Harworth Group plc
Annual Report and Financial Statements 2017
www.harworthgroup.com
Harworth Group plc Annual Report and Financial Statements 2017
at a glance
Harworth is a leading land and property developer and investor which owns and
manages a portfolio of c.21,000 acres of land on 136 sites located throughout the North
of England and the Midlands. It specialises in the regeneration of former coalfield sites
and other brownfield land into new residential developments and employment areas.
10,448
housing plots with
planning consent
(2016: 9,529 plots)
12.1m sq. ft
of consented land for commercial space
(2016: c.10m sq. ft)
159.7MW
low carbon capacity
(2016: 144.5MW)
Once completed our developments could make a huge difference to the North of England
and the Midlands. They have the potential to deliver:
18,000+
potential homes
(2016: 17,000+)
Up to £2.9bn in
Gross Value Added to UK plc
(2016: £2.8bn)
300MW
of potential capacity to the
National Grid
(2016: 300MW)
21.6m sq. ft
potential employment space
(2016: 18.19m sq. ft)
Harworth works safely and responsibly in making this difference
0 Riddor reports filed by Harworth in 2017
(2016: nil)
57 employees*
(2016: 52)
*As at date of report
Contents
Strategic report
2
4
6
7
8
Our strategy
How we add value
The markets we operate in
Performance vs Key Financial Measures
Our year
10
Former Chairman’s statement
12 Chief Executive’s statement
16 Capital Growth in 2017
18 Case study: Thoresby
20
Income Generation in 2017
22 Case study: Logistics North
24 Acquisitions in 2017
26 Case study: Coalville
28
Financial Review
36 Managing Risk
44 Business continuity assessments
46 Harworth and its stakeholders
48 Operating responsibly
48 Our communities
52 Our environment
53 Our responsibilities
55 Our People
Corporate Governance
60 Board of Directors and Company Secretary
62
Former Chairman’s introduction
64 Statement of Corporate Governance
72 Directors’ remuneration report
86 Audit Committee report
90 Nomination Committee report
92 Directors’ report
97 Statement of Directors’ responsibilities
Financial statements
98
Independent auditors’ report
104 Consolidated income statement
105 Consolidated statement of comprehensive income
106 Balance sheets
107 Consolidated statement of changes in equity
108 Company statement of changes in equity
109 Statements of cash flows
110 Notes to the financial statements
Company information
142 Company information and investor timetable
143 Definitions and abbreviations used
Harworth Group plc Annual Report and Financial Statements 2017 1
Our Strategy
Read more on page 2
How we add value
Read more on page 4
Former Chairman’s Statement
Read more on page 10
Chief Executive’s Statement
Read more on page 12
Business Segments
Read more on page 16
Financial Review
Read more on page 28
Corporate Governance
Read more on page 58
Financial Statements
Read more on page 98
More information can be found by going to our website:
www.harworthgroup.com
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
2 Harworth Group plc Annual Report and Financial Statements 2017
Our strategy
Vision and strategy remain clear and robust
Our vision is to be the UK’s leading developer of brownfield land and regeneration
partner of choice, delivering a total return to shareholders of over 10% per annum
through the property cycle.
We have six strategic priorities in place to deliver this vision.
Strategic priority
KPIs (see page 7 for 2017 performance)
Where we are
Where we want to be
Key risks
Development
Driving the capital growth of our portfolio through
delivery of planning permissions, remediation and
infrastructure, before crystallising sales value.
EPRA NNNAV growth
and total return
per share
Value Gains
12.5% p.a. EPRA NNNAV per share
We continue to aim to grow NNNAV by at
growth and total return of 13.2% in 2016
least 10% per annum as a consistent
and 2017
average through the property cycle
Investment
Ensuring sustainable income generation through asset
management of existing rental sites and direct
development of new space.
Profit excluding
Value Gains
Interest cover
We are covering our overheads and
interest costs and have been increasing
the resilience of our income streams
Our ambition remains to cover the
overheads, interest, tax and dividends
from ongoing rental and other
operating income
Sectors
Concentrating on those property markets with strong,
through-the-cycle returns (currently housebuilding and
industrial & logistics).
Regions
Leveraging our strong relationships in our core areas in
the North of England and Midlands, whilst seeking to
expand into adjacent areas.
Consented residential
plots
Consented
commercial space
Our current focus is on the “beds and
sheds” sectors which have strong
fundamentals in the regions we operate in
Our sectoral focus will remain on
residential and commercial in the
medium-term as these suit our urban
edge-of-settlement and regional locations
Number of sites
Number of acres
Our portfolio remains focused on the
We want to expand the portfolio into
North of England with an increasing
other stable growth areas to diversify
emphasis on the Midlands and the
the portfolio, with adjacent areas
North West
targeted first
Acquisitions
Replenishing our landbank by utilising capital to buy new
sites to maintain net asset value growth across the
portfolio (including joint ventures).
Investment in
acquisitions in
the year
Disposals less
development spend
We have been investing c.£25-£30m p.a.
We want to keep replenishing the
over the last three years to replenish and
portfolio and delivering EPRA NNNAV
grow the portfolio in order to sustain
growth which will require the same, or
future growth
higher, levels of acquisitions
Financing
Maintaining the Group’s low Balance sheet gearing to
complement risk-appropriate high operational gearing.
Net loan to value
Net debt
2017 year-end gearing (7.0%) was lower
than target given better than expected
sales and a delayed acquisition
Ideal target range gearing is of the order
of 10%-15% net loan to value
Turn to page 36 to read about our Key Risks
Harworth Group plc Annual Report and Financial Statements 2017 3
Strategic priority
Development
Driving the capital growth of our portfolio through
delivery of planning permissions, remediation and
infrastructure, before crystallising sales value.
KPIs (see page 7 for 2017 performance)
Where we are
Where we want to be
Key risks
Capital Growth
Income Generation
Acquisitions
EPRA NNNAV growth
and total return
per share
Value Gains
12.5% p.a. EPRA NNNAV per share
growth and total return of 13.2% in 2016
and 2017
We continue to aim to grow NNNAV by at
least 10% per annum as a consistent
average through the property cycle
Investment
Ensuring sustainable income generation through asset
management of existing rental sites and direct
development of new space.
Profit excluding
Value Gains
Interest cover
We are covering our overheads and
interest costs and have been increasing
the resilience of our income streams
Our ambition remains to cover the
overheads, interest, tax and dividends
from ongoing rental and other
operating income
Concentrating on those property markets with strong,
through-the-cycle returns (currently housebuilding and
industrial & logistics).
Consented residential
Consented
plots
commercial space
Sectors
Regions
Leveraging our strong relationships in our core areas in
the North of England and Midlands, whilst seeking to
expand into adjacent areas.
