representing 10% underlying
growth from 2021, in line with our dividend policy.
As we navigate a more uncertain economic period, we continue to maintain a
strong balance sheet and financial position, with significant available
liquidity of £175.6m as at 31 December 2022 (31 December 2021: £128.0m),
following the signing of a new £200m revolving credit facility ('RCF') in
early 2022, with no major refinancing events until 2027. Our LTV at year-end
was 6.6% (31 December 2021: 3.4%), affording us a high degree of flexibility
and resilience as we pursue our strategy.
The Harworth Way
This has been a transformative year for Harworth's ESG ambitions, as we
appointed our first Director of Sustainability and created a dedicated
sustainability team within the business. Their focus during the year has been
to devise a NZC pathway and to expand and continue to embed The Harworth Way,
our sustainability programme, which is now in its fourth year. The team is
also building our capabilities in measuring and reporting carbon emissions,
and reviewing our commitments and approach beyond the year.
The resulting NZC pathway, to be published alongside our Annual Report,
confirms the scope and boundary of the pathway, and outlines a detailed set of
targets and delivery strategy to meet our ambition to be operationally NZC by
2030 and fully NZC by 2040. Central to our delivery strategy will be the
adoption of build specifications for our industrial & logistics sites and
also the homes to be delivered by Harworth's mixed tenure team.
Delivering social value is an area which, to date, has been challenging for us
to define and measure as a business. We know that, as a specialist regenerator
and placemaker, we have a lasting positive impact on the communities we serve,
supporting job creation and delivering new infrastructure, schools and other
amenities, and a wealth of green space to help people live healthier lives.
Our sustainability team is now exploring how we can deliver even more for our
communities in areas such as promoting healthier lifestyles, creating
inclusive spaces and holistic travel planning, and importantly, how we can
measure this to assess and benchmark our progress.
Our people
Harworth's ambition is to be an employer of choice, providing an inspiring
place to work and attracting and retaining the best talent. Critical to our
success is the engagement, wellbeing and diversity of our people and our 'One
Harworth' culture. As our team continued to grow over the year, we progressed
many initiatives to promote these attributes. We also saw a record number of
promotions across the business, reflecting both our commitment to recognise
achievement and to ensure career progression and development opportunities.
We made several new appointments to our Group Leadership Committee during the
year, all of which were new roles that are critical to support our growth
strategy. This included our Director of Strategy, Investment & Business
Development, Director of Sustainability, Director of Group Resources and
Transformation and Head of Legal. Alongside these appointments we have also
undertaken reviews of our workspaces, working closely with our teams, to
ensure they are motivational and inspiring places for our people and fully
accommodate our hybrid ways of working. This included the expansion of our
Leeds and Manchester offices, and an ongoing project to enhance our head
office space.
Outlook
Following the rapid outward yield movements of late 2022, some signs of
stability seem to be returning to the market in the early months of 2023 as
the speed of interest rate rises and outward yield shifts slows. Employment
levels remain high and the S&P Global/CIPS construction PMI has reported
that UK construction activity is at levels above analysts' expectations. That
said, the war in Ukraine continues and economies around the globe are still
responding to the energy and other commodity shocks that this triggered coming
so shortly after a global pandemic. At this early stage in the year we remain
cautious about the economic backdrop for 2023. Uncertainty is likely to remain
in our markets until interest rates reach their peak, and inflation falls back
to manageable levels, creating the conditions for growth and improved investor
confidence.
Harworth is a long-term through-the-cycle business: you cannot 'do
regeneration' quickly. Most of our sites will be in development, planning or
land assembly through the next few years and into the next decade. This means
that, while we are active through-the-cycle and modify our short-term plans to
reflect changes in the market, we also look through these near-term market
conditions to where we need to invest to create the future value and returns
that we can unlock from our sites.
What we do is important to the local economies that we invest in and the
communities we create. Our focus markets are drivers of economic growth and
continue to have robust fundamentals. Moreover, in an economy in need of
planning reform that truly drives growth, there remains an acute shortage of
high-quality consented land. We control our landbank, where and when we
invest, and have a highly experienced management team who are focused on
execution. As we navigate the business through the challenges of the wider
economic backdrop, we are confident that our strategy is the right one to
deliver long-term value to stakeholders, while meeting our NZC commitments,
and our strong financial position, differentiated products, and the scale and
mix of our portfolio, position us well to realise the full potential of our
sites.
In concluding, I would like to say a huge thank you to my colleagues across
the business, who have embraced the ambition of our strategy and have worked
extremely hard to deliver another year of strong progress. Our robust
financial performance and operational progress against a challenging market
backdrop is a testament to their dedication, determination, skills, and
teamwork.
Lynda Shillaw
Chief Executive
13 March 2023
(*)Harworth discloses both statutory and alternative performance measures
("APMs"). A full description of, and reconciliation to, the APMs is set out in
Note 2 to the financial statements
Operational review
Industrial & logistics land portfolio
At 31 December 2022, the industrial & logistics pipeline totalled 35.0m
sq. ft (31 December 2021: 28.2m sq. ft), of which 5.4m sq. ft was consented
(31 December 2021: 7.3m sq. ft), and 5.6m sq. ft was in the planning system
awaiting determination (31 December 2021: 6.1m sq. ft). The pipeline was 56%
owned freehold, with the remaining 44% controlled via options or PPAs.
Acquisitions and land assembly
During the year, freehold acquisitions and options added 8.5m sq. ft to the
pipeline. The majority of this related to two significant option agreements:
· Site in North Yorkshire: a 316-acre site adjacent to the A1 near
Selby. Harworth intends to promote the site for the development of up to 3.0m
sq. ft of employment space as part of the Local Plan of the soon-to-be-formed
North Yorkshire Council.
· Junction 15, Northamptonshire: a 168-acre site south of Junction 15
of the M1 in Northamptonshire. Harworth will work with local stakeholders to
bring forward plans for up to 1.6m sq. ft of Grade A industrial &
logistics space, alongside unique landscaping features and an ecological
enhancement area.
Planning
At year-end, 5.6m sq. ft of space was in the planning system awaiting
determination. Since year-end we have secured two consents, the first for
206,000 sq. ft of flexible employment space in Barnsley, on the site of the
former Houghton Main Colliery, and the second for 72,000 sq. ft of space on a
site adjacent to the Bardon Hill development in Leicestershire.
Two significant planning applications currently remain in the system awaiting
determination:
· Gascoigne Wood, North Yorkshire: this 185-acre former colliery site
benefits from an existing rail connection and close proximity to the A1(M) and
M62. Revised plans have been submitted for 1.5m sq. ft of rail-linked
industrial & logistics space at the site.
· Skelton Grange, Leeds, West Yorkshire: formerly the location of
Skelton Grange Power Station, this 50-acre site was acquired by Harworth in
2014 and is adjacent to Junction 45 of the M1, to the south-east of Leeds city
centre. Plans have been submitted for 800,000 sq. ft of space across five
units, in addition to infrastructure upgrades, new cycle ways and footpaths,
and ecological enhancements.
Direct development and placemaking
During the year, practical completion was reached on two direct developments:
· AMP in Rotherham, South Yorkshire: a 100,000 sq. ft build-to-suit
facility was developed by Harworth for a sportswear manufacturer, which has
upsized from a smaller unit elsewhere at the AMP.
· Bardon Hill, Leicestershire: a development of 332,000 sq. ft of
Grade A logistics and manufacturing space across five units, located just two
miles from Junction 22 of the M1, with 65% of the space currently let or in
heads of terms. The site has achieved NZC in construction status and
incorporates storm attenuation ponds, a 10-acre wildlife centre and
landscaping features to enhance employee wellbeing.
After year-end, a further 110,000 sq. ft was completed at Gateway 36 in
Barnsley, South Yorkshire, representing the start of the second phase of that
development. Plans are in place to develop two additional buildings as part of
phase two, which will be capable of delivering up to 600,000 sq. ft of space.
The units will be delivered to Harworth's sustainable commercial building
specification, targeting EPC A and BREEAM Excellent, with whole life carbon
assessments incorporated into the design and renewable energy provision
included.
Direct development works totalling 93,000 sq. ft are currently underway at the
AMP. An additional 73,000 sq. ft to commence later this year, which has been
pre-let to an occupier. During the year, the Group received development
management revenue totalling £4.2m (2021: £2.5m) from build-to-suit
opportunities.
Land sales
Industrial & logistics land sales totalling £57.0m were completed during
the year, at prices above or in line with 31 December 2021 valuations. The
largest disposal related to the sale of the Kellingley site in North Yorkshire
for £54.0m.
Residential land portfolio
As at 31 December 2022, the residential pipeline had the potential to deliver
29,311 housing plots (31 December 2021: 30,804), of which 6,111 were consented
(31 December 2021: 9,978), and 1,890 across eight sites were in the planning
system awaiting determination (31 December 2021: 811). The pipeline was 51%
owned freehold, with the remaining 49% subject to PPAs, options or overages.
Acquisitions and land assembly
During the year, a combination of freehold acquisitions, options and PPAs
added 2,643 residential plots to the pipeline. The majority of this related to
the freehold acquisition of a 174-acre site in Huyton, Merseyside, which
represents a longer-term opportunity to deliver up to 1,500 homes.
Plot sales
Completed residential land sales totalled 2,236 plots (2021: 1,411 plots),
with the significant increase from the prior year mainly due to expediting
sales to take advantage of robust housebuilder demand. Sales were either in
line with, or ahead of, book values, and the headline sales price ranged from
£28k to £105k per serviced plot (2021: £30k to £73k).
Sales were completed with a range of housebuilders, and included the Group's
largest serviced land sale to date by number of residential plots,
representing 450 plots, and the first land parcel sale at Benthall Grange, the
site of the former Ironbridge Power Station in Shropshire. Both sales were
made to Barratt and David Wilson Homes. A sale at the South East Coalville
site to Cadeby Homes represented the Group's first transaction with this
regional housebuilder, the 21(st) housebuilder with which Harworth has
transacted with since the Group was formed.
The year also saw the completion of a number of PPAs - arrangements whereby
Harworth receives a fee from a landowner for securing a planning approval and
plot sale on their behalf - generating £5.8m in fees.
Placemaking
As a master developer, Harworth prides itself on investing in its residential
sites to provide enhanced infrastructure, amenities and green spaces. This
investment creates a sense of community that improves the wellbeing of
residents and enhances the attractiveness of these developments to
housebuilders and other partners. During the year, several placemaking
initiatives were undertaken across the portfolio:
· South East Coalville, Leicestershire: a planning application was
submitted for a new 420-place 'Forest School', which maximises opportunities
for learning both inside and outside the classroom, and integrates several
sustainability features including solar PV panel coverage and air source heat
pumps. Planning was also secured for a new supermarket at the site, which will
form part of a proposed local centre.
· Waverley, South Yorkshire: construction began on a new 150-bedroom
hotel, including a restaurant and gym facilities, which will also be available
to residents on site. Planning permission has also been granted for a new
primary health centre, in conjunction with the local Clinical Commissioning
Group, which will have capacity for 6,000 patients.
· Moss Nook, Merseyside: construction of a new spine road was
completed at the site, with segregated pedestrian and cycle routes and
landscaping features. The new road provides a more direct connection between
the site and the amenities of St Helens town centre, and unlocks land for
further residential development.
Investment portfolio
This portfolio comprises both industrial & logistics assets that have been
acquired by Harworth and, increasingly, those that have been directly
developed and retained. It provides recurring rental income in addition to
asset management opportunities and the potential for capital value growth.
As at 31 December 2022, the Investment Portfolio comprised 19 sites covering
4.0m sq. ft (31 December 2021: 18 sites covering 3.7m sq. ft). It generated
£19.7m of annualised rent (31 December 2021: £18.0m), equating to a gross
yield of 7.0% (31 December 2021: 6.5%) and a net initial yield of 6.2% (31
December 2021: 5.6%). Annualised rent for the portfolio increased during the
year, driven by the addition of new Grade A space to the portfolio and a 2.6%
like-for-like increase in rents. Grade A space represented 18% of the
portfolio (31 December 2021: 11%), which increased to 20% with the completion
of units at Gateway 36 after year-end.
During the year, 622,000 sq. ft of leasing deals were completed, adding £1.7m
of annualised rent. Lease renewals and regears were completed at terms that on
average represented an 8% uplift to previous passing rents, while new lettings
were completed on average at a 10% premium to 31 December 2021 ERVs.
The portfolio had an average rent per tenant of £6.43 per sq. ft at 31
December 2022 (31 December 2021: £6.32) and a weighted average rent of £4.69
per sq. ft (31 December 2021: £4.50).
Across the Investment Portfolio, operational metrics remain robust. Rent
collection currently stands at 99% for the year (2021: 99%). Vacancy was 8.3%
at year-end, reducing to 2.7% by excluding the recently completed Bardon Hill
site (31 December 2021: 4.1%), while the Weighted Average Unexpired Lease Term
("WAULT") was 11.3 years (31 December 2021: 11.5 years).
Disposals
A key element of Harworth's growth strategy is to transition its Investment
Portfolio to modern Grade A. This will be achieved by retaining more direct
development but also by disposing of assets where value has been maximised
through asset management and development initiatives.
After year-end, the Group completed the sales of Moorland Gate Business Park,
Chorley, and Sinfin Business Park, Derby for total consideration of £12.6m,
broadly in line with or ahead of December 2022 valuations.
Natural Resources portfolio
Harworth’s Natural Resources portfolio comprises sites used by occupiers for
a wide range of energy production and extraction purposes, including wind and
solar energy schemes, battery storage and methane capture. As at 31 December
2022, it generated £2.1m of annualised gross rent (31 December 2021: £4.1m),
with the reduction over the year mainly due to the sale of the Meriden Quarry
site in Warwickshire for £11.6m.
During the year, a review of this portfolio and the wider development
portfolio took place to determine how best to protect and optimise value,
while maximising the role these assets can play in realising the Group's
sustainability ambitions, particularly with regards to meeting energy demand,
delivering biodiversity net gain, and carbon offsetting.
The outcome has been to form an Energy & Natural Capital strategy for the
Group, with the aim of developing, alongside strategic partners where
appropriate, renewable energy generation solutions and other sustainability
initiatives such as battery storage, solar, EV charging, multi-fuel hubs and
reforestation/rewilding on Natural Resources assets. The strategy will have a
wider focus on embedding these energy concepts and future-proofing principles
across all of Harworth's sites to maximise energy availability and resilience,
create economic value and help fulfil the Group's NZC ambitions.
The Harworth Way
The Harworth Way is the Group's framework to integrate sustainability and
social value into the business and its developments. It ensures that these
objectives are embedded across the Group's culture and strategy, and within
the creation of developments from concept to completion, making a lasting
positive impact on the environment and communities. This commitment is
delivered through the five pillars of the Harworth Way: the three impact
pillars of Planet, Communities, People, together with the two supporting
pillars of Governance and Partners.
