Harworth Gp Regulatory News (HWG)

17 March 2020: 7am

LEI 213800R8JSSGK2KPFG21

HARWORTH GROUP PLC

UNAUDITED PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2019

SOLID PERFORMANCE, COMPELLING STRATEGY AND STRONG MARKET FUNDAMENTALS PROVIDES BASIS FOR SUSTAINED LONG-TERM GROWTH

Harworth Group plc ("Harworth" or the "Group"), a leading regenerator of land and property for development and investment, announces its preliminary results for the year ended 31 December 2019.

Harworth's Chief Executive, Owen Michaelson, said:

"We have delivered a total return of 7.8% in 2019, demonstrating the ability of our team to create value growth from the active asset management of our underlying land and property portfolio alongside profits from rental income and sales. This includes the results from the regeneration of sites through the sale of engineered land to housebuilders and commercial occupiers, and the continued expansion and resilience of our income portfolio.

"Five years on from Harworth's listing on the Main Market, the Group has continued to apply its role as master developer successfully on a range of complex sites across the Midlands and North to create places where people want to live and work. It has remained true to the underlying principles of sustainable development whilst also delivering strong long-term financial returns.

"Our move to a regional operating model(2) has begun to yield firm results in 2019, with good progress made across all of our core regions in extending our future land pipeline through a mixture of freehold acquisitions, options and planning promotion agreements. Our overall pipeline now stands at 29,596 residential plots (9,554 plots already consented) and 24.4m sq. ft of commercial space (9.1m sq. ft already consented), its highest point since re-listing, providing the foundations for the continued long-term growth of the business.

"Notwithstanding this progress, the returns from large-scale sites like ours are not linear and this has been seen in the lower total return in 2019, primarily as a result of the planning headwinds at a local authority level that we reported through our interim results. Also as previously indicated, whilst we continue to target long-term market-leading returns, our current trading plans suggest that our historic site portfolio will deliver lower returns in the near term whilst our new sites move through the development cycle, exacerbated by the continued local political headwinds which will take some time to unwind.

"The residential and industrial property markets in the North of England and Midlands remain solid and should benefit from the delivery of government policy and spending commitments made within the Chancellor's recent budget announcement. These strong underlying market fundamentals complement our ability to create sustainable communities where people want to live and work which remains central to our core focus. We will continue to accelerate the delivery of our major sites alongside the ongoing growth of the portfolio through sustainable acquisition opportunities. This will drive returns whilst supporting the regeneration of our regions through the delivery of new homes and jobs, helping to support the economic rebalancing of the UK."

CONTINUING TO DELIVER LONG-TERM MARKET-LEADING RETURNS

SOLID OPERATIONAL DELIVERY AND STRATEGIC EXECUTION ACROSS THE BUSINESS

Footnotes: 

(1) Harworth discloses both statutory and alternative performance measures. A full description and reconciliation of the alternative performance measures is set out in Note 2 to the financial information

(2) Within the Capital Growth segment

-ENDS-

Enquiries:

Results Presentation

Harworth will be holding a presentation for analysts and investors starting at 09.30am today at the offices of FTI Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD. If you would like to attend, please contact Alex King on 020 3727 1000, or email harworth@fticonsulting.com. 

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

https://webcasting.brrmedia.co.uk/broadcast/5e381334b9710760e29257a0

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

ABOUT HARWORTH GROUP PLC

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).

While the financial information included in this announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards as adopted by the EU ("EU IFRSs"), this announcement does not itself contain sufficient information to comply with EU IFRSs. The Group expects to publish full financial statements that comply with EU IFRSs by the end of April 2020.

This announcement 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 this announcement 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 this announcement should be construed as a profit forecast.

This announcement contains inside information. The person responsible for making this notification is Chris Birch, General Counsel and Company Secretary.

Chair of the Board's Message

Our purpose

A hallmark of investor thinking over recent years has been a view that the businesses in which they are invested should be about more than just the creation of shareholder value. This is obviously important, and the reason institutions and retail investors invest, but it should be what results from something more fundamental - the purpose of the business. This is the contribution it makes to its stakeholders, both those directly involved with it, such as its employees, customers, suppliers, and shareholders, but also those indirectly benefitting from its activities - communities where it is based or operates, and society more generally, through the impact it has on the environment and the contribution it makes to meeting wider society's goals and challenges.

Harworth's business lends itself to being very clear about our purpose: "Harworth invests to transform land and property into sustainable places where people want to live and work". It is why people join our business, why we are given a fair hearing when we discuss development proposals with communities and their representatives, and increasingly why funds that specialise in ESG investing are actively investing in our business.

We have tried to make each word count! Transformation is our business. We are expert in taking brownfield sites that have outlived their industrial purpose and transforming them into sustainable new commercial and residential development. There is no better example than the Ironbridge power station, now being flattened and transformed into a residential development of up to 1,000 new homes with supporting uses including a retirement village, a school, allotments and sports pitches. Similarly, we have transformed a disused sewage works on the outskirts of Leeds next to the M1, Gateway 45 Leeds, into a site for commercial development that is delivering hundreds of new skilled jobs.

Elsewhere we recognise the desire of local authorities to ensure that, where they seek to meet the country's urgent need for more homes, this does not outstrip the capacity of communities to support the new residents with the local infrastructure they need, including schools, healthcare facilities and shops. Rather, therefore, than pepper-potting new houses within existing settlements, planners are looking to develop new sustainable edge-of-town schemes with this core supporting infrastructure and services. This is where Harworth's capacity to master plan comes into its own and why we talk of places where people want to live and work. We aim to meet not only people's needs but also their aspirations, this in turn being why our sites are attractive to our house-builder customers.

