Harworth Group plc
Annual Report and Financial Statements 2016
www.harworthgroup.com
Contents STRATEGIC REPORT2 How we add value4 Our business model4 Delivering on our strategy5 Our markets6 Performance highlights and Key Performance Indicators7 Harworth at a glance8 Our year10 Chairman’s statement12 Chief Executive’s statement15 March 2017 equity placing16 Capital Growth in 2016 18 Capital Growth case study: Logistics North 20 Capital Growth case study: Prince of Wales22 Income Generation in 2016 24 Income Generation case study: Gateway 36 26 Income Generation case study: Renewables28 Acquisitions in 2016 30 Acquisitions case study: Gateway 45, Leeds 32 Acquisitions case study: Four Oaks business park34 Financial review40 How we manage our risks46 Harworth in the community48 Harworth and the environment50 Our people51 Health and safety CORPORATE GOVERNANCE54 Board of Directors and Company Secretary56 Chairman’s introduction58 Statement of Corporate Governance66 Directors’ Remuneration report80 Audit Committee report84 Nomination Committee report86 Directors’ report91 Statement of Directors’ responsibility FINANCIAL STATEMENTS92 Independent auditors’ report97 Consolidated income statement98 Consolidated statement of comprehensive income99 Balance sheets100 Consolidated statement of changes in equity101 Company statement of changes in equity102 Statements of cash flows103 Notes to the financial statements133 Company information and advisers134 Definitions and abbreviations usedFront cover: View of Waverley and the AMP, Summer 2016Before shot (our Vision): Logistics North, Spring 2014After shot (our Strategy): Logistics North, Autumn 2016Harworth Group plc Advantage House, Poplar Way, Rotherham, S60 5TRwww.harworthgroup.com BEFORE
To be the leading brownfield regeneration Company in the North of England
and the Midlands, delivering superior returns to Shareholders by providing
innovative and sustainable solutions to customers.
Our vision
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 1
NOW
Our strategy
To promote, develop and utilise our existing property portfolio, in addition to
replenishing our asset base through acquiring attractive investment opportunities,
to enhance net asset value and Shareholder returns. To maintain an appropriately
geared and well capitalised business which grows alongside its employees through
its established and improving Stakeholder relations to achieve outperformance.
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS 2 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
How we add value
The Harworth effect
Planning approval –
Our Strategic Land team has
secured planning consents for
over 9,500 residential plots and
10 million sq. ft of commercial
space since 2008, and a large
proportion of these consents
are taken forward as Harworth’s
Major Projects – often seen
as showcase projects for
brownfield redevelopment.
Masterplanning – Our core
skill as a business is to create
a strategic vision and plan
for all our sites which, when
brought to market with
planning permission for
residential or commercial
uses, creates value.
Acquisitions and land
assembly – We have a large
landbank of brownfield land
and former industrial assets
across the North of England
and the Midlands, owning over
22,000 acres of land across
140 sites. An important part
of our strategy is to replenish
our portfolio with acquisitions
to ensure the growth of
the business.
KEY
Acquisitions
Capital Growth
Income Generation
Acquisitions
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 3
Harworth operates its business through three separate but related segments.
CAPITAL GROWTH (pages 16 to 21)
focuses on maximising value by developing
the property portfolio and includes taking
sites through the development cycle from
masterplanning inception through to plot
sale and build out.
INCOME GENERATION (pages 22 to 27)
focuses on retaining and effectively
managing selected land and property
assets to generate a long-term
recurring income stream.
ACQUISITIONS (pages 28 to 33)
focuses on replenishing our land and
property portfolio with new sites in
order to assure the sustainable growth
of the business.
Plot sale and build out –
Once we have secured an end-
use for a site, we either sell
engineered land for residential
or commercial purposes, or
retain land to grow our
income portfolio – either
through leasing directly
developed commercial units
or renting out land.
Infrastructure
development – Prior to
securing a use on our
developments, we invest in and
develop infrastructure to create
serviced development plots.
Asset management –
Finally, we actively asset
manage our landholdings and
built commercial space to
deliver further value from the
portfolio. This includes being
a responsible landowner on
our Major Projects to ensure
individual developments come
forward in line with our vision
for the entire site. Asset
management also includes
repurposing our built space,
where appropriate, regearing
leases in order to grow our
income and managing our
Business Space and Natural
Resources sites to ensure
overheads are minimised and
tenants are satisfied.
Value engineering and
land remediation – Once
a use for a site has been iden-
tified, we apply value engineer-
ing principles through our
in-house development team
in remediating land and
creating development platforms
that match the proposed use.
Capital Growth
Income Generation
TIME
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS 4 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Our business model
Competitive advantage comes from our ability to add value through management
actions rather than reliance on market movements.
Diverse and
extensive
landbank
Masterplanning
and market
knowledge
Remediation
and restoration
specialists
Development/
Infrastructure
management
Capital Growth
Income Generation
Hold for
recurring income
Capital uplift/
NAV growth
Asset
management
Realisation of
Capital
Acquisitions
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Delivering on our strategy
OUR STRATEGY
OUR DELIVERY
Expanding our geographical reach
To expand progressively our geographical reach into all regions of the UK that have
strong and stable markets, with initial focus on our core regions and adjacent areas.
Maintaining sector diversity
To maintain our focus on residential, commercial and energy occupiers to underpin
our site-specific masterplans.
Building resilient income
To build and improve the quality of our recurring income, to cover overheads
(including strategic land promotion), interest and ultimately tax and dividends.
Targeted site selection and
commercial development via flexible
deal structures
To select sites carefully on a targeted basis, whilst delivering direct commercial
development and value add initiatives to optimise equity returns by employing a
range of deal structures.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 5
Our markets
COMMERCIAL
• Demand for well-connected industrial and logistics space remains strong,
driven by the rise of e-tailing, with agents continuing to highlight the sector as
the most attractive of the commercial real estate sectors.
• Supply of units continues to be squeezed across all regions, both under and
above 100,000 sq. ft driving take-up and rental growth.
North West
Yorkshire(1)
East Midlands
West
Midlands
LOW CARBON ENERGY
• Planned closure of Britain’s
eight remaining coal-fired
power stations by 2025
provides opportunities for
alternative energy
technologies to replace the
power generation capacity
lost when they cease
operation.
• Good interest remains for
multi-energy schemes to
address current grid
system imbalances,
including battery storage
technology.
RESIDENTIAL
• National housing under-supply is driving strong
demand for land across all regions, with housebuilders
reporting consistent sales of new homes.
• Presumption remains in favour of residential
development on brownfield land.
• Government stimulus measures for housing
purchasers remain in place, as confirmed in the
recent Housing White Paper.
(1) Comprises South Yorkshire, West Yorkshire and part of North Yorkshire.
Legend
Core regions
Target Adjacent Regions
Adjacent growth regions
Future growth regions
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS 6 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Performance highlights and
Key Performance Indicators
FINANCIAL HIGHLIGHTS(1)
Strong 2016 financial performance, with profits and Net Asset Value
(NAV) ahead of expectations
KEY PERFORMANCE INDICATORS
Net Asset Value
• NAV rose to £334.9m (115p per share), a 12.5% increase from 2015 NAV of £297.7m
(102p per share)
• EPRA NAV, which excludes deferred tax and the mark to market movement on
financial instruments, up to £350.1m (120p per share), a 13.3% increase from 2015
of £309.1m (106p per share)
• Operating profit of £45.8m(2) (2015: £37.9m), including value gains of £43.7m(3)
(2015: £36.3m) and profit from operations of £2.2m (2015: £1.5m)
• Earnings per share of 3.5p (2015: 3.1p), underlying earnings per share 13.7p
£360m
£345m
£330m
£315m
£300m
£285m
£270m
(2015: 12.2p)
£350.1m
£334.9m
£309.1m
£297.7m
2015
2016
NAV
EPRA NAV
STRATEGIC AND OPERATING HIGHLIGHTS
Clear strategic focus on residential and commercial markets in our
regions that continue to be supportive of growth. This reflects strong
fundamentals, being the shortage of housing supply and available
commercial space
• Six acquisitions (£31.6m) made including 50% purchase of the investment vehicle
that owns Gateway 45, Leeds’ largest live commercial development, and two
North West business parks that are both fully let; strengthening the income base
and growing our geographic presence
• £58.9m of disposals made to capture value increases on mature residential and
commercial sites and to increase our focus on sites with higher value add potential.
Portfolio now comprises the ownership or management of 22,000 acres on over
140 sites
Operational performance across all sectors was very good with
continuing momentum into 2017
• Residential sales progress was consistent through the year with 619 plots sold
across 6 sites. Planning consent was secured for 65 new plots and applications for
a further 1,200 plots were submitted. Across the portfolio, consents stand at over
9,500 plots with a further c.8,000 plots in the planning pipeline
• Commercial sales were made at a number of sites, the highlight being the sale of
43.7 acres at Logistics North to Lidl UK for £22.5m, realising a healthy profit above
book value. Across the portfolio, c.10.0m sq. ft is consented on our land(4), with
1.9m sq. ft of new applications submitted and a further 6.3m sq. ft to be submitted
• The income portfolio made further progress with new and renewed business park
lettings and further low carbon energy tenants, offsetting the previously flagged
trend of declining coal fines sales. Practical completion of direct developments in
Yorkshire and the M&G Real Estate forward-funded units at Logistics North also
provide a pipeline of further income producing opportunities into 2017
Value gains(3) and income generation
£45.0m
£42.5m
£40.0m
£37.5m
£35.0m
£32.5m
£30.0m
£43.7m
£2.2m
£1.5m
£36.3m
2015
Value gains
2016
Income generation
£2.5m
£2.0m
£1.5m
£1.0m
£0.5m
£0.0m
Net loan to value
40%
30%
20%
10%
0%
34.3%
31.3%
10.7%
9.9%
2015
2016
Net LTV - Business Space and Natural Resources properties
Net LTV
Disposals less development spend and
acquisitions
FINANCING
New debt financing secured to provide headroom and advance income
generating acquisitions
•
In August, existing RCF increased from £65m to £75m and extended by 1 year to 2021
• Portfolio gearing of 9.9% net loan to value (LTV) which equates to 31.3% set against
the Business Space and Natural Resources properties
£40m
£30m
£20m
£10m
£0m
£32.3m
£28.8m
£19.9m
£18.8m
2015
2016
Disposals less development spend
Acquisitions
(1) 2015 NAV and earnings per share figures assume 2016’s 1 for 10 share consolidation had occurred in 2015 and 2015 underlying figures assume that Harworth Estates Property Group Limited had been
owned from the start of the year.
(2) Operating profit before exceptional items and including share of profit of associate and joint ventures.
(3) Increase/(decrease) in fair value of investment properties and assets held for sale (2016: £33.5m), profit/(loss) on sale of investment properties and assets held for sale (£8.8m) together with other gains,
being overages (£0.7m), and share of profit of associate and joint ventures (£0.6m).
(4) Consented figures includes 2.64m sq. ft at Gateway 45 Leeds, our joint 50:50 venture with Evans Property Group.
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HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 7
Harworth at a glance
WE ARE ONE OF THE UK’S LARGEST REGENERATION COMPANIES
Over 22,000 acres
£400.3m
Investment property value(1)
WE DELIVER NEW HOMES, NEW COMMERCIAL SPACE AND NEW LOW
CARBON PROJECTS BY USING OUR BROWNFIELD LAND EXPERTISE
9,529
Consented housing plots
c.10m sq. ft
Consented employment space
144.5MW
Low carbon energy capacity
installed on our land
ONCE FULLY DEVELOPED, OUR DEVELOPMENTS COULD MAKE
A BIG DIFFERENCE TO THE NORTH OF ENGLAND AND THE MIDLANDS
Potential to deliver
17,000 homes
This could deliver up to
£2.8bn
in Gross Value Added
to UK plc
Potential to deliver
22m sq. ft
employment space
This could deliver up to
58,000
new jobs
Potential to deliver
300MW
of capacity to the
National Grid
This could power over
100,000
Family homes
WE WORK SAFELY AND RESPONSIBLY IN MAKING THIS DIFFERENCE
51
staff
CO2
22%
Reduction in CO2 emissions
from activities in 2016
(1) Includes investment properties, assets held for sale, joint ventures, overages and owner occupied properties.
0
RIDDOR reports filed by
Harworth in 2016
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS
8 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Our year
Construction of Helix at Gateway 36,
Spring 2016
Gateway 45 Leeds (Temple Green), Summer 2016
JANUARY
Direct development of 75,000 sq. ft
begins at Gateway 36
MARCH
Acquisition of 50% of Aire Valley Land LLP (which owns
Temple Green (now Gateway 45, Leeds) for £8.5m
MAY
Residential plot sales completed at
North Gawber, Barnsley to Avant
Homes and Harron Homes to deliver
a total of 315 homes
JUNE
Direct development of 52,000 sq. ft
of commercial space begins at the
AMP, Rotherham
Advantage House, Summer 2016
FEBRUARY
First three units completed at Gateway 36
Planning consent for 65 new homes and 120,000 sq. ft
of commercial space obtained at Welbeck
Acquisition of Advantage House in Rotherham for
£2.2m at a Net Initial Yield of 13%
Oxcroft solar farm, Spring 2016
APRIL
4.2MW solar farm completed by Anesco at Oxcroft, Derbyshire
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 9
Homes at Torne Park, Autumn 2016
OCTOBER
Sale of second phase of land at Torne Park,
Doncaster to Taylor Wimpey to build 96 plots
SEPTEMBER
Direct development of 75,000 sq. ft
of commercial space at Gateway 36
practically completed
NOVEMBER
Acquisition of Moorland Gate Business Park, Lancashire
for £4.5m at a Net Initial Yield of 9.53%
AUGUST
Phase 1 infrastructure works
completed at Gateway 45, Leeds to
open up development
Increased funding line (£10m
increase to £75m) secured from
The Royal Bank of Scotland plc to
support further growth
DECEMBER
Acquisition of Four Oaks business park, Lancashire for £13.4m at a
Net Initial Yield of 8.74%
Sale of 43.71 acres at Logistics North to Lidl UK for £22.5m to build its North
West Distribution Centre
Sale of first phase at Ellington, Northumberland to Arch Group to build
99 homes and sale of fourth phase at Prince of Wales, Pontefract to
Harron Homes to build 89 homes
Logistics North, Autumn 2016
Entrance to Prince of Wales, February 2016
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS 10 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Chairman’s statement
I am pleased to present the Group’s Annual Report and Financial Statements for the financial
year ended 31 December 2016. We have delivered another year of strong growth, despite the
political events that overshadowed the property industry in 2016. The business continued to
meet its ambition of increasing net asset value (NAV) by at least 10% per annum through the
property cycle. NAV has grown by 12.5% (2015: 18.9% reflecting capital raised) to £334.9m at
the year-end (2015: £297.7m). EPRA NAV at the end of the year rose to £350.1m, representing a
13.3% increase over the year (2015: £309.1m).
OVERVIEW, STRATEGY AND PERFORMANCE
Our core strategy is to grow and realise value from our
extensive land bank, much of which derives from our
heritage coalfield portfolio, supplemented by a range of
land and property acquisitions in the North and Midlands
over the past two years.
Harworth has extensive experience in remediating and
developing large previously used sites for future use for
commercial and residential purposes. Our Capital Growth
team continued to deliver value growth across our
underlying portfolio by securing planning consents,
re-engineering land for future uses, proactive asset
management and strategic land acquisitions during the
year. We achieved particularly good progress at our
Logistics North site in Bolton, completing sales to Lidl UK
(for £22.5m), Aldi and Greene King, a letting to Costa
Coffee and achieving practical completion of two forward
funded units on behalf of M&G Real Estate in December
2016. One of these units was let to Whistl shortly after the
year-end.
Our commitment to investors is, over time, to seek to
cover the Group’s operating costs, interest, tax and
dividends from ongoing rental and operating income. A
significant proportion of this income has been generated
from minerals and coal fines recovered during the
development process. As previously flagged, this income
stream experienced a downturn in 2016, following the
sharp reduction in coal burn in the UK power industry.
Our Income Generation team performed very well in
mitigating this downturn by growing our rental income
and undertaking targeted direct development to create
further opportunities for rental growth in 2017. We also
focused our acquisition strategy during the second half of
2016 on income generating assets, including Moorland
Gate and Four Oak business parks, which present
significant opportunities for rental improvement and
yield compression.
Six acquisitions were completed during the year, for a total
of £31.6m, all within the core regions in which we operate.
Two of those acquisitions have continued to replenish the
strategic land bank in order to secure our long-term
development pipeline; a key component of our strategy.
We review our strategy each year. This year’s review
reinforced to the Board that the current strategy remains
robust and appropriate. Our consistently strong rates of
value growth are driven more by management initiatives
than underlying movements in the real estate markets,
making the Group’s operational performance less
exposed to market fluctuations. This has been particularly
evident in the Group’s performance in the second half of
the year.
DIVIDEND
We paid a dividend of 0.51p per share (£1.5m or £2.0m
on an annualised basis) for the 2015 financial year on
9 September 2016. This was the first dividend in many
years. The Board has stated its intention to grow the
dividend, broadly in line with the growth of the business,
and pay it from recurring income and realised gains from
disposals. The Board will not distribute unrealised gains
recognised on the revaluation of property and will retain a
proportion of its recurring income and realised gains for
reinvestment into the property portfolio. Consistent with
that policy, we declared and paid an interim dividend of
0.23p per share in December 2016 and I am pleased to
say that the Board is recommending a final dividend of
0.523p per share to give a total dividend of 0.753p per
share (£2.2m) for the year, being a 10% increase on last
year’s annualised dividend. The final dividend will be paid
on 30 May 2017 to Shareholders on the register as at
5 May 2017.
OUR BOARD
At the start of 2016 we welcomed Andrew Kirkman as
Finance Director. Andrew joined us from Viridor, one of
the two main subsidiaries of Pennon Group plc. Andrew
has already made a significant contribution, in particular
strengthening our financial management and improving
our investor relations approach. In April, Peter Hickson
retired from the Board at the 2016 Annual General
Meeting, having served as Senior Independent Director
and Chairman of the Remuneration Committee for five
years. I would like to thank Peter for his strong support
and guidance to me and the Board over that time, not
least through our complicated restructuring and the
subsequent re-acquisition of Harworth Estates in 2015.
In April we also welcomed Andrew Cunningham, formerly
Chief Executive of Grainger plc, to the Board and we
benefit from his extensive experience in adjacent markets.
The Board appointed Lisa Clement, who has been a
Board member since 2011, as Senior Independent
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 11
Director, and Lisa also took on the chair of the
Remuneration Committee. Andrew Cunningham replaced
Lisa as chair of the Audit Committee. We also welcomed
Chris Birch as our Company Secretary and Group
General Counsel in June.
discount to NAV. Steps to close this discount remain a
strategic priority for the Board, which believes that the
resilience of our markets and current attractive pricing
level relative to NAV present a compelling opportunity for
new investors.
OUR PEOPLE
We have a dedicated team of skilled and experienced
professionals who know how to drive value and income
from our portfolio. As the business grows and matures,
so does the team. I am pleased to say that 15% of our
people earned well-deserved promotions at the
beginning of this year, reflecting the growing experience
and capabilities across the business. We have actively
recruited during the year and are continuing to do so, to
meet the demands of our growing land and property
portfolio. As we grow our talent, continuing to increase
diversity remains a priority.
OUR SHAREHOLDERS
We appreciate the continued strong support from all our
Shareholders as we continue to grow. Our two largest
Shareholders, The Peel Group and the Pension
Protection Fund (PPF), have reaffirmed their strong
medium to long term support to the Group. The PPF has
recently confirmed that it has now moved its shareholding
in the Group from its portfolio of “assets acquired through
restructuring” into its core, long-term investment portfolio,
with a desire to support the full realisation of value by the
Group over the medium to long-term.
At the end of 2016, the return to Shareholders of 25%
since our ‘relisting’ in March 2015 was broadly in line with
the absolute return in the business over the period.
However, in common with our peer Group, the share
price at the end of the year continued to reflect a material
OUTLOOK
The Group is well positioned to capitalise on the regional
residential and commercial markets, which continue to
have strong fundamentals and perform well. Regional
markets, specifically in the areas in which we operate,
have seen continued government support and
infrastructure investment, and have not seen the volatility
experienced in the London and South East property
markets. Further, housing remains much more affordable.
We have a strategy for, and a track record of, delivering
resilient, sustainable value growth and we look to the
future with confidence. To maintain momentum, it is
important that the Group continues to replenish its
strategic land bank, particularly given the amount of time
it takes to develop our sites into mature assets. It was
therefore pleasing that we were able to raise additional
equity in March 2017, by way of a share placing, to
accelerate the acquisition of sites for our future pipeline.
Jonson Cox
Chairman
19 April 2017
“We have a dedicated team of skilled and experienced
professionals who know how to drive value and income
from our portfolio.”
Jonson Cox - Chairman
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS 12 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Chief Executive’s statement
I am pleased to report another robust set of results to Shareholders, reflecting a strong
year of progress for the business. In 2016, the Group once again delivered a year of double-
digit net asset value (NAV) growth of 12.5% (2015: 18.9%), with a NAV of £334.9m at the
year-end (2015: £297.7m). EPRA NAV at the end of the year rose to £350.1m, representing a
13.3% increase over the year (2015: £309.1m). We achieved an operating profit of £45.8m(1)
(2015: £37.9m) with value gains of £43.7m(2) (2015: £36.3m) – ahead of expectations – and profit
from operations rose to £2.2m (2015: £1.5m).
OVERVIEW
This continued success lies in our focused strategy, the
ability of our in-house teams to extract maximum value
from the portfolio, the underlying strength of the regional
markets in which we operate and the maintenance of
excellent working relationships with the key external
Stakeholders that we work with throughout the
Company’s value cycle.
Our strategic focus remains unchanged – extracting
maximum value from our predominantly brownfield land
portfolio to grow NAV, whilst building our recurring income
base to meet the operating costs of the business. We do
this by continuing to use our masterplanning, placemaking
and technical expertise to transform redundant land into
places where people want to live and work.
As our business has grown, we have increased our focus
on replenishing our strategic land bank to ensure that we
maintain a pipeline of new sites to continue the value
growth journey. We have also focused our in-house
capabilities to build and retain new commercial space in
our strongest markets, reflecting a desire to generate
long-term income from our assets. This response to the
continued under-supply of good quality commercial units
in the regions in which we operate also shows the
growing maturity of the business.
Our business model is supported by the continued
strength of our core markets across the North of England
and the Midlands. Demand for new homes within those
regions remained consistently strong throughout the year,
reflected by the rate of sales achieved by our housebuilding
partners on our larger sites. The rise of e-tailing and the
increasing demands of consumers is also driving up
demand for logistics and distribution space, with a number
of our sites – such as Logistics North in Bolton and
Gateway 45 in Leeds – ideally placed to meet that need.
National Government policy continues to support the
redevelopment of brownfield sites, as evidenced by the
recently published Housing White Paper (February 2017).
We also welcome the UK’s new industrial strategy as a
lever to improve infrastructure, a critical factor in
accelerating economic growth in our core regions.
CAPITAL GROWTH
Our Capital Growth team, led by Phil Wilson, has
continued to deliver value growth and realisations. In
particular, during 2016 the team secured outline planning
consents for 65 plots, whilst converting 1,560 plots that
had a resolution to grant planning into outline consents.
We also purchased land with consent for 2.64m sq. ft of
commercial space at Temple Green, Leeds. Following
this activity, total consented residential plots under
ownership or management (including sites where we are
promoting third party interests through Planning
Promotion Agreements (PPAs)) stand at 9,529 plots and
consented commercial space on our land at 9.95m sq. ft.
We have live planning applications in the planning system
for 1,200 new housing plots and 1.92m sq. ft of
commercial space. Four PPAs were signed during the
year with the potential to deliver c.500 housing plots,
bringing the total number of plots promoted through
PPAs to c.1,100. PPAs are agreements with landowners
by which Harworth incurs the cost and risk of promoting
land through planning. If successful, Harworth shares
some of the value gain, after first recovering its costs,
when the land is sold.
On the 450-acre former Thoresby Colliery site in
Nottinghamshire, consent is being sought for 800 new
homes alongside 250,000 sq. ft of new commercial
space. An application has also been submitted for the
former Kellingley Colliery site in North Yorkshire to deliver
1.4m sq. ft of new commercial space on a site that
benefits from an existing rail and canal link. Decisions on
both sites are expected in the first half of 2017.
We have continued to plan carefully whether and when to
dispose of investment properties to maximise the return
from our portfolio. In 2016 we achieved receipts in excess
of book value in all sections of the business, realising
cash which can be reinvested in bringing other sites and
acquisitions forward. A total of 619 residential plots were
sold across 6 major development sites to national and
regional housebuilders including Taylor Wimpey, Harron
Homes and Arch Group.
Disposals for commercial uses in 2016 included the sale
of 43.7 acres at our Logistics North development in
Bolton to Lidl UK for £22.5m for the Company to set-up
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 13
Strong progress was made in driving up income from our
renewable energy tenants in the first half of 2016, with a
total of 144.5MW of capacity now installed on our land as
a result of a net 19.0MW of capacity being energised
during the year. Demand for new schemes slowed
following changes to renewables subsidies at the end of
March, rendering some projects unviable. In light of this,
management focus within our Natural Resources team
has now shifted to alternative technologies with better
short term prospects and governmental support,
including battery storage facilities that are seen as critical
to helping balance supply and demand in the UK power
system.
ACQUISITIONS
Our continued success in unlocking the latent value in
our portfolio has meant that refilling our strategic land
bank for future value growth has become an even more
important part of our strategy. We expanded our
Acquisitions team, led by Gary Owens, in 2016 to
identify further suitable sites and, as a direct result,
made six acquisitions in the year for £31.6m, reflecting
our desire to supplement our strategic land bank and
improve the quality of our recurring income base. All of
our acquisitions were made utilising existing cash
reserves with completion in each case taking place
within six weeks of agreeing heads of terms, helping to
build our reputation for acting swiftly and in a
straightforward manner.
Our first acquisition was Advantage House in Rotherham
in February 2016. This 20,000 sq. ft office building was
purchased for £2.2m at a net initial yield of 13.3% and is
fully let to Civica UK on a long-term lease. It is also
located adjacent to our flagship Waverley development,
thereby solidifying our presence close to Junction 33 of
the M1.
its regional distribution headquarters. This deal set a new
benchmark price per acre for the development and
marked the sixth key investment at the site in the past
three years, following previous sales to Aldi, MBDA, Joy
Global and Exeter Property Group and the signing of a
forward funding agreement with M&G Real Estate for us
to construct two new Grade A commercial units totalling
400,000 sq. ft. As announced just after year end, the
larger of these units – a 225,000 sq. ft unit known as
‘Logistics 225’ – was leased to Whistl on a ten-year lease,
reflecting the strength of the North West logistics and
distribution market.
To generate similar returns in the future, we are
continuing to prioritise capital investment on our sites
with the largest value enhancement potential, including
the Advanced Manufacturing Park in Rotherham,
Logistics North in Bolton and Gateway 45 in Leeds, to
ensure that both land and property is available for
immediate occupation. This strategic infrastructure
investment delivers multiple sale points, diversifying risk
across our portfolio, and during the year, the team
opened up new sites at Rossington, Ellington and
Castleford. Such strategic infrastructure investment has
been complemented by our continued disposal of lower
value sites – mainly agricultural land with little value add
potential – to free up management time on our highest
value-enhancing sites.
INCOME GENERATION
Our Income Generation team, led by Ian Ball, has
maintained its push for increasingly resilient recurring
income. This has been achieved by: improving rental
returns from our expanding business park portfolio;
increasing rental returns and royalties from energy
generation, environmental technologies and the
agricultural portfolio; and deriving income from recycled
aggregates that arise from the development process
– thereby offsetting the flagged and managed decline in
the sale of coal fines.
Our Business Space team increased income from our
business parks in 2016, driven by 32 new and renewed
commercial lettings in 2016 with an annualised rent roll of
£663,000. This was supplemented by the acquisition of
two business parks in the North West during the fourth
quarter with a combined annualised rent roll of £1.62m.
Asset management opportunities have already been
identified to grow the income and the underlying asset
value of both sites in the future. Business Space profit
from operations in 2016 was £3.8m (2015: £2.2m on an
underlying basis) and is expected to increase further in
2017 as we look to sign new leases on a number of new
units, including our 75,000 sq. ft Helix unit at Gateway 36
in Barnsley. The weighted average unexpired lease term
(WAULT) across the portfolio now stands at 7.5 years
(2015: 8.3 years).
“Our continued success in unlocking the latent value
in our portfolio has meant that refilling our strategic
landbank for future value growth has become an even
more important part of our strategy.”
Owen Michaelson - Chief Executive
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS 14 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Chief Executive’s statement
continued
MAINTAINING MOMENTUM
Momentum from 2016 has been carried over into the new
financial year with a number of key deals already
completed or agreed, highlighting the solid fundamentals
of the property sector in the North of England and the
Midlands, and the team’s ability to realise value growth in
our portfolio.
January saw Whistl take a ten-year lease of M&G Real
Estate’s Logistics 225 unit at Logistics North. This was at
the benchmark rental level in the North West for industrial
property of £6 per sq. ft and also triggered a promote fee
from M&G Real Estate for letting the building within six
weeks of practical completion. This was followed in
February by the sale of the next phase of 4.7 acres of
engineered housing land at Waverley to Avant Homes for
£2.5m and the exchange of contracts with Keepmoat for
the first phase of our Flass Lane development in
Castleford. Keepmoat will pay £3.65m for 9.88 acres of
land, where it plans to build 157 new homes.
With clear growth momentum established and
maintained across all key parts of the business and the
maintenance of favourable market conditions – both
across our sectors and the regions in which we operate
– we remain confident in our ability to continue to deliver
growth in net asset value, whilst expecting performance
to remain second-half weighted. We therefore anticipate
a healthy number of sales and increased development
spend in 2017.
Our continued strong performance is testament to the
strength of our core team of around 50 people and our
achievements would not have materialised without the
dedication, patience and perseverance of our staff. I thank
all of our team for their hard work and diligence in making
the Group what it is today.
Owen Michaelson
Chief Executive
19 April 2017
In March, we purchased Keyland Developments’ 50%
share of The Aire Valley Land LLP, a joint venture with
Evans Property Group, for £8.5m. Aire Valley Land LLP
owns Gateway 45 Leeds, a 166-acre logistics hub in the
Leeds City Region Enterprise Zone. The site, adjacent to
Junction 45 of the M1, already benefits from outline
planning consent for 2.64m sq. ft of commercial space
for logistics and distribution uses. During the remainder of
the year we worked with Evans to complete the
infrastructure works for the first phase of development
land, thereby allowing the completion of the sale of land
for a Park and Ride facility to Leeds City Council, before
relaunching the site as ‘Gateway 45 Leeds’ to improve
the site’s promotion to third-party logistics and e-tailing
businesses. We expect this work to bear fruit with new
deals at the site in 2017.
Two further key acquisitions in the year were both in the
North West and made in the fourth quarter, in line with our
strategy to strengthen our income portfolio and to build
our presence in the region. In November, we completed
the acquisition of Moorland Gate business park in Chorley,
Lancashire for £4.5m. This site comprises 10.75 acres
with 125,122 sq. ft of built space. It generates a net initial
yield of 9.53%, with a reversionary yield of 10.4% and
further asset management and potential development
opportunities already identified. This was followed by the
acquisition in December of Four Oaks business park in
Preston, Lancashire for £13.4m. The site extends across
19.4 acres with 428,800 sq. ft of built logistics
warehousing space, with a net initial yield of 8.74% and a
reversionary yield of 11.4%. Together with our Logistics
North development, we are beginning to build critical
mass across our North West portfolio, with all three sites
located along a corridor of junctions on the M61.
We recognise the need to replenish and grow the
Company’s strategic land bank, to maintain delivery of
our target for NAV growth through the property cycle.
To that end, we have entered into four option agreements
to acquire strategic land sites that extend to
approximately 228 acres, comprising a mixture of
potential residential and commercial sites located in our
core regions. Subject to confirmation through due
diligence, these stand the business in good stead as we
look to grow our portfolio further in 2017 and beyond.
On 17 March 2017, we announced a share placing to
raise £27.1m (net of expenses) to accelerate the growth of
our strategic land bank. This is covered in more detail on
the following page of this report.
Notes:
(1) Operating profit before exceptional items and including share of profit of associate and joint ventures.
(2) Increase/(decrease) in fair value of investment properties and assets held for sale (2016: £33.5m), profit/(loss) on sale of investment properties and assets held for sale (£8.8m) together with other gains,
being overages (£0.7m), and share of profit of associate and joint ventures (£0.6m).
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 15
March 2017 equity placing
Thoresby development, 2016
Following the publication of our preliminary results on 6 March 2017, we successfully undertook an equity
placing that raised £27.1m (net of expenses). This involved placing 29,226,974 new Ordinary Shares
(representing 9.9% of the Company’s share capital prior to the placing) at a price of 95.0 pence per share
(representing a discount of approximately 1.6% to the closing mid-market price of the Company’s shares on the
day before the announcement of the placing) to accelerate the continued expansion of our strategic land bank.
Replenishing our land and property portfolio, both by securing new
recurring income streams and growing and expanding our strategic
land bank, is fundamental to us continuing to deliver value to our
Shareholders. While we have made good progress in the past two
years in securing valuable acquisition opportunities, this placing
enables us to accelerate our acquisition strategy through the funding
of the purchase of, and investment in, further sites to support the long
term growth prospects of the business.
Prior to the equity placing, strategic land encompassed approximately
5% of the value of the Group’s portfolio, markedly down from
approximately 15% at the end of 2015, as a result of the Groups
success at moving this strategic land through the development process.
The need to replenish our landbank:
our portfolio as at 31 December 2016
Logistics
North
Lounge
Prince of
Wales
Rossington
56%
Waverley
Harworth
Colliery
Coalville
Asfordby
Key
Strategic Land
Major Developments
Business Space/
Natural Resources
£400.3m
23%
21%
Gateway 36
Agriculture & Other
Sheburn Rail
Freight Terminal
(Gascoigne Wood)
Next 10
sites
Remaining sites
In order to address this, we recently entered into four option agreements
to acquire, in aggregate, approximately 200 acres of strategic land, the
masterplans for which are expected to deliver in aggregate over
1,500 residential plots and c.600,000 sq. ft of new commercial space.
Approximately £19.2m is required to exercise the options and fund the
first three years of expenditure on planning, remediation and
infrastructure works, and further site assembly.
This would increase our strategic land bank to approximately
2,750 acres assuming the option agreements are exercised following
successful confirmatory due diligence. The option agreements are
expected to generate an internal rate of return in excess of
management’s target return requirements, being accretive to both
earnings and net asset value per share in the medium term after taking
account of the impact of the placing.
Four further potential strategic land opportunities are also in
negotiation, to acquire in aggregate up to 407 acres of strategic
land for both residential and commercial development, requiring
approximately £15.5m of investment. If pursued, they could be part
funded by the balance of the net proceeds of the placing, with the
remainder of any capital requirement being met by the Group’s
internally generated free cash.
Significant brownfield development sites and multi-let business parks
with asset management opportunities will continue to form the
backbone of the Group’s acquisitions strategy, firmly reflecting our
confidence in the markets in which we operate to deliver growth for
Shareholders. Investment in edge of settlement sites and the
assembly of new land parcels will also be pursued in order to create
new, large scale communities attractive to both residential and
commercial customers – such as that achieved at Waverley.
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS 16 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Capital Growth in 2016
The Capital Growth segment of the business continues to focus on maximising value by
developing the land and property portfolio to its optimum extent, thereby growing NAV. Our core
skill is to transform underutilised and undervalued land into valuable residential or commercial
development sites, working closely with local authorities, residents and other key local
Stakeholders to secure beneficial uses. The strategic imperative for the business is therefore to
continue the pipeline of value growth and to replenish the portfolio with further land to sustain
the business.
We had another excellent year in 2016, with the Group
once again delivering a year of double-digit NAV growth
of 12.5% (2015: 18.9%), with NAV standing at £334.9m at
the year-end (2015: £297.7m). Value gains of £43.7m
(2015: £36.3m) – ahead of expectations – further
emphasises our ability to transform redundant land into
developments of lasting value.
STRATEGIC LAND IN 2016
We focused on planning preparation and promotion in
2016, with a range of applications submitted in the
second half of the year. These included the two last deep
coal mining sites in the UK: the 450-acre former Thoresby
Colliery in Nottinghamshire, where we have sought
consent for 800 new homes and 250,000 sq. ft of
employment space; and the 150-acre former Kellingley
Colliery in North Yorkshire, where we have submitted a
planning application to deliver 1.4m sq. ft of new
commercial employment space to make the most of its
many transport links. Planning decisions on both
schemes are expected in the first half of 2017.
Elsewhere in the portfolio, we received a planning decision
notice for our residential development in Coalville,
Leicestershire to deliver 1,100 new homes as part of a
wider consortium that will be delivering a total of
2,700 homes, with this scheme subsequently becoming
one of our Major Projects moving forward. This was
supplemented by the receipt of planning consent at the
former Welbeck Colliery in Nottinghamshire in the first half
of the year for 65 new residential plots and over
120,000 sq. ft of commercial space. The purchase of 50%
of Aire Valley Land LLP, covered within the Acquisitions
section of this Annual Report, also added a further 2.64m
sq. ft of consented space to our strategic land bank.
PPAs are also being signed with third-party landowners
as a source of strategic land and to provide further
income to the business should a planning consent be
secured. We signed four PPAs in 2016 with the potential
to deliver c.500 housing plots, bringing the total number
of housing plots we are promoting through PPAs to
c.1,100. On the back of the first PPA we signed in 2014
with the Trustees of Warsop Estate for a 30-acre site less
than five miles from Mansfield Town Centre, we submitted
a planning application for 400 new residential plots in the
second half of 2016. A planning decision on this
application is expected in the first half of 2017.
DELIVERING OUR MAJOR PROJECTS IN
2016: ENGINEERING, PLOT SALES AND BUILD OUT
Value growth through planning was supplemented by the
preparation of a number of sites for either the sale of
engineered land for residential or commercial purposes
or for retention to increase our income portfolio. With
demand for residential and commercial land continuing to
remain strong, Strategic Land and Major Projects
disposals in 2016 achieved a price over book value with
the receipts subsequently reinvested in bringing further
sites in our strategic landbank forward for development.
Whilst the outcome of the European referendum in June
2016 caused housebuilders to pause the purchase of
new sites briefly, the deals we signed in the second half of
the year were a reflection of the market reverting back to
normal. It is also worth reflecting that the referendum
decision had no bearing on the commercial markets in
which we operate, with the logistics and industrial sectors
continuing to perform strongly.
We sold six residential parcels of land to housebuilders in
2016, totalling 619 plots at five separate sites. The first
half of the year saw both available phases at North
Gawber, Barnsley sold to Avant Homes (174 plots) and
Harron Homes (141 plots), whilst our landholding at
Measham, Leicestershire was sold to regional
housebuilder Cameron Homes (20 plots). The second half
of the year saw three further sales made, with Harron
Homes acquiring the third phase of our Prince of Wales
development in Pontefract (89 plots), Taylor Wimpey
purchasing the second phase of our Rossington
development in Doncaster (96 plots) and Arch Group, the
North East regeneration Company, acquiring the first
phase of our Ellington development (99 plots).
