Final Results
HARWORTH GROUP PLC
UNAUDITED PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2016
Harworth Group plc ("Harworth" or the "Group"), the brownfield regeneration and property investment specialist, announces its preliminary results for the year ended 31 December 2016.
Financial Highlights(1)
· Strong 2016 financial performance, with profits and net asset value (NAV) ahead of expectations
Ø NAV rose to £334.9m (115p per share), a 12.5% increase from 2015 NAV of £297.7m (102p per share)
Ø EPRA NAV, which excludes deferred tax and the mark to market movement on financial instruments, up to £350.1m (120p per share), a 13.3% increase from 2015 of £309.1m (106p per share)
Ø Operating profit of £45.8m(2) (2015: £37.9m), including value gains of £43.7m(3) (2015: £36.3m) and profit from operations of £2.2m (2015: £1.5m)
Ø Earnings per share of 3.5p (2015: 3.1p), underlying earnings per share 13.7p (2015: 12.2p)
Strategic and Operating Highlights
· Clear strategic focus on residential and commercial markets in our regions that continue to be supportive of growth. This reflects strong fundamentals, being the shortage of housing supply and available commercial space
Ø Six acquisitions (£31.6m) made including 50% purchase of the investment vehicle that owns Gateway 45, Leeds' largest live commercial development, and two North West business parks that are both fully-let; strengthening the income base and growing our geographic presence
Ø £58.9m of disposals made to capture value increases on mature residential and commercial sites and to increase our focus on sites with higher value add potential. Portfolio now comprises the ownership or management of 22,000 acres on over 140 sites
· Operational performance across all sectors was very good with continuing momentum into 2017
Ø Residential sales progress was consistent through the year with 619 plots sold across 6 sites. Planning consent was secured for 65 new plots and applications for a further 1,200 plots were submitted. Across the portfolio, consents stand at over 9,500 plots with a further c.8,000 plots in the planning pipeline
Ø Commercial sales were made at a number of sites, the highlight being the sale of 43.7 acres at Logistics North to Lidl UK for £22.5million, realising a healthy profit above book value. Across the portfolio, c.10.0m sq ft is consented on our land(4), with 1.9m sq ft of new applications submitted and a further 6.3m sq ft to be submitted
Ø The income portfolio made further progress with new and renewed business park lettings and further low carbon energy tenants, offsetting the previously flagged trend of declining coal fines sales. Practical completion of direct developments in Yorkshire and the M&G Real Estate forward-funded units at Logistics North also provide a pipeline of further income producing opportunities into 2017
Financing
• New debt financing secured to provide headroom and advance income generating acquisitions
Ø In August, existing RCF increased from £65m to £75m and extended by 1 year to 2021
Ø Portfolio gearing of 9.9% net loan to value (LTV) which equates to 31.3% set against the Business Space and Natural Resources properties
Harworth's Chief Executive, Owen Michaelson, said:
"These are a strong set of results, reflecting our continued focus on maximising the value of our strategic land bank whilst simultaneously growing our income base through new lettings and acquisitions. We are particularly pleased by the progress made and value uplift we have seen from our flagship North West site, Logistics North in Bolton, and are pleased to have improved the quality of our income base over the year. We have a proven strategy to create value and the market fundamentals in our regions remain strong, giving us confidence in the future."
Notes:
1.2015 NAV and earnings per share figures assume 2016's 1 for 10 share consolidation had occurred in 2015 and 2015 underlying figures assume that Harworth Estates Property Group Limited had been owned from the start of the year.
2.Operating profit before exceptional items and including share of profit of associate and joint ventures.
3.Increase/(decrease) in fair value of investment properties and assets held for sale (£33.5m), profit/(loss) on sale of investment properties and assets held for sale (£8.8m) together with other gains, being overages (£0.7m), and share of profit of associate and joint ventures (£0.6m).
4.Consented figures includes 2.64m sq ft at Gateway 45 Leeds, our joint 50:50 venture with Evans Property Group.
For further information:
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Harworth Group plc |
Tel: +44 (0)114 349 3131 |
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Owen Michaelson, Chief Executive |
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Andrew Kirkman, Finance Director |
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Cardew Group |
Tel: +44 (0)207 930 0777 |
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Emma Crawshaw Shan Shan Willenbrock Emma Ruttle |
Tel: +44 (0)7971 468 308
Tel: +44 (0)7766 231 520 |
Notes to Editors
Harworth Group plc (LSE: HWG) is a leading brownfield regeneration and property investment specialist which owns and manages a portfolio of 22,000 acres of land on over 140 sites located throughout the Midlands and North of England. The Group specialises in the regeneration of former coalfield sites and other brownfield land into employment areas, new residential developments and low carbon energy projects. (http://www.harworthgroup.com/)
While the financial information included in this announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Group expects to publish full financial statements that comply with IFRSs by the end of April 2017.
This announcement contains certain forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. By their nature, these statements involve risk and uncertainty 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 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 to reflect any changes in its expectations with regard thereto or any new information or changes in events, conditions or circumstances, save as required by law and regulations. Nothing in this announcement should be construed as a profit forecast.
Chairman's Statement
Overview, strategy and performance
I am pleased to present the Group's results for the financial year ended 31 December 2016. We have delivered another year of strong growth, despite the political events that overshadowed the property industry in 2016. The business continued to meet its ambition of increasing net asset value (NAV) by at least 10% per annum through the property cycle. NAV has grown by 12.5% (2015: 18.9% reflecting capital raised) to £334.9m at the year-end (2015: £297.7m). EPRA NAV at the end of the year rose to £350.1m, representing a 13.3% increase over the year (2015: £309.1m).
Our core strategy is to grow and realise value from our extensive land bank, much of which derives from our heritage coalfield portfolio, supplemented by a range of land and property acquisitions in the North and Midlands over the past two years.
Harworth has extensive experience in remediating and developing large used sites for future use for commercial and residential purposes. Our Capital Growth team continued to deliver value growth across our underlying portfolio by securing planning consents, re-engineering land for future uses, proactive asset management and strategic land acquisitions during the year. We achieved particular progress at our Logistics North site in Bolton, completing sales to Lidl UK (for £22.5m), Aldi and Greene King, a letting to Costa Coffee and achieving practical completion of two forward funded units on behalf of M&G Real Estate in December 2016. One of these units was let to Whistl shortly after the year-end.
Our commitment to investors is, over time, to seek to cover the Group's operating costs, interest, tax and dividends from ongoing rental and operating income. A significant proportion of this income has been generated from minerals and coal fines recovered during the development process. As previously flagged, this income stream experienced a downturn in 2016, following the sharp reduction in coal burn in the UK power industry. Our Income Generation team performed very well in mitigating this downturn by growing our rental income and undertaking targeted direct development to create further opportunities for rental growth in 2017. We also focussed our acquisition strategy during the second half of 2016 on income generating assets, including Moorland Gate and Walton Summit business parks, which present significant opportunities for rental improvement and yield compression.
Six acquisitions were completed during the year, for a total of £31.6m, all within the core regions in which we operate. Two of those acquisitions have continued to replenish the strategic land bank in order to secure our long-term development pipeline; a key component of our strategy.
We review our strategy each year. This year's review reinforced to the Board that the current strategy remains robust and appropriate. Our consistently strong rates of value growth are driven more by management initiatives than underlying movements in the real estate markets, making the Group's operational performance less exposed to market fluctuations. This has been particularly evident in the Group's performance in the second half of the year.
Dividend
We paid a dividend of 0.51p per share (£1.5m or £2.0m on an annualised basis) for the 2015 financial year on 9 September 2016. This was the first dividend in many years. The Board has stated its intention to grow the dividend, broadly in line with the growth of the business, and pay it from recurring income and realised gains from disposals. The Board will not distribute unrealised gains recognised on the revaluation of property and will retain a proportion of its recurring income and realised gains for reinvestment into the property portfolio. Consistent with that policy, we declared and paid an interim dividend of 0.23p per share in December 2016 and I am pleased to say that the Board is recommending a final dividend of 0.523p per share to give a total dividend of 0.753p per share (£2.2m) for the year, being a 10% increase on last year's annualised dividend.
Our Board
At the start of 2016 we welcomed Andrew Kirkman as Finance Director. Andrew joined us from Viridor, one of the two main subsidiaries of Pennon Group plc. Andrew has already made a significant contribution, in particular strengthening our financial management and improving our investor relations approach. In April, Peter Hickson retired from the Board at the 2016 Annual General Meeting, having served as Senior Independent Director and Chairman of the Remuneration Committee for five years. I would like to thank Peter for his strong support and guidance to me and the Board over that time, not least through our complicated restructuring and the subsequent re-acquisition of Harworth Estates in 2015.
In April we also welcomed Andrew Cunningham, formerly Chief Executive of Grainger plc, to the Board and we benefit from his extensive experience in adjacent markets. The Board appointed Lisa Clement, who has been a Board member since 2011, as Senior Independent Director, and Lisa also took on the chair of the Remuneration Committee. Andrew Cunningham replaced Lisa as chair of the Audit Committee. We also welcomed Chris Birch as our Company Secretary and Group General Counsel in June.
Our people
We have a dedicated team of skilled and experienced professionals who know how to drive value and income from our portfolio. As the business grows and matures, so does the team. I am pleased to say that 15% of our people earned well-deserved promotions at the beginning of this year, reflecting the growing experience and capabilities across the business. We have actively recruited during the year and are continuing to do so, to meet the demands of our growing land and property portfolio. As we grow our talent, continuing to increase diversity remains a priority.
Our shareholders
We appreciate the continued strong support from all our shareholders as we continue to grow. Our two largest shareholders, The Peel Group and the Pension Protection Fund (PPF), have reaffirmed their strong medium to long term support to the Group. The PPF has recently confirmed that it has now moved its shareholding in the Group from its portfolio of "assets acquired through restructuring" into its core, long-term investment portfolio, with a desire to support the full realisation of value by the Group over the medium to long-term.
At the end of 2016, the return to shareholders of 25% since our 'relisting' in March 2015 was broadly in line with the absolute return in the business over the period. However, in common with our peer group, the share price at the end of the year continued to reflect a material discount to NAV. Steps to close this discount remain a strategic priority for the Board, which believes that the resilience of our markets and current attractive pricing level relative to NAV present a compelling opportunity for new investors.
Outlook
The Group is well positioned to capitalise on the regional residential and commercial markets, which continue to have strong fundamentals and perform well. Regional markets, specifically in the areas in which we operate, have seen continued government support and infrastructure investment, and have not seen the volatility experienced in the London and South East property markets. Further, housing remains much more affordable. We have a strategy for, and a track record of, delivering resilient, sustainable value growth and we look to the future with confidence. To maintain momentum, it is important that the Group continues to replenish its strategic land bank, particularly given the amount of time it takes to develop our sites into mature assets.
Jonson Cox
Chairman
6 March 2017
Chief Executive's Review and Operational Report
I am pleased to report another robust set of results to shareholders, reflecting a strong year of progress for the business. In 2016, the Group once again delivered a year of double-digit net asset value (NAV) growth of 12.5% (2015: 18.9%), with a NAV of £334.9m at the year-end (2015: £297.7m). EPRA NAV at the end of the year rose to £350.1m, representing a 13.3% increase over the year (2015: £309.1m). We achieved an operating profit of £45.8m(1) (2015: £37.9m) with value gains of £43.7m(2) (2015: £36.3m) - ahead of expectations - and profit from operations rose to £2.2m (2015: £1.5m).
