Harworth Gp Regulatory News (HWG)

HARWORTH GROUP PLC

UNAUDITED INTERIM RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2018

 SIGNIFICANT SITE ACQUISITIONS, ROBUST LAND SALES AND A FAVOURABLE REGIONAL MARKET BACKDROP UNDERPIN STRONG FIRST HALF

Harworth Group plc ("Harworth" or the "Group"), a leading regenerator of land and property for development and investment, announces its interim results for the half year ended 30 June 2018.

Harworth's Chief Executive, Owen Michaelson, said:

"We have had another strong first half across all of our key business areas. Significant progress has been made in replenishing our strategic land portfolio and improving the breadth and depth of our income, with £50m worth of acquisitions in the first half. Demand for consented land in sought after locations has also resulted in over 90% of our forecast full year residential and commercial land sales being now either completed, exchanged or in legals. Our performance remains weighted towards the second half such that we anticipate delivering full-year results in line with the Board's expectations.

"The Group's strategy continues to evolve to support Harworth's ongoing growth, highlighted by our moves towards:

"The economic potential of the Northern and Midlands regions in which we operate remains attractive and the long-term market fundamentals supporting residential and commercial development are favourable."

SOUND FINANCIAL METRICS REFLECTING GOOD OPERATIONAL PERFORMANCE

CONTINUED OPERATIONAL PROGRESS DRIVING HARWORTH'S BUSINESS MODEL

CONTINUED EVOLUTION OF STRATEGY SUPPORTING GROWTH AMBITIONS

Footnotes:

(1) In 2017, following the March 2017 equity capital raise to accelerate the acquisition of strategic land for development and the further evolution of our strategy, £229.1m of property was categorised from investment to development. Balance sheet measures include NAV and European Public Real Estate Association ("EPRA") NNNAV. This is now our primary metric and includes the mark to market value of development properties (£8.7m) less notional deferred tax on development properties (£1.5m). EPRA NAV is EPRA NNNAV excluding deferred tax (£6.7m), notional deferred tax on development properties (£1.5m), and the mark to market movement on financial instruments (£0.0m)

(2) Value gains comprise profits on sale of: investment properties (£0.2m); development properties (£0.0m); overages (£0.0m); and assets held for sale (£0.0m), plus the increase in the fair value of investment properties (£6.7m), joint ventures (£2.3m) and overages (£0.0m) less the impairment of development properties (£1.5m)

(3) Value gains (including development properties) comprises value gains (£7.7m) plus the increase in the fair market value of development properties (£2.9m)

(4) Profit excluding value gains is operating profit before exceptional items plus joint ventures (£8.9m) less value gains (£7.7m) and pension costs (£0.0m)

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

-ENDS-

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ABOUT HARWORTH GROUP PLC

Listed on the main market, Harworth Group plc (LSE: HWG) is a leading regenerator of land and property for development and investment which owns, develops and manages a portfolio of approximately 21,500 acres of land on around 140 sites located throughout the Midlands and the North of England. The Group specialises in the regeneration of former coalfield sites and other brownfield land into new residential developments and employment areas. (http://www.harworthgroup.com)

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.

Operational Review

OVERVIEW

I am pleased to report on another robust set of interim results, reflecting a strong start to the year by both of our Capital Growth and Income Generation teams and underpinned by the favourable regional market backdrop. These results demonstrate the fundamental strength of our business model and the market leading team that we have assembled, with over 80% of first half value gains achieved as a result of active management rather than market movements. EPRA NNNAV per share as at 30 June 2018 was 130.8p (H1 2017: 118.0p), giving a total return over the last twelve months of 11.5% (H1 2017: 15.0%).

In conjunction with our independent valuers, BNP Paribas, we have for the first time quantified the large site discount, being the difference between the valuation of the sites as at 31 December 2017 and expected future plot sales values. The large site discount for our largest ten residential-led Major Developments is £64.2m (20p per share), which is expected to unwind over time as sites are sold.

Particular success has been achieved in the first half in purchasing new land and property to replenish our strategic land portfolio and to improve the breadth and depth of our income, with five major and one minor acquisition(s) made for a total of £50 million. These acquisitions were funded in part by our Revolving Credit Facility with RBS and Santander, which was extended in April from £75 million to £100 million.

