TIDMHWG
RNS Number : 5458Y
Harworth Group PLC
06 March 2017
HARWORTH GROUP PLC
UNAUDITED PRELIMINARY RESULTS FOR THE YEARED 31 DECEMBER
2016
Harworth Group plc ("Harworth" or the "Group"), the brownfield
regeneration and property investment specialist, announces its
preliminary results for the year ended 31 December 2016.
Financial Highlights(1)
-- Strong 2016 financial performance, with profits and net asset
value (NAV) ahead of expectations
Ø NAV rose to GBP334.9m (115p per share), a 12.5% increase from
2015 NAV of GBP297.7m (102p per share)
Ø EPRA NAV, which excludes deferred tax and the mark to market
movement on financial instruments, up to GBP350.1m (120p per
share), a 13.3% increase from 2015 of GBP309.1m (106p per
share)
Ø Operating profit of GBP45.8m(2) (2015: GBP37.9m), including
value gains of GBP43.7m(3) (2015: GBP36.3m) and profit from
operations of GBP2.2m (2015: GBP1.5m)
Ø Earnings per share of 3.5p (2015: 3.1p), underlying earnings
per share 13.7p (2015: 12.2p)
Strategic and Operating Highlights
-- Clear strategic focus on residential and commercial markets
in our regions that continue to be supportive of growth. This
reflects strong fundamentals, being the shortage of housing supply
and available commercial space
Ø Six acquisitions (GBP31.6m) made including 50% purchase of the
investment vehicle that owns Gateway 45, Leeds' largest live
commercial development, and two North West business parks that are
both fully-let; strengthening the income base and growing our
geographic presence
Ø GBP58.9m of disposals made to capture value increases on
mature residential and commercial sites and to increase our focus
on sites with higher value add potential. Portfolio now comprises
the ownership or management of 22,000 acres on over 140 sites
-- Operational performance across all sectors was very good with continuing momentum into 2017
Ø Residential sales progress was consistent through the year
with 619 plots sold across 6 sites. Planning consent was secured
for 65 new plots and applications for a further 1,200 plots were
submitted. Across the portfolio, consents stand at over 9,500 plots
with a further c.8,000 plots in the planning pipeline
Ø Commercial sales were made at a number of sites, the highlight
being the sale of 43.7 acres at Logistics North to Lidl UK for
GBP22.5million, realising a healthy profit above book value. Across
the portfolio, c.10.0m sq ft is consented on our land(4) , with
1.9m sq ft of new applications submitted and a further 6.3m sq ft
to be submitted
Ø The income portfolio made further progress with new and
renewed business park lettings and further low carbon energy
tenants, offsetting the previously flagged trend of declining coal
fines sales. Practical completion of direct developments in
Yorkshire and the M&G Real Estate forward-funded units at
Logistics North also provide a pipeline of further income producing
opportunities into 2017
Financing
-- New debt financing secured to provide headroom and advance income generating acquisitions
Ø In August, existing RCF increased from GBP65m to GBP75m and
extended by 1 year to 2021
Ø Portfolio gearing of 9.9% net loan to value (LTV) which
equates to 31.3% set against the Business Space and Natural
Resources properties
Harworth's Chief Executive, Owen Michaelson, said:
"These are a strong set of results, reflecting our continued
focus on maximising the value of our strategic land bank whilst
simultaneously growing our income base through new lettings and
acquisitions. We are particularly pleased by the progress made and
value uplift we have seen from our flagship North West site,
Logistics North in Bolton, and are pleased to have improved the
quality of our income base over the year. We have a proven strategy
to create value and the market fundamentals in our regions remain
strong, giving us confidence in the future."
Notes:
(1.) 2015 NAV and earnings per share figures assume 2016's 1 for
10 share consolidation had occurred in 2015 and 2015 underlying
figures assume that Harworth Estates Property Group Limited had
been owned from the start of the year.
(2.) Operating profit before exceptional items and including
share of profit of associate and joint ventures.
(3.) Increase/(decrease) in fair value of investment properties
and assets held for sale (GBP33.5m), profit/(loss) on sale of
investment properties and assets held for sale (GBP8.8m) together
with other gains, being overages (GBP0.7m), and share of profit of
associate and joint ventures (GBP0.6m).
(4.) Consented figures includes 2.64m sq ft at Gateway 45 Leeds,
our joint 50:50 venture with Evans Property Group.
For further information:
Harworth Group plc Tel: +44 (0)114 349 3131
Owen Michaelson, Chief Executive
Andrew Kirkman, Finance Director
Cardew Group Tel: +44 (0)207 930 0777
Emma Crawshaw Tel: +44 (0)7971 468 308
Shan Shan Willenbrock
Emma Ruttle Tel: +44 (0)7766 231 520
Notes to Editors
Harworth Group plc (LSE: HWG) is a leading brownfield
regeneration and property investment specialist which owns and
manages a portfolio of 22,000 acres of land on over 140 sites
located throughout the Midlands and North of England. The Group
specialises in the regeneration of former coalfield sites and other
brownfield land into employment areas, new residential developments
and low carbon energy projects. (http://www.harworthgroup.com/)
While the financial information included in this announcement
has been prepared in accordance with the recognition and
measurement criteria of International Financial Reporting Standards
(IFRSs), this announcement does not itself contain sufficient
information to comply with IFRSs. The Group expects to publish full
financial statements that comply with IFRSs by the end of April
2017.
This announcement contains certain forward-looking statements
that are based on current expectations or beliefs, as well as
assumptions about future events. By their nature, these statements
involve risk and uncertainty because they relate to future events
and circumstances. Actual outcomes and results may differ
materially from any outcomes or results expressed or implied by
such forward looking statements. Any forward looking statements
made by or on behalf of the Group are made in good faith based on
the information available at the time the statement is made. No
representation or warranty is given in relation to these forward
looking statements, including as to their completeness or accuracy
or the basis on which they were prepared, and undue reliance should
not be placed on them. The Group does not undertake to revise or
update any forward-looking statement contained in this announcement
to reflect any changes in its expectations with regard thereto or
any new information or changes in events, conditions or
circumstances, save as required by law and regulations. Nothing in
this announcement should be construed as a profit forecast.
Chairman's Statement
Overview, strategy and performance
I am pleased to present the Group's results for the financial
year ended 31 December 2016. We have delivered another year of
strong growth, despite the political events that overshadowed the
property industry in 2016. The business continued to meet its
ambition of increasing net asset value (NAV) by at least 10% per
annum through the property cycle. NAV has grown by 12.5% (2015:
18.9% reflecting capital raised) to GBP334.9m at the year-end
(2015: GBP297.7m). EPRA NAV at the end of the year rose to
GBP350.1m, representing a 13.3% increase over the year (2015:
GBP309.1m).
Our core strategy is to grow and realise value from our
extensive land bank, much of which derives from our heritage
coalfield portfolio, supplemented by a range of land and property
acquisitions in the North and Midlands over the past two years.
Harworth has extensive experience in remediating and developing
large used sites for future use for commercial and residential
purposes. Our Capital Growth team continued to deliver value growth
across our underlying portfolio by securing planning consents,
re-engineering land for future uses, proactive asset management and
strategic land acquisitions during the year. We achieved particular
progress at our Logistics North site in Bolton, completing sales to
Lidl UK (for GBP22.5m), Aldi and Greene King, a letting to Costa
Coffee and achieving practical completion of two forward funded
units on behalf of M&G Real Estate in December 2016. One of
these units was let to Whistl shortly after the year-end.
Our commitment to investors is, over time, to seek to cover the
Group's operating costs, interest, tax and dividends from ongoing
rental and operating income. A significant proportion of this
income has been generated from minerals and coal fines recovered
during the development process. As previously flagged, this income
stream experienced a downturn in 2016, following the sharp
reduction in coal burn in the UK power industry. Our Income
Generation team performed very well in mitigating this downturn by
growing our rental income and undertaking targeted direct
development to create further opportunities for rental growth in
2017. We also focussed our acquisition strategy during the second
half of 2016 on income generating assets, including Moorland Gate
and Walton Summit business parks, which present significant
opportunities for rental improvement and yield compression.
Six acquisitions were completed during the year, for a total of
GBP31.6m, all within the core regions in which we operate. Two of
those acquisitions have continued to replenish the strategic land
bank in order to secure our long-term development pipeline; a key
component of our strategy.
We review our strategy each year. This year's review reinforced
to the Board that the current strategy remains robust and
appropriate. Our consistently strong rates of value growth are
driven more by management initiatives than underlying movements in
the real estate markets, making the Group's operational performance
less exposed to market fluctuations. This has been particularly
evident in the Group's performance in the second half of the
year.
Dividend
We paid a dividend of 0.51p per share (GBP1.5m or GBP2.0m on an
annualised basis) for the 2015 financial year on 9 September 2016.
This was the first dividend in many years. The Board has stated its
intention to grow the dividend, broadly in line with the growth of
the business, and pay it from recurring income and realised gains
from disposals. The Board will not distribute unrealised gains
recognised on the revaluation of property and will retain a
proportion of its recurring income and realised gains for
reinvestment into the property portfolio. Consistent with that
policy, we declared and paid an interim dividend of 0.23p per share
in December 2016 and I am pleased to say that the Board is
recommending a final dividend of 0.523p per share to give a total
dividend of 0.753p per share (GBP2.2m) for the year, being a 10%
increase on last year's annualised dividend.
Our Board
At the start of 2016 we welcomed Andrew Kirkman as Finance
Director. Andrew joined us from Viridor, one of the two main
subsidiaries of Pennon Group plc. Andrew has already made a
significant contribution, in particular strengthening our financial
management and improving our investor relations approach. In April,
Peter Hickson retired from the Board at the 2016 Annual General
Meeting, having served as Senior Independent Director and Chairman
of the Remuneration Committee for five years. I would like to thank
Peter for his strong support and guidance to me and the Board over
that time, not least through our complicated restructuring and the
subsequent re-acquisition of Harworth Estates in 2015.
In April we also welcomed Andrew Cunningham, formerly Chief
Executive of Grainger plc, to the Board and we benefit from his
extensive experience in adjacent markets. The Board appointed Lisa
Clement, who has been a Board member since 2011, as Senior
Independent Director, and Lisa also took on the chair of the
Remuneration Committee. Andrew Cunningham replaced Lisa as chair of
the Audit Committee. We also welcomed Chris Birch as our Company
Secretary and Group General Counsel in June.
Our people
We have a dedicated team of skilled and experienced
professionals who know how to drive value and income from our
portfolio. As the business grows and matures, so does the team. I
am pleased to say that 15% of our people earned well-deserved
promotions at the beginning of this year, reflecting the growing
experience and capabilities across the business. We have actively
recruited during the year and are continuing to do so, to meet the
demands of our growing land and property portfolio. As we grow our
talent, continuing to increase diversity remains a priority.
Our shareholders
We appreciate the continued strong support from all our
shareholders as we continue to grow. Our two largest shareholders,
The Peel Group and the Pension Protection Fund (PPF), have
reaffirmed their strong medium to long term support to the Group.
The PPF has recently confirmed that it has now moved its
shareholding in the Group from its portfolio of "assets acquired
through restructuring" into its core, long-term investment
portfolio, with a desire to support the full realisation of value
by the Group over the medium to long-term.
At the end of 2016, the return to shareholders of 25% since our
'relisting' in March 2015 was broadly in line with the absolute
return in the business over the period. However, in common with our
peer group, the share price at the end of the year continued to
reflect a material discount to NAV. Steps to close this discount
remain a strategic priority for the Board, which believes that the
resilience of our markets and current attractive pricing level
relative to NAV present a compelling opportunity for new
investors.
Outlook
The Group is well positioned to capitalise on the regional
residential and commercial markets, which continue to have strong
fundamentals and perform well. Regional markets, specifically in
the areas in which we operate, have seen continued government
support and infrastructure investment, and have not seen the
volatility experienced in the London and South East property
markets. Further, housing remains much more affordable. We have a
strategy for, and a track record of, delivering resilient,
sustainable value growth and we look to the future with confidence.
To maintain momentum, it is important that the Group continues to
replenish its strategic land bank, particularly given the amount of
time it takes to develop our sites into mature assets.