Key sites with the highest value-add potential are
increasingly being retained by us. They provide
opportunities for us to build new commercial units that
can be retained as new income-producing assets,
including at the Advanced Manufacturing Park in
Rotherham, Logistics North in Bolton at Gateway 36 in
Barnsley. We will however continue to pursue commercial
land disposals on major developments where the receipt
allows us to extract optimum value and reinvest in our
portfolio. This was certainly the case at Logistics North in
December, when we sold 43.7 acres of prepared land to
Lidl UK for £22.5m. This sale is covered in further detail
within the case study on page 18.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 17
Following all of this activity, total consented residential
plots under ownership or management (including sites
where we are promoting third party interests through
PPAs) stand at 9,529 plots and consented commercial
space on our land at 9.95m sq. ft.
LOOKING FORWARD TO 2017
Our markets remain robust, putting the business in a
good position to grow. Demand for residential land
remains steady, with housebuilders reporting consistent
plot sales in the North of England and the Midlands. This
is underpinned by housing starts in the UK continuing to
be well below acknowledged Government targets,
meaning the gap between supply and demand continues
to increase. Demand for well-connected industrial and
logistics space also remains good, with an under-supply
of new units of all sizes being reported across the regions.
With a number of our sites being located close to key
motorway and principal road junctions, we are well-placed
to take advantage of this trend.
This solid interest, coupled with the experience and
expertise of our in-house team, underpins our four-
pronged strategy to grow further the value of the business:
• We will continue with our stated strategy of
exploiting portfolio opportunities by optimising land
use and securing planning consents for both
residential and commercial uses.
• We will also continue to invest in the sites in our
portfolio with the highest value enhancement
potential, whilst increasing our points of sale to
increase value creation and to diversify risk.
• We will invest in the sites with the highest value-add
potential. This will also provide further outlets for us
to build new commercial units that can be retained
as income-producing assets.
• Lower value sites with little development potential will
continue to be sold to free-up management time further.
Phil Wilson
Managing Director, Capital Growth
19 April 2017
CGI of planned Thoresby development, Autumn 2016
New homes at Waverley, Summer 2016
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
“We had another excellent year in 2016, with the Group
once again delivering a year of double-digit NAV growth
of 12.5%.”
Phil Wilson - Managing Director, Capital Growth
CORPORATE GOVERNANCESTRATEGIC REPORT
18 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Capital Growth case study
Logistics North
Logistics North continued to establish itself as one of the North
of England’s leading logistics and distribution locations, with plot
sales and new unit completions in 2016 underpinning its status.
Two key milestones were achieved in December 2016. Early
December saw us practically complete Logistics 225 and Logistics
175 – two new speculative Grade ‘A’ warehouses totalling
400,000 sq. ft – on behalf of M&G Real Estate, part of Prudential plc.
Shortly after year end, Whistl announced its intention to take a ten
year lease on Logistics 225 at a North West benchmark rent of
£6 per sq. ft p.a., whilst significant interest continues to be registered
in the Logistics 175 unit.
At the end of December, Lidl UK purchased 43.7 freehold acres for
£22.5m to create a new Regional Distribution Centre (RDC) to service
its growing number of North West stores. The distribution centre –
likely to total 500,000 sq. ft – will be built later this year following the
receipt of detailed planning consent.
With sales and lettings to Aldi, Lidl, MBDA, Joy Global, Exeter Property
Group, Greene King and Costa, over half of Logistics North’s
4,000,000 sq. ft outline consent (received in December 2013) has been
either built out or committed to be built out.
This strong precedent encouraged us to commit to our own direct
development in 2017. We plan to build two units totalling 52,000 sq. ft
from April to the same specification we have completed at both the
Advanced Manufacturing Park in Rotherham and Gateway 36 in
Barnsley, with the units aimed at growing small and medium-sized
enterprises that are struggling to find good quality space under
100,000 sq. ft in the region.
Aerial of Logistics North, Autumn 2016
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 19
KEY FACTS
Location
Bolton, Greater Manchester
Acreage for commercial development
250 acres
Acreage for country park
550 acres
Consented sq. ft for commercial
development
§
4,000,000 sq. ft
Commercial development built or committed
to be built
2,059,700 sq. ft
Plot purchasers and tenants
Aldi, MBDA, Joy Global, Exeter Property
Group, M&G Real Estate, Lidl UK,
Greene King and Costa
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS
20 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Capital Growth case study
Prince of Wales
The 303-acre former Prince of Wales colliery site, adjoining the
M62 at Junction 32, was producing 1.5 million tonnes of coal a
year until 2002. It is now one of our most mature housing
developments, implementing a vision that will see the site
become one of West Yorkshire’s largest mixed-use
developments with housing, employment opportunities and a
range of amenities for local people.
We received planning consent from Wakefield Council in December
2013 to turn the former pityard into a new development comprising
917 homes and 21,500 sq. m of employment development, along with
retail units, cafes, a medical centre, community centre, nursery and
parkland. Remediation of the site began in December 2013 and
Phase 1 infrastructure work completed at the end of December 2014,
supported by a £1.95m Growing Places Fund loan from the Leeds
City Region to speed up work.
Avant was selected as the first housebuilder for the scheme and they
began building the first phase of 131 homes in January 2015. The first
residents received their keys by the end of 2015. Harron Homes also
purchased the second phase of land in 2015, building the first of 95 new
homes. With housing sales progressing beyond its expectations, Harron
then purchased the third phase of land in the second half of 2016 to
build a further 89 plots. This phase realised an average plot price of
£47,361, reflecting the attraction of the site as a residential location.
110 homes have now been built and occupied and we expect to
complete the full development, with up to 917 homes and associated
facilities, within the next ten years.
The former spoil heap next to the pit yard will also become a new
country park, providing new public open space for the community.
Alongside nearby Pontefract Park and Pontefract Racecourse, this will
provide an attractive gateway into Pontefract. It also provides the
engineered road corridor for the Northern link road, which was
completed in February 2015 and is a central piece of infrastructure for
the future growth of Pontefract.
Harron Homes constructing at Prince of Wales, Spring 2016
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 21
KEY FACTS
Location
Pontefract, West Yorkshire
Acreage of development
303 acres, including former spoil heap
Planning consent in place
917 homes
265,000 sq. ft of commerical development
Housebuilders
§
Harron Homes, Avant Homes
Total number of plots bought by
housebuilders/number of homes built
317/110
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS
22 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Income Generation in 2016
The Income Generation segment of the business continues to focus on creating, managing and
retaining selected land and property assets to generate value growth and a long-term recurring
income stream. Our income-producing assets make up a significant part of our property portfolio
and we adopt a range of asset management techniques to maximise the income it generates.
As well as contributing to NAV growth it is our aim that this
income is also used to cover:
•
•
the running costs of the business (including strategic
land promotion);
• our interest costs; and ultimately
•
tax; and
• a sustainable and rising dividend to Shareholders.
Profit from operations increased in 2016 to £2.2m
(2015: £1.5m), reflecting our strategy of building a more
resilient income base by building new commercial space to
lease, purchasing income-producing assets and increasing
the number of rents derived from low-carbon energy
developments.
BUSINESS SPACE IN 2016
Our Business Space portfolio grew in 2016, now
comprising a total of 15 business parks and development
sites where we receive both rent and service charges.
These sites comprise a total of 1.7m sq. ft of built space
and 459 acres of development land, with 93% of our
portfolio classified as ‘industrial’.
Income from our Business Space portfolio grew
commensurately, with Business Space profit from
operations rising to £3.8m (2015: £2.2m). We now have
108 individual tenants across the portfolio and a portfolio
WAULT of 7.5 years, with 87% of our space now let. This
was driven by three principal management actions:
• 32 new and renewed commercial lettings in 2016 with
an annualised rent roll of £663,000. These new
lettings included Barnsley Council taking a 25 year
head lease on three new units totalling 65,000 sq. ft
at Gateway 36, with two sub-leases already agreed
and in place by the end of March 2017 – thus proving
the reversionary value in the head lease;
•
the acquisition of two business parks in the North
West during the fourth quarter with a combined
annualised rent roll of £1.6m, covered in more detail in
the Acquisitions section. Asset management
opportunities have already been identified to grow the
income and the underlying asset value of both sites in
the future; and
the direct build of approximately 600,000 sq. ft of new
industrial space between 2014 and 2016, with eight
units across three sites – including 400,000 sq. ft built
on behalf of M&G Real Estate at Logistics North.
A further c.106,000 sq. ft of units are now under
construction at the AMP in Rotherham and Logistics
North in Bolton.
NATURAL RESOURCES IN 2016
We also retain a significant natural resources portfolio
across our geographies. This comprises rent and
royalties from low-carbon energy developments including
solar farms, wind farms and coal mine methane
extraction operations, alongside Short-Term Operating
Reserve (STOR) operations, tipping and composting
works and our agricultural portfolio. This portfolio
generates a long-term base rent of c.£2m and a royalty
income of c.£2m.
We grew income from renewables in 2016, with a further
net 19MW of capacity installed on our land in the first half
of 2016. Further information is provided within the case
study that follows. The team also secured a new letting at
Meriden in Warwickshire, with Rebellion Biomass LLP
taking a 25 year lease for 7 acres to develop a state-of-
the-art biomass energy and waste water treatment
facility. Construction of the new unit began in
October 2016, with the facility set to open in 2017.
Changes to Government subsidies introduced on 1 April
2016 have meant that a number of our prospective
schemes are currently deemed to be financially unviable,
hence the remainder of the year saw the team developing
proposals to tap into alternative technologies that have
strong Governmental support, including the nascent
battery storage market.
OPERATIONS IN 2016
Income from the Operations business comprises revenue
from the recycling and sale of coal fines, aggregates and
scrap that are by-products from the development process.
Due to regulatory changes signalling the end of coal-fired
power stations by the end of 2025, the sale of coal fines
declined in 2016 – thus reinforcing our decision to make a
concerted effort to drive income from other sources.
Coal fines sales have not disappeared completely
however, with income continuing to be generated from
the supply to DRAX power station in North Yorkshire and
Ratcliffe power station in Nottinghamshire. Income also
continued to be generated from the sale of aggregates
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 23
Construction of new unit at AMP, March 2017
Bilsthorpe Wind Farm, Spring 2016
that are nominally by-products from the demolition and
remediation of a number of our sites.
LOOKING FORWARD TO 2017
As with Capital Growth, our core markets remain robust
and we are confident that we can grow our recurring
income base further in 2017. Demand for well-connected
industrial and logistics space remains good owing to an
under-supply of new units. Positive interest remains for
multi-energy schemes across a number of our sites, to
address current system imbalances. We are aiming to
maintain coal fines sales in the medium-term, given the
required blend of power sources needed to keep the
lights on in the UK.
We retain a clear strategy to increase our income base
and improve its quality:
• our focus on effective asset management will remain
in place to drive further value and income from our
present portfolio, including further reducing our
vacancy rate and regearing leases as appropriate;
• we will continue to progress selected direct
developments to ‘move up the value curve’ and
deliver long-term income on our highest value and
best connected sites, including the AMP in
Rotherham, Logistics North in Bolton and Gateway
45 in Leeds;
• we will also look to grow our recurring income by
identifying additional income producing acquisitions;
• Natural Resources management time will continue to
focus on driving income from well-supported new
technologies to address energy imbalances,
including battery storage, whilst progressing
planned existing schemes within our pipeline;
• we will look to secure larger contracts from our
existing coal fines customers – DRAX and Uniper
(Ratcliffe) – to build a more resilient Operations
business in the short-term; and
• our Business Space team will continue to explore
property venture transactions on our most valuable
sites in order to capture development management,
asset managment and promotion fees from third
parties.
Ian Ball
Executive Director, Income Generation
19 April 2017
“Our core markets remain robust and we are confident that
we can grow our recurring income base further in 2017.”
Ian Ball - Executive Director, Income Generation
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS 24 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Income Generation case study
Gateway 36
Our income generating portfolio has benefited from excellent
progress at our Gateway 36 development in Barnsley, adjacent
to Junction 36 of the M1 in Yorkshire.
Barnsley Council took a 25-year head lease on three units totalling
65,000 sq. ft on 25 February 2016, ready to sub-let to small and
medium-sized tenants. Its first tenant, Talurit UK Limited, a wire rope
manufacturer, took a long-term lease on the largest unit – totalling
30,000 sq. ft – in February 2017, with healthcare manufacturer, Esco,
taking a long-lease on the second unit. There is strong demand for the
other available unit.
We achieved practical completion of a further 75,000 sq. ft directly
developed unit, known as ‘Helix’, in September 2016 ready for
immediate occupation. Construction costs were funded in large part
through the Sheffield City Region JESSICA loan fund and we expect
to let this unit over forthcoming months.
We also practically completed a 4,700 sq. ft fast-food drive-thru unit
on the same day as ‘Helix’ – with a lease granted to Fieldrose Limited
for the unit to be converted into a KFC and Taco Bell. Both operations
opened in October. Finally we sold a further plot to Greene King to
develop a new ‘Farmhouse Inn’ which is also now open. There is now
just 1.63 acres of land remaining to be developed at the site for
roadside, retail or leisure uses.
The success of Phase 1 underpins our desire to bring forward the
development of Phases 2 and 3 as part of a future planning
application by 2019. These phases could deliver up to 1.1m sq. ft of
further commercial space, subject to planning consent.
Aerial of Gateway 36, Autumn 2016
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 25
KEY FACTS
Location
Barnsley, South Yorkshire
Acreage for Phase 1 commercial
development
17.4 acres
Consented sq. ft for Phase 1 commercial
development
198,056 sq. ft
Total sq. ft built on site/sq. ft of units built by
Harworth as part of Phase 1
§
157,154 sq. ft/144,700 sq. ft
Tenants already signed up
Barnsley Metropolitan Borough Council,
Fieldrose Limited (KFC and Taco Bell)
Proposed sq. ft for Phase 2 and 3
commercial development
1,100,000 sq. ft
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS
26 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Income Generation case study
Renewables
Income from our portfolio was supplemented by rent from two
major renewables schemes that became operational on our land
in 2016, bringing the total number of live solar and wind schemes
within the portfolio to 14, with 75.8MW of capacity installed.
The two schemes that became operational in 2016 are:
• a 4.8MW solar farm at the former Oxcroft coal disposal point in
Derbyshire, developed in partnership with Anesco. This facility
went live in March 2016; and
• an 18MW wind farm, developed in partnership with Infinis, on the
site of a restored, former open-cast coal mine near Widdrington
Village, Northumberland. This facility became operational in
June 2016.
A 5MW solar farm is also under construction by First Renewables
close to the former Kellingley Colliery in North Yorkshire, which is
expected to complete in 2017. Our solar and wind portfolio forms a
significant part of our Natural Resources portfolio that has a total
installed capacity of 144.5MW.
Oxcroft Solar Farm, Spring 2016
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 27
KEY FACTS
Location of operational solar projects
Askern, Thorne (both Doncaster,
South Yorkshire)
Bilsthorpe, Gedling, Welbeck (Nottinghamshire)
Coton Park, Arkwright, Oxcroft (Derbyshire)
Location of operational wind projects
Arkwright (Derbyshire)
Bilsthorpe (Nottinghamshire)
Ellington, North Steads (Northumberland)
Lounge (Leicestershire)
Shafton (South Yorkshire)
Total installed capacity
Potential future capacity
§
Total potential capacity across all identified
sites
75.8MW
17.5MW
93.3MW
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS
28 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Acquisitions in 2016
An important part of our strategy is to replenish our property portfolio to ensure the
sustainable growth of the business, particularly given that not all of our 22,000 acres has
development potential. Significant brownfield development sites, edge of settlement, strategic
land opportunities or multi-let business parks with asset management opportunities form the
backbone of our acquisitions strategy, with a dedicated team now in place to deliver it.
We made six acquisitions in the year for £31.6m in
aggregate, reflecting our desire to supplement our strategic
land bank and improve the quality of our recurring income
base. These acquisitions added 244 acres to our strategic
landbank, whilst adding 3.54m sq. ft of consented and
proposed commercial space to our portfolio alongside a
further £2m of recurring income per annum. All of our
acquisitions were made utilising existing cash reserves with
completion in the majority of cases taking place within six
weeks of agreeing heads of terms, helping to build our
reputation for acting swiftly and in a straightforward manner
that stands us in good stead to make further purchases.
KEY ACQUISITIONS MADE IN 2016
We made four key acquisitions in 2016 that blended both
Capital Growth and Income Generation opportunities.
Advantage House, Rotherham. This 20,000 sq. ft office
building was purchased for £2.2m at a net initial yield of
13.3% and is fully let to Civica UK on a long-term lease. It is
also located adjacent, and forms part of the gateway, to our
flagship Waverley development thereby solidifying our
presence close to Junction 33 of the M1. We subsequently
moved into Advantage House August 2016 and it is now
our headquarters and registered office.
Gateway 45, Leeds. In March, we purchased Keyland
Developments’ 50% share of The Aire Valley Land LLP, a
joint venture with Evans Property Group, for £8.5m: a key
strategic land purchase. Aire Valley Land LLP owns
Gateway 45 Leeds, a 166-acre logistics hub in the Leeds
City Region Enterprise Zone. The site, adjacent to Junction
45 of the M1, already benefits from outline planning consent
for 2.64m sq. ft of commercial space for logistics and
distribution uses. Our reputation for swift delivery at Logistics
North played an extremely important role in convincing
Keyland that we were a suitable party to acquire its share in
the venture, alongside being price competitive and
demonstrating a thorough understanding of how to acquire
an interest in a dynamic, corporate property vehicle. Further
information is provided within the case study overleaf.
Moorland Gate Business Park, Lancashire.
In November, we completed the acquisition of Moorland
Gate Business Park in Chorley, Lancashire for £4.5m in
order to boost our income portfolio. This site comprises
10.75 acres with 125,122 sq. ft of built space, generating a
net initial yield of 9.53% with a reversionary yield of 10.4%.
Further asset management and potential development
opportunities have already been identified, including
the regearing of a number of leases and a further 2 acres
with development opportunities.
Four Oaks Business Park, Lancashire. Our final purchase
of the year was Four Oaks Business Park in Preston,
Lancashire for £13.4m to further improve the quality of our
income portfolio and to grow our presence in the strong
North West market. Purchased in December following an
off-market negotiation, the site extends across 19.4 acres
with 428,800 sq. ft of built logistics warehousing space, with
a net initial yield of 8.74% and a reversionary yield of 11.4%.
This purchase is covered in further detail in the case study
that follows.
We also made two other smaller acquisitions in the year to
further increase our strategic landholding. In February 2016,
we purchased 47 acres of greenbelt land at Wingates in
Bolton for £470,000. The site, which sits close to Junction 5
of the M61, could potentially deliver 1.6m sq. ft of new
logistics space in the future should it be formally designated
within the Greater Manchester Spatial Framework (GMSF)
and is viewed as a successor site for our highly successful
Logistics North development. In April 2016, we also
purchased 5 acres of land at Potland Burn, Northumberland
for £855,000 in order to capture income from SITA’s
in-vessel composting facility, further improving the quality of
our recurring income base.
As previously explained within the section on our March
2017 equity placing, we have also recently entered into four
option agreements to acquire, in aggregate, approximately
200 acres of strategic land. These sites could deliver in
aggregate over 1,500 residential plots and 600,000 sq. ft of
new commercial space. Two of the sites – Bewshill Farm in
Bolton and land at Chatterley Valley in Stoke – are adjacent
to our Logistics North and Chatterley Valley commercial
developments, respectively.
Work was also supplemented by the signing of four PPAs to
promote 59 acres of land for residential uses, which could
deliver c. 500 plots subject to the successful receipt of
planning consent. As stated elsewhere in this report, PPAs
allow the business to leverage its planning expertise to
secure new income streams.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 29
LOOKING FORWARD TO 2017
We have an annual target of acquiring land with the ability
to deliver over 1,000 residential units and over 1m sq. ft of
employment land, translating to over 200 acres of net
developable land. Whilst this target is a challenging one,
our strengthened Acquisitions team increased the number
of potential opportunities open to us in 2016, allowing the
targeting of a blend of short, medium and long-term
opportunities to strengthen our development pipeline.
There are an abundance of good opportunities
available to Harworth across its core regions, specifically
within our target growth areas of the Midlands and North
West. Our future success is supported by our track
record of completing thorough due diligence quickly and
efficiently, including our ability to draw on a variety of
deal structures to design transactions to the mutual
benefit of both parties. Our acquisitions strategy will
make the most of our experience delivering major
projects across the legacy coalfield portfolio and our
track record of investing over £55m in new acquisitions
over the last two years, to secure new opportunities
across the following three key areas:
• The purchase of major brownfield land development
opportunities, including distressed land sales,
surplus government estate disposals and the
anticipated closure of coal-fired power stations.
These sites underpin our strategy and will maximise
the expertise and track record within the team,
delivering value returns through value add initiatives.
• Strategic promotion of edge of settlement sites. We
intend to grow our strategic land portfolio through
PPAs and options, targeting edge of settlement sites
that can be promoted through the local development
plan process.
• The purchase of income producing multi-let business
parks. We remain committed to strengthening our
recurring income base by acquiring multi-let business
parks that offer opportunities to add value through
asset management and development, in a similar
manner to Moorland Gate and Four Oaks.
Gary Owens
Director, Acquisitions
19 April 2017
Moorland Gate Business Park, Autumn 2016
Sinfin Business park (2015 purchase), Spring 2016
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
“There are an abundance of good opportunities available
to Harworth across its core regions, specifically within
our target growth areas of the Midlands and North West.”
Gary Owens, Director, Acquisitions
CORPORATE GOVERNANCESTRATEGIC REPORT
30 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Acquisitions case study
Gateway 45, Leeds
In March 2016, Harworth completed the acquisition of
Keyland Developments’ 50% share in Aire Valley Land LLP for
£8.5m. Aire Valley Land LLP is a joint venture with Evans
Property Group which owns Gateway 45, Leeds’ largest live
commercial development.
The acquisition was wholly funded through existing cash reserves.
Our bid was ultimately successful due to our significant experience
and complementary skills in bringing forward logistics and
distribution development, with Logistics North in Bolton held up as
a key exemplar scheme.
The site is adjacent to Junction 45 of the M1 and is viewed as a
major logistics and industrial development site. It extends to 166
acres and has an outline planning consent for 2.64m sq. ft of
commercial space. Gateway 45 Leeds benefits from Government
Enterprise Zone status and also sits adjacent to Skelton Grange –
the 162-acre former power station we purchased in November 2014
which also benefits from an employment consent.
We will be working with Evans Property Group to deliver a commercial
scheme of national significance, building on our previous success at
Logistics North in Bolton and the AMP in Rotherham, to deliver the
logistics space that is in short supply across the North of England. To
accelerate development at the site, we announced our intention to
construct two new units, totalling 157,500 sq. ft of space, in 2017.
This followed confirmation of our second occupier in September, with
CJ Stern committing to a 1.2 acre plot at the site to incorporate a BP
petrol filling station with three HGV and four vehicle pumps along with
a 2,000 sq. ft Spar convenience store. It joins Leeds City Council,
which is constructing a new park and ride facility that is due to
practically complete in 2017.
Aerial of Gateway 45 Leeds, Autumn 2016
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 31
KEY FACTS
Location
Leeds, West Yorkshire
Acreage for entire development
166 acres
Consented sq. ft
Sq. ft of units planned to be built by Aire
Valley Land LLP in 2017
§
2,640,000 sq. ft
157,500 sq. ft
Tenants already signed up
Leeds City Council, CJ Stern
Largest unit that could be accommodated at
Gateway 45 Leeds
515,000 sq. ft
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS
32 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Acquisitions case study
Four Oaks business park
Our fourth major acquisition of 2016 was Four Oaks business park
in Preston, Lancashire for £13.4m. The site was purchased to
strengthen our income portfolio and to expand our presence in the
strong North West market, following on from our acquisition in
November of Moorland Gate business park in Chorley.
As with Gateway 45 Leeds, the acquisition was wholly funded through
existing cash reserves. The completion also took place within six weeks
of agreeing heads of terms with FDC (Holdings) Limited, thus further
strengthening our reputation for fast, no-nonsense delivery regardless of
the nature of the acquisition.
The site extends across 19.4 acres with 428,800 sq. ft of built logistics
warehousing space, sitting at the intersection of Junction 9 of the
M61, Junctions 29 and 30 of the M6 and Junction 2 of the M65. The
freehold purchase represented a Net Initial Yield of 8.74% with a
reversionary yield of 11.39%, a WAULT of 6.44 years and a low capital
value of £31.30 per sq. ft.
Four Oaks Business Park is a multi-let investment comprising six
lettings. The Park is currently fully let and tenants include FDC (Holdings)
Limited, Bosal Automotive and H Parkinson Haulage. There are further
asset management and development opportunities that we will look to
capture in 2017 and beyond, including lease re-gears to conservative
ERVs of £3.75 per sq. ft and the potential development of a further
0.5 acres of roadside uses.
Four Oaks Business Park, Autumn 2016
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 33
KEY FACTS
Location
Built space
Purchase price
Preston, Lancashire
428,800 sq. ft
£13.4m
Net Initial Yield/Reversionary Yield
8.74%/11.39%
§
Tenants already signed up
FDC (Holdings) Limited, Bosal Automotive
and H Parkinson Haulage
Further asset management opportunities
Lease re-gears; potential development of
further land for roadside uses
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS
34 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Financial review
The Group delivered another set of strong results for the financial year across both segments of our business,
Capital Growth and Income Generation. NAV increased to £334.9m as at 31 December 2016, which is a 12.5%
increase on NAV at 31 December 2015 (£297.7m). EPRA NAV increased by 13.3% to £350.1m (2015: £309.1m).
OVERVIEW
Revenue from operations rose to £33.7m (2015: £13.2m), largely as a result of the recognition of pass-through construction costs and
development fee income of £16.1m (2015: £1.3m) arising from the construction of two industrial units at Logistics North which were
forward funded by M&G Real Estate. Revenue also increased as a result of increased rent from business parks, and rent and royalties from
low-carbon energy sites, albeit somewhat offset by a decline in coal fines revenues.
Operating profit before exceptionals was £45.8m(1) (2015: £37.9m) largely as a result of revaluation gains of £34.8m(2) (2015: £25.0m), profit
on disposals of £8.9m (2015: £11.4m) and profit from operations of £2.2m (2015: £1.5m). Exceptional items netted to £nil (2015: charge of
£2.9m) largely relating to the Group’s legacy activities. Profit before tax was £43.5m (2015: £77.6m), with 2015 benefiting from a gain on
bargain purchase of £44.2m.
The comparative statutory results for 2015 are complicated by the acquisition and fundraising of March 2015 associated with the
re-acquisition of 75.1% of the shares in HEPGL, which led to the gain on bargain purchase of £44.2m. In addition, a 1 for 10 share
consolidation occurred in the first half of 2016. Consequently, our results are set out below on both a statutory and underlying basis.
The table below shows the Group’s statutory operating profit, before exceptional items, for 2015 reconciled to the underlying operating
performance for 2015, and set against the results for 2016.
Twelve months to December
Revenue
Cost of sales
Overheads
Other operating expense
Profit/(loss) from operations
Valuation gain/(loss)
Profit/(loss) from disposals
Pension (charge)/credit
Share of profit of associate
and joint ventures
2016
Harworth
Group plc
£m
33.7
(20.9)
(10.5)
(0.1)
2.2
34.2
8.9
(0.1)
0.6
Operating profit/(loss), before exceptionals
45.8
Note: There are minor differences on some totals due to rounding
2015
Harworth
Group plc
Underlying
£m
2015
Harworth
Group plc
Underlying
Pre-acquisition
£m
2015
Fair value
adjustments
£m
2015
Harworth
Group plc
£m
16.7
(7.9)
(6.8)
–
2.1
28.9
11.5
0.1
–
42.6
(3.3)
1.9
1.1
–
(0.3)
(4.8)
(0.1)
–
0.9
(0.3)
–
–
–
(0.3)
–
–
–
–
(4.3)
(0.3)
13.2
(6.0)
(5.7)
–
1.5
24.1
11.4
0.1
0.9
37.9
UNDERLYING PERFORMANCE
The Group recorded revenues of £33.7m in 2016 (2015: £16.7m) comprising rental and royalty income together with sales of coal fines and
salvage. The significant increase in 2016 revenues reflected £16.1m (2015: £1.3m) in respect of contract work on the construction of units
at Logistics North which were forward funded by M&G Real Estate. These units were completed in December 2016. As Harworth has
been acting on behalf of M&G Real Estate, the associated revenue and cost of sales are pass-through amounts at the same level except
for the recognition of a construction management fee of £0.5m. Further “promote” fees will be recognised on each of the two units from
2017 onwards if Harworth is successful in letting the units quickly, at favourable rental levels and to occupiers with appropriate covenants.
The larger 225,000 sq. ft unit was let to Whistl in January 2017, only six weeks after the building was practically completed and a promote
fee will be recognised in 2017. The smaller 175,000 sq. ft unit is being actively marketed.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 35
The table below shows the results of the business split between Capital Growth, Income Generation and central overheads:
Revenue
Cost of sales
Overheads
Other operating expense
v
(Loss)/profit from operations
Valuation gain
Profit from disposals
Pension (charge)/credit
Share of profit of associate and joint ventures
v
Operating profit including joint ventures,
before exceptionals
v
Note: There are minor differences on some totals due to rounding
Capital
Growth
£m
Income
Generation
£m
Central
overheads
£m
FY 2016
Total
£m
FY 2015
Total
£m
16.3
(16.0)
(1.8)
–
(1.5)
24.2
7.6
–
–
30.2
17.4
(4.9)
(1.5)
(0.1)
10.9
10.0
1.3
–
0.6
22.7
–
–
(7.3)
–
(7.3)
–
–
(0.1)
–
(7.2)
33.7
(20.9)
(10.6)
(0.1)
2.2
34.2
8.9
(0.1)
0.6
45.8
16.7
(7.8)
(6.8)
–
2.1
28.9
11.5
0.1
–
42.6
Total overheads, which include the overhead costs of the Capital Growth and Income Generation segments and central costs, amounted
to £10.6m (2015: £6.8m). The increase in costs reflected: an increased accrual for the Executive Long Term Incentive Plan reflecting
continued NAV outperformance; a number of one-off costs associated with the share consolidation, capital reduction and recruitment; as
well as increased staffing and business costs reflecting greater and more productive operational activity.
Value gains, which comprise revaluation gains and profit on disposals, for 2015 and 2016 are set out below:
2016
Revaluation gains
£m
Major Developments
Strategic Land
Business Space
Natural Resources
Agricultural Land
v
Total
v
Profit on disposal
Management
Market
6.8
0.7
0.1
0.0
1.2
8.8
8.7
10.8
5.7
4.0
0.0
29.2
3.4
1.3
0.9
1.2
(1.1)
5.7
Total
18.9
12.8
6.7
5.2
0.1
43.7
2015
Underlying
21.0
4.7
6.9
5.4
2.4
40.4
The Group made sales of £58.9m in 2016 (2015: £51.1m), including £3.4m of deferred consideration, with profit on disposal of £8.9m
(2015: £11.5m). The proceeds were split between residential serviced plots (£20.5m), commercial development (£26.8m) and other,
essentially agricultural land, (£11.6m). All segments of the business made a profit on disposal with the largest profit on disposal resulting
from the sale of 43.7 acres at Logistics North to Lidl UK for £22.5m.
The Group achieved revaluation gains of £34.9m(2) (2015: £28.9m). In conjunction with our
valuers, BNP Paribas and Savills, we have split these gains to reflect the contribution from
management actions, £29.2m, and market movement, £5.7m. Whilst there is a degree of
subjectivity in this split, it highlights that the majority of the value gains come from
management actions. The market element of revaluation gains includes the effects of
2016 stamp duty charges, forecast to have impacted values across the portfolios by
£2.9m. The principal 2016 revaluation gains across the divisions were as follows:
• Major Developments – Healthy profit on disposal from Lidl UK at Logistics
North. Improved masterplan and tenant interest at Wheatley Hall Road, new
option agreement at Chatterley Valley, and cost savings at Harworth and
Flass Lane;
• Strategic Land – Signing of S106 and collaboration agreement at
Coalville. Planning application submitted at Thoresby;
• Business Space – Completion of pre-let and direct development at
Gateway 36. Improved lettings at other sites;
• Natural Resources – New lettings, particularly at Meriden; and
• Agricultural Land – Reduced land values predominantly on
former surface mine sites.
The resulting underlying operating profit for the Group, before
exceptional items, was £45.8m including share of profit of
associate and joint ventures (2015: £42.6m).
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS
36 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Financial review
continued
EXCEPTIONAL ITEMS
Exceptional items comprise four separate items, all of which largely relate to the Group’s legacy activities. With regard to Harworth
Insurance Company Limited, Harworth has now received £0.5m from the administrator, which essentially represents final settlement. In
addition, £0.2m has been received from the administrator of Ocanti Opco Limited which relates to the reimbursement of management
expenses incurred by Harworth (then known as Coalfield Resources plc). In respect of coal fines activities, an exceptional charge of £0.7m
has been taken to reflect the under recovery of amounts relating to the cessation of activities at Rugeley and a provision taken against the
value of coal fines stocks to reflect reduced demand.
Net assets
As set out below, net assets increased to £334.9m as at 31 December 2016 from £297.7m as at 31 December 2015.
Investment properties (including investments in joint ventures, assets held for sale, overages and
occupied properties)
Cash
Other assets
Total assets
Gross borrowings
Deferred tax liability
Other liabilities
Net assets
Number of shares in issue
Net assets per share
Underlying net assets per share
Underlying EPRA net assets per share
31 December
2016
£m
400.3
13.0
25.2
438.5
52.5
14.9
36.2
334.9
31 December
2015
£m
345.2
27.6
20.9
393.7
64.5
11.4
20.1
297.7
292,269,786
2,922,697,857
114.6p
114.6p
119.8p
10.2p
101.9p
105.8p
This increase was as a result of movements in the year, being operating profit of £45.8m(1) less interest costs of £2.3m, tax of £3.6m,
dividends of £2.2m and other movements of £0.5m. The graph below shows the movement between NAV and EPRA NAV at the start and
end of the year in pence per share.
120p
115p
110p
105p
100p
95p
90p
14.9p
3.9p
101.9p
0.8p
0.8p
0.2p
0.7p
5.2p
1.3p
114.6p
Opening NAV/
EPRA NAV
Profit from
Operations
Value Gains
Interest
Pension
Dividends
Tax/Swap
Movement
Closing NAV/
EPRA NAV
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 37
The table below sets out a reconciliation of the various constituent elements of our £400.3m of investment properties:
Investment properties (Note 17)
Joint ventures (Note 18)
Available for sale (Note 21)
Overages (Note 16)
Owner occupied (Note 15)
TOTAL
v
Opening
£m
Acquisitions
£m
Subsequent
Expenditure
£m
Change in fair
value
£m
Transfers
£m
Disposals
£m
334.6
0.8
9.1
0.7
–
345.2
22.5
9.1
–
–
–
31.7
22.7
–
1.6
–
–
24.2
33.7
0.6
(0.2)
0.7
–
34.9
(9.1)
–
8.3
–
0.8
–
(25.2)
–
(10.5)
–
–
(35.7)
Closing
£m
379.2
10.5
8.4
1.4
0.8
400.3
Note: There are minor differences on some totals due to rounding.
FINANCING AND FUNDING STRATEGY
On 13 February 2015, HEPGL entered into a £65m, five-year term, non-amortising, Revolving Credit Facility (RCF) with The Royal Bank of
Scotland (RBS), replacing amortising facilities with the Lloyds Banking Group and Barclays Bank. On 19 August 2016, HEPGL completed
a planned extension to its RCF with RBS, increasing the limit to £75m and extending the term by a further year such that it now expires in
February 2021, on substantially the same terms (including pricing) as the existing facility. This enhanced facility reflects confidence in the
business, providing both headroom and funds to accelerate the strategic growth of the Group.
Infrastructure funding, provided by public bodies to promote the development of major sites for employment and housing needs,
continues to feature in our funding strategy. At 31 December 2016, the Group had five infrastructure facilities with all-in funding rates of
between 2.4% and 4.0%. Since the EU referendum vote, public infrastructure funding has continued and we signed two facility
agreements to fund small direct build schemes at Logistics North and the Advanced Manufacturing Park in the second half of 2016.
Infrastructure spend is assessed against, and matched with, the quantum and timing of expected disposals.
On 21 June 2016, HEPGL entered into a four-year swap with RBS to fix £30m of borrowings at an all-in rate of 2.955%, including fees. The
swap is hedge accounted with any unrealised movements going through reserves. The Group’s hedging strategy is to have roughly half of
its debt at a fixed rate and half of its debt exposed to floating rates. The weighted average cost of debt, using 31 December 2016 balances
and rates, was 2.9% with a 0.8% non-utilisation fee on undrawn RCF amounts.
The Group’s cash and cash equivalents at 31 December 2016 were £13.0m (2015: £27.6m). The Group had borrowings and loans of
£52.5m at 31 December 2016 (2015: £64.5m), being the RBS RCF of £37.0m (2015: £49.0m) and infrastructure loans of £15.5m
(2015: £15.6m). The resulting net debt was £39.5m (2015: £37.0m).
The chart below shows the Group’s management of net debt during the year.
24.4
37.0
£m
£70
£60
£50
£40
£30
£20
£10
£0
9.1
(53.2)
23.2
2.2
39.5
(3.1)
Opening Net Debt
31/12/2015
Development
Spend
Disposal proceeds
Investment in JVs
Acquisitions
Cash and working
capital used
in operations
Dividends
Closing Net Debt
31/12/2016
The Group continues with its aim of balancing its cash flows by using disposal proceeds to fund infrastructure spend and investment
in acquisitions to replenish the portfolio, as well as improving its focus on brownfield sites with greater value enhancement potential.
The Group is also maintaining its policy of prudent gearing with gross Loan To Value (LTV) of 13.1% (2015: 18.7%) and net LTV of 9.9%
(2015: 10.7%). However, Capital Growth sites are deliberately not geared, so if gearing is just assessed against the value of Business
Space and Natural Resources properties this equates to gross LTV of 41.6% and net LTV of 31.3%.
Harworth’s policy of prudent gearing gives the Group the ability to complete acquisitions quickly, which is often a source of competitive
advantage. In addition, this policy of prudent gearing allows working capital swings to be appropriately managed given that infrastructure
spend is usually in advance of sales and thus net debt can increase by over £20m during the year.
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS
38 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Financial Review
continued
New Logistics 225 unit at Logistics North, Autumn 2016
TAXATION
The charge for taxation in the year was £3.6m (2015: £3.5m) comprising the deferred tax charge on forecast future capital gains arising on
the investment property portfolio. The Group does not currently pay cash tax as brought forward tax losses are still being utilised.
At 31 December 2016, the Group had deferred tax liabilities of £23.3m (2015: £11.4m) related to unrealised gains on investment properties.
As a result of additional work performed during the year, there is now greater certainty regarding the tax loss position and the expected
pattern of usage. The Group has therefore recognised a deferred tax asset of £8.4m (2015: £nil). The net deferred tax liability was £14.9m
(2015: £11.4m).
DIVIDENDS
At the Annual General Meeting on 26 April 2016, the full year proposed dividend for 2015 of £1.5m (0.051p per share), the reduction of
capital and the 1 for 10 share consolidation were approved. The capital reduction was subsequently approved by the court and the share
consolidation was effected on 3 May 2016. As a result, the 2015 full year dividend of £1.5m (now 0.51p per share) was paid on
9 September 2016.
A first interim dividend of £0.66m (0.23p per share) for the 2016 financial year was paid on 1 December 2016. A final dividend for the 2016
financial year of £1.53m (0.523p per share) is proposed. This gives a total dividend of £2.2m for 2016, a 10.0% increase over the 2015
annualised dividend of £2.0m, reflecting the growth in the business and the Board’s confidence in the future prospects for growth. The
final dividend will be paid on 30 May 2017 to Shareholders on the register as at 5 May 2017.