Number of sites
Number of acres
Our current focus is on the “beds and
sheds” sectors which have strong
fundamentals in the regions we operate in
Our sectoral focus will remain on
residential and commercial in the
medium-term as these suit our urban
edge-of-settlement and regional locations
Our portfolio remains focused on the
North of England with an increasing
emphasis on the Midlands and the
North West
We want to expand the portfolio into
other stable growth areas to diversify
the portfolio, with adjacent areas
targeted first
Acquisitions
Replenishing our landbank by utilising capital to buy new
sites to maintain net asset value growth across the
portfolio (including joint ventures).
Investment in
acquisitions in
the year
Disposals less
development spend
We have been investing c.£25-£30m p.a.
over the last three years to replenish and
grow the portfolio in order to sustain
future growth
We want to keep replenishing the
portfolio and delivering EPRA NNNAV
growth which will require the same, or
higher, levels of acquisitions
Financing
Maintaining the Group’s low Balance sheet gearing to
complement risk-appropriate high operational gearing.
Net loan to value
Net debt
2017 year-end gearing (7.0%) was lower
than target given better than expected
sales and a delayed acquisition
Ideal target range gearing is of the order
of 10%-15% net loan to value
Risk icon key
Markets
Delivery
Politics
Finance
People
Legal &
Regulatory
Governance &
internal controls
Communications
& stakeholder
management
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
How we add value
The Harworth effect
4 Harworth Group plc Annual Report and Financial Statements 2017
How we add value
The Harworth effect
Harworth operates its business through two segments (Capital Growth and Income Generation)
which are replenished through Acquisitions. CAPITAL GROWTH 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 focuses on
retaining and effectively managing selected land and property assets to generate a long-term
recurring income stream. ACQUISITIONS focuses on replenishing our land and property portfolio
with new sites in order to assure the sustainable growth of the business.
Capital Realisation
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 c.21,000 acres of land on
136 sites. An important part of our strategy
is to replenish our portfolio with acquisitions
to ensure the growth of the business.
Planning approval – Our Strategic
Land team has secured planning consents
for close to 11,000 residential plots and
12 million sq. ft of commercial space since
2008. A large proportion of these consents
are taken forward as Harworth’s Major
Developments – often seen as showcase
projects for regeneration.
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.
Time
Harworth Group plc Annual Report and Financial Statements 2017 5
Risk icon key
Markets
Delivery
Politics
Finance
People
Legal &
Regulatory
Governance &
internal controls
Communications
& stakeholder
management
Recurring income
Capital Receipt
Plot sale and build out –
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.
Asset management –
Finally, we actively asset manage our
landholdings and built commercial
space to deliver further value from the
portfolio. 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.
Turn to page 36 to read about
our Key Risks
Land remediation & infrastructure
development – Once a use for a site
has been identified, we apply value
engineering principles through our
in-house development team in remediating
land and creating development platforms
that match the proposed use.
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Acquisitions
Capital Growth
Income Generation
Time
Performance vs. Key Financial Measures
The markets we operate in
Our markets are supportive of growth
6 Harworth Group plc Annual Report and Financial Statements 2017
The markets we operate in
Our markets are supportive of growth
Our core markets across the North of England and the Midlands are well suited to our
strategy and business model.
Waverley
Residential
• National housing under-supply is driving consistently strong
Logistics North
Commercial
• Strong demand for well-located industrial space across the
demand for land from housebuilders.
regions driven by the growth of e-tailing.
• House price growth in our regions remains positive and is
• Supply continues to be squeezed across all regions, driving
forecast to grow further.
yield compression.
• Government stimulus measures in place to underpin
affordability of new homes, including Help to Buy and new
funding announced in the Autumn Statement.
•
Industrial sector is forecast to continue to outperform both
the office and retail markets.
• Local support for sustainable new commercial development
(103 FREEHOLD AS BELOW AND 33 OVERAGES/COMMERCIAL CLAWBACKS)
remains strong.
136 SITES ACROSS THE UK (103 FREEHOLD AS BELOW AND 33 OVERAGES/COMMERCIAL CLAWBACKS)
M8
Edinburgh
Glasgow
M74
Dumfries
A74(M)
Carlisle
Whitehaven
NORTH WEST
6 sites
M6
NORTH EAST
19 sites
Newcastle
Upon Tyne
Middlesbrough
YORKSHIRE
45 sites
Scarborough
York
M62
Immingham
M18
A1(M)
M180
Grimsby
EAST MIDLANDS
25 sites
M6
Leeds
Liverpool
M61
M57
M56
M56
M62
Manchester
Sheffield
WEST MIDLANDS
8 sites
Stoke-on-Trent
M1
M6
Derby
Nottingham
M54
M6 Tol l
Leicester
Birmingham
M69
M6
M42
Coventry
A1(M)
M5
M50
Gloucester
M40
M1
Milton
Keynes
M40
Cardiff
Bristol
M4
M5
Plymouth
Cambridge
Felixstowe
A1(M)
M11
M25
London
M23
M3
M25
M2
M26
M20
Dover
Folkestone
A3(M)
Performance vs. Key Financial Measures
Harworth Group plc Annual Report and Financial Statements 2017 7
Performance vs. Key Financial Measures
2017
2016
2017
2016
2017
2016
Development
Investment
12.5%
£47.4m
12.5%
£43.7m
13.2%
Total Return
13.2%
Total Return
2017
2016
£2.2m
£2.2m
3.41x
2.83x
NNNAV per share growth
Value Gains
PEVG
Interest Cover
* Profit excluding Value Gains
Sectors
Regions
10,448
12,130,000
9,529
9,950,000
Number of consented
residential plots
Consented commercial
space (sq. ft)
Acquisitions
14,018
30,265
32,314
28,829
2017
2016
2017
2016
Number of sites
Acres
Financing
136
21,005
142
21,977
7.0%
32,275
9.9%
39,471
Acquisitions and JV Investments
(£’000)
Disposals less development
(£’000)
Net LTV (%)
Net Debt (£’000)
Safety
Employees
0
0
2017
2016
6
10
2017
2016
Riddor reports
Accidents (all minor)*
* Includes figures for contractors
57*
52
87%
84%
Employees
Employee satisfaction (%)
* As at date of report
Turn to page 2 to read about our Strategic Priorities
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Our year
Key 2017 Achievements
8 Harworth Group plc Annual Report and Financial Statements 2017
Our year
Key 2017 Achievements
Harworth delivered excellent performance throughout 2017 across its business areas of
CAPITAL GROWTH, INCOME GENERATION and ACQUISITIONS.
Set out below are the highlights of the year.
Acquisitions and
land assembly
Masterplanning
Planning approval
Plot sale and build out
Asset management
Land remediation &
infrastructure
development
• Successful £27.1m equity
raise in March for new
acquisitions, all deployed
in year
• Five strategic sites
purchased in 2017 that could
potentially deliver a further
c.1,000 plots and over
5m sq. ft of additional
commercial space
• Options signed on four sites
and preferred bidder position
on a further significant site.
• 10,448 consented residential
plots and 12.13m sq. ft of
consented commercial
space under ownership as at
31 December 2017(1); vast
majority utilised within the
Major Developments division
• Land to be promoted in the
planning system between
2018 and 2020 for a further
4,552 plots plus c.5.9m sq. ft
of commercial space(1).
