UNAUDITED INTERIM RESULTS

RNS Number : 7265L

Harworth Group PLC

10 September 2019

 

HARWORTH GROUP PLC

UNAUDITED INTERIM RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2019

 STRONG SALES PROGRESS AND BENEFITS OF REGIONAL OPERATING MODEL

UNDERPIN SOLID FIRST HALF

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

	30 June 2019	30 June 2018	Change (%)	31 December 2018
Net Asset Value ("NAV") per share (p) (1)	141.3	128.6	9.9%	137.5
EPRA NNNAV per share (p) (1)	147.3	130.8	12.6%	145.2
EPRA NAV per share (p) (1)	150.6	133.4	12.9%	148.3
Operating profit (£'m)	13.3	6.0	120.7%	33.0
Operating profit before exceptional items plus joint ventures (£'m)	19.7	8.9	120.9%	37.4
Value gains (£'m) (1)	17.7	7.7	130.9%	27.6
Value gains (including development properties) (£'m) (1)	11.1	10.5	5.5%	51.3
Profit excluding value gains (£'m) (1)	2.0	1.3	58.6%	9.8
Earnings per share (p)	4.67	1.71	173.1%	10.61
Dividend per share (p)	0.304	0.278	9.4%	0.911

Harworth's Chief Executive, Owen Michaelson, said:

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

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

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

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

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

STRONG FINANCIAL METRICS REFLECTING GOOD OPERATIONAL PERFORMANCE 

·	A positive six months resulting in total return (EPRA NNNAV growth plus dividends per share) on an annual basis of 13.3% (H1 2018: 11.5%)
·	EPRA NNNAV growth per share over the last twelve months of 12.6% (H1 2018: 10.9%) and 1.4% (H1 2018: 1.5%) during the period
·	Profit excluding value gains increased by 58.6% (H1 2018: 23.8%), reflecting the impact of additional income generated from acquisitions in 2018
·	Operating profit of £13.3m (H1 2018: £6.0m)
·	Interim dividend per share increased by 9.4% to 0.304p (H1 2018: 0.278p) in-line with our progressive policy
·	Policy of prudent gearing maintained.  Net loan to value of 10.1% (FY 2018: 12.3%) or 28.2% when calculated against the income portfolio (FY 2018: 34.3%), reflecting strong sales in the first half
·	As at 30 June 2019 cash and facility headroom of £53.4m, providing substantial firepower for further land and property acquisitions

REGIONAL MODEL UNDERPINNING OPERATIONAL PROGRESS

·	PROPERTY SALES: As at today, over 70% of budgeted sales for the full year have already been completed, exchanged or agreed, reflecting the underlying strength of the "beds and sheds" markets in Harworth's core regions and its commitment to place-making
	o  76 acres of engineered residential land sold, with the total above book value, to national and regional housebuilders across four sites for a total consideration of £45.6m, projected to deliver 1,091 new homes
	o  Commercial sales at Gateway 45 Leeds 50/50 joint venture with Evans Property Group that will generate £30.3m (£15.2m Harworth share): § 10 acres of fully serviced commercial land sold to Leeds University; § 2.5 acres sold to Leeds City Council for an extension to its existing park and ride facility; and § Contracts exchanged with PLP UK Logistics Venture (UKLV) for the sale of 43 acres at Gateway 45 to deliver 855k sq. ft of speculative distribution space

·	ACQUISITIONS: Move to a regional operating model (within our capital growth segment) delivering increased range of opportunities
	o  Six strategic land and income acquisitions made in the first half, of which four were in the North West and Midlands regions, for a total consideration including costs of £18.8m
	o  These acquisitions have the potential to deliver a further 2,483 residential plots and 0.1m sq. ft of commercial space

·	INCOME: New acquisitions and delivery of lease milestones supporting income portfolio growth
	o  A £6.5m acquisition delivering additional net rent roll of £0.7m per annum
	o  18 new or renewed lettings achieved delivering annualised income of £0.9m
	o  Four of the nine "Multiply" units built in joint venture with Lancashire County Pension Fund at Logistics North are now let on long-term leases and strong interest reported on the remaining five

·	PLANNING: Live applications for 1,715 residential plots and c.3.2m sq. ft of commercial space awaiting determination at half-year end
	o  In early July, outline permission granted at Bardon Hill in Leicestershire for 356k sq. ft of commercial space
	o  Following the outcome of May's local elections, which led to a change of control in a number of our local authorities, delays are expected in the determination of certain live applications as new administrations get up to speed.   The quantum of anticipated value gains from these projects remains unchanged but timings of decisions are now more uncertain
	o  Applications for a further 2,150 residential plots and 200k sq. ft of commercial space are being prepared, including for the former Ironbridge power station that was purchased in June 2018

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

·	With a portfolio of consented sites representing 9,842 residential plots (H1 2018: 10,638) and 10.0m sq. ft of commercial space (H1 2018: 12.1m sq. ft), Harworth's strategic focus remains firmly positioned on the "beds and sheds" sectors in the North and the Midlands.  Its longer term pipeline of sites carries the potential for a further 12,140 residential plots and 11.0m sq. ft of commercial space
·	In order to drive overall total returns, the Company will continue the stated policy of selling down remaining land in the North East and former surface mining sites with little development potential as well as selective sales of low-yielding agricultural land to enable management to focus on the strongest value-add opportunities in its core regions
·	The new regional operating model is expected to facilitate further acquisition opportunities in H2, with Harworth in exclusive negotiations on sites within each of our core regions.  This is supported by cash and facility headroom of £53.4 million, providing substantial firepower for further acquisitions
·	Acquisition focus is resolute: purchasing major brownfield and potential urban extension sites from corporate vendors, administrators and the public sector; securing options on medium to long term development opportunities or on adjacent land to existing Harworth developments; and agreeing PPAs(2) of scale in our core regions.  Selective income-led purchases with active asset management opportunities and long-term strategic land potential will also be actively considered

Footnotes:

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

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

-ENDS-

Enquiries: 

Harworth Group plc	FTI Consulting
Owen Michaelson, Chief Executive	Dido Laurimore
Jenny Cutler, Interim Finance Director	Richard Gotla
Iain Thomson, Head of Communications & IR	Eve Kirmatzis
Tel: [phone] [e-mail]	Tel: [phone] [e-mail]

