Last checked at 5 Jun 2020 07:00
5 June 2020 LEI: 213800R8JSSGK2KPFG21
Harworth Group plc
Annual Report 2019 and Notice of 2020 Annual General Meeting
Harworth Group plc ("Harworth" or the "Company" or the "Group") announces that it has today published its Annual Report and Financial Statements for the financial year ended 31 December 2019 (the "Annual Report 2019") and Notice of 2020 Annual General Meeting.
The 2020 Annual General Meeting will be held on Monday 29 June 2020 at 8.00a.m. at Unit 5A, Advanced Manufacturing Park, Brunel Way, Waverley, Rotherham S60 5WG. Due to the current restrictions on movement introduced by the UK Government in response to the COVID-19 pandemic, regrettably shareholder attendance at the Annual General Meeting will not be possible. Although shareholders will not be able to attend the Annual General Meeting in person, they will still be able to ensure their votes are counted by using the proxy facility to appoint the Chair of the meeting to cast their vote for them.
Shareholders can also submit questions in advance of the Annual General Meeting by emailing them to investors@harworthgroup.com. Responses will be provided in writing as soon as practicable and, where a series of questions follow a common theme, responses will be published on the website at www.harworthgroup.com/investors.
Following the conclusion of the Annual General Meeting the results will be announced via Regulatory News Service and made available on the Company's website at www.harworthgroup.com.
The following documents have been posted or made available to shareholders today:
1. Annual Report 2019;
2. Notice of 2020 Annual General Meeting; and
3. Form of proxy for the 2020 Annual General Meeting.
A copy of each of the above mentioned documents has been submitted to the National Storage Mechanism and will be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
Both the Annual Report 2019 and the Notice of 2020 Annual General Meeting can be viewed at, and downloaded from, the Company's website at www.harworthgroup.com/investors/.
Reference is made to the Company's preliminary results announcement published on 17 March 2020 (RNS number 3590G). In addition to the information in that announcement, in accordance with Rule 6.3.5(2)(b) of the Disclosure and Transparency Rules, the Company also sets out below the following extracts from the Annual Report 2019 in full text:-
Statement of Directors' responsibilities
Principal risks and uncertainties
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have prepared both the Group and the Company Financial Statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.
Under Company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that period.
In preparing the Financial Statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the Financial Statements; and
• prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company and Group will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the Financial Statements comply with Companies Act 2006 and Article 4 of the IAS Regulation.
The Directors are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company's website www.harworthgroup.com. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility statements
Each of the Directors who were in office during the year ended 31 December 2019 and up to the date of the Annual Report 2019 (see the list of names and roles on page 120 of the Annual Report 2019) confirms that, to the best of their knowledge:
• the Group and Company Financial Statements, which have been prepared in accordance with applicable IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company and Group; and
• the Strategic Report includes a fair review of the development and performance of the business and the position of the Group and the Company, together with a description of the principal risks and uncertainties they face; and
• the 2019 Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's and Company's position, performance, business model and strategy.
Going concern
In assessing going concern and determining whether there are material uncertainties, the Directors consider the Group's business activities, together with factors that are likely to affect its future development and position.
A review of the Group's cashflows, solvency, liquidity positions and borrowing facilities has taken place alongside a review of progress against the five-year strategic plan projections. A key focus of the assessment of going concern is the management of liquidity and compliance with borrowing facilities for a minimum of the next 12 months.
In light of the current COVID-19 pandemic, which has had a significant impact on the Group and the wider economy, the first 18 months of the strategic plan have been revised, reflecting management actions implemented in response and to reflect the effect and estimated impact of COVID-19. At this stage, although we are starting to see a phased easing of restrictions on movement, it cannot be known with any certainty how long and to what extent restrictions will remain in place, or the time it will take for the macro-economic climate and our markets to recover.
The Group continues to remain in a strong position to withstand the potential impact, with cash and bank headroom of £64m (as at 30 April 2020). The spread of sites across its three core regions, and at all stages of their lifecycle, has enabled the close management of non-committed expenditure to preserve liquidity. The Group benefits from diversification across its Capital Growth and Income Generation businesses including an industrial and renewable energy property portfolio. The Income Generation portfolio has continued to generate income that covers the overheads of the business and interest from loan facilities, with rent collections for the March quarter being broadly in line with previous quarters.