The Harworth Way is a continually evolving sustainability framework: it is
responsive to the ever-changing needs of the environments and communities that
Harworth works within and, alongside the business strategy, guides the
creation of sustainable places where people want to live and work.
Net Zero Carbon pathway
Last year, the Group committed to becoming NZC for Scope 1, Scope 2 and Scope
3 business travel emissions by 2030 and to be NZC for all emissions by 2040.
To meet these objectives, the Group has developed a NZC pathway and embedded
NZC commitments into a range of workstreams and targets to guide the Group's
growth strategy in the development of industrial & logistics and
residential sites. A selection of these is outlined below.
Development commitments
Achieved in 2022
· All new commercial buildings EPC A rated and targeted BREEAM
Excellent
· Whole life carbon assessments incorporated into all commercial
building design briefs
· All new masterplans included renewable energy provision
· All new commercial buildings incorporated renewable energy
provision
Planned for 2023
· Emissions and energy use intensity targets to be set for our
commercial buildings as part of design briefs
· Develop a whole life carbon assessment process for our master
developer role
· No new gas infrastructure provided for heating on our new
developments
· Transition of existing developments away from gas infrastructure
for heating
· Implement targets for residential buildings we deliver on our
development sites
· Incorporate NZC criteria into the procurement of construction
contracts
Medium-term: 2024-2030
· Set NZC targets in construction contracts
· All commercial developments to be NZC by 2030 with targeted
improvements from 2023 to 2030 to achieve this target in accordance with the
UKGBC Framework definitions
Ongoing: 2023-2040
· Work with our supply chain and occupiers to meet our NZC targets
Investment Portfolio commitments
Achieved in 2022
· All new occupiers offered Green Leases
Planned in 2023
· Launch tenant engagement programme including Net Zero Assets review
of the energy usage and emissions from our existing Investment Portfolio
· Full review of our existing energy supply agreements with a
transfer to renewable and low emission tariffs
· All new tenants offered power purchasing agreements from rooftop
solar provision on commercial buildings
· Whole life carbon assessments incorporated into all commercial
building upgrade and retrofit design briefs
Medium-term: 2023- 2025
· Fully costed NZC pathways business plans for each asset within our
Investment Portfolio
· Review the opportunities for emissions sequestration on our land
holdings to feed into our overall pathway
· Review the potential for locally-based power purchasing agreements
Planned for 2027
· Investment Portfolio to be 100% Grade A
Ongoing: 2023-2030
· All commercial developments will be NZC for embodied and
operational carbon by 2030 with clear improvements from 2023 to 2030 to
achieve this target
Further information
Further information on The Harworth Way and the Group's NZC pathway can be
found within the 2023 Annual Report and standalone NZC Pathway Report, both of
which will be published on 13 April 2023.
Financial review
Overview
Our primary metric, Total Return (the movement in EPRA NDV(*)plus dividends
per share paid in the year expressed as a percentage of opening EPRA NDV per
share) for 2022 was 0.1% (2021: 24.6%). The Total Return was impacted
significantly by the worsening macro-economic environment in the second half
of the year, higher interest rates and increased investment yields applied to
industrial & logistic valuations at 31 December 2022. Over the year, the
yield shift was largely offset by management actions such as progress on
development sites, completing direct development, securing sales and asset
management initiatives in our Investment Portfolio resulting in EPRA NDV
remaining broadly flat, declining by 0.6% during the year to 196.5p per share
(2021: 197.6p). Our 2022 performance reflected good progress against strategic
objectives, coupled with a strong operational delivery. Alongside this, the
structural undersupply within our chosen markets remains, and provides a good
foundation for the Group's future growth.
Sales of serviced land and property, in addition to income from rent,
royalties and fees, resulted in Group revenue of £166.7m (2021: £109.9m).
This increase included the completion of the sale of the Group's Kellingley
development site for £54.0m cash consideration following the conditional
exchange during 2021, enabling the Group to crystalise value created through
the regeneration of the former colliery site. The acceleration of serviced
land sales allowed the Group to capitalise on the strength of the residential
market in the first three-quarters of the year and sales continued to complete
up to December as our product remained attractive to housebuilders. Rental
income collection has been consistently strong and income has increased
because of management actions, including the completion of direct development
at Bardon Hill, new lettings and rent reviews. The £166.7m of revenue also
included PPA and development management revenue fees totalling £10.0m (2021:
£2.5m). Looking forward, the sales profile is robust with 71.9% of 2023
budgeted sales by value already completed, exchanged or in heads of terms
(2021: 43.1%).
BNP Paribas and Savills, our independent valuers, completed a full valuation
of our portfolio as at 31 December 2022, resulting in full-year valuation
losses* of £15.0m (2021: gains of £148.0m), including the movement in the
market value of development properties. These external independent valuations
reflect conditions in the industrial & logistics market, offset by the
positive factors resulting from management actions on our sites. Outside of
the valuation movements, profit on sales of £13.0m (2021: £12.5m) were
achieved reflecting prices ahead of previous book values for sales
overall. This gave us total value losses of £2.0m (2021: £160.5m gains).
The fair value of investment properties decreased by £19.7m (2021: £84.0m
increase), which has fed through to an underlying operating profit of £44.5m
(2021: £121.9m) and profit after tax of £27.8m (2021: £94.0m).
Over the year, the net asset value grew to £602.7m (31 December 2021:
£578.0m). With EPRA adjustments for development property valuations included,
EPRA NDV(*) at 31 December 2022 reduced to £633.8m (31 December 2021:
£637.5m) representing a per share decrease of 0.6% to 196.5p (31 December
2021: 197.6p).
The Group has declared a final dividend of 0.929p per share, bringing the
total dividend per share for 2022 to 1.333p, representing 10% underlying
growth from 2021, in line with our dividend policy.
During 2022, a new five-year £200m RCF was agreed, together with a £40m
uncommitted accordion facility, to support the delivery of our growth
strategy. At the year-end, our drawings under the RCF were low, reflecting
cash conversion from sales as well as rental and other income. Our net loan to
portfolio value at year-end was 6.6%. As a result of the low drawn level of
our variable rate borrowings, coupled with the proportion of drawn debt under
fixed rate infrastructure loans, we currently do not have interest rate
hedging in place against the RCF, although this will remain under review.
Presentation of financial information
As our property portfolio includes development properties and joint venture
arrangements, Alternative Performance Measures ('APMs') can provide valuable
insight into our business alongside statutory measures. In particular,
revaluation gains on development properties are not recognised in the
Consolidated Income Statement and the Balance Sheet. The APMs outlined below
measure movements in development property revaluations, overages and joint
ventures. We believe that these APMs assist in providing stakeholders with
additional useful disclosure on the underlying trends, performance and
position of the Group.
Our key APMs* are:
· Total Return: the movement in EPRA NDV plus dividends per share paid
in the year expressed as a percentage of opening EPRA NDV per share.
· EPRA NDV per share: EPRA NDV aims to represent shareholder value under
an orderly sale of the business, where deferred tax, financial instruments and
certain other adjustments are calculated to the full extent of their liability
net of any resulting tax. EPRA NDV per share is EPRA NDV divided by the number
of shares in issue at the end of the period (less shares held by the Employee
Benefit Trust or Equiniti Share Plan Trustees Limited to satisfy Restricted
Share Plan and Share Incentive Plan awards.)
· Value gains: the realised profits from the sales of properties and
unrealised profits from property valuation movements including joint ventures,
and the mark-to-market movement on development properties and overages.
· Net loan to portfolio value: Group debt net of cash held expressed as
a percentage of portfolio value.
A full description of all non-statutory measures and reconciliations between
all statutory and non-statutory measures are provided in Note 2 to the
consolidated financial statements. Our financial reporting is aligned to our
business units of Capital Growth and Income Generation with items which are
not directly allocated to specific business activities, held centrally and
presented separately.
Income Statement
2022 2021
Capital Income Generation Central Overheads Total Capital Income Generation Central Overheads Total
Growth
£m
Growth
£m
£m £m £m
£m £m £m
Revenue 135.4 31.3 - 166.7 81.1 28.8 - 109.9
Cost of sales (74.4) (8.9) - (83.3) (53.1) (8.1) - (61.4)
Gross profit 61.0 22.4 - 83.4 28.0 20.7 - 48.7
Administrative expenses (4.1) (1.9) (16.1) (22.1) (3.4) (2.1) (13.7) (19.2)
Other gains/(losses) 17.8 (34.5) - (16.8) 57.5 35.0 - 92.5
Other operating expense - - (0.1) (0.1) - - (0.1) (0.1)
Operating profit/(loss) 74.7 (14.0) (16.2) 44.5 82.2 53.5 (13.8) 121.9
Share of (loss)/profit of JVs (4.3) (3.2) - (7.5) 4.5 4.7 - 9.2
Net interest credit/(expense) 0.1 - (6.2) (6.1) 0.2 - (4.1) (3.9)
Profit/(loss) before tax 70.4 (17.2) (22.4) 30.9 86.9 58.2 (17.9) 127.2
Tax charge - - (3.0) (3.0) - - (33.3) (33.2)
Profit/(loss) after tax 70.4 (17.2) (25.4) 27.8 86.9 58.2 (51.1) 94.0
Note: There are minor differences on some totals due to roundings.
Revenue in the year was £166.7m (2021: £109.9m), of which Capital Growth
contributed £135.4m (2021: £81.1m) and Income Generation contributed £31.3m
(2021: £28.8m).
Capital Growth revenue, which primarily relates to the sale of development
properties, increased due to the completion of the sale of the Kellingley
development site for £54.0m as well as the acceleration of residential land
sales, including our largest sale to date at Waverley. Capital Growth revenue
also includes fees from PPAs and build-to-suit development revenue together
totalling £10.0m (2021: £2.5m), including in respect of the construction of
a new 100,000 sq. ft facility at the AMP following the associated 2021 land
sale.
Revenue from Income Generation (the Investment Portfolio, Natural Resources
and Agricultural Land) mainly comprises property rental and royalty income.
Revenue of £31.3m (2021: £28.8m) was higher than last year and included the
impact of new lettings related to direct development agreed during the year as
well as asset management initiatives and increased royalties from energy
assets. Rental income from the Investment Portfolio increased on an annualised
basis from £18.0m to £19.7m in 2022 following new lettings, re-gears and the
practical completion of our Bardon Hill development, with like-for-like rent
growing by 2.6%.
Cost of sales comprises the inventory cost of development property sales,
costs incurred in undertaking build-to-suit development and both the direct
and recoverable service charge costs of the Income Generation business. Cost
of sales increased to £83.3m (2021: £61.2m), of which £67.7m related to the
inventory cost of development property sales (2021: £55.1m) and included
additional costs related to build-to-suit development not incurred in the
previous year. In the year, we saw a decrease in the net realisable value
provision on development properties of £2.4m (2021: £5.2m decrease)
following the valuation process as at 31 December 2022.
Administrative expenses increased in the year by £2.9m (2021: £4.7m
increase). This was due to higher salary expenses, resulting from increased
employee numbers as we right sized the resources of the Group over 2021 and
2022 to deliver on our strategy. Growth in employee numbers is expected to
slow from 2023 onwards. Administrative expenses expressed as a percentage of
revenue decreased from 17% in 2021 to 13% in 2022 reflecting the continued
acceleration in activity relating to sales of development property as well as
successful completion of managed direct development projects generating fees
and PPAs.
Other losses comprised a £19.9m combined net decrease (2021: £85.0m net
increase) in the fair value of investment properties and assets held for sale
('AHFS') less the profit on sale of investment properties, AHFS and overages
of £3.2m (2021: £7.4m).
Joint venture losses of £7.5m (2021: £9.2m profit) were largely the result
of a decrease in the property valuations at Multiply Logistics North and Aire
Valley Land, both of which were impacted by the industrial & logistics
market movements. Value gains/(losses) on a non-statutory basis are outlined
below.
Non-statutory value gains/(losses)(*)
Value gains/(losses) are made up of profit on sale, revaluation gains/(losses)
on investment properties (including joint ventures), and revaluation
gains/(losses) on development properties, AHFS and overages. A reconciliation
between statutory and non-statutory value gains can be found in Note 2 to the
financial statements.
£m Category 2022 2021 31 Dec 22 31 Dec 21
Profit /(loss) Reval. gains/ Total Profit on sale Reval. Total Total valuation Total valuation
on sale (losses) gains/
(losses)
Capital Growth
Residential Development 11.6 2.2 13.8 5.6 19.5 25.1 228.1 184.5
Major Developments
Industrial & Logistics Major Developments Mixed (2.0) (3.4) (5.4) 1.0 59.9 60.9 68.2 123.7
Residential Investment 0.4 39.8 40.2 0.5 6.2 6.7 51.4 53.0
Strategic Land
Industrial & logistics Investment (0.2) (12.7) (12.9) 0.6 28.2 28.8 82.2 91
Strategic Land
Income Generation
Investment Portfolio Investment - (41.0) (41.0) 0.1 36.2 36.3 280.9 277.5
Natural Resources Investment 3.2 (0.2) 3.0 3.5 (1.9) 1.6 20.3 30.6
Agricultural Land Investment - 0.3 0.3 1.2 (0.1) 1.1 5.7 5.4
Total 13.0 (15.0) (2.0) 12.5 148.0 160.5 736.8 765.7
Notes: A full description and reconciliation of the APMs in the above table is
included in Note 2 to the consolidated financial statements. There are some
minor differences on some totals due to roundings. Profit/(loss) on sale
includes the impact of transaction fees incurred.
Profit on sale of £13.0m (2021: £12.5m) reflected the completion of sales
above book value. Revaluation losses were £15.0m (2021: £148.0m gains) and
are outlined in the table below.
2022 2021
£m £m
(Decrease)/Increase in fair value of investment properties (19.7) 84.0
(Decrease)/increase in value of assets held for sale (0.2) 1.1
Movement in net realisable value provision on development properties (2.0) 2.8
Contribution to statutory operating profit (22.0) 87.9
Share of (loss)/profit of joint ventures (7.5) 9.2
Unrealised gains on development properties and overages(*) 14.5 50.9
Total non-statutory revaluation (losses)/gains (15.0) 148.0
Note: There are minor differences on some totals due to roundings
The principal revaluation gains and losses across the divisions reflected the
following:
· Industrial & logistics:
o The industrial & logistics market had a record breaking first half of
the year giving way to a much weaker second half. In particular, rising
interest rates, a tighter lending environment and general economic uncertainty
resulted in CBRE reporting that market-wide investment yields moved out by
175bps from June 2022 to December 2022 and 150bps over the 12 months of 2022
across both prime and secondary industrial & logistics properties.
