Company Announcements

 

13^th September 2022

 Harworth Group plc

Half Year Results for the six months ended 30 June 2022

Delivery on strategy and robust demand drive significant first half valuation growth

 

Harworth Group plc ("Harworth" or the "Group"), a leading regenerator of land and property for sustainable development and investment, today announces its half year results for the six months ended 30 June 2022.

 

Key Non-Statutory Measures(1)	H1 2022	H1 2021	FY 2021	Key Statutory Measures	H1 2022	H1 2021	FY 2021
Total Return (%)	14.1	15.4	24.6	Operating profit (£m)	99.9	76.5	121.9
EPRA NDV per share (p)(2)	224.7	183.2	197.6	Net asset value (£m)	655.1	541.0	578.0
Value gains (£m)	110.3	107.5	160.5	Total dividend per share (p)(3)	0.404	0.367	1.2
Net loan to portfolio value (%)	7.6	13.4	3.4	Net debt (£m)	67.8	100.2	25.7

 

Lynda Shillaw, Chief Executive of Harworth, commented: "Harworth made significant operational and financial progress in the first half. We undertook a record level of direct development in our industrial & logistics portfolio, continued to accelerate our residential sales, and made several acquisitions to grow our development pipeline. It is our management actions that have materially contributed to the growth in EPRA NDV, supported by the strong market during the period for our residential and industrial & logistics products, demonstrating that we are continuing to deliver successfully against our growth strategy outlined a year ago.

 

"We are alive to the complex geopolitical and macroeconomic environment impacting economies across the world, and we remain closely attuned to the potential impact on our markets. We are confident that Harworth's strong financial position, and the scale and mix of our portfolio, positions us well to respond to these challenges and adapt to the changing risk environment. However, as previously stated, it is our expectation that as a result of this market backdrop, valuation gains during 2022 are likely to be first half-weighted.

 

"The supply and demand factors supporting our markets have been resilient to date, our pipeline remains robust, and our through-the-cycle investment and management actions continue to drive value across our portfolio. Our proven successful track record as a developer of large complex sites to create high-quality sustainable places provides a solid platform for growth as we continue to deliver on our strategic plan to reach £1bn of EPRA NDV."

 

Strong returns, driven by management actions and structural growth in our markets

·     Total Return⁽¹⁾ of 14.1% (H1 2021: 15.4%)

·     EPRA NDV⁽¹⁾⁽²⁾ per share increased by 13.7% to 224.7p (31 Dec 2021: 197.6p), driven by valuation gains across both industrial & logistics and residential sites, largely resulting from progress at our development sites

·      EPRA NDV increased by 13.7% to £724.8m (31 December 2021: £637.5m)

·      An underlying increase of 10% in the interim dividend per share to 0.404p, in line with the Group's dividend policy

 

Increased direct development unlocking value from 32.2m sq. ft industrial & logistics pipeline 

·    Currently, 97% of budgeted industrial & logistics land sales for the year have completed, exchanged or in heads of terms, either in line with, or at a premium to, 31 December 2021 book value 

·    After period-end, reached practical completion on 432,000 sq. ft, including 332,000 sq. ft of Grade A space at Bardon Hill, Leicestershire, which is 92% let and has embedded Net Zero Carbon principles in its design

·    Development underway on a further 203,000 sq. ft at the Advanced Manufacturing Park ("AMP"), Waverley and Gateway 36, Barnsley

·     After period-end, completed the sale of Kellingley development site in North Yorkshire for £54.0m, in line with 30 June 2022 valuation and at a significant premium to pre-sale book value

 

Progressing 28,990 plot residential pipeline through sales of serviced plots, and launch of single-family Build to Rent ("BTR") product

·     Currently over 100% of budgeted residential plot sales for the year have completed, exchanged or are in heads of terms, either in line with, or at a premium to, 31 December 2021 book value 

·     Completed the Group's largest serviced residential land sale to date: a £29m sale at Waverley to Barratt and David Wilson Homes, capable of delivering approximately 450 homes  

·     Diversification of residential product with launch of a portfolio of up to 1,200 single-family BTR homes to be built across 10 sites, and to be delivered through a forward funding agreement: significant interest received and exchange targeted for later in 2022

 

Targeting a 12-15 year land supply through acquisitions and progressing sites through planning 

·     1,143 plots and 3.9m sq. ft added to Harworth's total development pipeline in the first half, predominantly through land assembly acquisitions for future strategic sites

·   Targeting planning determinations in the next six months for 3.0m sq. ft of industrial & logistics space across: Gascoigne Wood, North Yorkshire; Skelton Grange, Leeds; and Houghton Main, Barnsley

 

Investment Portfolio showing strong operational metrics: 

·      A vacancy rate⁽⁴⁾ of 3.9% as at 30 June 2022 (31 December: 4.1%) with 99% of rent collected for the first half

·    Completed leasing deals added £0.1m of annualised rent; new lettings at an average 17% premium to estimated rental values ("ERVs"), and renewals on average 15% ahead of previous passing rent 

 

Maintaining a strong balance sheet and financial position, with low LTV and significant available liquidity 

·    As at 30 June 2022, net debt was £67.8m (31 December 2021: £25.7m) resulting in a net loan to portfolio value of 7.6% (31 December 2021: 3.4%) 

·    Available liquidity as at 30 June 2022 of £144.4m (31 December 2021: £128.0m), following the signing of a new £200m revolving credit facility ("RCF") earlier in the period; 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 per share

(3)     The Ex-dividend date, Record date and Payment date for the 2022 interim 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) Kitty Patmore (Chief Financial Officer) Tom Loughran (Head of Investor & Stakeholder Relations)	T: +44 (0)114 349 3131 E: investors@harworthgroup.com
FTI Consulting
Dido Laurimore Richard Gotla Eve Kirmatzis	T: +44 (0)20 3727 1000 E: Harworth@fticonsulting.com

 

Results presentation

 

Harworth will host a presentation for analysts and investors at 9.30am today. A live webcast and playback of this presentation can be accessed at the following link: https://stream.brrmedia.co.uk/broadcast/62fe2a8b00178269f821b014

 

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 approximately 14,000 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

 

Chief Executive's Review

 

In September last year, we unveiled our strategy to grow Harworth to £1bn of EPRA NDV*, centred around four key drivers of growth. One year on, I am delighted to report that the business is delivering across all areas of this strategy. Our strong operational and financial performance during the first half is testament to this progress, as well as the strength of the market for our residential and industrial & logistics products.

 

The supply and demand factors underlining our performance have been resilient to date, our pipeline is robust and our through-the-cycle investment and management actions continue to drive value across our portfolio. However, notwithstanding our significant achievements during the period, the macroeconomic backdrop has undoubtedly become more challenging, and we are closely attuned to the potential impact this may have on our business and our focus markets.

 

Our markets

 

Harworth's focus markets of residential and industrial & logistics remain characterised by favourable supply and demand dynamics.