COVID-19 has created heightened risks with the potential to severely but, to a large extent, temporarily impact the Group's liquidity. The key risks to short-term viability in the context of COVID-19 are:
• Finance - availability of capital, alongside shortfalls in income and valuation processes;
• Markets - a severe but temporary downturn in the residential and commercial markets could reduce potential sales of serviced land and have an adverse impact on valuations;
• Delivery - social distancing creating delays in project works on sites and in determining live planning applications; and
• People - capacity and productivity are affected.
Since the onset of COVID-19, a number of management actions have been taken to adapt the Group. Capital has been prioritised on sites where committed sales are in place resulting in infrastructure spend continuing on six major development sites. Sales of strategic and non-core land have continued as expected and new lettings have been secured on properties. Discretionary overhead expenditure has been reduced where possible. This aligns with our existing strategy to manage cashflows to fund our development spend and acquisition activity.
In April 2020, RBS and Santander agreed to increase the limit of the Revolving Credit Facility to £130m and provide greater flexibility on covenants for the next 12 months. After due consideration of the ongoing economic uncertainty, the Board has taken a prudent decision to not recommend a final dividend of 0.7p per share for the financial year ended 31 December 2019, preserving a further £2.2m of cash.
These actions have strengthened further what was an already robust liquidity position as we look ahead over the next 12 months. Whilst the immediate focus is on the short-term liquidity, the longer-term impact of COVID-19 is also being considered.
Balance sheet and cashflow remain resilient throughout downside scenario analysis
A revised forecast was prepared to reflect the impact of COVID-19 and actions taken as set out above with a persisting downturn in activity during 2020 and a medium-term recovery of the economy thereafter. Furthermore, a sensitised forecast was produced that had a number of severe but plausible downsides reflected. These downsides included:
• a severe reduction in sales to the housebuilding sector with the associated development spend being reduced to that which is only committed at this point
• Minimal level of acquisitions spend
• Reduced overhead and discretionary expenditure
• Notwithstanding strong rent collection to date in line with previous quarters, a material reduction in rents collected over the majority of the going concern assessment period
• A decline in land values and widening of industrial yields
Even allowing for these downsides, for at least 12 months from the signing of the financial statements, the Group continues to have sufficient cash reserves, continues to operate with headroom on lending facilities and associated covenants and has additional mitigation measures that could be deployed to create further cash and covenant headroom.
Based on these considerations, together with available market information and the Directors' knowledge and experience of the Group's property portfolio and markets, the Directors considered it appropriate to adopt a going concern basis of accounting in the preparation of the Company's and Group's financial statements.
Disclosure of information to the auditor
Each of the Directors who were in office at the date of approval of the Annual Report 2019 also confirms that:
• so far as they are aware, there is no relevant audit information of which the auditors are unaware; and
• each Director has taken all the steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant information and to establish that the Group's and Company's auditors are aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of section 418 Companies Act. This Statement of Directors' Responsibilities was approved by the Board and signed by order of the Board:
Chris Birch
Group General Counsel and Company Secretary
4 June 2020
PRINCIPAL RISKS AND UNCERTAINTIES
We are presenting Harworth's principal risks and uncertainties in the Annual Report 2019 against the unprecedented backdrop of the COVID-19 global pandemic. Like all businesses, the pandemic has a severe, but temporary, adverse impact on the risk profile of our business. To give shareholders full but balanced disclosure we have presented Harworth's risk profile prior to the onset of the pandemic but with an overlay showing its temporary impact.