As I travel around our regions, in Yorkshire & Central where Harworth originated, and in our other core regions in the North West and Midlands, I meet people in Harworth who are passionately committed to our purpose and what they are themselves able to create, delivering against objectives that extend far beyond just an increase in the value of the business. When potential residential acquisitions are presented to the Board they talk of the new communities that will be built progressively on our sites, in many cases requiring us to look up to 10-15 years ahead to visualise its transformation - this is what we mean by "placemaking". In turn we have to think about what society will need and expect in that timeframe. What energy provision will it need? What transport arrangements will by then be the norm? This is what sustainability is all about.

Our strategy

One of the roles of a chair is to understand the thinking and aspirations of the Group's major shareholders. There is a well-worn adage that a business should have shareholders that fit its strategy, not try to fit its strategy to its shareholders! From my interaction with shareholders, I believe Harworth is fortunate in having shareholders who support our strategic priorities, recognising that this is a business that plans and delivers across the long-term, albeit that in the short-term market conditions may be influenced by economic and political uncertainties and, as has been the case during the past year, planning decisions may be delayed by political change at either a local or national level. Whatever happens in the short-term, a good development will remain a good development because it will become a place where people want to live and work. What is important is not whether a decision is made this side or the other side of the end of the year, allowing a value gain to be realised in the accounts for the year in question, but whether the characteristics of the site and its local market are going to deliver a sustainable vision, with a required return, over the life of the project. If those returns are realised then value will be created.

As one significant shareholder said to me recently, "Big is not necessarily beautiful". What is important is to buy the right sites on the right terms and market conditions have been such that we have been selective in what we have bought over the past year, albeit recognising that the realisation of value in subsequent years is dependent upon what we buy today. That said, we have been pleased to identify both a number of new commercial and residential developments, where we can achieve medium-term capital growth and also new income-producing sites, bought on attractive yields and with asset management opportunities, in pursuit of our strategy of covering our overheads, financing costs and taxation from operating activities with resilient income. Having been selective we start the new financial year with appropriate financial firepower to take advantage of good opportunities both to create capital growth and to generate further income as sources such as our coal fines business erode with the closure of coal-fired power stations.

Our aim is to deliver long term market-leading returns across the cycle: where those will turn out in absolute terms will be determined by where we are in the cycle. That objective does, however, make us very discerning as to where we apply capital. Our UK Coal heritage means that much of our asset base was inherited rather than selected and we must, therefore, choose where we commit development capital and where we believe another owner may be better suited to the site given their own return profile. Hence our decision to divest of our industrial and agricultural portfolio in the North-East. We will continue to apply this strategy across all our sites aiming consistently to maximise the value-creating potential of our portfolio. During 2019 we sold 1,919 acres of non-core land for £10.4m.

2019 The Year

The results of any particular year are determined by where the portfolio is across its development life. As Harworth specialises in large, complex sites, development gains will tend to be lumpy and our scale does not afford us the averaging benefit inherent in a large portfolio. It is also only relatively recently that Harworth has had the means to acquire new sites beyond those it inherited from UK Coal. The realisation of value gains on many of those new sites will, therefore, lie in the future.

As a result, our EPRA NNNAV growth per share at 7.2% was lower than it has been in recent years which themselves benefitted from value gains created in the early stage development of major sites, such as Waverley, as they first gained planning consent and then realised uplifted site values as place-making was achieved progressively. As we commented at the half year, there are also a number of sites where changes in the make-up of councils following spring local elections led to changes in planning policy. In turn these changes delayed planning decisions that we would otherwise have expected to fall into 2019 and be reflected in the year-end valuation of those sites. As commented above, whilst to a degree frustrating, this does not change the appropriateness of our plans for these sites which reflect our commitment to sustainability and only come forward after close consultation with a range of local stakeholders.

We remain financially strong with year-end overall gearing at 12.1% and £24.0m of undrawn facilities, well-placed to take advantage of opportunities that may present themselves now last year's General Election is conclusively behind us.

Our Board

This morning we announced that our Chief Executive, Owen Michaelson, had advised the Board of his intention to retire at the end of 2020 after 10 years leading the business. In large part the Harworth Group owes its existence to Owen. Having originally taken over the management of UK Coal's real estate activities when these were restructured as Harworth Estates in 2010, he seized the regeneration potential of the former collieries, and in doing so created a business that is now a leader in its field, transforming former industrial sites and urban edge extensions into new homes and employment areas across the breadth of the North of England and the Midlands. When the company took over the Harworth Estates business and relisted in 2015, he became Chief Executive. Throughout the last 10 years, under Owen's leadership, Harworth has remained true to its purpose, to invest to transform land and property into sustainable places where people want to live and work, and in doing so has created material value for our shareholders. He will take with him our every good wish for life after Harworth and we will now begin the process to appoint a successor.

Last year, we said goodbye in June to Andrew Kirkman who had been our Finance Director since the beginning of 2016 and in October welcomed Kitty Patmore to take the role of Chief Financial Officer on our Board. Kitty brings a wealth of real estate expertise and capital markets knowledge and even in the few short months she has been with us has already made a material contribution to the business. I would also like to recognise the excellent work of Jenny Cutler, now our Director of Finance, who took over the finance director's remit in the interim until Kitty joined us.