Andrew Kirkman
Finance Director
19 April 2017
Notes:
(1) Operating profit before exceptional items and including share of profit of associate and joint ventures.
(2) Increase/(decrease) in fair value of investment properties and assets held for sale (2016: £33.5m) together with other gains, being overages (£0.7m), and share of profit of associate and joint ventures (£0.6m).
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 39
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Members of Harworth’s Natural Resources Team, Spring 2017
40 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
How we manage our risks
The Board has ultimate responsibility for
determining the risk appetite of the Group and
for the implementation and regular review of
policies, processes and controls to mitigate
and manage risk. The Board recognises
that not all risks can be eliminated at an
acceptable cost and that there are some
risks which, given the nature of the Group’s
business and the growing track record and
experience of the team, it is prepared to
accept. The Board also acknowledges that
the Group’s insurance programme plays
an important part in mitigating the impact
of certain inherent risks which are neither
acceptable nor capable of removal.
Board: ultimate responsibility
for risk appetite and
management
Audit Committee:
periodic review of Group
Risk Register and
internal systems and
controls
Executive Committee:
responsible for monitoring
day-to-day risk profile and
ensuring implementation
of, adherence to, and
effectiveness of, internal
systems and controls
Senior management:
implementation of internal
systems and controls;
monitor and feedback to
Company Secretary on
operational risk profile and
effectiveness of controls.
Following the Company’s acquisition of Harworth Estates
in March 2015, the Group undertook a review of its
principal risks and the processes in place to manage
them. This led to the development of a Group Risk
Register, which identified risks within 8 categories:
strategic; operational; people; sites; markets; legal;
financial; and IT and communications. For each risk,
mitigating factors and controls already in place were
assessed and recorded and further mitigation steps were
identified. Risks were scored and graded on a “heat map”,
based on likelihood and impact, taking account of
mitigating factors already in place.
The Board has delegated to the Audit Committee
responsibility for periodic review of the Group Risk
Register and the Group’s internal control systems and
procedures. Since the establishment of the Group Risk
Register, it has been reviewed every six months by the
Audit Committee.
The Executive Committee has ultimate responsibility on a
day-to-day basis for the Group’s risk profile, the
implementation of, and adherence to, risk management
controls and procedures, and for monitoring the
continued effectiveness of the same. This includes a
six-monthly formal review following which
recommendations are made to inform the Audit
Committee’s similar periodic reviews. The Group
operates predominantly from a single office in Rotherham,
with a relatively small team and short reporting lines. As
such, members of the Executive Committee are closely
involved in day-to-day operations and so are often able to
identify new and changing risks and respond in a timely
manner. The Executive Committee is also informed by
regular feedback from its experienced senior
management team on existing and new operational risks
and the effectiveness of our internal controls and
procedures. Our Company Secretary facilitates the
process by which feedback is taken from the senior
management team, shared with the Executive Committee
and acted upon.
The establishment of the Group Risk Register forms the
core element of the Group’s risk management framework
but it was acknowledged in the 2015 Annual Report that
further steps would need to be taken to ensure that: (i) it
remains subject to regular review; (ii) risk management is
embedded within the business; and (iii) the further risk
mitigating steps identified in the register are actioned in a
timely fashion. A number of steps have been undertaken
since the publication of the 2015 Annual Report and
further action points have been identified for
implementation and progression in 2017.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 41
Key risk management initiatives since the publication of the 2015 Annual Report
• Establishment of regular review meetings between our Company Secretary and the senior management team to identify changes
in the operational risk profile of the Group and improvements that can and should be made to internal controls and processes.
• Establishment of a revised Delegated Authorities Policy.
• Review and refinement of the Group’s document approval, execution and records process.
•
Insurance broker re-tender and appointment, and comprehensive review of insurance programme.
Key risk management initiatives identified for implementation and/or progress in 2017
•
Implementation of additional internal controls identified by senior management teams.
• Further work on the newly established process for reviewing risk, internal controls and process with senior managers.
• An audit of the Group’s internal controls and processes in the second half of 2017.
Logistics North Works, Autumn 2016
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS 42 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
How we manage our risks
continued
PRINCIPAL RISKS AND UNCERTAINTIES
The Group Risk Register has been updated following a robust assessment by the Directors of the Group’s principal risks and
uncertainties, including those that would threaten its business model, future performance, solvency or liquidity. Those risks and
uncertainties are set out below.
KEY
Our estimate of the current level of risk. Risk is difficult to estimate with
accuracy and so may be more or less than indicated.
Current assessment of direction of travel of level of risk.
Low
Risk level
Medium
High
Increasing
Unchanged
Decreasing
Risks
Market risk
Controls and mitigation already in place
Further actions to be taken
The Group is exposed to the risk
of fluctuations in the property
market for the price of land.
There is diversity in the Group’s property portfolio,
both in terms of sector and geography. Regional
markets are typically less volatile than the London
market.
We will continue to grow and
strengthen our recurring income
portfolio to create stability during
periods of market downturn.
Current risk status
and change during
the year
We will continue to review the
composition of the Group’s portfolio
regularly.
Our cash flow forecasts provide for a
minimum £10m “buffer” throughout
the year.
Value gains are driven more by management
actions than market conditions.
We have an ability to control working capital
movements by managing the rate of acquisitions
and development expenditure.
We build headroom into our forecasts by
identifying potential alternative sales in the event
that planned sales do not proceed as quickly as
anticipated.
We monitor continuously, and maintain regular
and open dialogue with our agents and advisers in
relation to, prevailing market conditions.
Changes in political policy, such
as in relation to Brexit, the
Northern Powerhouse, HS2 and
Help To Buy, could have an
adverse impact on the Group’s
principal markets.
The diversity of the Group’s portfolio affords a
degree of mitigation to adverse political changes
in that, in response to changes affecting a
particular market (for example, coal fines sales),
the Group can leverage other markets (for
example, logistics space).
The Group will input into upcoming
Government consultations on key
policy matters, including those that
relate to the recent Housing White
Paper and Industrial Strategy.
The Group continues to make effective
representations with key industry bodies, including
the British Property Federation, the Royal
Institution of Chartered Surveyors and the Home
Builders Federation, to ensure that the effect of
any political policy changes is fully understood by
Government, thereby minimising the chances of
adverse policy changes being enacted.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 43
Risks
Financial risk
Controls and mitigation already in place
Further actions to be taken
Current risk status
and change during
the year
We will continue to build our income
portfolio via targeted income-
generating acquisitions, direct
development, and lease renewals and
re-gearing.
We are actively exploring development
management opportunities on certain
of our sites, which would lead to the
generation of development
management, promote and asset
management fees.
We have signed our first planning
promotion agreements and are in
advanced negotiations on a number
of other agreements. We are targeting
income from these agreements from
2018 onwards and are confident that
they will represent another resilient
income stream in the medium and
long term.
Further improvement in
communication of the strategic plan
throughout the business.
Increasing the regularity of strategic
updates by the Chief Executive to
the Board.
Reduced risk due to
mitigation undertaken
during the year.
Recruitment into the new roles
already identified by the Executive
Committee.
The Executive Committee carried out
a resources review during the first
quarter of 2017.
Increased risk
due to growth of
business requiring
resources review and
recruitment in 2017.
Volatility of the recurring income
stream from operations impacting
on banking covenants.
We have implemented more sophisticated
financial modelling and more robust financial
reporting systems.
We have taken steps to grow and strengthen our
recurring income in 2016 by: (i) acquiring
income-generating investment properties:
Advantage House (office), Moorland Gate and
Four Oaks (business parks); (ii) re-gearing existing
leases across our portfolio; and (iii) carrying out a
targeted amount of direct development.
Despite difficult market conditions, new coal fines
sales have been agreed with Drax and Uniper
(Ratcliffe) during 2016.
We have reached an “in principle” agreement with
RBS to include a share of income from our joint
ventures in covenant calculations. We anticipate
that this will be documented during 2017.
A detailed strategic review was undertaken by
the Board and Executive Committee in June
2016, with external input from Eden McCallum.
A further analysis was undertaken following the
result of the EU referendum. Both concluded
that the Group’s strategy was appropriate and
robust, notwithstanding volatility in the wider
economy.
The Executive Committee and Board also
carried out its annual 5-year financial and
strategic review exercise in November and
December as part of the budgeting process.
All papers submitted to the Board for approval
include an explanation as to how the proposal
outlined in the paper aligns with strategy.
Strategic risk
Failure or weakness of strategic
plan impacting on Group direction
with the potential influence of
extraneous factors such as
economic cycle.
Human resources risk
Insufficient human resource to
meet the strategic and operational
demands of a growing business,
with adverse impact on outcomes.
Whilst having a small team amplifies capacity and
“key-person” risks, it also means that the
Executive Committee can keep those risks under
close and continuous review.
In a small team, "key-person" risks
(eg. loss of key skills and
knowledge) are magnified.
b
The Nomination Committee carries out an annual
review of succession and development planning
for the Executive Committee and senior
management team, to ensure that such plans are
appropriate and robust.
Six strategic promotions were approved by the
Executive Committee at the end of 2016, which
creates more strength in depth in the senior
echelons of the business.
Performance reviews were carried out for all
employees who had worked in the business for
12 months or more.
The strategic planning process includes a review
of roles and responsibilities within the Group. This
year that process has led to our recruiting for
three new roles, two of which had been filled at
the date of this report. Every recruitment process
(whether for new or replacement roles) begins
with a detailed review of the role specification to
ensure that roles are complementary and drive
maximum efficiency across the business.
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS
44 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
How we manage our risks
continued
Risks
Operational risk
Given the nature of the Group’s
business, it faces a heightened
exposure to health and safety and
environmental risks, which can
have consequences from a
financial and reputational
perspective.
Current risk status
and change during
the year
Reduced risk due to
mitigation undertaken
during the year.
Controls and mitigation already in place
Further actions to be taken
A monthly Estates, Environmental and Safety
(EES) report is prepared and submitted by the
senior manager who leads our EES team to both
the Executive Committee and Board, which
includes updates on all environmental and health
and safety matters.
Our Environmental Manager will
complete his Waste Management
Industry Training and Advisory Board
qualification, which will enable him to
manage our waste licences in-house
pro-actively.
The Associate Director of EES meets with the
Board annually.
We have appointed an external health and safety
consultant who advises on all health and safety
issues across the business. He audits and
advises on site specific matters as well as Group
policy and procedures.
A review has been carried out during the year of
all of the Group’s Environmental Permits. This has
led to the surrender (or submission of applications
to surrender) of all redundant permits.
The EES team maintains a site risk register, which
is used to monitor the risk status of all sites and
informs remediation plans. A member of the EES
team inspects medium and high risk sites not less
than annually. High risk sites are inspected more
frequently based on the risk rating score.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 45
BUSINESS CONTINUITY ASSESSMENTS
The Directors have assessed the Group’s prospects, both as a
going concern and in the context of its viability longer term. This
assessment informs the following distinct statements:
1. The Directors considered it appropriate to adopt the going
concern basis of accounting in the preparation of the
Company’s and Group’s financial statements.
2. The Directors have a reasonable expectation that the
Company and the Group will be able to continue in operation
and meet its liabilities as they fall due over the period of their
assessment.
Both assessments are closely linked to the Directors’ robust
assessment of the principal risks facing the Group (including
those that would threaten its business model, future
performance, solvency or liquidity), which is outlined on
pages 42, 43 and 44.
GOING CONCERN STATEMENT
Accounting standards require that the Directors satisfy
themselves that it is reasonable for them to conclude whether it
is appropriate to prepare financial statements on a going
concern basis. There has been no material uncertainty identified
which would cast significant doubt upon the Group’s ability to
continue using the going concern basis of accounting for a
period of at least 12 months following the approval of this Annual
Report. In assessing going concern, the Directors take into
account the Group’s cash flows, solvency and liquidity positions
and borrowing facilities. At year end, the Group had cash and
cash equivalents of £13.0m, net debt of £39.5m and a net loan
to value of 9.9%. The Group has a £75m revolving credit facility
with RBS, which contains typical financial covenants and runs
until February 2021. At year end there was headroom of £38.0m
on that facility. It also had infrastructure loans totalling £15.6m at
the year-end. The financial position of the Group, including
information on cash flow, can be found in the Financial
Statements on pages 97 to 132. The equity placing undertaken
by the Company in March 2017 and referred to on page 15 had
a positive impact on the Group’s prospects, both as a going
concern and in the context of longer-term viability. In determining
whether there are material uncertainties, the Directors consider
the Group’s business activities, together with factors that are
likely to affect its future development and position (see Our
business model, Delivering on our strategy and our markets on
pages 4 and 5 ) and the Group’s principal risks and uncertainties
(see pages 42, 43 and 44).
VIABILITY STATEMENT
In accordance with provision C.2.2 of the 2014 revision of the
Code, the Directors have assessed the prospect of the Group
over a longer period than the 12 months required by the ‘Going
Concern’ provision. The Board conducted this review for a period
of five years ending 31 December 2021, with three years of
detailed assessment and two years of outline numbers. This
period was selected for the following reasons:
•
•
the Group’s strategic review covers a five-year period;
for a major scheme five years is a reasonable approximation
of the time taken from obtaining planning permission and
remediating the site to letting the property and/or developing
significant parts of the site; and
• most leases contain a five-year rent review pattern and
therefore five years allows for the forecasts to include the
reversion arising from those reviews.
The five-year strategic review focusses on the expected growth of
the business primarily in terms of NAV but also dividends. The
strategic review also considers the Group’s recurring income, cash
flows, covenant compliance (particulary interest cover), financing
headroom and other key financial ratios over the period. These
metrics are subject to sensitivity analysis which involves flexing a
number of the main assumptions underlying the forecast both
individually and in unison. The main assumptions relate to the
forecast supply and demand dynamics for the residential and
commercial property markets, and the availability of acquiring new,
particularly brownfield sites. Where appropriate, this analysis is
carried out to evaluate the potential impact of the Group’s principal
risks actually occurring. The five-year review also makes certain
assumptions about the normal level of capital recycling likely to
occur and considers whether additional financing facilities will be
required.
The principal risks that are considered relate to economic
assumptions, income generation variability and appropriate
staffing levels. Sensitivity analysis has been applied in terms of
income generation, cash flow and net asset value impacts,
particularly from changes in value gains. These risks are fairly well
balanced on the up and downside. No mitigating or remedial
actions have been identified but, if needed, more cash could be
generated through increased sales and/or reduced development
spend and acquisitions, and, if needed, such cash could be
targeted toward the acquisition of income generating properties.
Based on the results of this analysis, the Directors have a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the five-year
period of their assessment.
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS 46 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
46 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Harworth in the community
Regenerating large parts of the UK’s former industrial heartland regularly gives us the
opportunity to give something back to the communities we operate in. The following case
studies provide a reflection of some of the community work we perform alongside bringing
forward new development.
NEW APPRENTICESHIPS AT WAVERLEY
Starting in March 2016, we have helped fund the
University of Sheffield AMRC Training Centre’s new
‘Flexible Apprenticeship Programme’ – a programme
tailored to meet the needs of small businesses close to
Waverley and providing young people from the
Sheffield City Region with new apprenticeship
opportunities.
Working in conjunction with Sheffield Business Park,
the AMRC Training Centre – based at Waverley – we
have helped to create eight places on the new
programme for the first year. These places were
specifically awarded to business start-ups and small
employers who have not recruited an apprentice within
the last 12 months.
We part funded this programme through two sources.
In 2015, we won the £15,000 Lambert Smith Hampton
Enterprise Award for demonstrating how the proposed
Advanced Manufacturing Innovation District across
Sheffield and Rotherham will make the most of the
Government’s devolution programme, showcasing
innovative thinking in the property industry.
We then matched the prize money to create a £30,000
fund to enable local young people that are not in
education, employment or training, to get
apprenticeships with local advanced manufacturers
and a place at the AMRC Training Centre.
One of the firms that benefitted from this programme
was Sheffield-based Tribosonics, a growing small and
medium-sized enterprise (SME) that designs and
manufactures ultrasonic measurement and monitoring
devices. In addition, seven other SMEs had taken on
an apprentice from the programme by the end of 2016
to help create the workforce of the future.
AWARD-WINNING RESTORATION AT RUFFORD
Our Operations team has worked in close partnership
with the Nottinghamshire Wildlife Trust to transform the
former Rufford Colliery into a superb new open space
for local residents to enjoy, resulting in the programme
winning a Nottinghamshire ‘Green Guardians’ award.
The programme is Nottinghamshire’s largest ever
heathland re-creation programme – totalling over
100 hectares – to help restore the landscape of the
wider Sherwood Forest. Nearly five years in the making,
the restoration programme has brought a range of new
wildlife habitats to the site, whilst also creating a series
of new trails and public rights of way to encourage
public use.
All restoration ground works have been undertaken
under the guidance of an experienced ecologist in
order to minimise disruption to native species. This
resulted in works taking place outside of the nesting
season (February to mid-July) and all seeding and
planting undertaken so as to optimise potential
growing opportunities.
We have now extended our partnership with the Trust
to deliver the restoration of Thoresby Colliery’s
350-acre former spoil heap in line with a restoration
scheme previously agreed with Nottinghamshire
County Council. The scheme, which will take at least
two years to complete fully, will provide a series of new
public rights of way and a further raised viewing
platform that will offer spectacular views across the
entire Sherwood Forest and its immediate environs.
This remains an important part of our plans at
Thoresby, where we continue to consult, and work
closely with, the community, to maintain support for
our regeneration masterplan and proposals.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 47
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 47
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University of Sheffield AMRC at the AMP, Spring 2016
“The scale of habitat restoration required in Sherwood
Forest will require true partnership working and the
transformation of this site is a great example of what
can be achieved.”
Rob Fitzsimons, Chief Executive for Nottinghamshire Wildlife Trust
Restoration at the former Rufford Colliery, Summer 2016
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS
48 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Harworth and the environment
We take our environmental obligations extremely seriously, reflected in the extensive
remediation and restoration works we undertake on our brownfield developments, through
to minimising the greenhouse gas emissions resulting from our operations.
RESPONSIBLY MANAGING THE REDEVELOPMENT AND RESTORATION OF SITES
Harworth and its predecessor business has over twenty years’ experience in tackling large, complex, brownfield
sites. We have a reputation for delivering new developments responsibly, whilst also extracting value from
materials that can be recycled for uses elsewhere.
REMEDIATION AND RESTORATION
We work with a small number of trusted contractors to decontaminate previously polluted land and remove
dangerous underground structures at a range of brownfield sites across the UK – eventually preparing land for
redevelopment. Waverley’s redevelopment is the most striking example of the transformation of a site.
RE-USING PUBLIC ASSETS
We believe that former industrial assets should be retained to support future development uses where
practicable and Harworth has followed this principle across a number of its brownfield sites. Assets
reconditioned and reused for new purposes include railheads, substations, access roads and enhanced public
open spaces that surround our sites.
DEMOLITION
We are experts in project managing complex demolition works in a safe and efficient manner. Over the past three
years we have safely and successfully demolished the former Daw Mill Colliery in Warwickshire, formerly the UK’s
largest coal mine, the former Alcan Aluminium Smelter in Northumberland and also Harworth tower,
Nottinghamshire’s tallest building, at the former Harworth Colliery. We have also started demolition at the former
Thoresby and Kellingley colleries in preparation for redevelopment.
MATERIAL RECOVERY
Whether it is coal slurry, metals, concrete or fill material, we have the capability to extract the maximum value from
derelict land and property, raising revenue that can ultimately be put to preparing land for eventual redevelopment
whilst also being environmentally responsible. The team has been able to extract and sell over 1m tonnes of coal
slurry to power station operators to produce electricity between 2011 and 2016 – a material previously considered
as waste.
MINIMISING PUBLIC IMPACT
The team has been able to achieve all of this whilst minimising disruption to residents, businesses and other
Groups that are close to the sites that we are working on. We pride ourselves in maintaining clear communication
and professionalism through all stages of the development process, building on our track record as a responsible
regeneration Company.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 49
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REDUCING GREENHOUSE GAS EMISSIONS FROM OUR OPERATIONS
Harworth operates a Safety, Health and Environmental Management System (SHEMS) to ensure the effective
control of environmental risk and operates a management system to ensure environmental issues are considered
at all levels. The policy advocates the promotion of sustainable and environmental opportunities by active
resource management and waste minimisation.
We declared in our 2015 Annual Report and Financial Statements that we were aiming to improve environmental
performance in 2016 by implementing an improvement plan covering three discrete areas:
• examining the prospect of smart working to reduce staff fuel usage;
•
investing in energy efficient measures at our properties where these are cost effective, including the use of
LED and passive lighting systems where appropriate; and
• analysing opportunities to manage plant journeys more efficiently at operational sites.
We are pleased to report that we have reduced our greenhouse gas emissions year-on-year by over 20%
following the instigation of the following actions:
• smart working principles have been implemented whereby some staff have organised their diaries to
reduce unnecessary business miles to attempt to offset increasing staff numbers;
• we have isolated the electricity supply to buildings that are unoccupied, ensuring lighting or heating cannot
be accidentally left on; and
• our Operations team has markedly reduced yellow plant journeys on the sites it operates from.
This statement outlines the greenhouse gas emissions arising from our activities during the 2016 financial year
and follows the Environmental Reporting Guidelines set by the Department for Environment, Food and Rural
Affairs (DEFRA).
Emissions are reported in tonnes of CO2 equivalents (CO2e) and refer to three areas:
Scope 1 – Fuel use in vehicles for staff in pursuance of their duties;
Scope 2 – Gas oil used in plant at operational sites; and
Scope 3 – Electricity (non-rechargeable) usage on Harworth sites.
Scope 1
Scope 2
Scope 3
Total
Emission source
Fuel for staff vehicles
Gas oil used in plant
Electricity usage
Tonnes of
CO2e (2015)
224
1,744
854
2,822
Tonnes of
CO2e (2016)
243
1,326
639
2,208
We aim to further improve performance in 2017 by:
• continuing to monitor and encouraging a smart working programme where staff plan their business miles in
the most efficient way possible;
• ensuring that we operate all newly acquired properties as efficiently as possible; and
• continuing to use well maintained yellow plant and periodically review material recovery and recycling
techniques to ensure their effectiveness.
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS
50 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Our people
We recognise that, alongside our property portfolio, our people are our biggest asset. We have a small but
vastly experienced and dedicated team who help to drive consistent levels of value growth and income from
our property portfolio. We know how important it is that we listen to our employees, create an environment
in which they can develop their skills and experience, and reward them for their hard work and contribution.
EMPLOYEE NUMBERS AND COSTS
The average number of persons, including Executive Directors, employed by the Group and our staff costs are set out in Note 8 to the
financial statements.
ENGAGEMENT
In December 2015, we conducted our first employee survey covering a range of themes including communication, development, morale
and motivation. We implemented a number of initiatives in response to feedback from that survey, including a staff away-day which
focused on teamwork and communication, presentations to all employees following the Group’s interim and full-year results, a leadership
training programme for senior managers and increased investment in Continuous Personal Development (CPD) for all employees.
We repeated the survey in December 2016. There was a completion rate of 96%, well above the average for similar surveys, and
improved scores across all sections of the survey. We have identified further initiatives which we are looking to implement during 2017,
including the introduction of a Harworth newsletter and cascading Board feedback, market announcements and press releases to all
employees to improve communication and awareness throughout the business and to celebrate better our successes.
RECRUITMENT AND DEVELOPMENT
For every role, our recruitment process (whether for new or replacement roles) begins with a detailed review of the role specification to
ensure that roles are complementary and drive maximum efficiency across the business.
All of our employees have undertaken an externally facilitated personality profile exercise, which helps us to understand the dynamics of our
team and informs our recruitment of new employees and our plans for CPD of existing team members.
We aim to carry out performance reviews for all employees every year and all employees who had been with the Group for more than
12 months participated in a review during 2016.
In 2016, a significant number of our employees attended external training courses and, in some cases, gained professional qualifications.
Ten of our senior managers participated in an external leadership programme during the year, completing six modules covering topics such
as performance management and presentation skills. A second wave of 10 employees are about to start the programme. External
coaching is also available to our Executive Committee and senior management team and we encourage them all to use this resource from
time to time.
There were six strategic promotions at the end of 2016, reflecting the growing experience and capabilities as well as creating more strength
in depth, across the business.
It is important that we maintain enough, and the right mix of, resources for a growing business. During the first quarter of 2017, the
Executive Committee has carried out a review of resources, which will lead to us recruiting for a number of new roles over the coming
months, to track the growth of the business.
All employees
Senior management
Board Directors
1
12
1
7
12
40
Male
Female
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 51
EQUAL OPPORTUNITIES AND DIVERSITY
We operate an Equal Opportunities and Dignity at Work policy. We are committed to creating a working environment that is free from
discrimination, harassment and victimisation, where everyone feels valued and respected. We aim to promote equality and fairness for all in
our employment and to ensure that no job applicant or employee receives less favourable treatment or is disadvantaged on the grounds of
gender, race, disability, sexual orientation, religion or belief, age, and pregnancy or maternity.
We are committed to making reasonable adjustments for disabled employees and to giving full and fair consideration to disabled applicants
for roles in our business. We will provide equal opportunities for CPD and promotion within our business to any disabled employees.
We recognise the value of diversity and continue to take steps to encourage it throughout the business. The charts on the facing page
show a breakdown, by gender, of the Company’s Directors, the Group’s senior management team and all our employees at the end of
2016. Whilst we have already taken steps to promote diversity across the business, we recognise that we have a long way to go to
address historic imbalances. That said, selection for employment and promotion will continue to be based on merit and ability.
RECOGNITION AND REWARD
We offer a comprehensive employee benefits package for all employees, which includes a pension scheme with substantial employer
contributions, private medical insurance, life insurance and income protection.
During 2016, the Remuneration Committee approved the introduced of a share incentive plan for our senior management team and made
the first awards under that plan in April 2017. This will mirror aspects of the Executive Committee long-term incentive plan, thereby helping
to incentivise and reward our senior managers, whilst aligning their interests with those of Shareholders. The options which vest under this
plan will be satisfied by shares purchased in the market.
We are also proposing the introduction of an all-employee Save As You Earn scheme. If the scheme is approved by Shareholders at this
year’s Annual General Meeting, it will offer all employees the opportunity to save up to £500 a month over 3 years and then purchase
shares in the Company at a discount of 20% to the market price of the shares at the outset of the scheme. We see this as an important
and tangible way in which our employees can share in the Group’s success, to which they all contribute.
Health and safety
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Health and safety has an extremely high profile in our business. Our Chief Executive has ultimate responsibility for all health and safety
matters, but day-to-day review and management rests with our Estates, Environment and Safety (EES) team, led by our Associate
Director of EES.
Harworth’s Safety, Health and Environment Management System (SHEMS) is based on the Plan, Do, Check and Act model advocated
by the Health and Safety Executive (HSE).
The EES team maintains a “site risk register” which rates each of our sites as “low risk”, “medium risk” or “high risk”, from a health and
safety perspective. A medium or high risk rating recognises that action needs to be taken at the site, whether within a prescribed
timetable (medium risk sites) or immediately (high risk sites). All our low and medium risk sites are inspected at least annually and our
high risk-rated sites are inspected more regularly. Further proactive safety initiatives are undertaken in the form of health and safety
inspections and audits. The geographical spread of our sites is large and the type of sites is varied. Any issues reported, whether they
are incidents or accidents, are logged and appropriate follow up action is undertaken. This process is key to identifying areas for
improvement across the portfolio.
There were only six minor accidents recorded at our sites during the year. For completeness, this statistic includes accidents involving
contractors at our demolition sites, where our contractors take responsibility for health and safety whilst works are ongoing.
There were no RIDDOR accidents or incidents reported by Harworth during the year, although there was one RIDDOR report filed with
the HSE by one of our demolition contractors when a structure at our former Harworth colliery site failed to fall after the use of
explosives. Procedures for this eventuality were in place and followed and the demolition was completed using alternative means,
without further incident.
Meetings are held between our Chief Executive and the EES team monthly, following which our Associate Director of EES reports to
both our Executive Committee and the Board. He also meets with the Board in January of each year to report on key issues
encountered and actions undertaken during the previous year and priorities for the coming year.
During 2016 we engaged JPW Consultancy Limited, an external health and safety consultant, to advise on all health and safety issues
across the business on an ongoing basis, including site specific matters and Group policy and procedures.
The strategic report is approved by the Board and signed on its behalf by:
Owen Michaelson
Chief Executive
19 April 2017
CORPORATE GOVERNANCESTRATEGIC REPORTFINANCIAL STATEMENTS
52 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Corporate Governance
54 Board of Directors and Company Secretary
56 Chairman’s introduction
58 Statement of Corporate Governance
66 Directors’ Remuneration report
66 Chair’s introduction
68 Remuneration Policy – at a glance
72 Annual Remuneration report
80 Audit Committee report
84 Nomination Committee report
86 Directors’ report
91 Statement of Directors’ responsibilities
Advantage House, Autumn 2016
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 53
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FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
54 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Board of Directors and Company Secretary
Jonson Cox
Chairman
Owen Michaelson
Chief Executive
Andrew Kirkman
Finance Director
Lisa Clement
Anthony Donnelly
Senior Independent Director
Non-Executive Director
N R
Term of office
Joined the Board on
15 November 2010 as
Executive Chairman.
Non-Executive Chairman
since December 2012. Last
re-elected in April 2016. Chair
of the Nomination Committee.
Term of office
Joined the Board on 24 March
2015 having previously been
Chief Executive of HEPGL from
28 September 2012 and of the
Harworth Estates division of
UK Coal since August 2010.
Last re-elected in April 2016.
Term of office
Joined the Board on
1 January 2016. Elected in
April 2016.
R N
Term of office
Joined the Board on
15 December 2011. Last
re-elected in April 2016.
Appointed Chair of the
Remuneration Committee and
Senior Independent Director
on 1 October 2016. Formerly
Chair of the Audit Committee.
R A
Term of office
Joined the Board on 24 March
2015 having previously been
a Non-Executive Director of
HEPGL from 10 December
2012 and a Director of the
Harworth Estates division of
UK Coal from January 2011.
Last re-elected in April 2016.
Length of service
6 years 5 months
Length of service
2 years (6 years 5 months
including appointment to
HEPGL and Harworth Estates
division of UK Coal)
Length of service
1 year 3 months
Length of service
5 years 3 months
Length of service
2 years (6 years 3 months
including appointment to
HEPGL and Harworth Estates
division of UK Coal)
Independent
No
Independent
No
Independent
No
Independent
Yes
Independent
Yes
Skills and experience
Jonson’s early career was with
Royal Dutch Shell and Kelda
Group. He joined Anglian
Water as Chief Executive from
2004 until 2010. He was a
Non-Executive Director of
Wincanton plc from 2005 to
2014. In November 2012 he
was appointed Chairman of
the Water Services Regulation
Authority (Ofwat).
Jonson joined the Board in
2010 to lead the former UK
Coal plc through its 2012
restructuring. He has served
as Non-Executive Chairman
since the restructuring and
led the Company through its
2015 acquisition of Harworth
Estates.
Skills and experience
Owen has more than 25 years’
experience in the remediation
of brownfield land and has
held executive roles at the
Peel Group, Black Country
Properties and Viridor. Prior to
becoming the Chief Executive
of Harworth Group plc, he
took over the stand alone
operations of Harworth Estates
at the commencement of the
restructuring of the UK Coal
Group in August 2010. He
established the business as
a recognised developer of
brownfield land, before being
appointed to the Board of
Harworth Group plc following
its acquisition of Harworth
Estates in 2015.
Skills and experience
Prior to joining Harworth,
Andrew was Finance Director
of Viridor, the recycling and
renewable energy subsidiary
of Pennon Group plc, for five
years. He has also previously
held a number of other senior
finance roles, including Chief
Financial Officer at Balfour
Beatty Capital and Global
Head of Corporate Finance
at Bovis Lend Lease. Andrew
is a Fellow of the Institute
of Chartered Accountants
and has an MA in politics,
philosophy and economics
from Oxford University.
Skills and experience
Lisa was formerly Chief
Financial Officer of Sea
Containers Limited, Managing
Director of Capita Learning
and Development and has
held senior divisional roles
at Cendant Inc and BPP
Holdings plc.
Skills and experience
After early finance roles with
Scottish and Newcastle
Breweries from 1986, Anthony
joined Morrison Homes Limited
as Finance Director in 1990.
In 2000 he was appointed
Managing Director of
Scotland-based AWG Property
Limited. He has consequently
overseen the workout and
extraction of value from an
extensive commercial and
residential portfolio across
the UK and Ireland and its
transformation into a strategic
and income generating
portfolio.
External appointments
Chairman of Water Services
Regulation Authority (Ofwat)
and the Cory Group. Advisor
to I Squared Capital LLP.
External appointments
None
External appointments
None
External appointments
Director of Everything But The
Cow Limited.
External appointments
Director of various private
limited companies in the
AWG Group.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 55
KEY
A = member of the Audit Committee
N =
member of the Nomination Committee
R =
member of the Remuneration Committee
A =
Chair of the Audit Committee
N =
Chair of the Nomination Committee
R =
Chair of the Remuneration Committee
Steven Underwood
Martyn Bowes
Chris Birch
Andrew Cunningham
Non-Executive Director
Non-Executive Director
Non-Executive Director
A N
Term of office
Joined the Board on 26 April
2016. Appointed as Chair of
the Audit Committee with effect
from 1 October 2016.
R A
Term of office
Joined the Board on 2 August
2010. Last re-elected in April
2016.
Term of office
Joined the Board on 24 March
2015 having previously been
a Non-Executive Director of
HEPGL from 19 March 2013.
Last re-elected in April 2016.
Length of service
1 year
Length of service
6 years 8 months
Length of service
2 years (4 years including
appointment to HEPGL)
Group General Counsel and
Company Secretary
Term of office
Appointed on 6 June 2016
Independent
Yes
Skills and experience
Andrew graduated from
Cambridge University and
then trained as a chartered
accountant with Deloitte
Haskins and Sells (a
predecessor firm of PwC). In
1989 he was made a corporate
finance and audit partner.
In 1996 he was appointed
Finance Director of Grainger
plc, which was to become the
UK’s largest listed residential
investor, and then Chief
Executive in 2009. He retired
from Grainger at the end of
2015. Andrew is a Fellow
of the Institute of Chartered
Accountants and of the
Royal Institution of Chartered
Surveyors.
Independent
No, representative of the Peel
Group
Skills and experience
Steven is Chief Executive of
the Peel Group of companies
and brings to the Board the
extensive experience of the
Peel Group in brownfield land
remediation and regeneration.
Independent
No, representative of the PPF
Skills and experience
Martyn originally trained as an
accountant and as a banker.
He has spent the majority of
his career in banking, most
recently from 2001 to 2007
with Barclays Capital as
Managing Director, Real Estate
Finance. Since leaving Barclays
he has pursued a portfolio
business career, which in
2012 involved a takeover with
fellow Directors of the South of
England based Welbeck Land
real estate business. Martyn
now acts as Finance Director
for Welbeck Land and also
maintains other interests in
debt advisory and healthcare.
Skills and experience
Chris graduated from Sheffield
University in 2003 with a first
class LLB and a distinction in
the Legal Practice Course. He
joined Eversheds LLP, where
he qualified as a solicitor in
2005 and spent 12 years as a
corporate restructuring lawyer,
before joining Harworth as
Group General Counsel and
Company Secretary in June
2016.
External appointments
The Banks Group Limited,
Cussins Limited, and
Cussins (North East)
Limited. Commissioner at The
Port of Blyth.
External appointments
Alternate Director of Intu
Properties plc. Director
of multiple private limited
companies, mostly connected
to the Peel Group.
External appointments
Director of multiple private
limited companies in the
Welbeck Land Group.
Non-Executive Director at
Clouston Group and Conger
Finance Limited.
External appointments
None
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 56 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Chairman’s introduction
Dear Shareholder,
On behalf of the Board, I am pleased to present the
Company’s Corporate Governance Statement.
It comprises the Statement of Corporate Governance,
the Directors’ Remuneration report, the Audit Committee
report, the Nomination Committee report and the
Directors’ report. The Board is accountable to
Shareholders for good corporate governance. We
recognise the importance of good governance as a
foundation for long-term value growth and are committed
to demonstrating high standards in this regard.
These reports explain the governance framework and
policies we have established and, importantly, continue
to review and develop.
While the Company remains a standard listed Company
on the London Stock Exchange, it aims to comply with
the UK Corporate Governance Code (the Code). I am
pleased to report that, save as explained in the Directors’
report on page 90, the Company has complied with the
2014 Code for the period under review. The revised Code
was released in April 2016 and applies to financial periods
beginning on or after 17 June 2016. Changes are being
made to the Company’s policies and procedures to
ensure its continued compliance with the revised Code.
COMPOSITION OF THE BOARD
As reported in last year’s annual report, Andrew Kirkman
was appointed to the Board on 1 January 2016 as
Finance Director. Some of the work Andrew has
undertaken during the year has helped to improve the
effectiveness of the Board in monitoring the operational
and financial performance of the Group.
Peter Hickson stepped down as Senior Independent
Director at the 2016 Annual General Meeting, having
served on the Board since July 2011. We were delighted
to welcome Andrew Cunningham as an independent
Non-Executive Director in his place. Lisa Clement has
taken on the role of Senior Independent Director. We also
took the opportunity to rotate the chairs of the
Remuneration and Audit Committees. With effect from
1 October 2016, Andrew Cunningham was appointed
chair of the Audit Committee, which enabled Lisa to be
appointed as chair of the Remuneration Committee. I
continue to chair the Nomination Committee.
We continue to adopt best practice of submitting all
Directors for re-election at the Annual General Meeting.
The Nomination Committee has carried out another
annual review of succession planning and development
during the year, with a view to developing a pipeline of
potential future leaders and helping all employees reach
their full potential. Encouraging greater diversity
throughout the business also has a significant part to play
in our succession planning. The Board recognises the
value that can be derived from a broader range of ideas,
skills, experience and perspectives and is striving for a
better balance at all levels within the business, in terms of
gender and ethnicity. This continues to be an ongoing
exercise.
LEADERSHIP AND ACCOUNTABILITY
We aim to deliver above market growth with the
foundation of a strong balance sheet and a business
capable of surviving property market fluctuations with a
strong recurring income stream. We set ourselves
stretching strategic and financial objectives but within a
culture of robust risk management.
The Board adds value through constructive dialogue with,
and challenge to, the Executive Directors and wider
Executive Committee to create accountability and drive
performance. To that end, the composition of the Board
is important. We recognise that it must include a balance
of skills and experience to facilitate the objectives of the
Company and that all Directors must have a good
knowledge of the Company’s business and the markets
in which it operates. We have introduced a timetable of
site visits for our Non-Executive Directors throughout the
year. These visits help to improve knowledge and
understanding of our sites and, at the same time, are an
opportunity for our Non-Executive Directors to get to
know better the operational teams driving value growth
from our portfolio.
There has been a strong focus on strategy and risk
management this year. The Audit Committee has
overseen the appointment of new insurance brokers
after a competitive tendering process, a comprehensive
review of the Group’s insurance programme and the first
steps towards implementing more frequent and rigorous
reviews of risk and more robust risk management at an
operational level. The Audit Committee report on
pages 80 to 83 contains further details. There has also
been a review of the Company’s delegated authorities
policy which has led to revisions to define more
precisely Board reserved matters.