• Major outline planning
• 14 sites classed as Major
• 622 consented residential
• Over 50 new commercial
consents secured in April
at Kellingley (1.45m sq. ft of
commercial space) and in
October at Thoresby
(800 residential plots and
0.25m sq. ft of commercial
space)
• In total, planning secured for
825 residential plots and
c.3m sq. ft of commercial
space in 2017.
Developments; remediation
plots and 0.85m sq. ft of
lettings, renewals and
and site infrastructure works
commercial space sold at
reviews in 2017, including
ongoing on these sites to
good profit margins
McLaren Automotive at
underpin our sales and direct
throughout the year,
the AMP
development programmes
including a number of sales
• Thoresby and Kellingley
with repeat customers
• Series of new lettings
completed after year-end
added to Major
• Further direct development
that justifies decision to
Developments following
undertaken and completed
build further direct
receipt of outline planning
at key sites, including
commercial development
consent in 2017.
innovative joint venture deals
at Logistics North and
Waverley. Total of over
270,000 sq. ft built in
the year.
• 159.7MW of energy capacity
now installed on our land.
(1)
Includes freehold and partnership sites.
Harworth Group plc Annual Report and Financial Statements 2017 9
Acquisitions
Capital Growth
Income Generation
Acquisitions and
land assembly
Masterplanning
Planning approval
Land remediation &
infrastructure
development
Plot sale and build out
Asset management
• Successful £27.1m equity
• 10,448 consented residential
• Major outline planning
• 14 sites classed as Major
raise in March for new
plots and 12.13m sq. ft of
consents secured in April
acquisitions, all deployed
consented commercial
at Kellingley (1.45m sq. ft of
in year
• Five strategic sites
purchased in 2017 that could
potentially deliver a further
c.1,000 plots and over
5m sq. ft of additional
commercial space
• Options signed on four sites
and preferred bidder position
on a further significant site.
space under ownership as at
commercial space) and in
31 December 2017(1); vast
majority utilised within the
October at Thoresby
(800 residential plots and
Major Developments division
0.25m sq. ft of commercial
• Land to be promoted in the
space)
planning system between
• In total, planning secured for
2018 and 2020 for a further
825 residential plots and
4,552 plots plus c.5.9m sq. ft
c.3m sq. ft of commercial
of commercial space(1).
space in 2017.
Developments; remediation
and site infrastructure works
ongoing on these sites to
underpin our sales and direct
development programmes
• Thoresby and Kellingley
added to Major
Developments following
receipt of outline planning
consent in 2017.
• 622 consented residential
plots and 0.85m sq. ft of
commercial space sold at
good profit margins
throughout the year,
including a number of sales
with repeat customers
• Further direct development
undertaken and completed
at key sites, including
innovative joint venture deals
at Logistics North and
Waverley. Total of over
270,000 sq. ft built in
the year.
• Over 50 new commercial
lettings, renewals and
reviews in 2017, including
McLaren Automotive at
the AMP
• Series of new lettings
completed after year-end
that justifies decision to
build further direct
commercial development
• 159.7MW of energy capacity
now installed on our land.
(1)
Includes freehold and partnership sites.
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Former Chairman’s statement
Jonson Cox
10 Harworth Group plc Annual Report and Financial Statements 2017
Former Chairman’s statement
Jonson Cox
I stood down as Non-Executive Chairman
of the Board prior to publication of this
Report. However, as Chairman during the
period under review, I am pleased to be
able to present the Group’s results for
the financial year ended 31 December
2017, which reflect another strong year
of growth for the business. EPRA NNNAV
is now the Group’s principal financial
measure following the evolution of our
business model and the re-categorisation
of properties from investment to
development. EPRA NNNAV grew by
12.5% per share (2016: 12.5% per share)
to 128.9p (£414.2m (includes £27.1m equity
capital raised during 2017 which has been
fully deployed)) from 114.6p per share in
2016 (2016: £334.9m).
Strategy and performance overview
Following this year’s review of the strategy the Board has
reaffirmed our vision: to be the UK’s leading developer and
brownfield land regeneration partner of choice. Alongside this,
we have refined the way we articulate our strategic priorities
which are now identified under six headings (development,
investment, sectors, regions, acquisitions and financing).
We have also highlighted the direct links to the business model,
key performance indicators and risks. This will be reflected in
future communications with investors and is included in
this report.
Development
The Group continues to meet its target to grow EPRA NNNAV
by at least 10% per annum as a consistent average. Growth is
driven principally by the development activities of our Capital
Growth team, including planning promotion, land remediation,
engineering and infrastructure development, and, finally,
profitable sales.
The Group achieved a number of significant planning
successes during the year for the future delivery of 825
residential plots and over 3m sq. ft of commercial space across
four sites, with the most notable achievements at our sites at
Thoresby and Kellingley. Residential and commercial sales have
remained strong, both in terms of volumes and pricing,
underpinning and realising value gains. We continued to sell to
both new and repeat housebuilders. The first sale of land for
commercial use at Wheatley Hall Road to Arnold Clark Ltd
illustrates our increasing points of sale across the portfolio.
The sale to Exeter/First Industrial at Logistics North, generating
a healthy profit on sale, shows the continuing demand for
space at our most mature sites.
Investment
Our ambition remains to cover the Group’s operating costs,
interest, tax and dividends from ongoing rental and other
operating income. We have continued to make good progress
towards meeting that commitment, led by the investment
returns delivered by our Income Generation team. In 2017,
those investment returns have contributed 27% of value gains
and yields of 7.0%.
During the year we secured over 360,000 sq. ft of major new
commercial lettings, including to McLaren Automotive at the
Advanced Manufacturing Park (“the AMP”) and to Whistl at
Logistics North, the latter on behalf of M&G Real Estate, our
forward funding partner. We undertook direct development at
the AMP and at Logistics North, both in joint venture with
Lancashire County Pension Fund (“LCPF”) and on our own
account. Following further progress on lettings at the start of
2018, all of the wholly owned direct developments in our
Business Space portfolio are now let.
Sectors and regions
We continue to see strong demand for our “oven-ready”
residential and commercial sites, and direct developments in
our core markets in the North of England and the Midlands.
This has been affirmed by the sales and lettings we have
completed during the year alongside the volume of interest in
our sites and units.
Harworth Group plc Annual Report and Financial Statements 2017 11
Acquisitions
We recognise the importance of sustained momentum in the
business. By the end of 2017 we had successfully deployed the
£27.1m of equity raised in March 2017 through the acquisition of
five new sites with residential and commercial development
potential. Those acquisitions have already produced significant
revaluation gains during the year, cementing our record of
growth from the sites we have acquired since 2014, when the
business began to replenish its portfolio.
We have a healthy pipeline, with six options now in place on
circa 417 acres of potential development land and a number of
acquisition opportunities being explored, including a substantial
brownfield site on which we are preferred bidder.