Reflecting the strategic evolution of the business and expected activities going forward, we are moving to a regional structure for our Capital Growth team, split into three core regions of the North West, the Midlands, and Yorkshire and Central. Each regional team will be responsible for the acquisition, promotion and development of sites in their region, building the local networks and relationships which are essential to our business. We believe that bringing together the acquisition and delivery functions and embedding each regional team in their respective local market will further increase the profile of the business and support our efforts to secure developable land and property to grow the business in a sustainable manner.

We anticipate full-year results in line with the Board's expectations. As in previous years, we expect performance to be second half weighted, as agreed sales formally complete and both infrastructure and development works are accelerated over the summer months, driving value gains prior to the year-end. 

CAPITAL GROWTH

We continue to make good progress in extracting optimum value from our underlying portfolio in the North of England and the Midlands through three principal management actions: securing planning consents on major schemes; preparing land for redevelopment; and delivering sales above book value for future residential and commercial development. All have underpinned the value gains made during the first half of the year.

During the period, outline planning consents were granted for 529 residential plots, with 444 of these from the Company's first two Planning Promotion Agreement successes in Nottinghamshire and Derbyshire. Live planning applications for a further 495 freehold residential plots, 380 partnership residential plots and 325k sq. ft of commercial space have also been submitted. Shortly after the period, we also submitted a planning application for 2m sq. ft of commercial space to expand Sherburn Rail Freight Terminal on the site of the former Gascoigne Wood Colliery in Selby, North Yorkshire. The majority of these applications are expected to be considered by the end of the year. Applications for a further 350 freehold residential plots and 2.065m sq. ft of commercial space are also due to be submitted by the end of 2018.

A central part of our strategy continues to be the careful planning of the disposal of consented land with the aim of achieving sales proceeds above book value and reinvesting the proceeds to accelerate the development of our sites. In the first half of the year we sold land for 339 residential plots at three major development sites to national and regional housebuilders. A number of deals were also completed after the period-end, including the sale of c.6 acres of land at the former Harworth Colliery to Jones Homes, part of our 1,500-home redevelopment of a site that has been brought forward with the support of a £4m loan from Homes England to accelerate infrastructure works.

These disposals contributed to the current position of over 90% of forecast sales for the year being completed, exchanged or agreed. We, therefore, anticipate that sales to housebuilders and commercial occupiers being agreed for completion during the rest of the year will lead to full year sales, including of income producing properties, being ahead of the Board's expectations. Progress has also been made in preparing land and agreeing terms for 2019 sales.

During the period we added three sites to our strategic land pipeline within our core regions: 

As at 30 June 2018, the total number of consented residential plots in the portfolio was 10,638 (H1 2017: 9,171 plots) alongside 12.13m sq. ft of consented employment space (H1 2017: 10.9m sq. ft). When combined with land within our identified planning pipeline, Harworth could potentially deliver a total of 20,416 residential plots (H1 2017: 19,705 plots) alongside 22.4m sq. ft of new commercial space (H1 2017: 18.3m sq. ft) for the regions in which we operate.

INCOME GENERATION

Our Income Generation team's focus on growing resilient, recurring income has continued in the first half of the year. Alongside asset managing our existing portfolio and directly developing new commercial space with a view to securing long term lease agreements, we have also begun to execute an active churn strategy of those more mature assets with limited further value or income growth potential, alongside the sale of low-yielding agricultural land and property with little development potential.  

The extension of our Revolving Credit Facility to £100m in April, coupled with the sale of Harworth Business Park in North Nottinghamshire at book value in the previous month, enabled the purchase in the first half of two income-producing sites that also have commercial development potential:

In July we completed the disposal of all five built commercial units, totalling 145,282 sq. ft, at Phase 1 of our Gateway 36 Business Park in Barnsley, South Yorkshire for £15.8m, reflecting a net initial yield of 4.76% and at a price above book value. The sale comprised four fully-let industrial/warehouse units and one drive-thru retail unit set across 8.5 acres, all developed and let by Harworth between 2015 and 2018. With little further growth potential, the proceeds will be reinvested into income-producing assets and direct development opportunities.

Lettings progress has also been strong during the period, with over 700,000 sq. ft of new and renewed letting activity to a variety of occupiers, at favourable rents. At the end of the half year, all our wholly owned direct developments in our Business Space portfolio were fully let, reflecting the underlying strength of the industrial property market across the North of England. 