Occupier demand remained resilient and rents across the sector increased
o These market dynamics affected our industrial & logistics Major
Development sites, Strategic land sites and the Investment Portfolio. For
development sites, costs of construction also increased over the year.
o In Major Developments, gains relating to the sale of the Kellingley site,
and on completing the direct development at Bardon Hill, development progress
across sites, securing grant funding at Chatterley Valley and increased
estimated rental value largely offset the downwards movement in valuations
caused by increased yields
o Strategic Land valuations where the site is close to delivery, for example
in the planning pipeline, were more affected by the market movements than
longer term strategic sites, although valuation downwards movements were
reduced by progress in planning made during the year
o The Investment Portfolio property yields moved in line with the market but
our management actions securing new leases, renewals and rent reviews resulted
in the net initial yield moving only 60bps to 6.2% from 5.6% as at 31
December 2021
· Residential:
o The residential market saw house prices fall during the final months of
the year and the supply of new homes for sale reaching its highest level in
December 2022 since May 2021
o Residential land sales on our Major Development sites continued to
demonstrate the demand for our serviced land product and underpin valuations
o In particular, the first sale at Benthall Grange, our Ironbridge site, set
the pricing point for this development and delivered a valuation gain. This
site was categorised as Strategic Land during 2022 until transferred to Major
Developments during the second half of the year.
· Natural Resources: valuations remained broadly consistent with minor
valuation decline in the waste and recycling portfolio
· Agricultural Land: we experienced a small valuation increase as a
result of improving agricultural land prices.
The net realisable value provision on development properties as at 31 December
2022 was £9.8m (31 December 2021: £12.2m). This provision is held to reduce
the value of six development properties from their deemed cost (the fair value
at which they were transferred from an investment to a development
categorisation) to their net realisable value at 31 December 2022. The
transfer from Investment to Development Property takes place once planning is
secured and development with a view to sale has commenced.
Cash and sales
The Group made property sales* in the year of £138.5m (2021: £108.3m),
achieving a total profit on sale of £13.0m (2021: £12.5m). Sales comprised
residential plot sales of £69.5m (2021: £64.9m), industrial & logistics
land sales of £57.0m (2021: £18.1m) and sales of other, mainly mature,
income-generating sites and agricultural land, of £12.0m (2021: £25.3m).
Cash proceeds from sales in the year were £131.2m (2021: £114.5m) as shown
in the table below:
2022 2021
£m £m
Total property sales((1)) 138.5 108.3
Less deferred consideration on sales in the year (28.5) (27.4)
Add receipt of deferred consideration from sales in prior years 21.2 33.6
Total cash proceeds 131.2 114.5
1. A full description and reconciliation of APMs is included in Note 2 to the
condensed consolidated financial statements.
Tax
The income statement charge for taxation for the year was £3.0m (2021:
£33.2m), which comprised a current year tax charge of £21.8m (2021: £6.4m
charge) and a deferred tax credit of £18.7m (2021: £26.8m charge).
The current tax charge resulted primarily from profits from the sale of
development properties, investment property, AHFS, profit on the rental of
investment property, royalties and other fees after taking into account
overheads and interest costs. The decrease in deferred tax largely relates
to unrealised losses on investment properties. The deferred tax balance has
been calculated based on the rate expected to apply on the date the liability
is reversed.
At 31 December 2022, the Group had deferred tax liabilities of £25.9m (31
December 2021: £46.9m) and deferred tax assets of £1.8m (31 December 2021:
£4.3m). The net deferred tax liability was £24.1m (31 December 2021:
£42.6m).
Basic earnings per share and dividends
Basic earnings per share for the year decreased to 8.6p (2021: 29.1p)
reflecting the movement in the valuation of the land and property portfolio in
2022, compared to a significant valuation gain in 2021.
In addition to the interim dividend of 0.404p, the Board has determined that
it is appropriate for a final dividend of 0.929p (2021: 0.845p) per share to
be paid, bringing the total dividend for the year to 1.333p (2021: 1.212p) per
share. The recommended 2022 final dividend and 2022 total dividend represent a
10% increase in line with our dividend policy.
Property categorisation
Until sites receive planning permission and their future use has been
determined, our view is that the land is held for a currently undetermined
future use and should, therefore, be held as investment property. We
categorise properties and land that have received planning permission, and
where development with a view to sale has commenced, as development
properties.
As at 31 December 2022, the balance sheet value of all our development
properties was £205.0m (2021: £172.7m) and their independent valuation by
BNP Paribas was £238.8m, reflecting a £33.9m cumulative uplift in value
since they were classified as development properties. In order to highlight
the market value of development properties, and overages, and to be consistent
with how we state our investment properties, we use EPRA NDV(*), which
includes the market value of development properties and overages less notional
deferred tax, as our primary net assets metric.
Net asset value
31 Dec 2022 31 Dec 2021
£m £m
Properties((1)) 695.4 689.8
Cash 11.6 12.0
Trade and other receivables 60.7 55.1
Other assets 11.8 5.3
Total assets 779.5 762.2
Gross borrowings (60.0) (37.8)
Deferred tax liability (24.1) (42.6)
Derivative financial instruments - 0.2
Other liabilities (92.7) (103.6)
Statutory net assets 602.7 578.0
Mark to market value adjustment on development properties and overages less 31.2 59.5
notional deferred tax((2))
EPRA NDV((2)) 633.8 637.5
Number of shares in issue less Employee Benefit Trust & Equiniti Share 322,612,685 322,539,284
Plan Trustees Limited-held shares
EPRA NDV per share((2)) 196.5p 197.6p
1. Properties include investment properties, development properties, AHFS,
occupied properties and investment in joint ventures.
2. A full description and reconciliation of the APMs in the above table is
included in Note 2 to the consolidated financial statements.
EPRA NDV(*) at 31 December 2022 was £633.8m (31 December 2021: £637.5m),
which includes the mark to market adjustment on the value of the development
properties and overages. The total Portfolio Value as at 31 December 2022 was
£736.8m, a decrease of £28.9m from 31 December 2021 (£765.7m). The
Group's share of loss from joint ventures of £7.5m (2021: £9.2m profit)
resulted in investments in joint ventures decreasing to £29.8m (31 December
2021: £36.1m). Trade and other receivables include deferred
consideration on sales as set out previously. At 31 December 2022, deferred
consideration of £34.6m (31 December 2021: £27.4m) was outstanding, of which
91% is due within one year.
The table below sets out our top ten sites by value, which represent 47% of
our total portfolio, showing the total acres for each site and split according
to their categorisation, including currently consented residential plots and
commercial space:
Site Site type Categorisation Region Progress to date
in Balance Sheet
South East Coalville Major Development Development Midlands 2,016 residential units consented, land sold representing 771 units
Benthall Grange, Ironbridge Major Development Investment Midlands 1,000 residential units consented, land sold representing 110 units
Bardon Hill Investment Portfolio Investment Midlands Units completed, with 65% of site let or in heads of terms
Nufarm Investment Portfolio Investment Yorkshire & Central n/a
Ansty((1)) Strategic Land Investment Midlands Proposed industrial & logistics site, planning not yet submitted
AMP Investment Portfolio Investment Yorkshire & Central n/a
Waverley Major Development Development Yorkshire & Central 3,038 residential units consented, land sold representing 2,442 units
Preston Investment Portfolio Investment North West n/a
Thoresby Vale Major Development Development Yorkshire & Central 800 residential units consented, land sold representing 362 units
Knowsley Investment Portfolio Investment North West n/a
1. Contracts have been conditionally exchanged for the sale of the site
Financing strategy
Harworth's financing strategy remains to be prudently geared. The Income
Generation portfolio provides a recurring income source to service debt
facilities and this is supplemented by proceeds from sales. The Group has an
established sales track record that has been built up since re-listing in
2015, with 2022 providing further growth in sales.
To deliver its strategic plan, the Group has adopted a target net loan to
portfolio value(*) at year-end of below 20%, with a maximum of 25% in-year. As
a principle, the Group will seek to maintain its cash flows in balance by
funding the majority of infrastructure expenditure through disposal proceeds,
while allowing for growth in the portfolio.
The Group intends to continue to enter into development and infrastructure
loans alongside its RCF to support its growth strategy.
Debt facilities
An RCF with NatWest and Santander had been in place since 2015. During the
first half of 2022, we entered into a new five-year £200m RCF, together with
a £40m uncommitted accordion option, which replaced the original RCF. NatWest
and Santander continue to support us in the new RCF and we welcomed HSBC to
our banking group. The new RCF is aligned to the Group's strategy and provides
significant additional liquidity and flexibility to enable us to pursue our
strategic objectives. The interest rate of the new RCF is on a loan-to-value
ratchet mechanism with a margin payable above SONIA in the range of 2.25% to
2.50%. There are now no major refinancing requirements until 2027.
As part of its funding structure, the Group also uses infrastructure financing
provided by public bodies and site-specific direct development loans to
promote the development of major sites and bring forward the development of
logistics units.
The Group had borrowings and loans of £60.0m at 31 December 2022 (2021:
£37.8m), being the RCF drawn balance (net of capitalised loan fees) of
£34.6m (2021: £33.3m) and infrastructure or direct development loans (net of
capitalised loan fees) of £25.4m (2021: £4.5m). The Group's cash balances
at 31 December 2022 were £11.6m (2021: £12.0m). The resulting net debt was
£48.4m (2021: £25.7m).
Net debt* increased with property expenditure and acquisitions offset by the
completion of serviced land and property sales. The movements in net debt over
the year are shown below:
2022 2021
£m £m
Opening net debt as at 1 January (25.7) (71.2)
Cash inflow from operations 58.9 57.0
Property expenditure and acquisitions (66.6) (41.0)
Disposal of investment property, AHFS and overages 14.2 44.5
Investments in joint ventures (1.2) (1.6)
Interest and loan arrangement fees (6.0) (4.6)
Dividends paid (4.0) (5.9)
Tax paid (17.7) (3.6)
Other cash and non-cash movements (0.3) 0.7
Closing net debt as at 31 December (48.4) (25.7)
The weighted average cost of debt, using an end of month average 2022 balance
and 31 December 2022 rates, was 5.52% with a 0.9% non-utilisation fee on
undrawn RCF amounts (2021: 2.90% with a 0.9% non-utilisation fee). The
weighted average term of drawn debt is now 3.2 years (31 December 2021: 2.2
years).
The Group's hedging strategy to manage its exposure to interest rate risk is
to hedge the lower of around half its average debt during the year or its net
debt(*) balance at year-end. At 31 December 2022, 34% of the Group's drawn
debt, reflecting 44% of net debt, was subject to fixed rate interest rates
with no hedging instruments in place on the remaining floating rate debt.
Projected drawn debt and hedging requirements remain under active review with
any new hedging to be aligned to future net debt requirements.
As at 31 December 2022, the Group's gross loan to portfolio value(*) was 8.1%
(31 December 2021: 4.9%) and its net loan to portfolio value was 6.6% (31
December 2021: 3.4%). If gearing is assessed against the value of the core
income portfolio (the Investment Portfolio and Natural Resources portfolio)
only, this equates to a gross loan to core income portfolio value of 26.1% (31
December 2021: 13.0%) and a net loan to core income portfolio value of 21.0%
(31 December 2021: 8.9%). Under the RCF, the Group could withstand a material
fall in portfolio value, property sales or rental income before reaching
covenant levels.
At 31 December 2022, undrawn capacity under the RCF was £164.0m (31 December
2021: £116.0m). Going forwards the RCF, alongside selected use of
infrastructure loans where appropriate, will continue to provide the Group
with sufficient liquidity to execute our growth strategy.
Kitty Patmore
Chief Financial Officer
13 March 2023
( )
* Harworth discloses both statutory and alternative performance measures
('APMs'). A full description and reconciliation to the APMs is set out in Note
2 to the financial statements
Appendix 1: Supplementary operational information
1.1 Main industrial & logistics sites (as at 31 December 2022)
Name Location Sold or developed Consented or planned Estimated GDV remaining to develop (£m) Completion date
(m sq. ft) (m sq. ft)
Advanced Manufacturing Park Rotherham, 1.6 2.1 consented 45-55 2027
South Yorkshire
Gateway 36 Barnsley, 0.5 1.3 consented 70 - 80 2026
South Yorkshire
Chatterley Valley Stoke-on-Trent, Staffordshire - 1.2 consented 135 - 145 2027
Wingates Bolton, Greater Manchester - 1.0 consented((1)) 130 - 140 2027
North Yorkshire North Yorkshire n/a 3.0 planned 300 - 350 2040
site
Junction 15, M1 Northampton, Northamptonshire n/a 1.6 planned 200 - 220 2030
Rothwell Rothwell, Northamptonshire n/a 1.5 planned 190 - 210 2028
Gascoigne Wood Sherburn-in-Elmet, North Yorkshire n/a 1.5 planned((1)) 180 - 190 2028
Skelton Grange Leeds, West Yorkshire n/a 0.8 planned 110 - 120 2027
1. Masterplans revised during the year, resulting in a lower sq ft
density
1.2 Main residential sites (as at 31 December 2022)
Name Location Sold Consented or planned Completion date
(plots) (plots)
Waverley Rotherham, 2,442 3,038((1)) consented to 2025
South Yorkshire
South East Coalville Coalville, 793 2,016 consented to 2031
Leicestershire
Simpson Park Harworth, Nottinghamshire 628 1,615 consented to 2027
Pheasant Hill Park Doncaster, 645 1,200 consented to 2028
South Yorkshire
Benthall Grange, Ironbridge Ironbridge, 110 1,000 consented to 2030
Shropshire
Moss Nook St Helens, 256 900 consented to 2026
Merseyside
Thoresby Edwinstowe, Nottinghamshire 362 800 Consented to 2027
Huyton Knowsley, n/a 1500 planned to 2033
Merseyside
Staveley Staveley, n/a 590 planned to 2028
Derbyshire
1. Consented plots revised to reflect the number of homes that can be
built on remaining land at the site
Appendix 2: Key performance indicators
2.1 Financial track record
KPI 2022 result 2021 result 2022 performance commentary
Total Return (%) 0.1% 24.6% Our total return was a result of EPRA NDV remaining broadly flat
year-on-year, due to our management actions largely offsetting market-driven
Growth in EPRA NDV during the year in addition to dividends paid, as a valuation movements.
proportion of EPRA NDV at the beginning of the year.
EPRA Net Disposal Value ('NDV') per share 196.5p 197.6p Following a significant increase in valuations during the first half, we
experienced outward yield shifts driven by softer market conditions in the
A European Pubic Real Estate Association ("EPRA") metric that represents a net second half. Over the course of the year, our management actions largely
asset valuation where deferred tax, financial instruments and other offset market movements, and this resulted in valuations, and therefore EPRA
adjustments as set out in Note 2 to the financial statements, are calculated NDV, remaining broadly flat year-on-year.
to the full extent of their liability.