Jonson Cox
Chairman
6 March 2017
Chief Executive's Review and Operational Report
I am pleased to report another robust set of results to
shareholders, reflecting a strong year of progress for the
business. In 2016, the Group once again delivered a year of
double-digit net asset value (NAV) growth of 12.5% (2015: 18.9%),
with a NAV of GBP334.9m at the year-end (2015: GBP297.7m). EPRA NAV
at the end of the year rose to GBP350.1m, representing a 13.3%
increase over the year (2015: GBP309.1m). We achieved an operating
profit of GBP45.8m(1) (2015: GBP37.9m) with value gains of
GBP43.7m(2) (2015: GBP36.3m) - ahead of expectations - and profit
from operations rose to GBP2.2m (2015: GBP1.5m).
This continued success lies in our focused strategy, the ability
of our in-house teams to extract maximum value from the portfolio,
the underlying strength of the regional markets in which we operate
and the maintenance of excellent working relationships with the key
external stakeholders that we work with throughout the Company's
value cycle.
Our strategic focus remains unchanged - extracting maximum value
from our predominantly brownfield land portfolio to grow NAV,
whilst building our recurring income base to meet the operating
costs of the business. We do this by continuing to use our
masterplanning, placemaking and technical expertise to transform
redundant land into places where people want to live and work.
As our business has grown, we have increased our focus on
replenishing our strategic land bank to ensure that we maintain a
pipeline of new sites to continue the value growth journey. We have
also focused our in-house capabilities to build and retain new
commercial space in our strongest markets, reflecting a desire to
generate long-term income from our assets. This response to the
continued under-supply of good quality commercial units in the
regions in which we operate also shows the growing maturity of the
business.
Our business model is supported by the continued strength of our
core markets across the North of England and the Midlands. Demand
for new homes within those regions remained consistently strong
throughout the year, reflected by the rate of sales achieved by our
housebuilding partners on our larger sites. The rise of e-tailing
and the increasing demands of consumers is also driving up demand
for logistics and distribution space, with a number of our sites -
such as Logistics North in Bolton and Gateway 45 in Leeds - ideally
placed to meet that need.
National Government policy continues to support the
redevelopment of brownfield sites, as evidenced by the recently
published Housing White Paper (February 2017). We also welcome the
UK's new industrial strategy as a lever to improve infrastructure,
a critical factor in accelerating economic growth in our core
regions.
Capital Growth
Our Capital Growth team, led by Phil Wilson, has continued to
deliver value growth and realisations. In particular, during 2016
the team secured outline planning consents for 65 plots, whilst
converting 1,560 plots that had a resolution to grant planning into
outline consents. We also purchased land with consent for 2.64m sq
ft of commercial space at Temple Green, Leeds. Following this
activity, total consented residential plots under ownership or
management (including sites where we are promoting third party
interests through Planning Promotion Agreements) stand at 9,529
plots and consented commercial space on our land at 9.95m sq
ft.
We have live planning applications in the planning system for
1,200 new housing plots and 1.92m sq ft of commercial space. Four
Planning Promotion Agreements (PPAs) were signed during the year
with the potential to deliver c.500 housing plots, bringing the
total number of plots promoted through PPAs to c.1,100. PPAs are
agreements with landowners by which Harworth incurs the cost and
risk of promoting land through planning. If successful, Harworth
shares some of the value gain, after first recovering its costs,
when the land is sold.
On the 500-acre former Thoresby Colliery site in
Nottinghamshire, consent is being sought for 800 new homes
alongside 250,000 sq ft of new commercial space. An application has
also been submitted for the former Kellingley Colliery site in
North Yorkshire to deliver 1.4m sq ft of new commercial space on a
site that benefits from an existing rail and canal link. Decisions
on both sites are expected in the first half of 2017.
We have continued to plan carefully whether and when to dispose
of investment properties to maximise the return from our portfolio.
In 2016 we achieved receipts in excess of book value in all
sections of the business, realising cash which can be reinvested in
bringing other sites and acquisitions forward. A total of 619
residential plots were sold across 6 major development sites to
national and regional housebuilders including Taylor Wimpey, Harron
Homes and Arch Group.
Disposals for commercial uses in 2016 included the sale of 43.7
acres at our Logistics North development in Bolton to Lidl UK for
GBP22.5 million for the company to set up its regional distribution
headquarters. This deal set a new benchmark price per acre for the
development and marked the sixth key investment at the site in the
past three years, following previous sales to Aldi, MBDA, Joy
Global and Exeter Property Group and the signing of a forward
funding agreement with M&G Real Estate for us to construct two
new Grade A commercial units totalling 400,000 sq. ft. As announced
just after year end, the larger of these units - a 225,000 sq ft
unit known as 'Logistics 225' - was leased to Whistl on a ten-year
lease, reflecting the strength of the North West logistics and
distribution market.
To generate similar returns in the future, we are continuing to
prioritise capital investment on our sites with the largest value
enhancement potential, including the Advanced Manufacturing Park in
Rotherham, Logistics North in Bolton and Gateway 45 in Leeds, to
ensure that both land and property is available for immediate
occupation. This strategic infrastructure investment delivers
multiple sale points, diversifying risk across our portfolio, and
during the year, the team opened up new sites at Rossington,
Ellington and Castleford. Such strategic infrastructure investment
has been complemented by our continued disposal of lower value
sites - mainly agricultural land with little value add potential -
to free up management time on our highest value-enhancing
sites.
Income Generation
Our Income Generation team, led by Ian Ball, has maintained its
push for increasingly resilient recurring income. This has been
achieved by: improving rental returns from our expanding business
park portfolio; increasing rental returns and royalties from energy
generation, environmental technologies and the agricultural
portfolio; and deriving income from recycled aggregates that arise
from the development process - thereby offsetting the flagged and
managed decline in the sale of coal fines.
Our Business Space team increased income from our business parks
in 2016, driven by 32 new and renewed commercial lettings in 2016
with an annualised rent roll of GBP663,000. This was supplemented
by the acquisition of two business parks in the North West during
the fourth quarter with a combined annualised rent roll of
GBP1.62m. Asset management opportunities have already been
identified to grow the income and the underlying asset value of
both sites in the future. Business Space profit from operations in
2016 was GBP3.8m (2015: GBP2.2m on an underlying basis) and is
expected to increase further in 2017 as we look to sign new leases
on a number of new units, including our 75,000 sq ft Helix unit at
Gateway 36 in Barnsley. The weighted average unexpired lease term
(WAULT) across the portfolio now stands at 7.5 years (2015: 8.3
years).
Strong progress was made in driving up income from our renewable
energy tenants in the first half of 2016, with a total of 144.5MW
of capacity now installed on our land as a result of a net 19.0MW
of capacity being energised during the year. Demand for new schemes
slowed following changes to renewables subsidies at the end of
March, rendering some projects unviable. In light of this,
management focus within our Natural Resources team has now shifted
to alternative technologies with better short term prospects and
governmental support, including battery storage facilities that are
seen as critical to helping balance supply and demand in the UK
power system.
Acquisitions
Our continued success in unlocking the latent value in our
portfolio has meant that refilling our strategic land bank for
future value growth has become an even more important part of our
strategy. We expanded our Acquisitions team, led by Gary Owens, in
2016 to identify further suitable sites and, as a direct result,
made six acquisitions in the year for GBP31.6m, reflecting our
desire to supplement our strategic land bank and improve the
quality of our recurring income base. All of our acquisitions were
made utilising existing cash reserves with completion in each case
taking place within six weeks of agreeing heads of terms, helping
to build our reputation for acting swiftly and in a straightforward
manner.
Our first acquisition was Advantage House in Rotherham in
February 2016. This 20,000 sq ft office building was purchased for
GBP2.2million at a net initial yield of 13.3% and is fully let to
Civica UK on a long-term lease. It is also located adjacent to our
flagship Waverley development, thereby solidifying our presence
close to Junction 33 of the M1.
In March, we purchased Keyland Developments' 50% share of The
Aire Valley Land LLP, a joint venture with Evans Property Group,
for GBP8.5million. Aire Valley Land LLP owns Gateway 45 Leeds, a
166-acre logistics hub in the Leeds City Region Enterprise Zone.
The site, adjacent to Junction 45 of the M1, already benefits from
outline planning consent for 2.64m sq ft of commercial space for
logistics and distribution uses. During the remainder of the year
we worked with Evans to complete the infrastructure works for the
first phase of development land thereby allowing the completion of
the sale of land for a Park & Ride facility to Leeds City
Council, before relaunching the site as 'Gateway 45 Leeds' to
improve the site's promotion to third-party logistics and e-tailing
businesses. We expect this work to bear fruit with new deals at the
site in 2017.
Two further key acquisitions in the year were both in the North
West and made in the fourth quarter, in line with our strategy to
strengthen our income portfolio and to build our presence in the
region. In November, we completed the acquisition of Moorland Gate
Business Park in Chorley, Lancashire for GBP4.5m. This site
comprises 10.75 acres with 125,122 sq ft of built space. It
generates a net initial yield of 9.53%, with a reversionary yield
of 10.4% and further asset management and potential development
opportunities already identified. This was followed by the
acquisition in December of Four Oaks Business Park in Preston,
Lancashire for GBP13.4m. The site extends across 19.4 acres with
428,800 sq ft of built logistics warehousing space, with a net
initial yield of 8.74% and a reversionary yield of 11.4%. Together
with our Logistics North development, we are beginning to build
critical mass across our North West portfolio, with all three sites
located along a corridor of junctions on the M61.
We recognise the need to replenish and grow the Company's
strategic land bank, to maintain delivery of our target for NAV
growth through the property cycle. To that end, we have entered
into four option agreements to acquire strategic land sites that
extend to approximately 228 acres, comprising a mixture of
potential residential and commercial sites located in our core
regions. Subject to confirmation through due diligence, these stand
the business in good stead as we look to grow our portfolio further
in 2017 and beyond.
Maintaining momentum
Momentum from 2016 has been carried over into the new financial
year with a number of key deals already completed or agreed,
highlighting the solid fundamentals of the property sector in the
North of England and the Midlands, and the team's ability to
realise value growth in our portfolio.
January saw Whistl take a ten-year lease of M&G Real
Estate's Logistics 225 unit at Logistics North. This was at the
benchmark rental level in the North West for industrial property of
GBP6 per square foot and also triggered a promote fee from M&G
Real Estate for letting the building within six weeks of practical
completion. This was followed in February by the sale of the next
phase of 4.7 acres of engineered housing land at Waverley to Avant
Homes for GBP2.5m and the exchange of contracts with Keepmoat for
the first phase of our Flass Lane development in Castleford.
Keepmoat will pay GBP3.65m for 9.88 acres of land, where it plans
to build 157 new homes.
With clear growth momentum established and maintained across all
key parts of the business and the maintenance of favourable market
conditions - both across our sectors and the regions in which we
operate - we remain confident in our ability to continue to deliver
growth in net asset value, whilst expecting performance to remain
second-half weighted. We therefore anticipate a healthy number of
sales and increased development spend in 2017.
Our continued strong performance is testament to the strength of
our core team of 50 people and our achievements would not have
materialised without the dedication, patience and perseverance of
our staff. I thank all of our team for their hard work and
diligence in making the Group what it is today.
Owen Michaelson
Chief Executive
6 March 2017
Notes:
(1.) Operating profit before exceptional items and including
share of profit of associate and joint ventures.
(2.) Increase/(decrease) in fair value of investment properties
and assets held for sale (GBP33.5m), profit/(loss) on sale of
investment properties and assets held for sale (GBP8.8m) together
with other gains, being overages (GBP0.7m), and share of profit of
associate and joint ventures (GBP0.6m).
Financial Review
Overview
The Group delivered another set of strong results for the
financial year across both segments of our business, Capital Growth
and Income Generation. Net Asset Value (NAV) increased to GBP334.9m
as at 31 December 2016, which is a 12.5% increase on the NAV at 31
December 2015 (GBP297.7m). EPRA NAV increased by 13.3% to GBP350.1m
(2015: GBP309.1m).
Revenue from operations rose to GBP33.7m (2015: GBP13.2m),
largely as a result of the recognition of pass-through construction
costs and development fee income of GBP16.1m (2015: GBP1.3m)
arising from the construction of two industrial units at Logistics
North which were forward funded by M&G Real Estate. Revenue
also increased as a result of increased rent from business parks
and rent and royalties from low-carbon energy sites, albeit
somewhat offset by a decline in coal fines revenues.