"Business as usual" risk profile
During 2019, Harworth operated against a backdrop of heightened economic and political instability surrounding the UK's exit from the European Union. That backdrop did not have a materially increased adverse effect on the housing, logistics and manufacturing markets in Harworth's core regions, due to their long-term fundamentals, but the Board was mindful that these macro conditions had the potential to lead to a downturn in the regional residential and/or commercial property markets in which Harworth operates. That being so, our residential and commercial property Markets risks retained a "high" status in the Group Risk Register (GRR) throughout 2019. Those Markets risks have returned to a "medium" status following the latest review of the GRR, reflecting the decisive outcome of the General Election and the UK's departure from the European Union at the end of January 2020. We believe this has generated increased political stability and resulted in improved sentiment across both the commercial and residential property markets in at least the short-term. The Board continues to monitor Markets risks closely given that commercial markets in some instances are considered to be operating late-cycle and macroeconomic uncertainty remains and is likely to increase as we approach the end of the transition period agreed with the European Union.
The macro-political backdrop did lead to turbulence at a local political level, manifested by changes in local government control at the May local elections and in local planning policy, creating planning headwinds for a handful of our projects. These headwinds persist and are reflected in the "high" risk status of our planning Delivery risk (rather than in our Politics category, as to which see below). Evidence post-election suggests these headwinds may begin to subside and we will continue to monitor this closely throughout the year.
The UK also remains a highly competitive landscape for strategic site acquisitions and, despite our success in securing new sites and projects in 2019 and strong pipeline, this is a reflected in a "high" acquisition Delivery risk status. Over the short term, we expect that more acquisition opportunities will come forwards on which we are well placed to capitalise. All other Delivery risks remain unchanged, with a "medium" risk status.
In terms of Finance risks, our capital and income risks continue to carry higher risk scores. This reflects that expanding our capital sources and increasing the breadth and resilience of our income portfolio, in both cases to support the growth of the business, remain strategic priorities. Over the course of 2019, we have seen lower income from coal fine sales, reflecting an accelerated reduction in reliance on coal fired power stations. Although the trend for coal fine sales is anticipated to continue, overall we expect these risks to reduce in the medium term as our strategy is implemented. There has also been an increase in our insurance risk, due to challenging market conditions, which has resulted in material increases in some insurance premiums, albeit a large proportion of these increases are passed onto tenants. We expect this risk to remain unchanged, if not increase, over the next 12 months and will be undertaking a robust renewal exercise for 2021.
Whilst the macro-political backdrop and local political climate are reflected in our Markets and Delivery risk categories, our Politics category risks are informed by changes in central Government policy. Overall, this category remains largely unchanged, with increases in certain risks offset by reductions in others. Our People and Legal and Regulatory risks remain largely unchanged and no material movements are expected over the next 12 months. Most of our Governance risks retain a "medium" risk status, notwithstanding modest reductions in our internal controls and cyber security Governance risks, following measures implemented in 2019.
Our Environment and Social risk categories were new to the GRR in 2019, reflecting emerging risks identified by our bi-annual reviews, and our focus on business purpose, the sustainability and environmental impact of our projects, and the effectiveness of our engagement with local communities and other key stakeholders. These risks carry a mixture of "low" and "medium" scores. They are long-term risks, the status of which is not expected to change materially over the next 12 months.
Impact of COVID-19
The COVID-19 pandemic has caused temporary increases across approximately half of our risks in the Delivery, People, Finance, Governance, Markets and Politics categories. In some cases those increases are severe, albeit temporary. In all cases we have acted quickly to implement measures to mitigate increase risks.
On pages 32 to 36 of the Annual Report 2019 there is a detailed analysis of the Group's risks and uncertainties grouped into our nine principal risk categories. On pages 36 and 37 of the Annual Report 2019 there is analysis of how the COVID-19 pandemic has affected the status of certain of those risks.