As I reported in my last statement as Chair, we also last year welcomed Ruth Cooke and Angela Bromfield to the Board and said goodbye to Tony Donnelly who retired after nine years as part of the Board team that steered the business from being the property arm of UK Coal to a self-determining premium listed specialist in large complex sites and regeneration. This year we will also be losing another member of that team. Lisa Clement, our Senior Independent Director and Chair of our Remuneration Committee, will also have served nine years and will retire in the autumn. Her role as Senior Independent Director will be assumed by Andrew Cunningham who chairs our Audit Committee, having been a member of our Board since April 2016, whilst Angela Bromfield will become Chair of the Remuneration Committee and has also replaced Lisa on our Nomination Committee. We are currently recruiting a further independent non-executive director whom I would expect to join the Board around the time of our AGM in May.

Thank you

In my personal perspective on Harworth in last year's annual report, my first statement as Chair, I commented that Harworth, more than most companies, is all about its people. It is they who create value through their ability to identify the right sites, negotiate acquisitions and disposals, develop masterplans, project manage developments, deliver on asset management plans and steer us successfully through critical activities such as demolition and remediation. My greatest thanks are, therefore, to them for what they have achieved in 2019 which in turn lays the foundation for what the Group will achieve in coming years. My thanks also to our executive for their leadership of the business, to my colleagues on the Board for their wise counsel, to our shareholders for their support and commitment, to our customers who recognise the quality of the places we create, and to all our other stakeholders who provide input and guidance into our projects.

Alastair Lyons

Chair

17 March 2020

Chief Executive Statement

Good operational performance despite headwinds

I am pleased to report that the Harworth team continues to deliver on the key activities and milestones which underpin the long-term performance of the business, delivering another solid set of results. We focus on making money in the right way - blending the delivery of great places to live and work through the application of placemaking principles whilst also targeting long-term market-leading financial returns. I am fiercely proud of how our team thoughtfully plans the regeneration of land and property and sensitively delivers it within prudent financial controls. 

The Group has delivered a total return in 2019 of 7.8% (2018: 13.3%) with EPRA NNNAV of £500.5m at the year-end (2018: £466.5m). The in-year result is impressive when considered against the backdrop of the unprecedented political headwinds we faced in 2019 and I am pleased with the way the business adapted to the challenge. The primary impact was the change of political control of some local authorities following elections in May which delayed the determination of a handful of our live planning applications. I am confident that our swift work to amend planning strategies in these cases has prevented any long-term value erosion in each individual project. Ultimately the nature of our business means that we must always take a long-term view and our acquisitions, planning and delivery strategy reflects this discipline.

Despite these headwinds, we had a strong year of sales that demonstrated continued demand for our developments and we made significant progress in growing our portfolio, both in our pipeline of new strategic land sites and increased recurring income from investment property. We continue to drive value gains from our underlying land portfolio in the North of England and the Midlands through four principal management actions: preparing and securing planning consents on major schemes; preparing land for redevelopment; delivering sales for future residential and commercial end uses; and actively asset managing our underlying land and property portfolio. 

Growing and refining our land and property portfolio

The rollout of our regional operating model in 2019 has been the primary driver of the increased number of acquisition opportunities that we are appraising and ultimately securing. We made eleven strategic land and four income acquisitions over the year across each of our regions for a total consideration of £43.5m alongside the signing of PPAs and land option agreements with third parties.

Capital Growth

Freehold acquisitions and PPAs combined added a further 8,847 residential plots and 1.6m sq. ft of potential commercial space to our pipeline during the year. This activity meant that, as at 31 December 2019, we held 9,554 consented residential plots in the portfolio alongside 9.1m sq. ft of consented employment space. In addition, our identified planning pipeline now stands at 20,042 residential plots and 15.3m sq. ft of future commercial space, the highest quantum since re-listing in 2015. This helps to support the ongoing economic development of the North of England and the Midlands which underpins our business purpose.

Income-producing property

We have continued to deliver our strategy of growing our recurring income base through selective acquisitions with asset management potential. Three Business Space properties were purchased in the year located at Etherow (Glossop), Brighouse in West Yorkshire and Sherburn-in-Elmet in North Yorkshire for a combined consideration of £20.5m (including costs), reflecting a blended net initial yield of 8.4%. Further information on these transactions is provided within the 'Growing our Income Portfolio' section below.

Disposal of non-core assets

In line with our stated intent to focus management attention on those of our Capital Growth and income producing sites with the highest value-adding potential in our three core regions, a total of 1,918 acres of non-core land, predominantly our agricultural landholdings and sites in the North East, were sold during the year for a combined consideration of £10.4m.

Preparing land to create new communities as master developer

A significant proportion of our planning work in 2019 was spent working with stakeholders on developing and agreeing key development principles prior to the submission of major planning applications including for the former Ironbridge power station in Shropshire. Our approach to master development - working collaboratively with stakeholders and reflecting on a site's location and assets prior to creating and delivering sustainable development - puts us in good stead as we continue to manage local political risk. Planning applications for over 1.3m sq. ft of commercial space and 1,918 residential plots were submitted in the year, meaning that a total of over 4.1m sq. ft of employment space and over 3,000 residential plots were in the planning system awaiting determination at year-end.

Despite local planning headwinds, we were still able to achieve some planning success during the year. This included receiving outline consent for our 53-acre Bardon Hill development for 356k sq. ft of new commercial space. The site, within two miles of Junction 22 of the M1, now has a consent for an indicative layout of five industrial units and is already in an established commercial location, with nearby occupiers including Amazon, Eddie Stobart and DHL.

Further progress was made in preparing sites at the early stages of development ahead of future sale or build out. The most eye-catching of these milestones was the successful demolition of Ironbridge power station's four former cooling towers as part of ongoing site works. Early infrastructure works have also been completed at our Hugglescote Grange (Coalville, Leicestershire) and Moss Nook (St Helens) residential sites ahead of the planned sale of their respective first phases over the next 18 months, ultimately unlocking the delivery of nearly 3,000 consented residential plots across both developments.