Operating profit before exceptionals was GBP45.8m(1) (2015:
GBP37.9m) largely as a result of revaluation gains of GBP34.8m(2)
(2015: GBP25.0m), profit on disposals of GBP8.9m (2015: GBP11.4m)
and profit from operations of GBP2.2m (2015: GBP1.5m). Exceptional
items netted to GBPnil (2015: charge of GBP2.9m) largely relating
to the Group's legacy activities. Profit before tax was GBP43.5m
(2015: GBP77.6m), with 2015 benefiting from a gain on bargain
purchase of GBP44.2m.
The comparative statutory results for 2015 are complicated by
the acquisition and fundraising of March 2015 associated with the
re-acquisition of 75.1% of the shares in Harworth Estates Property
Group Limited (HEPGL), which led to the gain on bargain purchase of
GBP44.2m. In addition, a 1 for 10 share consolidation occurred in
the first half of 2016. Consequently, our results are set-out below
on both a statutory and underlying basis.
The table below shows the Group's statutory operating profit,
before exceptional items, for 2015 reconciled to the underlying
operating performance for 2015, and set against the results for
2016.
2015
2015 Harworth
2016 Harworth Group plc 2015 2015
Harworth Group plc Underlying Fair value Harworth
Group plc Underlying Pre-acquisition adjustments Group plc
-------------------------- ---------- ----------- ---------------- ------------ ----------
Twelve months to December GBPm GBPm GBPm GBPm GBPm
-------------------------- ---------- ----------- ---------------- ------------ ----------
Revenue 33.7 16.7 (3.3) (0.3) 13.2
Cost of sales (20.9) (7.9) 1.9 - (6.0)
Overheads (10.5) (6.8) 1.1 - (5.7)
Other operating expense (0.1) - - - -
-------------------------- ---------- ----------- ---------------- ------------ ----------
Profit/(loss) from
operations 2.2 2.1 (0.3) (0.3) 1.5
Valuation gain/(loss) 34.2 28.9 (4.8) - 24.1
Profit/(loss) from
disposals 8.9 11.5 (0.1) - 11.4
Pension (charge)/credit (0.1) 0.1 - - 0.1
Share of profit of
associate and joint
ventures 0.6 - 0.9 - 0.9
-------------------------- ---------- ----------- ---------------- ------------ ----------
Operating profit/(loss),
before exceptionals 45.8 42.6 (4.3) (0.3) 37.9
-------------------------- ---------- ----------- ---------------- ------------ ----------
Note: There are minor differences on some totals due to
rounding
Underlying performance
The Group recorded revenues of GBP33.7m in 2016 (2015: GBP16.7m)
comprising rental and royalty income together with sales of coal
fines and salvage. The significant increase in 2016 revenues
reflected GBP16.1m (2015: GBP1.3m) in respect of contract work on
the construction of units at Logistics North which were forward
funded by M&G Real Estate. These units were completed in
December 2016. As Harworth has been acting on behalf of M&G
Real Estate, the associated revenue and cost of sales are
pass-through amounts at the same level except for the recognition
of a construction management fee of GBP0.5m. Further "promote" fees
will be recognised on each of the two units from 2017 onwards if
Harworth is successful in letting the units quickly, at favourable
rental levels and to occupiers with appropriate covenants. The
larger 225,000 square foot unit was let to Whistl in January 2017,
only six weeks after the building was practically completed and a
promote fee will be recognised in 2017. The smaller 175,000 square
foot unit is being actively marketed.
The table below shows the results of the business split between
Capital Growth, Income Generation and Central Overheads:
Capital FY 2016 FY 2015
Growth Income Generation Central overheads Total Total
GBPm GBPm GBPm GBPm GBPm
------------------------------ ------- ----------------- ----------------- ------- -------
Revenue 16.3 17.4 - 33.7 16.7
Cost of sales (16.0) (4.9) - (20.9) (7.8)
Overheads (1.8) (1.5) (7.3) (10.6) (6.8)
Other operating expense - (0.1) - (0.1) -
------------------------------ ------- ----------------- ----------------- ------- -------
(Loss)/profit from operations (1.5) 10.9 (7.3) 2.2 2.1
Valuation gain 24.2 10.0 - 34.2 28.9
Profit from disposals 7.6 1.3 - 8.9 11.5
Pension (charge)/credit - - (0.1) (0.1) 0.1
Share of profit of associate
and joint ventures - 0.6 - 0.6 -
------------------------------ ------- ----------------- ----------------- ------- -------
Operating profit, before
exceptionals 30.2 22.7 (7.2) 45.8 42.6
------------------------------ ------- ----------------- ----------------- ------- -------
Note: There are minor differences on some totals due to
rounding
Total overheads, which include the overhead costs of the Capital
Growth and Income Generation segments and central costs, amounted
to GBP10.6m (2015: GBP6.8m). The increase in costs reflected: an
increased accrual for the Executive Long Term Incentive Plan
reflecting continued NAV outperformance; a number of one-off costs
associated with the share consolidation, capital reduction and
recruitment; as well as increased staffing and business costs
reflecting greater and more productive operational activity.
Value gains, which comprise revaluation gains and profit on
disposals, for 2015 and 2016 are set out below:
GBPm 2016 2015
Underlying
------------------- -----------
Profit on disposal Revaluation gains Total
------------------- ------------------ ----- -----------
Management Market
------------------- ------------------ ----------- ------ ----- -----------
Major Developments 6.8 8.7 3.4 18.9 21.0
Strategic Land 0.7 10.8 1.3 12.8 4.7
Business Space 0.1 5.7 0.9 6.7 6.9
Agricultural Land 1.2 0.0 (1.1) 0.1 2.4
Natural Resources 0.0 4.0 1.2 5.2 5.4
------------------- ------------------ ----------- ------ ----- -----------
Total 8.8 29.2 5.7 43.7 40.4
------------------- ------------------ ----------- ------ ----- -----------
The Group made sales of GBP58.9m in 2016 (2015: GBP51.1m),
including GBP3.4m of deferred consideration, with profit on
disposal of GBP8.9m (2015: GBP11.5m). The proceeds were split
between residential serviced plots (GBP20.5m), commercial
development (GBP26.8m) and other, essentially agricultural land,
(GBP11.6m). All segments of the business made a profit on disposal
with the largest profit on disposal resulting from the sale of 43.7
acres at Logistics North to Lidl UK for GBP22.5m.
The Group achieved revaluation gains of GBP34.9m(2) (2015:
GBP28.9m). In conjunction with our valuers, BNP Paribas and
Savills, we have split these gains to reflect the contribution from
management actions, GBP29.2m, and market movement, GBP5.7m. Whilst
there is a degree of subjectivity in this split, it highlights that
the majority of the value gains come from management actions. The
market element of revaluation gains includes the effects of 2016
stamp duty charges, forecast to have impacted values across the
portfolios by GBP2.9m. The principal 2016 revaluation gains across
the divisions were as follows:
-- Major Developments - Healthy profit on disposal from Lidl UK
at Logistics North. Improved masterplan and tenant interest at
Wheatley Hall Road, new option agreement at Chatterley Valley, and
cost savings at Harworth and Flass Lane;
-- Strategic Land - Signing of S106 and collaboration agreement
at Coalville. Planning application submitted at Thoresby;
-- Business Space - Completion of pre-let and speculative
development at Gateway 36 (Rockingham). Improved lettings at other
sites;
-- Agricultural Land - Reduced land values predominantly on former surface mine sites;
-- Natural Resources - New lettings, particularly at Meriden.
The resulting underlying operating profit for the Group, before
exceptional items, was GBP45.8m including share of profit of
associate and joint ventures (2015: GBP42.6m).
Exceptional items
Exceptional items comprise three separate items, all of which
largely relate to the Group's legacy activities. With regard to
Harworth Insurance Company Limited, Harworth has now received
GBP0.5m from the administrator, which essentially represents final
settlement. In addition, GBP0.2m has been received from the
administrator of Ocanti Opco Limited which relates to the
reimbursement of management expenses incurred by Harworth (then
known as Coalfield Resources plc). In respect of coal fines
activities, an exceptional charge of GBP0.7m has been taken to
reflect the under recovery of amounts relating to the cessation of
activities at Rugeley and a provision taken against the value of
coal fines stocks to reflect reduced demand.
Net assets
As set out below, net assets increased to GBP334.9m as at 31
December 2016 from GBP297.7m as at 31 December 2015. This increase
was as a result of movements in the year, being operating profit of
GBP45.8m(1) less interest costs of GBP2.3m, tax of GBP3.6m,
dividends of GBP2.2m and other movements of GBP0.5m.
31 December 2016 31 December
GBPm 2015
GBPm
--------------------------------------------- ---------------- -------------
Investment properties (including investments
in joint ventures, assets held for sale,
overages and occupied properties) 400.3 345.2
Cash 13.0 27.6
Other assets 25.2 20.9
--------------------------------------------- ---------------- -------------
Total assets 438.5 393.7
Gross borrowings 52.5 64.5
Deferred tax liability 14.9 11.4
Other liabilities 36.2 20.1
--------------------------------------------- ---------------- -------------
Net assets 334.9 297.7
--------------------------------------------- ---------------- -------------
Number of shares in issue 292,269,786 2,922,697,857
--------------------------------------------- ---------------- -------------
Net assets per share 114.6p 10.2p
--------------------------------------------- ---------------- -------------
Underlying net assets per share 114.6p 101.9p
--------------------------------------------- ---------------- -------------
Underlying EPRA net assets per share 119.8p 105.8p
Financing and funding strategy
On 13 February 2015, Harworth Estates Property Group Limited
(HEPGL) entered into a GBP65m, five-year term, non-amortising,
Revolving Credit Facility (RCF) with The Royal Bank of Scotland
(RBS), replacing amortising facilities with the Lloyds Banking
Group and Barclays Bank. On 19 August 2016, HEPGL completed a
planned extension to its RCF with RBS, increasing the limit to
GBP75m and extending the term by a further year such that it now
expires in February 2021, on substantially the same terms
(including pricing) as the existing facility. This enhanced
facility reflects confidence in the business, providing both
headroom and funds to accelerate the strategic growth of the
Group.
Infrastructure funding, provided by public bodies to promote the
development of major sites for employment and housing needs,
continues to feature in our funding strategy. At 31 December 2016,
the Group had five infrastructure facilities with all-in funding
rates of between 2.4% and 4.0%. Since the EU referendum vote,
public infrastructure funding has continued and we signed two
facility agreements to fund small direct build schemes at Logistics
North and the Advanced Manufacturing Park in the second half of
2016. Infrastructure spend is assessed against, and matched with,
the quantum and timing of expected disposals.
On 21 June 2016, HEPGL entered into a four-year swap with RBS to
fix GBP30m of borrowings at an all-in rate of 2.955%, including
fees. The swap is hedge accounted with any unrealised movements
going through reserves. The Group's hedging strategy is to have
roughly half of its debt at a fixed rate and half of its debt
exposed to floating rates. The weighted average cost of debt, using
31 December 2016 balances and rates, was 2.9% with a 0.8%
non-utilisation fee on undrawn RCF amounts.
The Group's cash and cash equivalents at 31 December 2016 were
GBP13.0m (2015: GBP27.6m). The Group had borrowings and loans of
GBP52.5m at 31 December 2016 (2015: GBP64.5m), being the RBS RCF of
GBP37.0m (2015: GBP49.0m) and infrastructure loans of GBP15.5m
(2015: GBP15.6m). The resulting net debt was GBP39.5m (2015:
GBP37.0m).
The Group continues with its aim of balancing its cash flows by
using disposal proceeds to fund infrastructure spend and investment
in acquisitions to replenish the portfolio, as well as improving
its focus on brownfield sites with greater value enhancement
potential. The Group is also maintaining its policy of prudent
gearing with gross Loan To Value (LTV) of 13.1% (2015: 18.7%) and
net LTV of 9.9% (2015: 10.7%). However, Capital Growth sites are
deliberately not geared, so if gearing is just assessed against the
value of business space and natural resources properties this
equates to gross LTV of 41.6% and net LTV of 31.3%.
Harworth's policy of prudent gearing gives the Group the ability
to complete acquisitions quickly, which is often a source of
competitive advantage. In addition, this policy of prudent gearing
allows working capital swings to be appropriately managed given
that infrastructure spend is usually in advance of sales and thus
net debt can increase by over GBP20m during the year.
Taxation
The charge for taxation in the year was GBP3.6m (2015: GBP3.5m)
comprising the deferred tax charge on forecast future capital gains
arising on the investment property portfolio. The Group does not
currently pay cash tax as brought forward tax losses are still
being utilised.