RISK CATEGORY: DELIVERY OVERALL RISK PROFILE: MEDIUM | ||||
| Current risk profile (after mitigation) | Change in risk rating during 2019 | Forecast change in risk rating during 2020 | |
1.Acquisitions | High | Unchanged | Decrease | |
2.Planning | High | Increased | Decrease | |
3.Project delivery | Medium | Unchanged | Unchanged | |
4.Other operational shortfalls | Medium | Unchanged | Unchanged | |
5.Mining legacy | Medium | Increased | Decrease | |
Commentary: Our acquisitions risk continues to carry a high risk score, reflecting the competitive market for strategic land sites. We expect that, over the short-term, more acquisition opportunities will come to market and the competition for sites will ease somewhat. Planning risk has increased, but we expect headwinds to subside as the political climate settles down and are confident that the sustainability of our projects, and our intensive engagement and collaborative approach with local authorities and communities, will mitigate this risk over the medium to long-term. Our mining legacy risk has increased temporarily whilst we undertake planned filling works on certain legacy mine shafts over coming months. This will return to a low risk during the year once those works are completed and as more surplus legacy sites are sold. | ||||
Examples of mitigation taken during 2019 • Acquisitions, planning and project managers have been appointed in each of the regions. Our Central Services team has also been established to support the regional teams and promote consistency on planning and engineering workstreams. • We have established a "Harworth Common Platform" which promotes a consistent approach to key workstreams including acquisitions, planning promotion and project delivery. | Examples of mitigation measures planned in 2020 • Local political advisers will be appointed to assess planning risk on high-risk acquisition sites and advise on local political stakeholder engagement. • Further work to be undertaken on standard financial model for acquisition and planning promotion agreement appraisals. • Shaft filling works. | |||
RISK CATEGORY: LEGAL AND REGULATORY OVERALL RISK PROFILE: LOW | ||||
| Current risk profile (after mitigation) | Change in risk rating during 2019 | Forecast change in risk rating during 2020 | |
6.Health and safety incident | Medium | Unchanged | Unchanged | |
7.Other regulatory breach | Low | Unchanged | Unchanged | |
8.Legislative and regulatory changes | Low | Unchanged | Unchanged | |
Commentary: There have been no material movements to the risks in this category. | ||||
Examples of mitigation measures taken during 2019 • Group-wide Health and Safety Day together with ongoing programme of online training. • Advice taken on impact of IR35. | Examples of mitigation measures planned in 2020 • Appointment of wider panel of health and safety consultants. • Implementation of IR35 measures. • Compliance with payment practices reporting. | |||
RISK CATEGORY: PEOPLE OVERALL RISK PROFILE: MEDIUM | ||||
| Current risk profile (after mitigation) | Change in risk rating during 2019 | Forecast change in risk rating during 2020 | |
9.Resourcing | Medium | Unchanged | Unchanged | |
10.Succession | Medium | Unchanged | Unchanged | |
11.Employee engagement | Low | New Risk | Unchanged | |
12.Communication and connectivity | Medium | Unchanged | Unchanged | |
13.Diversity | Medium | Unchanged | Unchanged | |
14.Culture | Medium | Unchanged | Unchanged | |
Commentary: Employee engagement is a new risk and, as such, has no previous risk score. Its low risk score reflects the extensive work undertaken on this during 2019. All other risks remain largely unchanged and no material changes in risk profile are expected over the coming year. This reflects that, whilst our people are critical to the success of the business and, as such, people risks carry significant residual risk, we maintain a focus on resourcing, succession planning, engagement and communication, to mitigate them. Our diversity risk score remains unchanged, acknowledging that, whilst progress has been made on gender diversity at a senior level, we are keen to improve diversity in its widest sense and at all levels of the business and this remains a long-term challenge. | ||||
Examples of mitigation measures taken during 2019 • Recruitment into regional and central support teams. • Comprehensive succession, talent and development management planning exercise undertaken. • Significant work undertaken on employee engagement - see the Strategic Report at pages 56 and 57 of the Annual Report 2019. • Talent Development Programme established - see Strategic Report at page 94 of the Annual Report 2019. • "Harworth Values" established.