Net asset value £602.7m £578.0m Net asset value has increased as a result of crystalising valuation gains
through development property sales during the year.
The value of our assets less the value of our liabilities, based on IFRS
measures, which excludes the mark-to-market value of development properties.
Net loan to portfolio value ('LTV') 6.6% 3.4% Our LTV increased slightly during the year, but remained well within our
target of less than 20% at year-end as we continue to carefully manage our
Net debt as a proportion of the aggregate value of properties and investments. levels of net debt.
2.2 Strategic track record
KPI 2022 result 2021 result 2022 performance commentary
Number of plots sold to housebuilders 2,236 1,411 We completed a record number of residential plot sales in 2022. This was due
to buoyant housebuilder demand and the bringing forward of land sales planned
The number of plots equivalent to land parcel sales to housebuilders during for future years to take advantage of market conditions.
the year.
Total residential pipeline 29,311 plots 30,804 Our residential pipeline declined slightly, but remains well within our
ambition to
The total number of residential plots that could be delivered from our plots
pipeline at the end of the year including freehold land, options and PPAs. maintain a 12-15 year land supply. The reduction was due to a record year for
plot sales, which more than offset those added to the pipeline through
acquisitions.
Industrials & logistics space direct developed 432,000 sq. ft 51,000 We developed a record amount of industrial & logistics space in 2022,
totalling 432,000 sq. ft. This mainly comprised our 332,000 sq. ft Bardon Hill
The proportion of industrial & logistics space developed by Harworth, sq. ft development in Leicestershire.
either speculatively or on a build-to-suit basis for an end occupier.
Total industrial & logistics pipeline 35.0m 28.2m Our industrial & logistics pipeline increased significantly, with the
signing of several option agreements and a number of freehold acquisitions as
The total amount of industrial & logistics space that could be delivered sq. ft sq. ft part of land assembly works.
from our
pipeline at the end of the year, including freehold land and options.
Proportion of Investment Portfolio that is 18% 11% The proportion of our Investment Portfolio that is Grade A space increased as
our completed Bardon Hill development was transferred to the portfolio.
Grade A
The proportion of our Investment Portfolio by area at year-end that could be
classified as modern Grade A industrial & logistics space. Although not
officially defined, Grade A is a widely-used industry term that is understood
to mean 'best in class' space which is new or relatively new,
high-specification and in a desirable location, allowing the unit to attract a
rent that is above the market average.
2.3 Environmental, economic and social track record
KPI 2022 result 2021 result 2022 performance commentary
Potential GVA that could be delivered from our portfolio £4.6bn £4.1bn The potential GVA that could be delivered from our portfolio increased due to
the
Calculated by Ekosgen, an economic impact consultancy, on our behalf. This
estimates additional employment potential created by our industrial & logistics
acquisitions during the year.
the total contribution that our portfolio could make to the economy once fully
built out.
Scope 1, Scope 2 and Scope 3 business travel emissions 960 1,083 Our emissions decreased during the year, mainly due to reduced energy
consumption at our company offices, communal areas of our Investment Portfolio
Emissions that are captured by our target to be NZC by 2030. During the year, tCO(2)e tCO(2)e assets and other Harworth assets and infrastructure.
the scope and availability of our emissions data increased, and therefore
figures for 2021 have been restated to allow for a like-for-like comparison
with 2022.
Employee pride 100% 97% Levels of staff satisfaction remained very high, as we continued our work to
ensure Harworth is an employer of choice, with initiatives aimed at promoting
The proportion of employees who said they were "proud to tell people that I employee engagement, wellbeing and equity, diversity & inclusion.
work for Harworth" in our annual employee survey.
Principal risks & uncertainties
The Board is responsible for identifying, setting the risk appetite for, and
evaluating the Group's principal and emerging risks, being those risks that
could threaten the delivery of our strategy, our business model, future
performance, solvency or liquidity and/or reputation. Our principal and
emerging risks are reported to the Board in dashboard format at each Board
meeting, and the Board undertakes a detailed assessment every six months, the
most recent being in January 2023.
In 2021, the Board identified through a series of workshops a refreshed set of
principal risks, informed by the Company's new strategy developed that year.
During 2022, the Board kept these principal risks under regular review,
especially in the context of the war in Ukraine and the deteriorating
macroeconomic and geopolitical climate, and resulting market conditions. At
the time of writing, and looking ahead, the Board anticipates national and
global economic uncertainty to remain elevated requiring it to continue to
manage the Group's principal risks in an uncertain and changing environment.
Since reporting on our principal risks in the 2021 Annual Report, the
following changes have been made:
· The residual risk status of our "residential and commercial markets"
risk has increased from "medium" to "high", as anticipated in our interim
results announcement, due to the uncertainty in the UK economy, with high
inflation and rising interest rates impacting our core markets.
· The residual risk status of our "availability of capital" risk has
increased from "low" to "medium", reflecting the potential requirement in the
medium term to raise capital to support acceleration in delivery of our
growing pipeline, or a major acquisition not contemplated within the Strategic
Plan.
· The "climate change" risk category has been updated to
"sustainability" to reflect better Harworth's evolving Sustainability
Framework. Within this category, the "managing climate change transition"
principal risk has been reformulated to focus on our "NZC pathway" as a
principal risk.
· The "resourcing" principal risk has been replaced by "organisational
development and design". As adequate resource has been added over the last two
years, our focus is now on evolving our culture, capability, values,
behaviours, processes and ways of working to drive continued excellence in the
organisation as we execute our growth strategy.
In addition to the above changes:
· The planning risk profile of individual projects differs, but overall,
the residual risk status of our "planning" risk remains "high" reflecting both
short-term and long-term headwinds. Emerging planning policy, principally in
the form of proposed changes to the National Planning Policy Framework
('NPPF') which, amongst other things, proposes the removal of housing targets,
will make our planning promotion activity more challenging. In the short-term,
the technical planning risk and delays we already experience, due to stretched
Local Planning Authority resource, are also heightened, in part due to the
continued impact of the impending changes to the NPPF, upcoming local
elections, and the momentum that will build as we go through 2023 to a general
election.
· There have been limited signs of distress in our construction supply
chain to date, notwithstanding the macroeconomic climate, but we are
monitoring our "supply chain counterparty risk" very closely.
· There are indications of stabilisation in supply chain cost inflation
and forecasts suggest the inflation rate will decline materially over the
course of 2023, which may mean that the residual risk status of our "supply
chain cost inflation and constraints" risk trends down from "medium" to "low".
· Statutory costs of development are trending upwards, with the
introduction of the Building Safety levy and proposals for an infrastructure
levy. However, the Residential Property Development Tax has had a limited
impact on project and Group financial outcomes and performance to date. This
risk retains a "medium" risk status.
A detailed analysis of each principal risk is set out below, and in the
"Effectively Managing our Risk" section of the 2022 Annual Report.
Risk: Availability of and competition for strategic sites
Failure to acquire strategic land at appropriate prices due to constrained
supply or competition.
Current risk
Inherent risk Residual risk Change in residual risk in the year
(before mitigating actions) (after mitigating actions)
Very high High No change
Commentary
Competition for acquisitions remains a key risk as acquiring new sites is
fundamental to maintaining target returns and driving growth consistent with
our strategy. That said, our existing pipeline of industrial & logistics
and residential land provides a significant buffer, which means we can be more
considered if hurdle return aspirations cannot be met in the current market,
and we secured a range of opportunities in 2022 including two substantial
industrial & logistics sites placed under option. The year ahead could
increase opportunities to acquire land if distressed sales come to market
and/or competitors take a more cautious approach to acquisitions. The residual
risk profile for this risk could, therefore, reduce during 2023.
Mitigation Additional measures planned for 2023
· Extensive external stakeholder engagement to identify opportunities · Leveraging better our relationships with local authorities and
supported by internal co-ordination via regular internal acquisitions agents.
meetings.
· Retrospective analysis of unsuccessful bids.
· Customer Relationship Management (CRM) system, which has been
designed to help monitor our target acquisitions pipeline, and support the
coordination of our engagement with stakeholders.
· We seek input from our valuers prior to making major acquisitions
to ensure we understand the latest market pricing.
· Via our portfolio strategy, we manage the timing of acquisitions.
· The review of project plans for each site helps highlight further
acquisition opportunities.
· We have continued to recruit additional acquisitions resource.
Risk: Planning
Planning promotion risk including uncertainty around local and national
changes to planning regime with potential for adverse effect on promotion
activity.
Current and emerging risk
Inherent risk Residual risk Change in residual risk in the year
(before mitigating actions) (after mitigating actions)
Very high High No change
Commentary
Whilst changes (or proposed changes) in planning legislation and policy are
not uncommon, emerging planning policy principally in the form of proposed
changes to the NPPF poses long-term headwinds for planning promotion if they
remain as stated, particularly of large residential sites and development in
the greenbelt. If implemented, the removal of housing supply targets will
likely mean that securing residential development allocations in local plans,
particularly in the greenbelt, becomes increasingly difficult and bringing
those sites through the planning system takes longer. In the shorter term, the
Government's proposals for changes to the NPPF have encouraged some Local
Planning Authorities to delay the adoption of their local development plans.
This exacerbates the challenges and delays we already experience due to
stretched Local Planning Authority resource. We anticipate an uncertain
political backdrop as the next general election approaches, both at a central
and local Government level, which could create persistent headwinds when it
comes to making significant progress on promoting and delivering large sites
over the next two years. Nevertheless, Harworth remains well positioned with
our large strategic landbank, our track record for delivery and ability to
acquire good strategic residential and employment sites for which there is a
strong demand. This, combined with the increased resources and planning
expertise within the business, gives us confidence that we can adapt
successfully to planning policy changes.
Mitigation Additional measures planned for 2023
· We regularly review greenbelt exposure at a portfolio level. · Leveraging better our relationships with local authorities and agents.
· Through key stakeholder groups, we respond to emerging planning · Retrospective analysis of unsuccessful bids.
policy.
· Stakeholder mapping is undertaken at a project level.
· Local political advisers are appointed on individual sites, where
appropriate.
· Strong relationships with local planning authorities and key local
stakeholders.
· Implementation of the CRM system.
· We have continued to recruit additional internal planning resource.
· Transaction approval papers include detailed planning strategies.
Risk: Supply chain cost inflation and constraints
Supply chain pricing pressures and constraints (affecting labour, plant and
raw materials) resulting in development cost increases, increases to forward
cost plans, and potential project delivery delays.
Current risk
Inherent risk Residual risk Change in residual risk in the year
(before mitigating actions) (after mitigating actions)
High Medium No change
Commentary
Both we, and our customers, have been experiencing supply chain challenges
including shortages of, and cost increases to, raw materials, plant and
labour. However, as development activity likely slows down during 2023, these
supply chain pressures should also recede. We are seeing signs of
stabilisation in cost inflation, though not across all sectors and skilled
labour shortages remain particularly stubborn. Whilst this risk may trend down
to "low" during 2023, it retains a "medium" status at this point, reflecting
continued difficulty in agreeing fixed prices with some contractors who are
still not prepared to accept cost inflation risk; more heavily negotiated
contracts, particularly around the transfer of risk; readiness of contractors
to operate more sustainably; and continued volatility in energy prices. Our
cost plans are monitored closely, updated in valuations and adjustments made
regularly to reflect market movements.
Mitigation Additional measures planned for 2023
· Our procurement approach is considered early in project planning. · Ongoing procurement review, as a result of which we have identified
improvements in our operating model for implementation during 2023.
· We undertake rigorous tender processes.
· We have established a suite of legal precedents to promote
consistency in land remediation and direct development procurement.
· We utilise market intelligence regarding contractors' commitments and
workload.
· We have continued to recruit additional direct development and
technical resource.
Risk: Supply chain and delivery partner management (counterparty risk)
Increase in exposure to supply chain, delivery and investment partners leading
to increased risk of disputes with and/or default by and/or insolvency of
counterparties.
Current risk
Inherent risk Residual risk Change in residual risk in the year
(before mitigating actions) (after mitigating actions)
High Medium No change
Commentary
A subdued and volatile economic climate increases the risk of insolvencies in
the supply chain. Whilst there is an increased occurrence of contractor
insolvency in the construction market the impact on our projects has been
limited to date. Whilst a recession is forecast, it is currently expected to
be shallow and relatively short-lived. In 2023 our development activity will
increase, as programmed pre-let and build-to-suit direct development is
undertaken and BTR project delivery commences, resulting in our being more
exposed to supplier/delivery partner failure. This trend will continue as
Harworth grows, increases direct development, and enters new markets for
residential products. Our need to select and manage counterparties effectively
is growing and we will monitor this risk very closely.
Mitigation Additional measures planned for 2023
· Our procurement approach is considered early in project planning. · Ongoing procurement review, as a result of which we have
identified improvements in our operating model for implementation during 2023.
· A consistent process is followed for selecting and "onboarding"
counterparties.
· We have established a suite of legal precedents to promote
consistency in land remediation and direct development procurement.
· Our central technical team monitors contractor "concentration risk"
and financial health and promotes consistencies and knowledge-sharing across
our portfolio.
· Use of our CRM system.
· External review of contractor insurance packages for every direct
development project
Risk: Statutory costs of development
Legislative reforms which do, or may, impose a tax or levy on development, or
have the effect of levying an additional cost on development.
Current and emerging risk
Inherent risk Residual risk Change in residual risk in the year
(before mitigating actions) (after mitigating actions)
High Medium No change
Commentary
The Board is focused on legislative changes that act as a further cost on
development as it is settled government policy to increase public financial
gain by taking a larger proportion of land value uplift derived from planning
consents. In short succession there have been the introduction of two new
measures designed to fund cladding repairs on high-rise residential buildings:
the residential property developer tax and the building safety levy expected
to be implemented in 2023, albeit the former has had a limited impact on
project outcomes and Group performance. On the horizon is the infrastructure
levy as part of planning reforms to be implemented via the Levelling Up and
Regeneration Bill.
Mitigation Additional measures planned for 2023
· Enhanced horizon scanning regime. None planned.
· Sensitivity to additional statutory costs modelled when assessing
acquisitions.
· Through key stakeholder groups, we respond to emerging policy.
Risk: Residential and commercial markets
Downturn in industrial & logistics and/or residential market conditions
leading to falls in property values.
Current risk
Inherent risk Residual risk Change in residual risk in the year
(before mitigating actions) (after mitigating actions)
High High Increase
Commentary
The residential and industrial & logistics markets were volatile
throughout 2022 as a result of macroeconomic, political and geopolitical
factors. It was largely a "tale of two halves": whilst H1 2022 valuations had
strong growth, H2 was categorised by unpredictability and a marked downward
trend in industrial & logistics, initially in market sentiment followed by
some transactional evidence of a downturn in that sector. In October 2022, the
Board concluded that the residual risk status of this risk had moved from
"medium" to "high" given indications of a slowing residential market and
material yield shifts affecting both prime and secondary industrial &
logistics assets.