At 31 December 2016, the Group had deferred tax liabilities of
GBP23.3m (2015: GBP11.4m), related to unrealised gains on
investment properties. As a result of additional work performed
during the year, there is now greater certainty regarding the tax
loss position and the expected pattern of usage. The Group has
therefore recognised a deferred tax asset of GBP8.4m (2015:
GBPnil). The net deferred tax liability was GBP14.9m (2015:
GBP11.4m).
Dividends
At the Annual General Meeting on 26 April 2016, the full year
proposed dividend of GBP1.5m (0.051p per share), the reduction of
capital and the 1 for 10 share consolidation were approved. The
capital reduction was subsequently approved by the court and the
share consolidation was effected on 3 May 2016. As a result, the
2015 full year dividend of GBP1.5m (now 0.51p per share) was paid
on 9 September 2016.
A first interim dividend of GBP0.66m (0.23p per share) for the
2016 financial year was paid on 1 December 2016. A final dividend
for the 2016 financial year of GBP1.53m (0.523p per share) is
proposed. This gives a total dividend of GBP2.2m for 2016, a 10.0%
increase over the 2015 annualised dividend of GBP2.0m, reflecting
the growth in the business and the Board's confidence in the future
prospects for growth.
Andrew Kirkman
Finance Director
6 March 2017
Notes:
(1.) Operating profit before exceptional items and including
share of profit of associate and joint ventures.
(2.) Increase/(decrease) in fair value of investment properties
and assets held for sale (GBP33.5m) together with other gains,
being overages (GBP0.7m), and share of profit of associate and
joint ventures (GBP0.6m).
The Group's principal risks and uncertainties are set out
below.
Market risks
-------------------------------------------------------------------------------------------
Property - The Group is exposed to the risk of fluctuations in
the property market for the price of land.
-------------------------------------------------------------------------------------------
Controls and mitigation already Further actions to be taken
in place
--------------------------------------------- --------------------------------------------
Ø There is diversity in the Ø We will continue to grow
Group's property portfolio, both and strengthen our recurring income
in terms of sector and geography. portfolio to create stability during
Regional markets are typically periods of market downturn.
less volatile than the London market. Ø We will continue to review
Ø Value gains are driven more the composition of the Group's
by management actions than market portfolio regularly.
conditions. Ø Our cashflow forecasts provide
Ø We have an ability to control for a GBP10m "buffer" throughout
working capital movements by managing the year.
the rate of acquisitions and development
expenditure.
Ø We build headroom into our
forecasts by identifying potential
alternative sales in the event
that planned sales do not proceed
as quickly as anticipated.
Ø We monitor continuously,
and maintain regular and open dialogue
with our agents and advisers in
relation to, prevailing market
conditions.
--------------------------------------------- --------------------------------------------
Higher risk No change during the year
--------------------------------------------- --------------------------------------------
Political - Changes in political policy, such as in relation to
Brexit, the Northern Powerhouse, HS2 and Help To Buy could have
an adverse impact on the Group's principal markets.
-------------------------------------------------------------------------------------------
Controls and mitigation already Further actions to be taken
in place
--------------------------------------------- --------------------------------------------
Ø The diversity of the Group's Ø The Group will input into
portfolio affords a degree of mitigation upcoming Government consultations
to adverse political changes in on key policy matters, including
that, in response to changes affecting those that relate to the recent
a particular market (for example, Housing White Paper and Industrial
coal fines sales), the Group can Strategy.
leverage other markets (for example,
logistics space).
Ø The Group continues to make
effective representations with
key industry bodies, including
the British Property Federation,
the Royal Institute of Chartered
Surveyors and the Housebuilders
Federation, to ensure that the
effect of any political policy
changes is fully understood by
Government, thereby minimising
the chances of adverse policy changes
being enacted.
--------------------------------------------- --------------------------------------------
Higher risk No change during the year
--------------------------------------------- --------------------------------------------
Financial risk
-------------------------------------------------------------------------------------------
Income - Volatility of the recurring income stream from operations
impacting on banking covenants.
-------------------------------------------------------------------------------------------
Controls and mitigation already Further actions to be taken
in place
--------------------------------------------- --------------------------------------------
Ø We have implemented more Ø We will continue to build
sophisticated financial modelling our income portfolio via targeted
and more robust financial reporting income-generating acquisitions,
systems. direct development and lease renewals
Ø We have taken steps to grow and re-gearing.
and strengthen our recurring income Ø We are actively exploring
by (i) acquiring income-generating development management opportunities
investment properties: Advantage on certain of our sites, which
House (office), Moorland Gate and would lead to the generation of
Four Oaks (business parks), (ii) development management, promote
re-gearing existing leases across and asset management fees.
our portfolio and (iii) carrying Ø We have signed our first
out a targeted amount of direct planning promotion agreements and
development. are in advanced negotiations on
Ø Despite difficult market a number of other agreements. We
conditions, new coal fines sales are targeting income from these
have been agreed with Drax and agreements from 2018 onwards and
Uniper (Ratcliffe) during 2016. are confident that they will represent
Ø We have reached an "in principle" another resilient income stream
agreement with RBS to include a in the medium and long term.
share of income from our joint
ventures in covenant calculations.
We anticipate that this will be
documented during 2017.
--------------------------------------------- --------------------------------------------
Higher risk No change during the year
--------------------------------------------- --------------------------------------------
Strategic risk
-------------------------------------------------------------------------------------------
Strategy - Failure or weakness of strategic plan impacting on Group
direction with the potential influence of extraneous factors such
as economic cycle.
-------------------------------------------------------------------------------------------
Controls and mitigation already Further actions to be taken
in place
--------------------------------------------- --------------------------------------------
Ø A detailed strategic review Ø Further improvement in communication
was undertaken by the Board and of the strategic plan throughout
Executive Committee in June 2016, the business.
with external input from Eden McCallum. Ø Increasing the regularity
A further analysis was undertaken of strategic updates by the Chief
following the result of the EU Executive to the Board.
referendum. Both concluded that
the Group's strategy was appropriate
and robust, notwithstanding volatility
in the wider economy.
Ø The Executive Committee
and Board also carried out its
annual 5-year financial and strategic
review exercise in November and
December as part of the budgeting
process.
Ø All papers submitted to
the Board for approval include
an explanation as to how the proposal
outlined in the paper aligns with
strategy.
--------------------------------------------- --------------------------------------------
Medium risk Change during the year = lower
--------------------------------------------- --------------------------------------------
Human resources risk
-------------------------------------------------------------------------------------------
Ø Capacity - Insufficient human resource to meet the strategic
and operational demands of a growing business, with adverse impact
on outcomes.
Ø Key-person - In a small team, "key-person" risks (e.g. loss
of key skills and knowledge) are magnified.
-------------------------------------------------------------------------------------------
Controls and mitigation already Further actions to be taken
in place
--------------------------------------------- --------------------------------------------
Ø Whilst having a small team Ø Recruitment into the new
amplifies capacity and "key-person" roles already identified by the
risks, it also means that the Executive Executive Committee.
Committee can keep those risks Ø The Executive Committee
under close and continuous review. is carrying out a resources review
Ø The Nomination Committee during the first quarter of 2017.
carries out an annual review of
succession and development planning
for the Executive Committee and
senior management team, to ensure
that such plans are appropriate
and robust.
Ø Six strategic promotions
were approved by the Executive
Committee at the end of 2016, which
creates more strength in depth
in the senior echelons of the business.
Ø Performance reviews were
carried out for all employees who
had worked in the business for
12 months or more.
Ø The strategic planning process
includes a review of roles and
responsibilities within the Group.
This year that process has led
to our recruiting for three new
roles, two of which had been filled
at the date of this report. Every
recruitment process (whether for
new or replacement roles) begins
with a detailed review of the role
specification to ensure that roles
are complementary and drive maximum
efficiency across the business.
--------------------------------------------- --------------------------------------------
Medium risk Change during the year = higher
--------------------------------------------- --------------------------------------------
Operational risk
-------------------------------------------------------------------------------------------
Health and safety - Given the nature of the Group's business, it
faces a heightened exposure to health and safety and environmental
risks, which can have consequences from a financial and reputational
perspective.
-------------------------------------------------------------------------------------------
Controls and mitigation already Further actions to be taken
in place
--------------------------------------------- --------------------------------------------
Ø A monthly Estates, Environmental Ø Our Environmental Manager
and Safety (EES) report is prepared will complete his Waste Management
and submitted by the senior manager Industry Training and Advisory
who leads our EES team to both Board qualification, which will
the Executive Committee and Board, enable him to manage our waste
which includes updates on all environmental licences in-house pro-actively.
and health and safety matters.
Ø The EES Manager meets with
the Board annually.
Ø We have appointed an external
health and safety consultant who
advises on all health and safety
issues across the business. He
audits and advises on site specific
matters as well as Group policy
and procedures.
Ø A review has been carried
out during the year of all of the
Group's Environmental Permits.
This has led to the surrender (or
submission of applications to surrender)
of all redundant permits.
Ø The EES team maintains a
site "risk register", which is
used to monitor the risk status
of all sites and informs remediation
plans. A member of the EES team
inspects medium and high risk sites
not less than annually. High risk
sites are inspected more frequently
based on the risk rating score.