Results Presentation

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

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

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

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

Participants, Local - London, United Kingdom:	[phone]
Confirmation Code:	8209736

ABOUT HARWORTH GROUP PLC

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

 

Operational Review

OVERVIEW

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

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

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

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

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

DEVELOPMENT PORTFOLIO

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

Sales

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

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

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

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

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

Planning

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

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

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

Acquiring land and property

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

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

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

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

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

The development portfolio at half-year end

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

INVESTMENT PORTFOLIO

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

Business Space

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

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

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

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

Natural Resources & Operations

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

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

Portfolio Refinement  

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

PEOPLE

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

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

MARKET OUTLOOK

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

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

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

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

Owen Michaelson

Chief Executive Officer

10 September 2019

Financial Review

OVERVIEW
 

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

	As at 30 June 2019		As at 30 June 2018		Growth since 30/06/18	As at 31 December 2018		Growth since 31/12/18
	Per share	£m	Per share	£m		Per share	£m
EPRA NNNAV	147.3p	£473.3m	130.8p	£420.4m	12.6%	145.2p	£466.5m	1.4%
EPRA NAV	150.6p	£484.1m	133.4p	£428.7m	12.9%	148.3p	£476.5m	1.6%
NAV	141.3p	£454.3m	128.6p	£413.2m	9.9%	137.5p	£441.9m	2.8%
12 month Total Return	13.3%		11.5%			13.3%

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

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

	H1 2019 £m	H1 2018 £m
Operating profit before exceptional items	13.3	6.6
Share of profits from joint ventures	6.4	2.3
Unrealised gains on development property	-	2.9
Less previously unrealised gains on development property released on sale	(6.6)	-
Operating profit before exceptional items contributing to growth in EPRA NNNAV	13.1	11.8

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

·

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

·

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

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

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

H1 RESULTS

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

	H1 2019				H1 2018
	Capital Growth £m	Income Generation £m	Central Over- heads £m	Total £m	Capital Growth £m	Income Generation £m	Central Over-heads £m	Total £m
Revenue	46.6	11.9	-	58.6	11.1	10.8	-	21.9
Cost of sales	(36.2)	(3.9)	-	(40.0)	(13.0)	(3.3)	-	(16.3)
Overheads	(1.1)	(1.1)	(4.1)	(6.3)	(1.2)	(1.3)	(3.4)	(5.9)
Notional development property gross (profit)/loss (2)	(10.1)	-	-	(10.1)	1.6	-	-	1.6
(Loss)/profit excluding value gains	(0.8)	6.9	(4.1)	2.0	(1.5)	6.2	(3.4)	1.3
Revaluation (loss)/gains (2)	-	-	-	-	(1.5)	6.7	-	5.2
Profit/(loss) on disposals (2)	10.2	1.1	-	11.3	(0.1)	0.1	-	0.1
Operating profit/(loss) before exceptional items	9.4	8.0	(4.1)	13.3	(3.1)	13.0	(3.4)	6.6
Exceptional expense	-	-	-	-	-	-	(0.6)	(0.6)
Operating profit/(loss)	9.4	8.0	(4.1)	13.3	(3.1)	13.0	(4.0)	6.0
Share of profit of joint ventures	6.4	-	-	6.4	-	2.3	-	2.3
Operating profit/(loss) before exceptional items plus JVs	15.8	8.0	(4.1)	19.7	(3.1)	15.3	(3.4)	8.9
Revaluation gains on development properties	-	-	-	-	2.9	-	-	2.9
Development property gains released on sales	(6.6)	-	-	(6.6)	-	-	-	-
Operating profit/(loss) before exceptional items which contributed to EPRA NNNAV	9.2	8.0	(4.1)	13.1	(0.2)	15.3	(3.4)	11.8
Value gains (including JVs and development properties)	10.0	1.1	-	11.1	1.3	9.1	-	10.5

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

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

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

STATUTORY OPERATING PROFIT

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

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

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

VALUE GAINS

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

	£m				£m
	H1 2019				H1 2018
	Profit on disposals	Revaluation gains	Total		Profit on disposals	Revaluation gains	Total
Development/Capital Growth
Major Developments	3.5	6.4	9.9		(0.0)	1.3	1.3
Strategic Land	0.1	-	0.1		(0.0)	0.1	0.1
Investment/Income Generation
Business Space	-		-		(0.1)	5.2	5.1
Natural Resources	0.2	-	0.2		0.3	3.7	4.0
Agricultural Land	0.9	-	0.9		(0.0)	0.0	0.0
Total value gains	4.7	6.4	11.1		0.1	10.4	10.5

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

	£m	£m
	H1 2019	H1 2018
Increase in fair value of investment properties Net realisable value provision of development properties	- -	6.7 (1.5)
Contribution to statutory operating profit	-	5.2
Share of profits from joint ventures	6.4	2.3
Unrealised gains on development properties	-	2.9
Total revaluation gains	6.4	10.4

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

PROPERTY SALES

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

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

EXCEPTIONAL ITEMS

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

TAXATION
 

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

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

EARNINGS PER SHARE AND DIVIDENDS
 

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

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

PROPERTY CATEGORISATION

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

NET ASSETS

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

	30 June 2019 £m	30 June 2018 £m	31 December 2018 £m
Investment and development properties (including investments in joint ventures, assets held for sale, overages and occupied properties)	501.8	519.1	496.1
Cash	11.4	7.7	8.6
Other assets	74.5	35.5	69.6
Total assets	587.7	562.3	574.3
Gross borrowings	64.6	107.9	73.0
Deferred tax liability	6.3	6.7	5.0
Derivative financial instruments	0.6	-	0.1
Other liabilities	61.9	34.5	54.3
Net assets	454.3	413.2	441.9
Mark to market value uplift of development properties less notional deferred tax (1)	19.0	7.2	24.6
EPRA NNNAV(1)	473.3	420.4	466.5
Number of shares in issue less Employee benefit trust shares	321,430,851	321,314,989	321,314,989
NAV per share	141.3p	128.6p	137.5p
EPRA NNNAV per share(1)	147.3p	130.8p	145.2p
EPRA NAV per share(1)	150.6p	133.4p	148.3p
(1) A full description and reconciliation of the alternative performance measures in the above table is included in Note 2 to these condensed consolidated interim financial statements