 

The industrial & logistics market saw record demand in the first half of 2022 according to data from Savills, with take-up for units over 100,000 sq. ft totalling 28.6m sq. ft, surpassing the previous record of 24.5m sq. ft set in the first half of 2021. The market also saw increased diversity of occupier demand. For example, online retailers accounted for just 18% of the first half take-up, compared with 35% in the previous year, but this reduction was more than offset by third-party logistics companies and the manufacturing and automotive sectors, which took more space in the first half of 2022 than in the whole of 2021. Supply for these units meanwhile remains constrained, rising by only 1% in the first half, which has resulted in a low vacancy rate of just 3% market-wide. When all space under construction to be delivered during 2022 and 2023 is added to current supply, it would remain below the five-year average vacancy and represents only a year's worth of supply in our regional markets (based on long-term take-up data).

 

However, the industrial & logistics sector is not immune from the current macroeconomic headwinds, rising interest rates and the tightening of debt markets. ONS data suggests that squeezed household budgets and low consumer confidence are already impacting retail sales, and this will potentially impact demand for space from online and high street retailers. Nevertheless, many drivers of demand, such as the increase in on-shoring and near-shoring, and the drive from occupiers and investors for more sustainable buildings, represent long-term structural shifts and will provide some resilience through the cycle.

 

Turning to the residential market, reporting from UK housebuilders and industry data suggests that, although the strong momentum in the market seen during the first half is easing, orderbooks remain elevated, cancellation rates are still low and so far build cost inflation has been offset by house price inflation. More recent indicators suggest that the impact of rising interest rates on mortgage affordability, and increasing inflation on household budgets are likely to begin to impact pricing. That said, supply of new homes still remains close to record lows, with a mix of factors such as planning delays, a shortage of labour, a lack of near-term sites, and supply chain issues all restricting supply. This tightness in the market has been evidenced at a number of our sites, with a very competitive bidding environment for our serviced residential plots, which are a highly attractive de-risked product for housebuilders.

 

The BTR housing market is performing strongly, with supply and investment volumes in the first half significantly above the long-term average across the sector, and the largest pipeline ever of developments currently in planning, according to data from Savills and the British Property Federation. Despite this, it is estimated that of the 237,000 BTR homes currently under construction, only 8% are in suburban locations. This highlights the difficulty for developers in reaching the necessary scale in this market, and the sizeable opportunity for Harworth as it progresses its single-family BTR product.

 

Operational performance

 

Our strategy, outlined in September 2021, set out a clear road map for our ambition to grow EPRA NDV* to £1bn, through:

 

·      increasing direct development of industrial & logistics stock;

·      accelerating sales and broadening the range of our residential products;

·      scaling up land acquisitions and promotion activities; and

·      repositioning our Investment Portfolio to modern Grade A.

 

We have continued to deliver across all elements of our strategy. First, levels of direct development of industrial & logistics stock has reached new highs, with 432,000 sq. ft completed just after period end, including our Bardon Hill development, which embeds Net Zero Carbon principles and is already 92% pre-let to several occupiers including a manufacturer and third-party logistics specialist, with significant interest in the final unit. We are also underway with a further 203,000 sq. ft across two established development sites at the AMP and Gateway 36. Together, these mark significant progress towards our ambition of developing an average 800,000 sq. ft per annum by the end of our strategic plan.   

 

In our residential portfolio, over 100% of budgeted residential land sales were either completed, exchanged or in heads of terms at period-end, comprising mainly serviced land parcels. During the first half we completed our single largest residential land sale, with Barratt and David Wilson Homes, which will deliver up to 450 new houses at Waverley. We also launched our first single-family BTR portfolio of up to 1,200 homes to be built across 10 sites, which has attracted significant levels of interest from potential funding partners. 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 2,000 residential plots per annum.

 

Turning to acquisitions, we grew our strategic landbank by 1,143 plots and 3.9m sq. ft of industrial & logistics space in the first half. This predominantly relates to land assembly projects, and negotiations are underway on remaining land parcels at these sites in order to progress these to the next stage of development. The size of our landbank remains a key differentiator for us, providing flexibility, smoothing our returns profile at a portfolio level and unlocking exciting new opportunities for the business.

 

Finally, our Investment Portfolio continued to deliver robust operational metrics, with a vacancy rate of just 3.9% at period end and 99% of rent currently collected for the first half. We also completed 47,900 sq. ft of leasing deals in the first half at significant premiums to estimated rental values and previous passing rents, whilst after the period-end we completed a number of such agreements at Bardon Hill. With the space at Bardon Hill added to the Investment Portfolio, the proportion of space that is Grade A rises from 11% at 31 December 2021 to 19% .

 

Financial performance

 

Strong operational progress translated into a strong financial performance in the first half, with Total Return of 14.1%, compared to 15.4% in the first half of 2021. Over the six months, EPRA NDV* at 30 June 2022 was £724.8m (31 December 2021: £637.5m) representing a per share increase of 13.7% to 224.7p.

 

Sales of serviced land and property, in addition to income from rent, royalties and fees, resulted in Group revenue of £62.6m (H1 2021: £18.9m). This increase derived primarily from accelerated serviced land sales in line with our growth strategy. Supported by this performance we declared an interim dividend of 0.404p (H1 2021: 0.367p) per share, representing a 10% increase in line with our policy.

 

As we enter a more uncertain economic period, we continue to maintain a strong balance sheet and financial position, with significant available liquidity to fund the delivery of our strategy, namely £144.4m as at 30 June 2022 (31 December 2021: £128.0m), following the signing of a new £200m RCF earlier in the year. Our net loan to portfolio value at period-end was 7.6% (31 December 2021: 3.4%), one of the lowest in our sector, affording us a high degree of flexibility and resilience.

 

Our people 

 

Our people have been, and will always continue to be, critical to our success. So far this year, we have increased resourcing across our central and regional teams in order for us to grow our landbank, build our presence in the regions and enhance our technical expertise to successfully deliver our strategy. We saw a record number of promotions across the business, reflecting both our commitment to recognise achievement and to develop our people, and our goal to retain and attract the best talent in the industry.

 

Sustainability is central to the way we work at Harworth and the developments that we deliver. In April we were delighted to appoint Peter Henry as our first Director of Sustainability, to work across the business and our stakeholders to further develop the scope and reporting of our sustainability programme, the Harworth Way, and ensure it is implemented. Peter has over a decade of existing experience working at a senior level at Harworth and has been integral to formulating many of our key driving principles for sustainable regeneration and placemaking. His initial focus has been to evolve and embed sustainable development principles into Harworth's large-scale regeneration projects and to develop Harworth's Net Zero Carbon pathway, and we look forward to sharing more details on our progress in those areas at year-end.

 

I would also like to welcome Marzia Zafar, who joined our Board in June as a Non-Executive Director. Marzia brings a wealth of experience in sustainability, having spent over 20 years working on policies and strategies to enable energy transition across many sectors. We are already benefitting from her expertise and perspectives, particularly in regard to our emerging strategy for our natural resources portfolio.