--------------------------------------------- --------------------------------------------
Higher risk Change during the year = lower
--------------------------------------------- --------------------------------------------
Unaudited Consolidated Income Statement
for the year ended 31 December 2016
Year ended Year ended
31 December 31 December
2016 2015
Note GBP000 GBP000
------------------------------------------------ ---- ------------ ------------
Revenue 3 33,693 13,172
Cost of sales (20,905) (6,013)
------------------------------------------------ ---- ------------ ------------
Gross profit 12,788 7,159
Administrative expenses (10,457) (5,731)
Increase in fair value of investment properties 11 33,713 24,060
Decrease in fair value of assets classified as
held for sale 15 (224) -
Profit on sale of investment properties 9,166 8,180
Loss on sale of assets classified as held for
sale (375) -
Other gains 10 747 3,208
Other operating (expenses)/income (204) 176
------------------------------------------------ ---- ------------ ------------
Operating profit before exceptional items 45,154 37,052
Exceptional income 5 689 -
Exceptional expense 5 (682) (2,859)
------------------------------------------------ ---- ------------ ------------
Operating profit 45,161 34,193
Finance income 4 247 62
Finance costs 4 (2,588) (1,803)
Share of profit of associate and joint ventures 12 647 856
Gain on bargain purchase 2 - 44,244
------------------------------------------------ ---- ------------ ------------
Profit before tax 43,467 77,552
Tax charge 6 (3,566) (3,508)
------------------------------------------------ ---- ------------ ------------
Profit for the financial year 39,901 74,044
------------------------------------------------ ---- ------------ ------------
Profit per share from continuing operations attributable to the owners
of the Group during the year
Earnings per share from operations Note pence pence
------------------------------------------------ ---- ------------ ------------
Basic and diluted earnings per share 8 3.5 3.1
------------------------------------------------ ---- ------------ ------------
Unaudited Consolidated Statement of Comprehensive Income
for the year-ended 31 December 2016
Year ended Year ended
31 December 31 December
2016 2015
Note GBP000 GBP000
---------------------------------------------- ----- ------------- -------------
Profit for the financial year 39,901 74,044
Other comprehensive expense - items that
will not be reclassified to profit or loss:
Fair value of financial instruments 21 (366) -
Actuarial loss in Blenkinsopp Pension Scheme (269) (3)
Revaluation of Group occupied property 9 (17) -
Deferred tax on actuarial loss 6 94 -
---------------------------------------------- ----- ------------- -------------
Total other comprehensive expense (558) (3)
---------------------------------------------- ----- ------------- -------------
Total comprehensive income for the financial
year 39,343 74,041
---------------------------------------------- ----- ------------- -------------
Unaudited Balance Sheet
as at 31 December 2016
As at As at
31 December 31 December
2016 2015
Note GBP000 GBP000
----------------------------------- ---- ------------ ------------
ASSETS
Non-current assets
Property, plant and equipment 9 789 -
Other receivables 10 1,397 650
Investment in associates 12 - -
Investment properties 11 379,190 334,617
Investment in joint ventures 12 10,549 768
----------------------------------- ---- ------------ ------------
391,925 336,035
----------------------------------- ---- ------------ ------------
Current assets
Inventories 13 733 1,092
Trade and other receivables 14 24,444 19,906
Cash and cash equivalents 16 13,007 27,564
Assets classified as held for sale 15 8,350 9,128
----------------------------------- ---- ------------ ------------
46,534 57,690
----------------------------------- ---- ------------ ------------
Total assets 438,459 393,725
----------------------------------- ---- ------------ ------------
LIABILITIES
Current liabilities
Borrowings 17 (1,819) (400)
Trade and other payables 18 (33,719) (17,369)
(35,538) (17,769)
----------------------------------- ---- ------------ ------------
Net current assets 10,996 39,921
----------------------------------- ---- ------------ ------------
Non-current liabilities
Borrowings 17 (50,659) (64,119)
Trade and other payables 18 (1,520) (2,280)
Derivative financial instruments 21 (366) -
Deferred income tax liabilities 6 (14,851) (11,379)
Retirement benefit obligations (602) (435)
----------------------------------- ---- ------------ ------------
(67,998) (78,213)
----------------------------------- ---- ------------ ------------
Total liabilities (103,536) (95,982)
----------------------------------- ---- ------------ ------------
Net assets 334,923 297,743
----------------------------------- ---- ------------ ------------
SHAREHOLDERS' EQUITY
Capital and reserves
Called up share capital 19 29,227 29,227
Share premium account 20 - 129,121
Fair value reserve 58,279 24,060
Capital redemption reserve 257 257
Merger reserve 45,667 45,667
Retained earnings 201,493 69,411
Total equity 334,923 297,743
----------------------------------- ---- ------------ ------------
Unaudited Consolidated Statement of Changes in Equity
for the year ended 31 December 2016
Called Share
up share premium Merger Fair value Capital redemption Retained Total
capital account reserve reserve reserve earnings equity
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- ---- --------- --------- -------- ---------- ------------------ --------- -------
Balance at 1 January
2015 6,055 32,911 - - 257 19,430 58,653
Profit for the financial
year to 31 December
2015 - - - - - 74,044 74,044
Transfer of fair
value gain on revaluation
of investment properties - - - 24,060 - (24,060) -
Other comprehensive expense:
Re-measurement of
post-retirement benefits - - - - - (3) (3)
--------------------------- ---- --------- --------- -------- ---------- ------------------ --------- -------
Total comprehensive
income for the year
ended
31 December 2015 - - - 24,060 - 49,981 74,041
--------------------------- ---- --------- --------- -------- ---------- ------------------ --------- -------
Transactions with
owners:
Shares issued 19 15,865 99,160 - - - - 115,025
Costs relating to
share issue 20 - (2,950) - - - - (2,950)
Shares issued in
lieu of consideration 19 7,307 - 45,667 - - - 52,974
--------------------------- ---- --------- --------- -------- ---------- ------------------ --------- -------
Balance at 31 December
2015 29,227 129,121 45,667 24,060 257 69,411 297,743
Profit for the financial
year to 31 December
2016 - - - - - 39,901 39,901
Transfer of fair
value gain on revaluation
of investment properties 11 - - - 33,713 - (33,713) -
Transfer of fair
value decrease on
assets classified
as held for sale 15 - - - (224) - 224 -
Transfer of other
gains 10 - - - 747 - (747) -
Other comprehensive
expense:
Fair value of financial
instruments 21 - - - - - (366) (366)
Actuarial loss in
Blenkinsopp Pension
Scheme - - - - - (269) (269)
Revaluation of Group
occupied property 9 - - - (17) - - (17)
Deferred tax on actuarial
loss 6 - - - - - 94 94
--------------------------- ---- --------- --------- -------- ---------- ------------------ --------- -------
Total comprehensive
income for year ended
31 December 2016 - - - 34,219 - 5,124 39,343
--------------------------- ---- --------- --------- -------- ---------- ------------------ --------- -------
Transactions with
owners:
Transfer of share
premium to other
distributable reserves 20 - (129,121) - - - 129,121 -
Dividends paid 7 - - - - - (2,163) (2,163)
--------------------------- ---- --------- --------- -------- ---------- ------------------ --------- -------
Balance at 31 December
2016 29,227 - 45,667 58,279 257 201,493 334,923
--------------------------- ---- --------- --------- -------- ---------- ------------------ --------- -------
Unaudited Statement Of Cash Flows
for the year ended 31 December 2016
Year ended Year ended
31 December 31 December
Note 2016 2015
--------------------------------------------------- ---- ------------ ------------
Cash flows from operating activities GBP000 GBP000
Profit before tax for the financial year 43,467 77,552
Net interest payable 4 2,341 1,741
Share of post-tax profit from associate - (856)
Gain on bargain purchase 2 - (44,244)
Fair value increase in investment properties 11 (33,713) (24,060)
Fair value decrease on assets classified as
held for sale 15 224 -
Profit on sale of investment properties (9,166) (8,180)
Loss on sale of assets classified as held
for sale 375 -
Other gains 10 (747) (3,208)
Share of (profit)/loss of joint venture 12 (647) 465
Depreciation of property, plant and equipment 9 2 -
Pension contributions in excess of charge (102) (132)
--------------------------------------------------- ---- ------------ ------------
Operating cash inflows/(outflows) before movements
in working capital 2,034 (922)
Decrease/(increase) in inventories 359 (781)
(Increase)/decrease in receivables (634) 9,881
Increase/(decrease) in payables 3,715 (10,512)
--------------------------------------------------- ---- ------------ ------------
Cash generated from/(used in) operations 5,474 (2,334)
Loan arrangement fees paid (150) (170)
Interest paid (1,861) (1,101)
Cash generated from discontinued operations - 228
--------------------------------------------------- ---- ------------ ------------
Cash generated from/(used in) operating activities 3,463 (3,377)
--------------------------------------------------- ---- ------------ ------------
Cash flows from investing activities
Interest received 4 247 62
Acquisition of joint ventures (9,134) -
Acquisition of subsidiary, net of cash acquired 2 - (87,823)
Proceeds from disposal of investment properties
and option 53,201 42,302
Expenditure on investment properties (47,528) (41,215)
Expenditure on property, plant and equipment (25) -
Cash used by discontinued operations - (1,068)
--------------------------------------------------- ---- ------------ ------------
Cash used in investing activities (3,239) (87,742)
--------------------------------------------------- ---- ------------ ------------
Cash flows from financing activities
Net proceeds from issue of ordinary shares - 112,075
Proceeds from other loans 5,187 13,455
Repayment of bank loans (12,000) (400)
Repayment of other loans (5,805) (8,776)
Dividends paid (2,163) -
--------------------------------------------------- ---- ------------ ------------
Cash (used in)/generated from financing activities (14,781) 116,354
--------------------------------------------------- ---- ------------ ------------
(Decrease)/increase in cash (14,557) 25,235
--------------------------------------------------- ---- ------------ ------------
At 1 January
Cash 27,564 1,489
Cash and cash equivalents classified as held
for sale - 840
--------------------------------------------------- ---- ------------ ------------
27,564 2,329
--------------------------------------------------- ---- ------------ ------------
(Decrease)/increase in cash (14,557) 26,075
Decrease in cash and cash equivalents classified
as held for sale - (840)
--------------------------------------------------- ---- ------------ ------------
13,007 25,235
--------------------------------------------------- ---- ------------ ------------
At 31 December
Cash and cash equivalents 16 13,007 27,564
--------------------------------------------------- ---- ------------ ------------
Notes to the financial statements
for the year ended 31 December 2016
1. Accounting policies
The principal accounting policies adopted in the preparation of
these consolidated financial statements are set out below.
These policies have been consistently applied to all the years
presented, unless otherwise stated.
General information
Harworth Group plc (Group) is a limited liability company
incorporated and domiciled in the UK. The address of its registered
office is Advantage House, Poplar Way, Catcliffe, Rotherham, South
Yorkshire, S60 5TR. The Group is listed on the London Stock
Exchange.
Basis of preparation
The preliminary results for the year ended 31 December 2016 are
unaudited. The financial information set out in this announcement
does not constitute the Group's financial statements for the year
ended 31 December 2016 or 31 December 2015 as defined by Section
434 of the Companies Act 2006.
This financial information has been prepared in accordance with
EU adopted International Financial Reporting Standards ('IFRS'),
IFRS IC interpretations and the Companies Act 2006 applicable to
companies reporting under IFRS and therefore complies with Article
4 of the EU IAS regulations.
The financial information for the year ended 31 December 2015 is
derived from the statutory accounts for that year which have been
delivered to the Registrar of Companies. The auditors,
PricewaterhouseCoopers LLP, reported on those accounts and their
report was unqualified, did not contain an emphasis of matter
paragraph and did not contain any
statement under Section 498 (2) or (3) of the Companies Act
2006.
The statutory accounts for the year ended 31 December 2016 will
be finalised on the basis of the financial information presented by
the Directors in these preliminary results and will be delivered to
the Registrar of Companies following the
Annual General Meeting of Harworth Group plc.
The same accounting policies and methods of computation are
followed as in the latest published audited accounts for
the year ended 31 December 2015, which are available on the
Group's website at http://harworthgroup.com/ except for as
described below:
Inventories
Inventories comprise developments in progress, land held for
development, planning promotion agreements and coal slurry that has
been processed and is ready for sale.
Developments in progress includes properties being developed for
onward sale.
Land held for development or sale is land owned by the Group
that is promoted through the planning process in order to gain
planning permission, adding value to the land.
Options to purchase land are agreements that the Group has
entered into with the landowners whereby the Group has the option
to purchase the land within a limited timeframe. The landowners are
not generally permitted to sell any other party during this period,
unless agreed by the Group. Within this timeframe the Group
promotes the land through the planning process at its expense in
order to gain planning permission. Should the Group be successful
in obtaining planning permission, it would trigger the option to
purchase and subsequently sell on the land.
Planning promotion agreements are agreements that the Group has
entered into with the landowners whereby the Group acts as an agent
to the landowners in exchange for a fee of a set percentage of the
proceeds or profit of the eventual sale. The Group promotes the
land through the planning process at its own expense. If the land
is sold the Group will receive a fee for its services.
The Group incurs various costs in promoting land held under
promotion planning agreements, in some instances the agreements
allow for the Group to be reimbursed certain expenditure following
the conclusion of a successful sale. These costs are held in
inventory at the lower of cost and net realisable value. Upon
reimbursement, inventory is reduced by the value of the reimbursed
cost.
Coal fines that have been processed and are ready for sale are
stated at the lower of cost and estimated net realisable value.
Inventories comprise all of the direct costs incurred in bringing
the coal fines to their present state.
Property, plant and equipment
Group occupied properties are stated at their fair value, based
on market values, less any subsequent accumulated depreciation or
accumulated impairment loss. Surpluses on revaluations are
transferred to the revaluation reserve. Deficits on revaluations
are charged against the revaluation reserve to the extent that
there are available surpluses relating to the same asset and are
otherwise charged to the Statement of Comprehensive Income.
Furniture, fittings and equipment are stated at cost less
accumulated depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the cost or valuation
of assets over their estimated useful lives, using the straight
line method of 3 to 4 years.
Derivatives and hedging
Derivative financial instruments such as interest rate swaps are
occasionally entered into in order to manage interest rate risks
arising from long-term debt. Such derivative instruments are
initially recognised at fair value on the date on which a
derivative contract is entered into and are subsequently
re-measured at fair value. Derivatives are carried as assets when
the fair value is positive and as liabilities when the fair value
is negative.
At the inception of a hedge relationship, the Group formally
designates and documents the hedge relationship to which the Group
wishes to apply hedge accounting and the risk management objective
and strategy for undertaking the hedge. The documentation includes
identification of the hedging instrument, the hedge item or
transaction, the nature of the risk being hedged and how the entity
will assess the hedging instrument's effectiveness in offsetting
the exposure to changes in the hedged item's fair value or cash
flows attributable to the hedge risk. Such hedges are expected to
be highly effective in achieving offsetting changes in fair value
or cash flows and are assessed on an ongoing basis to determine
that they actually have been highly effective throughout the
financial reporting periods for which they are designated.
For the purpose of cash flow hedge accounting, hedges are
classified as cash flow hedges when hedging exposure to variability
in cash flows that is attributable to a particular risk associated
with a recognised asset or liability or a highly probable forecast
transaction.
The effective portion of the gain or loss on the hedging
instrument is recognised directly in equity, while any ineffective
portion is recognised immediately in profit or loss, such as when
the hedged financial income or financial expense is recognised or
when a forecast sale occurs. Where such derivative transactions are
executed, gains and losses on the fair value of such arrangements
are taken either to reserves or to the Statement of Comprehensive
Income dependent upon the nature of the instrument.