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

			Housing plots			Commercial space
Site	Type	Acres	Consented	Sold	Built	Consented	Built
Waverley (Resi)	Development	432	3,890	1,570	900	-	-
Coalville	Development	346	2,016	-	-	-	-
Nufarm	Investment	112	-	-	-	0.3m sq. ft	0.3m sq. ft
Waverley (AMP)	Investment	113	-	-	-	2.1m sq. ft	1.5m sq. ft
Thoresby	Development	460	800	-	-	0.3m sq. ft	0.0m sq. ft
Gateway 45	Joint Venture	110	-	-	-	2.6m sq. ft	0.0m sq. ft
Melton CP	Investment	141	-	-	-	0.3m sq. ft	0.3m sq. ft
Rossington	Development	307	1,200	522	170	0.1m sq. ft	0.1m sq. ft
Four Oaks BP	Investment	19	-	-	-	0.4m sq. ft	0.4m sq. ft
Chatterley	Development	129	-	-	-	1.2m sq. ft	0.0m sq. ft
	TOTAL	2,169	7,906	2,092	1,070	7.3m sq. ft	2.6m sq. ft

FINANCING STRATEGY AND FUNDING

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

·	allows working capital swings to be managed appropriately given that infrastructure spend is usually in advance of sales;
·	gives the Group the ability to complete acquisitions quickly, which is often a differentiating factor in a competitive situation; and
·	ensures that we do not combine financial gearing with Harworth's existing operational gearing derived from our planning, remediation/engineering, letting and sales risks.

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

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

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

At 30 June 2019 Harworth's gross Loan To Value ("LTV") was 12.3% (FY 2018: 13.9%) and net LTV was 10.1% (FY 2018: 12.3%).  However, as set out above, Capital Growth sites are deliberately not geared, so if gearing is just assessed against the value of Business Space and Natural Resources properties this equates to a gross LTV of 34.3% (FY 2018: 38.9%) and a net LTV of 28.2% (FY 2018: 34.3%).

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

RESTATEMENT OF FAIR VALUE AND RETAINED EARNINGS RESERVES

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

Jenny Cutler

Interim Finance Director

10 September 2019

 

Principal risks and uncertainties

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

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

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

The overall status of all other risk categories remains unchanged.

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

Chris Birch

Group General Counsel and Company Secretary

10 September 2019

Consolidated income statement

	Note	Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Revenue	3	58,572	21,909	78,055
Cost of sales	3	(40,031)	(16,282)	(53,612)
Gross profit	3	18,541	5,627	24,443
Administrative expenses	3	(6,348)	(5,895)	(12,870)
Other gains	3	1,180	6,930	22,066
Other operating expenses	3	(29)	(27)	(70)
Operating profit before exceptional items		13,344	6,635	33,569
Exceptional expense	4	-	(590)	(590)
Operating profit		13,344	6,045	32,979
Share of profit of joint ventures	3	6,364	2,288	3,791
Net finance costs	5	(1,241)	(1,738)	(3,962)
Profit before tax		18,467	6,595	32,808
Tax	6	(3,467)	(1,108)	1,294
Profit for the period/year		15,000	5,487	34,102
Earnings per share from operations		Pence	pence	pence
Basic	8	4.7	1.7	10.6
Diluted	8	4.6	1.7	10.5

The notes on pages 21 to 41 are an integral part of these condensed consolidated interim financial statements.

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

Consolidated statement of comprehensive income

	Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Profit for the period/year	15,000	5,487	34,102
Other comprehensive income - items that will not be reclassified to profit or loss:
Net actuarial loss in Blenkinsopp Pension scheme	(83)	82	(18)
Deferred tax on other comprehensive (expense) items	-	-	(1)
Other comprehensive income - items that maybe reclassified subsequently to profit or loss:
Fair value of financial instruments	(504)	125	13
Total other comprehensive (expense)/income	(587)	207	(6)
Total comprehensive income for the period/year	14,413	5,694	34,096

Consolidated balance sheet

ASSETS	Note	Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Non-current assets
Property, plant and equipment		886	797	794
Right of use assets		123	-	-
Other receivables		-	2,000	-
Investment properties	9	265,376	256,276	254,409
Investments in joint ventures		29,875	22,428	25,830
Trade receivables		17,452	-	-
Derivative financial instruments		-	3	-
		313,712	281,504	281,033
Current assets
Inventories	10	194,083	210,849	207,009
Trade and other receivables		54,331	34,008	66,699
Assets classified as held for sale	11	14,179	28,186	10,956
Cash		11,436	7,718	8,595
		274,029	280,761	293,259
Total assets		587,741	562,265	574,292
LIABILITIES
Current liabilities
Borrowings	12	-	(7,648)	(5,291)
Trade and other payables		(57,944)	(31,534)	(52,555)
Lease liability		(44)	-	-
Current tax liabilities		(3,144)	(1,698)	(928)
		(61,132)	(40,880)	(58,774)
Net current assets		212,897	239,881	234,485
Non-current liabilities
Borrowings	12	(64,572)	(100,242)	(67,747)
Trade and other payables		(300)	(760)	(300)
Lease liability		(77)	-	-
Derivative financial instruments		(613)	-	(109)
Deferred income tax liabilities		(6,263)	(6,743)	(4,964)
Retirement benefit obligations		(479)	(413)	(462)
		(72,304)	(108,158)	(73,582)
Total liabilities		(133,436)	(149,038)	(132,356)
Net assets		454,305	413,227	441,936
SHAREHOLDERS' EQUITY
Called up share capital	13	32,151	32,150	32,150
Share premium account		24,359	24,351	24,351
Fair value reserve1		109,473	110,915	118,563
Capital redemption reserve		257	257	257
Merger reserve		45,667	45,667	45,667
Investment in own shares	13	(62)	(194)	(194)
Retained earnings1		227,460	194,594	187,040
Current year profit		15,000	5,487	34,102
Total shareholders' equity		454,305	413,227	441,936