 

Outlook 

 

During the past couple of years, Harworth has performed consistently well despite an unprecedented macroeconomic backdrop of Brexit, the pandemic and Ukraine conflict. This resilience has not come about by accident: it is the result of deliberate management actions to focus on the right markets and products, build market-leading expertise, and maintain strong relationships with all stakeholders based on trust, shared values, and a track record of delivery.

 

Harworth is particularly well-positioned within our markets: we sell serviced and, therefore, de-risked residential land to housebuilders for the delivery of affordable products, we develop industrial & logistics sites in underserved regional markets, and the scale of our portfolio and range of our products, including our newly launched single-family BTR portfolio, provide significant diversification.

 

Over the past six months, the near-term outlook for the UK economy has weakened considerably. The war in Ukraine has had a dramatic impact on energy prices and food supply chains across Europe and beyond. Globally, inflation and interest rates have been rising and UK inflation stands at a 40-year high with interest rates rising sharply. This is placing huge pressure on household budgets and consumer confidence. We are beginning to see signs that both the residential and industrial & logistics markets are coming off record highs as a number of these factors begin to take hold. Debt markets are tightening as interest rates rise, and supply chains and labour markets remain restricted. Investors still have a substantial amount of capital to deploy into the right product in the right sectors, and Harworth's products are in two of the most resilient real estate asset classes and, fundamentally, both sectors are still undersupplied.

 

These economic stresses are impacting everyone, and whilst there is little we at Harworth can do to change these factors, we can ensure that we monitor and respond to them. We are confident that Harworth is well-placed to do this, and that we are adapting to the changing risk environment. However, it is our expectation at this stage that, as a result of this market backdrop, valuation gains during 2022 will be first half-weighted.

 

Harworth's strength comes from the long-term nature of our business and our ability to work through, and adapt to, changes in market cycles. Our substantial landbank gives us significant diversification and optionality, allowing us to change the nature, scale and pace of our development as these changes occur. We are passionate about what we do and how we do it, and believe that the developments that we bring forward across the North of England and the Midlands really matter to our regional economies as we continue to create sustainable places where people want to live and work.

 

Conclusion

 

The first half of 2022 has been one of significant strategic, operational, and financial momentum across our business, and I am so proud of what we have achieved as a team, working closely with our stakeholders. With a strong strategic direction, a focus on the right markets, and our extensive skillset, landbank and financial firepower, we look to the future with confidence. I would like to thank everyone at Harworth for their hard work and commitment in delivering these impressive first half results.

 

In concluding, I would also like to pay tribute to Her late Majesty Queen Elizabeth II, following her passing last Thursday. The Queen exemplified selfless dedication, compassion, and foresight throughout her remarkable 70-year reign, and she continues to be an inspiration to us all.

                                                                                                                                          

Lynda Shillaw

Chief Executive

13 September 2022

 

^*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 30 June 2022, the industrial & logistics pipeline totalled 32.2m sq. ft (31 December 2021: 28.2m sq. ft), of which 7.2m sq. ft was consented (31 December 2021: 7.3m sq. ft), and 6.1m sq. ft was in the planning system awaiting determination (31 December 2021: 6.1m sq. ft). The pipeline was 66% owned freehold, while 34% related to Planning Promotion Agreements ("PPAs") or Options.

 

Acquisitions and land assembly

 

Completed freehold industrial & logistics land acquisitions totalled £0.2m, and along with Options and PPAs signed in the period, added 3.9m sq. ft to the pipeline. These acquisitions form part of land assembly works at a number of new sites, meaning that further land parcel acquisitions are required before a masterplan is finalised.

 

Planning

 

At period end, 6.1m sq. ft was in the planning system and awaiting determination. We are targeting planning determinations over the next six months in relation to 3.0m sq. of space across three sites:

 

·    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 2.0m 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.

 

·    Houghton Main, Barnsley, West Yorkshire: Plans have been submitted for 206,000 sq. ft of flexible employment space, including ancillary parking and landscaping, on the site of the former Houghton Main Colliery.

 

Direct development and placemaking

 

After period-end, practical completion was reached on two direct developments:

 

·     A 100,000 sq. ft build-to-suit facility at the AMP in Waverley, South Yorkshire, on time and within budget. The unit was directly developed for sportswear manufacturer SBD Apparel, which has upsized from a smaller unit elsewhere at the AMP.

 

·     The Bardon Hill development in Leicestershire, providing 332,000 sq. ft of logistics and manufacturing space across six units. The site is currently 92% pre-let to a range of occupiers, underlining the demand for Grade A space in this strategically-located site just two miles from Junction 22 of the M1. Once completed, these lettings will generate an additional £2.2m of annualised rent.

 

As part of our Building Greener focus area, the construction process for Bardon Hill targeted the reduction of embodied carbon in construction through a sustainable approach to material specification and the offsetting of the remaining construction-related embodied carbon through the use of Verified Carbon Standard or Gold Standard schemes focused on tree planting and ecology, renewable energy, and social projects. The units are also designed to be capable of being Net Zero Carbon in operation through the inclusion of integrated renewable energy in the form of solar PV on roofs, enhanced build specification, and the incorporation of green lease terms.

 

The site also features storm attenuation ponds and a 10-acre wildlife centre, with extensive wildflower planting, habitats for wildlife and seating areas, ensuring protection for local wildlife and the provision of outdoor spaces to enhance employee wellbeing.

 

Direct development works totalling 203,000 sq. ft are currently underway at two sites:

 

·    AMP, Waverley, South Yorkshire: The next phase of the AMP will see the delivery of three buildings ranging from 15,000 sq. ft to 40,000 sq. ft, to be marketed as "R-Evolution Phase 4"

 

·     Gateway 36, Barnsley, South Yorkshire: The first part of Phase 2 on this site will see the delivery of three buildings ranging from 20,000 sq. ft to 49,500 sq. ft, which will be marketed as "R-Evolution 36". Demand for these units has been strong, with 38,500 sq. ft currently under offer and expressions of interest on the other units. This will support the development of two additional buildings as part of the second part of Phase 2, which will deliver a further 425,000 sq. ft of space.

 

Land sales

 

Currently, 97% of the Group's budgeted industrial & logistics land sales for the year have completed, exchanged or are in heads of terms. This includes the sale of the Kellingley site in North Yorkshire for £54.0m, which completed after period-end.

 

Residential land portfolio

 

As at 30 June 2022, the residential pipeline had the potential to deliver 28,990 housing plots (31 December 2021: 30,804), of which 7,071 were consented (31 December 2021: 9,978), and 811 were in the planning system awaiting determination (31 December 2021: 811). The pipeline was 49% owned freehold, while 51% was subject to PPAs, options or overages.

 

Acquisitions and land assembly

 

Completed residential land acquisitions totalled £1.5m and added 1,143 plots to the pipeline. These acquisitions form part of land assembly works at a number of new sites, meaning that further land parcel acquisitions are required before a masterplan can be finalised.