If the forecast transaction or firm commitment is no longer
expected to occur, amounts previously recognised in equity are
transferred to profit or loss. If the hedging instrument expires or
is sold, terminated or exercised without replacement or rollover,
or if its designation as a hedge is revoked, amounts previously
recognised in equity remains in equity until the forecast
transaction or firm commitment occurs.
When a derivative is held as an economic hedge for a period
beyond twelve months after the end of the reporting period, the
derivative is classified as non-current (or separated into current
and non-current portions) consistent with the classification of the
underlying item. A derivative instrument that is a designated and
effective hedging instrument is classified consistent with the
classification of the underlying hedged item. The derivate
instrument is separated into a current portion and non-current
portion only if: 1) a reliable allocation can be made; and 2) it is
applied to all designated and effective hedging instruments.
Changes in accounting policy and disclosures
(a) New standards, amendments and interpretations
No new standards, amendments or interpretations, effective for
the first time for the financial year beginning on or after 1
January 2016 have had a material impact on the Group.
(b) New standards, amendments and interpretations not yet
adopted
A number of new standards and amendments to standards and
interpretations are effective for annual periods beginning after 1
January 2016, and have not been applied in preparing these
financial statements. None of these is expected to have a
significant effect on the financial statements of the Group, except
the following, set out below:
-- IFRS 9, 'Financial instruments', addresses the
classification, measurement and recognition of financial assets and
financial liabilities. It replaces the guidance in IAS 39 that
relates to the classification and measurement of financial
instruments. IFRS 9 retains but simplifies the mixed measurement
model and establishes three primary measurement categories for
financial assets: amortised cost, fair value through OCI and fair
value through P&L. The basis of classification depends on the
entity's business model and the contractual cash flow
characteristics of the financial asset. Investments in equity
instruments are required to be measured at fair value through
profit or loss with the irrevocable option at inception to present
changes in fair value in OCI not recycling. There is now a new
expected credit losses model that replaces the incurred loss
impairment model used in IAS 39. For financial liabilities there
were no changes to classification and measurement except for the
recognition of changes in own credit risk in other comprehensive
income, for liabilities designated at fair value through profit or
loss. IFRS 9 relaxes the requirements for hedge effectiveness by
replacing the bright line hedge effectiveness tests. It requires an
economic relationship between the hedged item and hedging
instrument and for the 'hedged ratio' to be the same as the one
management actually uses for risk management purposes.
Contemporaneous documentation is still required but is different
from that currently prepared under IAS 39. The standard is
effective for accounting periods beginning on or after 1 January
2018. Early adoption is permitted, subject to EU endorsement. The
full impact of IFRS 9 has not yet been assessed, however,
management do not believe it will have a significant impact.
-- IFRS 15, 'Revenue from contracts with customers' deals with
revenue recognition and establishes principles for reporting useful
information to users of financial statements about the nature,
amount, timing and uncertainty of revenue and cash flows arising
from an entity's contracts with customers. Revenue is recognised
when a customer obtains control of a good or service and thus has
the ability to direct the use and obtain the benefits from the good
or service. The standard replaces IAS 18 'Revenue' and IAS 11
'Construction contracts' and related interpretations. The standard
is effective for annual periods beginning on or after 1 January
2018 and earlier application is permitted, subject to EU
endorsement. Implementation of IFRS15 requires a thorough review of
existing contractual arrangements. At present, the directors
anticipate there may be some changes in the recognition of royalty
income leading to earlier recognition of some income although the
amounts involved are relatively immaterial.
-- IFRS 16, 'Leases' addresses the definition of a lease,
recognition and measurement of leases and establishes principles
for reporting useful information to users of financial statements
about the leasing activities of both lessees and lessors. A key
change arising from IFRS 16 is that most operating leases will be
accounted for on balance sheet for lessees. The standard replaces
IAS 17 'Leases', and related interpretations. The standard is
effective for annual periods beginning on or after 1 January 2019
and earlier application is permitted, subject to EU endorsement and
the entity adopting IFRS 15 'Revenue from contracts with customers'
at the same time. The full impact of IFRS 16 has not yet been
assessed, however, management do not believe it will have a
significant impact.
Critical accounting estimates and judgements
The preparation of the financial statements requires management
to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets and liabilities, income and expense. Actual results may
differ from these estimates.
In preparing these financial statements, the significant
judgements made by management in applying the Group's accounting
policies and the key sources of estimation uncertainty are as
follows:
Estimation of fair value of Investment Property
The fair value of investment property reflects, amongst other
things, rental income from our current leases, assumptions about
rental income from future leases and the possible outcome of
planning applications, in the light of current market conditions.
The valuation has been arrived at primarily after consideration of
market evidence for similar property, although in the case of those
properties where fair value is based on their ultimate
redevelopment potential, development appraisals have been
undertaken to estimate the residual value of the landholding after
due regard to the cost of, and revenue from the development of the
property.
The Group has also estimated the extent to which existing mining
tenants on investment property owned by the Group would perform
their obligations to remediate land at the conclusion of mining
activity, and therefore the impact of any restoration obligations
which may revert to the Group.
The values reported are based on significant assumptions and a
change in fair values could have a material impact on the Group`s
results. This is due to the sensitivity of fair value to the
assumptions made as regards to variances in development costs
compared to management's own estimates.
Investment properties are disclosed in Note 11.
2. Business combinations
Acquisition of Harworth Estates Property Group Ltd (HEPGL)
On 24 March 2015, the Group acquired the remaining 75.1% of the
issued share capital of HEPGL, a company incorporated in the United
Kingdom which headed up a group engaged in the regeneration of
former coalfield sites and other brownfield land into employment
areas, new residential development and low- carbon energy projects.
The following table summarises the consideration paid for HEPGL,
the fair value of assets acquired, liabilities assumed and the
non-controlling interest held at the acquisition date.
Consideration at 24 March 2015 GBP000
------------------------------------------ -------
Cash 97,026
Equity instruments (731m ordinary shares) 52,974
------------------------------------------ -------
Total consideration transferred 150,000
Fair value of associate interest 57,746
------------------------------------------ -------
Total consideration 207,746
------------------------------------------ -------
Recognised amounts of identifiable assets acquired and
liabilities assumed:
Attributed fair
value
GBP000
----------------------------------------------------------------------
Investment property (Note 11) 299,355
Investments and other non-current receivables 1,883
Cash and cash equivalents 9,203
Inventory 311
Trade and other current receivables 23,054
Financial asset 1,200
Borrowings (60,407)
Deferred tax liability (Note 6) (7,871)
Trade and other payables (14,738)
------------------------------------------------------------- --------
Fair value of acquired interest in net assets of subsidiary 251,990
Gain on bargain purchase (44,244)
------------------------------------------------------------- --------
Total consideration 207,746
------------------------------------------------------------- --------
The purchase consideration disclosed above comprised cash and
cash equivalents paid to acquire the previous majority shareholder
of GBP150.0m which was satisfied by the payment of GBP97.03m and
the allotment and issue of 730,674,465 ordinary shares of GBP0.01
each in the capital of Harworth Group plc. The share premium which
arose from the shares issued to the Pension Protection Fund,
('PPF') is held within the merger reserve shown in the consolidated
balance sheet. Acquisition related costs of GBP2.4m were recognised
in the consolidated income statement as an exceptional item. The
fair value of the 731m ordinary shares issued as part of the
consideration paid for HEPGL (GBP53.0m) was based upon the price
the shares were placed at 7.25 pence. Issuance costs of GBP2.95m
were netted against the deemed proceeds. During the period ended 31
December 2015 the revenue included in the consolidated income
statement since 24 March 2015 contributed by HEPGL was GBP12.9m and
profit before tax was GBP40.7m. Had HEPGL been consolidated from 1
January 2015, the consolidated income statement for the year to 31
December 2015 would have shown pro-forma revenue of GBP16.7m and
profit before tax of GBP39.2m.
The net cash outflow associated with the acquisition was as
follows:
GBP000
------------------------------------------------------------ --------
Fair value of acquired interest in net assets of subsidiary 251,990
------------------------------------------------------------ --------
Fair value of associate interest already held (57,746)
Gain on bargain purchase (44,244)
------------------------------------------------------------ --------
Total purchase consideration 150,000
------------------------------------------------------------ --------
Less: cash and cash equivalents of subsidiary acquired (9,203)
Less: equity instruments issued (52,974)
------------------------------------------------------------ --------
Net outflow of cash and cash equivalents on acquisition 87,823
------------------------------------------------------------ --------
3. Segment information
31 December 2016
Capital Income Unallocated
Growth Generation costs Total
GBP000 GBP000 GBP000 GBP000
------------------------------------------------ ------- ----------- ----------- -------
Revenue 16,307 17,386 - 33,693
------------------------------------------------ ------- ----------- ----------- -------
Gross (loss)/profit less administrative
expenses (1,425) 11,032 (7,276) 2,331
Exceptional items - (682) 689 7
Increase in fair value of investment properties 23,433 10,280 - 33,713
Decrease in fair value of assets classified
as held for sale - (224) - (224)
Profit on sale of investment properties 7,473 1,693 - 9,166
Loss on sale of assets held for resale - (375) - (375)
Other gains 747 - - 747
Other operating expenses - (117) (87) (204)
------------------------------------------------ ------- ----------- ----------- -------
Operating profit/(loss) 30,228 21,607 (6,674) 45,161
------------------------------------------------ ------- ----------- ----------- -------
Finance income 247
Finance costs (2,588)
Share of profit of joint venture 647
------------------------------------------------ ------- ----------- ----------- -------
Profit before tax 43,467
------------------------------------------------ ------- ----------- ----------- -------
Other information
Investment property additions:
Direct acquisitions - 22,524 -22,524
Subsequent expenditure 14,707 7,947 -22,654
-------------------------------- ------ ------ ------
Segmental assets
Capital Income
Growth Generation Unallocated Total
GBP000 GBP000 GBP000 GBP000
------------------------------ ------- ----------- ----------- -------
Investment properties 232,886 146,304 - 379,190
Property, plant and equipment - - 789 789
Assets held for sale 6,152 2,198 - 8,350
Inventories 454 279 - 733
Other receivables 1,397 - - 1,397
Investments in joint ventures 868 9,681 - 10,549
------------------------------ ------- ----------- ----------- -------
241,757 158,462 789 401,008
------------------------------ ------- ----------- ----------- -------
Unallocated assets:
Trade and other receivables 24,444 24,444
Cash and cash equivalents 13,007 13,007
------------------------------ ------- ----------- ----------- -------
Total assets 241,757 158,462 38,240 438,459
------------------------------ ------- ----------- ----------- -------
Financial liabilities are not allocated to the reporting
segments as they are managed and measured on a Group basis.
31 December 2015
Capital Income Unallocated
Growth Generation costs Total
GBP000 GBP000 GBP000 GBP000
------------------------------------------------ ------- ----------- ----------- -------
Revenue 1,319 11,533 320* 13,172
------------------------------------------------ ------- ----------- ----------- -------
Gross (loss)/profit less administrative
expenses (1,471) 6,579 (3,680) 1,428
Transaction costs - - (2,394) (2,394)
Impairment of investment (465) - - (465)
Increase in fair value of investment properties 14,503 9,557 - 24,060
Profit on sale of investment properties 7,111 1,069 - 8,180
Other gains - 3,208 - 3,208
Other operating income - 47 129 176
------------------------------------------------ ------- ----------- ----------- -------
Operating profit/(loss) 19,678 20,460 (5,945) 34,193
------------------------------------------------ ------- ----------- ----------- -------
Finance income 62
Finance costs (1,803)
Share of profit of joint venture 856
Gain on bargain purchase 44,244
------------------------------------------------ ------- ----------- ----------- -------
Profit before tax 77,552
------------------------------------------------ ------- ----------- ----------- -------
*Unallocated revenues relate to recharges to HEPGL prior to its
acquisition by the Group.
Other information
Investment property additions:
Direct acquisitions 14,578 8,255 -22,833
Subsequent expenditure 17,603 6,360 -23,963
-------------------------------- ------ ----- ------
Segmental assets
Capital Income
Growth Generation Unallocated Total
GBP000 GBP000 GBP000 GBP000
------------------------------ ------- ----------- ----------- -------
Investment properties 210,004 124,613 - 334,617
Assets held for sale 30 9,098 - 9,128
Inventories - 1,092 - 1,092
Other receivables 650 - - 650
Investments in joint ventures 768 - - 768
------------------------------ ------- ----------- ----------- -------
211,452 134,803 - 346,255
------------------------------ ------- ----------- ----------- -------
Unallocated assets:
Trade and other receivables - - 19,906 19,906
Cash and cash equivalents - - 27,564 27,564
------------------------------ ------- ----------- ----------- -------
Total assets 211,452 134,803 47,470 393,725
------------------------------ ------- ----------- ----------- -------
Financial liabilities are not allocated to the reporting
segments as they are managed and measured on a Group basis.