This continued success lies in our focused strategy, the ability of our in-house teams to extract maximum value from the portfolio, the underlying strength of the regional markets in which we operate and the maintenance of excellent working relationships with the key external stakeholders that we work with throughout the Company's value cycle.
Our strategic focus remains unchanged - extracting maximum value from our predominantly brownfield land portfolio to grow NAV, whilst building our recurring income base to meet the operating costs of the business. We do this by continuing to use our masterplanning, placemaking and technical expertise to transform redundant land into places where people want to live and work.
As our business has grown, we have increased our focus on replenishing our strategic land bank to ensure that we maintain a pipeline of new sites to continue the value growth journey. We have also focused our in-house capabilities to build and retain new commercial space in our strongest markets, reflecting a desire to generate long-term income from our assets. This response to the continued under-supply of good quality commercial units in the regions in which we operate also shows the growing maturity of the business.
Our business model is supported by the continued strength of our core markets across the North of England and the Midlands. Demand for new homes within those regions remained consistently strong throughout the year, reflected by the rate of sales achieved by our housebuilding partners on our larger sites. The rise of e-tailing and the increasing demands of consumers is also driving up demand for logistics and distribution space, with a number of our sites - such as Logistics North in Bolton and Gateway 45 in Leeds - ideally placed to meet that need.
National Government policy continues to support the redevelopment of brownfield sites, as evidenced by the recently published Housing White Paper (February 2017). We also welcome the UK's new industrial strategy as a lever to improve infrastructure, a critical factor in accelerating economic growth in our core regions.
Capital Growth
Our Capital Growth team, led by Phil Wilson, has continued to deliver value growth and realisations. In particular, during 2016 the team secured outline planning consents for 65 plots, whilst converting 1,560 plots that had a resolution to grant planning into outline consents. We also purchased land with consent for 2.64m sq ft of commercial space at Temple Green, Leeds. Following this activity, total consented residential plots under ownership or management (including sites where we are promoting third party interests through Planning Promotion Agreements) stand at 9,529 plots and consented commercial space on our land at 9.95m sq ft.
We have live planning applications in the planning system for 1,200 new housing plots and 1.92m sq ft of commercial space. Four Planning Promotion Agreements (PPAs) were signed during the year with the potential to deliver c.500 housing plots, bringing the total number of plots promoted through PPAs to c.1,100. PPAs are agreements with landowners by which Harworth incurs the cost and risk of promoting land through planning. If successful, Harworth shares some of the value gain, after first recovering its costs, when the land is sold.
On the 500-acre former Thoresby Colliery site in Nottinghamshire, consent is being sought for 800 new homes alongside 250,000 sq ft of new commercial space. An application has also been submitted for the former Kellingley Colliery site in North Yorkshire to deliver 1.4m sq ft of new commercial space on a site that benefits from an existing rail and canal link. Decisions on both sites are expected in the first half of 2017.
We have continued to plan carefully whether and when to dispose of investment properties to maximise the return from our portfolio. In 2016 we achieved receipts in excess of book value in all sections of the business, realising cash which can be reinvested in bringing other sites and acquisitions forward. A total of 619 residential plots were sold across 6 major development sites to national and regional housebuilders including Taylor Wimpey, Harron Homes and Arch Group.
Disposals for commercial uses in 2016 included the sale of 43.7 acres at our Logistics North development in Bolton to Lidl UK for £22.5 million for the company to set up its regional distribution headquarters. This deal set a new benchmark price per acre for the development and marked the sixth key investment at the site in the past three years, following previous sales to Aldi, MBDA, Joy Global and Exeter Property Group and the signing of a forward funding agreement with M&G Real Estate for us to construct two new Grade A commercial units totalling 400,000 sq. ft. As announced just after year end, the larger of these units - a 225,000 sq ft unit known as 'Logistics 225' - was leased to Whistl on a ten-year lease, reflecting the strength of the North West logistics and distribution market.
To generate similar returns in the future, we are continuing to prioritise capital investment on our sites with the largest value enhancement potential, including the Advanced Manufacturing Park in Rotherham, Logistics North in Bolton and Gateway 45 in Leeds, to ensure that both land and property is available for immediate occupation. This strategic infrastructure investment delivers multiple sale points, diversifying risk across our portfolio, and during the year, the team opened up new sites at Rossington, Ellington and Castleford. Such strategic infrastructure investment has been complemented by our continued disposal of lower value sites - mainly agricultural land with little value add potential - to free up management time on our highest value-enhancing sites.
Income Generation
Our Income Generation team, led by Ian Ball, has maintained its push for increasingly resilient recurring income. This has been achieved by: improving rental returns from our expanding business park portfolio; increasing rental returns and royalties from energy generation, environmental technologies and the agricultural portfolio; and deriving income from recycled aggregates that arise from the development process - thereby offsetting the flagged and managed decline in the sale of coal fines.
Our Business Space team increased income from our business parks in 2016, driven by 32 new and renewed commercial lettings in 2016 with an annualised rent roll of £663,000. This was supplemented by the acquisition of two business parks in the North West during the fourth quarter with a combined annualised rent roll of £1.62m. Asset management opportunities have already been identified to grow the income and the underlying asset value of both sites in the future. Business Space profit from operations in 2016 was £3.8m (2015: £2.2m on an underlying basis) and is expected to increase further in 2017 as we look to sign new leases on a number of new units, including our 75,000 sq ft Helix unit at Gateway 36 in Barnsley. The weighted average unexpired lease term (WAULT) across the portfolio now stands at 7.5 years (2015: 8.3 years).
Strong progress was made in driving up income from our renewable energy tenants in the first half of 2016, with a total of 144.5MW of capacity now installed on our land as a result of a net 19.0MW of capacity being energised during the year. Demand for new schemes slowed following changes to renewables subsidies at the end of March, rendering some projects unviable. In light of this, management focus within our Natural Resources team has now shifted to alternative technologies with better short term prospects and governmental support, including battery storage facilities that are seen as critical to helping balance supply and demand in the UK power system.
Acquisitions
Our continued success in unlocking the latent value in our portfolio has meant that refilling our strategic land bank for future value growth has become an even more important part of our strategy. We expanded our Acquisitions team, led by Gary Owens, in 2016 to identify further suitable sites and, as a direct result, made six acquisitions in the year for £31.6m, reflecting our desire to supplement our strategic land bank and improve the quality of our recurring income base. All of our acquisitions were made utilising existing cash reserves with completion in each case taking place within six weeks of agreeing heads of terms, helping to build our reputation for acting swiftly and in a straightforward manner.
Our first acquisition was Advantage House in Rotherham in February 2016. This 20,000 sq ft office building was purchased for £2.2million at a net initial yield of 13.3% and is fully let to Civica UK on a long-term lease. It is also located adjacent to our flagship Waverley development, thereby solidifying our presence close to Junction 33 of the M1.
In March, we purchased Keyland Developments' 50% share of The Aire Valley Land LLP, a joint venture with Evans Property Group, for £8.5million. Aire Valley Land LLP owns Gateway 45 Leeds, a 166-acre logistics hub in the Leeds City Region Enterprise Zone. The site, adjacent to Junction 45 of the M1, already benefits from outline planning consent for 2.64m sq ft of commercial space for logistics and distribution uses. During the remainder of the year we worked with Evans to complete the infrastructure works for the first phase of development land thereby allowing the completion of the sale of land for a Park & Ride facility to Leeds City Council, before relaunching the site as 'Gateway 45 Leeds' to improve the site's promotion to third-party logistics and e-tailing businesses. We expect this work to bear fruit with new deals at the site in 2017.
Two further key acquisitions in the year were both in the North West and made in the fourth quarter, in line with our strategy to strengthen our income portfolio and to build our presence in the region. In November, we completed the acquisition of Moorland Gate Business Park in Chorley, Lancashire for £4.5m. This site comprises 10.75 acres with 125,122 sq ft of built space. It generates a net initial yield of 9.53%, with a reversionary yield of 10.4% and further asset management and potential development opportunities already identified. This was followed by the acquisition in December of Four Oaks Business Park in Preston, Lancashire for £13.4m. The site extends across 19.4 acres with 428,800 sq ft of built logistics warehousing space, with a net initial yield of 8.74% and a reversionary yield of 11.4%. Together with our Logistics North development, we are beginning to build critical mass across our North West portfolio, with all three sites located along a corridor of junctions on the M61.
We recognise the need to replenish and grow the Company's strategic land bank, to maintain delivery of our target for NAV growth through the property cycle. To that end, we have entered into four option agreements to acquire strategic land sites that extend to approximately 228 acres, comprising a mixture of potential residential and commercial sites located in our core regions. Subject to confirmation through due diligence, these stand the business in good stead as we look to grow our portfolio further in 2017 and beyond.
Maintaining momentum
Momentum from 2016 has been carried over into the new financial year with a number of key deals already completed or agreed, highlighting the solid fundamentals of the property sector in the North of England and the Midlands, and the team's ability to realise value growth in our portfolio.
January saw Whistl take a ten-year lease of M&G Real Estate's Logistics 225 unit at Logistics North. This was at the benchmark rental level in the North West for industrial property of £6 per square foot and also triggered a promote fee from M&G Real Estate for letting the building within six weeks of practical completion. This was followed in February by the sale of the next phase of 4.7 acres of engineered housing land at Waverley to Avant Homes for £2.5m and the exchange of contracts with Keepmoat for the first phase of our Flass Lane development in Castleford. Keepmoat will pay £3.65m for 9.88 acres of land, where it plans to build 157 new homes.
With clear growth momentum established and maintained across all key parts of the business and the maintenance of favourable market conditions - both across our sectors and the regions in which we operate - we remain confident in our ability to continue to deliver growth in net asset value, whilst expecting performance to remain second-half weighted. We therefore anticipate a healthy number of sales and increased development spend in 2017.
Our continued strong performance is testament to the strength of our core team of 50 people and our achievements would not have materialised without the dedication, patience and perseverance of our staff. I thank all of our team for their hard work and diligence in making the Group what it is today.
Owen Michaelson
Chief Executive
6 March 2017
Notes:
1. Operating profit before exceptional items and including share of profit of associate and joint ventures.
2. Increase/(decrease) in fair value of investment properties and assets held for sale (£33.5m), profit/(loss) on sale of investment properties and assets held for sale (£8.8m) together with other gains, being overages (£0.7m), and share of profit of associate and joint ventures (£0.6m).
Financial Review
Overview
The Group delivered another set of strong results for the financial year across both segments of our business, Capital Growth and Income Generation. Net Asset Value (NAV) increased to £334.9m as at 31 December 2016, which is a 12.5% increase on the NAV at 31 December 2015 (£297.7m). EPRA NAV increased by 13.3% to £350.1m (2015: £309.1m).