 

Plot sales

 

At period-end, over 100% of the Group's budgeted residential land sales for the year had completed, exchanged or were in heads of terms. This included completed residential land sales totalling 1,652 plots (H1 2021: 728 plots), with the significant increase on the prior year mainly due to the expediting of sales to take advantage of particularly buoyant housebuilder demand. Sales were either in line with, or ahead of, 31 December 2021 valuations, and the headline sales prices ranged from £46k to £64k per serviced plot (H1 2021: £36k to £77k).

 

Sales were completed with a range of housebuilders, and included the Group's largest serviced land sale to date by number of residential plots, being a £29m sale at Waverley to Barratt and David Wilson Homes, for the delivery of 450 new homes. The period 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 £3.7 million in fees.

 

Marketing also began for the first phase of serviced residential land at our Ironbridge development in Shropshire, which has adopted the marketing name 'Benthall Grange'. Significant interest was received, and heads of terms have been agreed with a purchaser after period-end.

 

Placemaking

 

At South East Coalville in Leicestershire, plans are well advanced to deliver a new sustainable community within the National Forest, which will see the provision of over 2,000 homes, a local centre, primary school and extensive green space. Placemaking works are continuing on site, with the submission in May of a planning application 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.

 

At Waverley in South Yorkshire, construction is underway of a new 150-bedroom hotel, which will also feature a restaurant and gym facilities. The hotel will occupy a prominent position at the entrance to the development, providing an important community asset for use by residents and businesses at the adjacent AMP. Planning permission has also been granted for a new primary health centre at the site, in conjunction with the local Clinical Commissioning Group, which will have capacity for 6,000 patients. Plans have also been approved for Highwall Park, a new 1.5km linear park running through the heart of development, which will connect the AMP to the Waverley lakes, and construction is expected to begin shortly.

 

Single family Built to Rent portfolio

 

In May, Harworth launched its single family BTR portfolio, of up to 1,200 homes across 10 development sites. This new product will be complementary to Harworth's existing product of serviced plots sold to housebuilders for their "build to sell" product, and will support the Group's ambition to sell 2,000 residential plots per annum. It will also help to diversify Harworth's residential product range and therefore strengthen its resilience in the face of any downturn in the build to sell market. The introduction of BTR housing will also add to the vibrancy and attractiveness of these existing communities, further enhancing the investment in delivering extensive green space, civic amenities and a well-designed public realm.

 

This product represents a unique forward funding and long-term investment opportunity for a prospective partner, and bids have been invited based on two potential funding models: a fully forward funded model and the option for Harworth to co-invest, taking at least a 10% stake in any holding vehicle. Exchange of contracts with a potential partner is targeted by the end of 2022, and the product is expected to be delivered over the subsequent three years.

 

Investment portfolio

 

This portfolio comprises industrial & logistics assets that have been acquired 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 30 June 2022, it does not include Bardon Hill, which reached practical completion after period end.

 

As at 30 June 2022, the Investment Portfolio comprised 18 sites covering 3.7m sq. ft (31 December 2021: 18 sites covering 3.7m sq. ft). It generated £17.9m of annualised rent (31 December 2021: £18.0m), equating to a gross yield of 6.1% (31 December 2021: 6.5%) and a net initial yield of 5.2% (31 December 2021: 5.6%). Annualised rent reduced marginally during the period but increased on a like-for-like basis. Grade A space represented 11% of the portfolio (31 December 2021: 11%).

 

During the first half, 47,900 sq. ft of leasing deals were completed, adding £0.1m of annualised rent. Lease renewals and regears were completed at terms which, on average, represented a 15% uplift to previous passing rents. New lettings were completed on average at a 17% premium to 31 December 2021 estimated rental values ("ERVs").

 

The portfolio had an average rent per tenant of £6.48 per sq. ft at 30 June 2022 (31 December 2021: £6.32) and a weighted average rent of £4.63 per sq. ft (31 December 2021: £4.50).

 

Across the Investment Portfolio, operational metrics remained strong, with 99% of rents falling due in the first half currently collected, vacancy falling to 3.9% as at 30 June 2022 (31 December 2020: 4.1%), and a robust Weighted Average Unexpired Lease Term ("WAULT") of 11.1 years as at 30 June 2022 (31 December 2021: 11.5 years).

 

Natural Resources portfolio

 

The Natural Resources portfolio comprises sites used for a wide range of energy production and extraction purposes, including wind and solar energy schemes, battery storage and methane capture. In the first half of the year, it generated £4.0m of annualised gross rent (31 December 2021: £4.1m).

 

A review of the strategy for this portfolio is underway 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. A further update on this strategy will be provided in the Full Year Results.  

 

The Harworth Way

 

Harworth's Purpose is to transform land and property into sustainable places where people want to live and work. A commitment to sustainability is embedded across the Group's culture, strategy and operations, and is seen as critical to making a lasting positive impact on communities and the environment. To this end, the first half saw the appointment of Harworth's first Director of Sustainability, Peter Henry, and also the appointment of Marzia Zafar, who has significant expertise in this area, as a Non-Executive Director.

 

In 2021, the Group committed to become Net Zero Carbon for Scope 1, Scope 2 and the business travel and employee commuting categories of Scope 3 emissions by 2030, and to become Net Zero Carbon for all emissions by 2040. Work is underway to formulate a pathway to reaching these targets, with the first step being to analyse the Group's embodied emissions, operational emissions and the opportunities that exist to develop an internal offset mechanism across different parts of the business. Further details will be provided in the Full Year Results announcement and the 2022 Annual Report.

Financial Review

 

Overview

 

Our first half financial performance was strong, delivering a Total Return (the movement in EPRA NDV* plus dividends per share paid in the period expressed as a percentage of opening EPRA NDV per share) of 14.1% (H1 2021: 15.4%). This was driven by delivering on the strategy we set out in September 2021, particularly the progress achieved on increased direct development and further acceleration across our residential sites capitalising on high demand for our serviced land product. Whilst EPRA NDV growth in the first half of 2022 was lower than the first half of 2021, it remains high relative to historical levels and reflects this active asset management within robust markets.

 

Sales of serviced land and property, in addition to income from rent, royalties and fees, resulted in Group revenue of £62.6m (H1 2021: £18.9m). This increase derived primarily from accelerated serviced land sales in line with our growth strategy. Looking forward, the sales profile is robust with over 100% of budgeted residential plot sales and 97% of budgeted industrial & logistics land sales for the full year completed, exchanged or subject to heads of terms (September 2021: 100% of all budgeted sales completed, exchanged or subject to heads of terms). This includes the sale of our Kellingley site which completed in early September for £54m cash consideration. Fees from PPA and build to suit development revenue totalled £7.9m (H1 2021: £nil) and within the Investment Portfolio, rent collection remained strong, with 99% collected for the first half of the year to date.