By the end of February, we had secured an additional three new long-term lettings on our directly developed commercial space at three of our key sites in the North of England, setting new headline rents at each site and growing Harworth's recurring, high quality income base by over £0.6 million per annum: 

With the market for new-build commercial space remaining strong, driven by a lack of good quality existing supply, we took the decision to proceed with construction of the third phase of "R-evolution" at the Advanced Manufacturing Park, comprising 55,750 sq. ft of commercial space that practically completed at the end of August 2018. Reported interest through our retained agents is high and we anticipate announcing further lettings progress at this site this year.

Progress also continues to be made in letting the 'Multiply Logistics North' units that we are developing in joint venture with the Lancashire County Pension Fund at Logistics North. Three units totalling 169,500 sq. ft are practically complete, with Hardscape, the UK's premier landscaping material supplier, agreeing a 15-year lease in April for the 46,803 sq. ft Unit F2/A. This deal encouraged the joint venture to begin construction of the next phase of six units of between 20,322 sq. ft and 149,198 sq. ft due for practical completion in October. A 15-year pre-let at a rent of £7.25psf has also been agreed with rijo42, the UK's leading supplier of commercial coffee machines, coffee beans and coffee ingredients, for the 20,344 sq. ft Unit F2/E.

The team also continues to asset manage our existing 2.4m sq. ft Business Space portfolio to reduce voids and increase net income, whilst also deriving rental returns and royalties from energy generation, environmental technologies and the agricultural portfolio. Business Space revenue in H1 2018 was £5.3m (H1 2017: £4.0m). The weighted average unexpired lease term ("WAULT") across the portfolio now stands at 12.3 years (H1 2017: 7.5 years), whilst the vacancy rate has reduced to 11% (H1 2017: 17%).

Our revenues for the period were also bolstered by the work of our Natural Resources and Operations teams. A total of 159.7MW of energy capacity is installed on our land, providing a long-term income stream from a combination of ground rents and royalties. The team's focus remains on growing future income from alternative technologies and from maintaining income from our tipping operations, which has the added benefit of supporting site remediation. Our Operations team also successfully completed the demolitions of Thoresby Colliery in June and Kellingley Colliery in August, to support the ongoing clean-up and remediation of these sites.

MARKET OUTLOOK

The outlook for our target markets remains healthy. The stability of the regional markets in which we operate is secured by comparatively low prices, a continuing lack of consented and engineered land for housing, and the need for new commercial space where good quality stock is scarce. Growth forecasts for the 'beds and sheds' markets in our regions are favourable, with the Midlands and the North West forecast to have stronger house price growth than most other regions over the next five years and the industrial sector projected to continue to outperform both the retail and office market in the medium-term.

Our assessment is supported by the legislative and regulatory landscape. Government changes to the National Planning Policy Framework were as expected, with the presumption in favour of sustainable development remaining as before, and maximising the use of previously developed sites, being central to this presumption. Incentives to support home ownership such as Help-to-Buy remain in place, whilst the Government's continued commitment to regional devolution in the form of new powers and monies to regional mayors can continue to help unlock major new residential and commercial development through new infrastructure investment without having to resort to Central Government assistance.

Overall, trading remains in line with our expectations, with strong momentum continuing into the second half of 2018.

Owen Michaelson

Chief Executive Officer

11 September 2018

Financial Review

OVERVIEW 

Harworth continued its growth trajectory in the first six months of 2018 with strong progress across the business. Total return (NNNAV growth plus dividends) per share, which is our primary metric to show the performance of the business, over the last twelve months was 11.5% (H1 2017: 15.0%). The table below shows the movement in net asset value over the last twelve months:

Operating profit before exceptional items in H1 2018 was £6.6m (H1 2017: £8.8m). However, the statutory measure does not now fully capture the growth and profitability of the business as we are conducting some of our activities through joint ventures (H1 2018: £2.3m, H1 2017: £nil) and, as set out below, the revaluation gains on development properties post re-categorisation (H1 2018: £2.9m, H1 2017: £2.3m) fall outside of this measure. Taking account of both of these additional sources of value creation, operating profits which contributed to EPRA NNNAV rose by 5.7% to £11.8m (H1 2017: £11.1m) reflecting active management across our portfolio.