Financing
In February 2018, we extended the availability of our debt
funding by agreeing a two-year extension to our £75.0m
revolving credit facility with RBS to February 2023 with only a
10 bps increase in margin to 210 bps. In 2017 we also secured
a £5.0m increase in our bonding facility to £15.0m. We have
continued to use public infrastructure loans to accelerate
development. Our net loan to value remains low at 7.0%
(2016: 9.9%) or 20.8% when calculated against the income
portfolio (2016: 31.3%). We believe our policy of prudent gearing
is well suited for land-focussed development businesses such
as ourselves.
Dividend
The Company’s policy is to grow the dividend in line with the
growth of the business, and pay it from recurring income and
realised value 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 in acquisitions. We declared and
paid an interim dividend of 0.253p per share in October 2017.
The Board is recommending a final dividend of 0.575p per
share (2016 final dividend: 0.523p). This gives a total dividend
of 0.828p per share (2016: 0.753p) being a 10% growth in
dividend per share for the year. Subject to shareholder approval
at the 2018 Annual General Meeting, the final dividend will be
paid on 1 June 2018 to shareholders on the register as at
close of business on 4 May 2018. The ex-dividend date will be
3 May 2018.
Succession
I have now been Chairman for more than seven years, during
which time I am pleased that Harworth has grown into the
respected regeneration business it is today. In the five years
since Harworth became a standalone business, following our
solvent restructuring of UK Coal, the Group’s EPRA NNNAV,
including capital raised, has grown by an average of c.14% per
annum to £414.2m.
With strong foundations in place, now is the right time to hand
the reins to my successor, for the next stage of Harworth’s
growth and development. As previously announced, I will not
be standing for re-election at this year’s Annual General
Meeting and I welcome Alastair Lyons CBE as my successor.
Alastair’s appointment took effect on 7 March 2018, at which
point I stepped down as Chairman, and retired from the Board
at the end of March.
Our people and partners
I feel privileged to have worked with a talented and hardworking
team at Harworth, supported also by our advisors and
partners. The team continues to grow and mature with the
business. Since publication of the 2016 Annual Report, we
recruited for five new roles and made a number of promotions.
Four of those recruits were women, confirming that promoting
diversity across the business remains a priority.
I would like to take this opportunity to thank all of the Harworth
team and my Board colleagues for their hard work and
contribution throughout the time I have been Chairman. I would
also like to extend my thanks to our investors and wider
stakeholders for their support through the transformation of
Harworth over the last seven years.
Outlook
Harworth is well positioned for the future. It has a robust
strategy and business model, a proven track record and a
pipeline of opportunities for replenishing its strategic land bank
and property portfolio. Its core markets in the North of England
and the Midlands continue to perform well. There continues to
be a shortage of housing in the areas in which it operates and
strong fundamentals underpinning growth in the logistics and
advanced manufacturing sectors. Government policy remains
largely supportive, with strong backing for brownfield
development, prominent housing initiatives including the
extension of Help to Buy, and a continued focus on regional
investment and devolution.
Against this backdrop, the outlook for the business remains
favourable. I wish the entire Harworth team the very best for
the future.
Jonson Cox
Chairman (as at 31 December 2017)
24 April 2018
Harworth is well positioned for the
future. It has a robust strategy and
business model, a proven track record
and a pipeline of opportunities for
replenishing its strategic land bank and
property portfolio.
JONSON COX – CHAIRMAN
(AS AT 31 DECEMBER 2017)
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Chief Executive’s statement
Owen Michaelson
12 Harworth Group plc Annual Report and Financial Statements 2017
Chief Executive’s statement
Owen Michaelson
This is another excellent set of results
reflecting a strong year of progress for the
business. The Group once again delivered
a year of double-digit EPRA NNNAV per
share growth of 12.5% (2016: 12.5%), with
EPRA NNNAV of £414.2m at the year-end
(2016: £334.9m). This includes value
gains of £47.4m(1) (2016: £43.7m), ahead
of our expectations, and profit excluding
value gains rose marginally to £2.24m(2)
(2016: £2.21m).
Delivering our strategy
Against the backdrop of our strategic priorities, our operational
focus also remains unchanged: extracting maximum value from
our predominantly brownfield land portfolio in the North of
England and the Midlands to grow EPRA NNNAV; building our
recurring income base to cover operating costs; and acquiring
brownfield and urban extension land and property to
underpin the sustainability of our long-term business model. We
do this by continuing to use our masterplanning, technical,
placemaking and asset management expertise to transform
redundant land into places where people want to live and work,
whilst applying the same skills in targeting future areas in which
to invest our management time and capital.
Our core markets across the North of England and the
Midlands are well suited to our strategy and business model.
Demand for new homes in our markets remains steady,
reflected by both the rate of sales achieved by our
housebuilding partners on our sites and a continued deficit in
the number of new homes built versus the official national target
of 300,000 new homes per year. The rise of e-tailing and the
increasing demands of consumers also continues to support
demand for logistics and distribution space, with the industrial
sector forecast to outperform both the office and retail markets
over the next few years. This is further augmented by a largely
supportive legislative framework and a number of recent
Government announcements, including the publication of the
Industrial Strategy White Paper and further financial support
made available within the Chancellor’s Autumn Statement to
accelerate housebuilding across the UK.
Capital Growth
Our Capital Growth team has continued to make good
progress in maximising value from our portfolio through three
principal management actions: securing planning consents on
major schemes; preparing land for redevelopment; and
delivering sales above book value for future residential and
commercial development. All have underpinned value gains
made during the year.
During the year we achieved planning successes on four sites
for the delivery of 825 residential plots and over 3m sq. ft of
commercial space. Two of these are worthy of particular
highlight. In April, we secured consent for 1.45m sq. ft of new
commercial space at Kellingley in Selby, North Yorkshire, less
than eighteen months after the UK’s last deep mine operations
ended there. Further planning success was achieved in October,
when we received consent at the former Thoresby Colliery site in
Nottinghamshire for 800 new homes alongside 250,000 sq. ft of
new commercial space, just over two years after mining ended
there. Both sites now form part of our Major Developments
segment. As at 31 December 2017, total consented residential
plots under ownership stood at 10,448 plots and consented
commercial space on our land at 12.13m sq. ft.
We also have live applications in the planning system for 1,308
new plots and 325,000 sq. ft of commercial space. These form
part of a wider pipeline of planning applications for the next
three years, comprising more than 4,500 residential plots (of
which c.1,500 plots are for Planning Promotion Agreements
(“PPAs”) on third-party land) and 5.9m sq. ft of commercial
space to underpin the Group’s future disposals programme.
(1) Value gains (including development properties) comprises value gains (£41.6m) plus the
increase in the fair market value of development properties (£5.8m).
(2) Profit excluding value gains is operating profit before exceptional items plus joint ventures
(£43.8m) less value gains (£41.6m) and pension costs (£nil).