Revenue from operations rose to £33.7m (2015: £13.2m), largely as a result of the recognition of pass-through construction costs and development fee income of £16.1m (2015: £1.3m) arising from the construction of two industrial units at Logistics North which were forward funded by M&G Real Estate. Revenue also increased as a result of increased rent from business parks and rent and royalties from low-carbon energy sites, albeit somewhat offset by a decline in coal fines revenues.
Operating profit before exceptionals was £45.8m(1) (2015: £37.9m) largely as a result of revaluation gains of £34.8m(2) (2015: £25.0m), profit on disposals of £8.9m (2015: £11.4m) and profit from operations of £2.2m (2015: £1.5m). Exceptional items netted to £nil (2015: charge of £2.9m) largely relating to the Group's legacy activities. Profit before tax was £43.5m (2015: £77.6m), with 2015 benefiting from a gain on bargain purchase of £44.2m.
The comparative statutory results for 2015 are complicated by the acquisition and fundraising of March 2015 associated with the re-acquisition of 75.1% of the shares in Harworth Estates Property Group Limited (HEPGL), which led to the gain on bargain purchase of £44.2m. In addition, a 1 for 10 share consolidation occurred in the first half of 2016. Consequently, our results are set-out below on both a statutory and underlying basis.
The table below shows the Group's statutory operating profit, before exceptional items, for 2015 reconciled to the underlying operating performance for 2015, and set against the results for 2016.
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2016 Harworth Group plc |
2015 Harworth Group plc Underlying |
2015 Harworth Group plc Underlying Pre-acquisition |
2015 Fair value adjustments |
2015 Harworth Group plc |
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Twelve months to December |
£m |
£m |
£m |
£m |
£m |
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Revenue |
33.7 |
16.7 |
(3.3) |
(0.3) |
13.2 |
|
Cost of sales |
(20.9) |
(7.9) |
1.9 |
- |
(6.0) |
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Overheads |
(10.5) |
(6.8) |
1.1 |
- |
(5.7) |
|
Other operating expense |
(0.1) |
- |
- |
- |
- |
|
Profit/(loss) from operations |
2.2 |
2.1 |
(0.3) |
(0.3) |
1.5 |
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Valuation gain/(loss) |
34.2 |
28.9 |
(4.8) |
- |
24.1 |
|
Profit/(loss) from disposals |
8.9 |
11.5 |
(0.1) |
- |
11.4 |
|
Pension (charge)/credit |
(0.1) |
0.1 |
- |
- |
0.1 |
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Share of profit of associate and joint ventures |
0.6 |
- |
0.9 |
- |
0.9 |
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Operating profit/(loss), before exceptionals |
45.8 |
42.6 |
(4.3) |
(0.3) |
37.9 |
Note: There are minor differences on some totals due to rounding
Underlying performance
The Group recorded revenues of £33.7m in 2016 (2015: £16.7m) comprising rental and royalty income together with sales of coal fines and salvage. The significant increase in 2016 revenues reflected £16.1m (2015: £1.3m) in respect of contract work on the construction of units at Logistics North which were forward funded by M&G Real Estate. These units were completed in December 2016. As Harworth has been acting on behalf of M&G Real Estate, the associated revenue and cost of sales are pass-through amounts at the same level except for the recognition of a construction management fee of £0.5m. Further "promote" fees will be recognised on each of the two units from 2017 onwards if Harworth is successful in letting the units quickly, at favourable rental levels and to occupiers with appropriate covenants. The larger 225,000 square foot unit was let to Whistl in January 2017, only six weeks after the building was practically completed and a promote fee will be recognised in 2017. The smaller 175,000 square foot unit is being actively marketed.
The table below shows the results of the business split between Capital Growth, Income Generation and Central Overheads:
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Capital |
Income Generation £m |
Central overheads |
FY 2016 £m |
FY 2015 |
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Revenue |
16.3 |
17.4 |
- |
33.7 |
16.7 |
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Cost of sales |
(16.0) |
(4.9) |
- |
(20.9) |
(7.8) |
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Overheads |
(1.8) |
(1.5) |
(7.3) |
(10.6) |
(6.8) |
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Other operating expense |
- |
(0.1) |
- |
(0.1) |
- |
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(Loss)/profit from operations |
(1.5) |
10.9 |
(7.3) |
2.2 |
2.1 |
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Valuation gain |
24.2 |
10.0 |
- |
34.2 |
28.9 |
|
Profit from disposals |
7.6 |
1.3 |
- |
8.9 |
11.5 |
|
Pension (charge)/credit |
- |
- |
(0.1) |
(0.1) |
0.1 |
|
Share of profit of associate and joint ventures |
- |
0.6 |
- |
0.6 |
- |
|
Operating profit, before exceptionals |
30.2 |
22.7 |
(7.2) |
45.8 |
42.6 |
Note: There are minor differences on some totals due to rounding
Total overheads, which include the overhead costs of the Capital Growth and Income Generation segments and central costs, amounted to £10.6m (2015: £6.8m). The increase in costs reflected: an increased accrual for the Executive Long Term Incentive Plan reflecting continued NAV outperformance; a number of one-off costs associated with the share consolidation, capital reduction and recruitment; as well as increased staffing and business costs reflecting greater and more productive operational activity.
Value gains, which comprise revaluation gains and profit on disposals, for 2015 and 2016 are set out below:
|
£m |
2016 |
2015 |
|||
|
Profit on disposal |
Revaluation gains |
Total |
|||
|
Management |
Market |
||||
|
Major Developments |
6.8 |
8.7 |
3.4 |
18.9 |
21.0 |
|
Strategic Land |
0.7 |
10.8 |
1.3 |
12.8 |
4.7 |
|
Business Space |
0.1 |
5.7 |
0.9 |
6.7 |
6.9 |
|
Agricultural Land |
1.2 |
0.0 |
(1.1) |
0.1 |
2.4 |
|
Natural Resources |
0.0 |
4.0 |
1.2 |
5.2 |
5.4 |
|
Total |
8.8 |
29.2 |
5.7 |
43.7 |
40.4 |
The Group made sales of £58.9m in 2016 (2015: £51.1m), including £3.4m of deferred consideration, with profit on disposal of £8.9m (2015: £11.5m). The proceeds were split between residential serviced plots (£20.5m), commercial development (£26.8m) and other, essentially agricultural land, (£11.6m). All segments of the business made a profit on disposal with the largest profit on disposal resulting from the sale of 43.7 acres at Logistics North to Lidl UK for £22.5m.
The Group achieved revaluation gains of £34.9m(2) (2015: £28.9m). In conjunction with our valuers, BNP Paribas and Savills, we have split these gains to reflect the contribution from management actions, £29.2m, and market movement, £5.7m. Whilst there is a degree of subjectivity in this split, it highlights that the majority of the value gains come from management actions. The market element of revaluation gains includes the effects of 2016 stamp duty charges, forecast to have impacted values across the portfolios by £2.9m. The principal 2016 revaluation gains across the divisions were as follows:
· Major Developments - Healthy profit on disposal from Lidl UK at Logistics North. Improved masterplan and tenant interest at Wheatley Hall Road, new option agreement at Chatterley Valley, and cost savings at Harworth and Flass Lane;
· Strategic Land - Signing of S106 and collaboration agreement at Coalville. Planning application submitted at Thoresby;
· Business Space - Completion of pre-let and speculative development at Gateway 36 (Rockingham). Improved lettings at other sites;
· Agricultural Land - Reduced land values predominantly on former surface mine sites;
· Natural Resources - New lettings, particularly at Meriden.
The resulting underlying operating profit for the Group, before exceptional items, was £45.8m including share of profit of associate and joint ventures (2015: £42.6m).
Exceptional items
Exceptional items comprise three separate items, all of which largely relate to the Group's legacy activities. With regard to Harworth Insurance Company Limited, Harworth has now received £0.5m from the administrator, which essentially represents final settlement. In addition, £0.2m has been received from the administrator of Ocanti Opco Limited which relates to the reimbursement of management expenses incurred by Harworth (then known as Coalfield Resources plc). In respect of coal fines activities, an exceptional charge of £0.7m has been taken to reflect the under recovery of amounts relating to the cessation of activities at Rugeley and a provision taken against the value of coal fines stocks to reflect reduced demand.
Net assets
As set out below, net assets increased to £334.9m as at 31 December 2016 from £297.7m as at 31 December 2015. This increase was as a result of movements in the year, being operating profit of £45.8m(1) less interest costs of £2.3m, tax of £3.6m, dividends of £2.2m and other movements of £0.5m.
|
|
31 December 2016 |
31 December 2015 |
|
Investment properties (including investments in joint ventures, assets held for sale, overages and occupied properties) |
400.3 |
345.2 |
|
Cash |
13.0 |
27.6 |
|
Other assets |
25.2 |
20.9 |
|
Total assets |
438.5 |
393.7 |
|
Gross borrowings |
52.5 |
64.5 |
|
Deferred tax liability |
14.9 |
11.4 |
|
Other liabilities |
36.2 |
20.1 |
|
Net assets |
334.9 |
297.7 |
|
Number of shares in issue |
292,269,786 |
2,922,697,857 |
|
Net assets per share |
114.6p |
10.2p |
|
Underlying net assets per share |
114.6p |
101.9p |
|
Underlying EPRA net assets per share |
119.8p |
105.8p |
Financing and funding strategy
On 13 February 2015, Harworth Estates Property Group Limited (HEPGL) entered into a £65m, five-year term, non-amortising, Revolving Credit Facility (RCF) with The Royal Bank of Scotland (RBS), replacing amortising facilities with the Lloyds Banking Group and Barclays Bank. On 19 August 2016, HEPGL completed a planned extension to its RCF with RBS, increasing the limit to £75m and extending the term by a further year such that it now expires in February 2021, on substantially the same terms (including pricing) as the existing facility. This enhanced facility reflects confidence in the business, providing both headroom and funds to accelerate the strategic growth of the Group.
Infrastructure funding, provided by public bodies to promote the development of major sites for employment and housing needs, continues to feature in our funding strategy. At 31 December 2016, the Group had five infrastructure facilities with all-in funding rates of between 2.4% and 4.0%. Since the EU referendum vote, public infrastructure funding has continued and we signed two facility agreements to fund small direct build schemes at Logistics North and the Advanced Manufacturing Park in the second half of 2016. Infrastructure spend is assessed against, and matched with, the quantum and timing of expected disposals.
On 21 June 2016, HEPGL entered into a four-year swap with RBS to fix £30m of borrowings at an all-in rate of 2.955%, including fees. The swap is hedge accounted with any unrealised movements going through reserves. The Group's hedging strategy is to have roughly half of its debt at a fixed rate and half of its debt exposed to floating rates. The weighted average cost of debt, using 31 December 2016 balances and rates, was 2.9% with a 0.8% non-utilisation fee on undrawn RCF amounts.
The Group's cash and cash equivalents at 31 December 2016 were £13.0m (2015: £27.6m). The Group had borrowings and loans of £52.5m at 31 December 2016 (2015: £64.5m), being the RBS RCF of £37.0m (2015: £49.0m) and infrastructure loans of £15.5m (2015: £15.6m). The resulting net debt was £39.5m (2015: £37.0m).