We consider that the operating profits which contributed to EPRA NNNAV growth of £11.8m (H1 2017: £11.1m) can best be understood as being composed of two elements:

Earnings per share, which fell by 68.2% to 1.71p (H1 2017: 5.37p), is distorted by the impact on the comparative of the beneficial deferred tax movements in 2017 which more than offset this year's improved operating performance. The 2018 interim dividend per share has been increased by 10% to 0.278p (H1 2017: 0.253p) creating a total return (NNNAV growth plus dividends) over the last twelve months of 11.5% (H1 2017: 15.0%) which is ahead of the 10% long-run average target.

Net debt at £100.2m or 19.0% net loan to value (FY 2017: £32.3m and 7.0%) reflects the level of first half acquisitions and the normal skewing of sales into the second half of the year. In February 2018, the Group extended the term of its £75.0m Revolving Credit Facility ("RCF") with RBS to February 2023, on the same terms except with an increase in margin from 200 to 210 basis points, and in April 2018 the RCF was increased to £100.0m with Santander joining the facility on the same terms.

PROPERTY CATEGORISATION

Until sites receive planning permission, our view is that the land is held for a currently undetermined future use and should thus be held as investment property. We categorise all properties/land that have received planning permission as development properties. As at 31 December 2017, the balance sheet value of all development sites was £210.5m and the market value of all development was £216.3m reflecting the £5.8m uplift in value of these sites, which is appropriately not reflected in the balance sheet. More detail is set out in the 2017 Annual Report and Accounts.

Property categorisation is reviewed as at 30 June and 31 December each year. Whilst in the first half of 2018 there was an amended planning permission granted at Swadlincote and our first two PPA successes, there were no sites which received first time planning permission and hence no sites were re-categorised. As at 30 June 2018, the balance sheet value of all development sites was £209.4m and the market value of all development was £218.1m reflecting the £8.7m uplift in value of these sites. In order to highlight the market value of development sites and be consistent with our investment properties, we are using EPRA NNNAV, which includes the market value of development properties, less notional deferred tax, as our primary metric. We will continue to report EPRA NAV which is EPRA NNNAV excluding deferred tax and the mark to market movement on financial instruments.

The table below sets out our top ten sites by value, which represent 48% of the total value of all our properties, split by their categorisation and showing the total acres, currently consented residential plots and commercial space:

OPERATING PROFIT

Revenues in the first half of 2018 were £21.9m (H1 2017: £22.9m), split between revenue from operations £10.9m (H1 2017: £14.4m) and revenue from the disposal of development properties £11.0m (H1 2017: £8.5m). Revenue from operations is split between: Income Generation £10.8m (H1 2017: £8.7m), where revenue mainly comprises rental and royalty income together with some sales of coal fines and salvage; and Capital Growth £0.1m (H1 2017: £5.7m). The increase in revenue from Income Generation reflected improved lettings and business space acquisitions made in 2017 and 2018. The reduction in revenue from Capital Growth reflected the amounts received in January 2017 relating to a promote fee on the letting of a 225,000 sq. ft unit to Whistl. The smaller 175,000 sq. ft unit continues to be actively marketed on behalf of M&G Real Estate.

Cost of sales comprises the inventory cost of development property sales and the operating costs for business space, natural resources, agricultural land and coal fines activities. Cost of sales increased to £16.3m (H1 2017: £15.0m) of which £12.6m related to the inventory cost of development property sales (H1 2017: £8.2m) whilst in H1 2017 there were £3.6m of costs related specifically to the Whistl promote fee.

Revenue and cost of sales include amounts relating to the M&G forward funding contract at Logistics North as Harworth acted as principal in this transaction. This principal relationship was as a result of Harworth having exposure to potential construction and credit risks as well as the potential rewards of managing the construction on time and to budget, and letting the buildings favourably and early.

Total overheads, which include the overhead costs of the Capital Growth and Income Generation segments and central costs, amounted to £5.9m (H1 2017: £6.6m) and were in line with expectations. The table below shows the results of the business split between Capital Growth, Income Generation and Central Overheads:

Notes: (1) The income statement has been re-presented to show loss on development property sales (£0.1m; H1 2017 £0.3m profit) within profit on disposals and development property impairment (£1.5m; H1 2017 £nil) within revaluation gains. This notional cost is the reversal of these amounts