 

BNP Paribas and Savills, our independent valuers, completed a desktop valuation of our portfolio as at 30 June 2022, resulting in valuation gains* during the period of £105.5m (H1 2021: £105.7m), including the movement in the market value of development properties, in addition to profit on sales of £4.9m (H1 2021: £1.9m). These external independent valuations demonstrate the impact of development progress and placemaking across the portfolio supported by the continued strength through H1 2022 of the industrial & logistics market for both investment properties and development land, and the continued robust demand for residential serviced land. 

 

The fair value of investment properties increased by £85.3m (H1 2021: £66.5m), which contributed to an operating profit to 30 June 2022 of £99.9m (H1 2021: £76.5m) and a profit after tax of £79.1m (H1 2021: £56.4m). 

 

Over the six months, net asset value grew to £655.1m (31 December 2021: £578.0m). With EPRA adjustments for development property valuations included, EPRA NDV* at 30 June 2022 was £724.8m (31 December 2021: £637.5m) representing a per share increase of 13.7% to 224.7p (31 December 2021: 197.6p).  

 

The Group has declared an interim dividend of 0.404p (H1 2021: 0.367p) per share, representing a 10% increase in line with our policy.

 

During the period, a new five-year £200m RCF was agreed, together with a £40m uncommitted accordion facility. We welcomed HSBC to our lender syndicate alongside existing lenders NatWest and Santander. This new facility provides greater flexibility and the additional liquidity will support the delivery of our growth strategy.

 

Presentation of financial information

 

As our property portfolio includes development properties and joint venture arrangements, 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 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 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 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 and cash equivalents 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 interim 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

 

	H1 2022				H1 2021
	Capital Growth £m	Income Generation £m	Central £m	Total £m	Capital Growth £m	Income Generation £m	Central £m	Total £m
Revenue	47.0	15.6	-	62.6	5.2	13.6	-	18.9
Cost of sales	(32.9)	(4.2)	-	(37.1)	0.8	(3.6)	-	(2.8)
Gross profit	14.1	11.4	-	25.5	6.0	10.0	-	16.0
Administrative expenses	(2.1)	(1.3)	(7.5)	(10.9)	(1.6)	(1.2)	(5.9)	(8.7)
Other gains	72.6	12.8	-	85.4	44.9	24.3	-	69.2
Operating profit/(loss)	84.5	22.9	(7.5)	99.9	49.3	33.1	(6.0)	76.5
Share of profit of JVs	1.0	1.2	-	2.2	2.2	2.9	-	5.1
Net interest expense	-	-	(3.4)	(3.4)	0.1	-	(1.7)	(1.5)
Profit/(loss) before tax	85.6	24.1	(10.9)	98.8	51.7	36.0	(7.7)	80.1
Tax charge	-	-	(19.7)	(19.7)	-	-	(23.6)	(23.6)
Profit/(loss) after tax	85.6	24.1	(30.6)	79.1	51.7	36.0	(31.3)	56.4

 Note: There are minor differences on some totals due to roundings

 

Revenues in H1 2022 were £62.6m (H1 2021: £18.9m), of which Capital Growth contributed £47.0m (H1 2021: £5.2m) and Income Generation £15.6m (H1 2021: £13.6m).  

 

Increased Capital Growth revenue, which primarily relates to the sale of development properties, reflected accelerated land sales. Capital Growth revenue also includes fees from PPAs of £3.7m (H1 2021: £nil) and build to suit development revenue totalling £4.2m (H1 2021: £nil), including the construction of a new 100,000 sq. ft facility at the AMP following on from 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 £15.6m (H1 2021: £13.6m) was higher as a result of increased rental income, following the 2021 property acquisition of Towngate Business Park, Widnes and asset management initiatives, and increased royalty income. Rental income from the Investment Portfolio decreased on an annualised basis from £18.0m to £17.9m in the first half of 2022, but increased on a like-for-like basis by £0.1m when the office in the portfolio, our head office, is excluded.

 

Cost of sales comprises the inventory cost of development property sales, costs incurred in undertaking build to suit development and the direct costs of the Income Generation business. Cost of sales increased to £37.1m (H1 2021: £2.8m) of which £26.8m related to the inventory cost of development property sales (H1 2021: £1.5m) and also included additional costs related to build to suit development not incurred in the previous year. In H1 2022, we saw a net reduction in the net realisable value provision on development properties of £2.4m (H1 2021: £2.4m) following the valuation process as at 30 June 2022.   

 

Administrative expenses increased in H1 2022 by £2.2m. This was principally due to higher salary expenses, resulting from increased employee numbers reflecting the growth in the Group to deliver our strategy. Administrative expenses expressed as a percentage of revenue remained in line with the year ended 31 December 2021 at 17% reflecting increased sales of development property offsetting the increase in administrative expenses.

 

Other gains comprised an £85.3m (H1 2021: £67.6m) net increase in the fair value of investment properties and assets held for sale ("AHFS") plus the profit on sale of investment properties, AHFS and overages of £0.1m (H1 2021: £1.6m).

 

Joint venture profits of £2.2m (H1 2021: £5.1m) were largely a result of an increase in the value of the Logistics North Multiply site (£1.2m) and Aire Valley Land (£1.0m). 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		H1 2022			H1 2021			30 June 2022	31 Dec 2021
	Categorisation	Profit on sale	Revaluation gains/(losses)	Total	Profit on sale	Revaluation gains/(losses)	Total	Total valuation	Total valuation
Capital Growth
Major Developments	Mixed	4.7	49.3	53.9	1.3	51.2	52.5	366.5	308.2
Strategic Land	Investment	0.2	42.1	42.3	0.1	28.6	28.7	192.4	144.0
Income Generation
Investment Portfolio	Investment	-	14.7	14.7	0.1	25.3	25.4	294.5	277.5
Natural Resources	Investment	-	(0.7)	(0.7)	-	0.4	0.4	29.8	30.6
Agricultural Land	Investment	-	0.1	0.1	0.4	0.2	0.6	5.5	5.4
Total		4.9	105.5	110.3	1.9	105.7	107.5	888.7	765.7

Notes: A full description and reconciliation of the APMs in the above table is included in Note 2 to the condensed consolidated interim financial statements. There are some minor differences on some totals due to roundings. Movement in Total Valuation from 31 December 2021 to 30 June 2022 is net of acquisitions and disposals.

 

The principal revaluation gains and losses across the divisions reflected the following: 

 

·   Major Developments: key contributions included direct development progress, particularly at our Bardon Hill development, progress towards meeting the Kellingley sale conditions, and continued robust housebuilder demand for residential sites; 

·     Strategic Land: the strong half year performance included progress at our Ironbridge site which will shortly move from demolition and remediation into development, as well as master planning of other earlier stage sites coupled with continued demand for well-located industrial & logistics sites; 

·      Investment Portfolio:  management driven gains with solid rent collection and good letting progress achieved across our portfolio reducing vacancy and increasing rents;  

·      Natural Resources: valuations remained broadly consistent; and 

·      Agricultural Land: valuations remained broadly consistent

 

Profit on sale of £4.9m (H1 2021: £1.9m) reflected the completion of sales above book value. Revaluation gains were £105.5m (H1 2021: £105.7m) and are outlined in the table below.