The Group continues with its aim of balancing its cash flows by using disposal proceeds to fund infrastructure spend and investment in acquisitions to replenish the portfolio, as well as improving its focus on brownfield sites with greater value enhancement potential. The Group is also maintaining its policy of prudent gearing with gross Loan To Value (LTV) of 13.1% (2015: 18.7%) and net LTV of 9.9% (2015: 10.7%). However, Capital Growth sites are deliberately not geared, so if gearing is just assessed against the value of business space and natural resources properties this equates to gross LTV of 41.6% and net LTV of 31.3%.
Harworth's policy of prudent gearing gives the Group the ability to complete acquisitions quickly, which is often a source of competitive advantage. In addition, this policy of prudent gearing allows working capital swings to be appropriately managed given that infrastructure spend is usually in advance of sales and thus net debt can increase by over £20m during the year.
Taxation
The charge for taxation in the year was £3.6m (2015: £3.5m) comprising the deferred tax charge on forecast future capital gains arising on the investment property portfolio. The Group does not currently pay cash tax as brought forward tax losses are still being utilised.
At 31 December 2016, the Group had deferred tax liabilities of £23.3m (2015: £11.4m), related to unrealised gains on investment properties. As a result of additional work performed during the year, there is now greater certainty regarding the tax loss position and the expected pattern of usage. The Group has therefore recognised a deferred tax asset of £8.4m (2015: £nil). The net deferred tax liability was £14.9m (2015: £11.4m).
Dividends
At the Annual General Meeting on 26 April 2016, the full year proposed dividend of £1.5m (0.051p per share), the reduction of capital and the 1 for 10 share consolidation were approved. The capital reduction was subsequently approved by the court and the share consolidation was effected on 3 May 2016. As a result, the 2015 full year dividend of £1.5m (now 0.51p per share) was paid on 9 September 2016.
A first interim dividend of £0.66m (0.23p per share) for the 2016 financial year was paid on 1 December 2016. A final dividend for the 2016 financial year of £1.53m (0.523p per share) is proposed. This gives a total dividend of £2.2m for 2016, a 10.0% increase over the 2015 annualised dividend of £2.0m, reflecting the growth in the business and the Board's confidence in the future prospects for growth.
Andrew Kirkman
Finance Director
6 March 2017
Notes:
1.Operating profit before exceptional items and including share of profit of associate and joint ventures.
2.Increase/(decrease) in fair value of investment properties and assets held for sale (£33.5m) together with other gains, being overages (£0.7m), and share of profit of associate and joint ventures (£0.6m).
The Group's principal risks and uncertainties are set out below.
|
Market risks |
|
|
Property - The Group is exposed to the risk of fluctuations in the property market for the price of land. |
|
|
Controls and mitigation already in place |
Further actions to be taken |
|
Ø There is diversity in the Group's property portfolio, both in terms of sector and geography. Regional markets are typically less volatile than the London market. Ø Value gains are driven more by management actions than market conditions. Ø We have an ability to control working capital movements by managing the rate of acquisitions and development expenditure. Ø We build headroom into our forecasts by identifying potential alternative sales in the event that planned sales do not proceed as quickly as anticipated. Ø We monitor continuously, and maintain regular and open dialogue with our agents and advisers in relation to, prevailing market conditions. |
Ø We will continue to grow and strengthen our recurring income portfolio to create stability during periods of market downturn. Ø We will continue to review the composition of the Group's portfolio regularly. Ø Our cashflow forecasts provide for a £10m "buffer" throughout the year. |
|
Higher risk |
No change during the year |
|
|
|
|
Political - Changes in political policy, such as in relation to Brexit, the Northern Powerhouse, HS2 and Help To Buy could have an adverse impact on the Group's principal markets. |
|
|
Controls and mitigation already in place |
Further actions to be taken |
|
Ø The diversity of the Group's portfolio affords a degree of mitigation to adverse political changes in that, in response to changes affecting a particular market (for example, coal fines sales), the Group can leverage other markets (for example, logistics space). Ø The Group continues to make effective representations with key industry bodies, including the British Property Federation, the Royal Institute of Chartered Surveyors and the Housebuilders Federation, to ensure that the effect of any political policy changes is fully understood by Government, thereby minimising the chances of adverse policy changes being enacted. |
Ø The Group will input into upcoming Government consultations on key policy matters, including those that relate to the recent Housing White Paper and Industrial Strategy. |
|
Higher risk |
No change during the year |
|
|
|
|
Financial risk |
|
|
Income - Volatility of the recurring income stream from operations impacting on banking covenants. |
|
|
Controls and mitigation already in place |
Further actions to be taken |
|
Ø We have implemented more sophisticated financial modelling and more robust financial reporting systems. Ø We have taken steps to grow and strengthen our recurring income by (i) acquiring income-generating investment properties: Advantage House (office), Moorland Gate and Four Oaks (business parks), (ii) re-gearing existing leases across our portfolio and (iii) carrying out a targeted amount of direct development. Ø Despite difficult market conditions, new coal fines sales have been agreed with Drax and Uniper (Ratcliffe) during 2016. Ø We have reached an "in principle" agreement with RBS to include a share of income from our joint ventures in covenant calculations. We anticipate that this will be documented during 2017. |
Ø We will continue to build our income portfolio via targeted income-generating acquisitions, direct development and lease renewals and re-gearing. Ø We are actively exploring development management opportunities on certain of our sites, which would lead to the generation of development management, promote and asset management fees. Ø We have signed our first planning promotion agreements and are in advanced negotiations on a number of other agreements. We are targeting income from these agreements from 2018 onwards and are confident that they will represent another resilient income stream in the medium and long term. |
|
Higher risk |
No change during the year |
|
|
|
|
Strategic risk |
|
|
Strategy - Failure or weakness of strategic plan impacting on Group direction with the potential influence of extraneous factors such as economic cycle. |
|
|
Controls and mitigation already in place |
Further actions to be taken |
|
Ø A detailed strategic review was undertaken by the Board and Executive Committee in June 2016, with external input from Eden McCallum. A further analysis was undertaken following the result of the EU referendum. Both concluded that the Group's strategy was appropriate and robust, notwithstanding volatility in the wider economy. Ø The Executive Committee and Board also carried out its annual 5-year financial and strategic review exercise in November and December as part of the budgeting process. Ø All papers submitted to the Board for approval include an explanation as to how the proposal outlined in the paper aligns with strategy. |
Ø Further improvement in communication of the strategic plan throughout the business. Ø Increasing the regularity of strategic updates by the Chief Executive to the Board. |
|
Medium risk |
Change during the year = lower |
|
|
|
|
Human resources risk |
|
|
Ø Capacity - Insufficient human resource to meet the strategic and operational demands of a growing business, with adverse impact on outcomes. Ø Key-person - In a small team, "key-person" risks (e.g. loss of key skills and knowledge) are magnified. |
|
|
Controls and mitigation already in place |
Further actions to be taken |
|
Ø Whilst having a small team amplifies capacity and "key-person" risks, it also means that the Executive Committee can keep those risks under close and continuous review. Ø The Nomination Committee carries out an annual review of succession and development planning for the Executive Committee and senior management team, to ensure that such plans are appropriate and robust. Ø Six strategic promotions were approved by the Executive Committee at the end of 2016, which creates more strength in depth in the senior echelons of the business. Ø Performance reviews were carried out for all employees who had worked in the business for 12 months or more. Ø The strategic planning process includes a review of roles and responsibilities within the Group. This year that process has led to our recruiting for three new roles, two of which had been filled at the date of this report. Every recruitment process (whether for new or replacement roles) begins with a detailed review of the role specification to ensure that roles are complementary and drive maximum efficiency across the business. |
Ø Recruitment into the new roles already identified by the Executive Committee. Ø The Executive Committee is carrying out a resources review during the first quarter of 2017.
|
|
Medium risk |
Change during the year = higher |
|
|
|
|
Operational risk |
|
|
Health and safety - Given the nature of the Group's business, it faces a heightened exposure to health and safety and environmental risks, which can have consequences from a financial and reputational perspective. |
|
|
Controls and mitigation already in place |
Further actions to be taken |
|
Ø A monthly Estates, Environmental and Safety (EES) report is prepared and submitted by the senior manager who leads our EES team to both the Executive Committee and Board, which includes updates on all environmental and health and safety matters. Ø The EES Manager meets with the Board annually. Ø We have appointed an external health and safety consultant who advises on all health and safety issues across the business. He audits and advises on site specific matters as well as Group policy and procedures. Ø A review has been carried out during the year of all of the Group's Environmental Permits. This has led to the surrender (or submission of applications to surrender) of all redundant permits. Ø The EES team maintains a site "risk register", which is used to monitor the risk status of all sites and informs remediation plans. A member of the EES team inspects medium and high risk sites not less than annually. High risk sites are inspected more frequently based on the risk rating score. |
Ø Our Environmental Manager will complete his Waste Management Industry Training and Advisory Board qualification, which will enable him to manage our waste licences in-house pro-actively. |
|
Higher risk |
Change during the year = lower |
Unaudited Consolidated Income Statement
for the year ended 31 December 2016
|
|
Note |
Year ended |
Year ended |
|
Revenue |
3 |
33,693 |
13,172 |
|
Cost of sales |
|
(20,905) |
(6,013) |
|
Gross profit |
|
12,788 |
7,159 |
|
Administrative expenses |
|
(10,457) |
(5,731) |
|
Increase in fair value of investment properties |
11 |
33,713 |
24,060 |
|
Decrease in fair value of assets classified as held for sale |
15 |
(224) |
- |
|