4. Finance income and costs
Year ended Year ended
31 December 31 December
2016 2015
GBP000 GBP000
------------------ ------------ ------------
Interest expense
- Bank interest (1,559) (977)
- Facility fees (545) (485)
- Other interest (484) (341)
------------------ ------------ ------------
Finance costs (2,588) (1,803)
------------------ ------------ ------------
Interest received 247 62
------------------ ------------ ------------
Net finance costs (2,341) (1,741)
------------------ ------------ ------------
5. Exceptional items
Year ended Year ended
31 December 31 December
2016 2015
GBP000 GBP000
-------------------------------------------------- ------------ ------------
Settlement relating to Harworth Insurance Company
Limited 500 -
Settlement relating to Ocanti Opco Limited 189 -
Under recovery relating to the cessation of coal
fine activities at Rugeley and coal fines stock
provision (682) -
Write down of investment in joint venture - (465)
Costs associated with acquisition of a subsidiary - (2,394)
-------------------------------------------------- ------------ ------------
Total exceptional items 7 (2,859)
-------------------------------------------------- ------------ ------------
Exceptional items for 2016 comprise three separate items, all of
which largely relate to the Group's legacy activities. GBP0.5m
relates to a settlement from the administration of Harworth
Insurance Company Limited and GBP0.2m from the administrator of
Ocanti Opco Limited which related to the reimbursement of
management expenses incurred by Coalfield Resources plc (the former
name of Harworth Group plc). In respect of coal fines activity, an
exceptional charge has been taken relating to the cessation of
activity at Rugeley of GBP0.3m and a provision of GBP0.3m has been
taken against the value of coal fines stocks reflecting reduced
demand.
The exceptional items in 2015 related to the transaction costs
incurred on the acquisition of HEPGL of GBP2.4m and the write down
of a joint venture held by the Group of GBP0.5m.
6. Tax charge
Year ended Year ended
31 December 31 December
2016 2015
Analysis of tax charge in the year GBP000 GBP000
----------------------------------------------------------- ------------ ------------
Deferred tax
Current year 2,510 3,508
Adjustment in respect of prior periods 1,652 -
Effect of changes in tax rates (2,042) -
Re-assessment of recognition of recoverability of deferred
tax assets 1,446 -
----------------------------------------------------------- ------------ ------------
Tax charge 3,566 3,508
----------------------------------------------------------- ------------ ------------
Year ended Year ended
31 December 31 December
2016 2015
Other comprehensive income items GBP000 GBP000
----------------------------------------------------------- ------------ ------------
Deferred tax - current year 14 -
Prior year 80 -
----------------------------------------------------------- ------------ ------------
94 -
----------------------------------------------------------- ------------ ------------
The tax for the year is different to the standard rate of
corporation tax in the UK of 20.0% (2014: 20.25%). The differences
are explained below:
Year ended Year ended
31 December 31 December
2016 2015
GBP000 GBP000
----------------------------------------------------------- ------------ ------------
Profit before tax on continuing operations 43,467 77,552
----------------------------------------------------------- ------------ ------------
Profit before tax multiplied by rate of corporation
tax in the UK of 20.0%
(2015: 20.25%) 8,693 15,704
Effects of:
Adjustments in respect of prior years 1,652 -
Share of associated company profit not taxable - (173)
Non-taxable income (129) (7,084)
Expenses not deducted for tax purposes 390 436
Gain on bargain purchase - (8,959)
Revaluation gains (4,683) 4,176
Changes in tax rates (2,042) (651)
Capital gains tax transferred out (1,764) -
Re-assessment of recognition of recoverability of deferred
tax assets 1,446 -
Deferred tax not recognised 3 59
----------------------------------------------------------- ------------ ------------
Total tax charge 3,566 3,508
----------------------------------------------------------- ------------ ------------
Deferred tax
The analysis of deferred tax liabilities is as follows:
As at As at
31 December 31 December
2016 2015
GBP000 GBP000
---------------------------------------------------- ------------ ------------
No more than twelve months after the reporting year - -
More than twelve months after the reporting year 14,851 11,379
---------------------------------------------------- ------------ ------------
14,851 11,379
---------------------------------------------------- ------------ ------------
The gross movement on the deferred income tax account is as
follows:
Year ended Year ended
31 December 31 December
2016 2015
GBP000 GBP000
----------------------------------------------- ------------ ------------
At 1 January 11,379 -
Acquisition of subsidiary - 7,871
Adjustments in respect of prior periods 1,572 -
Statement of comprehensive income for the year (14) -
Income statement charge for the year 1,914 3,508
----------------------------------------------- ------------ ------------
At 31 December 14,851 11,379
----------------------------------------------- ------------ ------------
Deferred tax is calculated in full on temporary differences
under the liability method using a tax rate of 17% (2015: 18%). A
reduction in the UK corporation tax rate from 20% to 19% (effective
from 1 April 2017), and a further reduction to 17% (effective from
1 April 2020) were enacted as part of the Finance Act 2015. The
deferred tax liabilities are shown at 17% (2015: 18%) being the
rate expected to apply to the reversal of the liability.
The deferred tax charge of GBP3.6m (2015: GBP3.5m) for the year
ended 31 December 2016 is in respect of property revaluation gains
where tax is expected to arise when properties are sold.
Deferred tax assets and liabilities are offset when there is a
legally enforced right to offset current tax assets against current
tax liabilities and when the deferred taxes relate to the same
fiscal authority.
Deferred tax assets of GBP19.7m at 31 December 2016 have not
been recognised owing to the uncertainty as to their
recoverability, deferred tax assets of GBP27.9m were not recognised
at 31 December 2015:
As at As at As at As at
31 December 31 December 31 December 31 December
2016 2016 2015 2015
Total Total Total Total
amount potential amount potential
recognised asset recognised asset
GBP000 GBP000 GBP000 GBP000
----------------------- ------------ ------------ ------------ ------------
Tax losses 8,427 28,149 - 27,850
----------------------- ------------ ------------ ------------ ------------
Net deferred tax asset 8,427 28,149 - 27,850
----------------------- ------------ ------------ ------------ ------------
7. Dividends
The Board recommended and shareholders approved a full year
dividend for financial year 2015 of GBP1.5m (0.51p per share) which
was paid on 9 September 2016 and an interim dividend of GBP0.66m
(0.23p per share) for the six months ended 30 June 2016 which was
paid on 1 December 2016. The Company is proposing to recommend a
final dividend of 0.523 pence per share (GBP1.53m in total) for the
year ended 31 December 2016 at the Annual General Meeting in
May.
8. Earnings per share
Earnings per share has been calculated by dividing the profit
attributable to ordinary shareholders by the weighted average
number of shares in issue and ranking for dividend during the year.
The weighted average number of shares for 31 December 2015 includes
the adjustments necessary to reflect the new shares issued on 24
March 2015 and for 31 December 2016 the share consolidation which
took place on 3 May 2016. See note 19.
Year ended Year ended
31 December 31 December
2016 2015
GBP000 GBP000
---------------------------------------------------------- ------------- -------------
Profit from continuing operations attributable to owners
of the parent 39,901 74,044
Profit for the year 39,901 74,044
---------------------------------------------------------- ------------- -------------
Weighted average number of shares used for basic and
diluted earnings per share calculation 1,133,144,333 2,395,763,516
-------------
Basic and diluted profit per share (pence) 3.5 3.1
---------------------------------------------------------- ------------- -------------
Underlying earnings per share (pence) 13.7 12.2
---------------------------------------------------------- ------------- -------------
Adjusted basic and diluted earnings per share for the year ended
31 December 2015 were 1.1 pence, being based on profit before tax
adjusted for the exceptional gain on bargain purchase of GBP44.2m,
acquisition fees of GBP2.4m and write down of investments of
GBP0.5m.
Underlying earnings per share have been calculated using profit
from continuing operations GBP39.9m (2015: GBP35.7m underlying) and
shares in issue at the end of 2016.
9. Property, plant and equipment
Land and
Buildings Office equipment Total
GBP000 GBP000 GBP000
---------------------------------------------- ---------- ---------------- -------
Fair Value
At 1 January 2016 - - -
Additions at cost - 25 25
Transfer from investment properties (note 11) 783 - 783
Decrease in fair value (17) - (17)
---------------------------------------------- ---------- ---------------- -------
At 31 December 2016 766 25 791
---------------------------------------------- ---------- ---------------- -------
Accumulated depreciation
At 1 January 2016 - - -
Charge for year - 2 2
---------------------------------------------- ---------- ---------------- -------
At 31 December 2016 - 2 2
---------------------------------------------- ---------- ---------------- -------
Carrying amount
At 31 December 2015 - - -
At 31 December 2016 766 23 789
---------------------------------------------- ---------- ---------------- -------
At 31 December 2016, the Group had entered into contractual
commitments for the acquisitions of property, plant and equipment
amounting to GBPnil (2015: GBPnil).
Information about the valuation of land and buildings is
provided in note 11.
10. Other receivables
The benefit of overages is recorded as a non-current receivable
as follows:
Year ended Year ended
31 December 31 December
2016 2015
GBP000 GBP000
----------------- ------------ ------------
At 1 January 650 -
Acquired - 650
Fair value gains 747 -
------------------- ------------ ------------
At 31 December 1,397 650
------------------- ------------ ------------
11. Investment properties
Investment property at 31 December 2016 and 31 December 2015 has
been measured at fair value. The Group holds five categories of
investment property being agricultural land, natural resources,
major developments, strategic land and business parks in the UK,
which sit within the operating segments of Capital Growth and
Income Generation.
Income Generation Capital Growth
Agricultural Natural Business Major Strategic
Land Resources Parks Developments Land Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- ------------ ---------- -------- ------------- --------- --------
At 1 January 2015 - - - - - -
Acquisition of subsidiaries 22,070 18,574 72,724 139,842 46,145 299,355
Direct acquisitions - 978 7,277 1,366 13,212 22,833
Subsequent expenditure 604 312 5,444 15,562 2,041 23,963
Increase/(decrease)
in fair value 2,477 1,375 5,705 15,075 (572) 24,060
Transfer to assets held
for sale (6,013) (3,085) - - (30) (9,128)
Disposals (2,375) (1,200) (254) (14,256) (8,381) (26,466)
At 31 December 2015 16,763 16,954 90,896 157,589 52,415 334,617
Transfers 4,617 5,682 (25,424) 64,763 (49,638) -
Direct acquisitions 1,390 - 21,134 - - 22,524
Subsequent expenditure 286 1,663 5,998 11,223 3,484 22,654
(Decrease)/increase
in fair value (894) 5,203 5,971 12,103 11,330 33,713
Transfer to assets held
for sale (1,680) - (477) (6,153) - (8,310)
Transfer to property,
plant and equipment - - (783) - - (783)
Disposals (376) (13) (606) (23,875) (355) (25,225)
---------------------------- ------------ ---------- -------- ------------- --------- --------
At 31 December 2016 20,106 29,489 96,709 215,650 17,236 379,190
---------------------------- ------------ ---------- -------- ------------- --------- --------
Valuation process
The properties were valued in accordance with the Royal
Institute of Chartered Surveyors (RICS) Valuation - Professional
Standards (the 'Red Book'), by BNP Paribas Real Estates and Savills
both independent firms acting in capacity of external valuers with
relevant experience of valuations of this nature. The valuations
are on the basis of Market Value as defined with the Red Book,
which RICS considers meets the criteria for assessing Fair Value
under International Reporting Standards. The valuations are based
on what is determined to be the highest and best use. When
considering the highest and best use a valuer will consider, on a
property by property basis, its actual and potential uses which are
physically, legally and financially viable. Where the highest and
best use differs from the existing use, the valuer will consider
the cost and the likelihood of achieving and implementing this
change in arriving at its valuation. Most of the Group's properties
have been valued on the basis of their development potential which
differs from their existing use.
At each financial year end, Management:
o verifies all major inputs to the independent valuation
report;
o assesses property valuation movements when compared to the
prior year valuation report; and
o holds discussions with the independent valuer.