The Board undertook its annual, comprehensive review of
the Group’s strategy in June with external input from
Eden McCallum. That review re-affirmed the
fundamentals of the Group’s long-term strategy, which is
outlined in the Strategic Report on page 4. The strategy
was revisited following the EU referendum result, but the
Board concluded that it remains robust and appropriate.
We believe the medium-term outlook is positive given the
market fundamentals for both housing and logistics
remain strong.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 57
We strive for continuous improvements in the way the
Board operates. We have given some structure to our
annual Board evaluation by using an online platform
designed by “Evalu8” and tailored by me and the
Company Secretary. We have analysed the results of our
latest evaluation and will implement action points to
address the areas it has identified for improvement. We
are also beginning to plan for Board successions.
REMUNERATION
Our Executive Director remuneration policy and
arrangements are designed to support the Group’s
objectives. We continue to believe that the current
remuneration packages are appropriate for incentivising
management to drive long-term value growth. The
Remuneration Policy tabled at the 2016 Annual General
Meeting received overwhelming support from
Shareholders. A summary of the policy appears at
pages 68 to 71.
ANNUAL GENERAL MEETING
Our Annual General Meeting will be held at 11.00 a.m. on
Wednesday 24 May 2017 at The Bessemer Conference
Room, AMP Technology Centre, Advanced
Manufacturing Park, Brunel Way, Waverley, Rotherham,
S60 5WG. I would like to encourage all Shareholders to
attend and look forward to meeting as many of you as
possible.
Jonson Cox
Chairman
19 April 2017
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 58 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Statement of Corporate Governance
Nomination
Committee
Audit
Committee
Remuneration
Committee
Board
Executive
Directors
Executive
Committee
Oversight, guidance and
challenge
Operational and functional
management
ROLE OF THE BOARD
The Company is headed by a Board of Directors. Its key responsibilities are summarised in the table below. During the year, the Board,
assisted by the Company Secretary, carried out a comprehensive review of the Group’s delegated authorities policy, which includes
matters reserved for the Board. Examples of Board reserved matters are also set out in the table below.
Key responsibilities
Examples of reserved matters
• Set objectives and strategy for delivery of value to
• Group strategy and budgets.
Shareholders.
• Monitor management performance against strategy and
targets.
• Provide constructive challenge to management proposals
and activity.
• Stewardship of the Group’s resources and overall
responsibility for management of the Group.
• Ultimate responsibility for risk appetite and management.
• Constitution, corporate Group, capital structure.
• Annual and half-year accounts and reports, and the declaration
of dividends.
• The Group’s principal banking facilities and hedging
arrangements.
• Material sales, lettings, acquisitions and joint ventures.
• Risk appetite and insurance programme.
• Appointment of Non-Executive Directors, Executive Directors
and Company Secretary.
• Policies relating to bribery, modern slavery and business
continuity.
The Board has delegated certain responsibilities to the Remuneration, Audit and Nomination Committees. The terms of reference of those
Committees can be found on the Group’s website at www.harworthgroup.com/investors/governance.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 59
ROLE OF THE EXECUTIVE COMMITTEE
The Executive Committee has responsibility for day-to-
day management of the Group’s business, with reference
to, and challenge from, the Board on Board reserved
matters. It comprises the Chief Executive, Finance
Director and Company Secretary, together with: the
Managing Director, Capital Growth; the Executive
Director, Income Generation; and the Director,
Acquisitions. The Group’s delegated authorities and
reporting structure below Board level (which was also
reviewed and revised last year) ensures that decisions are
made by the most appropriate people within the
business, with eight senior managers reporting into the
Executive Committee.
During the year, the Chairman led an evaluation of the
Executive Committee, with the assistance of an external
consultant. That process was designed to identify both
strengths and weaknesses in the way the Executive
Committee operates and, going forward, will help to
enhance its effectiveness.
COMPOSITION OF THE BOARD
Non-independent
Non-Executive
Directors, 2
Chairman, 1
INDEPENDENCE
The Code recommends that, as a Company outside of
the FTSE 350, the Company should have at least two
independent Non-Executive Directors. The Board
considers that Lisa Clement, Anthony Donnelly and
Andrew Cunningham are independent and, as such,
considers that the current balance of independent and
non-independent Board members is appropriate. This
will be kept under review.
The Board recognises that Steven Underwood, who is a
Director and representative of the Peel Group, which is the
largest Shareholder in the Company, and Martyn Bowes,
who is the representative of the Pension Protection Fund,
which holds 25% of the issued capital, are not
independent. The Board considers that their skills and
experience are relevant to the business and they contribute
to the realisation of the Group’s strategy. Both Shareholder
relationships are governed by relationship agreements.
The Chairman, who held the role as an executive of the
Company prior to the restructuring of the UK Coal Group in
2012, now continues the role in a non-executive capacity,
but the Board recognises that he is not independent.
Executive
Directors, 2
Independent
Non-Executive
Directors, 3
The Board is made up of the Chairman, Chief Executive,
Finance Director and five Non-Executive Directors. The
Directors’ biographies appear on pages 54 and 55.
The Board considers that its Non-Executive Directors
bring the requisite judgement, knowledge and experience
to the Board’s deliberations. They have no financial or
contractual interests in the Group, other than interests in
Ordinary Shares as disclosed in the Directors’ interests in
Ordinary Shares section of the Directors’ Remuneration
report at page 79.
The composition of the Board is reviewed annually by the
Nomination Committee to ensure an effective balance of
skills and experience on the Board.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
60 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Statement of Corporate Governance
continued
Role/Committee
Chairman
Jonson Cox
Chief Executive
Owen Michaelson
Finance Director
Andrew Kirkman
Key responsibilities
• Overall leadership of the Board, with responsibility for ensuring its effectiveness by facilitating a
constructive dialogue between the Board and the Executive Committee
• Ensures that a fixed schedule of matters is retained for the Board’s review and approval
• Sets the annual Board agenda programme and Board meeting agendas, with support from the
Company Secretary, and ensures that there is adequate time available for discussion of agenda
items
• Ensures there is ongoing and effective communication with Shareholders
• Responsible for all operational matters within the parameters of the authorities delegated by the
Board
• Leads on the formulation of strategy which, once agreed by the Board, falls to him to implement
• Leads and chairs the Executive Committee
• Responsible for the Group’s risk profile, including health and safety and environmental policies,
procedures and matters
• Ensures that the Board is appraised of all material matters
• Responsible for the Company’s profile with Shareholders
• Responsible for social and ethical matters within the Group
• Responsible for formulation and implementation of people strategy
• Supports the Chief Executive on strategy and risk
• Leads on all financial matters, including tax and treasury
• Responsible for leading the raising of any new equity capital
• Leads on investor relations
• Reviews the financial analysis of all major transactions including acquisitions, sales and capital
investments
• Responsible for insurance and pensions, in conjunction with the Company Secretary
• Responsible for controls, systems and processes, in conjunction with the Company Secretary
Senior Independent Director
• Provides a sounding board for the Chairman
Lisa Clement
• Acts as an intermediary for other Non-Executive Directors
Non-Executive Directors
• Help to formulate a strategy for the Group and monitor the delivery of that strategy
• Available to Shareholders if they have concerns where communication through the Chairman or
Executive Directors is not successful or appropriate
Lisa Clement
Anthony Donnelly
Andrew Cunningham
Steven Underwood
Martyn Bowes
• Provide constructive challenge to the Executive Directors on matters referred to the Board
• Scrutinise the performance of the business against the strategy, agreed objectives and targets
• Review and scrutinise financial information and internal risk controls
• Available for meetings if requested by major Shareholders
Remuneration Committee
• Determines and agrees with the Board the Company’s remuneration policy for Executive
Lisa Clement (chair)
Anthony Donnelly
Jonson Cox
Steven Underwood
Directors
• Determines the salaries, bonuses, long-term incentive arrangements, pension arrangements
other benefits and contract terms of the Executive Directors and members of the Executive
Committee
• Carries out an annual review of benefits available to all Group employees
• Responsible for changes to certain Group-wide employee policies
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 61
Role/Committee
Nomination Committee
Jonson Cox (chair)
Lisa Clement
Andrew Cunningham
Audit Committee
Andrew Cunningham (chair)
Anthony Donnelly
Steven Underwood
Group General Counsel and
Company Secretary
Chris Birch
Key responsibilities
• Leads the process for Board appointments by making recommendations to the Board, both for
filling Board vacancies and appointing additional persons to the Board, following evaluation of
the balance of skills, knowledge and experience on the Board
• At least annually, carries out a review of succession and development planning for the Executive
Directors, the Chairman and Non-Executive Directors, members of the Executive Committee
and certain senior managers, to maintain an appropriate balance of skills and experience on the
Board and in the business
• Considers and makes recommendations to the Board on its composition, balance and
membership and on the re-appointment by Shareholders of any Director
Note: the Chairman will not chair the Committee when it deals with the appointment of a successor
to the chairmanship. This process will be led by the Senior Independent Director
• Reviews the integrity of the Company’s annual and interim reports, preliminary results
announcements and any other formal announcements relating to its financial performance
• Reviews the effectiveness of the Group’s system of internal financial and risk controls and the
Group’s insurance programme
• Reviews the independence and effectiveness of the Company’s external auditors and makes
recommendations to the Board on the auditors’ remuneration
• Considers matters relating to the appointment of the Company’s auditors and the independence
of the auditors
• Reviews and updates the Group’s risk register
• Reviews the Group’s anti-bribery policy and other policies relating to financial security, business
ethics and compliance
• Secretary to the Board and its committees
• Ensures that all Board reserved matters are referred to the Board for review and approval and
that all Board procedures are complied with
• Advises on regulatory compliance and Corporate Governance
• Prepares Board and committee agendas and collates and distributes papers
• Available to advise the Directors on all legal and compliance matters
• Assists the Chairman with Board evaluations and Director inductions and development
• Responsible for controls, systems and processes, in conjunction with the Finance Director
• Responsible for insurance and pensions, in conjunction with the Finance Director
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
62 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Statement of Corporate Governance
continued
BOARD DIVERSITY
The Board recognises that, to enable it to meet its
responsibilities, it is important that the Board’s
composition is sufficiently diverse so as to reflect a broad
range of skills, knowledge and experience.
The Board is conscious of the fact there is only one
woman and no individuals of an ethnic minority amongst
the Board and Executive Committee. The Board is
committed to increasing the representation of women
and ethnic minorities on the Board and in senior positions
in the Company. The Board has not, and will not, set
arbitrary numerical targets for diversity and future
appointments will continue to be made based on
objective criteria to ensure that the best candidates are
appointed for all roles. Diversity is and will, however,
remain an active and important consideration in all
succession plans and when appointments are to be
made to the Board and Executive Committee.
INSURANCE AND ADVICE FOR DIRECTORS
The Company maintains an appropriate level of Directors’
and officers’ insurance for claims made against the
Directors in that capacity. That insurance does not
extend to fraudulent or dishonest activity.
All Directors have access to the advice and services of
the Company Secretary. The Board has established a
procedure by which any Director, for the purpose of
furthering his or her duties, may take independent
professional advice at the Company’s expense. No
Director had reason to use this facility in 2016.
CONTRACTUAL TERMS AND CONDITIONS
The Chief Executive and the Finance Director have
service contracts, which may be terminated by the
Company on not more than six months’ notice.
Termination of the Chairman’s appointment is also
subject to six months’ notice, whilst the appointments of
all other Non-Executive Directors are subject to three
months’ notice. There are no Directors on fixed term
contracts. There are no contractual clauses that give any
of the Directors an entitlement to compensation
exceeding their due payment in lieu of notice.
EXTERNAL APPOINTMENTS, CONFLICTS OF
INTEREST AND TIME COMMITMENT
Upon appointment, each Director is required to notify the
Company of its external board appointments, other
significant commitments and any actual or potential
conflict of interest. Where a Director proposes to take on
additional external responsibilities, the Chairman and
Chief Executive, with advice from the Company
Secretary, consider whether such appointment could
give rise to potential conflicts of interest. Each Director
has an opportunity to disclose actual or potential conflicts
of interests to the Board, either by way of general notice
or at the beginning of each Board meeting and Board
committee meeting. The Articles of Association provide
that the Board can authorise actual and potential conflicts
of interest of Directors.
Steven Underwood and Martyn Bowes are Board
representatives of Peel and the Pension Protection Fund
respectively. The Board has approved any actual or
potential conflicts of interest that may arise as a result
thereof.
Steven Underwood has previously declared by way of
general notice, and the Board has approved, a potential
conflict of interest arising from the fact that he is Peel’s
Board representative and an executive Director of a
number of Peel companies, including Peel Environmental
Limited, with whom Harworth Estates Limited has
entered into certain joint venture arrangements for the
delivery of waste to energy schemes at five of the
Group’s sites. No actual conflict of interest has arisen.
During the year, Andrew Cunningham declared by way of
general notice, and the Board has approved, a potential
conflict of interest arising from his appointment as
Non-Executive Director of The Banks Group Limited and
the fact that Harworth Estates Limited has entered into a
joint venture arrangement with Banks Property Limited
for the remediation, promotion and sale of land at the
former Bates Colliery in Blyth. No actual conflict of
interest has arisen. Andrew Cunningham has also made
a general declaration of interest in connection with his
appointment as a Commissioner of The Port of Blyth, but
no conflict of interest has arisen in this regard.
The Executive Directors are also Directors of a number of
Group subsidiary companies.
Where actual or potential conflicts of interest arise, the
relevant Director is excluded from discussions and voting
on the subject matter that gives rise to the conflict.
Each Non-Executive Director is aware of the need to
allocate sufficient time to the Company to discharge their
responsibilities effectively. In addition to Board and Board
committee meetings, a programme of site visits has
recently been introduced to give Non-Executive Directors
a better understanding of the Group’s key sites and afford
them an opportunity to get to know better more of the
Group’s employees.
TENURE AND RE-ELECTION
The Articles of Association of the Company provide that
one third of the Directors should be subject to re-election
by Shareholders. The Board considers it good practice
for all Directors to be subject to re-election at every
Annual General Meeting and, as such, all Directors will
stand for election or re-election by Shareholders at the
2017 Annual General Meeting.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 63
The terms of appointment of all Directors appear on
pages 54 and 55. Those terms range from one year to six
years. The Board is mindful that, under the Code,
Non-Executive Directors will be deemed to lose their
independence after nine years in office and, as such,
succession planning is underway.
EFFECTIVENESS
Induction, professional development
and external advice
The Chairman and the Company Secretary are
responsible for preparing and coordinating an induction
programme when new Directors are appointed to the
Board. Andrew Cunningham participated in that
programme following his appointment during the year.
The members of the Remuneration Committee receive
updates and advice from the Company’s remuneration
advisers, Kepler Associates. The members of the Audit
Committee receive periodic updates from the Company’s
auditors, PricewaterhouseCoopers LLP including
comments on the Group’s internal controls. The
Company Secretary also provides updates to the Board
and the Board committees on governance and regulatory
changes, such as the coming into force and effect of the
Market Abuse Regulation during 2016. Our recent Board
evaluation highlighted that further work needs to be done
to formalise our programme of CPD for Directors. This will
be looked at in the second half of 2017.
Performance evaluation
The performance of the Board and Board committees has
historically been reviewed by the Board on an informal basis
throughout the year, with matters requiring attention
identified and addressed promptly. A formal evaluation
process has now been put in place, using the Evalu8 online
platform. A full Board evaluation has been undertaken and
the results have been analysed and fed back to the Board.
Action points have been identified to address areas
identified for improvement. Similar evaluations will be
initiated for each of the Board committees and the
Chairman over the next 12 months. In each case, they will
be conducted by the committee Chair, with assistance from
the Company Secretary.
Thereafter, internal evaluations of the Board and the
Chairman will be undertaken annually, evaluations of each
Committee will be undertaken bi-annually and 360 reviews
will be undertaken by Non-Executive Directors periodically.
An external Board evaluation will be undertaken every
3 years.
A meeting of the Non-Executive Directors, led by the
Chairman, takes place at least annually, to appraise the
performance of the Executive Directors. Similarly, a
meeting of Non-Executive Directors, except the Chairman
and led by the Senior Independent Director, is held
annually to appraise the performance of the Chairman.
Strategy, budget and Board information
The Board engages in a robust process annually to review and approve the Group’s strategy and annual budget. The
Board and Executive Committee undertook a detailed review of strategy, with external input from Eden McCallum, in
June. The strategy will continue to be subject to internal, annual reviews, with external input periodically. In the context
of the Group’s agreed strategy, a draft budget is prepared by the Executive Committee and presented to the Board in
November each year for the following financial year. The Board provides comment and challenge, which is
incorporated into a revised draft for further Board review and approval in December. Activities and performance of the
business is then monitored by the Board throughout the year against the approved strategy and budget.
Board and Committee papers are circulated both in soft and hard copies in advance of each meeting so that all
Directors are fully briefed. Papers are supplemented by reports and presentations, as appropriate. The papers include
monthly reports from the Chief Executive and Finance Director, the latter including monthly financial management
information to enable the Board to monitor performance against the approved budget and strategy. Quarterly updates
are given to the Board, on a rotating basis and both in writing and in person, by the Managing Director, Capital
Growth; the Executive Director, Income Generation; and the Director, Acquisitions. An annual update report is given,
both in writing and in person, by the Associate Director for EES, who has divisional responsibility for environmental and
health and safety matters.
Following feedback from Non-Executive Directors during this year, the Company Secretary has implemented a process
by which Board papers are circulated not less than one full week prior to each meeting. The quality, consistency and
presentation of Board papers has also been reviewed and improved during the year. The Company Secretary maintains
an “Action Schedule” which records action points agreed at Board meetings. That schedule, together with the minutes
of each meeting are reviewed by the Chairman and then, at the following Board meeting, the wider Board.
Chairman agrees
meeting agenda
with Company
Secretary
Board papers
are circulated
in advance of
meeting
Board meetings
(11 times annually)
Draft minutes
prepared and
Action Schedule
updated by
Company
Secretary
Chairman reviews
and approves
minutes and
Action Schedule
Minutes and
Action Schedule
included in papers
and approved at
following Board
meeting
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 64 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Statement of Corporate Governance
continued
ATTENDANCE AT BOARD MEETINGS
There were 11 regular Board meetings scheduled during 2016 and additional meetings held by conference call in July
and August, following the result of the EU Referendum. Attendance by individual Directors at Board meetings is shown
in the table opposite. A timetable of site visits by Non-Executive Directors has also been introduced.
Number of meetings attended
Attendance
13/13
13/13
13/13
12/13
13/13
13/13
12/13
9/9
3/3
100%
100%
100%
92%
100%
100%
92%
100%
100%
Cash management
Treasury actions of the Company are limited and
controlled jointly by the Finance Director, Chief
Executive and Company Secretary who are responsible
for placing deposits, for arranging borrowings and for
making payments.
Risk register
In March 2015 the Group undertook a review of its risks
and risk management processes, facilitated by
PricewaterhouseCoopers LLP. This led to the
establishment of a Group risk register, which the Audit
Committee reviews at least every six months. A more
robust structure has now been put in place at an
operational level so that risks are reviewed regularly by
team leaders, in conjunction with the Company
Secretary. This process at an operational level informs
updates to the Group risk register and identifies
additional and better internal controls and processes for
risk management. Further details are set out in the
Strategic Report at pages 40 and 41 and in the Audit
Committee report at pages 82 and 83.
Jonson Cox
Owen Michaelson
Andrew Kirkman
Lisa Clement
Anthony Donnelly
Steven Underwood
Martyn Bowes
Andrew Cunningham
Peter Hickson
INTERNAL CONTROLS AND RISK
The Board acknowledges its responsibility for
identifying business risks, determining risk appetite and
ensuring the maintenance of a robust systems of
internal controls and risk management. The Strategic
Report on pages 42 to 44 comments on the principal
risks facing the Group. The Group has put in place a
number of processes and controls, which are reviewed
regularly by the Executive Committee and senior
management team. Material changes to internal controls
are reported to the Board. The Strategic Report at
pages 40 and 41 and the Audit Committee report, on
pages 82 and 83, describe in detail how risks are
monitored and managed in the business. The principal
internal controls of the Group are summarised below.
Delegated authorities
The Company’s delegated authorities policy, which
determines matters reserved exclusively for the Board,
also provides a framework for decision-making
throughout the business, was reviewed and revised
during the year. As a result, Board reserved matters and
authority levels throughout the business are defined
more precisely.
Document approval and execution
In conjunction with the review of and revisions to the
delegated authorities policy, the internal process for
approval and execution of legal documents has been
revisited and strengthened. Once transactions have been
approved in accordance with the delegated authority
policy, legal documents must be executed by one or two
(as appropriate) members of the Executive Committee.
The Company Secretary is notified of, and maintains a
record of, all legal documents executed on behalf of
Group companies and this record is reported to the
Board in the Board meeting papers each month.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 65
COMMUNICATION WITH SHAREHOLDERS
The Board places great emphasis on open and regular
communications with Shareholders. The Chief Executive
and Finance Director meet and present to large investors,
institutional Shareholders and analysts after the
publication of the Company’s preliminary and interim
results. The Company also hosted a capital markets
morning in January 2017 in London for existing and
potential institutional Shareholders.
The Board regularly receives feedback from the
Company’s brokers and the Executive Directors on the
views of major Shareholders, particularly after publication
of annual and half-year results. It receives reports at each
Board meeting on the main changes to the composition
of the Company’s share register and copies of notes
prepared by analysts.
The Chairman and Senior Independent Director are
available to meet with the Company’s Shareholders, on
request, to discuss governance and strategy. The
Company Secretary is also available and deals with
Shareholder queries throughout the year.
The Company has a planned programme of
announcements throughout the year, prepared by our
Associate Directors of Group Partnerships and
Communications and approved by the Executive
Committee, and, where appropriate, the Board to ensure
that investors are updated regularly on progress in the
business. The annual and interim reports, together with
the www.harworthgroup.com website, are our principal
means of communication with all Shareholders during the
year. Copies of all reports, Shareholder presentations and
communications are available on the investors section of
the website.
ANNUAL GENERAL MEETING
The Board encourages Shareholders to attend,
participate and exercise their right to vote at the Annual
General Meeting. The Annual Report and Financial
Statements and Notice of Annual General Meeting are
sent to Shareholders at least 20 working days before
the meeting.
The resolutions to be proposed at the 2017 Annual
General Meeting to be held on 24 May 2017, together
with the explanatory notes, appear in the separate Notice
of Annual General Meeting accompanying this Annual
Report. The Notice is also available on our website at
www.harworthgroup.com/investors/reports-presentations.
Separate resolutions are proposed on each substantially
separate issue. All Directors normally attend the Annual
General Meeting and are available to answer questions,
both formally during the meeting and informally both
before and after the meeting. The Board welcomes
questions from Shareholders, whether asked formally or
informally before, during or after the meeting.
For each resolution the proxy appointment forms provide
Shareholders with the option to direct their proxy vote
either for or against the resolution or to withhold their vote.
All valid proxy appointments are properly recorded and
counted. Information on the number of shares
represented by proxy, the proxy votes for and against
each resolution, and the number of shares in respect of
which the vote was withheld for each resolution, together
with the voting result, are given at the meeting and made
available on the Company’s website. A vote withheld will
not be counted in the calculation of the proportion of the
votes for and against a resolution.
The Chairman, Senior Independent Director and/or
Company Secretary will engage with Shareholders in the
event of a substantial vote against any resolution
proposed at an Annual General Meeting.
Jonson Cox
Chairman
19 April 2017
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT 66 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Directors’ Remuneration report
Chair’s introduction
Dear Shareholder,
On behalf of the Board, I am pleased to present the
Directors’ Remuneration report for the year ended
31 December 2016 for which we will be seeking approval
at the Annual General Meeting on 24 May 2017. I was
appointed Chair of the Committee during the year and
would like to put on record the Board’s thanks to my
predecessor, Peter Hickson, for his strong leadership of
the Committee over a number of years.
THE REMUNERATION POLICY
The Company’s Remuneration policy has been designed
to align with the Group’s strategy and help to retain and
incentivise a management team with the requisite skills,
knowledge and experience to deliver strong, long-term,
sustainable growth for Shareholders. We believe that the
remuneration of the Executive Directors reflects
appropriately the strong performance of the Group.
The Remuneration Policy was approved by Shareholders
at the 2016 Annual General Meeting with a strong
majority of in excess of 99% of all votes cast and is
expected to be in place until 2019.
THIS REPORT
This report is divided into 3 sections: this Chair’s
introduction, an ‘at a glance’ summary of the
Remuneration policy, and the Annual Remuneration
report, which explains how the policy was implemented in
2016 and how it will be implemented in 2017.
This report has been prepared in accordance with the
provisions of the Companies Act 2006 and the Large and
Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013 (the Regulations).
It also meets the requirements of the UK Listing Authority’s
Listing Rules and the Disclosure and Transparency Rules
and the principles of the UK Corporate Governance Code
on a comply or explain basis.
In accordance with the Regulations, the following sections
of the Remuneration Report are subject to audit: the
single total figure of remuneration for Directors and
accompanying notes (pages 72 and 73); scheme interests
awarded during the financial year (pages 74 and 75);
payments to past Directors (page 76); and the statement of
Directors’ shareholdings and share interests (page 79). The
remaining sections of the report are not subject to audit.
SALARY INCREASES FOR 2017
The salaries of the Executive Directors have been
increased by 2.5%, in line with the median salary
increases applied across the wider workforce.
Members and attendance at meetings during the year ended 31 December 2016
Lisa Clement
Chair and Senior Independent Director
(appointed Chair from 1 October 2016)
Anthony Donnelly
Independent Non-Executive Director
(member from 1 October 2016)
Steven Underwood
Non-Executive Director (not independent)
Jonson Cox
Chairman (not independent)
Peter Hickson
Former Chair of the Committee and Senior Independent Director
(ceased to be a member from 26 April 2016)
Key responsibilities
6(6)
2(2)
5(6)
6(6)
2(2)
• Determines and agrees with the Board the Company’s remuneration policy
for Executive Directors.
• Determines the salaries, bonuses, long-term incentive arrangements, pension
arrangements other benefits and contract terms of the Executive Directors,
the Chairman, and members of the Executive Committee.
• Carries out an annual review of benefits available to all Group employees.
• Responsible for changes to certain Group-wide employee policies.
The Committee’s terms of reference are set out on the Company’s website and
can be found at www.harworthgroup.com/investors/governance/
The Board will undertake a bi-annual evaluation of the Committee’s performance
to ensure continued ability to independently and objectively review remuneration at
the Group.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 67
PENSION
The pension arrangements of the Executive Directors
remain unchanged. They may elect to receive a
pension contribution of 10% of salary or an equivalent
cash allowance.
BONUS
The annual bonus will continue to operate on the basis of
a combination of financial performance (including net
asset value, sales volume, strategic business
development and operating profit), and personal
objectives. Bonus opportunities for 2017 will remain
unchanged at 100% of salary for the Chief Executive and
75% of salary for the Finance Director.
LONG TERM INCENTIVE PLAN
At the 2016 Annual General Meeting, Shareholders
approved the adoption of a new Long Term Incentive
Plan (LTIP) by a strong majority of in excess of 99% of all
votes cast. The first awards under that LTIP were made to
Executive Directors and other members of the Executive
Committee shortly after the 2016 Annual General
Meeting. Following a review of the performance
measures adopted for the 2016 awards, the Committee
concluded that those measures remained appropriate.
However, the total returns performance targets were
considered by the Committee and have been adjusted to
between 8% and 12% p.a. growth to align better with the
Company’s plans over the next 3 years.
Key activities of the Committee since publication of the
2015 Annual Report
• Reviewing the 2016 Remuneration policy approved by
Shareholders to ensure it continues to align with Group
strategy and Shareholders’ interests.
• Approving the Directors’ Remuneration report.
• Approving base salary increases for the Executive
Directors and members of the Executive Committee.
• Reviewing performance against 2016 bonus targets and
consideration of bonus payable.
• Approving 2017 bonus targets.
• Reviewing performance for LTIP awards.
• Considering changes to performance measures and
approving 2017 LTIP awards and performance measures.
• Reviewing a report on Group-wide remuneration for 2017.
• Approving and adopting a deferred share bonus scheme
for the senior management team.
• Reviewing and approving proposed terms for a
Group-wide Save As You Earn Scheme.
• Carrying out an annual review of Group-wide employee
benefits.
• Approving changes to the Group’s maternity, paternity,
adoption and shared parental leave policies.
SHAREHOLDING GUIDELINES
During 2016, the Committee introduced shareholding
guidelines of 100% of gross salary for Executive
Directors. Until the relevant shareholding levels are
acquired, 50% of any long-term incentive which vests to
the relevant Executive Director (after payment of tax)
must be retained.
SENIOR MANAGEMENT DEFERRED SHARE
BONUS PLAN
During the year, the Committee approved the adoption of
a deferred share bonus plan for the senior management
team, to retain and incentivise senior members of the
team who make a significant contribution to value
growth, but are not members of the Executive Committee
and so do not participate in the LTIP. The first awards
under that new scheme were made shortly after the
announcement of the Company’s preliminary results.
Those awards vest subject to an absolute total return
performance measure, which mirrors that aspect of the
LTIP awards. Any awards that vest will be satisfied with
shares purchased in the market.
CHAIRMAN AND NON-EXECUTIVE DIRECTORS
The fees for the Chairman (£160,000) and the basic fees
for Non-Executive Directors (£42,500) have remained
unchanged during 2016 and for 2017. With effect from
1 October 2016, Andrew Cunningham receives an
additional fee of £7,500 for chairing the Audit Committee,
and I receive additional fees of £7,500 for chairing the
Remuneration Committee and £3,000 as Senior
Independent Director. The Committee considers that
these fees reflect appropriately the additional work and
responsibilities associated with the roles undertaken.
SAVE AS YOU EARN SCHEME
The Committee is keen to strengthen employee
engagement in the business and is supportive of wider
share ownership by employees. To that end, the
Committee is proposing a Save As You Earn scheme for
all employees by which shares will be offered to
employees at a 20% discount to current market value.
This will be put to Shareholders for approval at the 2017
Annual General Meeting.
I will be available at the Annual General Meeting to
respond to questions and discuss any aspect of the
Remuneration policy, Annual Remuneration report or the
Committee’s activities.
Lisa Clement
Chair of Remuneration Committee
19 April 2017
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
68 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Directors’ Remuneration report
continued
Remuneration policy – at a glance
Our Remuneration policy was approved by Shareholders at the 2016 AGM with more than 99% of votes in favour and is expected to
continue until 2019. The full policy can be found in last year’s report, which is also on the Company’s website (www.harworthgroup.com/
investors), and a summary is outlined below.
REMUNERATION PRINCIPLES
Attract, retain and motivate
high calibre executives
Reflect best practice, investor
expectations and pay conditions
across the workforce
Reward exceptional
performance
Align pay with the Group’s
long-term strategic plan and
value created for Shareholders
SALARY
What is it for?
To provide competitive base
reward that recognises the
individual’s skill and experience
How is it determined?
How much is it?
Salaries are reviewed annually
with reference to similar roles at
comparable companies, individual
contribution and experience, and
the average pay review across the
workforce
+2.5% for 2017, in line with average annual pay review across the Group
1 January 2016
1 January 2017
CEO
FD
£293,550
£200,000
£301,000
£205,000
PENSION AND BENEFITS
What is it for?
What does it consist of?
To provide competitive benefits
Group pension scheme or cash
in lieu
Car allowance and fuel (or such
other benefits that the Committee
deems appropriate)
How much is it?
10% of salary
Varies by role and individual circumstances, cost is reviewed periodically
ANNUAL BONUS
What is it for?
To incentivise and reward strong
performance against financial and
personal annual targets, aligned
with progress against the strategic
plan and value delivered to
Shareholders
How does it operate?
What performance is measured?
How much is it?
Paid in cash*
Malus and clawback apply (up to
2 years post-employment) in case
of misconduct, misstatement,
miscalculation or at the
Committee’s discretion
*If bonuses are (exceptionally)
>100% of salary, any amount over
100% of salary would be deferred
in shares for up to 3 years
Up to 100% of salary
(or exceptionally 150%)
Maximum for 2017:
CEO
100% of salary
FD
75% of salary
What pays out?
(as a% of maximum)
Below Target
Target
Maximum
0%
50%
100%
At least 75% financial and no
more than 25% personal, with
Committee discretion to add
underpins or override outcomes
if they are misaligned with
underlying performance
2017 performance conditions:
Financial*
Personal**
CEO
75%
25%
FD
75%
25%
Payment subject to health and
safety, business reputation,
covenant compliance, financial
irregularity and leadership
underpins
* NAV gains (60%), sales volume
(15%), operating profit (10%)
and strategic development of the
business (15%)
** Payment of personal element
subject to achieving a payment
under the financial element
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 69
LONG-TERM INCENTIVE PLAN (LTIP)
What is it for?
How does it operate?
What performance is measured?
How much is it?
To drive sustained long-term
performance that supports value
creation for Shareholders
3-year performance period
2-year holding period post-vesting
on 50% of all vested shares
50% of any vested shares
(after-tax) must be held until
Executive Director achieves a
shareholding of 100% of salary in
Harworth
Dividends accrue on shares that
vest
Malus and clawback may apply
(up to 2 years post-employment)
in case of misconduct,
misstatement, miscalculation
or a significant health, safety or
environmental incident
At least 2 measures, linked
to strategy, with Committee
discretion to add underpins
or override outcomes if they
are misaligned with underlying
performance
2017 performance conditions:
50% on Total Shareholder Return
between median and median
+9% p.a.*
50% on Absolute Total Return
(NAV growth + dividends) between
8%, 10% and 12% p.a. growth
Vesting subject to disposal
proceeds and sustainable dividend
underpins
*70% vs tailored peer Group
comprising Inland Homes, Henry
Boot, U+I, Urban and Civic and
St. Modwen and 30% vs FTSE
All Share Real Estate Investment
Services Index
100% of salary for all Executive
Directors (or exceptionally 200%)
What pays out?
(as a% of maximum)
TSR
ATR
Below Threshold
0%
Threshold
12½%
0%
5%
Target
12½%
Maximum
50%
50%
TSR = Total Shareholder Return
ATR = Absolute Total Return
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
70 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Directors’ Remuneration report
continued
Remuneration policy – at a glance (continued)
TIMING OF 2017 PAY
CEO pay
Salary
Pension
Benefits
2017
2018
2019
2020
2021
2022
£301k
10% of salary
c.£10k
Annual bonus
up to 100% of salary
LTIP
FD pay
Salary
Pension
Benefits
up to 100% of salary
50% held for at least 2 years
2017
2018
2019
2020
2021
2022
£205k
10% of salary
c.£10k
Annual bonus
up to 75% of salary
LTIP
up to 100% of salary
50% held for at least 2 years
PERFORMANCE SCENARIOS FOR 2017 PAY ( £’000s)
Owen Michaelson
Andrew Kirkman
Minimum
100%
£343
Minimum
100%
£238
On-target
60%
26%
13%
£569
Fixed pay
Annual bonus
LTIP
On-target
65%
21%
14%
£366
Fixed pay
Annual bonus
LTIP
Maximum
36%
32%
32%
£945
Maximum
40%
26%
34%
£597
£0
£100
£200
£300
£400
£500
£600
£700
£800
£900 £1,000
£0
£100
£200
£300
£400
£500
£600
£700
£800
£900 £1,000
Single figure of total remuneration (£000s)
Single figure of total remuneration (£000s)
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 71
Performance scenario
Fixed pay
Minimum
On-target
Maximum
NED FEES
Salary (as at 1 January 2017) plus
Pension (10% of salary) plus
Benefits (based on 2016 actual)
Annual bonus
None
50% of maximum
100% of maximum
LTIP
None
25% of maximum
100% of maximum
How are they structured?
What are the fees in 2017?
Chairman receives a single all-inclusive fee, set by the Committee
No change since 2016
NEDs receive a base fee plus additional fees for acting as a Committee
Chair or Senior Independent Director. Their fees are set by the Chairman
and Executive Directors.
Chairman fee
NED base fee
Audit and Remuneration Committee Chair
Senior Independent Director
1 January 2017
£160,000
£42,500
£7,500
£3,000
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
72 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Directors’ Remuneration report
continued
Annual Remuneration report
THE REMUNERATION COMMITTEE
Membership, attendance, key responsibilities and activities of the Committee are summarised in the Chair’s introduction.
The Company Secretary is secretary to the Committee. The following individuals may be invited to attend Committee meetings on certain
occasions to provide advice and to help the Committee to make informed decisions:
• Owen Michaelson, Chief Executive Officer
• Andrew Kirkman, Finance Director
• Laura Ibbotson, Group HR Manager
• Representatives of Kepler Associates (see further below).
No individuals are involved in decisions relating to their own remuneration.
The Committee has retained Kepler Associates, a brand of Mercer and part of the MMC Group of companies (“Kepler”), to provide
independent advice on executive remuneration matters. Kepler was appointed by the Committee in 2015 following a competitive selection
process, through which the Committee has satisfied itself that Kepler’s advice is objective and independent. Kepler is a signatory to the
Code of Conduct for Remuneration Consultants in the UK, details of which can be found on the Remuneration Consulting Group’s website
at www.remunerationconsultantsgroup.com. Services provided by Kepler during the period under review included advice on the overall
remuneration packages for the Executive Directors, assistance with putting in place the new LTIP including advice on the structure and
key terms of the scheme, advising on the performance conditions for the first awards under the LTIP scheme and drafting the Director’s
remuneration report, as well as other ad-hoc advice related to remuneration. The fees paid to Kepler in relation to advice provided to the
Committee for 2016 were £22,765. The Committee evaluates the support provided by Kepler annually. Other than advice on remuneration,
no other services were provided by Kepler to the Group. During the year, the Company appointed Marsh, which is also a member of the
MMC Group of companies, as its new insurance brokers (for further information see the Audit Committee report on page 82). The
Committee considered that appointment and concluded that it does not impair Kepler’s independence.
EXTERNAL APPOINTMENTS
None of the Executive Directors currently hold external appointments.
SINGLE TOTAL FIGURE OF REMUNERATION FOR EXECUTIVE DIRECTORS
The table below sets out a single figure for the total remuneration received by each Executive Director of the Company for the financial year
ended 31 December 2016 and the previous year, representing payments received in respect of the period for which each individual was a
Director of the Company(1).
Salary
Taxable benefits(5)
Relocation allowance
Single-year variable(6)
Multiple-year variable(7)
Pension benefit(8)
Total
Owen
Michaelson(2)
2016
£
293,550
12,320
–
264,195
–
29,355
2015
£
213,750
9,428
–
235,003
–
21,375
Andrew
Kirkman
2016
£
200,000
12,857
75,000
138,375
–
20,000
Michael
Richardson(2,3)
2016
£
26,667
1,728
–
24,893
–
2,667
2015
£
136,144
7,524
–
86,383
–
13,614
29,355
21,375
20,000
2,667
13,614
7,858
599,420
479,556
446,232
55,955
243,665
Jeremy
Hague(4)
2015
£
39,291
3,333
–
15,000
–
7,858
65,482
(1) The 2015 Annual Report and Financial Statements reported that Jonson Cox held the role of Executive Chairman prior to the Company’s acquisition of HEPGL. In
fact, Jonson Cox ceased to be Executive Chairman and became Non-Executive Chairman of the Company in December 2012. As such, he does not appear in the
table above. Instead, the fees paid to him during 2015 appear in the “Single total figure of remuneration for Non-Executive Directors” table below.
(2) Owen Michaelson and Michael Richardson became Executive Directors of the Company with immediate effect upon its acquisition of HEPGL on 24 March 2015.