Harworth Group plc Annual Report and Financial Statements 2017 13
The team continues to plan carefully whether and when to
dispose of sites to maximise the return from our portfolio. In
2017 we achieved receipts in excess of book value, realising
cash which can be reinvested in bringing other sites and
acquisitions forward. A total of 622 residential plots were sold
across six parcels to national and regional housebuilders during
the year. This included sales to longstanding partners including
Taylor Wimpey and Avant Homes alongside new partners such
as Keepmoat Homes and SkyHouse, demonstrating the
popularity of our product.
We also sold land with planning consent for over 850,000 sq. ft
of commercial space across five parcels, including three
headline deals. In May, we entered into a joint venture with
LCPF to develop the next phase of Logistics North in Bolton.
Land totalling 31.2 acres was conditionally sold to Multiply
Logistics North Holdings Limited, our joint venture, for the
development of 564,000 sq. ft of commercial space over the
next two years. Harworth retains a 20% stake in the joint
venture and will also undertake development and asset
management for separate management and promote fees.
As at 31 December 2017, two of the three phases had been
sold into the joint venture for the direct development of
c.435,000 sq. ft of new commercial space.
The final quarter of 2017 included two further key commercial
land transactions. We executed a land sale of 18.3 acres at
Logistics North to Exeter/First Industrial for £10.1m,
representing its second major investment in the site over the
past two years and setting a new benchmark price per acre for
the site. In addition, we sold a 6-acre plot at Riverdale Park,
Doncaster to Arnold Clark Ltd for £2.5m, representing the first
land sale at the 112-acre site since its purchase for £8.5m in
December 2015.
completed in the fourth quarter of 2017. Within two weeks of
practical completion of units C4 and C5 at Logistics North, we
agreed a ten-year lease for C4 at a new headline rent for
Logistics North.
We have also undertaken direct development at the AMP to
meet growing occupier interest. In April, we achieved practical
completion on six new units totalling 51,750 sq. ft, with a leading
advanced manufacturer becoming our first tenant for a
c.11,000 sq. ft unit at a headline rent of £7.25psf on a 15-year
lease. This was followed in December by Spendor Audio taking
a 15-year lease on a c.26,000 sq. ft unit as part of their UK
expansion. The strength of the AMP as a business location was
further demonstrated in July, with McLaren Automotive taking a
20-year lease on a new 75,000 sq. ft unit that we will be
constructing on its behalf. McLaren will take occupation in the
spring following practical completion. The space will be used to
house McLaren’s new Composites Technology Centre, which
will be used to build carbon-fibre chassis for sports cars
from 2019.
During the year, our team also increased income from other
underlying assets within our c.1.9m sq. ft Business Space
portfolio, with a total of over 50 new, renewed and reviewed
commercial lettings being completed in the year. This was
further bolstered by the purchase in November of a DHL
distribution unit in Droitwich, Worcestershire with an annualised
rent roll of £450,000. Asset management opportunities have
already been identified to grow the underlying value of this site
in future, alongside longer-term development plans. All of this
activity led to Business Space revenue in 2017 of £8.4m
(2016: £6.2m). The weighted average unexpired lease term
(“WAULT”) across the portfolio stands at 7.5 years
(2016: 7.5 years).
Income Generation
During the year, our Income Generation team has maintained
its push to grow resilient, recurring income. This has included
increased direct development space which we intend to hold
for long-term rents, in response to a continued undersupply of
good quality new units in the regions. The team continues to
asset manage our existing Business Space portfolio to reduce
voids and increase rental returns, whilst also deriving rental
returns and royalties from energy generation, environmental
technologies and the agricultural portfolio. As a by-product of
our remediation, engineering and development activities, we
also seek to generate income from recycled aggregates.
Lettings progress was strong during the year, including the
long-term lettings of over 360,000 sq. ft of directly developed
industrial space with a number of new headline rents being set.
The year began with Whistl taking a ten-year lease in January
for a 225,000 sq. ft unit at Logistics North, just six weeks after
we had overseen practical completion of the unit on behalf of
M&G Real Estate, our forward funding partner. This was
followed in May by the start of construction of five further
commercial units at Logistics North: three as the first phase of
the ‘Multiply Logistics North’ joint venture with LCPF totalling
c.164,000 sq. ft; and two units (C4 and C5) totalling
c.52,800 sq. ft using internal funds. All five units practically
With clear momentum in place across
all aspects of the business, alongside
favourable market conditions and
positive Government sentiment towards
residential and commercial development
on brownfield land, we remain confident
in our ability to grow EPRA NNNAV
across our portfolio and to increase
our recurring income base to cover the
operating costs of the business.
OWEN MICHAELSON – CHIEF EXECUTIVE
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Chief Executive’s statement
Continued
14 Harworth Group plc Annual Report and Financial Statements 2017
Chief Executive’s statement
Continued
Our revenues for the period were also bolstered by the work
of our Natural Resources and Operations teams. A total of
159.7MW of energy capacity is now installed on our land,
providing a long-term income stream from a combination of
ground rents and royalties. The team’s focus remains on
growing future income from alternative technologies with better
short-term prospects and from maintaining income from our
tipping operations, which has the added benefit of supporting
site remediation.
Acquisitions
The successful completion of our £27.1m equity raise in March
to accelerate the continued expansion of our strategic landbank
was a key milestone for funding our future growth prospects.
Our Acquisitions team deployed the proceeds in 2017 through
the acquisition of five sites which have supplemented our
strategic landbank and will improve the quality of our recurring
income base. These five transactions plus acquisition costs,
allied with initial planning and infrastructure costs, account for
the full £27.1m of new equity raised. All are forecast to support
our ongoing delivery of a double digit internal rate of return,
with the December 2017 valuation already reflecting significant
value growth from these acquisitions during the year.
The two most notable acquisitions were identified at the time
of the placing and were adjacent to our existing landholdings,
thus realising significant marriage value as part of our year-end
valuation process. The first, Coalville in Leicestershire, is a
145-acre site purchased for £11.8m plus costs. It neighbours
our existing Coalville development and already benefits from
an existing planning permission for 914 new homes. This
acquisition has created a combined site with planning
permission for the delivery of over 2,000 new residential plots
and associated community facilities over a likely 15-year
development pipeline.
The second, Chatterley Valley in Staffordshire, is an 88-acre site
purchased for £2.6m plus costs that borders our existing
24-acre freehold site. The entire site benefits from Government
Enterprise Zone status and an extant planning permission to
deliver up to 1.2m sq. ft of new commercial development.
Replenishing and growing our strategic landbank is essential to
maintain delivery of our target of double-digit EPRA NNNAV
growth per annum through the property cycle. With this in
mind, we have entered into six option agreements to acquire
strategic land sites that extend to approximately 250 acres,
comprising a mixture of potential residential and commercial
sites located in, and adjacent to, our core regions. These sites
have the potential to deliver a further 1,500 residential plots and
1.3m sq. ft of new commercial space should these options
be taken up.
Strong business momentum
The continuing strong performance of the business, coupled
with the robust nature of the markets we operate in, means that
we already have significant momentum in 2018. We have
agreed over 50% of the year’s expected sales, underpinning
the Group’s performance for the year ahead, although we still
expect performance to be second half weighted.