(2) Profit excluding value gains comprises operating profit before exceptional items of £6.6m (H1 2017: £8.8m) less value gains of £5.3m (H1 2017: £7.8m). Value gains comprise profit/(loss) on disposals (being profits on sale of investment properties of £0.1m (H1 2017: £0.2m), assets held for sale of £nil (H1 2017: loss of £0.4m) and loss on sale of development properties of £0.1m (H1 2017: £0.3m profit)) plus increase in fair value of investment properties of £6.7m (H1 2017: £7.7m) less the development property impairment of £1.5m (H1 2017: £nil)

(3) This is the unrecognised mark to market gain since the properties were re-categorised into development properties

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

Set out below are value gains for the first six months of 2017 and 2018, which comprise profit on disposals, revaluation gains on investment properties (including joint ventures) and revaluation gains on development properties: 

The Group made sales of properties of £16.1m in the first six months of 2018 (H1 2017: £24.9m) achieving a profit on disposals of £0.1m (H1 2017: £0.1m). The sales were split between residential serviced plots of £11.8m (H1 2017: £11.7m), commercial development of £3.8m (H1 2017: £10.8m) and other, essentially agricultural land, of £0.5m (H1 2017: £2.4m). In addition, Harworth undertook direct development on its sites with a land value of £1.0m (H1 2017: £2.1m) and its share of property sales in its joint ventures was £0.4m (H1 2017: £0.3m).

Cash proceeds from sales were £15.4m (H1 2017: £14.8m) reflecting the sales in the period of £16.1m (H1 2017: £24.9m), less deferred consideration on sales in the period of £6.9m (H1 2017: £15.2m), plus deferred consideration received from sales in the prior year of £6.2m (H1 2017: £5.1m).

In the first half of 2018, the Group had revaluation gains of £10.4m (H1 2017: £10.0m) comprising:

All the revaluation gains for development properties relate to Major Developments sites.

We have split the revaluation gains of £10.4m (H1 2017: £10.0m) to reflect the contribution from active management of £8.7m (H1 2017: £8.4m) and market movements of £1.7m (H1 2017: £1.6m). Whilst there is a degree of subjectivity in this split, it highlights that the majority of the value gains continue to come from active management. In the first half of 2018, the principal revaluation gains across the divisions reflected the following:

EXCEPTIONAL ITEMS

Exceptional items in 2018 were a charge of £0.6m (H1 2017: credit £0.1m). The exceptional items in 2018 comprised the costs for the step-up from standard to premium listing (see below). Exceptional items in 2017 comprised three separate items which related to sundry receipts and costs from the Group's legacy activities.

TAXATION 

The income statement charge for taxation in the period was £1.1m (H1 2017: £8.9m credit) which comprised a deferred tax charge of £1.2m (H1 2017: £8.8m credit) and a current period tax credit of £0.1m (H1 2017: £0.1m). The movement in deferred tax in the period mainly relates to the increase in valuation of the investment properties.

The current tax credit relates to a claim for a land remediation relief tax credit in the period.

At 30 June 2018, the Group had deferred tax liabilities of £14.3m (H1 2017: £21.8m), which largely related to unrealised gains on investment properties and had recognised deferred tax assets of £7.6m (H1 2017: £15.7m). The gross deferred tax liabilities and assets have reduced as a result of sales of investment properties and the impact of the recategorisation of properties. The net deferred tax liability was £6.7m (H1 2017: £6.1m).

EARNINGS PER SHARE AND DIVIDENDS 

Earnings per share fell to 1.71p (H1 2017: 5.37p) and underlying earnings per share, excluding exceptional items, fell to 1.89p (H1 2017: 5.35p). These falls are distorted by the impact of the beneficial deferred tax movements in 2017 and as improved operating performance is not reflected in the statutory measure but only the EPRA measure.

An interim dividend of 0.278p per share (H1 2017: 0.253p) equivalent to £894k (H1 2017: £812k) will be paid. The 10% rise in the 2018 interim dividend creates a total return (NNNAV growth plus dividends) over the last twelve months of 11.5% (H1 2017: 15.0%) which is ahead of the 10% long-run average target. This dividend will be paid on 19 October 2018 to shareholders on the register at the close of business on 21 September 2018. The ex-dividend date will be 20 September 2018.

NET ASSETS

As set out below, EPRA NNNAV increased to £420.4m as at 30 June 2018 from £414.2m as at 31 December 2017 (£379.0m as at 30 June 2017). This increase was as a result of movements in the period, being operating profit before exceptionals plus share of profits of joint ventures and development property gains of £11.8m, less exceptional costs of £0.6m, interest costs of £1.7m, tax charges (including development properties notional deferred tax) of £1.6m and dividends of £1.8m plus other movements of £0.1m.