Profit on sale of investment properties |
|
9,166 |
8,180 |
|
Loss on sale of assets classified as held for sale |
|
(375) |
- |
|
Other gains |
10 |
747 |
3,208 |
|
Other operating (expenses)/income |
|
(204) |
176 |
|
Operating profit before exceptional items |
|
45,154 |
37,052 |
|
Exceptional income |
5 |
689 |
- |
|
Exceptional expense |
5 |
(682) |
(2,859) |
|
Operating profit |
|
45,161 |
34,193 |
|
Finance income |
4 |
247 |
62 |
|
Finance costs |
4 |
(2,588) |
(1,803) |
|
Share of profit of associate and joint ventures |
12 |
647 |
856 |
|
Gain on bargain purchase |
2 |
- |
44,244 |
|
Profit before tax |
|
43,467 |
77,552 |
|
Tax charge |
6 |
(3,566) |
(3,508) |
|
Profit for the financial year |
|
39,901 |
74,044 |
|
Profit per share from continuing operations attributable to the owners of the Group during the year |
|||
|
Earnings per share from operations |
Note |
pence |
pence |
|
Basic and diluted earnings per share |
8 |
3.5 |
3.1 |
Unaudited Consolidated Statement of Comprehensive Income
for the year-ended 31 December 2016
|
|
Note |
Year ended |
Year ended |
|
Profit for the financial year |
|
39,901 |
74,044 |
|
Other comprehensive expense - items that will not be reclassified to profit or loss: |
|
|
|
|
Fair value of financial instruments |
21 |
(366) |
- |
|
Actuarial loss in Blenkinsopp Pension Scheme |
|
(269) |
(3) |
|
Revaluation of Group occupied property |
9 |
(17) |
- |
|
Deferred tax on actuarial loss |
6 |
94 |
- |
|
Total other comprehensive expense |
|
(558) |
(3) |
|
Total comprehensive income for the financial year |
|
39,343 |
74,041 |
Unaudited Balance Sheet
as at 31 December 2016
|
|
Note |
As at |
As at |
|
ASSETS |
|
|
|
|
Non-current assets |
|
|
|
|
Property, plant and equipment |
9 |
789 |
- |
|
Other receivables |
10 |
1,397 |
650 |
|
Investment in associates |
12 |
- |
- |
|
Investment properties |
11 |
379,190 |
334,617 |
|
Investment in joint ventures |
12 |
10,549 |
768 |
|
|
|
391,925 |
336,035 |
|
Current assets |
|
|
|
|
Inventories |
13 |
733 |
1,092 |
|
Trade and other receivables |
14 |
24,444 |
19,906 |
|
Cash and cash equivalents |
16 |
13,007 |
27,564 |
|
Assets classified as held for sale |
15 |
8,350 |
9,128 |
|
|
|
46,534 |
57,690 |
|
Total assets |
|
438,459 |
393,725 |
|
LIABILITIES |
|
|
|
|
Current liabilities |
|
|
|
|
Borrowings |
17 |
(1,819) |
(400) |
|
Trade and other payables |
18 |
(33,719) |
(17,369) |
|
|
|
(35,538) |
(17,769) |
|
Net current assets |
|
10,996 |
39,921 |
|
Non-current liabilities |
|
|
|
|
Borrowings |
17 |
(50,659) |
(64,119) |
|
Trade and other payables |
18 |
(1,520) |
(2,280) |
|
Derivative financial instruments |
21 |
(366) |
- |
|
Deferred income tax liabilities |
6 |
(14,851) |
(11,379) |
|
Retirement benefit obligations |
|
(602) |
(435) |
|
|
|
(67,998) |
(78,213) |
|
Total liabilities |
|
(103,536) |
(95,982) |
|
Net assets |
|
334,923 |
297,743 |
|
SHAREHOLDERS' EQUITY |
|
|
|
|
Capital and reserves |
|
|
|
|
Called up share capital |
19 |
29,227 |
29,227 |
|
Share premium account |
20 |
- |
129,121 |
|
Fair value reserve |
|
58,279 |
24,060 |
|
Capital redemption reserve |
|
257 |
257 |
|
Merger reserve |
|
45,667 |
45,667 |
|
Retained earnings |
|
201,493 |
69,411 |
|
Total equity |
|
334,923 |
297,743 |
Unaudited Consolidated Statement of Changes in Equity
for the year ended 31 December 2016
|
|
Note |
Called up share |
Share |
Merger |
Fair value |
Capital redemption |
Retained |
Total |
|
Balance at 1 January 2015 |
|
6,055 |
32,911 |
- |
- |
257 |
19,430 |
58,653 |
|
Profit for the financial year to 31 December 2015 |
|
- |
- |
- |
- |
- |
74,044 |
74,044 |
|
Transfer of fair value gain on revaluation of investment properties |
|
- |
- |
- |
24,060 |
- |
(24,060) |
- |
|
Other comprehensive expense: |
|
|
|
|
|
|
||
|
Re-measurement of post-retirement benefits |
|
- |
- |
- |
- |
- |
(3) |
(3) |
|
Total comprehensive income for the year ended 31 December 2015 |
|
- |
- |
- |
24,060 |
- |
49,981 |
74,041 |
|
Transactions with owners: |
|
|
|
|
|
|
|
|
|
Shares issued |
19 |
15,865 |
99,160 |
- |
- |
- |
- |
115,025 |
|
Costs relating to share issue |
20 |
- |
(2,950) |
- |
- |
- |
- |
(2,950) |
|
Shares issued in lieu of consideration |
19 |
7,307 |
- |
45,667 |
- |
- |
- |
52,974 |
|
Balance at 31 December 2015 |
|
29,227 |
129,121 |
45,667 |
24,060 |
257 |
69,411 |
297,743 |
|
Profit for the financial year to 31 December 2016 |
|
- |
- |
- |
- |
- |
39,901 |
39,901 |
|
Transfer of fair value gain on revaluation of investment properties |
11 |
- |
- |
- |
33,713 |
- |
(33,713) |
- |
|
Transfer of fair value decrease on assets classified as held for sale |
15 |
- |
- |
- |
(224) |
- |
224 |
- |
|
Transfer of other gains |
10 |
- |
- |
- |
747 |
- |
(747) |
- |
|
Other comprehensive expense: |
|
|
|
|
|
|
|
|
|
Fair value of financial instruments |
21 |
- |
- |
- |
- |
- |
(366) |
(366) |
|
Actuarial loss in Blenkinsopp Pension Scheme |
|
- |
- |
- |
- |
- |
(269) |
(269) |
|
Revaluation of Group occupied property |
9 |
- |
- |
- |
(17) |
- |
- |
(17) |
|
Deferred tax on actuarial loss |
6 |
- |
- |
- |
- |
- |
94 |
94 |
|
Total comprehensive income for year ended 31 December 2016 |
|
- |
- |
- |
34,219 |
- |
5,124 |
39,343 |
|
Transactions with owners: |
|
|
|
|
|
|
|
|
|
Transfer of share premium to other distributable reserves |
20 |
- |
(129,121) |
- |
- |
- |
129,121 |
- |
|
Dividends paid |
7 |
- |
- |
- |
- |
- |
(2,163) |
(2,163) |
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 December 2016 |
|
29,227 |
- |
45,667 |
58,279 |
257 |
201,493 |
334,923 |
Unaudited Statement Of Cash Flows
for the year ended 31 December 2016
|
|
Note |
Year ended 31 December 2016 |
Year ended 31 December 2015 |
|
Cash flows from operating activities |
|
£000 |
£000 |
|
Profit before tax for the financial year |
|
43,467 |
77,552 |
|
Net interest payable |
4 |
2,341 |
1,741 |
|
Share of post-tax profit from associate |
|
- |
(856) |
|
Gain on bargain purchase |
2 |
- |
(44,244) |
|
Fair value increase in investment properties |
11 |
(33,713) |
(24,060) |
|
Fair value decrease on assets classified as held for sale |
15 |
224 |
- |
|
Profit on sale of investment properties |
|
(9,166) |
(8,180) |
|
Loss on sale of assets classified as held for sale |
|
375 |
- |
|
Other gains |
10 |
(747) |
(3,208) |
|
Share of (profit)/loss of joint venture |
12 |
(647) |
465 |
|
Depreciation of property, plant and equipment |
9 |
2 |
- |
|
Pension contributions in excess of charge |
|
(102) |
(132) |
|
Operating cash inflows/(outflows) before movements in working capital |
|
2,034 |
(922) |
|
Decrease/(increase) in inventories |
|
359 |
(781) |
|
(Increase)/decrease in receivables |
|
(634) |
9,881 |
|
Increase/(decrease) in payables |
|
3,715 |
(10,512) |
|
Cash generated from/(used in) operations |
|
5,474 |
(2,334) |
|
Loan arrangement fees paid |
|
(150) |
(170) |
|
Interest paid |
|
(1,861) |
(1,101) |
|
Cash generated from discontinued operations |
|
- |
228 |
|
Cash generated from/(used in) operating activities |
|
3,463 |
(3,377) |
|
Cash flows from investing activities |
|
|
|
|
Interest received |
4 |
247 |
62 |
|
Acquisition of joint ventures |
|
(9,134) |
- |
|
Acquisition of subsidiary, net of cash acquired |
2 |
- |
(87,823) |
|
Proceeds from disposal of investment properties and option |
|
53,201 |
42,302 |
|
Expenditure on investment properties |
|
(47,528) |
(41,215) |
|
Expenditure on property, plant and equipment |
|
(25) |
- |
|
Cash used by discontinued operations |
|
- |
(1,068) |
|
Cash used in investing activities |
|
(3,239) |
(87,742) |
|
Cash flows from financing activities |
|
|
|
|
Net proceeds from issue of ordinary shares |
|
- |
112,075 |
|
Proceeds from other loans |
|
5,187 |
13,455 |
|
Repayment of bank loans |
|
(12,000) |
(400) |
|
Repayment of other loans |
|
(5,805) |
(8,776) |
|
Dividends paid |
|
(2,163) |
- |
|
Cash (used in)/generated from financing activities |
|
(14,781) |
116,354 |
|
(Decrease)/increase in cash |
|
(14,557) |
25,235 |
|
At 1 January |
|
|
|
|
Cash |
|
27,564 |
1,489 |
|
Cash and cash equivalents classified as held for sale |
|
- |
840 |
|
|
|
27,564 |
2,329 |
|
(Decrease)/increase in cash |
|
(14,557) |
26,075 |
|
Decrease in cash and cash equivalents classified as held for sale |
|
- |
(840) |
|
|
|
13,007 |
25,235 |
|
At 31 December |
|
|
|
|
Cash and cash equivalents |
16 |
13,007 |
27,564 |
Notes to the financial statements
for the year ended 31 December 2016
1. Accounting policies
The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below.
These policies have been consistently applied to all the years presented, unless otherwise stated.
General information
Harworth Group plc (Group) is a limited liability company incorporated and domiciled in the UK. The address of its registered office is Advantage House, Poplar Way, Catcliffe, Rotherham, South Yorkshire, S60 5TR. The Group is listed on the London Stock Exchange.
Basis of preparation
The preliminary results for the year ended 31 December 2016 are unaudited. The financial information set out in this announcement does not constitute the Group's financial statements for the year ended 31 December 2016 or 31 December 2015 as defined by Section 434 of the Companies Act 2006.
This financial information has been prepared in accordance with EU adopted International Financial Reporting Standards ('IFRS'), IFRS IC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS and therefore complies with Article 4 of the EU IAS regulations.
The financial information for the year ended 31 December 2015 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors, PricewaterhouseCoopers LLP, reported on those accounts and their report was unqualified, did not contain an emphasis of matter paragraph and did not contain any
statement under Section 498 (2) or (3) of the Companies Act 2006.
The statutory accounts for the year ended 31 December 2016 will be finalised on the basis of the financial information presented by the Directors in these preliminary results and will be delivered to the Registrar of Companies following the
Annual General Meeting of Harworth Group plc.
The same accounting policies and methods of computation are followed as in the latest published audited accounts for
the year ended 31 December 2015, which are available on the Group's website at http://harworthgroup.com/ except for as described below:
Inventories
Inventories comprise developments in progress, land held for development, planning promotion agreements and coal slurry that has been processed and is ready for sale.
Developments in progress includes properties being developed for onward sale.
Land held for development or sale is land owned by the Group that is promoted through the planning process in order to gain planning permission, adding value to the land.
Options to purchase land are agreements that the Group has entered into with the landowners whereby the Group has the option to purchase the land within a limited timeframe. The landowners are not generally permitted to sell any other party during this period, unless agreed by the Group. Within this timeframe the Group promotes the land through the planning process at its expense in order to gain planning permission. Should the Group be successful in obtaining planning permission, it would trigger the option to purchase and subsequently sell on the land.
Planning promotion agreements are agreements that the Group has entered into with the landowners whereby the Group acts as an agent to the landowners in exchange for a fee of a set percentage of the proceeds or profit of the eventual sale. The Group promotes the land through the planning process at its own expense. If the land is sold the Group will receive a fee for its services.