| Examples of mitigation measures planned in 2020 • Further recruitment: Head of Income, Business Space resource, central support resources. • Maintenance, review of effectiveness, and evolution of existing measures, particularly around engagement and internal communications. • Harworth Intranet to be launched. • More PLC Board and Management Board meetings to be held in regional offices. • Integration of "Harworth Values" into recruitment, appraisals, remuneration and recognition and internal communications. | |||
RISK CATEGORY: FINANCE OVERALL RISK PROFILE: MEDIUM | ||||
| Current risk profile (after mitigation) | Change in risk rating during 2019 | Forecast change in risk rating during 2020 | |
15.Availability of capital | High | Unchanged | Unchanged | |
16.Income | High | Unchanged | Unchanged | |
17.Cashflow | Medium | Unchanged | Unchanged | |
18.Valuations | Medium | Unchanged | Unchanged | |
19.Insurance | Medium | Increased | Increase | |
Commentary: A higher risk associated with capital availability reflects that, whilst we have low gearing and headroom in our Revolving Credit Facility, securing additional capital to support our growth remains a priority. We anticipate that public funding opportunities will increase through regional devolution and investment and that, overall, capital risk will reduce over the medium-term. Our income risk score remains high, acknowledging that the lifespan of our coal fines sales has shortened and that our strategy remains to increase the breadth and resilience of our income portfolio. We forecast a reduction in this risk over the medium-term, reflecting the ongoing implementation of our strategy. Our insurance risk has increased due to challenging market conditions resulting in material increases in insurance premiums, albeit a large proportion of these increases are passed onto tenants. This was mitigated at the 2020 renewal by a rate stability agreement with our incumbent insurer but will be a challenge for the 2021 renewal.
| ||||
Examples of mitigation measures taken during 2019 • Acquisition of investment properties in Brighouse, Glossop and Sherburn. • External review of year-end valuations process (see Audit Committee report at page 99 of Annual Report 2019). • Reorganisation of Finance team. | Examples of mitigation measures planned in 2020 • Appointment of Partnerships Manager to support public funding applications and, via new CFO, renewed engagement with Homes England. • Appointment of Head of Income and additional Business Space resource. • Additional business partner resource in the Finance team. • Investment property acquisitions and direct development where appropriate. • Review of insurance brokerage appointment and re-marketing of insurance programme. | |||
RISK CATEGORY: ENVIRONMENT OVERALL RISK PROFILE: LOW | ||||
| Current risk profile (after mitigation) | Change in risk rating during 2019 | Forecast change in risk rating during 2020 | |
20.Enviornmental incident | Medium | Unchanged | Unchanged | |
21.Harworths environmental impact | Low | New risk | Unchanged | |
22.Climate change | Low | New risk | Unchanged | |
Commentary: This is a new risk category. Our environmental incident risk, previously located in the Legal and Regulatory category, continues to carry a medium risk profile. Whilst the prospect is considered unlikely the impact of an incident could be material. As such, given the nature of the business, the profile of this risk is unlikely to reduce further. Environmental impact and climate change are two new risks and so have no previous risk scores. The current low risk scores reflect that, overall, Harworth's projects have a positive environmental impact, and we are rising to the challenge of "future-proofing" our projects in terms of energy usage and the move to zero carbon, and that the portfolio withstood the 2019 flooding in South Yorkshire without any material adverse impact. | ||||
Examples of mitigation measures taken during 2019 • Appointment of new environmental consultants. • ESOS audit undertaken. • See mitigation measures undertaken on bio-diversity in Politics section below. • Existing future proofing measures employed across our sites. | Examples of mitigation measures planned in 2020 • See mitigation measures planned on bio-diversity in Politics section below. • Better articulation of "the Harworth Way" in investor materials including greater analysis of environmental impact and sustainability of our projects. • Promotion of rail freight sites to reduce HGV use. • We will continue to operate a "re-use and re-cycle" approach to site remediation to minimise off site waste and importation of virgin materials. • We will continue to factor climate change guidance into remediation and infrastructure design. • Progression of partnership with energy suppliers in connection with on-site energy generation for residential developments. | |||
RISK CATEGORY: SOCIAL OVERALL RISK PROFILE: MEDIUM | ||||
| Current risk profile (after mitigation) | Change in risk rating during 2019 | Forecast change in risk rating during 2020 | |
23.Purpose | Medium | New risk | Unchanged | |
24.Sustainability | Medium | New risk | Unchanged | |