Delivering serviced plots for new homes and commercial spaces

The disposal of serviced land remains a central part of our strategy, using our well-developed technical skills to de-risk our sites for our housebuilder customers as well as utilising our placemaking skills to enhance the attraction of our developments for new home owners to support eventual house sales. Over the course of 2019, we completed sales across six major development sites of 102 acres of serviced land to accommodate 1,379 residential plots for a total consideration of £61.0m. We have now worked with fifteen national and regional housebuilders across our sites.

On the commercial side, The Aire Valley Land LLP, our 50/50 joint venture with Evans Property Group, agreed three separate sales at Gateway 45 Leeds that generated a total consideration of £30.3m (£15.2m Harworth share). This included the sale of 10 acres of fully serviced commercial land to the University of Leeds to build out their Institute for High Speed Rail and Systems Integration, building on our existing links with major academic institutions, in turn supporting inward investment in the regions.

Growing our Income Portfolio

Our investment portfolio continues to make a significant contribution to profits and value gains and provides the recurring income needed to cover our overhead costs. As we aim to drive value growth by the application of proven asset management techniques and local market knowledge, we remain committed to 'churning' the portfolio. This continued throughout 2019, with the purchase of high yielding investments with asset management potential alongside the sale of more mature income assets where our business plans developed at the time of acquisition have been executed.

Business Space

In 2019, our Business Space team continued to improve the Group's existing income portfolio whilst also providing high quality and flexible accommodation for businesses of all sizes. 21 new and renewed lettings were agreed across our existing Business Space portfolio. 

A notable pre-let was agreed with the UK Atomic Energy Authority for a new 20-year term at a local headline rent for a 22,300 sq. ft bespoke fusion technology research facility at the AMP, further cementing the AMP's position at the heart of high-added-value employment in the UK. 

The Business Space team added to our annualised income by over £1.7m through the acquisition of three commercial properties in 2019 with a total purchase price of £20.5m (including costs) providing active asset management opportunities to drive further value and income growth.

This combined activity meant that Business Space revenue in 2019 was £13.3m (2018: £11.9m). The WAULT across the portfolio stands at 13.5 years (2018: 14.1 years), whilst the vacancy rate is now 6.2% (2018: 14.4%).

Natural Resources and Operations

Our revenues for the year were also bolstered by the work of our Natural Resources team. A total of 120.2MW (2018: 154.2MW) of low carbon energy capacity remains installed on our land, providing a long-term income stream from a combination of ground rents and electricity royalties. The reduction in the year was due to the freehold sale of our Solar Portfolio in December for £5.0m, representing a net initial yield of 4.6%, as part of our ongoing income churn strategy. The team's focus continues to be on growing future income from environmental technologies including low carbon energy, recycling, and mineral processing.

At the same time, revenue from our coal fine sales reduced faster than expected during the year with the accelerated closure of all coal fired power stations across the UK (2019: £4.0m, 2018: £7.7m).

Regeneration at our Heart

When we transform former industrial sites such as collieries or power stations into places where new communities can flourish, we are actively supporting economic growth in our regions and helping to meet some of society's key challenges. As master developer, we have been shaping, creating and delivering sustainable developments for over a decade and I am very proud of the placemaking we have achieved at a local level. We are in the process of formalising our own sustainability framework which will reflect the way in which we approach our projects to continue to deliver economic, environmental and social value for the future supporting 'good growth' across the North of England and the Midlands.

Our people are the core of the business

I would like to thank the hard work and dedication of our teams over 2019. This was an important year in developing our staffing capacity as we completed our transition to a regional operating model and I am very pleased that all key regional appointments have now been made, ultimately supporting the long-term growth of the business. The appointment of Ian Ball as Chief Operating Officer on 1 May, alongside Kitty Patmore who joined the business as our new Chief Financial Officer on 1 October, further enhances the strength of our executive leadership team to plan and execute our strategy of sustained long-term profitable growth. We have recently added a new Head of Income to the management team to drive the active churn and investment strategy within this side of our business.

Outlook

As previously set out, whilst we continue to target long-term market-leading returns, our current trading plans indicate that in the near term, returns will be lower as our more advanced development sites begin to reach maturity whilst we wait for the strategic land sites acquired since 2015 to contribute fully to our long-term performance. Our identified pipeline in the pre-planning and planning stages provides good line of sight on future developments and will be brought forward alongside the delivery of our current sites and the continued growth of our portfolio. 

Notwithstanding the planning headwinds highlighted at the half year, our continuing view is that the outlook for the "beds and sheds" markets in our regions remains healthy and that our sites persist in their popularity. The stability of the regional markets in which we operate is underpinned by comparatively low prices, a continuing lack of consented and engineered land for housing, and the need for new commercial space where good quality stock is scarce. Market evidence in the first three months of 2020 suggests that the impasse that hung over the industrial property market in the latter months of 2019 has subsided for some time at least, and the sector is forecast to continue to outperform both the office and the retail sectors in the medium-term.

We are also cautiously optimistic about proposed Government support aimed at helping to rebalance the UK economy through additional investment in skills, infrastructure, rail connectivity and in sectors such as advanced manufacturing. Its ongoing commitment to regional devolution to provide powers and funding at local level is also welcomed, further strengthened by the Budget announcement made in early March.