Despite Harworth's resilient business model and through-the-cycle approach, it
is not immune to shifts in the market. Substantial uncertainty prevails
although current forecasts suggest the commercial property market will
experience a faster recovery than the residential market, which is more
susceptible to further adverse market movements. However, the structural
undersupply in both of our core markets, constraints of available consented
land, and our ability to create value through our management actions will
continue to mitigate some of the impact and encourage long-term stability.
Mitigation Additional measures planned for 2023
· Regular feedback is received from advisers on the status of · Pursuant to our strategy, but considering the current market, we
residential and industrial & logistics markets in our core regions to continue to pursue mixed tenure strategies and do not intend to start any new
supplement generic market commentary. speculative direct development projects this year instead focusing on land
sales, pre-let and build-to-suit opportunities.
· During 2022 we took advantage of favourable market conditions by
accelerating residential sales.
· Regular review (biannual) of project plans for each site by the
Investment Committee, which is heavily informed by prevailing market
conditions.
· Management actions to drive value.
Risk: Organisational development and design
Misalignment of culture, capability, values, behaviours, formal processes,
systems and/or controls with what the business requires to deliver the
strategy.
Current risk
Inherent risk Residual risk Change in residual risk in the year
(before mitigating actions) (after mitigating actions)
High Medium New risk
Commentary
Harworth has experienced a period of rapid growth with a significant increase
in the number of employees. The Board recognises that a structured change
management approach to both organisational development (the "informal"
elements of behaviour, values and culture) and organisational design (the
"formal" elements of operation and governance) is critical as the Group
continues to evolve and grow over the long term.
Mitigation Additional measures planned for 2023
· Appointment of Group Resources and Transformation Director. · Implementation of 'People and Enabling Excellence Strategy'.
· Implementation of people strategy to complement our business
strategy, focusing on the number and nature of resources required to fill
skills gaps as well as volume gaps.
· Better alignment of Group and personal objectives with delivery of
strategy.
· Launch of a new Leadership Development Programme.
Risk: Availability of appropriate capital
Inability to access appropriate equity and/or debt funding to support the
strategy.
Current and emerging risk
Inherent risk Residual risk Change in residual risk in the year
(before mitigating actions) (after mitigating actions)
High Medium Increase
Commentary
There is a need to match capital to the operational and project specific needs
of the business, accommodating the increase in pace and scale of activity
under our strategy. In early 2022 we entered into a new senior debt facility
comprising a five-year £200m RCF together with a £40m accordion facility.
This RCF, supplemented by project-specific funding where appropriate, supports
the funding needs of the business. Our net debt at the end of 2022 was low and
is forecast to remain relatively modest during 2023 and we retain headroom in
all covenants. However, to leverage our growing development pipeline we will
need to make full use of our debt finance capacity. The Board recognises it
could be challenging, given current market uncertainty, to raise additional
equity to fund accelerated development in addition to the Strategic Plan or a
major acquisition. Whilst this is not a short-term risk, work will commence
this year to explore wider potential funding options, prompting the Board to
conclude that the residual risk status of this risk has moved from "low" to
"medium".
Mitigation Additional measures planned for 2023
· Regular review of financing strategy to complement our business · Continue to identify scheme specific and grant funding.
strategy, supported by external consultants where required.
· An updated review of capital structure funding options.
· In early 2022, we signed a new RCF comprising a five-year £200m
revolving credit facility together with a £40m accordion facility.
· This is supplemented by accessing project specific funding where
relevant.
· We continue to pursue and unlock grant funding.
· Appointment of Financial Planning and Treasury Manager contributing to
improved longer-term financial forecasting.
Risk: Health and safety
Incident causing injury and/or death resulting in liability, penalties and/or
reputational damage.
Current risk
Inherent risk Residual risk Change in residual risk in the year
(before mitigating actions) (after mitigating actions)
Very high Low No change
Commentary
The health, safety and welfare of people involved in or affected by Harworth's
activities are of prime importance. This risk ranges from the health and
safety of visitors and workers on our sites, and trespassers (given the nature
of our sites), through to the health and safety of employees and visitors in
an office environment. Full compliance with all relevant legislation is the
minimum acceptable standard but we and our partners aim to achieve the highest
possible standards of good practice.
Mitigation Additional measures planned for 2023
· Appropriate policies are in place, including a Safety, Health and · Review the effectiveness of our health and safety consultant panel
Environmental Management System (SHEMS) Policy and an Employee Health and arrangements.
Safety Policy.
· Review Employee Health & Safety policy.
· We have a Risk and Compliance ('R&C') function with a focused
remit on health and safety and environmental policy and assurance. · Further improvements to health and safety reporting supported by the
new cloud-based platform.
· The R&C team undertakes a rigorous site inspection regime. It
monitors and reports on the risk status of each of our sites via a cloud-based
health, safety and environment management platform.
· We have a panel of health and safety consultants who support our
project delivery.
· Health, safety and environment management meetings are held quarterly
and attended by senior management and representatives from all operational
divisions.
· We host compulsory health and safety training for all employees
every two years, supplemented by an annual schedule of mandatory online
learning.
· We have a programme of health and wellbeing initiatives for
employees, including access to internal physical and mental health first
aiders and an external Employee Assistance Programme.
Risk: Net Zero Carbon (NZC) pathway
Failure to develop, manage and meet our NZC commitments and/or NZC
regulations, resulting in financial loss, reduced investment and reputational
damage.
Current and emerging risk
Inherent risk Residual risk Change in residual risk in the year
(before mitigating actions) (after mitigating actions)
High Medium No change
Commentary
The NZC agenda means transformational change for all businesses. It has a
wide-ranging impact on the Group, from our investment case to shareholders,
through to operational activity, including the need to embed NZC principles
into all projects, while remaining profitable. It also embraces external
factors such as industry and stakeholder metrics and the approach taken by
Local and Combined Authorities on e.g. carbon tax, biodiversity net gain and
social value measures. Following the appointment of our Director of
Sustainability in H1 2022, we focused on developing The Harworth Way, which is
the Group's continually evolving Sustainability Framework, and developing our
NZC Pathway. The NZC pathway Report has been published alongside this Annual
Report and is available on our website.
Mitigation Additional measures planned for 2023
· Development of The Harworth Way and NZC Pathway with targets · Embed fully environmental analysis into our project appraisals and
identified. approvals process.
· Appointment of a Director of Sustainability and wider sustainability · Continue to improve the capture and analysis of environmental data
team. (including from supply chain and occupiers).
· We have an ESG Board Committee to oversee formulation and delivery · Develop a carbon accounting system, including appropriate
of our Sustainability Framework, target-setting and reporting. accreditation.
· We appointed a new Non-Executive Director to the Board, Marzia Zafar, · Continued development of Harworth's commercial and residential building
with a strong background in sustainability. specifications.
· All buildings delivered in 2022 were NZC in operation ready,
mitigating future Scope 3 emissions.
· Continued transition of our Investment Portfolio to 100% modern Grade
A by 2027.
· Development of an Energy and Natural Capital strategy, which
includes a review of opportunities for carbon sequestration, bio-diversity net
gain, carbon trading and use of renewable energy.
· We are a member of the UK Green Building
Council, which facilitates sharing of knowledge and best practice.
Risk: Cyber security
Successful cyber-attack jeopardising business continuity.
Current risk
Inherent risk Residual risk Change in residual risk in the year
(before mitigating actions) (after mitigating actions)
Very high Low No change
Commentary
Cyber-attacks pose a continually evolving threat to all businesses and
Harworth, like all others, is at risk of regular attacks. Strategic and
technical measures are in place to monitor and mitigate this risk. In H2 2022,
we undertook our biennial penetration test, which found Harworth to be in a
strong position with no major cause for concern.
Mitigation Additional measures planned for 2023
· Our IT Disaster Recovery Plan has been incorporated into an updated · Desktop test of updated Business Continuity Plan.
Business Continuity Plan.
· We have an external provider for IT support which remains vigilant to
the evolving cyber security backdrop and an outsourced Information Security
manager.
· We take out cyber risk insurance.
· We undertake biennial penetration testing, supported by regular
phishing simulations and continuous IT system vulnerability scanning.
· We have a rolling cyber and information security awareness
programme for all employees.
Chris Birch
General Counsel and Company Secretary
13 March 2023
Directors' Responsibilities Statement
The Directors' Responsibilities Statement below has been prepared in
connection with the full Annual Report and financial statements for the year
ended 31 December 2022.
The directors are responsible for preparing the annual report and the
financial statements in accordance with applicable United Kingdom law and
regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the Group
and Company financial statements in accordance with UK-adopted international
accounting standards (IFRSs). Under company law the Directors must not approve
the financial statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and the Company and of the
profit or loss of the Group and the Company for that period.
In preparing these Financial Statements the Directors are required to:
· select suitable accounting policies in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors and then apply
them consistently;
· make judgements and accounting estimates that are reasonable and
prudent;
· present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
· provide additional disclosures when compliance with the specific
requirements in IFRSs is insufficient to enable users to understand the impact
of particular transactions, other events and conditions on the Group and
Company financial position and financial performance;
· in respect of the Group financial statements, state whether UK-adopted
international accounting standards have been followed, subject to any material
departures disclosed and explained in the financial statements;
· in respect of the Company financial statements, state whether
UK-adopted international accounting standards have been followed, subject to
any material departures disclosed and explained in the financial statements;
and
· prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the Company and/or the Group will continue in
business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's and Group's transactions and
disclose with reasonable accuracy at any time the financial position of the
Company and the Group and enable them to ensure that the Company and the Group
financial statements comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Group and Company and hence for
taking reasonable steps for the prevention and detection of fraud and other
irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a strategic report, directors' report, directors' remuneration
report and corporate governance statement that comply with that law and those
regulations. The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Company's website.
Responsibility statements
The Directors (see the list of names and roles in the Annual Report) confirm,
to the best of their knowledge:
· that the consolidated Financial Statements, prepared in accordance
with UK-adopted international accounting standards give a true and fair view
of the assets, liabilities, financial position and profit of the Company and
undertakings included in the consolidation taken as a whole;
· that the Annual Report, including the strategic report, includes a
fair review of the development and performance of the business and the
position of the Company and undertakings included in the consolidation taken
as a whole, together with a description of the principal risks and
uncertainties that they face; and
· that they consider the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Company's position, performance, business model and
strategy.
Disclosure of information to the auditor
Each of the Directors who were in office at the date of approval of this
Report also confirms that:
· so far as he or she is aware, there is no relevant audit information
of which the auditor is unaware; and
· each Director has taken all the steps that he or she ought to have
taken as a Director to make himself or herself aware of any relevant
information and to establish that the Group's and Company's auditor is aware
of that information.
This confirmation is given and should be interpreted in accordance with the
provisions of section 418 Companies Act.
This Statement of Directors' Responsibilities was approved by the Board and
signed by order of the Board:
Chris Birch
General Counsel and Company Secretary
13 March 2023
Cautionary statement and Directors' liability
This announcement and the 2022 Annual Report and Financial Statements contain
certain forward-looking statements which, by their nature, involve risk,
uncertainties and assumptions because they relate to future events and
circumstances. Actual outcomes and results may differ materially from any
outcomes or results expressed or implied by such forward looking statements.
Any forward-looking statements made by or on behalf of the Group are made in
good faith based on current expectations and beliefs and on the information
available at the time the statement is made. No representation or warranty is
given in relation to these forward-looking statements, including as to their
completeness or accuracy or the basis on which they were prepared, and undue
reliance should not be placed on them. The Group does not undertake to revise
or update any forward-looking statement contained in this announcement or the
2022 Annual Report and Financial Statements to reflect any changes in its
expectations with regard thereto or any new information or changes in events,
conditions or circumstances on which any such statement is based, save as
required by law and regulations. Nothing in this announcement or the 2022
Annual Report and Financial Statements should be construed as a profit
forecast.
This announcement and the 2022 Annual Report and Financial Statements have
been prepared for, and only for, the shareholders of the Company, as a body,
and no other persons. Neither the Company nor the Directors accept or assume
any liability to any person to whom this announcement or the 2022 Annual
Report and Financial Statements is shown or into whose hands they may come
except to the extent that such liability arises and may not be excluded under
English law.
Financial Calendar
Annual Report and Accounts for the year ended 31 December 2022 Published 13 April 2023
2023 Annual General Meeting Scheduled 23 May 2023
Final dividend for the year ending 31 December 2022 Ex-dividend date 04 May 2023
Record date 05 May 2023
Payable 26 May 2023
Half-year results for the six months ending 30 June 2022 Announced September 2023
Registrars
All administrative enquiries relating to shareholdings should, in the first
instance, be directed to Equiniti. Help can be found at www.shareview.co.uk.
Alternatively you can contact at Equiniti, Aspect House, Spencer Road,
Lancing, West Sussex, BN99 6DA (telephone: +44 (0)371 384 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').
Shareview service
The Shareview service from Equiniti allows shareholders to manage their
shareholding online. It gives shareholders direct access to their data held on
the share register, including recent share movements and dividend details and
the ability to change their address or dividend payment instructions online.
To visit the Shareview website, go to www.shareview.co.uk. There is no charge
to register but the 'shareholder reference number' printed on proxy forms or
dividend stationery will be required.
Website
The Group's website (harworthgroup.com (http://harworthgroup.com/) ) gives
further information on the Group. Detailed information for shareholders can
be found at harworthgroup.com/investors.
Consolidated Income Statement
for the year ended 31 December 2022
Note Year ended Year ended
31 December 31 December
2021
2022
£'000
£'000
Revenue 3 166,685 109,884
Cost of sales 3 (83,292) (61,185)
Gross profit 3 83,393 48,699
Administrative expenses 3 (22,090) (19,202)
Other (losses)/gains 3 (16,761) 92,488
Other operating expense 3 (56) (58)
Operating profit 3 44,486 121,927
Finance costs 4 (6,367) (4,100)
Finance income 4 227 182
Share of (loss)/profit of joint ventures (including impairment) 9 (7,487) 9,225
Profit before tax 30,859 127,234
Tax charge 5 (3,021) (33,244)
Profit for the year 27,838 93,990
Earnings per share from operations Pence Pence
Basic 7 8.6 29.1
Diluted 7 8.5 28.9
Notes 1 to 16 are an integral part of these condensed consolidated financial
statements. All activities are derived from continuing operations.