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

Consolidated statement of changes in shareholders' equity

	Called up share capital £'000	Share premium account £'000	Own shares £'000	Fair value reserve (restated)1 £'000	Capital redemption reserve £'000	Merger reserve £'000	Retained earnings (restated)1 £'000	Total equity £'000
Balance at 1 January 2018 (audited)	32,150	24,351	(263)	105,064	257	45,667	202,085	409,311
Profit for the six months to 30 June 2018	-	-	-	-	-	-	5,487	5,487
Fair value gains	-	-	-	6,699	-	-	(6,699)	-
Transfer of unrealised gains on disposal of investment property	-	-	-	(848)	-	-	848	-
Other comprehensive income:
Actuarial loss in Blenkinsopp pension scheme	-	-	-	-	-	-	82	82
Fair value of financial instruments	-	-	-	-	-	-	125	125
Transactions with owners:
Dividend paid	-	-	-	-	-	-	(1,847)	(1,847)
Share issue	-	-	69	-	-	-	-	69
Balance at 30 June 2018 (unaudited)	32,150	24,351	(194)	110,915	257	45,667	200,081	413,227
Profit for six months to 31 December 2018	-	-	-	-	-	-	28,615	28,615
Fair value gains	-	-	-	16,539	-	-	(16,539)	-
Transfer of unrealised gains on disposal of investment property	-	-	-	(8,891)	-	-	8,891	-
Other comprehensive expense:
Actuarial loss in Blenkinsopp pension scheme	-	-	-	-	-	-	(100)	(100)
Fair value of financial instruments	-	-	-	-	-	-	(112)	(112)
Deferred tax on other comprehensive (expense)/income items	-	-	-	-	-	-	(1)	(1)
Transactions with owners:
Dividend paid	-	-	-	-	-	-	(893)	(893)
Share based payment IFRS 2 charge	-	-	-	-	-	-	1,200	1,200
Balance at 31 December 2018 (audited)	32,150	24,351	(194)	118,563	257	45,667	221,142	441,936
Profit for the six months to 30 June 2019	-	-	-	-	-	-	15,000	15,000
Transfer of unrealised gains on disposal of investment property	-	-	-	(9,090)	-	-	9,090	-
Other comprehensive expense:
Actuarial gain in Blenkinsopp pension scheme	-	-	-	-	-	-	(83)	(83)
Fair value of financial instruments	-	-	-	-	-	-	(504)	(504)
Transactions with owners:
Share based payment IFRS 2 charge	-	-	132	-	-	-	(150)	(18)
Dividend paid (note 7)	-	-	-	-	-	-	(2,035)	(2,035)
Share issue	1	8	-	-	-	-	-	9
Balance at 30 June 2019 (unaudited)	32,151	24,359	(62)	109,473	257	45,667	242,460	454,305

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

 

Consolidated statement of cash flows

	Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Cash flows from operating activities
Profit before tax for the period/year	18,467	6,595	32,808
Net interest payable	1,241	1,738	3,962
Other gains	(1,180)	(6,885)	(22,066)
Share of profit of joint ventures	(6,364)	(2,288)	(3,791)
Depreciation of property, plant and equipment	47	5	9
Pension contributions in excess of charge	(66)	(68)	(120)
Operating cash inflows/(outflow) before movements in working capital	12,145	(903)	10,802
Decrease in inventories	12,926	430	4,609
Increase in receivables	(5,084)	(3,593)	(36,284)
Increase /(decrease) in payables	5,488	(6,451)	13,598
Cash generated from/(used in) operations	25,475	(10,517)	(7,275)
Interest paid	(1,132)	(962)	(1,581)
Corporation tax (paid)/received	(1)	99	99
Cash generated from/(used in) operating activities	24,342	(11,380)	(8,757)
Cash flows from investing activities
Interest received	156	5	4
Repayment from/(investment in) joint ventures	2,318	(1,301)	(2,843)
Net proceeds from disposal of investment properties and assets held for sale	6,739	4,918	47,801
Loan arrangement fees paid	(62)	(782)	(566)
Expenditure on investment properties and assets classified as held for sale	(19,749)	(57,580)	(64,124)
Expenditure on property, plant and equipment	(125)	-	(1)
Cash used in investing activities	(10,723)	(54,740)	(19,729)
Cash flows from financing activities
Net proceeds from issue of ordinary shares	9	-	-
Proceeds from other loans	-	6,673	8,650
Repayment of other loans	(7,669)	(3,928)	(12,209)
Proceeds from bank loan	14,000	72,500	81,739
Repayment of bank loan	(15,000)	(8,000)	(46,730)
Investment in own shares	(67)	69	-
Payment in respect of leases	(16)	-	-
Dividends paid	(2,035)	(1,847)	(2,740)
Cash (used in)/generated from financing activities	(10,778)	65,467	28,710
Increase/(decrease) in cash	2,841	(653)	224
At 1 January
Cash	8,595	8,371	8,371
Increase/(decrease) in cash	2,841	(653)	224
At period/year end	11,436	7,718	8,595

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

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

General information

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

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

The condensed consolidated interim financial statements for the six months ended 30 June 2019 comprise the Company and its subsidiaries (together referred to as the "Group").

These condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The Group financial statements for the year ended 31 December 2018 were approved by the Board of Directors on 16 April 2019 and delivered to the Registrar of Companies. The report of the auditor on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

These condensed consolidated interim financial statements have not been audited.

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

Basis of preparation

These condensed consolidated interim financial statements for the six months ended 30 June 2019 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority (previously the Financial Services Authority) and with IAS 34 'Interim Financial Reporting' as adopted by the European Union ("EU"). The condensed consolidated interim financial statements should be read in conjunction with the Group financial statements for the year ended 31 December 2018 which have been prepared in accordance with IFRSs as adopted by the EU.

Going-concern basis

These condensed consolidated interim financial statements are prepared on the basis that the Group is a going concern. In forming its opinion as to going concern, the Board prepares cash flow forecasts based upon its assumptions with particular consideration to the key risks and uncertainties as summarised in the 'Managing risk' section of the 2018 annual report, as well as taking into account the funding strategy and available borrowing facilities disclosed on page 14.

The key factor that has been considered in this regard is that the Group has a £100m revolving credit facility with The Royal Bank of Scotland and Santander, expiring February 2023, on a non-amortising basis. The facility is in the form of a debenture security whereby there is no charge on the individual assets of the Group. The facility is subject to financial and other covenants.

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

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

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

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

Accounting policies

The same accounting policies are followed in these condensed consolidated interim financial statements as were applied in the Group's latest audited financial statements, except as described below:

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

Estimates and judgements

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

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2018.