25.Communities and stakeholders | Medium | New risk | Unchanged | |
Commentary: This is a new category of risks, reflecting emerging risks and the Board's and Management Board's focus on business purpose, the sustainability of our projects, and the effectiveness of our engagement with local communities and our other key stakeholders. A medium risk in relation to purpose reflects the refinement of our business purpose but recognizes the need to embed a formal consideration of purpose into our assessment of projects. A medium sustainability risk reflects the challenge we face in "future- proofing" our projects in terms of site infrastructure, community amenities and transport links. A medium risk score for communities and stakeholders acknowledges the work we have undertaken on stakeholder mapping but also the need for community and stakeholder impact to become a more fundamental part of project appraisals. | ||||
Examples of mitigation measures taken during 2019 • 2019 Strategy Day: detailed discussion about purpose resulting in agreed statement. • Initial viability reviews undertaken on energy production initiatives for commercial developments. • Stakeholder mapping. | Examples of mitigation measures planned in 2020 • Embed consideration of purpose into assessment of projects. • Progress funding bids for innovative transport measures, health and wellbeing and 5G provision at new developments. • Better articulation of "the Harworth Way" in investor materials including greater analysis of societal impact and sustainability of our projects. • A pilot sustainable energy project at Kellingley. • Embed into Board project appraisals a consideration of community impact. | |||
RISK CATEGORY: GOVERNANCE OVERALL RISK PROFILE: MEDIUM | ||||
| Current risk profile (after mitigation) | Change in risk rating during 2019 | Forecast change in risk rating during 2020 | |
26.Investors | Medium | Unchanged | Unchanged | |
27.Internal controls and processes | Medium | Decreased | Unchanged | |
28.Joint ventures | Medium | New risk | Decrease | |
29.Cyber and information security | Medium | Decreased | Unchanged | |
30.Business continuity | Medium | New risk | Unchanged | |
Commentary: This is an expanded risk category. Our Investors risk remains unchanged reflecting that, whilst diversification of our share register and liquidity in our shares has improved during 2019, the evolution of our investor communications and engagement is a long-term objective. Our internal controls and cyber and information security risks have reduced following extensive work on the "Harworth Common Platform", data management and information security during 2019, albeit medium risk status remains for both given the potential impact of such risks. Our joint venture risk, previously located in the Delivery category, has been expanded from pure financial risk (insolvency of counterparties) to a wider governance risk. Business Continuity is a new risk with a medium risk profile, reflecting that Business Continuity and IT Incident Response Plans are now in place, have been tested but will remain subject to regular review and improvement. | ||||
Examples of mitigation measures taken during 2019 • New website launched, including improved investors section. • External review of year-end valuations process (see Audit Committee report at page 99 of the Annual Report 2019). • Establishment of "Harworth Common Platform". • Overhaul of data management. • Establishment of information security function and upgrades to IT network. • Desktop test of Business Continuity Plan and IT Incident Response Plan.
| Examples of mitigation measures planned in 2020 • Management and audit of "Harworth Common Platform" and new data management platform. • Evolution of Management Board and Board reporting. • Consistent approach to joint venture governance. | |||
RISK CATEGORY: MARKETS OVERALL RISK PROFILE: MEDIUM | ||||
| Current risk profile (after mitigation) | Change in risk rating during 2019 | Forecast change in risk rating during 2020 | |
31.Commercial property market | Medium | Decreased | Unchanged | |
32.Residential property market | Medium | Decreased | Unchanged | |
33.Energy market | Low | Unchanged | Unchanged | |
34.Adaptation of strategy | Medium | Unchanged | Unchanged | |
Commentary: We have seen a reduction in commercial and residential property market risks, reflecting the political certainty afforded by the General Election result, which has resulted in improved sentiment across both the commercial and residential property markets in the short-term. However, in the medium term, commercial markets are in some instances considered to be operating late-cycle and macro-economic uncertainty remains. The sale of our solar portfolio has removed our exposure to solar market fluctuations, but this is offset by the shorter lifespan of our coal fines market. Our strategy remains appropriate but is subject to regular review as macro-environment evolves and markets move. | ||||
Examples of mitigation measures taken during 2019 • Establishment of regional offices is already increasing opportunities and mitigating against market movements at a regional level. • Sale of solar portfolio. | Examples of mitigation measures planned in 2020 • Continue to broaden geographical search for acquisitions and footprint of projects. • Exploration of alternative residential tenures including analysis and, if viable, implementation of alternative affordable housing delivery model. | |||