In the first two months of 2018, we have secured a number of
long-term lettings which will bolster our income portfolio, at
headline rents for each development, clearly reflecting industrial
rental growth and supporting ongoing valuation uplifts. At
Logistics North, a ten-year lease was agreed in January with
Vaclensa Ltd for unit C5, achieving a new headline rent of
£7psf. This was followed in February by two further lettings
across the portfolio. The first was to British Steel Ltd who
completed a 15-year lease on the remaining Phase 2
R-evolution unit, totalling c.15,000 sq. ft, at the AMP at a new
headline rate of £7.50psf. The second letting in February saw
leading motor retailer Motor Depot Ltd taking a 15-year lease
on our Helix unit at Gateway 36 at a new headline rent at the
development of £5psf.
This lettings progress has underpinned our decision to proceed
on two further direct developments which will grow our
recurring income base. Construction of Phase 3 of R-evolution
at the AMP, c.56,000 sq. ft of new commercial space, has now
begun alongside the second phase of the ‘Multiply Logistics
North’ development that will deliver a further c.270,000 sq. ft of
commercial space at Logistics North. Interest in our future
commercial pipeline is already strong, driven by both the
maturity of our developments such as Logistics North and the
AMP, and a continued lack of supply of high-quality units in the
regions in which we operate.
Flass Lane
Rail Sidings at Kellingley
Harworth Group plc Annual Report and Financial Statements 2017 15
Waverley
Gateway 36
Our reputation for being straightforward and acting swiftly in
making new acquisitions also stands us in good stead in
identifying an acquisitions pipeline, with no shortage of
opportunities currently. Prior to the end of February, we signed
a PPA for a key site in Derbyshire that unifies eight separate
landowners in attempting to secure a major new residential
consent. The Cinderhill site totals 421 acres and benefits from a
draft housing allocation within the emerging Amber Valley Local
Plan for up to 3,000 new homes, alongside 500,000 sq. ft of
commercial space. This draft plan has now been submitted to
the Government for further examination in the Spring.
With clear momentum in place across all aspects of the
business, alongside favourable market conditions and positive
Government sentiment towards residential and commercial
development on brownfield land, we remain confident in our
ability to grow EPRA NNNAV across our portfolio and to
increase our recurring income base to cover the operating
costs of the business.
People
Our continued strong performance has necessitated growing
our team in line with the increasing workload of the business.
Our people remain as committed, diligent and steadfast as ever
in maximising the value of our portfolio and creating great new
places for people to live and work. My thanks goes out to the
team, our trusted delivery partners and professional teams for
their hard work in making the Group what it is today.
Finally, on behalf of the Board and the Harworth team, I would
like to express my thanks to Jonson Cox who has served as
our Chairman since November 2010 and helped us navigate
through many challenges in creating the business we have
today. Successful businesses do not just happen. They require
a combination of skill, leadership and good market judgements.
I would like to express my sincere thanks for Jonson’s
leadership and guidance over the past seven years. I would
also like to welcome Alastair Lyons as our new Chairman.
Owen Michaelson
Chief Executive
24 April 2018
Solar farm at Oxcroft
R-evolution Phase 3 at AMP
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Capital Growth in 2017
Phil Wilson, Managing Director, Capital Growth
16 Harworth Group plc Annual Report and Financial Statements 2017
Capital Growth in 2017
Phil Wilson, Managing Director, Capital Growth
The Capital Growth segment of the
business continues to maximise the value
of Harworth’s portfolio by developing its
land and property portfolio to its optimum
extent, thereby growing NNNAV. Our active
management of sites – principally securing
beneficial planning consents, preparing
land for redevelopment and delivering sales
above book value – remains the principal
driver of NNNAV, with 80% of revaluation
gains in 2017 directly attributable to
management actions.
Strategic Land in 2017
Our focus on planning preparation and promotion in 2016 was
rewarded in 2017 in the form of a number of outline planning
consents being secured in the year. In April 2017, we secured
consent from Selby District Council for 1.45m sq. ft of new
commercial employment space at the 151-acre former
Kellingley Colliery in North Yorkshire, the UK’s last deep mine.
Planning was secured less than eighteen months on from the
site closing its doors as a mine, a reflection of the team’s ability
to recognise the inherent strengths of a site’s assets and to
unify stakeholders behind a compelling vision for regeneration.
The site is now being promoted with rail companies to take
advantage of its live rail connection to the Hull to Wakefield line.
The team’s other major success in 2017 was securing outline
consent in October 2017 on the 450-acre former Thoresby
Colliery in Nottinghamshire. Newark & Sherwood District
Council granted consent at the Midlands’ last deep mine for
800 new homes and 250,000 sq. ft of employment space, just
over two years after this site also closed. Demolition of the
site’s former industrial structures is almost complete, with the
site’s first residential parcel of 11-acres now being prepared in
readiness for housebuilders to bid on it in the second half
of 2018.
Planning was also secured on two other sites in the portfolio,
with a further 25 residential plots and 1.3m sq. ft of commercial
space added to our consented landbank. PPAs also continue
to be 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 a further
three PPAs in 2017 with the potential to deliver c.425 housing
plots, bringing the total number of housing plots we are
promoting through PPAs to c.1,800.
Delivering our Major Developments in 2017:
engineering, plot sales and build out
Value growth through planning continues to be supplemented
by the preparation of an increased number of sites for either the
sale of engineered land for residential or commercial purposes
or for retention for the construction of commercial space to
increase our income portfolio – with 14 of our sites now
classified as ‘Major Developments’. With demand for residential
and commercial land continuing to remain strong in our core
markets, Major Developments disposals in 2017 achieved a
healthy price over book value with the receipts subsequently
reinvested in bringing forward further sites in our strategic
landbank for development.
The team continues to plan carefully whether and when to
dispose of sites to maximise the return from our portfolio.
A total of 622 engineered residential plots were sold across six
parcels to national and regional housebuilders during the year.
In H1 2017, this included sales at Waverley to Taylor Wimpey
(130 plots) and Avant Homes (61 plots), alongside a sale at
Flass Lane, Castleford to Keepmoat (157 plots) and a sale at
Village Farm, Durham to Bloc Group (10 plots). In H2 2017, two
further residential sales were made at Waverley to Avant
Homes (220 plots) and SkyHouse (44 plots). The latter, a
21st-century take on the Victorian back-to-back home, is the
Harworth Group plc Annual Report and Financial Statements 2017 17
first starter home product that will be delivered at Waverley,
alongside the 800+ family-oriented homes that have already
been delivered on-site since 2012.
We also sold land with planning consent for over 850,000 sq. ft
of commercial space across five parcels across the year. In
May, we entered into a joint venture with LCPF to develop the
next phase of Logistics North in Bolton. Land totalling
31.2 acres was conditionally sold to Multiply Logistics North
Holdings Limited, our joint venture, for the development of
564,000 sq. ft of commercial space over the next two years.