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2022
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Profit for the year 27,838 93,990
Other comprehensive income/(expense) - items that will not be reclassified to
profit or loss:
Net actuarial gain in Blenkinsopp Pension scheme 295 262
Revaluation of Group occupied property (133) (200)
Deferred tax on other comprehensive expense items (101) (137)
Other comprehensive income - items that may be reclassified subsequently to
profit or loss:
Fair value of financial instruments 156 670
Total other comprehensive income 217 595
Total comprehensive income for the year 28,055 94,585
Consolidated Balance Sheet
as at 31 December 2022
Note As at As at
31 December 31 December
2022
2021
£'000
£'000
ASSETS
Non-current assets
Property, plant and equipment 600 681
Right of use assets 254 94
Trade and other receivables 4,013 5,369
Investment properties 8 400,363 478,355
Investment in joint ventures 9 29,828 36,131
435,058 520,630
Current assets
Inventories 10 216,393 177,822
Trade and other receivables 56,658 49,755
Assets held for sale 11 59,790 1,925
Cash 12 11,583 12,037
344,424 241,539
Total assets 779,482 762,169
LIABILITIES
Current liabilities
Borrowings 13 (3,067) -
Trade and other payables (82,499) (94,316)
Lease liabilities (82) (42)
Current tax liabilities 5 (7,013) (2,947)
(92,661) (97,305)
Net current assets 251,763 144,234
Non-current liabilities
Borrowings 13 (56,911) (37,781)
Trade and other payables (2,819) (5,686)
Lease liabilities (172) (52)
Derivative financial instruments - (156)
Net deferred income tax liabilities 5 (24,141) (42,647)
Retirement benefit obligations (114) (558)
(84,157) (86,880)
Total liabilities (176,818) (184,185)
Net assets 602,664 577,984
SHAREHOLDERS' EQUITY
Capital and reserves
Called up share capital 14 32,305 32,272
Share premium account 24,688 24,627
Fair value reserve 174,520 199,629
Capital redemption reserve 257 257
Merger reserve 45,667 45,667
Investment in own shares (50) (24)
Retained earnings 297,439 181,566
Current year profit 27,838 93,990
Total shareholders' equity 602,664 577,984
Consolidated Statement of Changes in Equity
for the year ended 31 December 2022
Called up share Share Merger Fair value Capital redemption Investment Retained Total
premium
reserve
reserve
reserve
earnings
equity
capital
£'000
£'000
£'000
£'000 in own shares
£'000
£'000
£'000
£'000
Balance at 1 January 2021 32,253 24,567 45,667 132,833 257 (73) 253,208 488,712
Profit for the financial year - - - - - - 93,990 93,990
Fair value gains on investment property - - - 88,586 - - (88,586) -
Transfer of unrealised gains on disposal of investment property - - - (21,590) - - 21,590 -
Other comprehensive (expense)/income:
Actuarial gain in Blenkinsopp pension scheme - - - - - - 262 262
Revaluation of group occupied property - - - (200) - - - (200)
Fair value of financial instruments - - - - - - 670 670
Deferred tax on other comprehensive (expense)/income items - - - - - - (137) (137)
Total comprehensive income for the year ended 31 December 2021 - - - 66,796 - - 27,789 94,585
Transactions with owners:
Purchase of own shares - - - - - (21) - (21)
Share-based payments - - - - - 76 472 548
Dividends paid - - - - - - (5,913) (5,913)
Share issue 19 60 - - - (6) - 73
Balance at 31 December 2021 32,272 24,627 45,667 199,629 257 (24) 275,556 577,984
Profit for the financial year - - - - - - 27,838 27,838
Fair value losses on investment property - - - (10,019) - - 10,019 -
Transfer of unrealised gains on disposal of investment property - - - (14,957) - - 14,957 -
Other comprehensive (expense)/income: -
Actuarial gain in Blenkinsopp pension scheme - - - - - - 295 295
Revaluation of group occupied property - - - (133) - - - (133)
Fair value of financial instruments - - - - - - 156 156
Deferred tax on other comprehensive expense items - - - - - - (101) (101)
Total comprehensive (expense)/income for the year ended 31 December 2022 - - - (25,109) - - 53,164 28,055
Transactions with owners:
Purchase of own shares - - - - - (26) - (26)
Share-based payments - - - - - - 589 589
Dividends paid - - - - - - (4,032) (4,032)
Share issue 33 61 - - - - - 94
Balance at 31 December 2022 32,305 24,688 45,667 174,520 257 (50) 325,277 602,664
Consolidated Statement of Cash Flows
for the year ended 31 December 2022
Note Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Cash flows from operating activities
Profit before tax for the financial year 30,859 127,234
Net finance costs 4 6,140 3,918
Other losses/(gains) 16,761 (92,488)
Share of loss/(profit) of joint ventures (including impairment) 9 7,487 (9,225)
Share-based transactions((1)) 728 426
Depreciation of property, plant and equipment and right of use assets 152 234
Pension contributions in excess of charge (149) (148)
Operating cash inflow before movements in working capital 61,978 29,951
Decrease in inventories 16,502 4,133
Increase in receivables (6,482) (3,715)
(Decrease)/increase in payables (13,137) 26,669
Cash generated from operations 58,861 57,038
Interest paid (3,998) (3,531)
Corporation tax paid (17,702) (3,646)
Cash generated from operating activities 37,161 49,861
Cash flows from investing activities
Interest received 4 227 182
Investment in joint ventures 9 (1,849) (1,624)
Distribution from joint ventures 9 665 34
Net proceeds from disposal of investment properties, AHFS and overages 14,232 44,472
Property acquisitions (13,445) (18,105)
Expenditure on investment properties and AHFS (53,107) (22,851)
Expenditure on property, plant and equipment (110) (32)
Cash (used in)/generated from investing activities (53,387) 2,076
Cash flows from financing activities
Net proceeds from issue of ordinary shares 67 68
Purchase of own shares - (21)
Proceeds from other loans 19,850 4,900
Repayment of other loans - (4,425)
Proceeds from bank loans 154,000 45,000
Repayment of bank loans (152,000) (91,000)
Loan arrangement fees (2,022) (1,134)
Payment in respect of leases (91) (85)
Dividends paid (4,032) (5,913)
Cash generated from/(used in) financing activities 15,772 (52,610)
Decrease in cash (454) (673)
Cash as at beginning of year 12 12,037 12,710
Cash
Decrease in cash (454) (673)
Cash as at end of year 12 11,583 12,037
Cash
((1)) Share-based transactions reflect the non-cash expenses relating to
share-based payments included within the income statement
Notes to the financial information
for the year ended 31 December 2022
1. Accounting policies
The principal accounting policies adopted in the preparation of this audited
consolidated financial information are set out below. These policies have been
consistently applied to all of the years presented, unless otherwise stated.
General information
Harworth Group plc, company number 02649340, (the "Company") is a company,
limited by shares, incorporated and domiciled in the UK. The address of its
registered office is Advantage House, Poplar Way, Catcliffe, Rotherham, South
Yorkshire, S60 5TR.
The Company is a public company listed on the London Stock Exchange.
The consolidated financial statements for the year ended 31 December 2022
consolidate the results of the Company and its subsidiaries (together referred
to as the "Group").
Basis of preparation
These financial statements have been prepared in accordance with international
accounting standards in conformity with the requirements of the Companies Act
2006 and UK adopted International Accounting Standards ("IFRS").
The financial information set out herein does not constitute the Company's
statutory accounts for the years ended 31 December 2022 or 2021 but is derived
from those accounts. The financial information has been prepared using
accounting policies consistent with those set out in the annual report and
accounts for the year ended 31 December 2022. Statutory accounts for 2021 have
been delivered to the Registrar of Companies, and those for 2022 will be
delivered in due course. The auditors have reported on those accounts; their
report was unqualified, did not include a reference to any matters to which
the auditors drew attention by way of emphasis without qualifying their
report, and did not contain any statements under Section 498(2) or (3) of the
Companies Act 2006.
Going-concern basis
These financial statements are prepared on the basis that the Group is a going
concern. In forming its opinion as to going concern, the Company prepares cash
flow and banking covenant forecasts based upon its assumptions with particular
consideration to the key risks and uncertainties and the current
macro-economic environment as well as taking into account available borrowing
facilities. The going concern period assessed is until June 2024 which has
been selected as it can be projected with a good degree of expected accuracy
and covers a complete period of reporting under the Group's RCF.
A key focus of the assessment of going concern is the management of liquidity
and compliance with borrowing facilities for the period to June 2024. During
the year; a new five year £200m RCF was agreed with HSBC joining as a new
lender in addition to current lenders NatWest and Santander. The new RCF is
aligned to the Group's strategy and provides significant additional liquidity
and flexibility to enable it to pursue its strategic objectives. The new
facility is subject to financial covenants, including minimum interest cover,
maximum infrastructure debt as a percentage of property value and gearing, all
of which are tested through the going concern assessment undertaken.
Available liquidity, including cash and cash equivalents and bank facility
headroom was £175.6m as at 31 December 2022.
The Group benefits from diversification across its Capital Growth and Income
Generation businesses including its industrial and renewable energy property
portfolio. Taking into account the independent valuation by BNP Paribas and
Savills, the Group net loan-to-portfolio value remains low at 6.6%, within the
Board's target range and with headroom to allow for falls in property values.
Rent collection remained strong, with 99% collected to date for 2022.
In addition to the base forecast, a sensitised forecast was produced that
reflected a number of severe but plausible downsides. This downside included:
1) a severe reduction in sales to the housebuilding sector as well as lower
investment property sales; 2) notwithstanding strong rent collection to date
in line with previous quarters, a prudent material increase in bad debts
across the portfolio over the majority of the going concern assessment period;
3) a material decline in the value of land and investment property values as a
result of macro-economic conditions; and 4) a significant increase in interest
rates, impacting the cost of the Group's borrowings.
A scenario has also been run which demonstrates that very severe loss of
revenue, valuation reductions and interest cost increases would be required to
breach cashflow and banking covenants. A scenario with consideration of
potential climate change and related transition impacts was also examined as
part of the Group's focus on climate-related risks and opportunities.
Even in the downside scenarios, for the going concern period to June 2024, the
Group expects to continue to have sufficient cash reserves to continue to
operate with headroom on lending facilities and associated covenants and has
additional mitigation measures within management's control, for example
reducing development and acquisition expenditure and reducing operating costs,
that could be deployed to create further cash and covenant headroom.
Based on these considerations, together with available market information and
the Directors' knowledge and experience of the Group's property portfolio and
markets, the Directors considered it appropriate to adopt a going concern
basis of accounting in the preparation of the Group's and Company's financial
statements.
Changes in accounting policy and disclosures
(a) New standards, amendments and interpretations
A number of new standards and amendments to standards and interpretations are
effective for annual periods
beginning on or after 1 January 2022 and have not been applied in preparing
these financial statements. None
of these would have a significant effect on the financial statements of the
Group.
(b) New standards, amendments and interpretations not yet adopted
A number of new standards and amendments to standards and interpretations are
effective for annual periods
beginning on or after 1 January 2023 and have not been applied in preparing
these financial statements. None
of these are expected to have a significant effect on the financial statements
of the Group.
Estimates and judgements
The preparation of the consolidated 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 consolidated 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
in the consolidated financial statements for the year ended 31 December 2021.
2. Alternative Performance Measures ("APMs")
Introduction
The Group has applied the December 2019 European Securities and Markets
Authority ("ESMA") guidance on APMs and the November 2017 Financial Reporting
Council ("FRC") corporate thematic review of APMs in these results. An APM
is a financial measure of historical or future financial performance, position
or cash flows of the Group which is not a measure defined or specified under
IFRS.
Overview of use of APMs
The Directors believe that APMs assist in providing additional useful
information on the underlying trends, performance and position of the Group.
APMs assist our stakeholder users of the accounts, particularly equity and
debt investors, through the comparability of information. APMs are used by
the Directors and management, both internally and externally, for performance
analysis, strategic planning, reporting and incentive-setting purposes.
APMs are not defined by IFRS and therefore may not be directly comparable with
other companies' APMs, including peers in the real estate industry. APMs
should be considered in addition to, and are not intended to be a substitute
for, or superior to, IFRS measurements.
The derivations of our APMs and their purpose
The primary differences between IFRS statutory amounts and the APMs that we
use are as follows:
1. Capturing all sources of value creation - Under IFRS, the revaluation
movement in development properties which are held in inventory is not included
in the balance sheet. Also, overages are not recognised in the balance sheet
until they are highly probable. These movements, which are verified by our
independent valuers BNP Paribas and Savills, are included within our APMs;
2. Recategorising income statement amounts - Under IFRS, the grouping of
amounts, particularly within gross profit and other gains, does not clearly
allow Harworth to demonstrate the value creation through its business model.
In particular, the statutory grouping does not distinguish value gains
(being realised profits from the sales of properties and unrealised profits
from property value movements) from the ongoing profitability of the business
which is less susceptible to movements in the property cycle. Finally, the
Group includes profits from joint ventures within its APMs as its joint
ventures conduct similar operations to Harworth, albeit in different ownership
structures; and
3. Comparability with industry peers - Harworth discloses some APMs
which are EPRA measures as these are a set of standard disclosures for the
property industry and thus aid comparability for our stakeholder users.
Our key APMs
The key APMs that the Group focuses on are as follows:
· Total Return - The movement in EPRA NDV plus dividends per share
paid in the year expressed as a percentage of opening EPRA NDV per share
· EPRA NDV per share - EPRA NDV aims to represent shareholder value
under an orderly sale of the business, where deferred tax, financial
instruments and certain other adjustments are calculated to the full extent of
their liability net of any resulting tax. EPRA NDV per share is EPRA NDV
divided by the number of shares in issue at the end of the period, less shares
held by the Employee Benefit Trust or Equiniti Share Plan Trustees Limited to
satisfy Long Term Incentive Plan and Share Incentive Plan awards
· Value gains - These are the realised profits from the sales of
properties and unrealised profits from property value movements including
joint ventures and the mark to market movement on development properties, AHFS
and overages
· Net loan to portfolio value - Group debt net of cash and cash
equivalents held expressed as a percentage of portfolio value
EPRA Net Asset Measures
EPRA introduced a new set of Net Asset Value metrics in 2020: EPRA Net
Reinstatement Value ("NRV"), EPRA Net Tangible Assets ("NTA") and EPRA NDV.
While the Group uses only EPRA NDV as a key APM, the EPRA Best Practices
Recommendations guidelines require companies to report all three EPRA NAV
metrics and reconcile them to IFRS. These disclosures are provided below.