(3) Michael Richardson stepped down as a Director of the Company and left with effect from 29 February 2016.
(4) Jeremy Hague stepped down as a Director of the Company and left with effect from 30 April 2015.
(5) Taxable benefits consist primarily of car and fuel allowance. For 2016 these were £11,579 for Owen Michaelson (£8,682 for 2015), £12,417 for Andrew Kirkman and
£1,601 for Michael Richardson (£7,448 for 2015). Other benefits included life assurance and health insurance.
(6) Annual bonus payments for performance during 2016 were received by Owen Michaelson and Andrew Kirkman, details of which are included below in “Incentive
outcomes for year ending 31 December 2016”. The Annual bonus for 2016 was paid in March 2017. As disclosed in last year’s annual report, as a good leaver
Mr Richardson was entitled to benefit from 214,132 shares of 1p each issued to him under a deferred bonus scheme connected to the Company’s acquisition of
Harworth Estates. Those shares vested on 29 February 2016 and were valued at the closing price on that date of 11.625p. See last year’s annual remuneration
report for details of annual bonus payments for performance during 2015.
(7) No LTIP awards vested based on performance periods ending during 2015 or 2016.
(8) Owen Michaelson, Andrew Kirkman, Michael Richardson and Jeremy Hague all participated in the Company’s defined contribution scheme, in relation to which
the Company contributed 10% of salary to Owen Michaelson, Andrew Kirkman and Michael Richardson, and 20% of salary to Jeremy Hague.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 73
SINGLE TOTAL FIGURE OF REMUNERATION FOR NON-EXECUTIVE DIRECTORS
The table below sets out a single figure for the total remuneration received by each Non-Executive Director of the
Company for the financial years ended 31 December 2015 and 31 December 2016, representing payments received
in respect of the period for which each individual was a Director of the Company.
Base fee
Committee
chair fees
SID fee
Total
2016
£
160,000
42,500
21,667
42,500
42,500
42,500
29,008
2015
£
286,500
41,875
65,000
41,875
31,875
31,875
n/a
2016
£
–
7,500
–
n/a
n/a
n/a
1,200
2015
£
–
7,125
–
n/a
n/a
n/a
n/a
2016
£
–
750
–
n/a
n/a
n/a
n/a
2015
n/a
n/a
–
n/a
n/a
n/a
n/a
2016
£
160,000
50,750
21,667
42,500
42,500
42,500
30,208
2015
£
286,500
49,000
65,000
41,875
31,875
31,875
n/a
J. Cox(1)
L. Clement(2)
P. Hickson(3)
S. Underwood(4)
A. Donnelly
M. Bowes
A. Cunningham(5)
(1) In 2015 Jonson Cox was paid base fees of £182,500, taxable benefits of £4,000 and a bonus of £100,000, full details of which can be
found in last year’s Annual Remuneration report.
(2) Going forward, Lisa Clement will receive an annual fee of £3,000 per annum for her role as Senior Independent Director in addition to a fee
of £7,500 for her role as Chair of the Remuneration Committee. The figure for 2016 reflects that she was appointed to that role on
1 October 2016.
(3) On appointment to what was UK Coal plc, Peter Hickson agreed a single consolidated fee for his role as Non-Executive Director, Senior
Independent and Remuneration Committee Chairman. This fee reflected the substantial commitment as Senior Independent Director to
the restructuring of the Group. Mr Hickson ceased to be a Director of the Company on 26 April 2016.
(4) The fees for Steven Underwood are paid to Peel Management Limited.
(5) Andrew Cunningham receives a base fee of £42,500 as Non-Executive Director and a fee of £7,500 for his role as Chair of the Audit
Committee. The fees entered reflect that he was appointed to the Board on 26 April 2016 and as Chair of the Audit Committee with effect
from 1 October 2016.
INCENTIVE OUTCOMES FOR YEAR ENDED 31 DECEMBER 2016
Annual bonus
Annual bonuses for 2016 were paid to both Executive Directors based on a combination of financial performance and
personal objectives. Maximum annual bonus opportunities were 100% of salary for Owen Michaelson and 75% of
salary for Andrew Kirkman. Performance was measured based 80% on financial and 20% on personal performance
for Owen Michaelson and 75% and 25% on financial and personal performance respectively for Andrew Kirkman.
Performance against targets and subsequent vesting of 2016 annual bonuses are set out in the tables below.
Financial performance outcomes
For 2016 bonuses, no bonus is paid for achieving below Target, 50% of bonus is paid for achieving Target, increasing
on a straight-line basis to 100% of bonus paid for achieving Stretch performance.
Measure
NAV gains
Sales volume
Operating profit
Financial headroom
Performance targets
(£’000s)
Weight
(% of financial
performance)
‘Target’
‘Stretch’
Actual
performance
Vesting
outcome
34,800
60%
20%(1)
54,000
10%(1)
2,180
10% Absolute target
only
43,500
60,000
3,000
10,000
43,700
61,700(2)
2,216
49,162
100%
100%
52%
100%
Total vesting on financial performance
outcomes
Owen Michaelson (80% weighting)
Andrew Kirkman (75% weighting)
(1) Note, in the 2015 Annual Report and Financial Statements the weightings for these elements of the 2016 Group performance targets were
incorrectly stated as 15% for each element.
(2) This sales figure includes internal sales for direct development and sales by joint ventures.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
74 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Directors’ Remuneration report
continued
Annual Remuneration report (continued)
Personal performance outcomes
Executive Director
Achievements during the year
Vesting of
component
O. Michaelson (20% weighting)
• To deliver strategic development of Harworth consistent with aspiration to
70%
(i) increase net asset value by 10% p.a. through the property cycle over the next
five years, (ii) over time, cover all operating costs, interest, tax and dividends from
ongoing recurring income, and (iii) develop the Group to optimise performance
as a leading brownfield regeneration specialist, to include (but not limited to):
> a 5-year board approved strategic plan;
> clear progress in building and delivery of acquisition book to replenish sites
sold;
> managing the team to set sights on stretching, strategic targets and take on
more operational responsibility to free up strategic development time for
Chief Executive; and
> building network of contacts necessary to implement strategy.
A. Kirkman (25% weighting)
• To manage investor relations: build investor base and effective coverage of the
84%
business.
• To establish clear tax strategy for 5-year business plan and put in place
monitoring systems to ensure preservation of tax position.
• To lead financial analysis of business plan review.
• Effective financial analysis of all new business opportunities. Clear performance
and risk management reporting to the Board.
• To demonstrate leadership on cash-flow management.
Overall bonus outcomes
Financial
Personal vesting
Overall bonus outcome
Sum product of
weighting and vest%
Executive
O. Michaelson
A. Kirkman
Weighting
Vesting
Weighting
Vesting
% of bonus
% of salary
80%
75%
95%
95%
20%
25%
70%
84%
90%
92%
90%
69%
The overall bonus outcomes for the Chief Executive and Finance Director reflect a strong year of performance for the
business, with net asset value growth of 12.5% and increased stability in the Group’s recurring income stream.
SCHEME INTERESTS AWARDED DURING 2016
2016 LTIP awards
LTIP awards of 100% of salary were made in 2016 to Owen Michaelson and Andrew Kirkman under the new 2016
LTIP, the details of which were outlined in last year’s report and are summarised on page 69.
Executive
Director
O. Michaelson
A. Kirkman
Type of award
Date of award
Number of
shares granted
2016 LTIP
2016 LTIP
25 May 2016
25 May 2016
313,957
213,903
Face value(1)
£293,550
£200,000
% receivable
at threshold(2)
End of
performance
period
17.5%
17.5%
25 May 2019
25 May 2019
(1) Face value based on the average share price on the three trading days immediately preceding the date of grant of 93.5p
(2) 25% vesting for threshold performance of 50% of the award based on TSR performance and 10% vesting for threshold performance of
50% of the award based on ATR performance.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 75
For all participants, awards will vest after three years in accordance with the performance conditions outlined in the
table below, subject to achieving the additional underpins that 30% of value created comes from disposal proceeds
and that dividends are sustainable. For Executive Directors, 50% of any vested shares will be subject to a minimum
two-year post-vesting holding period. No award will vest below threshold performance and vesting will increase on a
straight-line basis between defined levels of performance.
Vesting schedule
Threshold
Target
Maximum
Total Shareholder return(1)
(50% weighting)
Absolute total return
(50% weighting)
3-year TSR
outperformance
of median p.a.
0%
9%
% of
element
vesting
25%
100%
3-year
TR p.a.
8%
10%
14%
% of
element
vesting
10%
25%
100%
(1) For 2016 awards, 70% of the TSR outperformance condition is measured vs the median of Harworth’s 5 closest listed peers: Inland
Homes, Henry Boot, U+I, Urban and Civic and St. Modwen, and 30% vs the FTSE All Share Real Estate Investment Services Index.
Harworth Estates LTIP
As disclosed last year, on his appointment in January 2016, the Committee resolved to award 60 units (previously held
by Michael Richardson, but forfeited by him upon his departure from the Company) to Andrew Kirkman in recognition
of his anticipated contribution to growth in net asset value from the date of his appointment on 1 January 2016 until
31 December 2017 when the performance measures under the scheme will be tested.
The full details of the scheme are provided in the notes to the Remuneration policy in last year’s report. Details of the
scheme interests awarded to Andrew Kirkman on appointment are outlined below, together with the scheme interests
that had been awarded to Owen Michaelson at the outset of the scheme.
Executive
O. Michaelson
A. Kirkman
Performance conditions
Number of
units granted
275
60
£ value created:
£ per unit:
Threshold
£121m
£600
Target
£150m
£2,600
Stretch
£231m
£5,000
Any vesting of units under the Harworth Estates LTIP is subject to one-third of value created coming from disposal
proceeds.
PERCENTAGE CHANGE IN CEO REMUNERATION
The table below shows how the percentage change in the Chief Executive’s salary, benefits and bonus between 2015
and 2016 compares with the percentage change in the average of each of those components of pay for the
employees of the Group as a whole.
Salary
£’000
2016
294
2015(1)
285
Percentage
change
3%
3%
Taxable benefits
£’000
2016
10
2015
9.5
Percentage
change
5%
0%
Bonus
£’000
2016
264
2015
235
Percentage
change
12%
22%
CEO Pay
Average per
employee
(1) Annual base salary at 24 March 2015, upon acquisition of HEPGL
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
76 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Directors’ Remuneration report
continued
Annual Remuneration report (continued)
RELATIVE IMPORTANCE OF SPEND ON PAY
Total employee pay expenditure
Distributions to Shareholders
2016
£5.806m
2015
£3.52m
% change
65%
2016
£2.2m
2015
% change
£2.0m (annualised)
10%
Staff costs increased markedly between 2015 and 2016 due to: (i) an increase in the number of staff employed;
(ii) higher bonuses; and (iii) the fact that staff costs for 2015 only related to the period after the Company’s acquisition
of HEPGL on 24 March 2015. If HEPGL had been acquired for a full year, the staff costs would have been £4.675m,
and therefore an increase of 24% between 2015 and 2016.
A first dividend of £0.51 per share was paid to Shareholders for the year ended 31 December 2015 resulting in total
dividends of £1.5m (£2.0m on an annualised basis). Total dividends for the financial year ended 31 December 2016 are
£0.753p per share, resulting in total dividends of £2.2m (ignoring the Company’s equity placing in March 2017).
REVIEW OF PAST PERFORMANCE
The following graph charts the Total Shareholder Return (TSR) of the Company and the FTSE Small Cap Index over
the period from the Company’s re-listing on 24 March 2015 to 31 December 2016. The FTSE Small Cap Index
represents the most appropriate broad index comparison for a Company of Harworth’s size. The table below shows
the Chief Executive’s ‘single-figure’ remuneration over the same period.
Historical TSR performance
Growth in the value of a hypothetical £100 holding over the period from re-listing on 24 March 2015 to
31 December 2016:
Value of £100 invested at
24 March 2015
FTSE Small Cap, £117
Harworth, £108
£150
£100
£50
£0
24 March 2015
31 December 2015
31 December 2016
Historical CEO remuneration
CEO single figure remuneration ( £’000)
Short term incentive award as a% of maximum opportunity
Long term incentive award as a% of maximum opportunity
2015
£
480
85.6%
n/a
2016
£
600
90%
n/a
PAYMENT PAID TO PAST DIRECTORS
During the year, no payments were made to past Directors other than those included in the Single Figure Table on page 72.
EXIT PAYMENTS MADE IN THE YEAR
No exit payments were paid to former Directors during the year.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 77
IMPLEMENTATION OF EXECUTIVE DIRECTORS’ REMUNERATION POLICY FOR 2017
Base salary
Positioning of base salary is approached on an individual basis, taking account of advice received from the
Committee’s independent advisors on the rates of salary for similar roles in selected Groups of comparable companies,
the individual performance and experience of each Executive Director and increases awarded to the wider workforce.
The Committee approved the following base salary increases for 2017:
Executive Director
O. Michaelson
A. Kirkman
Annual base salary at
1 January 2016
Annual base salary at
1 January 2017
£293,550
£200,000
£301,000
£205,000
Percentage
increase
2.5%
2.5%
A typical salary increase of 2.5% was awarded across the Group at the annual pay review, effective 1 January 2017.
Pension
Executive Directors will continue to receive a pension contribution of 10% of salary or an equivalent cash allowance.
Performance related annual bonus
For 2017 the Committee has approved the following annual bonus opportunities for Executive Directors, unchanged
from 2016. The Chief Executive’s and Finance Director’s bonuses will each be based 75% on financial measures and
25% on personal objectives, as detailed below:
Executive
O. Michaelson
A. Kirkman
Maximum financial
bonus opportunity
(% of salary)
Maximum personal
bonus opportunity
(% of salary)
Overall maximum
bonus opportunity
(% of salary)
75%
56.25%
25%
18.75%
100%
75%
The Committee has reviewed the financial performance measures to ensure they are appropriately aligned with the
Company’s strategic plan for the coming year. Financial performance for 2017 will be measured against the following
financial performance measures:
Executive
NAV gains
Sales volume
Operating profit
Strategic development of business
Weight
(% of financial bonus
opportunity)
60%
15%
10%
15%
Payment of the personal element is subject to achieving a payment under the financial performance condition. The
overall payment of the bonus will be subject to achieving additional underpins based on the Company’s health and
safety record during the financial year, no deficiencies or materially adverse issues arising which materially damage the
reputation or performance of the business, no covenant breach or financial irregularity and no material issues relating
to leadership of the business.
Performance targets are considered to be commercially sensitive at this time but the Committee intends that they will
be disclosed in next year’s Directors’ Remuneration report.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
78 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Directors’ Remuneration report
continued
Annual Remuneration report (continued)
LTIP
LTIP awards of 100% of salary have been made in 2017 to Owen Michaelson and Andrew Kirkman under the 2016
LTIP scheme, the details of which are outlined in the Remuneration Policy Report in last year’s report on page 33. For
all participants, awards will vest after three years in accordance with the performance conditions outlined in the table
below, subject to achieving the additional underpins that 30% of value created comes from disposal proceeds and
that dividends are sustainable. No award will vest below threshold performance and vesting will increase on a
straight-line basis between the defined levels of performance shown in the table below. Executive Directors will be
required to hold 50% of any shares that vest (post-tax) for an additional two years post-vesting.
Vesting schedule
Threshold
Target
Maximum
Total Shareholder return(1)
(50% weighting)
Absolute total return
(50% weighting)
3-year TSR
outperformance
of median p.a.
% of element
vesting
3-year Group
TR p.a.
% of element
vesting
0%
9%
25%
100%
8%
10%
12%
10%
25%
100%
(1) For 2017 awards, 70% of the TSR outperformance condition is measured vs. the median of the Company’s five closest listed peers: Inland
Homes, Henry Boot, U+I, Urban and Civic and St. Modwen, and 30% vs. the FTSE All Share Real Estate Investment Services Index.
IMPLEMENTATION OF NON-EXECUTIVE DIRECTOR REMUNERATION POLICY FOR 2017
• The Chairman of the Board receives a fee of £160,000 per annum, unchanged from 2016.
• Non-Executive Directors receive a base fee of £42,500 per annum, unchanged from 2016.
• An additional fee of £7,500 per annum is payable to each of the Chair of the Audit Committee (Andrew Cunningham)
and the Chair of the Remuneration Committee (Lisa Clement) for chairing those respective committees. No additional
fee is paid to the Chairman for chairing the Nomination Committee.
• A further additional fee of £3,000 is paid to Lisa Clement as Senior Independent Director.
• The fee payable to the Chairman of the Audit Committee remains unchanged from 2016. The fees payable to the
Chair of the Remuneration Committee and Senior Independent Director were agreed during the course of the year.
They had not been paid previously because those roles had been occupied by Peter Hickson who, on his
appointment to the then UK Coal plc, had agreed a unitary fee for his roles as Non-Executive Director, Senior
Independent Director and Chair of the Remuneration Committee.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 79
DIRECTORS’ INTERESTS
A table setting out the beneficial interests of the Directors and their families in the share capital of the Company as at
19 April 2017 (taking account of the participation by certain of the Directors in the Company’s equity placing
announced on 17 March 2017 and being the latest possible date prior to the publication of this report) is set out below.
None of the Directors has a beneficial interest in the shares of any other Group Company. Details of Directors’ share
options are also set out in the tables below. Current shareholding (including shares vested but subject to a holding
period, but excluding share options) as a percentage of salary is based on the middle market price for the shares on
31 March 2017 of 97.5p.
Shares held
Options held
O. Michaelson
A. Kirkman
J. Cox
L. Clement
A. Donnelly
A. Cunningham
S. Underwood
M. Bowes
Beneficially
owned
146,463
70,000
866,504
–
–
17,333
38,385
–
Vested but
subject to
holding
period
Vested
but not
exercised
Unvested
and subject
to perf.
conditions
Shareholding
requirement
% salary/fee
Current
shareholding
% salary/fee
Requirement
met?
21,413
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
624,213
425,207
–
–
–
–
–
–
100%
100%
n/a
n/a
n/a
n/a
n/a
n/a
56%
34%
n/a
–
–
n/a
n/a
–
No
No
n/a
n/a
n/a
n/a
n/a
n/a
The table above includes the shares for which certain Directors subscribed pursuant to the Company’s equity placing
announced on 17 March 2017 or, in the case of Andrew Kirkman, purchased on the day following the announcement
of the equity placing, as follows:
O. Michaelson
A. Kirkman
A. Cunningham
S. Underwood
21,052
19,587
1,576
10,526
There have been no other changes in the Directors’ shareholdings between 31 December 2016 and 19 April 2017.
SUMMARY OF SHAREHOLDER VOTING AT THE 2016 AGM
The table below shows the results of votes at the Harworth Group plc Annual General Meeting on 26 April 2016 on
resolutions relating to remuneration.
Votes
For and
discretion as a
percentage of
votes cast
For and
discretion
Against as a
percentage of
votes cast
Against
1,558,080,183
98.88%
17,996,147
1.12%
Withheld
243,546
1,575,091,080
99.96%
633,272
0.04%
267,524
1,575,202,841
99.97%
452,193
0.03%
336,842
Resolution 5:
Approval of Annual Remuneration report
Resolution 6:
Approval of revised Remuneration policy
Resolution 16:
Approval of Long-Term Incentive Plan
The Directors’ Remuneration report has been approved by the Board and signed on its behalf by:
Lisa Clement
Chair of the Remuneration Committee
19 April 2017
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
80 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Audit Committee report
Key areas of focus during the period since the publication of
the 2015 Annual Report
• Oversight of the Group’s appointment of new
insurance brokers and comprehensive review of its
insurance programme prior to renewal.
•
Implementation of a more robust, operational risk
monitoring structure.
• Review of the Group’s tax policies and treatment.
Dear Shareholder,
I am pleased to present the Audit Committee Report for
the year ended 31 December 2016, having taken on the
chairmanship of the Committee from Lisa Clement during
2016. I would like to thank Lisa for all of her hard work as
chair over the last few years.
The Committee comprises three Non-Executive Directors.
From the beginning of the year until 30 September 2016,
Lisa Clement chaired the Committee. I joined and was
appointed chair of the Committee on 1 October 2016. At
the same time, Lisa Clement stepped down as both chair
and a member of the Committee. The other members of
the committee are Steven Underwood and
Anthony Donnelly. The experience of each member of the
Committee is summarised on pages 54 and 55. The
Board is satisfied that we have recent and relevant
financial experience with all members having trained as
chartered accountants. I was a partner at the predecessor
firm to PricewaterhouseCoopers LLP from 1989 to 1996
and then held the role of Finance Director at Grainger plc
from 1996 until 2009.
The Company Secretary is secretary of the Committee.
The Chairman, Chief Executive, Finance Director and the
external auditors are invited to attend meetings. The
minutes of meetings of the Committee are circulated to
all Directors.
During the year, the Committee held four formal meetings
and there were calls between the Finance Director,
Company Secretary and Chair of the Committee on the
day preceding the announcement of the Company’s
preliminary and interim results, so that the Chair of the
Committee could authorise their release, having been
delegated the authority to do so by the Committee and
the Board.
I will be available at the Annual General Meeting to
respond to any questions or discuss matters relating to
the Committee’s activities.
Andrew Cunningham
Audit Committee Chairman
19 April 2017
Members and attendance at meetings during the year ended 31 December 2016
Andrew Cunningham
Chair (with effect from 1 October 2016)
and Independent Non-Executive Director
Anthony Donnelly
Independent Non-Executive Director
Steven Underwood
Non-Executive Director (not independent)
Lisa Clement
Former Chair and Independent Non-Executive Director
(ceased to be a member of the Committee from 1 October 2016)
Key responsibilities
1(1)
4(4)
4(4)
3(3)
• Reviews the integrity of the Company’s annual and interim reports,
preliminary results announcements and any other formal announcements
relating to its financial performance.
• Reviews the effectiveness of the Group’s system of internal financial and risk
controls and the Group’s insurance programme.
• Reviews the independence and effectiveness of the Company’s external
auditors and makes recommendations to the Board on the auditor’s
remuneration.
• Consideration of matters relating to the appointment of the Company’s
auditors and the independence of the auditors.
• Reviews and updates the Group’s risk register.
• Reviews the Group’s anti-bribery policy and other policies relating to financial
security, business ethics and compliance.
The Committee’s terms of reference are set out on the Company’s website and
can be found at www.harworthgroup.com/investors/governance/
The Board will undertake bi-annual evaluation of the Committee’s performance to
ensure continued ability to discharge its key responsibilities.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 81
ANNUAL AND INTERIM REPORTS
The areas to which the Committee has given particular
focus since the publication of the 2015 Annual Report
and Financial Statements are summarised below.
Significant financial statement reporting issues considered by
the Audit Committee
Valuation of the investment portfolio
The portfolio of investment properties, including assets
held for sale, joint ventures, overages and owner occupied
properties, comprises the vast majority of the total assets of
the business. Whilst the same independent external valuers
were used to value the portfolio, there remain a number of key
judgements that are made regarding cost plans, estimated
rental values, yields and comparable sales evidence,
especially considering that the properties are at different
stages of completion. The assumptions and methodology
were reviewed for consistency and appropriateness.
The deductions from the expected land values include not
just the costs to complete from external firms but also,
where relevant, an assessment of the potential restoration
costs that may be incurred by the Group if the obligations
are not completed by the mining tenants. The adequacy
and necessity of the provisions were considered by the
Committee as well as satisfying itself that the Group did not
exercise control over the mining business tenants.
Other risks considered by the Audit Committee (and
highlighted in the critical accounting estimates and
judgements section of the financial statements)
Going concern basis
This is discussed in the How we manage our risks section of
the Strategic Report.
Revenue
Overdue rents and royalties from the mining business
tenants have been included in revenue for 2016. Prior to
this year the Committee concluded that there was a less
than remote possibility of recoverability of this income
and therefore it was not included in revenue. A clearer
outcome of the winding up of the mining businesses during
2016 has given the Committee the ability to re-assess the
recoverability of this revenue.
Taxation
The Group has recognised a deferred tax asset of £8.4m
during the year. The assumptions underlying the recognition
of this asset have been reviewed and the Committee are
comfortable that the value recognised is appropriate based
upon the certainty of recoverability.
The Committee has reviewed the controls which are in
place to ensure the completeness and accuracy of the
Company’s financial records. The production and
external audit of the Group’s Annual Report and Financial
Statements involves a number of parties including, in
addition to the external auditor, the Finance Director,
Company Secretary, Financial Controller, our Associate
Director of Partnerships and Communications, actuary
and tax accountants. The Committee has also noted the
reviews that are undertaken during this process by the
various parties, including the external auditor, to ensure
consistency and balance in the presentation of the
Annual Report and Financial Statements.
As a result, the Committee has concluded that the
Annual Report and Financial Statements for the year
ended 31 December 2016, when taken as a whole, is fair,
balanced and understandable, and provides the
information necessary for Shareholders to assess the
Company’s business model, strategy and performance.
The Committee has reported to the Board and the
Board’s conclusions are set out in the Statement of
Directors’ Responsibilities included in the Directors’
Report which forms part of this Annual Report.
EXTERNAL AUDITORS
The Committee is responsible for making
recommendations to the Board on the appointment,
reappointment and removal of the external auditor. Audit
quality is reviewed by the Audit Committee throughout
the year and includes reviewing and approving the annual
audit plan.
Having reviewed:
•
•
•
the independence and objectivity of the external
auditor, PricewaterhouseCoopers LLP (PwC),
including consideration of the non-audit work it has
undertaken for the Company (see further analysis
below);
the effectiveness of PwC’s audit of this Annual
Report and Financial Statements; and
the quantum of fees payable for the audit (see
further analysis below),
the Committee has recommended the re-appointment of
PwC as external auditor at the forthcoming Annual
General Meeting.
PwC, then known as Coopers and Lybrand, was first
appointed as the Company’s auditors before 17 June
1994. This means that, for the purposes of the Companies
Act 2006 (as amended by The Statutory Auditors and
Third Country Auditors Regulations 2016) need not
undertake an audit tender process before the accounts
for the financial year ending 31 December 2021 are
audited. Nevertheless, the Committee intends to tender
the audit not later than 2020, which would coincide with
the expiry of Andy Ward’s term as lead audit partner. This
is the second set of the Company’s Financial Statements
for which Andy Ward has led PwC’s audit team. The
Committee will, however, keep the position under review.
There are no contractual obligations which restrict the
Committee’s choice of auditor.
The Board recognises the importance of safeguarding
auditor objectivity and has taken the following steps to
ensure that auditor independence is not compromised:
•
the Committee reviews the audit appointment
periodically;
• with effect from 31 December 2016, the Group has
introduced a policy that, save for audit-related
services (such as regulatory and statutory reporting
and work relating to circulars) and exceptional
circumstances only with the Committee’s prior
approval, the external auditors will not provide
non-audit services to the Group;
•
•
the Group has recently appointed Deloitte LLP to
provide advice and assistance on most tax matters
going forward. KPMG has been appointed to advise
on tax matters relating to our joint venture
agreements and pension accounting;
the Committee reviews on a regular basis all fees
paid for audit, and non-audit fees, with a view to
assessing reasonableness of fees, value of delivery,
and any independence issues that may have arisen
or may potentially arise in the future. An analysis of
all audit and non-audit fees are shown overleaf; and
•
the external auditors’ report to the Directors and the
Committee confirming their independence in
accordance with Auditing Standards.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
82 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Audit Committee report
continued
ANALYSIS OF FEES PAID TO THE EXTERNAL AUDITORS AND
NON-AUDIT FIRMS FOR THE YEARS ENDED 31 DECEMBER 2015 AND 31 DECEMBER 2016
2016
£’000
2015
£’000
Audit services
Fees payable to the external auditors for:
– the audit of the Company and the consolidated financial statements
– the audit of the Company’s subsidiaries accounts
– the audit of the Company’s joint ventures
Total
Non-audit services
Fees payable to the external auditors and its associates for non-audit services:
– audit related assurance services
– tax advisory services
– tax compliance services
– fees in relation to transactions
Total
Total fees payable to external auditors and associates for audit and non-audit services
Fees payable to non-audit firms for non-audit services
– tax advisory services
– tax compliance services
– fees in relation to transactions
– pension accounting
Total
40
80
10
130
50
84
38
–
172
302
13
26
25
1
65
65
85
–
150
15
98
33
529
675
825
15
30
–
1
46
Resolutions to re-appoint PwC as the Company’s
auditors and to authorise the Directors to determine their
remuneration will be proposed at the forthcoming Annual
General Meeting.
INSURANCE BROKERS AND INSURANCE
PROGRAMME
During the year under review, the Company undertook a
re-tendering process, overseen by the Committee, for the
appointment of insurance brokers to the Group. Four
brokers participated in the process pursuant to which
Marsh were appointed as the Group’s new brokers.
That appointment was effected with a view to a
comprehensive review of the Group’s insurable risk profile
and insurance programme, which the Company
undertook, in conjunction with Marsh and supervised by
the Committee, in the second half of 2016. That review
has led to extensions to, and increased limits within, the
Group’s insurance programme, reflecting the expanding
scope of the Group’s activities as its business matures.
REVIEW OF TAX POLICIES AND TREATMENT
During the year the Group reviewed its tax strategy,
policies and treatment. This was assisted by both PwC
and Deloitte. Whilst there was little amendment to the
strategy, additional work resulted in greater certainty
regarding the tax loss position and expected pattern of
usage of losses. As such, a deferred tax asset was
recognised.
RISK REVIEW AND MANAGEMENT
Following the detailed risk review initiated by the
Committee in the second half of 2015, which established
the Group’s risk register, the Committee has continued to
carry out a formal review of risk twice-yearly. It is,
however, overseeing steps, led by our Company
Secretary, to introduce a more regular and robust
process for monitoring and manging risk at an operational
level. Our objective is to embed a risk management
process running through the business which makes the
periodic risk reviews carried out by the Audit Committee
and the Executive Committee more effective and ensures
that the Group’s risk register is a robust and evolving tool.
An operational risk review structure and process is now in
place by which our Company Secretary meets with the
senior management team in advance of the periodic risk
reviews carried out by the Executive Committee and Audit
Committee. Those meetings are designed to identify, at
an operational level, both changes in the Group’s risk
profile and improvements that can be made to the
Group’s internal risk controls. As an example, action
points have already been identified to improve document
management and Group-wide communication.
Given the nature of the Group’s business and the
condition of certain of our immature sites, health and
safety forms a material element of the Group’s risk profile.
Our Chief Executive has overall responsibility for health
and safety across the business, but day-to-day
management falls to our EES team, led by our EES
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 83
Associate Director. He provides monthly updates to the
Board in writing and an annual update in person. A more
detailed explanation of the Group’s internal controls and
processes in the context of health and safety appears at
page 51 of the Strategic Report.
The Group has also revised its delegated authorities
policy this year, which not only identifies Board reserved
matters but also prescribes authority levels within the
business. The Group’s document approval, execution
and records process has also been reviewed and refined.
As a result, the number of authorised signatories within
the business has been restricted appropriately and a
record of every legal document entered into by a Group
subsidiary should be logged with the Company
Secretary, who reports to the Board on a monthly basis.
Delegated authorities policy
- determines who has authority to approve transaction
Document approval and executive policy
- determines who can approve and execute a
document (Executive Committee members only)
Legal Document Completion Record (LDCRs)
- must be completed and sent to the Company
Secretary
Company Secretary Board paper
- reports on all LDCRs received during the preceding
month
INTERNAL CONTROLS
The Group has continued to strengthen the internal
control environment especially around treasury and
financial reporting. The new levels of delegated authority
have been incorporated into the day to day operations of
the finance function to ensure that purchase
commitments are authorised appropriately. Investment in
training and resource has enabled more detailed
information to be entered into and taken from the
accounting and reporting system which has assisted with
monthly reporting and preparing the budget for 2017.
The Board has carried out a review of the effectiveness of
the Company’s risk management and internal controls
systems, including financial, operational and compliance,
As set out in the paragraphs above, these controls have
continued to improve during 2016, but it is acknowledged
that further improvements can and should be made. To
that end, whilst the Committee recognises that, as things
stand, the business is not large or complex enough for a
separate internal audit function, it intends to instruct an
external firm to review and advise on the Group’s internal
controls during the course of 2017.
WHISTLEBLOWING, BRIBERY, HUMAN RIGHTS AND
MODERN SLAVERY
The Company re-introduced a whistle-blower policy and
reporting structure in 2015. This was reviewed during the
first half of 2016. The policy is available, with all other
Group policies, on the Group’s shared drive, which is
accessible by all employees.
The Committee takes responsibility for monitoring and
reviewing the Company’s policies and procedures for
preventing bribery. The Company has a zero-tolerance
position with regard to bribery and the Committee is
committed to ensuring that that position is respected and
adhered to throughout the business. The Group operates
a Business Conduct policy, which outlines the Group’s
position on bribery and other matters of business ethics,
and is available to all employees on the Group’s shared
drive. One of the Committee’s priorities in 2017 is to
review and update the policies and procedures in
connection with hospitality.
We are committed to ensuring that we have in place
practices to ensure respect for human rights and to
combat slavery and human trafficking both in our
business and those of third party contractors. The
Committee takes responsibility for delivering on that
commitment. Since the publication of our 2015 Annual
Report and Financial Statements, the following steps
have been taken in this regard:
•
the introduction of a modern slavery and human
trafficking policy, which is available to all employees
on the Group’s shared drive;
• amendments to the Group’s “standard terms of
business”, to include provisions designed to reduce
the risk of slavery and trafficking by our contractors;
and
• updates to the Group’s template “site inspection”
report to encourage employees to think about and
report any evidence of slavery and trafficking at any
of the Group’s sites.
We intend to take further steps, including:
•
•
the delivery of external training to all employees so
that they understand better the risks of slavery and
trafficking in our business and supply chains; and
the inclusion of anti-slavery and trafficking provisions
in our standard form construction agreements: this
will form part of a wider review of those documents.
The Report of the Audit Committee has been approved
by the Board on its behalf by:
Andrew Cunningham
Chair of the Audit Committee
19 April 2017
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
84 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Nomination Committee report
Members and attendance at meetings during the year ended 31 December 2016
Dear Shareholder,
Jonson Cox
Chairman of the Committee and the Board
(not independent)
Lisa Clement
Independent Non-Executive Director
Andrew Cunningham
Independent Non-Executive Director
(joined the Committee from 1 October 2016)
Key responsibilities
• Leads the process for Board appointments by making recommendations to
the Board, both for filling Board vacancies and appointing additional persons
to the Board, following evaluation of the balance of skills, knowledge and
experience on the Board.
• At least annually, carries out a review of succession and development
planning for the Executive Directors, the Chairman and Non-Executive
Directors, members of the Executive Committee and certain senior managers
to maintain an appropriate balance of skills and experience on the Board and
in the business.
• Considers and makes recommendations to the Board on its composition,
balance and membership and on the re-appointment by Shareholders of
any Director.
Key activities of the Committee since publication of the 2015 Annual Report
• Appointment of Andrew Cunningham as Non-Executive Director following the
retirement of Peter Hickson from the Board.
• Appointment of Chris Birch as Group General Counsel and Company
Secretary following the planned departure of Geoff Mason.
• Review of the succession and development plans in place for the Executive
Committee and senior management team.
• Commencement of a succession plan for Non-Executive Directors, to be
progressed in 2017.
The Committee’s terms of reference are set out on the Company’s website and
can be found at www.harworthgroup.com/investors/governance/
The Board will undertake bi-annual evaluation of the Committee’s performance to
ensure continued ability to discharge its key responsibilities.
3(3)
3(3)
1(1)
I am pleased to present to you the Nomination
Committee Report for the year ended 31 December
2016.
At the start of the year the Committee consisted of me,
Lisa Clement and Peter Hickson. Following Peter’s
retirement from the Board at the 2016 Annual General
Meeting, Andrew Cunningham joined the Committee,
with effect from 1 October 2016.
All Non-Executive Directors are invited to attend meetings
of the Committee. So too is the Chief Executive when this
is considered appropriate.
The Committee meets at least once a year to review
succession and development planning for the Executive
Committee and senior management team and to
appraise the balance, experience and skills of the Board.
Further meetings are arranged, as required, to discharge
the Committee’s responsibilities in connection with
identifying and nominating new Board members. The
Committee met three times in 2016.
I will be available at the Annual General Meeting to
answer any questions from Shareholders on the activities
of the Committee.
Jonson Cox
Chair of the Nomination Committee
19 April 2017
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 85
SUCCESSION AND DEVELOPMENT PLANNING
The Committee is responsible for overseeing the
succession and development plans in place for the
Executive Committee and senior management team.
The Chief Executive reports to the Committee annually,
and did so again in the fourth quarter of 2016, on
progress with respect to those plans. This year the
Committee spent some time focussing on the
succession plans for members of the Executive
Committee, particularly the Chief Executive, both in
terms of emergency succession plans in the event that
the Board needed to appoint a temporary Chief
Executive at short notice, due to unforeseen
circumstances, and for medium to long-term succession
plans. The Committee was satisfied that appropriate
plans are in place for both the Executive Committee and
senior management team and resolved to review the
position again in the summer of 2017, when certain
development initiatives have been completed.
BOARD COMPOSITION
The Committee is responsible for keeping under review
the composition of the Board, to ensure that its
membership comprises an appropriate balance of
experience and skills and includes the right number of
independent Directors.
The Board is mindful that our Chairman and two of our
Independent Non-Executive Directors have served on the
Board for close to or more than six years. In that context,
succession to the Chairman’s role and for our long-serving
Independent Non-Executive Directors has formed an
important part of the Board evaluation that has recently
been undertaken. Following that process, and further
discussion amongst the Board, we are beginning to put
in place succession plans.
DIVERSITY
The Board supports the need for improving diversity,
both at Board level and throughout the business. This is
an important consideration when scoping and monitoring
succession and development planning within the
business. It will also be a key objective as Board
succession plans are developed and implemented, albeit
the Committee and Board will continue to recruit on merit
to ensure the best candidates are appointed to all roles.
APPOINTMENT OF ANDREW CUNNINGHAM AS
INDEPENDENT NON-EXECUTIVE DIRECTOR
Peter Hickson stepped down from his position as Senior
Independent Director at the 2016 Annual General
Meeting. The Committee led the search for his
replacement. Potential candidates were compiled by
Russell Reynolds based on an agreed role description
approved by the Committee. The Chairman identified a
list of candidates for interview. Initial interviews were led
by the Chairman, together with certain of the Non-
Executive Directors. Candidates on a shortlist were then
interviewed by most of the remaining Directors. Following
that process, the Committee recommended that the
Board appoint Andrew Cunningham as an Independent
Non-Executive Director.
Andrew was appointed to the Board on 26 April 2016.
He undertook our induction programme for Non-
Executive Directors which includes, amongst other
things, meetings with the Non-Executive Directives and
Executive Committee, two days of site visits and one
to-one meetings with the Company Secretary, Group HR
Manager, and Associate Directors of EES and
Partnerships and Communications.
In conjunction with Andrew’s appointment, the
Committee recommended that Lisa Clement be
appointed Senior Independent Director and Chair of the
Remuneration Committee, to fill the positions vacated by
Peter Hickson, Anthony Donnelly be appointed as a
member of the Remuneration Committee, to maintain the
number of Independent Non-Executive Directors on that
Committee and, given his financial background and
experience, Andrew Cunningham be appointed as
Chairman of the Audit Committee in place of Lisa.
Andrew was also appointed to the Nomination
Committee, to fill the place vacated by Peter Hickson.
Those appointments took effect on 1 October 2016.