The Group incurs various costs in promoting land held under promotion planning agreements, in some instances the agreements allow for the Group to be reimbursed certain expenditure following the conclusion of a successful sale. These costs are held in inventory at the lower of cost and net realisable value. Upon reimbursement, inventory is reduced by the value of the reimbursed cost.
Coal fines that have been processed and are ready for sale are stated at the lower of cost and estimated net realisable value. Inventories comprise all of the direct costs incurred in bringing the coal fines to their present state.
Property, plant and equipment
Group occupied properties are stated at their fair value, based on market values, less any subsequent accumulated depreciation or accumulated impairment loss. Surpluses on revaluations are transferred to the revaluation reserve. Deficits on revaluations are charged against the revaluation reserve to the extent that there are available surpluses relating to the same asset and are otherwise charged to the Statement of Comprehensive Income.
Furniture, fittings and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the cost or valuation of assets over their estimated useful lives, using the straight line method of 3 to 4 years.
Derivatives and hedging
Derivative financial instruments such as interest rate swaps are occasionally entered into in order to manage interest rate risks arising from long-term debt. Such derivative instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedge item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument's effectiveness in offsetting the exposure to changes in the hedged item's fair value or cash flows attributable to the hedge risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they are designated.
For the purpose of cash flow hedge accounting, hedges are classified as cash flow hedges when hedging exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction.
The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while any ineffective portion is recognised immediately in profit or loss, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs. Where such derivative transactions are executed, gains and losses on the fair value of such arrangements are taken either to reserves or to the Statement of Comprehensive Income dependent upon the nature of the instrument.
If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to profit or loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remains in equity until the forecast transaction or firm commitment occurs.
When a derivative is held as an economic hedge for a period beyond twelve months after the end of the reporting period, the derivative is classified as non-current (or separated into current and non-current portions) consistent with the classification of the underlying item. A derivative instrument that is a designated and effective hedging instrument is classified consistent with the classification of the underlying hedged item. The derivate instrument is separated into a current portion and non-current portion only if: 1) a reliable allocation can be made; and 2) it is applied to all designated and effective hedging instruments.
Changes in accounting policy and disclosures
(a) New standards, amendments and interpretations
No new standards, amendments or interpretations, effective for the first time for the financial year beginning on or after 1 January 2016 have had a material impact on 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 after 1 January 2016, and have not been applied in preparing these financial statements. None of these is expected to have a significant effect on the financial statements of the Group, except the following, set out below:
· IFRS 9, 'Financial instruments', addresses the classification, measurement and recognition of financial assets and financial liabilities. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the 'hedged ratio' to be the same as the one management actually uses for risk management purposes. Contemporaneous documentation is still required but is different from that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted, subject to EU endorsement. The full impact of IFRS 9 has not yet been assessed, however, management do not believe it will have a significant impact.
· IFRS 15, 'Revenue from contracts with customers' deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 'Revenue' and IAS 11 'Construction contracts' and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted, subject to EU endorsement. Implementation of IFRS15 requires a thorough review of existing contractual arrangements. At present, the directors anticipate there may be some changes in the recognition of royalty income leading to earlier recognition of some income although the amounts involved are relatively immaterial.
· IFRS 16, 'Leases' addresses the definition of a lease, recognition and measurement of leases and establishes principles for reporting useful information to users of financial statements about the leasing activities of both lessees and lessors. A key change arising from IFRS 16 is that most operating leases will be accounted for on balance sheet for lessees. The standard replaces IAS 17 'Leases', and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2019 and earlier application is permitted, subject to EU endorsement and the entity adopting IFRS 15 'Revenue from contracts with customers' at the same time. The full impact of IFRS 16 has not yet been assessed, however, management do not believe it will have a significant impact.
Critical accounting estimates and judgements
The preparation of the 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 financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty are as follows:
Estimation of fair value of Investment Property
The fair value of investment property reflects, amongst other things, rental income from our current leases, assumptions about rental income from future leases and the possible outcome of planning applications, in the light of current market conditions. The valuation has been arrived at primarily after consideration of market evidence for similar property, although in the case of those properties where fair value is based on their ultimate redevelopment potential, development appraisals have been undertaken to estimate the residual value of the landholding after due regard to the cost of, and revenue from the development of the property.
The Group has also estimated the extent to which existing mining tenants on investment property owned by the Group would perform their obligations to remediate land at the conclusion of mining activity, and therefore the impact of any restoration obligations which may revert to the Group.
The values reported are based on significant assumptions and a change in fair values could have a material impact on the Group`s results. This is due to the sensitivity of fair value to the assumptions made as regards to variances in development costs compared to management's own estimates.
Investment properties are disclosed in Note 11.
2. Business combinations
Acquisition of Harworth Estates Property Group Ltd (HEPGL)
On 24 March 2015, the Group acquired the remaining 75.1% of the issued share capital of HEPGL, a company incorporated in the United Kingdom which headed up a group engaged in the regeneration of former coalfield sites and other brownfield land into employment areas, new residential development and low- carbon energy projects. The following table summarises the consideration paid for HEPGL, the fair value of assets acquired, liabilities assumed and the non-controlling interest held at the acquisition date.
|
Consideration at 24 March 2015 |
£000 |
|
Cash |
97,026 |
|
Equity instruments (731m ordinary shares) |
52,974 |
|
Total consideration transferred |
150,000 |
|
Fair value of associate interest |
57,746 |
|
Total consideration |
207,746 |
Recognised amounts of identifiable assets acquired and liabilities assumed:
|
|
Attributed fair value £000 |
|
|
Investment property (Note 11) |
299,355 |
|
|
Investments and other non-current receivables |
1,883 |
|
|
Cash and cash equivalents |
9,203 |
|
|
Inventory |
311 |
|
|
Trade and other current receivables |
23,054 |
|
|
Financial asset |
1,200 |
|
|
Borrowings |
(60,407) |
|
|
Deferred tax liability (Note 6) |
(7,871) |
|
|
Trade and other payables |
(14,738) |
|
|
Fair value of acquired interest in net assets of subsidiary |
251,990 |
|
|
Gain on bargain purchase |
(44,244) |
|
|
Total consideration |
207,746 |
|
The purchase consideration disclosed above comprised cash and cash equivalents paid to acquire the previous majority shareholder of £150.0m which was satisfied by the payment of £97.03m and the allotment and issue of 730,674,465 ordinary shares of £0.01 each in the capital of Harworth Group plc. The share premium which arose from the shares issued to the Pension Protection Fund, ('PPF') is held within the merger reserve shown in the consolidated balance sheet. Acquisition related costs of £2.4m were recognised in the consolidated income statement as an exceptional item. The fair value of the 731m ordinary shares issued as part of the consideration paid for HEPGL (£53.0m) was based upon the price the shares were placed at 7.25 pence. Issuance costs of £2.95m were netted against the deemed proceeds. During the period ended 31 December 2015 the revenue included in the consolidated income statement since 24 March 2015 contributed by HEPGL was £12.9m and profit before tax was £40.7m. Had HEPGL been consolidated from 1 January 2015, the consolidated income statement for the year to 31 December 2015 would have shown pro-forma revenue of £16.7m and profit before tax of £39.2m.
The net cash outflow associated with the acquisition was as follows:
|
|
£000 |
|
Fair value of acquired interest in net assets of subsidiary |
251,990 |
|
Fair value of associate interest already held |
(57,746) |
|
Gain on bargain purchase |
(44,244) |
|
Total purchase consideration |
150,000 |
|
Less: cash and cash equivalents of subsidiary acquired |
(9,203) |
|
Less: equity instruments issued |
(52,974) |
|
Net outflow of cash and cash equivalents on acquisition |
87,823 |
3. Segment information
31 December 2016
|
|
Capital Growth £000 |
Income Generation £000 |
Unallocated costs £000 |
Total |
|
Revenue |
16,307 |
17,386 |
- |
33,693 |
|
Gross (loss)/profit less administrative expenses |
(1,425) |
11,032 |
(7,276) |
2,331 |
|
Exceptional items |
- |
(682) |
689 |
7 |
|
Increase in fair value of investment properties |
23,433 |
10,280 |
- |
33,713 |
|
Decrease in fair value of assets classified as held for sale |
- |
(224) |
- |
(224) |
|
Profit on sale of investment properties |
7,473 |
1,693 |
- |
9,166 |
|
Loss on sale of assets held for resale |
- |
(375) |
- |
(375) |
|
Other gains |
747 |
- |
- |
747 |
|
Other operating expenses |
- |
(117) |
(87) |
(204) |
|
Operating profit/(loss) |
30,228 |
21,607 |
(6,674) |
45,161 |
|
Finance income |
|
|
|
247 |
|
Finance costs |
|
|
|
(2,588) |
|
Share of profit of joint venture |
|
|
|
647 |
|
Profit before tax |
|
|
|
43,467 |
|
Other information |
|
|
|
|
|
Investment property additions: |
|
|
|
|
|
Direct acquisitions |
- |
22,524 |
- |
22,524 |
|
Subsequent expenditure |
14,707 |
7,947 |
- |
22,654 |
Segmental assets
|
|
Capital Growth £000 |
Income Generation £000 |
Unallocated £000 |
Total |
|
Investment properties |
232,886 |
146,304 |
- |
379,190 |
|
Property, plant and equipment |
- |
- |
789 |
789 |
|
Assets held for sale |
6,152 |
2,198 |
- |
8,350 |
|
Inventories |
454 |
279 |
- |
733 |
|
Other receivables |
1,397 |
- |
- |
1,397 |
|
Investments in joint ventures |
868 |
9,681 |
- |
10,549 |
|
|
241,757 |
158,462 |
789 |
401,008 |
|
Unallocated assets: |
|
|
|
|
|
Trade and other receivables |
|
|
24,444 |
24,444 |
|
Cash and cash equivalents |
|
|
13,007 |
13,007 |
|
Total assets |
241,757 |
158,462 |
38,240 |
438,459 |
Financial liabilities are not allocated to the reporting segments as they are managed and measured on a Group basis.