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

2. Alternative Performance Measures ("APMs")

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

1. Reconciliation to statutory measures

a. Revaluation gains	Note	Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Increase in fair value of investment properties	3	-	6,699	21,483
Decrease in fair value of other receivables	3	-	-	(2,000)
Other gains	3	-	45	45
Share of profit of joint ventures	3	6,364	2,288	3,791
Net realisable value provision of development properties	3	-	(1,491)	(4,767)
Reversal of previous net realisable value provision of development properties	3	-	-	3,031
Amounts derived from statutory reporting		6,364	7,541	21,583
Unrealised gains on development properties		-	2,858	22,945
Unrealised gains on overages		-	-	3,541
Revaluation gains		6,364	10,399	48,069
b. Profit on sale		Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Profit on sale of investment properties	3	314 1	176	2,374
Profit on sale of assets classified as held for sale	3	866	10	164
Profit/(loss) on sale of development properties	3	10,152	(64)	3,469
Amounts derived from statutory reporting		11,332	122	6,007
Previously unrealised gains on development properties released on sale		(6,597)	-	(2,794)
Profit on sale		4,735	122	3,213
c. Value gains		Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Statutory reporting revaluation gains		6,364	7,541	21,583
Statutory reporting profit on sale		11,332	122	6,007
Amounts derived from statutory reporting		17,696	7,663	27,590
Unrealised gains on development properties		-	2,858	22,945
Unrealised gains on overages		-	-	3,541
Previously unrealised gains on development properties released on sale		(6,597)	-	(2,794)
Value gains (including development properties and overages)		11,099	10,521	51,282

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019

2. Alternative Performance Measures (continued)

d. Profit excluding value gains (PEVG)	Note	Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Operating profit before exceptional items	3	13,344	6,635	33,569
Less other gains	3	(1,180)	(6,930)	(22,066)
Add other operating expenses	3	29	27	70
Less/add gross (profit)/loss from development properties	3	(10,152)	1,555	(1,733)
PEVG		2,041	1,287	9,840
e. Total property sales		Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Revenue from development properties	3	45,780	11,032	44,825
Revenue from other property activities	3	893	106	7,629
Revenue from income generation activities	3	11,899	10,771	25,601
Amounts derived from statutory reporting		58,572	21,909	78,055
Less revenue from other property activities	3	(893)	(106)	(7,629)
Less revenue from income generation activities	3	(11,899)	(10,771)	(25,601)
Add financing element arising on deferred consideration		532	-	-
Add proceeds from sales of investment properties, assets held for sale and overages		7,018	5,046	48,338
Total property sales		53,330	16,078	93,163
f. Operating profit before exceptional items contributing to growth in EPRA NNNAV		Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Operating profit before exceptional items	3	13,344	6,635	33,569
Share of profit on joint ventures	3	6,364	2,288	3,791
Amounts derived from statutory reporting		19,708	8,923	37,360
Unrealised gains on development properties		-	2,858	22,945
Unrealised gains on overages		-	-	3,541
Less previously unrealised gains on development properties released on sale		(6,597)	-	(2,794)
Operating profit before exceptional items contributing to growth in EPRA NNNAV		13,111	11,781	61,052

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

2. Alternative Performance Measures (continued)

g. Portfolio value	Note	Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Land and buildings		787	787	787
Other receivables		-	2,000	-
Investment properties	9	265,376	256,276	254,409
Investment in joint ventures		29,875	22,428	25,830
Assets classified as held for sale	11	14,179	28,186	10,956
Development properties	10	191,574	209,388	204,157
Amounts derived from statutory reporting		501,791	519,065	496,139
Cumulative unrealised gains on development properties as at period/year end		19,400	8,704	25,997
Cumulative unrealised gains on overage as at period/year end		3,541	-	3,541
Portfolio value		524,732	527,769	525,677
h. Net debt		Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Gross borrowings	12	(64,572)	(107,890)	(73,038)
Cash		11,436	7,718	8,595
Net debt		(53,136)	(100,172)	(64,443)
i. Net loan to portfolio value (%)		Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Net debt		(53,136)	(100,172)	(64,443)
Portfolio value		524,732	527,769	525,677
Net loan to portfolio value (%)		10.1%	19.0%	12.3%
j. Net loan to income generation portfolio value (%)		Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Net debt		(53,136)	(100,172)	(64,443)
Income generation portfolio value (business space and natural resources)	9	188,352	184,881	187,648
Net loan to income generation portfolio value (%)		28.2%	54.2%	34.3%

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

2. Alternative Performance Measures (continued)

k. Gross loan to portfolio value (%)	Note	Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Gross borrowings	12	(64,572)	(107,890)	(73,038)
Portfolio value		524,732	527,769	525,677
Gross loan to portfolio value (%)		12.3%	20.4%	13.9%
l. Gross loan to income generation portfolio value (%)		Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Gross borrowings	12	(64,572)	(107,890)	(73,038)
Income generation portfolio value		188,352	184,881	187,648
Gross loan to income generation portfolio value (%)		34.3%	58.4%	38.9%
m. Number of shares used for per share calculations		Unaudited 6 months ended 30 June 2019	Unaudited 6 months ended 30 June 2018	Audited year ended 31 December 2018
Number of shares in issue	13	321,508,546	321,496,760	321,496,760
Employee Benefit Trust Shares (own shares)	13	(77,695)	(181,771)	(181,771)
Number of shares used for per share calculations	13	321,430,851	321,314,989	321,314,989
n. Net Asset Value (NAV) per share		Unaudited 6 months ended 30 June 2019	Unaudited 6 months ended 30 June 2018	Audited year ended 31 December 2018
NAV £'000		454,305	413,227	441,936
Number of shares used for per share calculations	13	321,430,851	321,314,989	321,314,989
NAV per share (p)		141.3	128.6	137.5