Harworth retains a 20% stake in the joint venture and will also
undertake development and asset management for separate
management and promote fees. As at 31 December 2017, two
of the three phases have been sold into the joint venture for the
direct development of c.435,000 sq. ft of new commercial
space, with c.164,000 sq. ft across three units already built.
The second half of 2017 included three further commercial land
transactions. In August, we sold 3.4 acres of engineered land
to Lidl (UK) for them to build a c.12,450 sq. ft new supermarket
at Torne Park in Doncaster, adjacent to the first two phases of
residential development being brought forward at the site by
Taylor Wimpey and Harron Homes. This was supplemented by
two significant deals in December. We executed a land sale
of 18.3 acres at Logistics North to Exeter/First Industrial in
December for £10.1m, representing its second major
investment in the site over the past two years and setting a new
benchmark price per acre for the site. In addition, we sold a
6-acre plot at Riverdale Park, Doncaster to Arnold Clark Ltd for
£2.5m, representing the first land sale at the 112-acre site since
its purchase for £8.5m in December 2015.
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
10,448 plots (2016: 9,529 plots) and consented commercial
space on our land at 12.13m sq. ft (2016: 9.95m sq. ft).
Looking forward to 2018
Our core markets continue to offer strong opportunities for
growth. Demand for residential land remains strong, with the
UK still delivering well below the 300,000 new homes per year
required and both large and small housebuilders reporting
good demand for new homes across the North of England
and the Midlands. Demand for well-connected industrial,
manufacturing 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.
The fundamentals for the ‘beds and sheds’ sectors in our
regions continue to align with our in-house team’s experience
in bringing forward residential and commercial land to the
market in good locations whilst delivering new commercial
space for a range of occupiers. Our focus therefore remains
similar to that which we reported in 2016:
CGI of SkyHouse at Waverley
uses. We have live applications in the planning system for
1,308 new plots and 325,000 sq. ft of commercial space.
These form part of a wider pipeline of planning applications
for the next three years, comprising more than 4,500
residential plots (of which c.1,500 plots are for PPAs on
third-party land) and 5.9m sq. ft of commercial space to
underpin the Group’s future disposals programme.
• 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. Our 14 Major Developments sites, including
our flagship schemes at Waverley and Logistics North,
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 to devote
to sites with the highest value enhancement potential.
Phil Wilson
Managing Director, Capital Growth
24 April 2018
The fundamentals for the ‘beds and
sheds’ sectors in our regions continue
to align with our in-house team’s
experience in bringing forward residential
and commercial land to the market
in good locations whilst delivering
new commercial space for a range
of occupiers.
• We will continue with our stated strategy of exploiting
portfolio opportunities by optimising land use and securing
planning consents for both residential and commercial
PHIL WILSON – MANAGING DIRECTOR,
CAPITAL GROWTH
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 18 Harworth Group plc Annual Report and Financial Statements 2017
Capital Growth case study
Thoresby
One of Harworth’s key successes in 2017 was the
granting of planning consent for residential and
commercial uses at the former Thoresby Colliery
– the Midlands’ last deep mine to close.
Newark & Sherwood Borough Council granted outline planning consent in
October for 800 new homes, 250,000 sq. ft of commercial space, the
repurposing of the site’s former workshop as a local centre and a 300-acre
Country Park across the site’s 450 acres.
Harworth took control of the site in October 2015, following the closure of the
colliery in July 2015. The Company has spent the last two years undertaking
site safety and security works, including demolishing redundant industrial
structures, whilst masterplanning the site for future uses and undertaking a
range of consultation events on-site with local residents and key local groups.
The scheme builds on Harworth’s track record in transforming sites with former
uses into thriving environments for people to live and work.
The site’s masterplan provides for new housing, a retirement village, a primary
school, a 25-acre business park, leisure facilities, and a 300-acre country park
adjacent to the historic Sherwood Forest and is expected to help create up to
500 jobs. The site benefits from its position next to the A614/A1, connecting
Doncaster and Nottingham.
The first phase of residential land, for approximately 150 homes, is expected to
be ready for sale to housebuilders as serviced plots towards the end of 2018.
It is anticipated that it will take around ten years to fully develop and the site is
expected to contribute towards Harworth’s continued delivery of at least 10%
per annum NNNAV growth through the property cycle.
CGI of completed Thoresby Colliery redevelopment (2017)
Harworth Group plc Annual Report and Financial Statements 2017 19
Key facts
Location
Total site area
Outline consent granted in
October 2017
Edwinstowe, North Nottinghamshire
450 acres:
150 acres for residential and commercial
development
300 acres for Country Park adjacent to
Sherwood Forest
800 new homes
250,000 sq. ft of new commercial space
Adaptation of former workshop building
for local centre uses
Size of first plot being prepared
for housebuilders
c.10 acres for 150 homes
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Income Generation in 2017
Ian Ball, Executive Director, Income Generation
20 Harworth Group plc Annual Report and Financial Statements 2017
Income Generation in 2017
Ian Ball, Executive Director, Income Generation
The Income Generation segment of
the business continues to make strong
progress in creating, managing and
retaining selected land and property assets
to generate long-term recurring income
and support capital growth in the form
of NNNAV – particularly from the new
commercial space that we are building
and letting.
The total Income Generation segment contributed revenue of
£18.2m (2016: £17.4m) and gross profit of £12.8m
(2016: £12.5m). After the deduction of the overheads of the
business, this delivered profit excluding value gains of £2.24m
(2016: £2.21m). This reflects the ongoing profitability of the
business which is not reliant on value gains or profits from the
sale of properties and is, therefore, less susceptible to
movements in the property cycle. As part of the Group’s
strategy, the income that we derive is focused on covering four
key costs:
•
the running costs of the business (including strategic land
promotion);
• our interest costs; and ultimately
•
tax; and
• a sustainable and rising dividend to shareholders.
Business Space in 2017
At the end of December 2017, our Business Space portfolio
consisted of a total of 17 business parks and development sites
where we receive both rent and service charges. These sites
comprise a total of c.1.9m sq. ft of built space and 436 acres of
development land, with 94.4% of our portfolio classified as
‘industrial’ to cover a range of commercial uses.
Income from our Business Space portfolio continued to grow in
2017, with Business Space revenues rising in 2017 to £8.4m
(2016: £6.2m). We now have 108 individual tenants across the
portfolio and a portfolio WAULT of 7.5 years, with over 84% of
our space now let. This was driven by three principal
management actions – the swift letting of newly built
space; letting success across the portfolio; and acquiring
income-producing property.
We completed over 360,000 sq. ft of long-term lettings in the
year on five new commercial buildings that we have built or are
in-build at the AMP and Logistics North. Whilst this included
Whistl taking a 10-year lease in January 2017 on M&G Real
Estate’s ‘Logistics 225’ unit at Logistics North that Harworth
built on its behalf, we also completed four pre-lets or lettings on
our directly built space during the year. This included McLaren
Automotive taking a 20-year lease at the AMP in July 2017 for a
75,000 sq. ft unit that we are building on its behalf, for practical
completion in April 2018.