RISK CATEGORY: POLITICS OVERALL RISK PROFILE: MEDIUM | ||||
| Current risk profile (after mitigation) | Change in risk rating during 2019 | Forecast change in risk rating during 2020 | |
35.Planning policy changes | Medium | Unchanged | Unchanged | |
36.Other policy changes | Medium | Unchanged | Unchanged | |
Commentary: Overall, political risks remain largely unchanged with increases and decreases in certain risks balancing each other out. There now appears to be limited prospect of a Land Value Capture tax in the short-term, but there remains a risk of alternative measures having a similar effect, such as higher s106 contributions, increased affordable housing requirements and bio-diversity off-setting. Government support for Help to Buy remains in place (with modifications) until 2023. The outcome of the General Election and subsequent Government announcements has raised the prospect of more regional investment in the North and Midlands including on HS2, and of an extension of devolution powers and monies. | ||||
Examples of mitigation measures taken during 2019 • We have engaged an external consultant to advise on the prospect of our establishing a bio-diversity "bank" and to undertake an appraisal of two pilot schemes. • Pro-active engagement with HS2 Limited on our two safeguarded sites
| Examples of mitigation measures planned in 2020 • Our Natural Resources division will examine the viability of the bio-diversity pilot schemes proposed by our external consultant. • Negotiations with HS2 Limited on our compensation claims. • Public funding applications to be made following announcement of Sheffield City Region devolution. | |||
IMPACT OF COVID-19 ON RISK PROFILE
The table below indicates where the profile of certain of our risks has been affected by COVID-19. Where the table appears to show no movement in risk status, there has been a small increase in risk score but within the same risk status banding.
| Risk status prior to COVID-19 | Risk status after COVID-19 |
RISK CATEGORY: DELIVERY | ||
1. Acquisitions | High | High |
2. Planning | High | High |
3. Project delivery | Medium | High |
4. Operational shortfalls | Medium | Medium |
RISK CATEGORY: PEOPLE | ||
9. Resourcing | Medium | High |
12. Communication and connectivity | Medium | High |
RISK CATEGORY: FINANCE | ||
15. Availability of capital | High | High |
16. Income | High | High |
17. Cashflow | Medium | High |
18. Valuation | Medium | High |
19. Insurance | Medium | Medium |
RISK CATEGORY: GOVERNANCE | ||
26. Investors | Medium | High |
27. Internal controls and processes | Medium | Medium |
29. Cyber and information security | Medium | Medium |
RISK CATEGORY: MARKETS | ||
31. Commercial property market | Medium | Very High |
32. Residential property market | Medium | Very High |
34. Adaptation of strategy | Medium | Medium |
RISK CATEGORY: POLITICS | ||
36. Other policy changes | Medium | Very High |
Commentary: • Politics. Government restrictions on movement are having a severe adverse effect across the business, reflected in the increased status of risks shown in the dashboard above and the narrative below. • Markets. A downturn in commercial and residential property markets is anticipated, albeit industrial and logistics market expected to weather and bounce back more quickly than other sectors. Pipeline sales, direct development and valuations likely to be adversely affected. • Delivery. Progression of pipeline acquisitions will be hampered by social distancing measures. However, as we emerge from COVID-19 restrictions, there are likely to be acquisition opportunities we can capitalise on, subject to the availability of capital. The progression of certain planning applications could be slowed given the practical challenges, and competing priorities, faced by planning authorities. Planning delays are likely to mean value gain deferrals. Progression of earthworks and infrastructure works, together with direct development, more difficult due to Government restrictions on movement, albeit infrastructure works on six major development sites have continued and activity is picking up as restrictions start to ease. This could affect the timing of completion of sales and receipts. • Finance. The availability of capital will be constrained over the coming months and, as a result, cashflow will come under pressure, largely due to deferrals of sales and scheduled payments and reduction in Business Space and Natural Resources rent receipts. However, we have continued to complete some sales (including a material sale for £13m) and our senior lenders have agreed to extend our RCF by £30m to £130m, which mitigates this risk to a large extent. It is too early to know what the impact will be on valuations but they may include "material uncertainty" clauses. A small increase in our insurance risk reflects that insurer appetite may be adversely affected for our 2021 renewal. • People. All employees have adapted to remote working, but capacity and productivity has been adversely affected by working from home policy and closure of schools. We have not yet seen widespread illness across the business but contingency plans are in place should this occur. Maintaining internal communication and connectivity is more challenging in a working from home environment. • Governance. Increase in investors risk reflects share price volatility and the wider stock market sentiment. Certain internal controls and processes have required adaptation to reflect home working but these processes remain robust and are operating effectively. There is a small increase in cyber and information security risk because the volume of cyber-attacks has increased globally. | ||