FINANCING STRATEGY AND FUNDING

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

Harworth's financing strategy also involves the Group seeking in principle to balance its cash flows by funding infrastructure spend and investment in acquisitions through disposal proceeds.

To reduce refinancing risk, on 13 February 2018 Harworth extended the term of its existing £75m Revolving Credit Facility ("RCF") with RBS by two years such that it now expires in February 2023. The extension was on substantially the same terms with the only notable change being a slight increase in margin to 210 basis points ("bps") over LIBOR (from 200bps). To increase financing flexibility, drive continued growth and maintain an efficient balance sheet, on 30 April 2018 Harworth increased the size of its RCF from £75m to £100m, with Santander joining the facility alongside RBS. RBS' commitment remains at £75m with Santander's initial commitment at £25m. There were no other material changes to the terms of the RCF. The Group also uses infrastructure funding, provided by public bodies to promote the development of major sites for employment and housing needs, as part of our funding. At 30 June 2018 the Group had six infrastructure facilities with all-in funding rates of between 2.5% and 3.9%.

The Group's hedging strategy is to have roughly half of its debt at a fixed rate and half of its debt exposed to floating rates. On 20 July 2018, Harworth cancelled its existing £30m fixed rate interest swap which was due to expire on 30 June 2020 (incurring total break costs of £18.5k) and in its place entered into a 4-year, £45m fixed rate interest swap at an all-in cost of 1.235% (including fees) on top of the existing 210bps margin paid under the RCF. The new swap was put in place to reflect increased levels of borrowing and to increase its term commensurate with the extension in the term of the RCF. The interest rate swap is hedge accounted with any unrealised movements going through reserves.

Reflecting the level of first half acquisitions and the normal skewing of sales into the second half of the year, as at 30 June 2018 Harworth's gross Loan To Value ("LTV") was 20.4% (FY 2017: 8.8%) and net LTV was 19.0% (FY 2017: 7.0%). However, as set out above, Capital Growth sites are deliberately not geared, so if gearing is just assessed against the value of Business Space and Natural Resources properties this equates to a gross LTV of 43.0% (FY 2017: 26.3%) and a net LTV of 39.9% (FY 2017: 20.8%).

The Group had borrowings and loans of £107.9m at 30 June 2018 (FY 2017: £40.6m), being the RBS RCF of £87.8m (FY 2017: £23.4m) and infrastructure loans of £20.1m (FY 2017: £17.2m). The Group's cash and cash equivalents at 30 June 2018 were £7.7m (FY 2017: £8.4m). The resulting net debt was £100.2m (FY 2017: £32.2m). The weighted average cost of debt, using 30 June 2018 balances and rates, was 2.9% with a 0.84% non-utilisation fee on undrawn RCF amounts (FY 2017: 3.0% with a 0.8% non-utilisation fee on undrawn RCF amounts). For the twelve months to 30 June 2018 Harworth's interest cover, as calculated by the RBS/Santander RCF covenant calculation, was 2.65x against a covenant test of 1.5x (FY 2017: 3.41x).

MARCH 2017 EQUITY PLACING

Details of the March 2017 equity placing which raised £27.1m (net of expenses) are set out in the 2017 Annual Report and Accounts.

PREMIUM LISTING AND FTSE INDEX INCLUSION

On 1 August 2018 Harworth confirmed that it had received approval from the UK Listing Authority of the transfer of the listing category of all of its ordinary shares from a standard listing (shares) to a premium listing (commercial company). Harworth believes that the Group has satisfied the conditions for UK FTSE indices inclusion and expects to join the indices on 24 September 2018.

Andrew Kirkman

Finance Director

11 September 2018

Principal risks and uncertainties

A detailed explanation of the principal risks and uncertainties affecting the Group, and the steps it takes to mitigate these risks, can be found on pages 36 to 43 of the Annual Report and Financial Statements for the year ended 31 December 2017, which is available at www.harworthgroup.com/investors.

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

Shortly after the first half of the year we opened two new regional offices. Our employees now operate from four offices: Rotherham (head office), Manchester, Birmingham and Leeds. As our geographical footprint expands and more of our employees base themselves in regional offices, we are taking steps to ensure that our internal controls and processes are maintained across each of our offices to ensure consistent and efficient working practices. This is reflected in a temporary increase in the risk status of our governance and internal controls risk category.