 

		H1 2022 £m	H1 2021 £m
Increase in fair value of investment properties		85.3	66.5
Increase in fair value of AHFS		-	1.1
Movement in net realisable value provision on revaluation of development properties		2.4	2.4
Contribution to statutory operating profit		87.7	70.0
Share of profit of joint ventures		2.2	5.1
Unrealised gains on development properties and overages*		15.6	30.5
Total non-statutory revaluation gains		105.5	105.7

 

The net realisable value provision as at 30 June 2022 was £6.3m (31 December 2021: £12.2m) and was held against five development properties. The movement in the net realisable value provision reflects the valuation increase of development properties of £2.4m, the net realisable value provision released on disposal of £0.7m and the net realisable value provision released on transfer to investment property of £2.8m. This provision is held to reduce the value of these development properties from their deemed cost (the fair value at which they were transferred from investment to development property plus additional development expenditure) to their net realisable value at 30 June 2022 where lower than cost. 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* of £39.0m in H1 2022 (H1 2021: £11.5m), achieving a total profit on sale of £4.9m (H1 2021: £1.9m).  Sales comprised residential plot sales of £38.8m (H1 2021: £0.5m), industrial & logistics land sales of £0.2m (H1 2021: £4.1m) and sales of other, mainly mature, income-generating sites and agricultural land, of £nil (H1 2021: £6.9m).  

 

Cash proceeds from sales in the period were £33.7m (H1 2021: £20.4m) as shown in the table below:

 

	H1 2022 £m	H1 2021 £m
Total property sales(1)	39.0	11.5
Less deferred consideration on sales in the period	(5.3)	-
Add receipt of deferred consideration from sales in prior years	-	8.9
Total cash proceeds	33.7	20.4

(1)      A full description and reconciliation of APMs is included in Note 2 to the condensed consolidated interim financial statements.

 

Tax

 

The income statement charge for taxation for the period was £19.7m (H1 2021: £23.6m) which comprised a current tax charge of £3.9m (H1 2021: £1.8m) and a deferred tax charge of £15.8m (H1 2021: £21.8m).  

 

The current tax charge resulted primarily from profits from the sale of development properties, investment properties and a change in the utilisation of losses. The deferred tax charge largely related to unrealised gains on investment properties.

 

At 30 June 2022, the Group had deferred tax liabilities of £62.6m (31 December 2021: £46.9m) and deferred tax assets of £4.0m (31 December 2021: £4.3m). The net deferred tax liability was £58.6m (31 December 2021: £42.6m). 

 

Basic earnings per share and dividends

 

Basic earnings per share for the year increased to 24.5p (H1 2021: 17.5p) reflecting the increase in the valuation of the land and property portfolio as at 30 June 2022. 

 

The Board has determined that it is appropriate for an interim dividend to be paid of 0.404p (H1 2021: 0.367p) per share, an increase of 10% in line with the Group's 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.  Where development relates to future income producing assets expected to be held within the Investment Portfolio, these are held as investment property.

 

As at 30 June 2022, the balance sheet value of all our development properties was £160.4m (31 December 2021: £172.7m) and their independent valuation by BNP Paribas was £244.7m (31 December 2021: £245.2m), reflecting a £84.3m 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

 

		30 June 2022 £m	30 June 2021 £m	31 December 2021  £m
Properties(1)		800.0	684.6	689.8
Cash and cash equivalents		38.4	3.9	12.0
Trade and other receivables		71.6	57.0	55.1
Other assets		5.7	5.4	5.3
Total assets		915.7	750.9	762.2
Gross borrowings		106.2	104.2	37.8
Net deferred tax liability		58.6	37.7	42.6
Derivative financial instruments		-	0.5	0.2
Other liabilities		95.8	67.5	103.6
Statutory net assets		655.1	541.0	578.0
Mark to market value adjustment on development properties and overages less notional deferred tax(2)		69.7	49.7	59.5
EPRA NDV(2)		724.8	590.7	637.5
Number of shares in issue less Employee Benefit Trust & Equiniti Share Plan Trustees Limited -held shares		322,586,735	322,520,876	322,539,284
EPRA NDV per share(2)		224.7p	183.2p	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 condensed consolidated interim financial statements

 

EPRA NDV* at 30 June 2022 was £724.8m (31 December 2021: £637.5m) which includes the mark-to-market adjustment on the value of development properties and overages. The total portfolio value as at 30 June 2022 was £888.7m, an increase of £123.0m from 31 December 2021 (£765.7m).  

 

The Group's share of profit from joint ventures resulted in investments in joint ventures increasing to £39.5m (31 December 2021: £36.1m).  

 

Trade and other receivables include deferred consideration on sales as set out above. At 30 June 2022, deferred consideration of £32.6m (31 December 2021: £27.4m) was outstanding, of which 76% was due within one year.  

 

The table below sets out our top ten sites by value as at 30 June 2022, which represent 48% 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 in Balance Sheet	Region	Progress as at 30 June 2022
South East Coalville	Major Development	Development	Midlands	2,016 residential units consented, land sold representing 679 units
Ironbridge	Strategic Land	Investment	Midlands	1,000 residential units consented, now marketing first land parcel for sale
Kellingley(1)	Major Development	Development	Yorkshire & Central	1.4m sq. ft of industrial & logistics space consented, less than 0.1m sq. ft sold
Bardon Hill	Major Development	Investment	Midlands	Construction of 0.3m sq. ft of industrial & logistics completed post period-end
AMP	Investment Portfolio	Investment	Yorkshire & Central	2.1m sq. ft of industrial & logistics space consented, 1.6m sq. ft built or sold
Nufarm	Investment Portfolio	Investment	Yorkshire & Central	n/a
Ansty(2)	Strategic Land	Investment	Midlands	Proposed industrial & logistics site, planning not yet submitted
Knowsley	Investment Portfolio	Investment	North West	n/a
Gateway 36	Major Development	Investment	Yorkshire & Central	1.3m sq. ft of industrial & logistics space consented, of which 0.5m sq. ft is sold
Waverley	Major Development	Development	Yorkshire & Central	2,900 residential units consented, land sold representing 2,336 units

(1)         Kellingley development site sold post period-end

(2)         Contracts exchanged for the sale of the Ansty strategic land site in December 2021. Completion of the transaction is conditional on the granting of a hybrid planning permission.

 

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.  

 

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% during the 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 whilst allowing for growth in the portfolio.  

 

The Group intends to continue to enter into site-specific development and infrastructure loans alongside the main banking facilities 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 replaces the original RCF. NatWest and Santander continue to support us in the new RCF and we welcome 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 an LTV ratchet mechanism with a margin payable above SONIA in the range of 2.25% to 2.50%.