Maintaining strong financial discipline in the appraisal of projects and the deployment of capital is essential to drive returns whilst supporting the ongoing regeneration of our regions through the delivery of new homes and jobs. Our focus on purchasing major brownfield and potential urban extension sites in sustainable locations whilst also securing options on land which complements existing Harworth developments derives directly from our purpose. Our strong technical track record has set us up well to bid successfully on further complex sites and income-producing properties with clear asset management opportunities and long-term strategic land potential.

2020 has begun well, with 39% of this year's budgeted sales already agreed, although we still expect performance as usual to be second-half weighted. Whilst coronavirus has not had an impact on the business thus far, we remain diligent in monitoring its potential effect on all parts of the business and we have been taking appropriate steps within the business to mitigate any disruption.

With healthy demand for our land and property seen to date following the December election, our business remains well positioned for long-term growth to capitalise on the opportunities created by the renewed political focus on the Midlands and the North of England. There is a lot still to be done, both for this year and future years, before I retire at the end of the year.

Owen Michaelson

Chief Executive

17 March 2020

Financial Review

Overview and key measures

In 2019, Harworth continued to deliver a solid financial performance across its core business segments generating a total return of 7.8% (2018: 13.3%). Over the year, net asset value rose to £463.8m (2018: £441.9m) with EPRA NNNAV rising to £500.5m (2018: £466.5m) representing a per share growth of 7.2% to 155.6p (2018: 145.2p).

We find that as our property portfolio includes development properties and joint venture arrangements, Alternative Performance Measures ("APMs") can provide valuable insight into our business alongside the statutory amounts. In particular, revaluation gains on development properties are not recognised in the Statutory Income Statement and Balance Sheet. The APMs set out to show measures which include movements in development property revaluations, assets held for sale, overages and joint ventures, and also the profitability of the business excluding value gains. We believe that these APMs assist in providing stakeholders with additional useful disclosure on the underlying trends, performance and position of the Group.

Our key APMs are:

· Total return - The movement in EPRA NNNAV plus dividends per share paid in the year expressed as a percentage of opening EPRA NNNAV per share

· EPRA NNNAV per share growth - The movement in EPRA NNNAV per share expressed as a percentage of opening EPRA NNNAV per share

· Value gains - This is the realised profits from the sales of properties and unrealised profits from property value movements including joint ventures and the mark to market movement on development properties, assets held for sale and overages

· Profit excluding value gains - Property net rental, royalty and fee income, net of running costs of the business which represents the underlying profitability of the business not reliant on property value gains or profits from the sales of development properties

· Net loan to portfolio value - Group debt net of cash held expressed as a percentage of portfolio value

A full description of all non-statutory measures and reconciliations between all the statutory and non-statutory measures are given in Note 2 to the Financial Information.

Harworth discloses some APMs which are European Public Real Estate Association ("EPRA") measures as these are a set of standard disclosures for the property industry and thus aid comparability for our real estate investors and analysts. In October 2019, EPRA announced changes to the Net Asset Value measurement to reflect the evolution of the listed real estate sector. These changes are applicable from accounting periods beginning on or after 1 January 2020 and will be reported in full in the 2020 Interim results.

In 2019, the Group achieved value gains of £44.0m (2018: £51.3m). This is the result of attaining milestones in remediating land, place-making, new lettings and site specific opportunities, albeit that progress across the portfolio was tempered by the impact of planning headwinds primarily resulting from the May 2019 local elections.

The Group's profit excluding value gains was £3.5m (2018: £9.8m). The reduction compared to the prior year is predominantly due to one significant promote fee in 2018 of £6.8m and a reduction in coal fine income in 2019 as a result of the accelerated wind down of coal fired power stations.

Basic earnings per share for the year were 7.9p (2018: 10.6p) reflecting lower promote fees, a reduction in income from coal fines and higher tax charges in the year. The total dividend per share for 2019 has been increased by 10% to 1.0p (2018: 0.9p) which is consistent with previous years reflecting our progressive dividend policy and our confidence in the long-term potential of the business.

The closing net loan to portfolio value was 12.1% (2018: 12.3%), at the lower end of our net LTV target range.

Income Statement

Notes: (1) There are some minor differences on some totals due to roundings

Revenues in 2019 were £85.5m (2018: £78.1m), split between revenue from Income Generation of £23.5m (2018: £25.6m) and revenue from Capital Growth of £62.0m (2018: £52.5m). The disposal of development properties was 36% higher in 2019 reflecting sales across multiple residential and commercial sites including Swadlincote, Waverley, Riverdale Park and Thoresby.

Income Generation (Business Space, Natural Resources and Operations) revenue mainly comprises property rental and royalty income together with some sales of coal fines. Revenue in 2019 was £23.5m (2018: £25.6m) and is lower as a result of reduced sales of coal fines as the United Kingdom reduces its reliance on coal fired power leading to an accelerated wind down of the associated power stations and the recognition of a £6.8m promote fee for lettings at Logistics North in 2018 . The core of our recurring income is from rental and royalty income from Business Space and Natural Resources which increased from £17.9m to £19.5m in the year.

Cost of sales comprises the inventory cost of development property sales and the operating costs of the Income Generation business. Cost of sales increased to £57.5m (2018: £53.6m) of which £49.5m related to the inventory cost of development property sales (2018: £43.1m).

Joint venture profits of £8.4m (2018: £3.8m) were largely a result of the sales from the Gateway 45 Leeds site. Value gains on a non-statutory basis are set out below.

Non-statutory value gains(1)

Value gains are made up of profit on sales, revaluation gains on investment properties (including joint ventures), and revaluation gains on development properties, assets held for sale and overages:

Notes: (1) A full description and reconciliation of the alternative performance measures in the above table is included in note 2 to the financial information

Profit on sales of £8.5m (2018: £3.2m) reflect sales above book value particularly in Natural Resources (solar portfolio sale) and across major development sites.