Andrew is a very welcome addition to the Board and has
already made a substantial contribution since his arrival.
Russell Reynolds has no other connection with the Group.
APPOINTMENT OF CHRIS BIRCH AS GENERAL
COUNSEL AND COMPANY SECRETARY
Geoff Mason was re-appointed as Company Secretary in
June 2014 on a temporary basis with the principal
objective of assisting with the Company’s acquisition of
HEPGL. Following completion of that transaction, the
Company began a process, overseen by the Committee,
to identify a permanent replacement. Suitable candidates
for the role were identified, with assistance from two
recruitment consultants, and a series of interviews and
meetings followed with a number of individuals.
Chris Birch was appointed as Group General Counsel
and Company Secretary with effect from 6 June 2016.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT Directors’ report
Statements for the year ended 31 December 2016
86 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Directors’ report
Statements for the year ended 31 December 2016
Introduction
The Directors present their report and the audited consolidated financial statements for the year ended 31 December 2016.
Pages 86 to 90 inclusive, together with sections of this Annual Report referred to below, constitute the Directors’ Report for year
ended 31 December 2016, prepared and presented in accordance with the Companies Act 2006. The liabilities of the Directors in
connection with the report are subject to the limitations and restrictions provided by English Company law.
The Directors’ Report should be read in conjunction with the Strategic Report (pages 2 to 51) and the wider Corporate Governance
Statement (pages 52 to 91) which are incorporated by reference into this Directors’ Report.
The information required to be disclosed in the Directors’ Report, including pursuant to the Companies Act 2006 (CA06), the Large
and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, paragraphs 4.1.5R and 4.1.8R of the FCA’s
Disclosure and Transparency Rules and paragraph 9.8.4CR of the FCA’s Listing Rules can be found in this Annual Report on the
pages listed below.
Agreements with Shareholders
Amendment of the Articles
Annual General Meeting
Appointment and replacement of Directors
Board of Directors
Charitable donations
Change of control
Composition and operation of administrative, management and supervisory bodies and
committees
Directors’ insurance and indemnities
Disclosure of information to auditors
Diversity
Employee numbers
Employee involvement
Employees with disabilities
Employee share scheme
Future developments of the business
Going concern and viability
Greenhouse gas emissions
Independent auditors
Political donations
Post-balance sheet events
Powers for the Company to issue or buy back shares
Powers of the Directors
Profit/loss and dividends
Restrictions on transfer of securities
Rights attaching to shares
Risk management and internal controls
Risk management – financial risks and use of financial instruments to mitigate risk
Share capital
Significant related party agreements
Significant Shareholders
Statement of corporate governance including compliance with corporate governance code
Voting rights
Reference
Statement of corporate governance, p59
Directors’ report, p88
Statement of Corporate Governance, p65
Directors’ report, p88
Board of Directors and Company Secretary, pp54-55
Directors’ report, p88
Directors’ report, p89
Directors’ report, p89
Statement of corporate governance, pp58-61
Statement of Corporate Governance, p62
Directors’ report, p89
Statement of Directors’ responsibilities, p91
Strategic report: Our people, p51
Strategic report: Our people, p50
Strategic report: Our people, p50
Strategic report: Our people, p51
Strategic report: Our people, p51
Directors’ Remuneration report, p67
Directors’ report, p89
Strategic report, pp4-5
Strategic report: How we manage our risks, p45
Strategic report: Harworth and the environment, p49
Audit Committee report, p81
Independent auditors’ report, pp92-96
Directors’ report, p89
Strategic report: Chief Executive’s statement, p14
Directors’ report, p88
Directors’ report, p88
Chairman’s statement, p10
Directors’ report, p88
Directors’ report, p87
Directors’ report, p87
Strategic report: How we manage our risks, pp40-41
Audit Committee report, pp82-83
Strategic report, Financial review, p37
Directors’ report, p89
Financial statements, Note 25, p125
Directors’ report, p87
Financial statements, Note 32, p131
Directors’ report, p89
Directors’ report, p89
Directors’ report, p87
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 87
The Company
Legal form
Harworth Group plc is a Company incorporated in the United Kingdom with Company number 2649340. The principal subsidiaries
and associated undertakings are listed in Note 18 of the Financial Statements.
Financial results
The Group’s consolidated income statement set out on page 97 shows Group profit before taxation of £43.5m (2015: £77.6m, which
included the £44.2m gain arising from the Company’s acquisition of the remaining 75.1% of HEPGL). The net assets attributable to
Shareholders of the Group increased to £334.9m (2015: £297.7m) over the financial year to 31 December 2016. The Group’s NAV rose by
12.5% during the year. The results for the Group are reviewed in the Chairman’s Statement, the Chief Executive’s Statement and Financial
Review and the detailed results are set out in the financial statements on pages 97 to 132 which accompany this report.
Share capital and authority to allot and purchase shares
During the year under review the Shareholders approved at the 2016 Annual General Meeting, and the Company effected, a share
consolidation whereby 2,922,697,860 Ordinary Shares of 1 pence each were consolidated into 292,269,786 Ordinary Shares of
10 pence each. As such, the issued share capital of the Company at 31 December 2016 was 292,269,786 Ordinary Shares of 10 pence
each. Details of the share capital as at 31 December 2016 are set out in Note 29 to the Financial Statements on page 130.
On 22 March 2017, the Company issued and allotted a further 29,226,974 Ordinary Shares of 10 pence each pursuant to a placing of
shares. As such, the issued share capital of the Company at 19 April 2017 (being the latest date prior to publication of this report) was
321,496,760 Ordinary Shares of 10 pence each. The ISIN of the shares is GB00BYZJ7G42.
All shares carry equal rights to dividend, voting and return of capital on the winding up of the Company, as set out in the Company’s
Articles of Association, and are fully paid. No person holds shares carrying special rights with regard to control of the Company.
On 14 March 2017, the PPF entered into a lock-in deed with the Company, pursuant to which it undertook not to sell or otherwise
dispose of the shares it holds in the Company for a period of 6 months. There are no other restrictions on the transfer of securities in
the Company, save for the power of the Board to refuse to transfer shares in certain circumstances prescribed by the Articles of
Association, and there are no restrictions on any voting rights or deadlines, other than those prescribed by law, nor is the Company
aware of any other arrangement between holders of shares which may result in restrictions on the transfer of securities or voting
rights, nor any arrangement whereby a Shareholder has waived or agreed to waive dividends (other than the EBT – see below).
The Harworth Group plc Employee Benefit Trust (EBT) holds shares for the purposes of satisfying awards that may vest under the
Company’s share-based incentive schemes. The EBT may purchase shares in the Company from time to time to satisfy awards
granted to Executive Directors and members of the Executive Committee and senior management team, subject to the achievement
of performance targets under the Company’s incentive schemes. At 31 December 2016 the EBT held 68,966 Ordinary Shares of
10 pence each in the Company (2015: 1,695,057 Ordinary Shares of 1 pence each) in respect of future incentive awards under the
Company’s employee share schemes. Details of outstanding awards are set out in the Directors’ Remuneration report on page 79.
The EBT has waived its right to receive dividends on shares that it holds beneficially in respect of future awards. The Trustee of the
EBT exercises any voting rights on such shares in accordance with the Directors’ recommendations.
Section 551 of the CA06 provides that the Directors may not allot shares unless empowered to do so by Shareholders. In conjunction
with the Share Capital Management Guidelines published by the Investment Association, a resolution was passed at the 2016 Annual
General Meeting giving the Directors authority to allot shares up to an aggregate nominal value of one-third of the Company’s issued
share capital plus a further one-third (i.e. two-thirds in all) where the allotment is in connection with a rights issue. The Company
issued and allotted three Ordinary Shares of 1 pence each on 26 April 2016 in conjunction with, and to facilitate, the share
consolidation referred to above. On 22 March 2017, the Company issued and allotted a further 29,226,974 Ordinary Shares of
10 pence each (representing an aggregate nominal value of approximately 9.9% of the Company’s issued share capital) for the
purposes of the placing referred to above. At the 2017 Annual General Meeting, the Directors propose to renew the authorities
granted to them at the 2016 Annual General Meeting.
Allotment of shares for cash
Under Section 561 of the 2006 Act, if the Directors wish to allot unissued shares for cash (other than pursuant to an employee share
scheme) they must first offer them to existing Shareholders in proportion to their holdings (a pre-emptive offer). By a special resolution
at the 2016 Annual General Meeting, the Shareholders gave authority to the Directors to dis-apply the above mentioned pre-emption
and to allot shares for cash other than by way of rights to existing Shareholders, provided that the aggregate nominal value of such
shares does not exceed 5% of the Company’s total issued equity capital. This authority was compliant with the Pre-Emption Group’s
Statement of Principles (PEG Principles).
The Directors did not make use of this authority during the period under review, but did issue shares for non-cash consideration
pursuant to the share placing in March 2017 referred to above.
The Directors propose to renew this authority at the 2017 Annual General Meeting.
The Directors have no current plans to make use of the renewed authority should it be granted, although they consider their renewal
appropriate in order to retain maximum flexibility to take advantage of business opportunities as they arise. That said, the PEG
Principles request that in any rolling three-year period a Company does not make non-pre-emptive issues for cash or of equity
securities exceeding 7.5% of the Company’s issued share capital without prior consultation with Shareholders. The Directors intend to
comply with that guidance.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT Directors’ report
Continued
88 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Directors’ report
Continued
Purchase of own shares
The Company has authority under a Shareholders’ resolution passed at the 2016 Annual General Meeting to purchase up to
29,226,978 of the Company’s Ordinary Shares, representing approximately 10% of the Company’s total issued share capital, in the
market during the period expiring at the 2017 Annual General Meeting.
No shares have been purchased by the Company under the authority granted at the 2016 Annual General Meeting.
A special resolution will be proposed at the 2017 Annual General Meeting to renew this authority. Although the Directors have no
immediate plans to do so, they believe it is prudent to seek general authority from Shareholders to be able to act if circumstances
were to arise in which they considered such purchases to be desirable. This power will only be exercised if and when, in the light of
market conditions prevailing at that time, the Directors believe that such purchases would increase earnings per share and would be
for the benefit of Shareholders generally. Any shares purchased under this authority will be cancelled (unless the Directors determine
that they are to be held as treasury shares) and the number of shares in issue will be reduced accordingly.
Amendment of Articles of Association
The Articles of Association may be amended by special resolution of the Shareholders.
Reduction of capital
During the year under review and with the approval of Shareholders (at the 2016 Annual General Meeting) and the court, the Company
effected a capital reduction by way of cancellation of the Company’s share premium account.
Dividends
The Board is recommending a final dividend of 0.523 pence per share which, together with the interim dividend of 0.23 pence per
share paid in December 2016, makes a combined dividend of 0.753 pence (2015: 0.51 pence) per share. Payment of the final
dividend, if approved at the Annual General Meeting, will be made on 30 May 2017 to Shareholders registered at the close of business
on 5 May 2017. The ex-dividend date will be 4 May 2017.
The dividend paid in the year to 31 December 2016 and disclosed in the Consolidated Income Statement is 0.74 pence (2015: nil) per
share, being the previous year’s final dividend of 0.51 pence per share and the interim dividend of 0.23 pence per share in respect of
the year ended 31 December 2015. These were paid on 9 September 2016 and 1 December 2016 respectively.
Directors and Directors’ interests
A list of the Company’s Directors and their biographies appear in the Corporate Governance Statement on pages 54 and 55. In
addition to the individuals in that list, during the period under review:
•
•
Michael Richardson was a Director of the Company, by way of a transition period following the appointment of Andrew Kirkman as
Finance Director on 1 January 2016, until his resignation on 29 February 2016; and
Peter Hickson was the Senior Independent Director until his retirement at the 2016 Annual General Meeting.
Details of the Directors’ remuneration and beneficial interests in, and options to acquire, Ordinary Shares in the Company as at
31 December 2016 are set out in the Directors’ Remuneration report on page 79. Details of the Directors’ beneficial interests in, and
options to acquire, Ordinary Shares as at 19 April 2017 (being the latest practical date prior to publication of this report), which reflect
the share placing in March 2017, are set out in the Remuneration Report on page 79. The Directors do not have any interest in any
other Group Company, other than as Directors.
No Director has, or has had, a material interest, directly or indirectly, at any time during the year under review in any contract
significant to the Company’s business.
Appointment, replacement and powers of Directors
The appointment and replacement of Directors is governed by the Articles of Association.
The Board must comprise not less than two Directors with no maximum number of Directors. Directors may be appointed by
Shareholders (by ordinary resolution) or by the Board.
Under the Company’s Articles of Association, any Director appointed by the Board since the last Annual General Meeting may only
hold office until the date of the following Annual General Meeting, at which time that Director must stand for election by Shareholders.
Andrew Cunningham will, therefore, be standing for election at the 2017 Annual General Meeting.
The Articles also require one-third of the Directors to retire by rotation at each Annual General Meeting. Any Director who has not
retired by rotation must retire at the third Annual General Meeting after his or her last appointment or re-appointment. However, in
accordance with the Code, which requires all Directors of FTSE 350 companies to be subject to annual re-election by Shareholders,
the Board has again decided that all other Directors will be subject to re-election at the 2017 Annual General Meeting.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 89
The Directors may exercise all of the powers of the Company, subject to compliance with relevant laws, the Company’s Memorandum
and Articles of Association and any directions given by special resolution of Shareholders. These include specific restrictions
regarding the Company’s power to borrow money.
Directors’ indemnities and insurance
As permitted by the Articles of Association, qualifying third-party indemnities have been in place throughout the period under review
and remain in force at the date of this report in respect of liabilities suffered or incurred by each Director. The deeds of indemnity are
available for inspection by Shareholders at the Company’s registered office.
The Company also maintains an appropriate level of Directors’ and officers’ insurance in respect of legal actions against the Directors.
Neither the qualifying third party indemnities nor the insurance provide cover where the Director has acted fraudulently or dishonestly.
Political donations
No political donations were made during the year (2015: £nil). It remains the Company’s policy to not make any cash donations to
political parties. This policy is strictly adhered to and there is no intention to change it. However, the definitions of ‘political donation’
and ‘political expenditure’ used in the Companies Act 2006 remain very broad, which may have the effect of covering a number of
normal business activities that would not be considered political donations or political expenditure in the usual sense. These could
include support for bodies engaged in law reform or governmental policy review or involvement in seminars and functions that may be
attended by politicians. To avoid any possibility of inadvertently contravening the Companies Act 2006, the Directors obtained
authority from Shareholders at the 2016 Annual General Meeting for certain political donations and expenditure, subject to financial
limits. The Directors will seek to renew this authority at the 2017 Annual General Meeting.
Charitable donations
The Group made charitable donations during 2016 in the aggregte sum of £7,558 (2015: £300).
Financial instruments and risk management
The Group’s exposure to, and management of capital, liquidity, credit and interest rate risk, are set out within the Financial Review on
page 37.
General meetings
An Annual General Meeting must be called on at least 21 days’ clear notice, although the Company gives not less than 20 working
days’ notice of its Annual General Meeting in order to comply with the Code.
All other general meetings are also required to be held on at least 21 days’ clear notice unless the Company offers Shareholders an
electronic voting facility. A special resolution reducing the period of notice for general meetings (other than Annual General Meetings)
to not less than 14 days was passed at the 2016 Annual General Meeting. The Directors are proposing to seek renewal of that
authority at the 2017 Annual General Meeting. It is intended that this shorter notice period will only be used for non-routine business
and where merited in the interests of Shareholders as a whole.
Substantial shareholdings
As at the date of this report the Company had been notified, pursuant to paragraph 5 of the FCA’s Disclosure and Transparency
Rules, of the following notifiable voting rights in its Ordinary Share capital:
Name of holder
Goodweather Holdings Limited*
Pension Protection Fund
Invesco Perpetual
Pelham Capital Management
London and Amsterdam Trust Company
Number of
Ordinary Shares
Percentage of total
voting rights
88,892,667
80,374,189
31,993,428
27,480,851
11,707,924
27.65%
25.00%
9.95%
8.55%
3.64%
* Goodweather Holdings Limited is a member of the Peel Holdings Group Limited.
Change of control provisions
The following significant agreement contains a provision entitling the counterparties to exercise termination rights in the event of a
change of control in the Company:
Under the terms of the banking facility agreement entered between Royal Bank of Scotland plc and HEPGL in February 2015 and
amended in August 2016 and December 2016 if any person or Group of persons acting in concert gains direct or indirect control of
HEPGL the facility will be cancelled and all outstanding loans and bonds, guarantees or letters of credit together with accrued interest
shall become immediately due and payable.
The rules governing the LTIP provide for the treatment of awards under the LTIP in the event of a takeover of the Company.
A summary of those rules was included in the Notice of the 2016 Annual General Meeting, a copy of which is available on the
Company’s website at www.harworthgroup.com/investors/.
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
90 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Directors’ report
Continued
Agreements with related parties
There continue to subsist five joint venture agreements with members of the Peel Group, which were approved by Shareholders in
June 2017, for the promotion and development of energy from waste schemes at five sites owned by the Group. The Company is
seeking Shareholder approval for certain amendments to those joint venture arrangements at the 2017 Annual General Meeting.
Compliance with UK Corporate Governance Code
Whilst the Company is listed on the standard segment of the Official List, it has applied the main and supporting principles of the UK
Corporate Governance Code 2014, which applied during the financial year ended 31 December 2016 and is publicly available on the
website of the Financial Reporting Council. The Company has complied with the provisions of the Code throughout the year ended
31 December 2016, save for the following matters:
• The Audit Committee comprises two independent Non-Executive Directors (Andrew Cunningham and Anthony Donnelly) and one
non-independent Non-Executive Director (Steven Underwood). The Company considers that Mr Underwood makes a valuable and
important contribution to the Committee because: (i) he is a chartered accountant; and (ii) in his role as Chief Executive of the Peel
Group, he has extensive experience of reviewing and scrutinising the accounts of a large property business. The independent
Non-Executive Directors carry a majority of votes on the Committee.
• The Remuneration Committee comprises two independent Non-Executive Directors (Lisa Clement and Anthony Donnelly), the
Chairman (Jonson Cox) and one non-independent Non-Executive Director (Steven Underwood). The Company considers that
Mr Underwood makes a valuable and important contribution to the Committee because he relays the views of the Company’s
largest Shareholder on remuneration matters. The independent Non-Executive Directors carry 50% of the votes on the Committee
and the independent Chair has a casting vote.
• Whilst the Company has in the past undertaken regular evaluations of the Board, Committees, Chairman and Non-Executive
Directors, the Company has only recently put in place a formal evaluation process and undertaken a formal Board evaluation.
Formal evaluations of the Committees and Chairman will follow during this year and formal 360 degree reviews will be undertaken
by Non-Executive Directors periodically.
•
In response to feedback from the Board evaluation process referred to above further work will be done in 2017 to formalise the
process for reviewing and managing the CPD of Non-Executive Directors.
Approval
This report was approved by the Board of Directors and signed on its behalf by:
Chris Birch
Group General Counsel and Company Secretary
19 April 2017
Statement of Directors’ responsibilities
in respect of the financial statements
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 91
Statement of Directors’ responsibilities
in respect of the financial statements
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have
prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the
European Union and Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as
adopted by the European Union. Under Company law the Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and
Company for that period. In preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
•
state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and
IFRSs as adopted by the European Union have been followed for the Company financial statements, subject to any material
departures disclosed and explained in the financial statements;
• make judgements and accounting estimates that are reasonable and prudent; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company
will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and
enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006
and, as regards the Group financial statements, Article 4 of the IAS Regulation.
The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Group and Company’s website. Legislation in the United
Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors consider that the 2016 Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable
and Statements provides the information necessary for Shareholders to assess the Group and Company’s position, performance,
business model and strategy.
Each of the Directors, whose names and functions are listed on pages 54 and 55 confirm that, to the best of their knowledge:
•
•
the Company financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give
a true and fair view of the assets, liabilities, financial position and profit of the Company;
the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a
true and fair view of the assets, liabilities, financial position and profit of the Group; and
• the Directors’ Report, Operations and Business reporting (contained in the Chief Executive’s report and Strategic Report sections
of the Annual Report) include a fair review of the development and performance of the business and the position of the Group and
Company, together with a description of the principal risks and uncertainties that it faces.
In the case of each Director in office at the date the Directors’ Report is approved:
• so far as the Director is aware, there is no relevant audit information of which the Group and Company’s auditors are unaware; and
• they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit
information and to establish that the Group and Company’s auditors are aware of that information.
By order of the Board
Owen Michaelson
Andrew Kirkman
19 April 2017
FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT
Independent auditors’ report
to the members of Harworth Group plc
92 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Independent auditors’ report
to the members of Harworth Group plc
REPORT ON THE FINANCIAL STATEMENTS
Our opinion
In our opinion:
• Harworth Group plc’s Group financial statements and Company financial statements (the “financial statements”) give a true and fair
view of the state of the Group’s and of the Company’s affairs as at 31 December 2016 and of the Group’s profit and the Group’s
and the Company’s cash flows for the year then ended;
•
•
•
the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards
(“IFRSs”) as adopted by the European Union;
the Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and
as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
What we have audited
The financial statements, included within the Annual Report and Accounts (the “Annual Report”), comprise:
•
•
•
•
•
the Balance sheets as at 31 December 2016;
the Consolidated income statement and the Consolidated statement of comprehensive income for the year then ended;
the Consolidated and Company statement of changes in equity for the year then ended;
the Statements of cash flows for the year then ended; and
the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.
Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements.
These are cross-referenced from the financial statements and are identified as audited.
The financial reporting framework that has been applied in the preparation of the Group financial statements is IFRSs as adopted by the
European Union and, as regards the Company financial statements, as applied in accordance with the provisions of the Companies Act
2006, and applicable law.
OUR AUDIT APPROACH
Overview
• Overall Group materiality: £4.6m which represents 1% of total assets.
• We identified the reporting units within the Group that had the most significant effect on the Balance sheet and/or
the Consolidated income statement.
• We performed full scope audit work on the Balance sheet and/or the Consolidated income statement as
appropriate.
• The reporting units subject to full scope audit work on the Balance Sheet and/or the Consolidated income statement
accounted for 98% of total assets and 79% of profit before tax.
• Valuation of investment property.
The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK and Ireland)”).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular,
we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved
making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of
management override of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk
of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are
identified as “areas of focus” in the table on page 93. We have also set out how we tailored our audit to address these specific areas in
order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should
be read in this context. This is not a complete list of all risks identified by our audit.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 93
AREA OF FOCUS
Valuation of investment property (£379.2m) (Refer to Note 17 of the financial
statements)
We focused on this area because the Group’s investment property assets
represent a significant proportion of the assets in the Consolidated
balance sheet.
The Group’s portfolio includes properties at varying stages of completion,
across various sectors, including mixed-use, industrial and retail.
Property valuations are subject to a high degree of judgement as they
are calculated from a number of different assumptions specific to each
individual property. These include actual and estimated rental values,
yields, costs to complete and expected land values per acre.
The Group engaged independent external valuers to value its investment
properties in accordance with the Royal Institution of Chartered Surveyors
(“RICS”) Valuation – Professional Standards.
For the majority of properties, the residual appraisal method was used,
by estimating the fair value of the completed project using a capitalisation
method based on expected land values per acre less estimated costs to
completion and a risk premium. Completed properties were valued on an
income approach basis, taking into consideration assumptions for yields
and estimated market rent.
A relatively small percentage change in the valuations of individual
properties, in aggregate, could result in a material impact on the
financial statements.
How our audit addressed the area of focus
We read the third party property valuation reports obtained by the
Directors and considered if the overall approach and methodology
adopted were appropriate given the nature of the properties being valued
and whether they were in line with market practice. We also considered
the extent to which the approach and methodology were consistent with
prior years.
For a sample of properties representing 76% of the value of the
property portfolio, we discussed the valuation approach on a property
by property basis directly with the third party valuer. We considered the
specific assumptions used by the valuer for each property, including
the expected land values per acre, costs to complete, estimated rental
values and yields, and considered whether these were consistent with
market evidence and, where relevant, actual sale proceeds on properties
disposed of during the year. For properties where further investment
property spend is forecast to be incurred, we obtained management
estimates for the costs to completion to be incurred and for a sample
of costs agreed to supporting documentation, such as tenders or
agreements, to check the accuracy of the forecast costs.
In addition, we considered the extent to which existing surface mining
tenants on investment property owned by the Group would perform
their obligations to remediate land at the conclusion of mining activity.
Where restoration obligations may revert to the Group, we considered
whether these were appropriately considered in the carrying value of
the investment property and where appropriate agreed back to third
party estimates.
We found the methodologies used by the third party valuers to be
consistent across the portfolio of properties and with prior years. We also
found that the assumptions used were within the ranges typically used for
similar valuations.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a
whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the
Group operates.
The Group is structured along two business lines being Capital Growth and Income Generation. The Group financial statements are a
consolidation of the 28 reporting units within these two business lines and the Group’s centralised functions.
Of the Group’s 28 reporting units, we identified 5 which, in our view, had the most significant effect on the Balance sheet and/or the
Consolidated income statement due to their size or their risk characteristics. We performed a full scope audit on the Balance sheet and/or
the Consolidated income statement as appropriate. The reporting units subject to full scope audit work on the Balance sheet and/or the
Consolidated income statement accounted for 98% of total assets and 79% of profit before tax.
This, together with additional procedures performed on the Group’s centralised functions, gave us the evidence we needed for our opinion
on the Group financial statements as a whole.
All work was performed by the Group audit team; no component auditors were involved.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually
and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall Group materially
How we determined it
Rationale for benchmark applied
£4.6m (2015: £3.9m)
1% of total assets
The key driver of the business and determinant of the Group’s value is direct property investments. Due to
this, the key area of focus in the audit is the valuation of investment properties. On this basis, we set an overall
Group materiality level based on total assets.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £196,000
(2015: £175,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
94 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Independent auditors’ report
to the members of Harworth Group plc
Going concern
The Directors have voluntarily complied with Listing Rule 9.8.6(R)(3)(a) of the Financial Conduct Authority and provided a statement in
relation to going concern, set out on page 45, required for companies with a premium listing on the London Stock Exchange.
The Directors have requested that we review the statement on going concern as if the Company were a premium listed Company. We
have nothing to report having performed our review.
The Directors have chosen to voluntarily report how they have applied the UK Corporate Governance Code (the “Code”) as if the
Company were a premium listed Company. Under ISAs (UK and Ireland) we are required to report to you if we have anything material to
add or to draw attention to in relation to the Directors’ statement about whether they considered it appropriate to adopt the going concern
basis in preparing the financial statements. We have nothing material to add or to draw attention to.
As noted in the Directors’ statement on page 45, the Directors have concluded that it is appropriate to adopt the going concern basis in
preparing the financial statements. The going concern basis presumes that the Group and Company have adequate resources to remain
in operation, and that the Directors intend them to do so, for at least one year from the date the financial statements were signed. As part
of our audit we have concluded that the Directors’ use of the going concern basis is appropriate. However, because not all future events or
conditions can be predicted, these statements are not a guarantee as to the Group’s and Company’s ability to continue as a going
concern.
OTHER REQUIRED REPORTING
Consistency of other information and compliance with applicable requirements
Companies Act 2006 reporting
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
•
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In addition, in light of the knowledge and understanding of the Group, the Company and their environment obtained in the course of the
audit, we are required to report if we have identified any material misstatements in the Strategic Report and the Directors’ Report. We have
nothing to report in this respect.
ISAs (UK and Ireland) reporting
As a result of the Directors’ voluntary reporting on how they have applied the Code, under ISAs (UK and Ireland) we are required to report to you if, in our
opinion:
•
information in the Annual Report is:
– materially inconsistent with the information in the audited financial statements; or
–
apparently materially incorrect based on, or materially inconsistent with, our knowledge of the
Group and Company acquired in the course of performing our audit; or
–
otherwise misleading.
We have no exceptions
to report.
•
•
the statement given by the Directors on page 81, in accordance with provision C.1.1 of the Code, that
they consider the Annual Report taken as a whole to be fair, balanced and understandable and
provides the information necessary for members to assess the Group’s and Company’s position and
performance, business model and strategy is materially inconsistent with our knowledge of the Group
and Company acquired in the course of performing our audit.
We have no exceptions
to report.
the section of the Annual Report on page 80, as required by provision C.3.8 of the Code, describing the
work of the Audit Committee does not appropriately address matters communicated by us to the Audit
Committee.
We have no exceptions
to report.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 95
The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency
or liquidity of the Group
As a result of the Directors’ voluntary reporting on how they have applied the Code, under ISAs (UK and Ireland) we are required to report to you if we
have anything material to add or to draw attention to in relation to:
•
•
•
the Directors’ confirmation on page 42 of the Annual Report, in accordance with provision C.2.1 of the
Code, that they have carried out a robust assessment of the principal risks facing the Group, including
those that would threaten its business model, future performance, solvency or liquidity.
We have nothing
material to add or to
draw attention to.
the disclosures in the Annual Report that describe those risks and explain how they are being managed
or mitigated.
the Directors’ explanation on page 45 of the Annual Report, in accordance with provision C.2.2 of the
Code, as to how they have assessed the prospects of the Group, over what period they have done so
and why they consider that period to be appropriate, and their statement as to whether they have a
reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they
fall due over the period of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
We have nothing
material to add or to
draw attention to.
We have nothing
material to add or to
draw attention to.
Adequacy of accounting records and information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from
branches not visited by us; or
•
the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
DIRECTORS’ REMUNERATION
Directors’ remuneration report – Companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration specified
by law are not made. We have no exceptions to report arising from this responsibility.
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
Our responsibilities and those of the Directors
As explained more fully in the Statement of Directors’ Responsibility set out on page 91, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK and
Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3
of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for
any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by
our prior consent in writing.
What an audit of financial statements involves
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the Group’s and the Company’s circumstances and have been consistently
applied and adequately disclosed;
•
•
the reasonableness of significant accounting estimates made by the Directors; and
the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own
judgements, and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a
reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive
procedures or a combination of both.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
96 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Independent auditors’ report
to the members of Harworth Group plc
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited
financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report. With respect to the Strategic Report and Directors’ Report, we consider
whether those reports include the disclosures required by applicable legal requirements.
Andy Ward (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Sheffield
19 April 2017
Consolidated income statement
for the year ended 31 December 2016
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 97
Consolidated income statement
for the year ended 31 December 2016
Revenue
Cost of sales
Gross profit
Administrative expenses
Increase in fair value of investment properties
Decrease in fair value of assets classified as held for sale
Profit on sale of investment properties
Loss on sale of assets classified as held for sale
Other gains
Other operating (expenses)/income
Operating profit before exceptional items
Exceptional income
Exceptional expense
Operating profit
Finance income
Finance costs
Share of profit of associate and joint ventures
Gain on bargain purchase
Profit before tax
Tax charge
Profit for the financial year
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
Note
4
7
7
7
7
7
7
7
6
6
9
9
18
3
11
33,693
(20,905)
12,788
(10,457)
33,713
(224)
9,166
(375)
747
(204)
45,154
689
(682)
45,161
247
(2,588)
647
–
43,467
(3,566)
39,901
13,172
(6,013)
7,159
(5,731)
24,060
–
8,180
–
3,208
176
37,052
–
(2,859)
34,193
62
(1,803)
856
44,244
77,552
(3,508)
74,044
Profit per share from continuing operations attributable to the owners of the Group during the year
Earnings per share from operations
Basic and diluted earnings per share
Note
14
pence
3.5
pence
3.1
The Notes on pages 103 to 132 are an integral part of the consolidated financial statements.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Consolidated statement of comprehensive income
for the year ended 31 December 2016
Balance sheets
as at 31 December 2016
98 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Consolidated statement of comprehensive income
Consolidated statement of comprehensive income
for the year ended 31 December 2016
for the year ended 31 December 2016
Profit for the financial year
Other comprehensive (expense)/income – items that will not be reclassified to profit or loss:
Fair value of financial instruments
Net actuarial loss in Blenkinsopp Pension Scheme
Revaluation of Group occupied property
Deferred tax on actuarial loss
Total other comprehensive expense
Total comprehensive income for the financial year
Note
25
27
15
11
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
39,901
74,044
(366)
(269)
(17)
94
(558)
–
(3)
–
–
(3)
39,343
74,041
Balance sheets
as at 31 December 2016
Balance sheets
as at 31 December 2016
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 99
Group
Company
As at
31 December
2016
£’000
As at
31 December
2015
£’000
As at
31 December
2016
£’000
As at
31 December
2015
£’000
Note
ASSETS
Non-current assets
Property, plant and equipment
Other receivables
Retirement asset
Investment properties
Investment in subsidiaries
Investment in associates
Investment in joint ventures
Deferred income tax asset
Current assets
Inventories
Trade and other receivables
Assets classified as held for sale
Cash and cash equivalents
Total assets
LIABILITIES
Current liabilities
Borrowings
Trade and other payables
Net current assets
Non-current liabilities
Borrowings
Trade and other payables
Derivative financial instruments
Deferred income tax liabilities
Retirement benefit obligations
Total liabilities
Net assets
SHAREHOLDERS’ EQUITY
Capital and reserves
Called up share capital
Share premium account
Fair value reserve
Capital redemption reserve
Merger reserve
Current year profit/(loss)
Retained earnings/(deficit)
Total equity
15
16
27
17
18
18
18
19
20
21
22
23
24
23
24
25
11
27
28
29
–
–
602
–
207,896
–
–
3,053
211,551
–
9,151
–
2,171
11,322
222,873
–
(1,885)
(1,885)
9,437
–
–
–
–
(602)
(602)
(2,487)
789
1,397
–
379,190
–
–
10,549
–
391,925
733
24,444
8,350
13,007
46,534
–
650
–
334,617
–
–
768
–
336,035
1,092
19,906
9,128
27,564
57,690
438,459
393,725
(1,819)
(33,719)
(35,538)
10,996
(50,659)
(1,520)
(366)
(14,851)
(602)
(67,998)
(103,536)
334,923
29,227
–
58,279
257
45,667
39,901
161,592
334,923
(400)
(17,369)
(17,769)
39,921
(64,119)
(2,280)
–
(11,379)
(435)
(78,213)
(95,982)
297,743
220,386
29,227
129,121
24,060
257
45,667
74,044
(4,633)
297,743
29,227
–
–
257
45,667
1,348
143,887
220,386
–
–
435
–
207,896
–
–
–
208,331
–
7,670
–
6,887
14,557
222,888
–
(1,011)
(1,011)
13,546
–
–
–
–
(435)
(435)
(1,446)
221,442
29,227
129,121
–
257
45,667
(1,661)
18,831
221,442
The financial statements on pages 97 to 132 were approved by the Board of Directors on 19 April 2017 and were signed on its behalf by:
Owen Michaelson
Chief Executive
Andrew Kirkman
Finance Director
Company Registered Number 2649340
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Consolidated statement of changes in equity
for the year ended 31 December 2016
Company statement of changes in equity
for the year ended 31 December 2016
100 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Consolidated statement of changes in equity
Consolidated statement of changes in equity
for the year ended 31 December 2016
for the year ended 31 December 2016
Balance at 1 January 2015
Profit for the financial year to 31 December 2015
Transfer of fair value gain on revaluation of investment
properties
Other comprehensive expense:
Re-measurement of post-retirement benefits
Total comprehensive income for the year
ended 31 December 2015
Transactions with owners:
Shares issued
Costs relating to share issue
Shares issued in lieu of consideration
Balance at 31 December 2015 and 1 January 2016
Profit for the financial year to 31 December 2016
Transfer of fair value gain on revaluation of investment
properties
Transfer of fair value decrease on assets classified
as held for sale
Transfer of other gains
Other comprehensive expense:
Actuarial loss in Blenkinsopp pension scheme
Revaluation of Group occupied property
Fair value of financial instruments
Deferred tax on actuarial loss on pension scheme
Total comprehensive income for the year
ended 31 December 2016
Transactions with owners:
Transfer of share premium to other distributable reserves
Dividends paid
Note
Called up
share
capital
£’000
6,055
–
Share
premium
account
£’000
32,911
–
Merger
reserve
£’000
Fair value
reserve*
£’000
Capital
redemption
reserve
£’000
–
–
257
–
Retained
earnings
£’000
19,430
74,044
Total
equity
£’000
58,653
74,044
–
–
–
–
–
24,060
–
–
–
–
–
–
15,865
–
7,307
99,160
(2,950)
–
–
–
45,667
–
–
–
24,060
–
(24,060)
–
–
(3)
–
(3)
–
–
–
–
49,981
74,041
–
–
–
115,025
(2,950)
52,974
29,227
129,121
45,667
24,060
257
69,411
297,743
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(129,121)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
39,901
39,901
33,713
–
(33,713)
(224)
747
–
(17)
–
–
34,219
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(269)
(17)
(366)
94
224
(747)
(269)
–
(366)
94
5,124
39,343
129,121
(2,163)
–
(2,163)
27
28
29
28
17
21
16
27
15
25
11
29
Balance at 31 December 2016
29,227
–
45,667
58,279
257
201,493
334,923
*The fair value reserve relates to unrealised gains and losses arising primarily from the revaluation of investment properties.
Company statement of changes in equity
for the year ended 31 December 2016
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 101
Company statement of changes in equity
for the year ended 31 December 2016
Balance at 1 January 2015
Loss for the financial year to 31 December 2015
Other comprehensive income/(expense):
Change in value of investment in associate*
Re-measurement of post-retirement benefits
Transactions with owners:
Shares issued
Costs relating to share issue
Shares issued in lieu of consideration
Balance at 31 December 2015 and 1 January 2016
Profit for the financial year to 31 December 2016
Re-measurement of post-retirement benefits
Deferred tax on actuarial loss on pension scheme
Total comprehensive income for the year
ended 31 December 2016
Transactions with owners:
Transfer of share premium to other distributable reserves
Dividends paid
Note
Called up
share
capital
£’000
6,055
–
Share
premium
account
£’000
32,911
–
Merger
reserve**
£’000
Capital
redemption
reserve
£’000
–
–
–
–
–
–
–
–
15,865
–
7,307
99,160
(2,950)
–
–
–
45,667
Retained
earnings
£’000
17,978
(1,661)
Total
equity
£’000
57,201
(1,661)
856
(3)
856
(3)
–
–
–
115,025
(2,950)
52,974
257
–
–
–
–
–
–
29,227
129,121
45,667
257
17,170
221,442
–
–
–
–
–
–
–
–
–
–
(129,121)
–
–
–
–
–
–
–
–
–
–
–
–
–
1,348
(269)
28
1,348
(269)
28
1,107
1,107
129,121
(2,163)
–
(2,163)
27
28
29
28
27
29
Balance at 31 December 2016
29,227
–
45,667
257
145,235
220,386
*change in the fair value of associate is shown within other comprehensive income to reflect the accounting treatment within the Company’s financial statements (Note 18).