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

2. Alternative Performance Measures (continued)

2) Reconciliation to EPRA measures

a) EPRA NNNAV	Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Net assets	454,305	413,227	441,936
Cumulative unrealised gains on development properties	19,400	8,704	25,997
Cumulative unrealised gains on overages	3,541	-	3,541
Notional deferred tax on unrealised gains	(3,900)	(1,537)	(5,021)
EPRA NNNAV	473,346	420,394	466,453
b) EPRA NAV	Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
EPRA NNNAV	473,346	420,394	466,453
Notional deferred tax on unrealised gains	3,900	1,537	5,021
Deferred tax liability	6,263	6,743	4,964
Mark to market valuation of financial instrument	613	(3)	109
EPRA NAV	484,122	428,671	476,547
c) EPRA NNNAV per share (p)	Unaudited 6 months ended 30 June 2019	Unaudited 6 months ended 30 June 2018	Audited year ended 31 December 2018
EPRA NNNAV £'000	473,346	420,394	466,453
Number of shares issued for per share calculations	321,430,851	321,314,989	321,314,989
EPRA NNNAV per share (p)	147.3	130.8	145.2
d) EPRA NAV per share (p)	Unaudited 6 months ended 30 June 2019	Unaudited 6 months ended 30 June 2018	Audited year ended 31 December 2018
EPRA NAV £'000	484,122	428,671	476,547
Number of shares issued for per share calculations	321,430,851	321,314,989	321,314,989
EPRA NAV per share (p)	150.6	133.4	148.3

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

2. Alternative Performance Measures (continued)

e) EPRA growth and total return	Unaudited 12 months to 30 June 2019	Unaudited 12 months to 30 June 2018	Audited year ended 31 December 2018
Opening EPRA NNNAV/share (p)	130.8	118.0	128.9
Closing EPRA NNNAV/share (p)	147.3	130.8	145.2
Movement in the year	16.5	12.8	16.3
EPRA NNNAV growth	12.6%	10.9%	12.6%
Dividends paid per share	0.9	0.8	0.9
Total return per share	17.4	13.6	17.2
Total return as a percentage of opening EPRA NNNAV	13.3%	11.5%	13.3%
f) Net loan to EPRA NNNAV	Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Net debt	(53,136)	(100,172)	(64,443)
EPRA NNNAV	473,346	420,394	466,453
Net loan to EPRA NNNAV	11.2%	23.8%	13.8%

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

3.   Segment information

Unaudited 6 month period ended 30 June 2019

	Capital Growth		Income Generation £'000	Central Overheads £'000	Total £'000
	Sale of Development Properties £'000	Other Property Activities £'000
Revenue	45,780	893	11,899	-	58,572
Cost of sales	(35,628)	(560)	(3,843)	-	(40,031)
Gross profit	10,152	333	8,056	-	18,541
Administrative expenses	-	(1,184)	(1,065)	(4,099)	(6,348)
Other gains	-	62	1,118	-	1,180
Other operating expenses	-	-	-	(29)	(29)
Operating profit/(loss)	10,152	(789)	8,109	(4,128)	13,344
Share of profit of joint ventures	-	6,364	-	-	6,364
Net finance income/(costs)	126	-	-	(1,367)	(1,241)
Profit/(loss) before tax	10,278	5,575	8,109	(5,495)	18,467

Gross profit is analysed as follows:
Gross profit excluding sale of development properties	-	333	8,056	-	8,389
Gross profit on sale of development properties	9,106	-	-	-	9,106
Reversal of previous net realisable provision on development properties on sale	1,046	-	-	-	1,046
	10,152	333	8,056	-	18,541

Other gains are analysed as follows:
Profit on sale of investment properties	-	67	247	-	314
(Loss)/profit on sale of assets held for sale	-	(5)	871	-	866
	-	62	1,118	-	1,180

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

3.   Segment information (continued)

As at 30 June 2019 (unaudited)

	Note	Capital Growth £'000	Income Generation £'000	Central overheads  £'000	Total £'000
Non-current assets
Property, plant and equipment		-	-	886	886
Right of use assets		-	59	64	123
Investment properties	9	66,412	198,964	-	265,376
Investments in joint ventures		20,014	9,861	-	29,875
Trade receivables*		17,452	-	-	17,452
		103,878	208,884	950	313,712
Current assets
Inventories	10	188,869	5,214	-	194,083
Trade and other receivables		31,527	21,768	1,036	54,331
Assets classified as held for sale	11	896	13,283	-	14,179
Cash		-	-	11,436	11,436
		221,292	40,265	12,472	274,029
Total assets		325,170	249,149	13,422	587,741

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

Financial liabilities and derivative financial instruments are not allocated to the reporting segments as they are managed and measured on a Group basis.

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

3.   Segment information (continued)

Audited 12 month period ended 31 December 2018

	Capital Growth		Income Generation £'000	Central overheads £'000	Total £'000
	Sale of Development Properties £'000	Other Property Activities £'000
Revenue	44,825	7,629	25,601	-	78,055
Cost of sales	(43,092)	(1,922)	(8,598)	-	(53,612)
Gross profit	1,733	5,707	17,003	-	24,443
Administrative expenses	-	(2,473)	(2,171)	(8,226)	(12,870)
Other gains	-	8,658	13,408	-	22,066
Other operating expenses	-	-	-	(70)	(70)
Operating profit/(loss) before exceptional items	1,733	11,892	28,240	(8,296)	33,569
Exceptional expenses	-	-	-	(590)	(590)
Operating profit	1,733	11,892	28,240	(8,886)	32,979
Share of (loss)/profit of joint ventures	-	(5)	3,796	-	3,791
Net finance costs	-	-	-	(3,962)	(3,962)
Profit/(loss) before tax	1,733	11,887	32,036	(12,848)	32,808

Gross profit is analysed as follows:
Gross profit excluding sale of development properties	-	5,707	17,003	-	22,710
Gross profit on sale of development properties	3,469	-	-	-	3,469
Net realisable provision on development properties	(4,767)	-	-	-	(4,767)
Reversal of previous net realisable provision on development properties	3,031	-	-	-	3,031
	1,733	5,707	17,003	-	24,443

Other gains are analysed as follows:
Increase in fair value of investment properties	-	9,859	11,624	-	21,483
Decrease in fair value of other receivables	-	(2,000)	-	-	(2,000)
Profit on sale of investment properties	-	799	1,575	-	2,374
Profit on sale of assets classified as held for sale	-		164	-	164
Other gains	-		45	-	45
	-	8,658	13,408	-	22,066

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

3.   Segment information (continued)

As at 31 December 2018 (audited)

	Notes	Capital Growth £'000	Income Generation £'000	Central overheads  £'000	Total £'000
Non-current assets
Property, plant and equipment		-	-	794	794
Investment properties	9	55,019	199,390	-	254,409
Investments in joint ventures		1,087	24,743	-	25,830
		56,106	224,133	794	281,033
Current assets
Inventories	10	206,635	374	-	207,009
Trade and other receivables		42,976	22,076	1,647	66,699
Assets classified as held for sale	11	2,775	8,181	-	10,956
Cash		-	-	8,595	8,595
		252,386	30,631	10,242	293,259
Total assets		308,492	254,764	11,036	574,292

Financial liabilities and derivative financial instruments are not allocated to the reporting segments as they are managed and measured on a Group basis.