31 December 2022
EPRA NDV EPRA NTA EPRA NRV
£'000 £'000 £'000
Net assets 602,664 602,664 602,664
Cumulative unrealised gains on development properties 33,852 33,852 33,852
Cumulative unrealised gains on AHFS - - -
Cumulative unrealised gains on overages 7,500 7,500 7,500
Deferred tax liabilities (IFRS) - 24,141 24,141
Notional deferred tax on unrealised gains (10,171) - -
Deferred tax liabilities @ 50% - (17,156) -
Mark to market valuation of financial instruments - - -
Purchaser costs - - 46,307
633,845 651,001 714,464
Number of shares used for per share calculations 322,612,685 322,612,685 322,612,685
Per share 196.5 201.8 221.5
31 December 2021
EPRA NDV EPRA NTA EPRA NRV
£'000 £'000 £'000
Net assets 577,984 577,984 577,984
Cumulative unrealised gains on development properties 72,452 72,452 72,452
Cumulative unrealised gains on AHFS - - -
Cumulative unrealised gains on overages 3,500 3,500 3,500
Deferred tax liabilities (IFRS) - 42,647 42,647
Notional deferred tax on unrealised gains (16,483) - -
Deferred tax liabilities @ 50% - (29,565) -
Mark to market valuation of financial instruments - 156 156
Purchaser costs - - 51,105
637,453 667,174 747,844
Number of shares used for per share calculations 322,539,284 322,539,284 322,539,284
Per share 197.6 206.9 231.9
1) Reconciliation to statutory measures
Year ended Year ended
31 December
31 December
a. Revaluation (losses)/gains
2022
2021
£'000
£'000
(Decrease)/increase in fair value of investment properties (19,725) 83,961
(Decrease)/increase in fair value of AHFS (199) 1,078
Share of (loss)/profit of joint ventures (7,487) 9,225
Net realisable value provision on development properties (7,074) (1,574)
Reversal of previous net realisable value provision on development properties 5,030 4,393
Amounts derived from statutory reporting (29,455) 97,083
Unrealised gains on development properties 10,493 50,437
Unrealised losses on AHFS - (15)
Unrealised gains on overages 4,003 500
Revaluation (losses)/gains (14,959) 148,005
b. Profit on sale Year ended Year ended
31 December
31 December
2022
2021
£'000
£'000
Profit on sale of investment properties 923 1,824
Profit on sale of AHFS 2,071 5,625
Profit on sale of development properties 57,252 11,223
Release of net realisable value provision on disposal of development 1,649 2,367
properties
Profit on sale of overages 169 -
Amounts derived from statutory reporting 62,064 21,039
Less previously unrealised gains on development properties released on sale (49,093) (7,833)
Less previously unrealised gains on AHFS released on sale - (760)
Profit on sale 12,971 12,446
c. Value (losses)/gains Year ended Year ended
31 December
31 December
2022
2021
£'000
£'000
Revaluation (losses)/gains (14,959) 148,005
Profit on sale 12,971 12,446
Value (losses)/gains (1,988) 160,451
d. Total property sales Year ended Year ended
31 December
31 December
2022
2021
£'000
£'000
Revenue 166,685 109,884
Less revenue from other property activities (10,478) (14,799)
Less revenue from income generation activities (31,251) (28,773)
Add proceeds from sales of investment properties, AHFS and overages 13,550 41,956
Total property sales 138,506 108,268
e. Operating profit contributing to growth in EPRA NDV Year ended Year ended
31 December
31 December
2022
2021
£'000
£'000
Operating profit 44,486 121,927
Share of (loss)/profit of joint ventures (7,487) 9,225
Unrealised gains on development properties 10,493 50,437
Unrealised losses on AHFS - (15)
Unrealised gains on overages 4,003 500
Less previously unrealised gains on development properties released on sale (49,093) (7,833)
Less previously unrealised gains on AFHS released on sale - (760)
Operating profit contributing to growth in EPRA NDV 2,402 173,481
f. Portfolio value As at As at
31 December
31 December
2022
2021
£'000
£'000
Land and buildings (included within property, plant and equipment) 500 635
Investment properties 400,363 478,355
Investments in joint ventures 29,828 36,131
AHFS 59,790 1,925
Development properties (included within inventories) 204,952 172,701
Amounts derived from statutory reporting 695,433 689,747
Cumulative unrealised gains on development properties as at year end 33,852 72,452
Cumulative unrealised gains on overages as at year end 7,500 3,500
Portfolio value 736,785 765,699
g. Net debt As at As at
31 December
31 December
2022
2021
£'000
£'000
Gross borrowings (59,978) (37,781)
Cash and cash equivalents 11,583 12,037
Net debt (48,395) (25,744)
h. Net loan to portfolio value % As at As at
31 December
31 December
2022
2021
£'000
£'000
Net debt (48,395) (25,744)
Portfolio value 736,785 765,699
Net loan to portfolio value (%) 6.6% 3.4%
i. Net loan to income generation portfolio value (%) As at As at
31 December
31 December
2022
2021
£'000
£'000
Net debt (48,395) (25,744)
Core income generation portfolio value (investment portfolio and natural 230,133 290,277
resources)
Net loan to core income generation portfolio value (%) 21.0% 8.9%
j. Gross loan to portfolio value (%) As at As at
31 December
31 December
2022
2021
£'000
£'000
Gross borrowings (59,978) (37,781)
Portfolio value 736,785 765,699
Gross loan to portfolio value (%) 8.1% 4.9%
k. Gross loan to core income generation portfolio value (%) As at As at
31 December
31 December
2022
2021
£'000
£'000
Gross borrowings (59,978) (37,781)
Core income generation portfolio value (investment portfolio and natural 230,133 290,277
resources)
Gross loan to core income generation portfolio value (%) 26.1% 13.0%
l. Number of shares used for per share calculations (number) As at As at
31 December
31 December
2022
2021
Number of shares in issue 323,051,124 322,724,566
Less Employee Benefit Trust and Equiniti Share Plan Trustees Limited held (438,439) (185,282)
shares (own shares)
Number of shares used for per share calculations 322,612,685 322,539,284
m. Net Asset Value (NAV) per share As at As at
31 December
31 December
2022
2021
NAV (£'000) 602,664 577,984
Number of shares used for per share calculations 322,612,685 322,539,284
NAV per share (p) 186.8 179.2
2) Reconciliation to EPRA measures
a. EPRA NDV As at As at
31 December
31 December
2022
2021
£'000
£'000
Net assets 602,664 577,984
Cumulative unrealised gains on development properties 33,852 72,452
Cumulative unrealised gains on overages 7,500 3,500
Notional deferred tax on unrealised gains (10,171) (16,483)
EPRA NDV 633,845 637,453
b. EPRA NDV per share (p) As at As at
31 December
31 December
2022
2021
£'000
£'000
EPRA NDV £'000 633,845 637,453
Number of shares used for per share calculations 322,612,685 322,539,284
EPRA NDV per share (p) 196.5 197.6
c. EPRA NDV growth and Total Return As at As at
31 December
31 December
2022
2021
£'000
£'000
Opening EPRA NDV/share (p) 197.6 160.0
Closing EPRA NDV/share (p) 196.5 197.6
Movement in the year (p) (1.1) 37.6
EPRA NDV growth (0.6%) 23.5%
Dividends paid per share (p) 1.2 1.8
Total Return per share (p) 0.1 39.4
Total Return as a percentage of opening EPRA NDV 0.1% 24.6%
d. Net loan to EPRA NDV As at As at
31 December
31 December
2022
2021
£'000
£'000
Net debt (48,395) (25,744)
EPRA NDV 633,845 637,453
Net loan to EPRA NDV 7.6% 4.0%
3. Segment information
Segmental Income Statement
Year ended 31 December 2022
Capital Growth
Sale of development properties Other property activities Income Central Total
Generation
£'000 £'000 £'000 £'000 £'000
Revenue ((1)) 124,956 10,478 31,251 - 166,685
Cost of sales (68,099) (6,305) (8,888) - (83,292)
Gross profit ((2)) 56,857 4,173 22,363 - 83,393
Administrative expenses - (4,123) (1,877) (16,090) (22,090)
Other gains/(losses) ((3)) - 17,788 (34,549) - (16,761)
Other operating expense - - - (56) (56)
Operating profit/(loss) 56,857 17,838 (14,063) (16,146) 44,486
Finance costs - (168) - (6,199) (6,367)
Finance income - 227 - - 227
Share of loss of joint ventures - (4,317) (3,170) - (7,487)
Profit/(loss) before tax 56,857 13,580 (17,233) (22,345) 30,859
((1)) Revenue
Revenue is analysed as follows:
Sale of development properties 124,956 - - - - 124,956
Revenue from PPAs - - 5,810 - - 5,810
Build-to-suit development revenue - 4,215 - - 4,215
Rent, service charge and royalties revenue - 426 28,151 - 28,577
Revenue from coal fines - - 2,113 - 2,113
Other revenue - - 27 987 - 1,014
124,956 10,478 31,251 - 166,685
((2)) Gross profit
Gross profit is analysed as follows:
Gross profit excluding sales of development properties - 4,173 22,363 - 26,536
Gross profit on sale of development properties 57,252 - - - 57,252
Net realisable value provision on development properties (7,074) - - - (7,074)
Reversal of previous net realisable value provision on development properties 5,030 - - - 5,030
Release of net realisable value provision on disposal of development 1,649 - - - 1,649
properties
56,857 4,173 22,363 - 83,393
((3)) Other gains/(losses)
Other gains/(losses) are analysed as follows:
Increase/(decrease) in fair value of investment - 17,958 (37,683) - (19,725)
properties
Decrease in the fair value of AHFS - (199) - - (199)
Profit on sale of investment properties - 76 847 - 923
(Loss)/profit on sale of AHFS - (216) 2,287 - 2,071
Profit on sale of overages - 169 - - 169
- 17,788 (34,549) - (16,761)
Segmental Balance Sheet
As at 31 December 2022
Capital Income Central Total
£'000
Growth Generation £'000
£'000 £'000
Non-current assets
Property, plant and equipment - - 600 600
Right of use assets - - 254 254
Other receivables 4,013 - - 4,013
Investment properties 164,533 235,830 - 400,363
Investments in joint ventures 16,462 13,366 - 29,828
185,008 249,196 854 435,058
Current assets
Inventories 216,393 - - 216,393
Trade and other receivables 41,287 14,913 458 56,658
AHFS 2,627 57,163 - 59,790
Cash and cash equivalents - - 11,583 11,583
260,307 72,076 12,041 344,424
Total assets 445,315 321,272 12,895 779,482
Financial liabilities and derivative financial instruments are not allocated
to the reporting segments as they are managed and measured at a Group level.
Segmental Income Statement
Year ended 31 December 2021
Capital Growth
Sale of development properties Other property activities Income Central Total
Generation
£'000 £'000 £'000 £'000 £'000
Revenue ((1)) 66,312 14,799 28,773 - 109,884
Cost of sales (49,903) (3,169) (8,113) - (61,185)
Gross profit ((2)) 16,409 11,630 20,660 - 48,699
Administrative expenses - (3,365) (2,130) (13,707) (19,202)
Other gains/(losses) ((3)) - 57,483 35,005 - 92,488
Other operating expense - - - (58) (58)
Operating profit/(loss) 16,409 65,748 53,535 (13,765) 121,927
Finance costs - - - (4,100) (4,100)
Finance income - 172 - 10 182
Share of profit of joint ventures - 4,524 4,701 - 9,225
Profit/(loss) before tax 16,409 70,444 58,236 (17,855) 127,234
((1)) Revenue
Revenue is analysed as follows:
Sale of development properties 66,312 - - - 66,312
Build-to-suit development revenue - 2,544 - - 2,544
Rent, service charge and royalties revenue - 242 26,383 - 26,625
Revenue from coal fines - - 622 - 622
Other revenue - - 12,013 1,768 - 13,781
66,312 14,799 28,773 - 109,884
((2)) Gross profit
Gross profit is analysed as follows:
Gross profit excluding sales of development properties - 11,630 20,660 - 32,290
Gross profit on sale of development properties 11,223 - - - 11,223
Net realisable value provision on development properties (1,574) - - - (1,574)
Reversal of previous net realisable value provision on development properties 4,393 - - - 4,393
Release of net realisable value provision on disposal of development 2,367 - - - 2,367
properties
16,409 11,630 20,660 - 48,699
((3)) Other gains/(losses)
Other gains/(losses) are analysed as follows:
Increase in fair value of investment properties - 55,220 28,741 - 83,961
Increase in the fair value of assets held for sale - 364 714 - 1,078
Profit/(loss) on sale of investment properties - 1,871 (47) - 1,824
Profit on sale of AHFS - 28 5,597 - 5,625
- 57,483 35,005 - 92,488
Segmental Balance Sheet
As at 31 December 2021
Capital Income Central Total
£'000
Growth Generation £'000
£'000 £'000
Non-current assets
Property, plant and equipment - - 681 681
Right of use assets - - 94 94
Other receivables 4,285 1,084 - 5,369
Investment properties 182,666 295,689 - 478,355
Investments in joint ventures 18,929 17,202 - 36,131
205,880 313,975 775 520,630
Current assets
Inventories 177,720 102 - 177,822
Trade and other receivables 35,737 13,665 353 49,755
AHFS 1,925 - - 1,925
Cash and cash equivalents - - 12,037 12,037
215,382 13,767 12,390 241,539
Total assets 421,262 327,742 13,165 762,169
Financial liabilities and derivative financial instruments are not allocated
to the reporting segments as they are managed and measured at a Group level.
4. Finance costs and finance income
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Finance costs
- Bank interest (2,206) (2,795)
- Facility fees (1,791) (745)
- Amortisation of up-front fees (685) (362)
- Acceleration of amortisation of up-front fees following extinguishment of (599) -
Facility
- Other interest (1,086) (198)
Total finance costs (6,367) (4,100)
Finance income 227 182
Net finance costs (6,140) (3,918)
5. Tax
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Analysis of tax (charge)/credit in the year
Current tax
Current year (21,650) (6,747)
Adjustment in respect of prior periods (118) 372
Total current tax charge (21,768) (6,375)
Deferred tax
Current year 13,504 (15,974)
Adjustment in respect of prior periods 409 (162)
Difference between current tax rate and rate of deferred tax 4,834 (10,733)
Total deferred tax credit/(charge) 18,747 (26,869)
Tax charge (3,021) (33,244)
Other comprehensive income items
Deferred tax - current year (101) (137)
Total (101) (137)
The tax charge for the year is lower (2021: higher) than the standard rate of
corporation tax in the UK of 19% (2021: 19%). The differences are explained
below:
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Profit before tax 30,859 127,234
Profit before tax multiplied by rate of corporation tax in the UK of 19% (5,863) (24,174)
(2021: 19%)
Effects of:
Adjustments in respect of prior periods- deferred taxation 409 (162)
Adjustments in respect of prior periods- current taxation (118) 372
Expenses not deducted for tax purposes (127) (291)
Revaluation (losses)/gains (755) 68
Share of (loss)/profit of joint ventures (1,423) 1,753
Difference between current tax rate and rate of deferred tax 4,834 (10,733)
Share options 22 (77)
Total tax charge (3,021) (33,244)
The difference between current tax rate and rate of deferred tax of £4.8m
(2021: £10.7m) relates to the unwind of balances previously recognised at 25%
and the reduction of the deferred tax liabilities recognised at 25% as a
result of in year movements. The 2021 reconciling item of £10.7m is
reflective of the enacted rate change from 19% to 25%.