 

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 total borrowings and loans of £106.2m at 30 June 2022 (31 December 2021: £37.8m; 30 June 2021: £104.2m), being the new RCF drawn balance (net of capitalised loan fees) of £92.4m (31 December 2021: £33.3m) and infrastructure or direct development loans (net of capitalised loan fees) of £13.9m (31 December 2021: £4.5m).  The Group's cash and cash equivalents balances at 30 June 2022 were £38.4m (31 December 2021: £12.0m), higher as a result of the completion of the sale at Waverley on 30 June 2022 with sales proceeds applied to reduce debt at the beginning of July 2022. The resulting net debt was £67.8m (31 December 2021: £25.7m).   

 

Net debt* decreased with the completion of serviced land and property sales. The movements in net debt over the year are shown below: 

			30 June 2022 £m	30 June 2021  £m
Opening net debt as at 31 December			25.7	71.2
Cash (inflow)/outflow from operations			(3.2)	8.0
Property expenditure and acquisitions			31.2	22.3
Disposal of investment property, AHFS and overages			(0.1)	(8.6)
Investments in and distributions from joint ventures			1.1	0.5
Interest and loan arrangement fees			4.0	1.5
Dividends paid			2.7	4.7
Tax paid			6.9	0.4
Other cash and non-cash movements			(0.5)	0.2
Closing net debt as at 30 June			67.8	100.2

 

The weighted average cost of debt, using an end of month average 2022 balance and 30 June 2022 rates, was 2.89% with a 0.94% non-utilisation fee on undrawn RCF amounts (31 December 2021: 2.90% with a 0.9% non-utilisation fee). The weighted average term of debt is now 5 years (31 December 2021: 2.2 years).

  

From 2022, the Group's hedging strategy to manage its exposure to interest rate risk will be to hedge the lower of around half its average debt during the year or its net debt* balance at year end. With the completion of the new RCF in early 2022, the previous £45m fixed rate interest swap in place for the original RCF was terminated concurrently and at 30 June 2022, £13.9m of fixed rate loans were in place with no further interest rate hedging. Projected drawn debt and hedging requirements remain under active review with any new hedging put in place over the second half of 2022 aligned to future net debt requirements.

 

As at 30 June 2022, the Group's gross loan to portfolio value* was 12.0% (31 December 2021: 4.9%) and its net loan to portfolio value was 7.6% (31 December 2021: 3.4%). If gearing is assessed against the value of the core income generation portfolio (the Investment Portfolio and Natural Resources portfolio) only, this equates to a gross loan to core income generation portfolio value of 35.9% (31 December 2021: 13.0%) and a net loan to core income generation portfolio value of 22.9% (31 December 2021: 8.9%). Gross loans are higher at 30 June 2022 due to the seasonal nature of expenditure on our sites, alongside the timing of sales receipts on 30 June 2022. Under the new RCF, the Group could withstand a material fall in portfolio value, property sales or rental income before reaching covenant levels. 

 

At 30 June 2022, undrawn facilities under the new RCF were £106.0m, providing headroom to execute our growth strategy.

 

Conclusion

 

The first half of 2022 saw a strong financial performance for the Group, and we moved into the second half of the year in a solid position with low gearing and cash and available facilities of £144.4m with no refinance requirements for a further four years. Our sales are well progressed for the year and the Kellingley transaction completed post period end increasing our cash balances by £54.0 million.

 

We own the majority of our sites which allows us to determine the scale and pace of development each year to manage our risk profile. We have a track record of delivering value through management actions and as demonstrated over the last couple of years, we have a high level of discretionary spend and the ability to reduce development risk through a range of sales structures. We will continue to monitor closely the external environment and we will use these skills, our flexibility and our solid foundation to target our capital to drive long-term value for shareholders.

 

Kitty Patmore

Chief Financial Officer

13 September 2022

 

^*Harworth discloses both statutory measures and APMs. A full description and reconciliation to the APMs is set out in Note 2 to the interim financial statements

 

Appendix 1: Supplementary operational information

 

1.1  Main industrial & logistics sites (as at 30 June 2022)

 

Name	Location	Sold or developed (m sq. ft)	Consented or planned (m sq. ft)	Estimated GDV remaining to develop (£m)	Delivery time
Advanced Manufacturing Park	Rotherham, South Yorkshire	1.6	2.1 consented	50 - 60	to 2027
Gateway 36	Barnsley, South Yorkshire	0.5	1.3 consented	85 - 90	to 2026
Chatterley Valley	Stoke-on-Trent, Staffordshire	-	1.2 consented	140 - 150	to 2027
Wingates	Bolton, Greater Manchester	-	1.1 consented	160 - 170	to 2026
Bardon Hill	Coalville, Leicestershire	- (1)	0.3 consented	45 - 55	2022
Gascoigne Wood	Sherburn-in-Elmet, North Yorkshire	n/a	2.0 planned	240 - 260	to 2028
Rothwell	Rothwell, Northamptonshire	n/a	1.5 planned	240 - 250	to 2028
Skelton Grange	Leeds, West Yorkshire	n/a	0.8 planned	120 - 130	to 2027

(1)    Bardon Hill reached practical completion after period end

 

1.2  Main residential sites (as at 30 June 2022)

 

Name	Location	Sold (plots)	Consented or planned (plots)	Delivery time
Waverley	Rotherham, South Yorkshire	2,336	2,900(1) consented	to 2025
South East Coalville	Coalville, Leicestershire	679	2,016 consented	to 2031
Simpson Park	Harworth, Nottinghamshire	564	1,615 consented	to 2028
Pheasant Hill Park	Doncaster, South Yorkshire	540	1,200 consented	to 2027
Ironbridge	Ironbridge, Shropshire	-	1,000 consented	to 2030
Moss Nook	St Helens, Merseyside	256	900 consented	to 2026
Staveley	Staveley, Derbyshire	n/a	600 planned	to 2028

(1)    Consented plots revised to reflect the number of homes that can be built on remaining land at the site

 

 

 

 

 

 

Principal Risks & Uncertainties

 

A detailed explanation of the Group's risk management framework, the principal risks and uncertainties affecting the Group and the steps it takes to mitigate these risks, can be found on pages 70 to 77 of the Annual Report and Financial Statements for the year ended 31 December 2021 (the "2021 Annual Report"), available at harworthgroup.com/investors.