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

3.   Segment information (continued)

Unaudited 6 month period ended 30 June 2018

	Capital Growth		Income Generation £'000	Central Overheads £'000	Total £'000
	Sale of Development Properties £'000	Other Property Activities £'000
Revenue	11,032	106	10,771	-	21,909
Cost of sales	(12,587)	(436)	(3,259)	-	(16,282)
Gross (loss)/profit	(1,555)	(330)	7,512	-	5,627
Administrative expenses	-	(1,153)	(1,327)	(3,415)	(5,895)
Other gains	-	94	6,836	-	6,930
Other operating expenses	-	-	-	(27)	(27)
Operating (loss)/profit before exceptional items	(1,555)	(1,389)	13,021	(3,442)	6,635
Exceptional expenses	-	-	-	(590)	(590)
Operating (loss)/profit	(1,555)	(1,389)	13,021	(4,032)	6,045
Share of (loss)/profit of joint ventures	-	(6)	2,294	-	2,288
Net finance costs	-	-	-	(1,738)	(1,738)
(Loss)/profit before tax	(1,555)	(1,395)	15,315	(5,770)	6,595

Gross (loss)/profit is analysed as follows:
Gross (loss)/profit excluding sale of development properties	-	(330)	7,512	-	7,182
Gross loss on sale of development properties	(64)	-	-	-	(64)
Net realisable provision on development properties	(1,491)	-	-	-	(1,491)
	(1,555)	(330)	7,512	-	5,627

Other gains are analysed as follows:
Increase in fair value of investment properties	-	79	6,620	-	6,699
(Loss)/profit on sale of investment properties	-	(9)	146	-	137
Profit on sale of assets classified as held for sale	-	-	10	-	10
Profit on sale of overages	-	24	15	-	39
Other gains	-	-	45	-	45
	-	94	6,836	-	6,930

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019
 

3.   Segment information (continued)

As at 30 June 2018 (unaudited)

	Notes	Capital Growth £'000	Income Generation £'000	Central overheads  £'000	Total £'000
Non-current assets
Property, plant and equipment		-	787	10	797
Other receivables		2,000	-	-	2,000
Investment properties	9	53,663	202,613	-	256,276
Investments in joint ventures		1,037	21,391	-	22,428
Derivative financial instruments		-	-	3	3
		56,700	224,791	13	281,504
Current assets
Inventories	10	210,247	602	-	210,849
Trade and other receivables		23,199	4,803	6,006	34,008
Assets classified as held for sale	11	2,175	26,011	-	28,186
Cash		-	-	7,718	7,718
		235,621	31,416	13,724	280,761
Total assets		292,321	256,207	13,737	562,265

Financial liabilities and derivative financial instruments are not allocated to the reporting segments as they are managed and measured on a Group basis.

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019

4. Exceptional items

		Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Costs associated with the step-up from standard to premium listing		-	(590)	(590)
Total exceptional items		-	(590)	(590)

5.  Finance (costs)/income

	Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Finance costs
- Bank interest	(962)	(747)	(1,888)
- Amortisation of facility and other fees	(256)	(757)	(1,507)
- Other interest	(179)	(239)	(618)
	(1,397)	(1,743)	(4,013)
Finance income	156	5	51
Net finance costs	(1,241)	(1,738)	(3,962)

6.  Tax

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

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

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019

7.  Dividends

	Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Full year dividend for financial year 2018 of 0.63p per share	2,035	-	-
Full year dividend for financial year 2017 of 0.58p per share	-	1,847	1,847
Interim dividend for six months ended 30 June 2018 of 0.28p per share	-	-	893
	2,035	1,847	2,740

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

8.  Earnings per share

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

	Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Profit from continuing operations attributable to owners of the parent	15,000	5,487	34,102
Weighted average number of shares used for basic earnings per share calculation	321,373,086	321,252,525	321,284,013
Basic earnings per share (pence)	4.7	1.7	10.6
Weighted average number of shares used for diluted earnings per share calculation	323,534,963	323,723,364	323,754,853
Diluted earnings per share (pence)	4.6	1.7	10.5

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019

9.  Investment properties

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

	Income Generation				Capital Growth
	Agricultural Land £'000	Natural Resources £'000	Business Space £'000		Major Developments £'000	Strategic Land £'000		Total  £'000
At 1 January 2018 (audited)	22,327	31,300	119,801		20,000	23,132		216,560
Direct acquisitions	-	-	43,692		-	9,207		52,899
Subsequent expenditure	6	222	3,733		84	633		4,678
Disposals	-	(482)	-		-	(80)		(562)
Increase in fair value	-	3,700	2,920		-	79		6,699
Transfer from assets held for sale	349	-	-		-	608		957
Transfer to assets held for sale	(4,948)	(348)	(19,659)		-	-		(24,955)
At 30 June 2018 (unaudited)	17,734	34,392	150,487		20,084	33,579		256,276
Direct acquisitions	-	-	(41)		-	1,564		1,523
Subsequent expenditure	(6)	1,792	1,632		(11)	1,611		5,018
Disposals	-	(947)	-		(19,336)	(40)		(20,323)
(Decrease)/increase in fair value	(308)	5,013	299		3,001	6,779		14,784
Transfer between divisions	(1,401)	5,533	(12,528)		6,159	2,237		-
Transfers to development properties	220	182	(1,384)		(8)	-		(990)
Transfer from assets held for sale	276	496	3,707		-	-		4,479
Transfer to assets held for sale	(4,773)	(982)	(3)		-	(600)		(6,358)
At 31 December 2018 (audited)	11,742	45,479	142,169		9,889	45,130		254,409
Direct acquisitions	-	23	6,831		-	9,806		16,660
Subsequent expenditure	-	348	361		47	2,320		3,076
Disposals	(311)	(80)	-		-	(111)		(502)
Transfer between divisions	(819)	819	-		-	-		-
Transfer to assets held for sale	-	(7,598)	-		-	(669)		(8,267)
At 30 June 2019 (unaudited)	10,612	38,991	149,361		9,936	56,476		265,376