31 December 2015
|
|
Capital Growth £000 |
Income Generation £000 |
Unallocated costs £000 |
Total |
|
|
Revenue |
1,319 |
11,533 |
320* |
13,172 |
|
|
Gross (loss)/profit less administrative expenses |
(1,471) |
6,579 |
(3,680) |
1,428 |
|
|
Transaction costs |
- |
- |
(2,394) |
(2,394) |
|
|
Impairment of investment |
(465) |
- |
- |
(465) |
|
|
Increase in fair value of investment properties |
14,503 |
9,557 |
- |
24,060 |
|
|
Profit on sale of investment properties |
7,111 |
1,069 |
- |
8,180 |
|
|
Other gains |
- |
3,208 |
- |
3,208 |
|
|
Other operating income |
- |
47 |
129 |
176 |
|
|
Operating profit/(loss) |
19,678 |
20,460 |
(5,945) |
34,193 |
|
|
Finance income |
|
|
|
62 |
|
|
Finance costs |
|
|
|
(1,803) |
|
|
Share of profit of joint venture |
|
|
|
856 |
|
|
Gain on bargain purchase |
|
|
|
44,244 |
|
|
Profit before tax |
|
|
|
77,552 |
|
*Unallocated revenues relate to recharges to HEPGL prior to its acquisition by the Group.
|
Other information |
|
|
|
|
|
Investment property additions: |
|
|
|
|
|
Direct acquisitions |
14,578 |
8,255 |
- |
22,833 |
|
Subsequent expenditure |
17,603 |
6,360 |
- |
23,963 |
Segmental assets
|
|
Capital Growth £000 |
Income Generation £000 |
Unallocated £000 |
Total |
|
Investment properties |
210,004 |
124,613 |
- |
334,617 |
|
Assets held for sale |
30 |
9,098 |
- |
9,128 |
|
Inventories |
- |
1,092 |
- |
1,092 |
|
Other receivables |
650 |
- |
- |
650 |
|
Investments in joint ventures |
768 |
- |
- |
768 |
|
|
211,452 |
134,803 |
- |
346,255 |
|
Unallocated assets: |
|
|
|
|
|
Trade and other receivables |
- |
- |
19,906 |
19,906 |
|
Cash and cash equivalents |
- |
- |
27,564 |
27,564 |
|
Total assets |
211,452 |
134,803 |
47,470 |
393,725 |
Financial liabilities are not allocated to the reporting segments as they are managed and measured on a Group basis.
4. Finance income and costs
|
|
Year ended |
Year ended |
|
Interest expense |
|
|
|
- Bank interest |
(1,559) |
(977) |
|
- Facility fees |
(545) |
(485) |
|
- Other interest |
(484) |
(341) |
|
Finance costs |
(2,588) |
(1,803) |
|
Interest received |
247 |
62 |
|
Net finance costs |
(2,341) |
(1,741) |
5. Exceptional items
|
|
Year ended |
Year ended |
|
Settlement relating to Harworth Insurance Company Limited |
500 |
- |
|
Settlement relating to Ocanti Opco Limited |
189 |
- |
|
Under recovery relating to the cessation of coal fine activities at Rugeley and coal fines stock provision |
(682) |
- |
|
Write down of investment in joint venture |
- |
(465) |
|
Costs associated with acquisition of a subsidiary |
- |
(2,394) |
|
Total exceptional items |
7 |
(2,859) |
Exceptional items for 2016 comprise three separate items, all of which largely relate to the Group's legacy activities. £0.5m relates to a settlement from the administration of Harworth Insurance Company Limited and £0.2m from the administrator of Ocanti Opco Limited which related to the reimbursement of management expenses incurred by Coalfield Resources plc (the former name of Harworth Group plc). In respect of coal fines activity, an exceptional charge has been taken relating to the cessation of activity at Rugeley of £0.3m and a provision of £0.3m has been taken against the value of coal fines stocks reflecting reduced demand.
The exceptional items in 2015 related to the transaction costs incurred on the acquisition of HEPGL of £2.4m and the write down of a joint venture held by the Group of £0.5m.
6. Tax charge
|
Analysis of tax charge in the year |
Year ended |
Year ended |
|
Deferred tax |
|
|
|
Current year |
2,510 |
3,508 |
|
Adjustment in respect of prior periods |
1,652 |
- |
|
Effect of changes in tax rates |
(2,042) |
- |
|
Re-assessment of recognition of recoverability of deferred tax assets |
1,446 |
- |
|
Tax charge |
3,566 |
3,508 |
|
|
|
|
|
Other comprehensive income items |
Year ended |
Year ended |
|
Deferred tax - current year |
14 |
- |
|
Prior year |
80 |
- |
|
|
94 |
- |
The tax for the year is different to the standard rate of corporation tax in the UK of 20.0% (2014: 20.25%). The differences are explained below:
|
|
Year ended |
Year ended |
|
Profit before tax on continuing operations |
43,467 |
77,552 |
|
Profit before tax multiplied by rate of corporation tax in the UK of 20.0% (2015: 20.25%) |
8,693 |
15,704 |
|
Effects of: |
|
|
|
Adjustments in respect of prior years |
1,652 |
- |
|
Share of associated company profit not taxable |
- |
(173) |
|
Non-taxable income |
(129) |
(7,084) |
|
Expenses not deducted for tax purposes |
390 |
436 |
|
Gain on bargain purchase |
- |
(8,959) |
|
Revaluation gains |
(4,683) |
4,176 |
|
Changes in tax rates |
(2,042) |
(651) |
|
Capital gains tax transferred out |
(1,764) |
- |
|
Re-assessment of recognition of recoverability of deferred tax assets |
1,446 |
- |
|
Deferred tax not recognised |
3 |
59 |
|
Total tax charge |
3,566 |
3,508 |
Deferred tax
The analysis of deferred tax liabilities is as follows:
|
|
As at |
As at |
|
No more than twelve months after the reporting year |
- |
- |
|
More than twelve months after the reporting year |
14,851 |
11,379 |
|
|
14,851 |
11,379 |
The gross movement on the deferred income tax account is as follows:
|
|
Year ended |
Year ended |
|
At 1 January |
11,379 |
- |
|
Acquisition of subsidiary |
- |
7,871 |
|
Adjustments in respect of prior periods |
1,572 |
- |
|
Statement of comprehensive income for the year |
(14) |
- |
|
Income statement charge for the year |
1,914 |
3,508 |
|
At 31 December |
14,851 |
11,379 |
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 17% (2015: 18%). A reduction in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017), and a further reduction to 17% (effective from 1 April 2020) were enacted as part of the Finance Act 2015. The deferred tax liabilities are shown at 17% (2015: 18%) being the rate expected to apply to the reversal of the liability.
The deferred tax charge of £3.6m (2015: £3.5m) for the year ended 31 December 2016 is in respect of property revaluation gains where tax is expected to arise when properties are sold.
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 £19.7m at 31 December 2016 have not been recognised owing to the uncertainty as to their recoverability, deferred tax assets of £27.9m were not recognised at 31 December 2015:
|
|
As at 31 December 2016 Total amount recognised £000 |
As at 31 December 2016 Total potential asset £000 |
As at 31 December 2015 Total amount recognised £000 |
As at 31 December 2015 Total potential asset £000 |
|
Tax losses |
8,427 |
28,149 |
- |
27,850 |
|
Net deferred tax asset |
8,427 |
28,149 |
- |
27,850 |
7. Dividends
The Board recommended and shareholders approved a full year dividend for financial year 2015 of £1.5m (0.51p per share) which was paid on 9 September 2016 and an interim dividend of £0.66m (0.23p per share) for the six months ended 30 June 2016 which was paid on 1 December 2016. The Company is proposing to recommend a final dividend of 0.523 pence per share (£1.53m in total) for the year ended 31 December 2016 at the Annual General Meeting in May.
8. Earnings per share
Earnings per share has been calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of shares in issue and ranking for dividend during the year. The weighted average number of shares for 31 December 2015 includes the adjustments necessary to reflect the new shares issued on 24 March 2015 and for 31 December 2016 the share consolidation which took place on 3 May 2016. See note 19.
|
|
Year ended |
Year ended |
|
|
Profit from continuing operations attributable to owners of the parent |
39,901 |
74,044 |
|
|
Profit for the year |
39,901 |
74,044 |
|
|
Weighted average number of shares used for basic and diluted earnings per share calculation |
1,133,144,333 |
2,395,763,516 |
|
|
Basic and diluted profit per share (pence) |
3.5 |
3.1 |
|
|
Underlying earnings per share (pence) |
|
13.7 |
12.2 |
Adjusted basic and diluted earnings per share for the year ended 31 December 2015 were 1.1 pence, being based on profit before tax adjusted for the exceptional gain on bargain purchase of £44.2m, acquisition fees of £2.4m and write down of investments of £0.5m.
Underlying earnings per share have been calculated using profit from continuing operations £39.9m (2015: £35.7m underlying) and shares in issue at the end of 2016.
9. Property, plant and equipment
|
|
Land and Buildings £000 |
Office equipment £000 |
Total |
|
Fair Value |
|
|
|
|
At 1 January 2016 |
- |
- |
- |
|
Additions at cost |
- |
25 |
25 |
|
Transfer from investment properties (note 11) |
783 |
- |
783 |
|
Decrease in fair value |
(17) |
- |
(17) |
|
At 31 December 2016 |
766 |
25 |
791 |
|
Accumulated depreciation |
|
|
|
|
At 1 January 2016 |
- |
- |
- |
|
Charge for year |
- |
2 |
2 |
|
At 31 December 2016 |
- |
2 |
2 |
|
Carrying amount At 31 December 2015 |
- |
- |
- |
|
At 31 December 2016 |
766 |
23 |
789 |
At 31 December 2016, the Group had entered into contractual commitments for the acquisitions of property, plant and equipment amounting to £nil (2015: £nil).
Information about the valuation of land and buildings is provided in note 11.
10. Other receivables
The benefit of overages is recorded as a non-current receivable as follows:
|
|
|
|
Year ended |
Year ended |
|
At 1 January |
|
|
650 |
- |
|
Acquired |
|
|
- |
650 |
|
Fair value gains |
|
|
747 |
- |
|
At 31 December |
|
|
1,397 |
650 |
11. Investment properties
Investment property at 31 December 2016 and 31 December 2015 has been measured at fair value. The Group holds five categories of investment property being agricultural land, natural resources, major developments, strategic land and business parks in the UK, which sit within the operating segments of Capital Growth and Income Generation.
|
|
Income Generation |
|
Capital Growth |
|
|
||||
|
|
Agricultural Land |
Natural Resources |
Business Parks |
|
Major Developments |
Strategic Land |
|
Total £000 |
|
|
At 1 January 2015 |
- |
- |
- |
|
- |
- |
|
- |
|
|
Acquisition of subsidiaries |
22,070 |
18,574 |
72,724 |
|
139,842 |
46,145 |
|
299,355 |
|
|
Direct acquisitions |
- |
978 |
7,277 |
|
1,366 |
13,212 |
|
22,833 |
|
|
Subsequent expenditure |
604 |
312 |
5,444 |
|
15,562 |
2,041 |
|
23,963 |
|
|
Increase/(decrease) in fair value |
2,477 |
1,375 |
5,705 |
|
15,075 |
(572) |
|
24,060 |
|
|
Transfer to assets held for sale |
(6,013) |
(3,085) |
- |
|
- |
(30) |
|
(9,128) |
|
|
Disposals |
(2,375) |
(1,200) |
(254) |
|
(14,256) |
(8,381) |
|
(26,466) |
|
|
At 31 December 2015 |
16,763 |
16,954 |
90,896 |
|
157,589 |
52,415 |
|
334,617 |
|
|
Transfers |
4,617 |
5,682 |
(25,424) |
|
64,763 |
(49,638) |
|
- |
|
|
Direct acquisitions |
1,390 |
- |
21,134 |
|
- |
- |
|
22,524 |
|
|
Subsequent expenditure |
286 |
1,663 |
5,998 |
|
11,223 |
3,484 |
|
22,654 |
|
|
(Decrease)/increase in fair value |
(894) |
5,203 |
5,971 |
|
12,103 |
11,330 |
|
33,713 |
|
|
Transfer to assets held for sale |
(1,680) |
- |
(477) |
|
(6,153) |
- |
|
(8,310) |
|
|
Transfer to property, plant and equipment |
- |
- |
(783) |
|
- |
- |
|
(783) |
|
|
Disposals |
(376) |
(13) |
(606) |
|
(23,875) |
(355) |
|
(25,225) |
|
|
At 31 December 2016 |
20,106 |
29,489 |
96,709 |
|
215,650 |
17,236 |
|
379,190 |
|
Valuation process
The properties were valued in accordance with the Royal Institute of Chartered Surveyors (RICS) Valuation - Professional Standards (the 'Red Book'), by BNP Paribas Real Estates and Savills both independent firms acting in capacity of external valuers with relevant experience of valuations of this nature. The valuations are on the basis of Market Value as defined with the Red Book, which RICS considers meets the criteria for assessing Fair Value under International Reporting Standards. 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. Most of the Group's properties have been valued on the basis of their development potential which differs from their existing use.