 

The challenging macroeconomic and geopolitical environment impacts certain of our principal risks, as the factors set out below continue to affect the growth of the UK economy:

-       Inflation reaching a 40-year high

-       Rising interest rates

-       The war in Ukraine and resultant increase in energy costs and supply chain disruption

-       Pressure on household budgets and a reduction in consumer confidence

-       Labour shortages

-    Uncertainty of the Government's response to the above factors pending, and now immediately following, the outcome of the Conservative leadership election

 

The impact of these factors on our 'residential and industrial & logistics markets' risk is becoming increasingly difficult to predict and is continuously evolving. Whilst there has unquestionably been a downturn in market sentiment and outlook over the summer, there has been limited evidence as yet of a reduction in demand across Harworth's core markets. In any event, our strong operational and financial performance during the Covid pandemic demonstrated that Harworth is well-positioned to capitalise on core markets which benefit from long-term, structural tailwinds: the Group sells serviced and therefore de-risked residential land to housebuilders; develops industrial & logistics sites in underserved regional markets; and the scale in its portfolio and range of products, including the newly launched single-family BTR portfolio, provides significant diversification. We have a strong operational base and can control which and when sites are brought forward, and whether risk is shared through the introduction of third-party capital. We remain well-capitalised with low gearing and a positive long-term outlook, which should enable the Group to mitigate and adapt to changes in the external environment.

 

The evolving macroeconomic headwinds also impact our 'supply chain and delivery partner management (counter-party)' risk, potentially exposing Harworth to increasing supplier and delivery partner failure and/or delays in delivery. In response, we are undertaking a thorough procurement review and transformation exercise to enhance our selection and management of counterparties to ensure that we remain well positioned to deliver against our key strategic objectives.

 

In recent weeks we have seen some evidence that the rate of cost inflation in our supply chain has softened. However, alongside skilled labour shortages in our sectors, we expect the supply chain to remain a challenge in the short term, such that our 'supply chain cost inflation and constraints' risk remains unchanged for the time being.

 

We are also alert to the impacts of energy security and rising energy costs across our occupier base and supply chain alongside the Government's accelerated commitments to address climate change. Throughout 2022 we are progressing our work to develop an Energy and Natural Capital strategy across our asset base and our Net Zero Carbon pathway to address our 'managing climate change transition' risk.  

 

Against the backdrop of the macroeconomic and geopolitical risks and opportunities outlined above, the Board has considered the principal risks and uncertainties which could affect Harworth for the remainder of the year and considers there has been no material change from those set out on pages 72 to 77 of the 2021 Annual Report. The Board is confident in the resilience of Harworth's business model and believes that existing mitigating actions remain appropriate as we focus on what can be controlled within the business. The residual risk ratings for the Group's 11 principal risks remain unchanged from the 2021 Annual Report. However, the rating for our 'residential and commercial markets' risk will trend from 'medium' to 'high' over the second half of the financial year if deteriorating market sentiment manifests itself in transactional evidence of a downturn in our core markets. We do not expect any material change to our other risk ratings over the second half of the year.

 

Directors' Responsibilities Statement

For the six months ended 30 June 2022

 

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

  

1.     the Condensed Consolidated Interim Financial Statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and in accordance with IAS 34 'Interim Financial Reporting' as contained in UK-adopted international accounting standards; and 

 

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

 

a.          Rule 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the six months ended 30 June 2022 and their impact on the Condensed Consolidated Interim Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and 

 

b.          Rule 4.2.8R of the Disclosure and Transparency Rules, being related parties' transactions that have taken place in the six months ended 30 June 2022 and that have materially affected the financial position or performance of the Group during that period, and any changes in the related parties' transactions described in the last Annual Report and Financial Statements that could do so. 

 

The Directors who served during the six months ended 30 June 2022 were as follows: 

  

Alastair Lyons	Chair
Lynda Shillaw	Chief Executive
Katerina Patmore	Chief Financial Officer
Angela Bromfield	Senior Independent Director
Ruth Cooke	Independent Non-Executive Director
Lisa Scenna	Independent Non-Executive Director
Patrick O'Donnell Bourke	Independent Non-Executive Director
Steven Underwood	Non-Executive Director
Martyn Bowes  Marzia Zafar (appointed 1 June 2022)	Non-Executive Director  Independent Non-Executive Director

  

By order of the Board 

  

Chris Birch 

General Counsel and Company Secretary 

13 September 2022 

 

  

Cautionary statement 

 

This report for the six months ended 30 June 2022 contains certain forward-looking statements with respect to the Company's financial condition, results, operations and business. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this report should be construed as a profit forecast. 

 

Directors' liability 

 

Neither the Company nor the Directors accept any liability to any person in relation to this report for the six months ended 30 June 2022 except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with section 90A of the Financial Services and Markets Act 2000. 

Shareholder Information 

 

Financial Calendar

 

Interim results for the six months ended 30 June 2022	Announced	13 September 2022
Interim dividend for the year ending 31 December 2022	Ex-dividend date  Record date  Payable	22 September 2022 23 September 2022  21 October 2022
Results for the year ending 31 December 2022	Announced	March 2023
Annual report and financial statements for the year ending 31 December 2022	Published	April 2023
2023 Annual General Meeting	Scheduled	May 2023
Final dividend for the year ending 31 December 2023	Payable	June 2023

 

Registrars

 

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

 

Dividend Mandate

 

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

 

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' printed on proxy forms or dividend stationery will be required. 

 

Website

 

The Group's website (harworthgroup.com) gives further information on the Group. Detailed information for shareholders can be found at harworthgroup.com/investors.

 

 

 

 

Consolidated income statement

	Note	Unaudited 6 months ended 30 June 2022 £'000	Unaudited 6 months ended 30 June 2021 £'000	Audited year ended 31 December 2021 £'000
Revenue	3	62,560	18,848	109,884
Cost of sales	3	(37,090)	(2,833)	(61,185)
Gross profit	3	25,470	16,015	48,699
Administrative expenses	3	(10,940)	(8,720)	(19,202)
Other gains	3	85,402	69,249	92,488
Other operating expense	3	(27)	(21)	(58)
Operating profit	3	99,905	76,523	121,927
Finance costs	4	(3,428)	(1,694)	(4,100)
Finance income	4	72	115	182
Share of profit of joint ventures	9	2,236	5,123	9,225
Profit before tax		98,785	80,067	127,234
Tax charge	5	(19,681)	(23,641)	(33,244)
Profit for the period/year		79,104	56,426	93,990
Earnings per share from continuing operations attributable to the owners of the Group		Pence	Pence	Pence
Basic	7	24.5	17.5	29.1
Diluted	7	24.2	17.4	28.9

The notes 1 to 15 are an integral part of these condensed consolidated interim financial statements.

All activities are derived from continuing operations.

 

Consolidated statement of comprehensive income

	Unaudited 6 months ended 30 June 2022 £'000	Unaudited 6 months ended 30 June 2021 £'000	Audited year ended 31 December 2021 £'000
Profit for the period/year	79,104	56,426	93,990
Other comprehensive income/(expense) - items that will not be reclassified to profit or loss:
Net actuarial gain in Blenkinsopp Pension scheme	388	200	262
Revaluation of Group occupied property	(34)	(62)	(200)
Deferred tax on other comprehensive expense items	(127)	(85)	(137)
Other comprehensive income - items that may be reclassified to profit or loss:
Fair value of financial instruments	156	340	670
Total other comprehensive income	383	393	595
Total comprehensive income for the period/year	79,487	56,819	94,585