**The merger reserve reflects the premium on the shares issued to the PPF as part of the consideration for the purchase of 75.1% of the issued share capital of HEPGL as
detailed in Note 3.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Statements of cash flows
for the year ended 31 December 2016
Notes to the financial statements
for the year ended 31 December 2016
102 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Statements of cash flows
Statements of cash flows
for the year ended 31 December 2016
for the year ended 31 December 2016
Group
Company
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
Note
9
18
18
3
17
7
7
7
7
18
15
2
3
2
Cash flows from operating activities
Profit/(loss) before tax for the financial year
Net interest payable/(receivable)
Profit on disposal of subsidiary
Share of post-tax profit from associate
Gain on bargain purchase
Fair value increase in investment properties
Fair value decrease on assets classified as held for sale
Profit on sale of investment properties
Loss on sale of assets classified as held for sale
Other gains
Share of (profit)/loss of joint venture
Depreciation of property, plant and equipment
Pension contributions in excess of charge
Operating cash inflows/(outflows) before movements in working capital
Decrease/(increase) in inventories
(Increase)/decrease in receivables
Increase/(decrease) in payables
Cash generated from/(used in) operations
Loan arrangement fees paid
Interest paid
Cash generated from discontinued operations
Cash generated from/(used in) operating activities
Cash flows from investing activities
Interest received
Acquisition of joint venture
Acquisition of subsidiary, net of cash acquired
Proceeds from disposal of investment properties and option
Expenditure on investment properties
Expenditure on property, plant and equipment
Cash used by discontinued operations
Cash (used in)/generated from investing activities
Cash flows from financing activities
Net proceeds from issue of Ordinary Shares
Proceeds from other loans
Repayment of bank loans
Repayment of other loans
Loan to subsidiary undertakings
Dividends paid
Cash (used in)/generated from financing activities
(Decrease)/increase in cash
At 1 January
Cash
Cash and cash equivalents classified as held for sale
(Decrease)/Increase in cash
Decrease in cash and cash equivalents classified as held for sale
At 31 December
Cash
Cash and cash equivalents classified as held for sale
Cash and cash equivalents
22
43,467
2,341
–
–
–
(33,713)
224
(9,166)
375
(747)
(647)
2
(102)
2,034
359
(634)
3,715
5,474
(150)
(1,861)
–
3,463
247
(9,134)
–
53,201
(47,528)
(25)
–
(3,239)
–
5,187
(12,000)
(5,805)
–
(2,163)
(14,781)
(14,557)
27,564
–
27,564
(14,557)
–
13,007
13,007
–
13,007
77,552
1,741
–
(856)
(44,244)
(24,060)
–
(8,180)
–
(3,208)
465
–
(132)
(922)
(781)
9,881
(10,512)
(2,334)
(170)
(1,101)
228
(3,377)
62
–
(87,823)
42,302
(41,215)
–
(1,068)
(87,742)
112,075
13,455
(400)
(8,776)
–
–
116,354
25,235
1,489
840
2,329
26,075
(840)
25,235
27,564
–
27,564
(1,707)
(183)
–
–
–
–
–
–
–
–
–
–
(102)
(1,992)
–
(1,584)
1,014
(2,562)
–
–
–
(2,562)
9
–
–
–
–
–
–
9
–
–
–
–
–
(2,163)
(2,163)
(4,716)
6,887
–
6,887
(4,716)
–
2,171
2,171
–
2,171
(1,661)
(109)
(1,426)
–
–
–
–
–
–
–
–
–
(3)
(3,199)
–
90
654
(2,455)
–
–
–
(2,455)
32
–
(97,026)
–
–
–
–
(96,994)
112,075
–
–
–
(7,228)
–
104,847
5,398
1,489
–
1,489
5,398
–
5,398
6,887
–
6,887
Notes to the financial statements
for the year ended 31 December 2016
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 103
Notes to the financial statements
for the year ended 31 December 2016
1. Accounting policies
The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below.
These policies have been consistently applied to all the years presented, unless otherwise stated.
General information
Harworth Group plc (the ‘Company’) is a 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.
Basis of preparation
The Group and Company financial statements of Harworth Group plc have been prepared on a going concern basis and in
accordance with EU adopted International Financial Reporting Standards (IFRS), IFRS IC interpretations and the Companies Act 2006
applicable to companies reporting under IFRS and therefore complies with Article 4 of the EU IAS regulations. The consolidated
financial statements have been prepared under the historical cost convention, as modified by the revaluation of investment properties
and financial assets and liabilities at fair value through profit or loss.
Going concern basis
These 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 ‘Key risks and uncertainties’ section of this annual report, as well as taking into account the available borrowing
facilities in line with the Treasury Policy disclosed on page 126.
The key factor that has been considered in this regard is:
The Group has a £75m revolving credit facility with The Royal Bank of Scotland, for a term of five years, 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. 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 financial statements.
Accounting policies
The Group did not early adopt any new or amended standards and does not plan to early adopt any standards issued but not yet
effective.
Revenue recognition
Revenue comprises rental and other land related income arising on investment properties and income from construction contracts.
Rentals are accounted for on a straight-line basis over the lease term of ongoing leases.
Revenue from the sale of coal fines is recognised at the point of despatch.
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be
reliably measured. All such revenue is reported net of discounts, and value added and other sales taxes.
Construction contracts
Contracts for the construction of substantial assets are accounted for as construction contracts. Where the outcome of a
construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion to
recognise in a given period. The assessment of the stage of completion is dependent on the nature of the contracts, but will generally
be based on the estimated proportion of the total contract costs which have been incurred to date. If a contract is expected to be loss
making, a provision is recognised for the entire cost.
Interest income and expense
Interest income and expense are recognised within ‘finance income’ and ‘finance costs’ in the income statement using the effective
interest rate method.
The effective interest rate method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating
the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated
future cash payments or receipts throughout the expected life of the financial instrument, or a shorter period where appropriate, to the
net carrying amount of the financial asset or financial liability.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Notes to the financial statements
for the year ended 31 December 2016: continued
104 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Notes to the financial statements
Notes to the financial statements
for the year ended 31 December 2016: continued
for the year ended 31 December 2016: continued
1. Accounting policies: continued
Other receivables (non-current)
Other receivables (non-current) relate to overages. An overage is the right to receive future payments following the sale of investment
properties if specified conditions relating to the site are satisfied. The conditions may be the granting of planning permission for
development on the site or practical completion of a development. Overages are initially recorded at fair value and are reviewed
annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of overages
is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is
recognised immediately as an expense.
Inventories
Inventories comprise options, Planning Promotion Agreements (PPAs) and coal slurry that has been processed and is ready for sale.
Options to purchase land are agreements that the Group has entered into with the landowners whereby the Group has the option to
purchase the land within a limited timeframe. The landowners are not generally permitted to sell to any other party during this period,
unless agreed by the Group. Within this timeframe the Group promotes the land through the planning process at its expense in order
to gain planning permission. Should the Group be successful in obtaining planning permission it would trigger the option to purchase
and subsequently sell on the land.
PPAs are agreements that the Group has entered into with the landowners whereby the Group acts as an agent to the landowners in
exchange for a fee as a set percentage of the proceeds or profit of the eventual sale. The Group promotes the land through the
planning process at its own expense. If the land is sold the Group will receive a fee for its services.
The Group incurs various costs in promoting land held under PPAs. In some instances the agreements allow for the Group to be
reimbursed for certain expenditure following the conclusion of a successful sale. These costs are held in inventory at the lower of cost
and net realisable value. Upon reimbursement, inventory is reduced by the value of the reimbursed cost.
Coal fines that have been processed and are ready for sale are stated at the lower of cost and estimated net realisable value.
Inventories comprise all the direct costs incurred in bringing the coal fines to their present state.
Investments in joint ventures
Joint ventures are those entities over whose activities the Group has joint control established by contractual agreement. Interests
in joint ventures through which the Group carries on its business are classified as jointly controlled entities and accounted for using
the equity method. This involves recording the investment initially at cost to the Group and then, in subsequent years, adjusting the
carrying amount of the investment to reflect the Group’s share of the joint venture’s results less any impairment in carrying value and
any other changes to the joint venture’s net assets such as dividends.
Impairment
Investments in subsidiaries are reviewed for impairment if there is any indication that the carrying amount may not be recoverable.
When a review for impairment is conducted, the recoverable amount is assessed by reference to the higher of ‘value in use’ (being the
present value of expected future cash flows of the relevant cash generating unit) or ‘fair value less costs to sell’. Where there is no
binding sale agreement or active market, fair value less costs to sell is based on the best information available to reflect the amount
the Company could receive for the cash generating unit in an arm’s length transaction.
The impairment testing is carried out under the principles described in IAS 36 ‘Impairment of assets’ which includes a number of
restrictions on the future cash flows that can be recognised in respect of restructurings and improvements related to capital expenditure.
Investment properties
Investment properties are those properties which are not occupied by the Group and which are held for long term rental yields,
capital appreciation or both. Investment property also includes property that is being developed or constructed for future use as
investment property. Investment properties comprise freehold land and buildings and are measured at fair value. At the end of a
financial year the fair values are determined by obtaining an independent valuation prepared in accordance with the current edition of
the Appraisal and Valuation Standards published by the Royal Institution of Chartered Surveyors. External, independent valuation
firms having appropriate, recognised professional qualifications and recent experience in the location and category of property being
valued are used.
Where the development of investment property commences with a view to sale, the property is transferred from investment
properties to inventories at fair value, which is then considered to represent deemed cost.
At each subsequent reporting date, investment properties are re-measured to their fair value. Movements in fair value are included in
the income statement.
Where specific investment properties have been identified as being for sale within the next twelve months, a sale is considered highly
probable and the property is immediately available for sale, their fair value is shown under assets classified as held-for-sale within
current assets, measured in accordance with the provisions of IAS 40 ‘Investment Property’.
Notes to the financial statements
for the year ended 31 December 2016: continued
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 105
1. Accounting policies: continued
Profit or loss on disposal of investment properties
Disposals are accounted for when legal completion of the sale has occurred or there has been an unconditional exchange of
contracts. Profits or losses on disposal arise from deducting the asset’s net carrying value and where appropriate a proportion of
future costs attributable to the development of the overall land area from the net proceeds (being net purchase consideration less any
clawback liability arising on disposal) and is recognised in the income statement. Net carrying value includes valuation in the case of
investment properties.
In the case of investment properties, any fair value reserve, for the property disposed of is treated as realised on disposal of the
property and transferred to retained earnings.
Properties in the course of development
Directly attributable costs incurred in the course of developing a property are capitalised as part of the cost of the property.
Development costs on investment properties are capitalised and any resultant change in value is therefore recognised through the
next revaluation.
Financial assets
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if
acquired principally for the purpose of selling in the short term. Assets in this category are classified as current assets if expected to
be settled within 12 months, otherwise they are classified as non-current.
Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in
the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or
have been transferred and the Group has transferred substantially all risks and rewards of ownership.
Gains or losses arising from changes in the fair value of financial assets at fair value through profit or loss are presented in the income
statement within ‘other gains’ in the period in which they arise.
Financial liabilities
Liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss or other liabilities, as appropriate.
A financial liability is de-recognised when the obligation under the liability is discharged, or cancelled or expires.
All loans and borrowings are classified as other liabilities. Initial recognition is at fair value less directly attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective
interest method.
Financial liabilities included in trade and other payables are recognised initially at fair value and subsequently at amortised cost. The
fair value of a non-interest bearing liability is its discounted repayment amount. If the due date of the liability is less than one year,
discounting is omitted.
Provisions
Provisions are recognised when:
• The Group has a present legal or constructive obligation as a result of past events;
•
It is probable that an outflow of resources will be required to settle the obligation; and
• The amount can be reliably estimated.
Pension obligations
The Group contributes to defined contribution schemes for its current employees. The cost of this is charged to the consolidated
income statement as incurred.
Blenkinsopp pension
Following the 2012 Restructuring the Group’s only defined benefit pension liability was for the Blenkinsopp Section of the Industry-
Wide Mineworkers Pension Scheme. The liability of the Group to make contributions was indemnified by UK Coal Operations Limited
(UKCOL). UKCOL went into Creditors Voluntary Liquidation following the Mining Group July 2013 restructuring but as part of this
restructuring the indemnity was novated to a new Company, UK Coal Production Limited.
Additionally Harworth Estates Mines Property Limited (HEMPL) has indemnified the Company up to an amount of £3,100,000 should
UK Coal Production Limited fail to pay its obligations under its indemnity. HEMPL is a Company within the Harworth Estates Group
and owns the freeholds of the deep mines operated by UK Coal Production Limited. Further the Group retains capped charges over
certain operating deep mines land against this liability but there is no guarantee that these assets would cover the liability, and the
amount recoverable under such security is limited to the cap of £3,100,000.
During the year to 31 December 2016 all contributions have been paid to the pension fund by the Company. The contribution for the
year to 31 December 2015 were paid by UK Coal Production Limited.
As a result of uncertainty around the Blenkinsopp pension liability being reimbursed by a third party, the consolidated balance sheet
recognises a net liability equal to the IAS 19 (revised) liability (Note 27), but no corresponding asset.
The Company recognises a net liability equal to the IAS 19 (revised) liability and an equal amount within non-current assets, due to its
ability to call upon the HEMPL indemnity.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 106 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Notes to the financial statements
for the year ended 31 December 2016: continued
1. Accounting policies: continued
Share-based payments
Equity-settled share-based payments to employees of the Company and its subsidiary undertakings are measured at fair value of the
equity instruments at the date of grant and are expensed on a straight line over the vesting period in the consolidated income
statement. The fair value of the equity instruments is determined at the date of grant taking into account any market based vesting
conditions attached to the award. Non-market based vesting conditions are taken into account in estimating the number of awards
likely to vest. The estimate of the number of awards likely to vest is reviewed regularly and the expense charged adjusted accordingly.
Operating segments
Management has determined the operating segments based upon the operating reports reviewed by the Executive Board of Directors
that are used to assess both performance and strategic decisions. Management has identified that the Executive Board of Directors is
the Chief Operating Decision Maker in accordance with the requirements of IFRS 8 ‘Operating Segments’.
The Group is organised into two operating segments: Income Generation and Capital Growth. Group costs are not a reportable
segment. However, information about them is considered by the Executive Board in conjunction with the reportable segments.
The Income Generation segment focuses on generating rental returns from the business space portfolio, rental returns and royalties from
energy generation, environmental technologies and the agricultural portfolio, and income generating streams from recycled aggregates
and secondary coal products. The Capital Growth segment focuses on delivering value by developing the underlying portfolio, and
includes planning and development activity, value engineering, proactive asset management and strategic land acquisitions.
All operations are carried out in the United Kingdom.
Segmental operating profit represents the profit earned by each segment excluding the profit on sale and revaluation of investment
properties and is consistent with the measures reported to the Executive Board for the purpose of the assessment of the
performance of each segment.
Consolidation
Subsidiaries
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the
Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns
through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They
are deconsolidated from the date that control ceases.
The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a
subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity
interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent
consideration arrangement. Identifiable assets acquired, and liabilities and contingent liabilities, assumed in a business combination
are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on
an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised
amounts of acquiree’s identifiable net assets.
Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in
the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are
recognised in profit or loss.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised
losses are also eliminated.
Exceptional items
Exceptional items are material non-recurring items excluded from management’s assessment of profit because by their nature they
could distort the Group’s underlying quality of earnings. These are excluded to reflect performance in a consistent manner and in line
with how the business is managed and measured on a day to day basis.
Share capital and reserves
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new Ordinary Shares or options are
shown in equity as a deduction, net of tax, from the proceeds.
Where shares are issued in direct consideration for acquiring shares in another Company, and following which the Group holds at
least 90% of the nominal share capital of that Company, any premium on the shares issued as consideration is included in a merger
reserve rather than share premium.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 107
1. Accounting policies: continued
Property, plant and equipment
Group occupied properties are stated at their fair value, based on market values, less any subsequent accumulated depreciation or
accumulated impairment loss. Surpluses on revaluations are transferred to the revaluation reserve. Deficits on revaluations are
charged against the revaluation reserve to the extent that there are available surpluses relating to the same asset and are otherwise
charged to the Statement of Comprehensive Income.
Office equipment is stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the cost or valuation of assets over their estimated useful lives of 3 to 4 years, using the
straight line method.
Derivatives and hedging
Derivative financial instruments such as interest rate swaps are occasionally entered into in order to manage interest rate risks arising
from long-term debt. Such derivative instruments are initially recognised at fair value on the date on which a derivative contract is
entered into and are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as
liabilities when the fair value is negative.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group
wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation
includes identification of the hedging instrument, the hedge item or transaction, the nature of the risk being hedged and how the
entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash
flows attributable to the hedge risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or
cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial
reporting periods for which they are designated.
The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while any ineffective portion is
recognised immediately in profit or loss, such as when the hedged financial income or financial expense is recognised or when a
forecast sale occurs. Where such derivative transactions are executed, gains and losses on the fair value of such arrangements are
taken either to reserves or to the Statement of Comprehensive Income dependent upon the nature of the instrument.
If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to
profit or loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as
a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction or firm commitment occurs.
When a derivative is held as an economic hedge for a period beyond twelve months after the end of the reporting period, the
derivative is classified as non-current (or separated into current and non-current portions) consistent with the classification of the
underlying item. A derivative instrument that is a designated and effective hedging instrument is classified consistent with the
classification of the underlying hedged item. The derivate instrument is separated into a current portion and non-current portion only
if: 1) a reliable allocation can be made; and 2) it is applied to all designated and effective hedging instruments.
Tax
Current Tax
The charge or credit for current tax is based on the results for the year adjusted for items that are either not subject to taxation or for
expenditure which cannot be deducted in computing the tax charge or credit. The tax charge or credit is calculated using taxation
rates that have been enacted or substantively enacted at the balance sheet date.
Deferred Tax
Deferred tax is recognised using the balance sheet liability method on temporary differences between the carrying amounts of assets
and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. Deferred tax is
recognised in respect of all taxable temporary timing differences, with certain limited exceptions:
• Deferred tax is not provided on the initial recognition of an asset or liability in a transaction that does not affect accounting profit or
taxable profit and is not a business combination; and
• Deferred tax assets are only recognised if it is probable that there will be sufficient profits from which the future reversal of the
underlying timing differences can be deducted. In deciding whether future reversal is probable, the Directors review the Group’s
forecasts and make an estimate of the aggregate deferred tax asset that should be recognised. This aggregate deferred tax asset is
then allocated into the different categories of deferred tax.
Deferred tax is calculated at the tax rates that are expected to apply in the years in which timing differences reverse, based on tax
rates and laws enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited to the income
statement, except where it applies to items credited or charged to equity, in which case the deferred tax is also dealt with in equity.
The carrying value of the Group’s Investment property is assumed to be realised by sale at the end of use. The capital gains tax rate
applied is that which would apply on a direct sale of the property recorded in the Balance Sheet regardless of whether the Group
would structure the sale via the disposal of the subsidiary holding the asset, to which a different tax rate may apply. The deferred tax
is then calculated based on the respective temporary differences and tax consequences arising from recovery through sale.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 108 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Notes to the financial statements
for the year ended 31 December 2016: continued
1. Accounting policies: continued
Changes in accounting policy and disclosures
(a) New standards, amendments and interpretations
No new standards, amendments or interpretations, effective for the first time for the financial year beginning on or after 1 January
2016 have had a material impact on the Group.
(b) New standards, amendments and interpretations not yet adopted
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after
1 January 2016, and have not been applied in preparing these financial statements. None of these is expected to have a significant
effect on the financial statements of the Group, except the following, set out below:
•
•
•
IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial
liabilities. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9
retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial
assets: amortised cost, fair value through the Statement of Comprehensive Income (SOCI) and fair value through the income
statement. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the
financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the
irrevocable option at inception to present changes in fair value in SOCI. There is now a new expected credit losses model that
replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and
measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at
fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge
effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged
ratio’ to be the same as the one management actually uses for risk management purposes. Contemporaneous documentation is
still required but is different from that currently prepared under IAS 39. The standard is effective for accounting periods beginning
on or after 1 January 2018. Early adoption is permitted. The full impact of IFRS 9 has not yet been assessed, however,
management do not believe it will have a significant impact.
IFRS 15, ‘Revenue from contracts with customers’ deals with revenue recognition and establishes principles for reporting useful
information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising
from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus
has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 ‘Revenue’ and
IAS 11 ‘Construction contracts’ and related interpretations. The standard is effective for annual periods beginning on or after
1 January 2018 and earlier application is permitted. Implementation of IFRS 15 requires a thorough review of existing contractual
arrangements. At present, the Directors anticipate there may be some changes in the recognition of royalty income, and income
related to PPAs leading to earlier recognition of some income although the amounts involved are relatively immaterial.
IFRS 16, ‘Leases’ addresses the definition of a lease, recognition and measurement of leases and establishes principles for
reporting useful information to users of financial statements about the leasing activities of both lessees and lessors. A key change
arising from IFRS 16 is that most operating leases will be accounted for on balance sheet for lessees. The standard replaces
IAS 17 ‘Leases’ and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2019 and
earlier application is permitted, and the entity adopting IFRS 15 ‘Revenue from contracts with customers’ at the same time. The
full impact of IFRS 16 has not yet been assessed, however, management do not believe it will have a significant impact given the
minimal operating lease expenditure incurred in the Group.
Critical accounting estimates and judgements
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ
from these estimates.
In preparing these financial statements, the significant judgements made by management in applying the Group’s accounting policies
and the key sources of estimation uncertainty are as follows:
Estimation of fair value of Investment Property
The fair value of investment property reflects, amongst other things, rental income from our current leases, assumptions about rental
income from future leases and the possible outcome of planning applications, in the light of current market conditions. The valuation
has been arrived at primarily after consideration of market evidence for similar property, although in the case of those properties
where fair value is based on their ultimate redevelopment potential, development appraisals have been undertaken to estimate the
residual value of the landholding after due regard to the cost of, and revenue from the development of the property.
The Group has also estimated the extent to which existing mining tenants on investment property owned by the Group would perform
their obligations to remediate land at the conclusion of mining activity, and therefore the impact of any restoration obligations which
may revert to the Group.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 109
1. Accounting policies: continued
Critical accounting estimates and judgements: continued
The values reported are based on significant assumptions and a change in fair values could have a material impact on the Group`s
results. This is due to the sensitivity of fair value to the assumptions made as regards to variances in development costs compared
to Management`s own estimates.
Investment properties are disclosed in Note 17.
Revenue
Overdue rents and royalties from the mining businesses have been included in revenue for 2016. Prior to this management concluded
that there was a less than remote possibility of recoverability of this income and therefore was not recognised. A clearer outcome of
the winding up of the mining businesses has given greater visibility of the recoverability of this revenue.
Taxation
The recognition of deferred tax assets has been reviewed and re-assessed during the year. This has resulted in the recognition of a
deferred tax asset of £8.4m based upon the certainty of recoverability.
2. Restructuring and discontinued operations
UK Coal plc underwent a solvent restructuring in December 2012 and split into a mining division, (of which the parent Company was
UK Coal Mine Holdings Limited (UKCMHL)) and a property division (HEPGL).
As part of this restructure the Company retained a 24.9% shareholding in HEPGL with the remaining 75.1% being transferred to pension
trustees to meet UK Coal plc’s debts to the pension scheme. Full disclosure of this restructuring is given in the 2014 Annual Report.
Blenkinsopp Pension Scheme
The Company remains liable for the Blenkinsopp Section of the Industry-Wide Mineworkers’ Pension Scheme. Harworth Estates
Mines Property Limited, a subsidiary of HEPGL, has provided a guarantee to the Company, to meet future obligations of the pension
scheme should the Company cease to make payment.
Harworth Insurance Company Limited (HICL)
On 7 December 2012 the Company granted a put and call option to UKCMHL to acquire the entire issued share capital of HICL,
and UKCMHL granted the Company a put option to require UKCMHL to acquire HICL. The consideration for the call option was
£4,650,000. Exercise of the call option was conditional on obtaining Prudential Regulatory Authority (PRA) and Financial Conduct
Authority (FCA) consent or the parties agreeing that such consent is no longer legally required. Before consent from the FCA and
PRA could be obtained the underlying insurance business had to be sold. This sale process took longer than expected and was
not completed until July 2014 when the insurance business of HICL was sold to Royal Sun Alliance. Following this sale only residual
cash and a single property remained. The call option was exercised on 8 December 2015, and the Group received a final settlement
of £0.5m during 2016 which has been recognised in exceptional items (see Note 6).
The combined cash flows of the HICL discontinued operations (including assets classified as held for sale) noted above were as follows:
Group
Operating cash flows
Investing cash flows
Financing cash flows
Total cash flows
3. Business combinations
2016
£’000
–
–
–
–
2015
£’000
228
(1,068)
–
(840)
Acquisition of HEPGL
On 24 March 2015, the Group acquired the remaining 75.1% of the issued share capital of HEPGL, a Company incorporated in the
United Kingdom which headed up a Group engaged in the regeneration of former coalfield sites and other brownfield land into
employment areas, new residential development and low carbon energy projects.
The following table summarises the consideration paid for HEPGL, the fair value of assets acquired, liabilities assumed and the
non-controlling interest held at the acquisition date.
Consideration at 24 March 2015
Cash
Equity instruments (731m Ordinary Shares) (1)
Total consideration transferred
Fair value of associate interest
Total consideration
(1) This was before the 1 for 10 share consolidation.
£’000
97,026
52,974
150,000
57,746
207,746
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
110 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Notes to the financial statements
for the year ended 31 December 2016: continued
3. Business combinations: continued
Acquisition of HEPGL: continued
Recognised amounts of identifiable assets acquired and liabilities assumed:
Investment property (Note 17)
Investments and other non-current receivables
Cash and cash equivalents
Inventory
Trade and other current receivables
Financial asset
Borrowings
Deferred tax liability (Note 11)
Trade and other payables
Fair value of acquired interest in net assets of subsidiary
Gain on bargain purchase
Total consideration
Attributed
fair value
£’000
299,355
1,883
9,203
311
23,054
1,200
(60,407)
(7,871)
(14,738)
251,990
(44,244)
207,746
The purchase consideration disclosed above comprised cash and cash equivalents of £150.0m paid to acquire the previous majority
Shareholder which was satisfied by the payment of £97.0m and the allotment and issue of 730,674,465 Ordinary Shares of £0.01 each
in the capital of Harworth Group plc. The share premium arising from the shares issued to the PPF is held within the merger reserve
shown in the consolidated balance sheet.
Acquisition related costs of £2.4m were recognised in the consolidated income statement as an exceptional item. The fair value of the
731m Ordinary Shares issued as part of the consideration paid for HEPGL (£53.0m) was based upon the price the shares were
placed at 7.25 pence. Issuance costs of £2.95m were netted against the deemed proceeds.
During the period ended 31 December 2015 the revenue included in the consolidated income statement since 24 March 2015
contributed by HEPGL was £12.9m and profit before tax was £40.7m. Had HEPGL been consolidated from 1 January 2015, the
consolidated income statement for the year to 31 December 2015 would have shown pro-forma revenue of £16.7m and profit before
tax of £39.2m.
The net cash outflow associated with the acquisition was as follows:
Fair value of acquired interest in net assets of subsidiary
Fair value of associate interest already held
Gain on bargain purchase
Total purchase consideration
Less: cash and cash equivalents of subsidiary acquired
Less: equity instruments issued
Net outflow of cash and cash equivalents on acquisition
£’000
251,990
(57,746)
(44,244)
150,000
(9,203)
(52,974)
87,823
4. Segment information
31 December 2016
Group
Revenue
Gross (loss)/profit less administrative expenses
Exceptional items
Increase in fair value of investment properties
Decrease in fair value of assets classified as held for sale
Profit on sale of investment properties
Loss on sale of assets classified as held for sale
Other gains
Other operating expenses
Operating profit/(loss)
Finance income
Finance costs
Share of profit of joint venture
Profit before tax
Other information
Investment property additions:
Direct acquisitions
Subsequent expenditure
Segmental assets
Investment properties
Property, plant and equipment
Assets classified as held for sale
Inventories
Other receivables
Investments in joint ventures
Unallocated assets:
Trade and other receivables
Cash and cash equivalents
Total assets
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 111
Income
Generation
£’000
Unallocated
costs
£’000
Capital
Growth
£’000
16,307
(1,425)
–
23,433
–
7,473
–
747
–
30,228
17,386
11,032
(682)
10,280
(224)
1,693
(375)
–
(117)
21,607
Total
£’000
33,693
2,331
7
33,713
(224)
9,166
(375)
747
(204)
–
(7,276)
689
–
–
–
–
–
(87)
(6,674)
45,161
247
(2,588)
647
43,467
–
14,707
22,524
7,947
–
–
22,524
22,654
Income
Generation
£’000
Unallocated
£’000
Capital
Growth
£’000
232,886
–
6,152
454
1,397
868
241,757
146,304
–
2,198
279
–
9,681
158,462
241,757
158,462
Total
£’000
379,190
789
8,350
733
1,397
10,549
401,008
24,444
13,007
438,459
–
789
–
–
–
–
789
24,444
13,007
38,240
Financial liabilities are not allocated to the reporting segments as they are managed and measured on a Group basis.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
112 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Notes to the financial statements
for the year ended 31 December 2016: continued
4. Segment informed: continued
31 December 2015
Group
Revenue
Gross (loss)/profit less administrative expenses
Transaction costs
Impairment of investment
Increase in fair value of investment properties
Profit on sale of investment properties
Other gains
Other operating income
Operating profit/(loss)
Finance income
Finance costs
Profit of associates
Gain on bargain purchase
Profit before tax
* Unallocated revenues relate to recharges to HEPGL prior to its acquisition by the Group.
Other information
Investment property additions:
Direct acquisitions
Subsequent expenditure
Segmental assets
Investment properties
Assets classified as held for sale
Inventories
Other receivables
Investments in joint ventures
Unallocated assets:
Trade and other receivables
Cash and cash equivalents
Total assets
Capital
Growth
£’000
1,319
(1,471)
–
(465)
14,503
7,111
–
–
19,678
Income
Generation
£’000
11,533
6,579
–
–
9,557
1,069
3,208
47
Unallocated
costs
£’000
320*
(3,680)
(2,394)
–
–
–
–
129
20,460
(5,945)
Total
£’000
13,172
1,428
(2,394)
(465)
24,060
8,180
3,208
176
34,193
62
(1,803)
856
44,244
77,552
14,578
17,603
8,255
6,360
–
–
22,833
23,963
Capital
Growth
£’000
210,004
30
–
650
768
211,452
Income
Generation
£’000
Unallocated
£’000
124,613
9,098
1,092
–
–
134,803
–
–
–
–
–
–
–
–
–
–
211,452
134,803
19,906
27,564
47,470
Total
£’000
334,617
9,128
1,092
650
768
346,255
19,906
27,564
393,725
Financial liabilities are not allocated to the reporting segments as they are managed and measured on a Group basis.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 113
5. Operating profit
Operating profit before tax is stated after charging:
Staff costs
Depreciation of property, plant and equipment
6.
Exceptional items
Settlement relating to Harworth Insurance Company Limited
Settlement relating to Ocanti Opco Limited
Under recovery relating to the cessation of coal fine activities at Rugeley and coal fines stock provsion
Write down of investment in joint venture
Costs associated with acquisition of a subsidiary
Total exceptional items
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
5,806
2
3,520
–
Note
8
15
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
500
189
(682)
–
–
7
–
–
–
(465)
(2,394)
(2,859)
Exceptional items for 2016 comprise four separate items, all of which largely relate to the Group’s legacy activities. £0.5m relates to a
settlement from the administrator of Harworth Insurance Company Limited and £0.2m from the administrator of Ocanti Opco Limited
which related to the reimbursement of management expenses incurred by Coalfield Resources plc (the former name of Harworth
Group plc). In respect of coal fines activity, an exceptional charge has been taken relating to the cessation of activity at Rugeley of
£0.3m and a provision of £0.3m has been taken against the value of coal fines stocks reflecting reduced demand.
The exceptional items in 2015 related to the transaction costs incurred on the acquisition of HEPGL of £2.4m and the write down of a
joint venture held by the Group of £0.5m.
7. Other operating (expense)/income
Administrative expenses
Other operating (expense)/income
Other gains
Profit on sale of investment properties
Loss on sale of assets classified as held for sale
Increase in fair value of investment properties
Decrease in fair value of assets classified as held for sale
Other operating income
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
(10,457)
(204)
747
9,166
(375)
33,713
(224)
32,366
(5,731)
176
3,208
8,180
–
24,060
–
29,893
Other gains in 2015 represents a gain on the sale of an option. Other operating (expense)/income in 2016 and 2015 represents
expenses relating to the Blenkinsopp Pension Scheme (see Note 27) and other smaller items.
8. Employee information
The monthly average number of persons (including Executive Directors) employed by the Group during the year was:
Administration
Total
Remuneration details of these persons was as follows:
Wages and salaries
Social security costs
Other pension costs
Group
Company
Year ended
31 December
2016
Number
Year ended
31 December
2015
Number
Year ended
31 December
2016
Number
Year ended
31 December
2015
Number
51
51
45
45
4
4
4
4
Group
Company
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
5,102
448
256
5,806
2,985
333
202
3,520
1,264
139
43
1,446
822
84
11
917
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
114 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Notes to the financial statements
for the year ended 31 December 2016: continued
8. Employee information: continued
Key management remuneration
Remuneration details for key management of the Group (excluding Directors’ remuneration) is detailed below:
Wages and salaries
Social security costs
Other pension costs
Group
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
717
95
51
863
446
57
42
545
Detailed information relating to Directors’ remuneration is disclosed in the Directors’ remuneration report and forms part of these
financial statements.
9.
Finance income and costs
Interest expense
– Bank interest
– Facility fees
– Other interest
Finance costs
Interest received
Net finance costs
No interest has been capitalised.
10. Auditors’ remuneration
During the year the Group obtained the following services from its auditors, PwC, at costs as detailed below:
Audit services
Fees payable to the Company auditors and its associates for the audit of the Company and the
consolidated financial statements
Fees payable to the Company auditors and its associates for other services:
– The audit of the Company’s subsidiaries pursuant to legislation
– Audit related assurance services
– The audit of the Group’s joint ventures
– Tax advisory services
– Tax compliance services
– Fees in relation to transaction
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
(1,559)
(545)
(484)
(2,588)
247
(977)
(485)
(341)
(1,803)
62
(2,341)
(1,741)
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
40
80
50
10
84
38
–
302
65
85
15
–
98
33
529
825
From time to time, the Group employs PwC on assignments additional to their statutory audit duties where their expertise and
experience with the Group are important. They are awarded assignments on a competitive basis. The Audit Committee reviews non-
audit assignments quarterly and pre-approves all non-audit services above a predetermined trivial cost threshold.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 115
11. Tax charge
Analysis of tax charge in the year
Deferred tax
Current year
Adjustment in respect of prior periods
Effect of changes in tax rates
Re-assessment of recognition of recoverability of deferred tax assets
Tax charge
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
2,510
1,652
(2,042)
1,446
3,566
3,508
–
–
–
3,508
The adjustments in respect of prior periods principally relate to a revision made to the calculation of tax relating to property disposals
subsequent to the signing of the 2015 financial statements.
The effect of changes in tax rates arises firstly due to the decrease in the enacted corporation tax rate in future periods which impacts
the rate at which deferred tax is recognised and secondly due to the difference between the current tax and deferred tax rate for
the period.
Other comprehensive income items
Deferred tax - current year
Deferred tax - prior year
Total
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
14
80
94
–
–
–
The tax for the year is different to the standard rate of corporation tax in the UK of 20.0% (2015: 20.25%). The differences are
explained below:
Profit before tax
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
43,467
77,552
Profit before tax multiplied by rate of corporation tax in the UK of 20.0% (2015: 20.25%)
8,693
15,704
Effects of:
Adjustment in respect of prior periods
Share of associated Company profit not taxable
Non-taxable income
Expenses not deducted for tax purposes
Gain on bargain purchase
Revaluation (gains)/losses
Changes in tax rates
Capital gains tax transferred out
Re-assessment of recognition of recoverability of deferred tax assets
Deferred tax not recognised
Total tax charge
Deferred tax
The analysis of deferred tax liabilities is as follows:
No more than twelve months after the reporting year
More than twelve months after the reporting year
1,652
–
(129)
390
–
(4,683)
(2,042)
(1,764)
1,446
3
3,566
–
(173)
(7,084)
436
(8,959)
4,176
(651)
–
–
59
3,508
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
–
14,851
14,851
–
11,379
11,379
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
116 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Notes to the financial statements
for the year ended 31 December 2016: continued
11. Tax charge: continued
The gross movement on the deferred income tax account is as follows:
At 1 January
Acquisition of subsidiary
Income statement charge for the year
Adjustment in respect of prior years
Statement of comprehensive expense for the year
At 31 December
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
11,379
–
1,914
1,572
(14)
–
7,871
3,508
–
–
14,851
11,379
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 17% (2015: 18%). Changes to
the rate of UK corporation tax were substantively enacted in 2015 to reduce the rate to 19% from 1 April 2017 and to 18% from 1 April
2020. The budget of 16 March 2016 then proposed to reduce further the rate to 17% from 1 April 2020. This additional charge was
substantively enacted on 6 September 2016. The deferred tax liabilities are shown at 17% (2015: 18%) being the rate expected to
apply to the reversal of the liability.
The deferred tax charge of £3.6m (2015: £3.5m) for the year ended 31 December 2016 is in respect of property revaluation gains
where tax is expected to arise when properties are sold.
Deferred tax assets and liabilities are offset when there is a legally enforced right to offset current tax assets against current tax
liabilities and when the deferred taxes relate to the same fiscal authority.
Deferred tax assets of £19.7m at 31 December 2016 have not been recognised owing to the uncertainty as to their recoverability,
deferred tax assets of £27.9m were not recognised at 31 December 2015:
Tax losses
Net deferred tax asset
As at
31 December
2016
Total
amount
recognised
£’000
As at
31 December
2016
Total
potential
asset
£’000
As at
31 December
2015
Total
amount
recognised
£’000
As at
31 December
2015
Total
potential
asset
£’000
8,427
8,427
28,149
28,149
–
–
27,850
27,850
The Company has recognised a deferred tax asset in 2016 of £3,055,000 (2015: £nil), but has a potential deferred tax asset of £nil
(2015: £3,380,000) in respect of unused tax losses.
12. Profit/(loss) for the financial year for the parent entity
As permitted by section 408 of the Companies Act 2006, the Company’s income statement and statement of comprehensive income
have not been included separately in these financial statements. The profit for the financial year was £1,348,000 (2015: loss
£1,661,000) and the total comprehensive income for the financial year was £1,107,000 (2015: expenditure £808,000).
13. Dividends
The Board recommended and Shareholders approved a full year dividend for financial year 2015 of £1.5m (0.51p per share) which
was paid on 9 September 2016 and an interim dividend of £0.66m (0.23p per share) for the six months ended 30 June 2016 which
was paid on 1 December 2016. The Company is proposing to recommend a final dividend of 0.523 pence per share (£1.53m in total)
for the year ended 31 December 2016 at the Annual General Meeting in May.
14. Earnings per share
Earnings per share has been calculated by dividing the profit attributable to ordinary Shareholders by the weighted average number of
shares in issue and ranking for dividend during the year. The weighted average number of shares for 31 December 2015 includes the
adjustments necessary to reflect the new shares issued on 24 March 2015 and for 31 December 2016 the share consolidation which
took place on 3 May 2016 (see Note 28).
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 117
14. Earnings per share: continued
Profit from continuing operations attributable to owners of the parent
Profit for the year
Year ended
31 December
2016
£’000
39,901
39,901
Year ended
31 December
2015
£’000
74,044
74,044
Weighted average number of shares used for basic and diluted earnings per share calculation
1,133,144,333
2,395,763,516
Basic and diluted profit per share (pence)
Underlying earnings per share (pence)
3.5
13.7
3.1
12.2
Adjusted basic and diluted earnings per share for the year ended 31 December 2015 were 1.1 pence, being based on profit before tax
adjusted for the exceptional gain on bargain purchase of £44.2m, acquisition fees of £2.4m and write down of investments of £0.5m.
Underlying earnings per share have been calculated using underlying profit from continuing operations £39.9m (2015: £35.7m
underlying) and shares in issue at the end of 2016.