Revaluation gains of £35.5m (2018: £48.1m) reflect our master-developer skills in planning new developments and the delivery of active asset management across our sites. Whilst Harworth has a significant pipeline of both consented and "in the planning pipeline" residential and commercial plots, timing and receipt of planning approvals is inherently uncertain. Hence, in 2019, the revaluation gains were tempered by planning headwinds across a small number of sites, as reflected earlier in the statement. The principal revaluation gains across the divisions reflected the following this year:

· Major Developments - profitable sales, and development progress, across the majority of our sites (notably Hugglescote Grange (Coalville), Bardon Hill, Prince of Wales, Pheasant Hill Park, Riverdale & Waverley) and a few small reductions on a couple of sites due to cost plan increases;

· Strategic Land - uplifts at Ironbridge, Rockingham and Wingates as land is prepared with some reductions on sites as a result of planning delays;

· Business Space - good letting progress achieved across our portfolio;

· Natural Resources - valuation uplifts from surface water management plus an increase from progress on an agreed sale for an Energy from Waste plant; and

· Agricultural Land - uplifts as a result of market sales and some minor reductions across some assets.

The net realisable value provision as at 31 December 2019 was £6.9m (2018: £7.6m) across nine development properties with provisions increased or decreased as a result of the latest business plan and market conditions.

Property categorisation

Until sites receive planning permission, our view is that the land is held for a currently undetermined future use and should therefore be held as investment property. We categorise properties and land that have received planning permission as development properties. Property categorisation is reviewed as at 30 June and 31 December each year.

As at 31 December 2019, the balance sheet value of all development sites was £202.1m and the valuation (based on valuations by BNP Paribas and Savills plc) was £242.2m, reflecting the £40.1m cumulative uplift in the value since they were classified as development properties. In order to highlight the market value of development properties, and overages, and to be consistent with our investment properties, we are using EPRA NNNAV, which includes the market value of development properties, assets held for sale and overages less notional deferred tax, as our primary net assets metric.

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

Cash and sales

The Group made property sales(1) of £79.9m in 2019 (2018: £93.2m) achieving profits on sales of £8.5m (2018: £3.2m). The sales were split between those of residential serviced plots at £58.1m (2018: £33.6m), commercial development at £4.4m (2018: £30.9m) and other, mainly mature, income-generating sites and agricultural land including those in the North East, at £17.4m (2018: £28.7m).

Cash proceeds from sales were £58.0m (2018: £78.9m) as shown in the table below:

Notes: (1) A full description and reconciliation of the alternative performance measures is included in note 2 to the financial information

As at 31 December 2019, gross deferred consideration carried forward was £41.1m (2018: £19.2m). This reflects the maturity and scale of sites now delivering higher sales of residential serviced plots to housebuilders over the course of the year.

Exceptional items

There were no exceptional items in 2019 (2018: £0.6m for the costs of the step up to premium listing).

Tax

The income statement charge for taxation for the year was £4.8m (2018: £1.3m credit) which comprised a current year tax charge of £1.8m (2018: £0.8m credit) and a deferred tax charge of £3.0m (2018: £0.5m credit).

The current tax charge resulted from profits from the sale of development properties and assets held for sale as well as rental income in the year together with the resubmission of prior year tax computations and returns which, following a review, resulted in a £0.5m credit.

The movement in deferred tax comprised the following:

· the increase in valuation of investment properties (both currently held and disposed of in the year) giving rise to £5.7m of deferred tax charge;

· a £0.2m credit due to the recognition of tax losses following disposals in the year;

· the utilisation of tax losses against current year profits resulting in a deferred tax charge of £1.3m;

· recognition of tax losses as a result of increased certainty as to their availability resulted in a deferred tax credit of £2.2m;

· following the submission of the tax computations and returns for prior periods, a reduction in tax attributes utilised, resulting in a deferred tax credit of £0.8m; and

· a deferred tax credit of £0.8m in relation to other temporary differences.

At 31 December 2019, the Group had deferred tax liabilities of £15.6m (2018: £12.3m) which largely related to unrealised gains on investment properties and recognised deferred tax assets of £7.8m (2018: £7.3m). The net deferred tax liability was £7.8m (2018: £5.0m).Basic earnings per share and Dividends

Basic earnings per share fell to 7.9p (2018: 10.6p) reflecting lower promote fees, a reduction in income from coal fines and higher tax charges in the year.

An interim dividend of 0.3p per share (2018 interim: 0.3p) equivalent to £1.0m (2018 interim: £0.9m) for the 2019 financial year was paid on 18 October 2019. A final dividend for the 2019 financial year of 0.7p per share (2018 final: 0.6p) is proposed. The total dividend for the year of 1.0p per share (2018: 0.9p) equivalent to £3.2m (2018: £2.9m) is in line with our progressive dividend policy and represents another 10% increase on the prior year. The final dividend will be paid on 29 May 2020 to shareholders on the register at the close of business on 1 May 2020. The ex-dividend date will be 30 April 2020.

Net asset value

(1) Properties include investment properties, development properties, assets held for sale, occupied properties and investment in joint ventures

(2) A full description and reconciliation of the alternative performance measures in the above table is included in note 2 to the financial information

EPRA NNNAV is £500.5m which includes the mark to market on the value of the development properties, assets held for sale and overages. The total portfolio value as at 31 December 2019 was £585.3m, an increase of £59.6m over 31 December 2018 (£525.7m).