Examples of mitigation measures implemented: • Planned Business Continuity measures implemented to facilitate home working and maintain connectivity with internal colleagues and external stakeholders. • Cashflow is being monitored and managed very carefully including: reduction in purchase order approval levels; a temporary pause on uncommitted development expenditure; and close liaison between Finance team and all divisions on sales and expenditure, meaning real-time updates to cashflow forecasts. • Early engagement with the Group's principal lenders has led to extension of our revolving credit facility by £30m to £130m. • Proactive engagement with tenants, counterparties to completed, exchanged and pipeline sales, and contractors and consultants. • The Board is not recommending a final dividend for FYE'19 but will consider an additional interim dividend for FYE'20. • Changes implemented to certain finance processes (such as purchase order and invoice approvals) and to the process for executing legal documents to accommodate home working, albeit effective controls remain in place. • Contractual reviews undertaken by legal panel firms to inform engagement with counterparties. • Volume and frequency of inspections increased for sites that have been vacated, subject to compliance with Government restrictions. • Internal connectivity and communication has been maintained. Most divisions are hosting regular (daily or twice weekly) meetings via Microsoft Teams. Increased frequency of senior management meetings. Regular communications to all employees via email and business-wide update calls. • Workstreams prioritised and, where necessary, reallocated to accommodate staff childcare obligations. A plan has been worked up to ensure cover for members of the senior management team in the event of illness. • Mental health first-aiders are speaking to every employee on a one-to-one basis. • IT managed service provider and information security manager on high alert for cyber-attacks. Communications to employees to remain vigilant despite operational challenges. | ||
Cautionary statement and Directors' liability
The Annual Report 2019 contains certain forward-looking statements which, by their nature, involve risk, uncertainties and assumptions because they relate to future events and circumstances. Actual outcomes and results may differ materially from any outcomes or results expressed or implied by such forward looking statements. Any forward-looking statements made by or on behalf of the Group are made in good faith based on current expectations and beliefs and on the information available at the time the statement is made. No representation or warranty is given in relation to these forward-looking statements, including as to their completeness or accuracy or the basis on which they were prepared, and undue reliance should not be placed on them. The Group does not undertake to revise or update any forward-looking statement contained in the Annual Report 2019 to reflect any changes in its expectations with regard thereto or any new information or changes in events, conditions or circumstances on which any such statement is based, save as required by law and regulations. Nothing in the Annual Report 2019 should be construed as a profit forecast.
The Annual Report 2019 has been prepared for, and only for, the shareholders of the Company, as a body, and no other persons. Neither the Company nor the Directors accept or assume any liability to any person to whom the Annual Report 2019 is shown or into whose hands it may come except to the extent that such liability arises and may not be excluded under English law.
Annual General Meeting
The Notice of 2020 Annual General Meeting, to be held on Monday 29 June 2020 at 8.00a.m. at Unit 5A, Advanced Manufacturing Park, Brunel Way, Waverley, Rotherham S60 5WG, together with explanatory notes on the resolutions to be proposed is contained in a circular sent or made available to shareholders on 5 June 2020.
-ENDS-
Enquiries:
Harworth Group plc Chris Birch, General Counsel and Company Secretary |
T: 0114 349 3133 |
| E: cbirch@harworthgroup.com |
About Harworth Group
Listed on the premium segment of the main market, Harworth Group plc (LSE: HWG) invests to transform land and property into sustainable places where people want to live and work. Harworth owns and manages a portfolio of approximately 18,000 acres of land on around 100 sites located throughout the North of England and Midlands (harworthgroup.com).