Valuation process

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

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019

10.  Inventories

	Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Development properties	191,574	209,388	204,157
Planning promotion agreements	1,148	1,147	1,773
Options	721	213	705
Finished goods	640	101	374
	194,083	210,849	207,009

The movement in development properties is as follows:

	£'000
At 1 January 2018 (audited)	210,471
Acquisitions	59
Subsequent expenditure	10,945
Disposals	(10,596)
Net realisable value provision	(1,491)
At 30 June 2018 (unaudited)	209,388
Acquisitions	3,392
Subsequent expenditure	12,375
Disposals	(21,743)
Net realisable value provision	(245)
Transfers from investment properties	990
At 1 January 2019 (audited)	204,157
Acquisitions	2,109
Subsequent expenditure	6,890
Disposals	(22,628)
Net realisable value provision	1,046
At 30 June 2019 (unaudited)	191,574

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

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019

10.  Inventories (continued)

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

	£'000
At 1 January 2018 (audited)	5,818
Increase in net realisable value provision	1,491
At 30 June 2018 (unaudited)	7,309
Net realisable value provision for the period	3,276
Reversal of previous net realisable provision	(124)
Disposals	(2,907)
At 31 December 2018 (audited)	7,554
Disposals	(1,046)
At 30 June 2019 (unaudited)	6,508

11.  Assets classified as held for sale

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

			£'000
At 1 January 2018 (audited)			7,688
Transferred from investment properties			24,955
Transferred to investment properties			(957)
Disposals			(3,500)
At 30 June 2018 (unaudited)			28,186
Transferred from investment properties			6,358
Transferred to investment properties			(4,479)
Subsequent expenditure			6
Disposals			(19,115)
At 31 December 2018 (audited)			10,956
Transferred from investment properties			8,267
Subsequent expenditure			13
Disposals			(5,057)
At 30 June 2019 (unaudited)			14,179

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019

12.  Borrowings and loans

	Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Current:
Secured - other loans	-	(7,648)	(5,291)
	-	(7,648)	(5,291)
Non-current:
Secured - bank loans	(57,749)	(87,778)	(58,745)
Secured - other loans	(6,823)	(12,464)	(9,002)
	(64,572)	(100,242)	(67,747)
Total current and non-current borrowings	(64,572)	(107,890)	(73,038)

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

		Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
Infrastructure loans
Homes and Communities Agency	Village Farm	-	(18)	-
Leeds LEP	Prince of Wales	-	(206)	-
Homes and Communities Agency	Waverley	-	(6,093)	(4,875)
Sheffield City Region JESSICA Fund	Advanced Manufacturing Park, Waverley	(2,786)	(7,432)	(2,766)
North West Evergreen Limited Partnership	Logistics North	-	(2,471)	(2,691)
Homes and Communities Agency	Simpson Park	(4,037)	(3,892)	(3,961)
		(6,823)	(20,112)	(14,293)
Bank loan		(57,749)	(87,778)	(58,745)
Total loans		(64,572)	(107,890)	(73,038)

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

The infrastructure loans are provided by public bodies in order to promote the development of major sites.  The loans are drawn as work on the respective sites is progressed and they are repaid on agreed dates or when disposals are made from the site.

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2019

13.  Called up share capital

Issued and fully paid	Unaudited 6 months ended 30 June 2019 £'000	Unaudited 6 months ended 30 June 2018 £'000	Audited year ended 31 December 2018 £'000
At start of period/year	32,150	32,150	32,150
Shares issued	1	-	-
At end of period/year	32,151	32,150	32,150
Own shares held	(62)	(194)	(194)
At end of period/year	32,089	31,956	31,956

Issued and fully paid - Number of shares	Unaudited 6 months ended 30 June 2019	Unaudited 6 months ended 30 June 2018	Audited year ended 31 December 2018
At start of period/year	321,496,760	321,496,760	321,496,760
Shares issued	11,786	-	-
At end of period/year	321,508,546	321,496,760	321,496,760
Own shares held in Employee Benefit Trust	(77,695)	(181,771)	(181,771)
At end of period/year	321,430,851	321,314,989	321,314,989

14.  Related party transactions

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

15. Restatement of fair value and retained earnings reserves

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

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

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

Directors' Responsibility Statement

For the six months ended 30 June 2019

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

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

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

a.         Rule 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the half-year ended 30 June 2019 and their impact on the Condensed Consolidated Interim Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

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

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

Alastair Lyons	Chair
Owen Michaelson	Chief Executive
Andrew Kirkman	Finance Director (resigned on 30 June 2019)
Lisa Clement	Senior Independent Director
Anthony Donnelly	Independent Non-Executive Director
Andrew Cunningham	Independent Non-Executive Director
Ruth Cooke	Independent Non-Executive Director (joined 19 March 2019)
Angela Bromfield	Independent Non-Executive Director (joined 1 April 2019)
Steven Underwood	Non-Executive Director
Martyn Bowes	Non-Executive Director

By order of the Board

Chris Birch

Group General Counsel and Company Secretary

10 September 2019

Cautionary statement

This report for the half-year ended 30 June 2019 contains certain forward-looking statements with respect to the Company's financial condition, results, operations and business.  These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future.  There are factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts.  Nothing in this report should be construed as a profit forecast.

Directors' liability

Neither the Company nor the Directors accept any liability to any person in relation to this report for the half-year ended 30 June 2019 except to the extent that such liability could arise under English law.  Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with section 90A of the Financial Services and Markets Act 2000.

Shareholder information

FINANCIAL CALENDAR

Interim results for the period ended 30 June 2019	Announced	10 September 2019
Interim dividend for the financial year ended 31 December 2019	Ex-dividend date Record date Payable	19 September 2019 20 September 2019 18 October 2019
Preliminary results for the year ended 31 December 2019	Announced	17 March 2020
Annual report and financial statements for the year ended 31 December 2019	Published	April 2020
2020 Annual General Meeting		May 2020
Final dividend for the year ended 31 December 2019	Payable	June 2020

REGISTRARS

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

DIVIDEND MANDATE

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

WEBSITE

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

 

END

 

 

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