Three new joint ventures have been entered into over the year and this together with the increase in profits from the existing joint ventures has resulted in investments in joint ventures increasing to £33.1m (2018: £25.8m). With the property sales in the joint venture at Gateway 45 during 2019, the joint venture investment is now split £23.1m in Capital Growth and £9.9m in Income Generation (2018: £1.1m Capital Growth and £24.7m Income Generation).

Trade and other receivables include deferred consideration on sales as set out above. At year end, there was £41.1m (2018: £19.2m) gross deferred consideration with £12.9m (2018: £nil) due after more than one year.

Financing strategy

As has been consistently stated, Harworth's financing strategy is to be prudently geared, with the Income Generation portfolio providing a recurring income source to service debt facilities. We believe this prudence gives the Group a number of advantages:

Harworth's financing strategy continues to target a net loan-to-value of 10% to 15% and entails the Group seeking as a principle to maintain its cash flows in balance by funding infrastructure spend and investment in acquisitions through disposal proceeds.

Debt Facilities

The Group benefits from a £100m Revolving Credit Facility ("RCF") with RBS and Santander, expiring in February 2023. The Group also uses, as part of our funding, infrastructure financing, provided by public bodies to promote the development of major sites.

The Group had borrowings and loans of £82.7m at 31 December 2019 (2018: £73.0m), being the RCF of £75.8m (2018: £58.7m) and infrastructure loans of £6.9m (2018: £14.3m). The Group's cash and cash equivalents at 31 December 2019 were £11.8m (2018: £8.6m). The resulting net debt was £70.9m (2018: £64.4m). The weighted average cost of debt, using 31 December 2019 balances and rates, was 3.1% with a 0.8% non-utilisation fee on undrawn RCF amounts (2018: 3.3% with a 0.8% non-utilisation fee on undrawn RCF amounts).

The Group's hedging strategy is to have roughly half its debt at a fixed rate and half exposed to floating rates. The Group currently has a £45m fixed rate interest swap at an all-in cost of 1.2% (including fees) on top of the existing margin paid under the RCF. The interest rate swap is hedge accounted with any unrealised movements going through reserves to the extent that the hedge is effective.

As at 31 December 2019, the Group's gross loan to portfolio value was 14.1% (2018: 13.9%) and net loan to portfolio value was 12.1% (2018: 12.3%). If gearing is just assessed against the value of the core income portfolio, this equates to a gross loan to core income portfolio value of 41.2% (2018: 38.9%) and a net loan to core income portfolio value of 35.3% (2018: 34.3%). Undrawn facilities under the RCF were £24.0m putting the Group in a good position entering 2020.

Kitty Patmore

Chief Financial Officer

17 March 2020

Principal risks and uncertainties

The Board has ultimate responsibility for determining the risk appetite of the Group, for monitoring the risk profile of the business and ensuring that measures and controls are in place to manage risk effectively.

The Board recognises that not all risks can be eliminated, or sufficiently mitigated at an acceptable cost, and that there are some risks which, given the nature of Harworth's business and the track record and experience of the team, it is prepared to accept. The Board also recognises that the Group's insurance programme plays an important part in reducing the impact of certain inherent risks which are neither acceptable nor capable of removal.

Harworth's framework for monitoring and managing risk continued to evolve and mature during 2019. The Group Risk Register ("GRR") remains the principal tool used by the Board and Management Board to monitor the risk profile of the business and the measures in place at an operational level for mitigating and managing risk. It forms part of a wider framework of measures pursuant to which risks are monitored and managed throughout the year. These measures include:

· an annual review of the Board's risk appetite;

· formal reviews of the GRR undertaken by both the Management Board and Board bi-annually;

· an annual review of internal controls and processes by the Audit Committee;

· an annual review of whistleblowing reports by the Board;

· quarterly health and safety meetings chaired by the Chief Executive Officer and attended by representatives of all divisions;

· consultation by all members of the Management Board with their teams about existing and new operational risks, and the effectiveness of risk management measures; and

· a site risk register maintained by our Estates, Environment and Safety team by which we continuously monitor the risk status of each of our sites. Sites are inspected throughout the year and material changes in risk status are reported to both the Management Board and Board on a monthly basis.

The GRR maps the risk profile of the business. It is a dynamic document and has continued to evolve during 2019. The GRR currently identifies risks grouped into nine categories: Markets; Delivery; Politics; Finance; People; Environment; Social; Governance; and Legal and Regulatory. Risks are scored on a "heat map", from "very low" to "very high", according to residual risk status (after accounting for mitigation measures already in place) and materiality. Categories and risks remain subject to regular review. The Board's objective is to maintain, as far as possible, an alignment between its risk appetite and the risk profile of the business.

During 2019, Harworth operated against a backdrop of heightened economic and political instability surrounding the UK's exit from the EU. 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 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 EU 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 macro-economic uncertainty remains and is likely to increase as we approach the end of the transition period agreed with the EU.

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 work measures introduced 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.

These risks are presented at a time of increased economic and market uncertainty with the backdrop of coronavirus across the world. The above risk categories have been reviewed and it is recognised that as this backdrop evolves, there could be a short-term increase across a number of these categories as a result, including People with respect to resourcing, Finance (cashflow and income risks) and our Markets risks. Based on the current situation and combined with the mitigation measures that are in place to reduce the impact on the Group alongside our Business Continuity Plans, the risk ratings are considered to remain appropriate.

The 2019 Annual Report and Financial Statements will include a detailed analysis of the Group's principal risks and uncertainties, reflecting the latest review of the GRR by the Management Board and Board. This analysis will: (A) show the current status of each risk, after mitigation; (B) identify movements in risk during 2019 and those forecast in 2020; (C) give examples of the mitigation measures undertaken in 2019 and those planned for 2020; and (D) indicate how each risk category could impact our strategic priorities. 