The different valuation levels are defined as:
o Level 1: valuation based on quoted market prices traded in
active markets.
o Level 2: valuation based on inputs other than quoted prices
included within Level 1 that maximise the use of observable data
either directly or from market prices or indirectly derived from
market prices.
o Level 3: where one or more inputs to valuation are not based
on observable market data.
The Directors determine the applicable hierarchy that each
investment property falls into by assessing the level of
unobservable inputs used in the valuation technique. As a result of
the specific nature of each investment property, valuation inputs
are not based on directly observable market data and therefore all
investment properties were determined to fall into Level 3.
The Group's policy is to recognise transfers into and out of
fair value hierarchy levels as at the date of the event or change
in circumstance that caused the transfer. There were no transfers
between hierarchy in the year ended 31 December 2016 (2015:
zero).
Valuation techniques underpin management's estimation of fair
value.
Agricultural Land
Most of the agricultural land is valued using the market
comparison basis, with an adjustment made for the length of
remaining term on the tenancy and the estimated cost to bring the
land to its highest and best use. Where the asset is subject to a
secure letting, this is valued on a yield basis, based upon sales
of similar types of investment.
Natural Resources
Natural resources sites in the portfolio are valued based on a
discounted cashflow for the operating life of the asset.
Major Developments
Major development sites are generally valued using residual
development appraisals, a form of discounted cash flow which
estimates the current site value from future cash flows measured by
observable current land and/or completed built development values,
observable or estimated development costs, and observable or
estimated development returns.
Where possible development sites are valued by direct comparison
to observable market evidence with appropriate adjustment for the
quality and location of the property asset, although this is
generally only a reliable method of measurement for the smaller
development sites.
Strategic Land
Strategic land is valued on the basis of discounted cash flows,
with future cash flows measured by current land values adjusted to
reflect the quality of the development opportunity, the potential
development costs estimated by reference to observable development
costs on comparable sites, and the likelihood of securing planning
consent. The valuations are then benchmarked against observable
land values reflecting the current existing use of the land, which
is generally agricultural and where available, observable strategic
land values.
Business Parks
The business parks are valued on the basis of market comparison
with direct reference to observable market evidence including
rental values, yields and capital values and adjusted where
required for the estimated cost to bring the property to its
highest and best use. The evidence is adjusted to reflect the
quality of the property assets, the quality of the covenant profile
of the tenants and the reliability/volatility of cash flows.
12. Investments
(a) Investment in associates
Year ended Year ended
31 December 31 December
2016 2015
GBP000 GBP000
----------------------------------- ------------ ------------
At 1 January - 56,890
Share of profit - 856
Purchase of share capital not held - (57,746)
------------------------------------- ------------ ------------
At 31 December - -
------------------------------------- ------------ ------------
The Group accounted for its investment in HEPGL, a private
company incorporated in England and Wales, as an associate up to
and including 24 March 2015 because it considered that it had
significant influence over that entity due to its 24.9%
shareholding and representation on the HEPGL board.
The Group's share of net assets of HEPGL was reduced by GBP5.0m
to reflect the fact that, under the terms of the Shareholder
Agreement prior to 24 March 2015, the first GBP5.0m of dividend
income due to the Group would be paid to the Pension Protection
Fund ('PPF').
On 24 March 2015, Harworth Group plc acquired the remaining
75.1% of HEPGL that it did not own from the PPF. HEPGL therefore
ceased to be accounted for as an associate at that date and has
been fully consolidated in these accounts.
(b) Investment in joint ventures
GBP000
------------------------------------------ ------
At 1 January 2015 -
Arising on acquisition of subsidiaries 1,233
Impairment of investment in joint venture (465)
At 31 December 2015 768
Acquisitions 9,134
Share in profit of joint venture 647
------------------------------------------ ------
At 31 December 2016 10,549
------------------------------------------ ------
As a result of the 2015 acquisition of HEPGL the Group holds 50%
of the issued ordinary shares of Bates Regeneration Limited, a
joint venture with Banks Property Limited for the development of an
investment property at Blyth, Northumberland. On 14 March 2016 the
Group purchased a 50% share of Aire Valley Land LLP from Keyland
Developments Limited for a consideration of GBP8.5m plus costs of
GBP0.5m. Aire Valley Land LLP is a joint venture company. It
controls 166 acres of land in Leeds that abuts existing landholding
of the Group on the former Skelton Grange power station site. On 16
December 2016 the Group entered into a joint venture agreement with
Dransfield Properties Limited for a 50% share of Waverley Square
Limited.
13. Inventories
As at As at
31 December 31 December
2016 2015
GBP000 GBP000
------------------------------ ------------ ------------
Planning promotion agreements 454 -
Work in progress - 114
Finished goods 279 978
------------------------------ ------------ ------------
Total inventories 733 1,092
------------------------------ ------------ ------------
Finished goods comprises coal fines that have been processed and
are ready for sale. The cost of inventory is recognised as an
expense within cost of sales in the year of GBP0.4m (2015:
GBP1.1m). Inventories are stated after a provision of GBP0.3m
(2015: GBPnil)
14. Trade and other receivables
As at As at
31 December 31 December
2016 2015
GBP000 GBP000
---------------------------------------------------- ------------ ------------
Trade receivables 4,179 1,564
Less: provision for impairment of trade receivables (221) (121)
---------------------------------------------------- ------------ ------------
Net trade receivables 3,958 1,443
Other receivables 19,111 16,723
Prepayments and accrued income 1,375 1,159
Amounts recoverable on construction contracts - 581
24,444 19,906
---------------------------------------------------- ------------ ------------
The carrying amount of trade and other receivables approximate
to their fair value due to the short time frame over which the
assets are realised. All of the Group's receivables are denominated
in sterling.
15. Assets classified as held for sale
Year Ended Year Ended
31 December 31 December
2016 2015
Investment properties GBP000 GBP000
--------------------------------------- ------------ ------------
At 1 January 9,128 -
Transferred from investment properties 8,310 9,128
Subsequent expenditure 1,588 -
Decrease in fair value (224) -
Disposals (10,452) -
--------------------------------------- ------------ ------------
At 31 December 8,350 9,128
--------------------------------------- ------------ ------------
The assets classified for sale at each year end relate to
investment properties expected to be sold within twelve months.
16. Cash and cash equivalents
As at As at
31 December 31 December
2016 2015
GBP000 GBP000
------------------------------------------- ------------ ------------
Cash 13,007 27,564
Cash and cash equivalents in the cash flow
statement 13,007 27,564
------------------------------------------- ------------ ------------
17. Borrowings
As at As at
31 December 31 December
2016 2015
GBP000 GBP000
---------------------- ------------ ------------
Bank loans
Current:
Secured - other loans (1,819) (400)
---------------------- ------------ ------------
(1,819) (400)
---------------------- ------------ ------------
Non-current:
Secured - bank loans (37,142) (48,968)
Secured - other loans (13,517) (15,151)
---------------------- ------------ ------------
(50,659) (64,119)
---------------------- ------------ ------------
Details of the borrowings acquired as part of the acquisition of
subsidiary on 24 March 2015 are provided in Note 2.
At 31 December 2016, the Group had bank borrowings of GBP37.0m
(2015: GBP50.0m) and a further GBP15.5m (2015: GBP15.7m) of
infrastructure loans, which resulted in total borrowings of
GBP52.5m (2015: GBP65.7m). The bank borrowings are part of a
GBP75.0m (2015: GBP65.0m) revolving credit facility from The Royal
Bank of Scotland. The facility is repayable on 13 February 2021
(five year term) after being extended for a year on 1 August 2016.
The facility is non-amortising and subject to financial and other
covenants.
The infrastructure loans of GBP15.5m (2015: GBP15.7m) are
provided by public bodies in order to promote the development of
major sites. They comprise a GBP0.8m (2015: GBP1.2m) loan from
Leeds LEP in respect of the Prince of Wales site, GBP11.6m (2015:
GBP10.9m) from the Homes and Community Agency in respect of
Waverley and GBP0.1m (2015: GBPnil) for Village Farm, GBP2.3m
(2015: GBP3.6m) from Sheffield City Region JESSICA Fund for
Rockingham and GBP0.7m (2015: GBPnil) for the Advanced
Manufacturing Park at Waverley.
The loans are drawn as work on the respective sites is
progressed and they are repaid on agreed dates or when disposals
are made from the sites.
Current loans are stated after deduction of unamortised
borrowing cost of GBPnil (2015: GBPnil). Non-current bank and other
loans are stated after deduction of unamortised borrowing costs of
GBP1.1m (2015: GBP1.2m). The bank loans and overdrafts are secured
by way of fixed charges over certain assets of the Group.
18. Trade and other payables
Current liabilities
As at As at
31 December 31 December
2016 2015
GBP000 GBP000
----------------------------- ------------ ------------
Trade payables 1,555 875
Taxation and social security 7,852 2,720
Other creditors 2,087 2,920
Accruals and deferred income 22,225 10,854
----------------------------- ------------ ------------
33,719 17,369
----------------------------- ------------ ------------
Non-current liabilities
As at As at
31 December 31 December
2016 2015
GBP000 GBP000
---------------- ------------ ------------
Other creditors 1,520 2,280
---------------- ------------ ------------
1,520 2,280
---------------- ------------ ------------
Non-current creditors relate to deferred consideration due on
land purchases after one year.
19. Called up share capital
On 24 March 2015, the Company issued 2,317,241,377 ordinary
shares at 7.25 pence each as part of a placing and open offer of
which 730,674,465 ordinary shares were issued to the PPF as part of
the purchase consideration for the acquisition of 75.1% of the
issued share capital of HEPGL. On 26 April 2016 3 ordinary shares
were issued at 1 pence each and all shares in issue were
consolidated from 1 pence shares into 10 pence shares.
2016 2015
======================== ======================
Number Number
of shares GBP000 of shares GBP000
------------------------------- --------------- ------- ------------- -------
Issued and fully paid
At 1 January 2,922,697,857 29,227 605,456,480 6,055
Shares issued 3 - 2,317,241,377 23,172
Share consolidation (10 for 1) (2,630,428,074) - - -
At 31 December 292,269,786 29,227 2,922,697,857 29,227
-------------------------------- --------------- ------- ------------- -------
20. Share premium account
Year Ended Year Ended
31 December 31 December
2016 2015
GBP000 GBP000
-------------------------------------------- ------------ ------------
At 1 January 129,121 32,911
Transferred to other distributable reserves (129,121) -
Premium on shares issued - 99,160
Costs relating to rights issue - (2,950)
-------------------------------------------- ------------ ------------
At 31 December - 129,121
-------------------------------------------- ------------ ------------
On 18 May 2016 approval was granted from the High Court to
cancel the GBP129m share premium account of the Group and for it to
be re-designated as distributable reserves.
21. Derivative Financial Instruments
On 21 June 2016 HEPGL entered into a four-year swap to fix
GBP30m of borrowings at an all-in rate of 2.955% including fees.
The interest rate swap has been measured at fair value which is
determined using forward interest rates extracted from observable
yield curves. The fair value of the interest rate swap at 31
December 2016 was a loss of GBP0.4m (2015: GBPnil).
During the year the following loss was recognised in the other
comprehensive income statement in relation to the interest rate
swap:
As at As at
31 December 31 December
2016 2015
GBP000 GBP000
-------------------------------------------- ------------ ------------
Loss on interest rate swap - cash flow hedge 366 -
-------------------------------------------- ------------ ------------
22. Related party transactions
Peel Group
The Peel Group charged GBP42,500 (2015: GBP41,875) in respect of
fees for Steven Underwood and GBPnil for the rental of office space
(2015: GBP8,202).
The Group relinquished an option to purchase 50% of the share
capital of Peel Wind Farms (Blue Sky Forest) Limited in return for
GBP4.4m from Peel Holdings Wind Farms (IOM) Limited. This resulted
in a gain of GBP3.2m shown in the consolidated income statement
within other gains in 2015.
Harworth Estates Group
Revenue included GBP320,000 for the period up to 24 March 2015
in respect of recharges to the Harworth Estates Group for on-going
costs of the Company in 2015 prior to its acquisition into the
Group.
Scratching Cat
Geoff Mason, our former Company Secretary, supplied his services
through Scratching Cat Limited, a company of which he is a
director. During the year charges were made in relation to company
secretarial duties of GBP73,000 (2015: GBP115,000).
This information is provided by RNS
The company news service from the London Stock Exchange
END
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