15. Property, plant and equipment
Group
Fair value
At 1 January 2016
Additions at cost
Transfer from investment properties (Note 17)
Decrease in fair value
At 31 December 2016
Accumulated depreciation
At 1 January 2016
Charge for year
At 31 December 2016
Carrying amount
At 31 December 2015
At 31 December 2016
Land and
Buildings
£’000
Office
equipment
£’000
–
–
783
(17)
766
–
–
–
–
–
25
–
–
25
–
2
2
–
Total
£’000
–
25
783
(17)
791
–
2
2
–
766
23
789
At 31 December 2016, the Group had entered into contractual commitments for the acquisitions of property, plant and equipment
amounting to £nil (2015: £nil).
Information about the valuation of land and buildings is provided in Note 17.
16. Other receivables
The benefit of overages is recorded as a non-current receivable as follows:
At 1 January
Acquired
Fair value gains
At 31 December
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
650
–
747
1,397
–
650
–
650
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
118 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Notes to the financial statements
for the year ended 31 December 2016: continued
Investment properties
17.
Investment property at 31 December 2016 and 31 December 2015 has been measured at fair value. The Group holds five categories
of investment property being agricultural land, natural resources, business parks, major developments and strategic land in the UK,
which sit within the operating segments of Capital Growth and Income Generation.
Income Generation
Capital Growth
Agricultural
land
£’000
Natural
resources
£’000
Business
parks
£’000
Major
developments
£’000
Strategic
land
£’000
At 1 January 2015
Acquisition of subsidiaries
Direct acquisitions
Subsequent expenditure
Increase/(decrease) in fair value
Transfer to assets held for sale
Disposals
At 31 December 2015 and 1 January 2016
Transfers
Direct acquisitions
Subsequent expenditure
(Decrease)/increase in fair value
Transfer to assets held for sale
Transfer to property, plant and equipment
Disposals
–
22,070
–
604
2,477
(6,013)
(2,375)
16,763
4,617
1,390
286
(894)
(1,680)
–
(376)
–
18,574
978
312
1,375
(3,085)
(1,200)
16,954
5,682
–
1,663
5,203
–
–
(13)
At 31 December 2016
20,106
29,489
–
72,724
7,277
5,444
5,705
–
(254)
90,896
(25,424)
21,134
5,998
5,971
(477)
(783)
(606)
96,709
–
139,842
1,366
15,562
15,075
–
(14,256)
157,589
64,763
–
11,223
12,103
(6,153)
–
(23,875)
215,650
–
46,145
13,212
2,041
(572)
(30)
(8,381)
52,415
(49,638)
–
3,484
11,330
–
–
(355)
17,236
Total
£’000
–
299,355
22,833
23,963
24,060
(9,128)
(26,466)
334,617
–
22,524
22,654
33,713
(8,310)
(783)
(25,225)
379,190
Valuation process
The properties were valued in accordance with the Royal Institution of Chartered Surveyors (RICS) Valuation – Professional Standards
(the “Red Book”), by BNP Paribas Real Estates and Savills. Both are independent firms acting in capacity of external valuers with
relevant experience of valuations of this nature. The valuations are on the basis of Market Value as defined with the Red Book, which
RICS considers meets the criteria for assessing Fair Value under International Reporting Standards. The valuations are based on what
is determined to be the highest and best use. When considering the highest and best use a valuer will consider, on a property by
property basis, its actual and potential uses which are physically, legally and financially viable. Where the highest and best use differs
from the existing use, the valuer will consider the cost and the likelihood of achieving and implementing this change in arriving at its
valuation. Most of the Group’s properties have been valued on the basis of their development potential which differs from their existing
use.
At each financial year end, management:
• verifies all major inputs to the independent valuation report;
• assesses property valuation movements when compared to the prior year valuation report; and
• holds discussions with the independent valuer.
The different valuation levels are defined as:
Level 1: valuation based on quoted market prices traded in active markets.
Level 2: valuation based on inputs other than quoted prices included within Level 1 that maximise the use of observable data either
directly or from market prices or indirectly derived from market prices.
Level 3: where one or more inputs to valuation are not based on observable market data.
The Directors determine the applicable hierarchy that each investment property falls into by assessing the level of unobservable inputs
used in the valuation technique. As a result of the specific nature of each investment property, valuation inputs are not based on
directly observable market data and therefore all investment properties were determined to fall into Level 3.
The Group’s policy is to recognise transfers into and out of fair value hierarchy levels as at the date of the event or change in circumstance
that caused the transfer. There were no transfers between hierarchy levels in the year ended 31 December 2016 (2015: none).
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 119
Investment properties: continued
17.
Valuation techniques underlying management’s estimation of fair value are as follows:
Agricultural land
Most of the agricultural land is valued using the market comparison basis, with an adjustment made for the length of remaining term
on the tenancy and the estimated cost to bring the land to its highest and best use. Where the asset is subject to a secure letting,
this is valued on a yield basis, based upon sales of similar types of investment.
Natural resources
Natural resource sites in the portfolio are valued based on a discounted cash flow for the operating life of the asset.
Business parks
The business parks are valued on the basis of market comparison with direct reference to observable market evidence including
rental values, yields and capital values and adjusted where required for the estimated cost to bring the property to its highest and
best use. The evidence is adjusted to reflect the quality of the property assets, the quality of the covenant profile of the tenants and
the reliability/volatility of cash flows.
Major developments
Major development sites are generally valued using residual development appraisals, a form of discounted cash flow which estimates
the current site value from future cash flows measured by observable current land and/or completed built development values,
observable or estimated development costs, and observable or estimated development returns.
Where possible development sites are valued by direct comparison to observable market evidence with appropriate adjustment
for the quality and location of the property asset, although this is generally only a reliable method of measurement for the smaller
development sites.
Strategic land
Strategic land is valued on the basis of discounted cash flows, with future cash flows measured by current land values adjusted to
reflect the quality of the development opportunity, the potential development costs estimated by reference to observable development
costs on comparable sites, and the likelihood of securing planning consent. The valuations are then benchmarked against observable
land values reflecting the current existing use of the land, which is generally agricultural and where available, observable strategic land
values.
At 31 December 2016
Reversionary rental yield %
Land value per acre £’000
weighted average
low
high
weighted average
low
high
Cost report totals*
£’000
At 31 December 2015
Reversionary rental yield %
Land value per acre £’000
weighted average
low
high
weighted average
low
high
Cost report totals*
£’000
Agricultural
land
Natural
resources
Business
parks
Major
developments
Strategic
land
–
–
–
4
1
11
–
–
–
–
5
1
115
730
9.65
5.12
15.03
67
2
2,225
–
–
–
73
22
333
–
–
–
24
1
337
21,650
127,472
54,350
Agricultural
land
Natural
resources
Business
parks
Major
developments
Strategic
land
–
–
–
3
1
11
–
–
–
–
6
1
89
–
10.54
5.12
16.95
41
2
250
–
–
–
71
24
330
–
–
–
18
1
500
19,630
99,430
56,368
* Cost report totals represent the estimated cost to bring investment properties to their highest and best use.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
120 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Notes to the financial statements
for the year ended 31 December 2016: continued
Investment properties: continued
17.
The table below shows some possible sensitivities to the key valuation metrics and the resultant changes to the valuations.
At 31 December 2016
Valuation metric
Value per acre
Rental
Yield (e.g. 11% to 10%)
Cost report totals
At 31 December 2015
Valuation metric
Value per acre
Rental
Yield (e.g. 11% to 10%)
Cost report totals
+/– change
+/– effect on valuation
Agricultural
land
Natural
resources
Business
parks
Major
developments
Strategic
land
5%
5%
1%
5%
1,275
–
–
–
1,498
–
–
37
4,835
3,726
9,272
1,083
10,783
–
–
6,374
868
–
–
2,718
+/– change
+/– effect on valuation
Agricultural
land
Natural
resources
Business
parks
Major
developments
Strategic
land
5%
5%
1%
5%
1,237
–
–
–
904
–
–
–
4,545
2,697
6,255
982
7,879
–
–
4,972
2,623
–
–
2,818
The property rental income earned by the Group from its occupied investment property, all of which is leased out under operating
leases amounted to £8,376,000 (2015: £4,601,100). Direct operating expenses arising on investment property generating rental
income in the year amounted to £3,885,000 (2015: £2,603,200). Direct operating expenses arising on the investment property which
did not generate rental income during the year amounted to £115,000 (2015: £86,700).
18.
Investments
(a) Investment in subsidiaries
Company
Cost:
At 1 January
Additions in the year
Disposals in the year
At 31 December
Provision for impairment:
At 1 January
Additions in the year
Disposals in the year
At 31 December
Net book amount:
At 31 December
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
207,896
–
–
207,896
3,374
207,746
(3,224)
207,896
–
–
–
–
–
–
–
–
207,896
207,896
The disposal in 2015 relates to the disposal of the Company’s interest in HICL, resulting in a profit of £1,426,000.
Investments in subsidiaries are stated at cost less provision for impairment. As permitted by section 616 of the Companies Act 2006,
where the relief afforded under section 612 of the Companies Act 2006 applies, cost is the aggregate of the nominal value of the
relevant number of the Company’s shares and the fair value of any other consideration given to acquire the share capital of the
subsidiary undertakings.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 121
18.
Investments: continued
(a) Investment in subsidiaries
Particulars of the Group undertakings (including joint ventures) at 31 December 2016 are as follows:
Company name
Coalfield Estates Limited (1)
Harworth Guarantee Company Limited (1)
Harworth Trustees Limited (1)
Harworth Secretariat Services Limited (1)
Harworth Estates Property Group Limited (1)
Harworth Estates Group Limited (1)
Harworth No. 3 Limited (1)
Harworth Services Limited (1)
Harworth Estates Limited (1)
Bates Regeneration Limited (2)
Bilsthorpe Waste Limited (1)
EOS Inc Limited (1)
Harworth Estates (Agricultural) Limited (1)
Harworth Estates (Waverley Prince) Limited (1)
Waverley Community Management Company Limited (1)
Harworth Estates Curtilage Limited (1)
Harworth Estates Investments Limited (1)
Harworth Estates Mines Property Limited (1)
Harworth Estates No 2 Limited (1)
Harworth Estates Overage Limited (1)
Harworth Estates Warwickshire Limited (1)
Harworth TRR Limited (1)
Houghton Main Waste Limited (1)
Kellingley Colliery Waste Limited (1)
Logistics North MC Limited (1)
North Selby Mine Waste Limited (1)
POW Management Company Limited (1)
Rossington Community Management Company Limited (1)
Wardley Waste Limited (1)
Harworth Regeneration Limited (1)
Mapplewell Management Company Limited (1)
The Aire Valley Land LLP (1)
Flass Lane Management Company Limited (1)
Harworth Surface Water (North West) Limited (1)
Waverley Square Limited (3)
Activity
Non-trading
Non-trading
Dormant
Non-trading
Trading
Non-Trading
Non-trading
Non-trading
Trading
Trading
Dormant
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Dormant
Dormant
Dormant
Trading
Dormant
Trading
Non-trading
Dormant
Dormant
Non-trading
Trading
Non-trading
Non-trading
Trading
All of the above companies are incorporated in England and Wales.
Notes
(1) Registered office at Advantage House, Poplar Way, Rotherham, South Yorkshire, S60 5TR
(2) Registered office at Inkerman House, St. Johns Road, Meadowfield, Durham, County Durham, DH7 8XL
(3) Registered office at Dransfield House, 2 Fox Valley Way, Fox Valley, Sheffield, S36 2AB
Proportion of
nominal value
of issued share
capital held by
the Company
%
Description
of shares
held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
100
50
50
100
100
100
100
100
100
100
100
100
100
100
50
50
15.38
50
100
100
50
100
100
50
100
100
50
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
122 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Notes to the financial statements
for the year ended 31 December 2016: continued
18.
Investments: continued
b) Investment in associates
Group
At 1 January
Share of profit
Purchase of share capital not held
At 31 December
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
–
–
–
–
56,890
856
(57,746)
–
The Group accounted for its investment in HEPGL, a private Company incorporated in England and Wales, as an associate up to and
including 24 March 2015 because it considered that it had significant influence over that entity due to its 24.9% shareholding and
representation on the HEPGL board.
The Group’s share of net assets of HEPGL was reduced by £5.0m to reflect the fact that, under the terms of the Shareholder
Agreement prior to 24 March 2015, the first £5.0m of dividend income due to the Company would be paid to the PPF.
On 24 March 2015, Harworth Group plc acquired the remaining 75.1% of HEPGL that it did not own from the PPF. HEPGL therefore
ceased to be accounted for as an associate at that date and has been fully consolidated in these accounts.
(c) Investment in joint ventures
At 1 January 2015
Arising on acquisition of subsidiaries
Impairment of investment in joint venture
At 31 December 2015
Acquisitions
Share in profit of joint venture
At 31 December 2016
£’000
–
1,233
(465)
768
9,134
647
10,549
As a result of the 2015 acquisition of HEPGL the Group holds 50% of the issued Ordinary Shares of Bates Regeneration Limited, a
joint venture with Banks Property Limited for the development of an investment property at Blyth, Northumberland. On 14 March 2016
the Group purchased a 50% share of Aire Valley Land LLP from Keyland Developments Limited for a consideration of £8.5m plus
costs of £0.5m. Aire Valley Land LLP is a joint venture Company. It controls 165 acres of land in Leeds that abuts an existing
landholding of the Group on the former Skelton Grange power station site. On 16 December 2016, the Group entered into a joint
venture agreement with Dransfield Properties Limited to acquire a 50% share of Waverley Square Limited.
The Group’s share of the assets and liabilities are:
December 2016
Country of incorporation
Bates Regeneration Limited
Aire Valley Land LLP
Waverley Square Limited
England and Wales
England and Wales
England and Wales
December 2015
Country of incorporation
Bates Regeneration Limited
England and Wales
Assets
£’000
1,213
12,001
100
Assets
£’000
1,213
Liabilities
£’000
(445)
(2,320)
–
Liabilities
£’000
(445)
Interest held
%
50
50
50
Interest held
%
50
The risks associated with these investments are as follows:
• Decline in the availability and/or an increase in the cost of credit for residential and commercial buyers; and
• Decline in market conditions and values.
19.
Inventories
Planning promotion agreements
Work in progress
Finished goods
Total inventories
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 123
Group
As at
31 December
2016
£’000
As at
31 December
2015
£’000
454
–
279
733
–
114
978
1,092
Finished goods comprises coal fines that have been processed and are ready for sale. The cost of inventory is recognised as an
expense within cost of sales in the year of £0.4m (2015: £1.1m). Inventories are stated after a provision of £0.3m (2015: £nil).
20. Trade and other receivables
Trade receivables
Less: provision for impairment of trade receivables
Net trade receivables
Other receivables
Prepayments and accrued income
Amounts recoverable on construction contracts
Amounts owed by subsidiary undertakings (Note 32)
Group
Company
As at
31 December
2016
£’000
As at
31 December
2015
£’000
As at
31 December
2016
£’000
As at
31 December
2015
£’000
4,179
(221)
3,958
19,111
1,375
–
–
24,444
1,564
(121)
1,443
16,723
1,159
581
–
19,906
–
–
–
291
–
–
8,860
9,151
–
–
–
153
–
–
7,517
7,670
The carrying amount of trade and other receivables approximate to their fair value due to the short time frame over which the assets
are realised. All of the Group’s and Company’s receivables are denominated in sterling.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables as disclosed in Note 26.
The Group and Company do not hold any collateral as security.
Group
Movements on the Group provisions for impairment of trade receivables are as follows:
At the beginning of the year
Arising on acquisition of subsidiaries
Receivables written off during the year as uncollectable
Provided for in the year
At the end of the year
Group
2016
£’000
(121)
–
–
(100)
(221)
2015
£’000
–
(121)
–
–
(121)
The other classes of assets within trade and other receivables for the Group contain impaired assets of £142,000 (2015: £1,055,000)
against which a provision of £142,000 (2015: £262,000) is held.
As at 31 December 2016, trade receivables of £58,000 (2015: £1,120,000) were past due but not impaired. These mainly relate to
customers for whom the arrears are being collected through agreed payment plans or where cash has been collected in 2017.
The ageing of these was as follows:
Up to 3 months
Over 3 months
At the end of the year
Group
2016
£’000
15
43
58
2015
£’000
1,095
25
1,120
As at 31 December 2016, trade receivables of £221,000 (2015: £121,000) were impaired. The ageing analysis of the impaired trade
receivables was as follows:
Up to 3 months
Over 3 months
At the end of the year
Provision for impairment charged to the income statement in the year was £242,000 (2015: £nil).
Group
2016
£’000
46
175
221
2015
£’000
–
121
121
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
124 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Notes to the financial statements
for the year ended 31 December 2016: continued
20. Trade and other receivables: continued
Company
The Company had no external receivables as at 31 December 2016 (2015: £nil). The other classes of assets within trade and other
receivables do not contain impaired assets.
21. Assets classified as held for sale
Investment properties
At 1 January
Transferred from investment properties
Subsequent expenditure
Decrease in fair value
Disposals
At 31 December
Group
2016
£’000
9,128
8,310
1,588
(224)
(10,452)
8,350
2015
£’000
–
9,128
–
–
–
9,128
The assets classified for sale at each year end relate to investment properties expected to be sold within twelve months.
22. Cash and cash equivalents
Cash
Cash and cash equivalents in the cash flow statement
23. Borrowings
Current:
Secured – other loans
Non-current:
Secured – bank loans
Secured – other loans
Group
Company
As at
31 December
2016
£’000
As at
31 December
2015
£’000
As at
31 December
2016
£’000
As at
31 December
2015
£’000
13,007
13,007
27,564
27,564
2,171
2,171
6,887
6,887
Group
As at
31 December
2016
£’000
As at
31 December
2015
£’000
(1,819)
(1,819)
(37,142)
(13,517)
(50,659)
(400)
(400)
(48,968)
(15,151)
(64,119)
Details of the borrowings acquired as part of the acquisition of subsidiary on 24 March 2015 are provided in Note 3.
At 31 December 2016, the Group had bank borrowings of £38.0m, £37.0m net of unamortised borrowings costs (2015: £50.0m,
£49.0m net of unamortised borrowing costs) and a further £15.6m, £15.5m net of unamortised borrowing costs (2015: £15.7m,
£15.5m net of unamortised borrowing costs) of infrastructure loans, which resulted in total borrowings of £52.5m net of unamortised
borrowing costs (2015: £64.5m net of unamortised borrowing costs). The bank borrowings are part of a £75.0m (2015: £65.0m)
revolving credit facility from The Royal Bank of Scotland. The facility is repayable on 13 February 2021 (five year term) after being
extended for a year on 1 August 2016. The facility is non-amortising basis and subject to financial and other covenants.
The infrastructure loans of £15.6m (2015: £15.7m) are provided by public bodies in order to promote the development of major sites.
They comprise a £0.8m (2015: £1.2m) loan from Leeds LEP in respect of the Prince of Wales site, £11.7m (2015: £10.9m) from the
Homes and Community Agency in respect of Waverley and £0.1m (2015: £nil) for Village Farm, £2.3m (2015: £3.6m) from Sheffield
City Region JESSICA Fund for Rockingham and £0.7m (2015: £nil) for the Advanced Manufacturing Park at Waverley.
The loans are drawn as work on the respective sites is progressed and they are repaid on agreed dates or when disposals are made
from the sites.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 125
23. Borrowings: continued
Current loans are stated after deduction of unamortised borrowing cost of £nil (2015: £nil). Non-current bank and other loans are
stated after deduction of unamortised borrowing costs of £1.1m (2015: £1.2m). The bank loans and overdrafts are secured by way of
fixed charges over certain assets of the Group.
24. Trade and other payables
Current liabilities
Current
Trade payables
Amounts owed to subsidiary undertakings (Note 32)
Taxation and social security
Other creditors
Accruals and deferred income
Accruals and deferred income includes £15.4m (2015: £6.0m) of cost accruals.
Non-current liabilities
Non-current
Other creditors
Group
Company
As at
31 December
2016
£’000
As at
31 December
2015
£’000
As at
31 December
2016
£’000
As at
31 December
2015
£’000
1,555
–
7,852
2,087
22,225
33,719
875
–
2,720
2,920
10,854
17,369
443
52
47
–
1,343
1,885
19
600
213
–
179
1,011
Group
Company
As at
31 December
2016
£’000
As at
31 December
2015
£’000
As at
31 December
2016
£’000
As at
31 December
2015
£’000
1,520
1,520
2,280
2,280
–
–
–
–
Non-current creditors relate to deferred consideration due on land purchases after one year.
25. Financial instruments and derivatives
On 21 June 2016 HEPGL entered into a four-year swap to fix £30m of borrowings at an all-in rate of 2.955% including fees. The
interest rate swap has been measured at fair value which is determined using forward interest rates extracted from observable yield
curves. The fair value of the interest rate swap at 31 December 2016 was a loss of £0.4m (2015: £nil).
During the year the following loss was recognised in the other comprehensive income statement in relation to the interest rate swap:
Loss on interest rate swap - cash flow hedge
2016
£’000
366
2015
£’000
–
The Group’s principal financial instruments during the year included trade and other receivables, cash and cash equivalents, interest
bearing borrowings and trade and other payables.
Other financial assets and liabilities
Group
Assets
Cash and cash equivalents
Trade and other receivables
Liabilities
Bank and other borrowings
Trade and other payables
31 December 2016
31 December 2015
Book value
£’000
Fair value
£’000
Book value
£’000
Fair value
£’000
13,007
22,792
13,007
22,792
27,564
19,906
27,564
19,906
52,478
28,221
52,478
28,221
64,519
17,369
64,519
17,369
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
126 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Notes to the financial statements
for the year ended 31 December 2016: continued
25. Financial instruments and derivatives: continued
Company
Assets
Cash and cash equivalents
Trade and other receivables
Liabilities
Bank and other borrowings
Trade and other payables
31 December 2016
31 December 2015
Book value
£’000
Fair value
£’000
Book value
£’000
Fair value
£’000
2,171
9,151
–
2,487
2,171
9,151
–
2,487
6,887
7,670
–
1,446
6,887
7,670
–
1,446
In accordance with IAS 39, the Group classifies the assets and liabilities in the analysis above as ‘loans and receivables’ and ‘other
financial liabilities’, respectively. At the 2016 and 2015 year ends, the Group did not have any ‘held to maturity’ or ‘available for sale’
financial assets or ‘held for trading’ financial assets and liabilities as defined by IAS 39.
The fair value of bank and other borrowings equals their carrying amount, as the impact of discounting is not significant. The fair
values are within Level 2 of the fair value hierarchy.
26. Financial risk management
The Group’s overall risk management programme focuses on credit and liquidity risks to minimise potential adverse effects on the
Group’s financial performance.
Risk management is carried out centrally under policies approved by the Board of Directors. The Board discusses and agrees
courses of action to cover material risk management areas, including credit risk and investment of excess liquidity.
The Shareholders’ Agreement in place during 2014, ceased on 24 March 2015, when the Group acquired the remaining 75.1% of the
issued share capital of HEPGL, see Note 3.
Credit risk
The Group is subject to credit risk arising from outstanding receivables and committed cash and cash equivalents and deposits with
banks and financial institutions. The Group’s policy is to manage credit exposure to trading counterparties within defined trading limits.
The Group is exposed to counterparty credit risk on cash and cash equivalent balances. The Group and Company hold all of their
cash deposits with their principal bankers.
Interest rate risk
The Group’s interest rate risk arises from external borrowings which are charged at LIBOR plus 2%. On 21 June 2016 HEPGL entered
into a four-year swap with RBS to fix £30m of borrowing at an all in rate of 2.955%, including fees. The swap is hedge accounted with
any unrealised movements going through reserves.
The Group also has five infrastructure loans with all in funding rates of between 2.4% and 4.0%.
Liquidity risk
The Group is subject to the risk that it will not have sufficient liquid resources to fund its on-going business. The Group manages its
liquidity requirements with the use of both short and long-term cash flow forecasts.
The Group had net debt at 31 December 2016 of £39,471,000; (2015: £36,955,000). The Group generated cash from operating
activities and investing activities for the year of £224,000 (2015: used £91,119,000).
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 127
26. Financial risk management: continued
The table below analyses the Group’s financial liabilities which will be settled on a net basis into relevant maturity groupings based on
the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the gross
contractual undiscounted cash flows.
At 31 December 2016
Trade and other payables (including deferred income)
Interest payable on borrowings
Bank and other borrowings
At December 2015
Trade and other payables (including deferred income)
Interest payable on borrowings
Bank and other borrowings
Less than
1 year
£’000
Between
1 and 2 years
£’000
Between
2 and 5 years
£’000
35,239
–
1,819
19,645
–
400
–
34
8,626
–
–
3,000
–
694
41,305
–
345
60,774
Capital risk management
The Group is subject to the risk that its capital structure will not be sufficient to support the growth of the business. The Group’s
objectives when managing capital are:
•
•
to safeguard the Group’s ability to continue as a going concern and have the resources to provide returns for Shareholders and
benefits for other Stakeholders;
to maximise returns to Shareholders by allocating capital across the business based upon the expected level of return and risk;
and
•
to maintain an optimal capital structure to reduce the cost of capital.
The Group manages and monitors its cash balances to ensure it has sufficient capital to manage and maintain its business activities.
Cash balances are disclosed Note 22.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to Shareholders, return capital
to Shareholders, issue new shares or sell assets to reduce debt.
The Group monitors capital on the basis of net debt to equity. Net debt is total debt less cash and cash equivalents and at
31 December 2016 this was £39.5m (2015: net debt £37.0m).
The Group has in place a £75.0m revolving credit facility from The Royal Bank of Scotland (RBS). The facility is a five-year term facility
which ends in February 2021. It is on a non-amortising basis and is subject to financial and other covenants.
The facility provided by RBS is subject to covenants over loan to market value of investment properties, gearing, and minimum
consolidated net worth.
The Group comfortably operated within its requirements throughout the year.
27. Retirement benefit obligations
Defined contribution pension schemes
The Group pays defined contribution payments to pension insurance plans. Contributions to defined contribution schemes in the year
amounted to £256,000 (2015: £202,000). The Group has no further payment obligations once the contributions have been paid. The
contributions are recognised as an expense when they are due.
Defined benefit obligations
The Group and Company has defined benefit obligations in respect of the Blenkinsopp Section of the Industry-Wide Mineworkers’
Pension Scheme (the Blenkinsopp scheme). This scheme is closed to new members.
The balance sheet amounts in respect of retirement benefit obligations are:
Relating to continuing activities
Blenkinsopp
Group
Company
As at
31 December
2016
£’000
As at
31 December
2015
£’000
As at
31 December
2016
£’000
As at
31 December
2015
£’000
602
602
435
435
602
602
435
435
Contributions to the Blenkinsopp scheme of £189,300 were made by the Group during 2016. In 2015 Contributions of £189,300 were
paid under an indemnity by UK Coal Production Limited. It is expected that contributions of a similar amount will be paid in 2017. At
December 2016, no contributions remained unpaid (2015: £nil).
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
128 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Notes to the financial statements
for the year ended 31 December 2016: continued
27. Retirement benefit obligations: continued
The pension scheme is valued annually by a qualified independent actuary for the purposes of IAS 19 (revised) and the preparation of
financial statements. The assumptions which usually have the most significant effect on the results of the valuation are the discount
rate, which is based on bond yields, and the rates of increase in pensions. There are no active members of this scheme. The main
assumptions underlying the valuation of the Blenkinsopp scheme were:
§
Discount rate
Rate of pension increases
Rate of price inflation (RPI)
Rate of price inflation (CPI)
Rate of cash commutation
§
§
Longevity at age 60 for current pensioners (years)
§
Longevity at age 60 for future pensioners (years)
§
As at
31 December
2016
As at
31 December
2015
2.55% p.a.
2.30% p.a.
3.25% p.a.
2.25% p.a.
20.00%
3.8% p.a.
2.2% p.a.
3.2% p.a.
2.2% p.a.
20.00%
Year ended
31 December
2016
Year ended
31 December
2015
18.6 – 22.0
18.6 – 21.9
20.3 – 24.0
20.2 – 23.9
The assumed pension increases depend on the period of service accrual (before April 1997: no increases, after 1997: in line with
statutory minimum increases based on consumer price inflation).
Defined benefit obligations
The amounts recognised in the Balance Sheet:
Fair value of plan assets
Present value of funding obligations
Net liability recognised in the Balance Sheet
The Blenkinsopp scheme does not own any shares in the Company.
The amounts recognised in the consolidated income statement are:
Expenses
Interest cost
2016
£’000
2,117
(2,719)
(602)
2015
£’000
1,727
(2,162)
(435)
2014
£’000
1,740
(2,304)
(564)
2013
£’000
1,393
(2,076)
(683)
2012
£’000
1,282
(2,002)
(720)
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
(74)
(13)
(87)
(36)
(21)
(57)
A further cost of £269,000 (2015: loss of £3,000) has been reflected in the statement of comprehensive income in the year. This
represents the net effect of experience, and actuarial gains and losses on the scheme in the year.
Change in assets
Fair value of plan assets at the start of the year
Interest income
Actual return on scheme assets excluding interest income
Employer contributions
Expenses
Benefits paid
Fair value of plan assets at the end of the year
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
1,727
68
289
189
(74)
(82)
2,117
1,740
59
(72)
189
(36)
(153)
1,727
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 129
27. Retirement benefit obligations: continued
Plan assets are comprised as follows:
Gilts
Corporate bonds
Other
Total
Change in defined benefit obligations
Present value of defined benefit obligation at the start of the year
Interest cost
Remeasurements:
– Gain arising from changes in demographic assumptions
– (Loss)/gain arising from changes in financial assumptions
Benefits paid
Present value of defined benefit obligation at the end of the year
Analysis of the movement of the balance sheet liability
At the start of the year
Total amounts recognised in the income statement
Contributions
Employer contributions
Net actuarial loss recognised in the year
At the end of the year
Cumulative actuarial gains and losses recognised in equity
At the start of the year
Net actuarial loss in the year
At the end of the year
Experience gains and losses
Actual return on scheme assets excluding interest income
Remeasurements:
– Gain arising from changes in demographic assumptions
– (Loss)/gain arising from changes in financial assumptions
Net actuarial loss
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
1,610
511
(4)
2,117
1,282
435
10
1,727
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
(2,162)
(81)
(2,304)
(80)
–
(558)
82
56
13
153
(2,719)
(2,162)
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
(435)
(87)
189
(269)
(602)
(564)
(57)
189
(3)
(435)
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
212
(269)
(57)
215
(3)
212
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
289
–
(558)
(269)
(72)
56
13
(3)
Contributions are determined by a qualified actuary on the basis of triennial valuations, using the projected credit unit method. The
most recent valuations for the purpose of determining contributions were at 31 December 2012, which were agreed in December 2015.
This showed an estimated past service deficit of £2,674,000. The next valuation has yet to be agreed and signed.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
130 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Notes to the financial statements
for the year ended 31 December 2016: continued
27. Retirement benefit obligations: continued
The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:
Change in discount rate by 0.1%
Change in price inflation (and associated assumptions) by 0.1%
Increase in life expectancy by 1 year
Year ended
31 December
2016
£’000
Year ended
31 December
2015
£’000
52
27
64
37
10
40
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice
some of the assumptions may be correlated. No changes have been made to the method and types of assumptions from those in the
previous year.
28. Called up share capital
On 24 March 2015, the Company issued 2,317,241,377 Ordinary Shares at 7.25 pence each as part of a placing and open offer of
which 730,674,465 Ordinary Shares were issued to the PPF as part of the purchase consideration for the acquisition of 75.1% of the
issued share capital of HEPGL. On 26 April 2016, 3 Ordinary Shares were issued at 1 pence each and all shares in issue were
consolidated from 1 pence shares into 10 pence shares.
Group and Company
Issued and fully paid
At 1 January
Shares issued
Share consolidation (1 for 10)
31 December
2016
Number
of shares
2,922,697,857
3
(2,630,428,074)
2015
Number
of shares
605,456,480
2,317,241,377
–
£’000
29,227
–
–
292,269,786
29,227
2,922,697,857
£’000
6,055
23,172
–
29,227
Long Term Incentive Plan
A Long Term Incentive Plan was introduced in 2016 for Executive Directors and Senior Executives. There were no shares outstanding
at 31 December 2016 (2015: nil). The Directors’ remuneration report which forms part of these financial statements provides details of
current incentive plans.
29. Share premium account
Group and Company
At 1 January
Transferred to other distributable reserves
Premium on shares issued
Costs relating to rights issue
At 31 December
2016
£’000
129,121
(129,121)
–
–
2015
£’000
32,911
–
99,160
(2,950)
–
129,121
On 18 May 2016, approval was granted from the High Court to cancel the £129m share premium account of the Company and for it
to be re-designated as distributable reserves.
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 131
30. Capital and other financial commitments
Capital expenditure contracted for at 31 December 2016 is £4,216,000 (2015: £1,465,000).
31. Operating lease commitments
The Group leases a number of vehicles, office equipment and office facilities under operating leases. The leases run between one
year and three years.
Future minimum lease payments
At 31 December 2016, the future minimum lease payments under non-cancellable leases were payable as follows:
Less than one year
Between one and five years
More than five years
Amounts recognised in the income statement
Lease cost
32. Related party transactions
Group
Company
As at
31 December
2016
£’000
As at
31 December
2015
£’000
As at
31 December
2016
£’000
As at
31 December
2015
£’000
35
10
–
45
60
33
30
–
63
25
–
–
–
–
–
–
–
–
–
Group
Directors and key management compensation
The remuneration of the Directors is disclosed in the Directors’ remuneration report. The remuneration of key management is given in
Note 8.
Peel Group
The Peel Group charged £42,500 (2015: £41,875) in respect of fees for Steven Underwood and £nil (2015: £8,202) for the rental of
office space.
In 2015 the Group relinquished an option to purchase 50% of the share capital of Peel Wind Farms (Blue Sky Forest) Limited in return
for £4.4m from Peel Holdings Wind Farms (IOM) Limited. This resulted in a gain of £3.2m shown in the consolidated income statement.
Harworth Estates Group
Revenue included £320,000 for the period up to 24 March 2015 in respect of recharges to the Harworth Estates Group for ongoing
costs of the Company in 2015 prior to its acquisition into the Group.
Scratching Cat
Geoff Mason, our former Company Secretary, supplied his services through Scratching Cat Limited, a Company of which he is a
Director. During the year charges were made in relation to Company secretarial duties of £73,000 (2015: £115,000).
Company
The Company carried out the following transactions with subsidiary undertakings.
Management charges
During the year the Company raised management charges of £nil on subsidiary undertakings (2015: £48,011).
Details of the Company’s intercompany balances and interest at 31 December 2016 are set out below:
EOS Inc Limited
Harworth Estates Limited
Harworth Guarantee Co. Limited
Harworth Estates Property Group Limited
Coalfield Estates Limited
As at 31 December 2016
£’000
As at 31 December 2015
£’000
Net Interest
receivable/
(payable) in
the year
£’000
Net amounts
due from/(to)
£’000
Net Interest
receivable/
(payable) in
the year
£’000
Net amounts
due from/(to)
£’000
162
14
(1)
–
5
180
7,465
1,127
(52)
49
219
8,808
75
3
(1)
–
5
82
7,303
(281)
(50)
(269)
214
6,917
Dividends received
During the year the Company received dividends of £nil (2015: £nil) from subsidiary undertakings.
Interest
During the year the Company received net interest of £180,000 (2015: £82,000) from subsidiary companies that form part of the
continuing operations.
All transactions occurred whilst the related parties were subsidiary undertakings.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
132 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Notes to the financial statements
for the year ended 31 December 2016: continued
32. Related party transactions: continued
Receivables and indebtedness
Details of the Company’s receivables and indebtedness are set out in Notes 20 and 24 and amounts due from, or owed to, related
parties are set out below:
Owed to:
Scratching Cat Limited
Harworth Guarantee Co. Limited
Harworth Estates Limited
Harworth Estates Property Group Limited
Owed by:
Harworth Estates Limited
Coalfield Estates Limited
EOS Inc Limited
Harworth Estates Property Group Limited
As at
31 December
2016
£’000
As at
31 December
2015
£’000
–
(52)
–
–
(52)
(9)
(50)
(281)
(269)
(609)
As at
31 December
2016
£’000
As at
31 December
2015
£’000
1,127
219
7,465
49
8,860
–
214
7,303
–
7,517
33. Post Balance Sheet Events
On 17 March 2017 the Group announced a share placing for 29,226,974 new Ordinary Shares at 95.0 pence per share which were
issued raising £27.1m (net of expenses).
Company information and advisers
HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 133
Company information and advisers
Registrars
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Principal bankers
Royal Bank of Scotland PLC
3rd Floor
2 Whitehall Quay
Leeds
LS1 4HR
Lloyds Banking Group PLC
2nd Floor
Lisbon House
116 Wellington Street
Leeds
LS1 4LT
Company registered number
2649340
Share price information
The Company’s Ordinary Shares are
traded on the London Stock Exchange.
SEDOL number 0719072
ISIN number GB0007190720
Reuters ticker HWG.L
Bloomberg ticker HWG:LN
Chairman
Jonson Cox
Chief Executive
Owen Michaelson
Finance Director
Andrew Kirkman
Non-Executive Directors
Lisa Clement
Anthony Donnelly
Andrew Cunningham
Martyn Bowes
Steven Underwood
Company Secretary and Registered Office
Chris Birch
Advantage House
Poplar Way
Catcliffe
Rotherham
South Yorkshire
S60 5TR
Independent auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
St Paul’s Place
121 Norfolk Street
Sheffield
S1 2LE
Solicitors
DLA Piper UK LLP
1 St. Paul’s Place
Sheffield
South Yorkshire
S1 2JX
Brokers
Investec Bank PLC
2 Gresham Street
London
EC2V 7QP
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
134 HARWORTH GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
Definitions and abbreviations used
AMP
Advanced Manufacturing Park,
Rotherham
ATR
CA06
Code
Absolute Total Return
Companies Act 2006
UK Corporate Governance Code 2014
Company
Harworth Group plc
CPD
EBT
EES
FCA
FRSs
Harworth Estates
Harworth or Group
HEMPL
HEPGL
HICL
IFRSs
Kepler
LTIP
LTV
NAV
Continuing Professional Development
Employee Benefit Trust
Estates, Environment and Safety team
Financial Conduct Authority
Financial Reporting Standards
Harworth Estates Property Group
Limited and its subsidiaries
Harworth Group plc and its
subsidiaries
Harworth Estates Mines Property
Limited
Harworth Estates Property Group
Limited
Harworth Insurance Company Limited
International Financial Reporting
Standards
Kepler Associates
Long Term Incentive Plan
Loan To Value
Net Asset Value
PEG Principles
The Pre-emption Group Principles
PPAs
PPF
PRA
PwC
RBS
RCF
Regulations
RIDDOR
SHEMS
SOCI
STOR
TSR
UKCMHL
WAULT
Planning Promotion Agreements
The Pension Protection Fund
Prudential Regulatory Authority
PricewaterhouseCoopers LLP
The Royal Bank of Scotland plc
Revolving Credit Facility
Large and Medium-sized Companies
and Groups (Accounts and Reports)
(Amendment) Regulations 2013
Reporting of Injuries, Diseases and
Dangerous Occurrences Regulations
2013
Safety, Health and Environment
Management System
Statement of Comprehensive Income
Short Term Operating Reserve
Total Shareholder Return
UK Coal Mine Holdings Limited
Weighted Average Unexpired Lease
Term
www.harworthgroup.com