Unaudited Consolidated Income Statement

for the year ended 31 December 2019

Unaudited Consolidated Statement of Comprehensive Incomefor the year ended 31 December 2019

Unaudited Consolidated Balance Sheet

as at 31 December 2019

[1]The fair value and retained earnings reserves have been restated to reallocate fair value gains and losses between these reserves. See note 16 for further detailUnaudited Consolidated Statement of Changes in Equity

for the year ended 31 December 2019

[1]The fair value and retained earnings reserves have been restated to reallocate fair value gains and losses between these reserves. See note 16 for further detail.Unaudited Statement of Cash Flows

for the year ended 31 December 2019

Notes to the financial information

for the year ended 31 December 2019

1. Accounting policies

The principal accounting policies adopted in the preparation of these unaudited consolidated financial information are set out below. These policies have been consistently applied to all of the years presented, unless otherwise stated.

General information

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

Basis of preparation

The preliminary results for the Company and its subsidiaries (the "Group") for the year ended 31 December 2019 are unaudited. The financial information set out in this announcement does not constitute the Group's financial statements for the year ended 31 December 2019 or 31 December 2018 as defined by Section 434 of the Companies Act 2006.

This financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union, 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 2018 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 fair value reserve and retained earnings have been restated at 1 January 2018 and 31 December 2018, however, there is no overall impact to net assets at these dates. Details of this restatement can be found in note 16.

The statutory accounts for the year ended 31 December 2019 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.

Other than the below the same accounting policies and methods of computation are followed as in the latest published audited accounts for the year ended 31 December 2018, which are available on the Group's website at harworthgroup.com.

Changes in accounting policy and disclosures

(a) New standards, amendments and interpretations

The new standards, amendments or interpretations effective for the first time for the financial year beginning on or after 1 January 2019 and have a significant impact on the Group are:

· 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. On transition to IFRS 16 on 1 January 2019 the Group has recognised right to use assets of £0.1m and a corresponding lease liability of £0.1m.

(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 on or after 1 January 2020 and have not been applied in preparing this preliminary financial information. None of these are expected to have a significant effect on the financial statements of the Group.

Estimates and judgements

The significant judgements made by management in applying the Group`s accounting policies and the key sources of estimation were the same as those that applied to the latest published audited accounts for the year ended 31 December 2018. There have been no significant changes for the year ended 31 December 2019.

2. Alternative Performance Measures ("APMs")

Introduction

The Group has applied the December 2019 European Securities and Markets Authority ("ESMA") guidance on APMs and the November 2017 Financial Reporting Council ("FRC") corporate thematic review of APMs in these results. An APM is a financial measure of historical or future financial performance, position or cash flows of the Group which is not a measure defined or specified in IFRS.

Overview of our use of APMs

The Directors believe that APMs assist in providing additional useful information on the underlying trends, performance and position of the Group. APMs assist our stakeholder users of the accounts, particularly equity and debt investors, through the comparability of information. APMs are used by the Directors and management, both internally and externally, for performance analysis, strategic planning, reporting and incentive-setting purposes.

APMs are not defined by IFRS and therefore may not be directly comparable with other companies' APMs, including peers in the real estate industry. APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measurements.

The derivations of our APMs and their purpose

The primary differences between IFRS statutory amounts and the APMs that we use are as follows:

1. Capturing all sources of value creation - Under IFRS, the revaluation movement in development properties and assets held for sale which are held in inventory, is not included in the balance sheet. Also, overages are not recognised in the balance sheet until they are highly probable. These movements, which are verified by BNP Paribas and Savills (independent external property surveyors), are included within our APMs;

2. Recategorising income statement amounts - Under IFRS, the grouping of amounts, particularly within gross profit and other gains, do not clearly allow Harworth to demonstrate the value creation through its business model. In particular, the statutory grouping does not distinguish value gains (being realised profits from the sales of properties and unrealised profits from property value movements) from the ongoing profitability of the business which is less susceptible to movements in the property cycle. Finally, the Group includes profits from joint ventures within our APMs as our joint ventures conduct similar operations to Harworth, albeit in different ownership structures; and

3. Comparability with industry peers - Harworth discloses some APMs which are European Public Real Estate Association ("EPRA") measures as these are a set of standard disclosures for the property industry and thus aid comparability for our stakeholder users.

Our key APMs

The key APMs that the Group focuses on are as follows:

· Total return - The movement in EPRA NNNAV plus dividends per share paid in the year expressed as a percentage of opening EPRA NNNAV per share

· EPRA NNNAV per share growth - The movement in EPRA NNNAV per share expressed as a percentage of opening EPRA NNNAV per share

· Value gains - This is the realised profits from the sales of properties and unrealised profits from property value movements including joint ventures and the mark to market movement on development properties, assets held for sale and overages

· Profit excluding value gains - Property net rental, royalty and fee income, net of running costs of the business which represents the underlying profitability of the business not reliant on property value gains or profits from the sales of development properties

· Net loan to portfolio value - Group debt net of cash held expressed as a percentage of portfolio value

Changes to APMs

There have been no changes to the Group's APMs in the year with the same APMs being defined, calculated and used on a consistent basis.

Reconciliation of APMs

Set out below is a reconciliation of the APMs used in these results to the statutory measures.

1) Reconciliation to statutory measures

2) Reconciliation to EPRA measures

3. Segment information

Segmental Income Statement 31 December 2019 (Unaudited)

Segmental Balance Sheet 31 December 2019 (Unaudited)

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

Segmental Income Statement 31 December 2018 (Audited)