At each financial year end, Management:
o verifies all major inputs to the independent valuation report;
o assesses property valuation movements when compared to the prior year valuation report; and
o holds discussions with the independent valuer.
The different valuation levels are defined as:
o Level 1: valuation based on quoted market prices traded in active markets.
o Level 2: valuation based on inputs other than quoted prices included within Level 1 that maximise the use of observable data either directly or from market prices or indirectly derived from market prices.
o Level 3: where one or more inputs to valuation are not based on observable market data.
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 in the year ended 31 December 2016 (2015: zero).
Valuation techniques underpin management's estimation of fair value.
Agricultural Land
Most of the agricultural land is valued using the market comparison basis, with an adjustment made for the length of remaining term on the tenancy and the estimated cost to bring the land to its highest and best use. Where the asset is subject to a secure letting, this is valued on a yield basis, based upon sales of similar types of investment.
Natural Resources
Natural resources sites in the portfolio are valued based on a discounted cashflow for the operating life of the asset.
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 observable 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 the smaller development sites.
Strategic Land
Strategic land is valued on the basis of discounted cash flows, 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.
Business Parks
The business parks are valued on the basis of market comparison with direct reference to observable market evidence including rental values, 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.
12. Investments
(a) Investment in associates
|
|
|
|
Year ended |
Year ended |
|
At 1 January |
|
|
- |
56,890 |
|
Share of profit |
|
|
- |
856 |
|
Purchase of share capital not held |
|
|
- |
(57,746) |
|
At 31 December |
|
|
- |
- |
The Group accounted for its investment in HEPGL, a private company incorporated in England and Wales, as an associate up to and including 24 March 2015 because it considered that it had significant influence over that entity due to its 24.9% shareholding and representation on the HEPGL board.
The Group's share of net assets of HEPGL was reduced by £5.0m to reflect the fact that, under the terms of the Shareholder Agreement prior to 24 March 2015, the first £5.0m of dividend income due to the Group would be paid to the Pension Protection Fund ('PPF').
On 24 March 2015, Harworth Group plc acquired the remaining 75.1% of HEPGL that it did not own from the PPF. HEPGL therefore ceased to be accounted for as an associate at that date and has been fully consolidated in these accounts.
(b) Investment in joint ventures
|
|
£000 |
|
At 1 January 2015 |
- |
|
Arising on acquisition of subsidiaries |
1,233 |
|
Impairment of investment in joint venture |
(465) |
|
At 31 December 2015 |
768 |
|
Acquisitions |
9,134 |
|
Share in profit of joint venture |
647 |
|
At 31 December 2016 |
10,549 |
As a result of the 2015 acquisition of HEPGL the Group holds 50% of the issued ordinary shares of Bates Regeneration Limited, a joint venture with Banks Property Limited for the development of an investment property at Blyth, Northumberland. On 14 March 2016 the Group purchased a 50% share of Aire Valley Land LLP from Keyland Developments Limited for a consideration of £8.5m plus costs of £0.5m. Aire Valley Land LLP is a joint venture company. It controls 166 acres of land in Leeds that abuts existing landholding of the Group on the former Skelton Grange power station site. On 16 December 2016 the Group entered into a joint venture agreement with Dransfield Properties Limited for a 50% share of Waverley Square Limited.
13. Inventories
|
|
|
|
|
|
As at |
As at |
|
Planning promotion agreements |
454 |
- |
|
Work in progress |
- |
114 |
|
Finished goods |
279 |
978 |
|
Total inventories |
733 |
1,092 |
Finished goods comprises coal fines that have been processed and are ready for sale. The cost of inventory is recognised as an expense within cost of sales in the year of £0.4m (2015: £1.1m). Inventories are stated after a provision of £0.3m (2015: £nil)
14. Trade and other receivables
|
|
|
|
|
|
As at |
As at |
|
Trade receivables |
4,179 |
1,564 |
|
Less: provision for impairment of trade receivables |
(221) |
(121) |
|
Net trade receivables |
3,958 |
1,443 |
|
Other receivables |
19,111 |
16,723 |
|
Prepayments and accrued income |
1,375 |
1,159 |
|
Amounts recoverable on construction contracts |
- |
581 |
|
|
24,444 |
19,906 |
The carrying amount of trade and other receivables approximate to their fair value due to the short time frame over which the assets are realised. All of the Group's receivables are denominated in sterling.
15. Assets classified as held for sale
|
Investment properties |
Year Ended 31 December |
Year Ended 31 December |
|
At 1 January |
9,128 |
- |
|
Transferred from investment properties |
8,310 |
9,128 |
|
Subsequent expenditure |
1,588 |
- |
|
Decrease in fair value |
(224) |
- |
|
Disposals |
(10,452) |
- |
|
At 31 December |
8,350 |
9,128 |
The assets classified for sale at each year end relate to investment properties expected to be sold within twelve months.
16. Cash and cash equivalents
|
|
As at |
As at |
|
Cash |
13,007 |
27,564 |
|
Cash and cash equivalents in the cash flow statement |
13,007 |
27,564 |
17. Borrowings
|
|
As at |
As at |
|
Bank loans |
|
|
|
Current: |
|
|
|
Secured - other loans |
(1,819) |
(400) |
|
|
(1,819) |
(400) |
|
Non-current: |
|
|
|
Secured - bank loans |
(37,142) |
(48,968) |
|
Secured - other loans |
(13,517) |
(15,151) |
|
|
(50,659) |
(64,119) |
Details of the borrowings acquired as part of the acquisition of subsidiary on 24 March 2015 are provided in Note 2.
At 31 December 2016, the Group had bank borrowings of £37.0m (2015: £50.0m) and a further £15.5m (2015: £15.7m) of infrastructure loans, which resulted in total borrowings of £52.5m (2015: £65.7m). The bank borrowings are part of a £75.0m (2015: £65.0m) revolving credit facility from The Royal Bank of Scotland. The facility is repayable on 13 February 2021 (five year term) after being extended for a year on 1 August 2016. The facility is non-amortising and subject to financial and other covenants.
The infrastructure loans of £15.5m (2015: £15.7m) are provided by public bodies in order to promote the development of major sites. They comprise a £0.8m (2015: £1.2m) loan from Leeds LEP in respect of the Prince of Wales site, £11.6m (2015: £10.9m) from the Homes and Community Agency in respect of Waverley and £0.1m (2015: £nil) for Village Farm, £2.3m (2015: £3.6m) from Sheffield City Region JESSICA Fund for Rockingham and £0.7m (2015: £nil) for the Advanced Manufacturing Park at Waverley.
The loans are drawn as work on the respective sites is progressed and they are repaid on agreed dates or when disposals are made from the sites.
Current loans are stated after deduction of unamortised borrowing cost of £nil (2015: £nil). Non-current bank and other loans are stated after deduction of unamortised borrowing costs of £1.1m (2015: £1.2m). The bank loans and overdrafts are secured by way of fixed charges over certain assets of the Group.
18. Trade and other payables
Current liabilities
|
|
As at |
As at £000 |
|
Trade payables |
1,555 |
875 |
|
Taxation and social security |
7,852 |
2,720 |
|
Other creditors |
2,087 |
2,920 |
|
Accruals and deferred income |
22,225 |
10,854 |
|
|
33,719 |
17,369 |
Non-current liabilities
|
|
As at |
As at |
|
Other creditors |
1,520 |
2,280 |
|
|
1,520 |
2,280 |
Non-current creditors relate to deferred consideration due on land purchases after one year.
19. Called up share capital
On 24 March 2015, the Company issued 2,317,241,377 ordinary shares at 7.25 pence each as part of a placing and open offer of which 730,674,465 ordinary shares were issued to the PPF as part of the purchase consideration for the acquisition of 75.1% of the issued share capital of HEPGL. On 26 April 2016 3 ordinary shares were issued at 1 pence each and all shares in issue were consolidated from 1 pence shares into 10 pence shares.
|
|
|
2016 |
2015 |
||
|
|
|
Number |
|
Number |
|
|
Issued and fully paid |
|
|
|
|
|
|
At 1 January |
|
2,922,697,857 |
29,227 |
605,456,480 |
6,055 |
|
Shares issued |
|
3 |
- |
2,317,241,377 |
23,172 |
|
Share consolidation (10 for 1) |
|
(2,630,428,074) |
- |
- |
- |
|
At 31 December |
|
292,269,786 |
29,227 |
2,922,697,857 |
29,227 |
20. Share premium account
|
|
Year Ended 31 December 2016 |
Year Ended 31 December 2015 |
|
At 1 January |
129,121 |
32,911 |
|
Transferred to other distributable reserves |
(129,121) |
- |
|
Premium on shares issued |
- |
99,160 |
|
Costs relating to rights issue |
- |
(2,950) |
|
At 31 December |
- |
129,121 |
On 18 May 2016 approval was granted from the High Court to cancel the £129m share premium account of the Group and for it to be re-designated as distributable reserves.
21. Derivative Financial Instruments
On 21 June 2016 HEPGL entered into a four-year swap to fix £30m of borrowings at an all-in rate of 2.955% including fees. The interest rate swap has been measured at fair value which is determined using forward interest rates extracted from observable yield curves. The fair value of the interest rate swap at 31 December 2016 was a loss of £0.4m (2015: £nil).
During the year the following loss was recognised in the other comprehensive income statement in relation to the interest rate swap:
|
|
As at 31 December 2016 |
As at 31 December 2015 |
|
Loss on interest rate swap - cash flow hedge |
366 |
- |
22. Related party transactions
Peel Group
The Peel Group charged £42,500 (2015: £41,875) in respect of fees for Steven Underwood and £nil for the rental of office space (2015: £8,202).
The Group relinquished an option to purchase 50% of the share capital of Peel Wind Farms (Blue Sky Forest) Limited in return for £4.4m from Peel Holdings Wind Farms (IOM) Limited. This resulted in a gain of £3.2m shown in the consolidated income statement within other gains in 2015.
Harworth Estates Group
Revenue included £320,000 for the period up to 24 March 2015 in respect of recharges to the Harworth Estates Group for on-going costs of the Company in 2015 prior to its acquisition into the Group.
Scratching Cat
Geoff Mason, our former Company Secretary, supplied his services through Scratching Cat Limited, a company of which he is a director. During the year charges were made in relation to company secretarial duties of £73,000 (2015: £115,000).
This information is provided by RNS
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