At 31 December 2022, the Group had a current tax liability of £7.0m (2021:
£2.9m).
The Company has recognised a current tax asset in 2022 of £0.5m (2021:
£nil).
Deferred tax
The following is the analysis of deferred tax liabilities presented in the
consolidated balance sheet:
As at As at
31 December
31 December
2022
2021
£'000
£'000
Deferred tax liabilities (25,980) (46,988)
Deferred tax assets 1,839 4,341
(24,141) (42,647)
The movements on the deferred tax account were as follows:
Investment properties Other temporary differences
£'000
£'000
Tax losses Total
£'000
£'000
At 1 January 2021 (23,159) 5,774 1,618 (15,767)
Recognised in the consolidated income statement (23,829) (3,216) 176 (26,869)
Recognised in the consolidated statement of comprehensive income - - (137) (137)
Recognised in the consolidated statement of equity - - 126 126
At 31 December 2021 and 1 January 2022 (46,988) 2,558 1,783 (42,647)
Recognised in the consolidated income statement 21,008 (2,558) 297 18,747
Recognised in the consolidated statement of comprehensive income - - (101) (101)
Recognised in the consolidated statement of equity - - (140) (140)
At 31 December 2022 (25,980) - 1,839 (24,141)
There is deferred tax on UK corporation tax losses carried forward of £nil
(2021: £2.6m).
In the Spring Budget 2021, the Government announced an increase in the
corporation tax rate from 19% to 25% from 1 April 2023. The rate was
substantively enacted on 24 May 2021 and as such the deferred tax balances
have been calculated in full on temporary differences under the liability
method using the rate expected to apply at the time of the reversal of the
balance. As such, the deferred tax assets and liabilities have been calculated
using a mixture of 25% or a blended rate (2021: mixture of 19%, 25% and a
blended rate) as appropriate.
Deferred tax assets and liabilities are offset when there is a legally
enforced right to offset current tax assets against current tax liabilities
and when the deferred taxes relate to the same fiscal authority.
Deferred tax assets of £8.1m at 31 December 2022 (2021: £5.3m) have not been
recognised owing to the uncertainty as to their recoverability.
The Company has recognised a deferred tax asset in 2022 of £0.1m (2021:
£0.2m).
6. Dividends
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Interim dividend of 0.404p per share for the six months ended 30 June 2022 1,305 -
Final dividend of 0.845p per share for the year ended 31 December 2021 2,727 -
Interim dividend of 0.367p per share for the six months ended 30 June 2021 - 1,184
Final dividend of 1.466p per share for the year ended 31 December 2020 - 4,729
4,032 5,913
In addition to the interim dividend of 0.404p, the Board has determined that
it is appropriate for a final dividend of 0.929p (2021: 0.845p) to be paid per
share, bringing the total dividend for the year to 1.333p (2021: 1.212p). The
recommended 2022 final dividend and 2022 total dividend represent a 10%
increase in line with the Group's policy.
The 2020 final dividend was increased to reflect the cancelled final 2019
dividend excluding which, the 2020 dividend totalled 1.102p per share.
There is no change to the current dividend policy to continue to grow
dividends by 10% each year.
7. Earnings per share
Earnings per share has been calculated by dividing the profit attributable to
ordinary shareholders by the weighted average number of shares in issue and
ranking for dividend during the year.
Year ended Year ended
31 December 31 December
2022 2021
Profit from continuing operations attributable to owners of the Company 27,838 93,990
(£'000)
Weighted average number of shares used for basic earnings per share 322,571,783 322,493,443
calculation
Basic earnings per share (pence) 8.6 29.1
Weighted average number of shares used for diluted earnings per share 326,317,353 325,059,137
calculation
Diluted earnings per share (pence) 8.5 28.9
The difference between the weighted average number of shares used for the
basic and diluted earnings per share calculation is due to the effect of share
options that are dilutive.
8. Investment properties
Investment properties at 31 December 2022 and 31 December 2021 have been
measured at fair value. The Group holds five categories of investment
property, being Agricultural Land, Natural Resources, the Investment
Portfolio, 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 Natural Investment Portfolio Major Strategic
£'000
Land Resources Developments Land Total
£'000
£'000
£'000
£'000
£'000
At 1 January 2021 6,135 33,098 214,906 27,550 91,390 373,079
Direct acquisitions - - 13,502 - 14,274 27,776
Subsequent expenditure 12 239 1,988 8,956 6,877 18,072
Disposals - - (2,497) (11,207) (986) (14,690)
(Decrease)/Increase in fair value (151) (1,912) 30,804 21,609 33,611 83,961
Transfers between divisions 115 - 6,101 (6,626) 410 -
Net transfers from development properties - - - 5,711 (5,000) 711
Net transfer to AHFS (699) (874) (5,078) (509) (3,394) (10,554)
At 31 December 2021 5,412 30,551 259,726 45,483 137,183 478,355
Direct acquisitions - - - - 11,863 11,863
Subsequent expenditure - 12 2,822 40,928 9,344 53,106
Disposals - (860) - - - (860)
Increase/(decrease) in fair value 282 (163) (37,802) (5,357) 23,315 (19,725)
Transfers between divisions - - 42,250 (42,250) - -
Net transfers from/(to) development properties - - - 5,440 (60,513) (55,073)
Net transfer to AHFS - (9,814) (56,589) - (900) (67,303)
At 31 December 2022 5,694 19,726 210,407 44,244 120,292 400,363
Subsequent expenditure is recorded net of government grant receipts of £0.9m
(2021: £nil).
During the year £5.4m (2021: £5.7m) of development property was
re-categorised as investment property to reflect a change in use. During the
year £60.5m (2021: £5.0m) of investment property was re-categorised to
development properties.
Investment property is transferred between divisions to reflect a change in
the activity arising from the asset.
Valuation process
The properties were valued in accordance with the Royal Institution of
Chartered Surveyors (RICS) Valuation - Professional Standards (the 'Red Book')
by BNP Paribas Real Estate and Savills at 31 December 2022 and 31 December
2021. Both are independent firms acting in the capacity of external valuers
with relevant experience of valuations of this nature.
The valuations are on the basis of Market Value as defined by the Red Book,
which RICS considers meets the criteria for assessing Fair Value under IFRS.
The valuations are based on what is determined to be the highest and best use.
When considering the highest and best use a valuer will consider, on a
property by property basis, its actual and potential uses which are
physically, legally and financially viable. Where the highest and best use
differs from the existing use, the valuer will consider the cost and the
likelihood of achieving and implementing this change in arriving at its
valuation.
At each financial year end, management:
· verifies all major inputs to the independent valuation report;
· assesses property valuation movements when compared to the prior
year valuation report; and
· holds discussions with the independent valuer.
The Directors determine the applicable hierarchy that each investment property
falls into by assessing the level of unobservable inputs used in the valuation
technique. As a result of the specific nature of each investment property,
valuation inputs are not based on directly observable market data and
therefore all investment properties were determined to fall into Level 3.
The Group's policy is to recognise transfers into and out of fair value
hierarchy levels as at the date of the event or change in circumstance that
caused the transfer. There were no transfers between hierarchy levels in the
year ended 31 December 2022 (2021: none).
Valuation techniques underlying management's estimation of fair value are as
follows:
Agricultural land
Most of the agricultural land is valued using the market comparison basis,
with an adjustment made for the length of the remaining term on any tenancy
and the estimated cost to bring the land to its highest and best use. Where
the asset is subject to a secure letting, it is valued on a yield basis, based
upon sales of similar types of investment.
Natural resources
Natural resource sites in the portfolio are valued based on discounted cash
flow for the operating life of the asset with regard to the residual land
value.
Investment Portfolio
The industrial & logistics investment properties are valued on the basis
of market comparison with direct reference to observable market evidence
including current rent and estimated rental value (ERV), yields and capital
values and adjusted where required for the estimated cost to bring the
property to its highest and best use. The evidence is adjusted to reflect the
quality of the property assets, the quality of the covenant profile of the
tenants and the reliability/volatility of cash flows. The Group's portfolio
has a spread of yields. In the past, income acquisitions have been made at
high yields where value can be added. As assets are enhanced and improved,
these would also be expected to be valued at lower yields. Subject to market
backdrop, properties that are built by Harworth will be modern Grade A with
typically lower yields.
Major developments
Major development sites are generally valued using residual development
appraisals, a form of discounted cash flow which estimates the current site
value from future cash flows measured by current land and/or completed built
development values, observable or estimated development costs, and observable
or estimated development returns. Where possible development sites are valued
by direct comparison to observable market evidence with appropriate adjustment
for the quality and location of the property asset, although this is generally
only a reliable method of measurement for smaller development sites.
Strategic land
Strategic land is valued on the basis of discounted cash flow, with future
cash flows measured by current land values adjusted to reflect the quality of
the development opportunity, the potential development costs estimated by
reference to observable development costs on comparable sites, and the
likelihood of securing planning consent. The valuations are then benchmarked
against observable land values reflecting the current existing use of the
land, which is generally agricultural and, where available, observable
strategic land values. The discounted cash flows across the different property
categories utilise value per acre, which takes account of the future
expectations of sales over time discounted back to a current value, and cost
report totals, which take account of the cost, as at today's value, to
complete remediation and provide the necessary site infrastructure to bring
the site forward.
9. Investment in joint ventures
As at As at
31 December
31 December
2022
2021
£'000
£'000
At start of year 36,131 25,316
Investment in joint ventures 1,849 1,624
Distributions from joint ventures (665) (34)
Share of (loss)/profit of joint ventures (7,487) 9,853
Impairment - (628)
At end of year 29,828 36,131
10. Inventories
As at As at
31 December
31 December
2022
2021
£'000
£'000
Development properties 204,952 172,701
Planning promotion agreements 2,994 3,865
Option agreements 8,447 1,154
Finished goods - 102
Total inventories 216,393 177,822
The movement in development properties is as follows:
As at As at
31 December
2022 31 December
£'000
2021
£'000
At start of year 172,701 177,712
Acquisitions - 40
Subsequent expenditure 35,430 29,482
Disposals (57,857) (39,008)
Net realisable value provision release (395) 5,186
Re-categorisation from/(to) investment properties 55,073 (711)
At end of year 204,952 172,701
Subsequent expenditure is recorded net of government grant receipts of £2.7m
(2021: £1.9m)
The movement in net realisable value provision was as follows:
As at As at
31 December
31 December
2022
2021
£'000
£'000
At start of year 12,154 17,340
Charge for the year 7,074 1,574
Reversal of previous net realisable value provision (5,030) (4,393)
Released on disposal (1,649) (2,367)
Released on transfer to investment property (2,773) -
At end of year 9,776 12,154
11. Assets held for sale
AHFS relate to investment properties identified as being for sale within 12
months, where a sale is considered highly probable and the property is
immediately available for sale.
As at As at
31 December
31 December
2022
2021
£'000
£'000
At start of year 1,925 7,594
Net transfer from investment properties 67,303 10,554
Subsequent expenditure 1 1
(Decrease)/increase in fair value (199) 1,078
Disposals (9,240) (17,302)
At end of year 59,790 1,925
12. Cash
As at As at
31 December
31 December
2022
2021
£'000
£'000
Cash 11,583 12,037
13. Borrowings
As at As at
31 December 31 December
2022 2021
£'000 £'000
Current:
Secured - infrastructure loans and direct development loans (3,067) -
(3,067) -
Non-current:
Secured - bank loans (34,558) (33,318)
Secured - infrastructure loans and direct development loans (22,353) (4,463)
(56,911) (37,781)
Total borrowings (59,978) (37,781)
Loans are stated after deduction of unamortised fees of £2.0m (2021: £1.2m).
As at As at
31 December
31 December
2022
2021
£'000
£'000
Infrastructure loans
Scrudf Limited Partnership Rockingham (1,413) -
Merseyside Pension Fund Bardon Hill (20,940) (1,572)
North West Evergreen Limited Partnership Plot H Logistics North, Bolton (3,067) (2,891)
Total infrastructure loans (25,420) (4,463)
Bank loans (34,558) (33,318)
Total borrowings (59,978) (37,781)
In March 2022, the Group entered into a new five year £200m RCF, with a £40m
uncommitted accordion option, which replaced the previous RCF which had been
in place since 2015. NatWest and Santander continue to provide bank borrowings
in this new RCF and have been joined by HSBC.
The RCF is subject to financial and other covenants. The bank borrowings are
secured by way of a floating debenture over assets not otherwise used as
security under specific infrastructure loans. Proceeds from and repayments of
bank loans are reflected gross in the Consolidated Statement of Cash Flows and
reflect timing of utilisation of the RCF.
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 sites.
14. Share capital
Issued, authorised and fully paid
As at As at
31 December 31 December
2022 2021
£'000 £'000
At start of year 32,272 32,253
Shares issued 33 19
At end of year 32,305 32,272
Issued, authorised and fully paid - number of shares
As at As at
31 December 31 December
2022 2021
At start of year 322,724,566 322,530,807
Shares issued 326,558 193,759
At end of year 323,051,124 322,724,566
Own shares held (438,439) (185,282)
At end of year 322,612,685 322,539,284
15. Related party transactions
The Group carried out the following transactions with related parties. The
following entities are related parties as a consequence of shareholdings,
joint venture arrangements and partners of such and/or common Directorships.
All related party transactions are clearly justified and beneficial to the
Group, are undertaken on an arm's-length basis on fully commercial terms and
in the normal course of business.
Year ended/as at Year ended/as at
31 December
31 December
2022
2021
£000
£000
PEEL GROUP
Sales
Disposal proceeds at Logistics North - 2,019
Additions
Reimbursement of technical due diligence - 91
Receivables
Deferred consideration for land at Logistics North - 200
MULTIPLY LOGISTICS NORTH HOLDINGS LIMITED
& MULTIPLY LOGISTICS NORTH LP
Sales
Recharges of costs - 136
Asset management fee 145 271
Water charges 113 107
Receivables
Trade receivables - 66
GENUIT GROUP (FORMERLY POLYPIPE)
Sales
Rent 20 25
Receivables
Trade receivables 6 6
THE AIRE VALLEY LAND LLP
Receivable 26 26
CRIMEA LAND MANSFIELD LLP
Partner loan repayment - (30)
Receivable 9 -
NORTHERN GATEWAY DEVELOPMENT VEHICLE LLP
Investment in the year 1,849 1,003
Receivable - 25
INVESTMENT PROPERTY FORUM
Purchases 1 -
BANKS GROUP*
Sales
Annual option sums - 5
BATES REGENERATION LIMITED*
Shareholder loan repayment - (4)
* Banks Group and Bates Regeneration Limited ceased to be related parties in
October 2021.
16. Post balance sheet events
There are no post balance sheet events to disclose that have not been
disclosed publicly by a regulatory news announcement.
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