The overall risk status of all other risk categories remains unchanged.

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

Chris Birch

Group General Counsel and Company Secretary

11 September 2018

Consolidated income statement

The notes on pages 21 to 36 are an integral part of these condensed consolidated interim financial statements.

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

Consolidated statement of comprehensive income

Consolidated balance sheet

Consolidated statement of changes in shareholders' equity

Consolidated statement of cash flows

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2018 

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

General information

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

The Company is listed on the London Stock Exchange.

The condensed consolidated interim financial statements for the six months ended 30 June 2018 comprise the Company and its subsidiaries (together referred to as the "Group").

These condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The Group financial statements for the year ended 31 December 2017 were approved by the Board of Directors on 24 April 2018 and delivered to the Registrar of Companies. The report of the auditor on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

These condensed consolidated interim financial statements have not been audited.

The condensed consolidated interim financial statements for the period ended 30 June 2018 were approved by the Board on 10 September 2018.

Basis of preparation

These condensed consolidated interim financial statements for the six months ended 30 June 2018 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority (previously the Financial Services Authority) and with IAS 34 'Interim Financial Reporting' as adopted by the European Union ("EU"). The condensed consolidated interim financial statements should be read in conjunction with the Group financial statements for the year ended 31 December 2017 which have been prepared in accordance with IFRSs as adopted by the EU.

Going-concern basis

These condensed consolidated interim financial statements are prepared on the basis that the Group is a going concern. In forming its opinion as to going concern, the Board prepares cash flow forecasts based upon its assumptions with particular consideration to the key risks and uncertainties as summarised in the 'Managing risk' section of the 2017 annual report, as well as taking into account the funding strategy and available borrowing facilities disclosed on pages 13 and 14.

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

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

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

for the six months ended 30 June 2018 

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

Accounting policies

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

IFRS 15 'Revenue from Contracts with Customers'

The Group has adopted IFRS 15 from 1 January 2018. In accordance with the transition provisions in IFRS 15 the Group has adopted this new standard under the modified retrospective approach without the restatement of comparatives. IFRS 15 establishes a single comprehensive model to use in accounting for revenue arising from contracts with customers and has superseded the previous revenue recognition guidance which included IAS 18 Revenue, IAS 11 Construction Contracts and related Interpretations. The area of impact of the new standard on the Group is the recognition of revenues relating to the sale of development properties, particularly where revenue involves a deferred element. The Directors are satisfied that these changes did not result in any material impact on the Financial Statements on initial application.

The Revenue Recognition policy at 31 December 2017 has been replaced at 1 January 2018 with the following:

Revenue from Contracts with Customers: Revenue is measured based upon the consideration specified in a contract with a customer excluding amounts collected on behalf of third parties. The Group recognises revenue when it transfers control over a service or goods to a customer and it is highly probable that the recognition of consideration will not result in a significant reversal of revenue in a specific period. The Group will account for revenue over time and at a point in time depending upon the nature of the services or goods. Where material consideration is deferred over one year the Group will adjust the consideration for the time value of money.

IFRS 9 'Financial Instruments'

The Group has adopted IFRS 9 from 1 January 2018. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement and sets out requirements for recognising and measuring financial assets and liabilities. Under IFRS 9, a financial asset is classified as either: i) amortised cost; ii) fair value through other comprehensive income (FVTOCI); or iii) fair value through profit or loss (FVTPL). Applying this classification to the Group`s financial assets does not result in changes to the accounting or the Group`s policies. Trade receivables and cash continue to be recognised at amortised cost and certain other non-current financial assets continue to be recognised at FVTPL.

A number of other standards, amendments and interpretations became effective from 1 January 2018, which are disclosed on page 115 of the 2017 Annual Report and Financial Statements. Management do not believe that these new standards will have a material impact on the Group`s financial statements or accounting policies.

Estimates and judgements

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

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2017.

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2018 

2. Segment information

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 20182. Segment information (continued)

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

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2018

2. Segment information (continued)

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 20182. Segment information (continued)

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

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 20182. Segment information (continued)

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 20182. Segment information (continued)

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

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 20183. Exceptional items

Exceptional items in the six months ended 30 June 2017 and the financial year to 31 December 2017 related to the Group`s legacy activities.

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 20184. Finance (cost)/income