Three other deals related to two developments that we
practically completed during 2017. In April 2017, we practically
completed 51,750 sq. ft of new commercial space across four
units at the AMP known as ‘R-evolution Phase 2’, with two
long-term lettings being secured in the year. An advanced
manufacturer took a 15-year lease on a 11,044 sq. ft unit within
eight weeks of practical completion, whilst Spendor Audio
signed a 15-year lease for a 25,962 sq. ft unit at a new headline
rent at the development of £7.50psf. In addition, we completed
two new commercial units known as ‘R-evolution’ at Logistics
North, totalling 52,871 sq. ft that practically completed in
December 2017. Within 2 weeks, Northern Building Plastics
took a 10-year lease on the 24,987 sq. ft unit.
This letting success formed part of the overall success across
the wider Business Space business in the year, with the
completion of over 50 new commercial lettings, renewals and
reviews in 2017 generating a total of £1.1m of additional
recurring rent per annum. This was further bolstered by the
purchase of the 8.7-acre site at Berry Hill Industrial Estate in
Droitwich, Worcestershire, from DHL, for £5.2m plus acquisition
costs in November. This site currently comprises a 112,416 sq. ft
commercial unit, that has immediately been leased back to
DHL. The five-year term at a passing rent of £450,000 per
annum, which represented a net initial yield of 8.15% and a
reversionary yield of 8.65%, supports our strategy of developing
better quality, more resilient income across the portfolio.
As referred to in ‘Capital Growth’, our year also included the
completion of the first three units of ‘Multiply Logistics North’,
our Joint Venture with the LCPF. These units, totalling
c.164,000 sq. ft, practically completed in November 2017 and
are now being promoted to commercial occupiers for long-term
leasehold occupation.
Harworth Group plc Annual Report and Financial Statements 2017 21
Natural Resources in 2017
We continue to 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 2017, with a further net
15MW of capacity installed on our land in the year. Core income
from 159.7MW of low-carbon energy developments is now in
place, alongside income from tipping operations on a number
of sites in Yorkshire and the East Midlands.
A large part of 2017 involved the team developing proposals to
tap into alternative technologies that have strong Governmental
support, including the emerging battery storage market. We
expect a number of these proposals to result in deals in 2018.
Operations in 2017
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. Whilst regulatory
changes have signalled the end of coal-fired power stations by
the end of 2025, coal fines remain a key source of fuel for power
station operators in the short-term – meaning that it remains a
source of income from five sites following its removal as part of
the land restoration and remediation process.
Income continues to be generated from the supply to DRAX
power station in North Yorkshire and Ratcliffe power station in
Nottinghamshire, with a new customer, EDF Energy, taking coal
fines to support the operation of Cottam and West Burton power
stations in Nottinghamshire in 2017. Income also continued to be
generated from the sale of aggregates that are by-products from
the demolition and remediation of a number of our sites.
Looking forward to 2018
As with Capital Growth, our core markets remain robust and we
are confident that we can further grow our recurring income base
through our Business Space portfolio in 2018. Demand for
well-connected industrial and logistics space remains good
owing to an under-supply of new units of all sizes, which benefits
both the AMP and Logistics North given their proximity to the UK
motorway network. This confidence was underpinned by our
start to the year, with three key lettings agreed by February.
Vaclensa took a 10-year lease on the final 27,884 sq. ft
‘R-evolution’ unit at Logistics North at a headline rent at £7psf,
whilst British Steel Limited took a 15-year lease on the c.15,500
sq. ft final ‘R-evolution Phase 2’ unit at the AMP at a headline rent
of £7.50psf. Finally, we successfully leased the final vacant unit at
Gateway 36 in Barnsley to Motor Depot Limited, with the
company taking a 15-year lease at the 75,277 sq. ft “Helix” unit at
a headline rent of £5psf.
As a result of this activity, our wholly owned direct developments
in the Business Space portfolio are fully let. This has underpinned
our decision to speculatively develop the third phase of
“R-evolution” at the AMP, comprising 55,750 sq. ft of additional
commercial space that is due to practically complete in
R-evolution Phase 2 Unit at AMP, Rotherham
September 2018. Where 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.
Our Business Space team will also continue to explore joint
venture transactions on our most valuable sites in order to
capture development management, asset management and
promotion fees from third parties. This includes the letting of all
co-owned units in the portfolio, including the first three units of
the ‘Multiply Logistics North’ development and the remaining
M&G Real Estate-owned Logistics 175 unit, also at Logistics
North. 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, whilst also working with Acquisitions colleagues to
grow our recurring income by identifying additional income
producing acquisitions.
Elsewhere, positive interest remains for multi-energy schemes
across a number of our sites, to address current system
imbalances. 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 aim 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 and to also support our
site remediation process as we open up further sites for
redevelopment. Where possible, this means that we will look to
secure larger contracts from our existing coal fines customers
– DRAX, Uniper (Ratcliffe) and EDF (Cottam and West Burton)
– to build a more resilient Operations business in the short-term.
Ian Ball
Executive Director, Income Generation
24 April 2018
Where 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.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 22 Harworth Group plc Annual Report and Financial Statements 2017
Income Generation
case study
Logistics North
Significant progress was made at Logistics North in
2017 in building and letting a range of new commercial
space for tenants, providing a long-term recurring
income stream for the business whilst also being a
source of value gains.
The year began with Whistl taking a ten-year lease on Logistics 225 – the
c.225,000 sq. ft unit built by Harworth on behalf of M&G Real Estate. The unit
now acts as Whistl’s North West distribution headquarters, with a ten-year lease
being signed at a North West industrial headline rent of £6psf.
With Whistl’s deal highlighting the extent of demand at the site, Harworth then
began the construction of three new units to hold for income purposes. These
included two speculative development commercial units totalling c.52,900 sq. ft,
aimed at small and medium-sized businesses, alongside a c.1,800 sq. ft drive-
thru facility built on behalf of Costa, which took a 15-year lease from July 2017.
Units C4 and C5 practically completed in December 2017 and within two weeks
had been let to long-term tenants. Northern Building Plastics took a 10-year lease
on the c.25,000 sq. ft Unit C4, whilst Vaclensa took a 15-year lease on the
c.27,900 sq. ft Unit C5 at a headline rent for the development of £7psf.
Further evidence of Logistics North’s success followed in May, with Harworth
entering into a joint venture with LCPF to develop the next phase of commercial
units at the site. Land totalling 31.2 acres was conditionally sold to Multiply
Logistics North Holdings Limited, our joint venture, for the development of
564,000 sq. ft of commercial space over the next two years. Harworth retains a
20% stake in the joint venture and will also undertake development and asset
management for separate management and promote fees. As at 31 December
2017, two of the three phases had been sold into the joint venture for the direct
development of c.435,000 sq. ft of new commercial space, with the
partnership’s first three units – totalling 164,000 sq. ft – already practically
complete. As at March 2018, two of these units were in legals.
2018 will see the second phase of Multiply Logistics North practically complete
– six new units totalling c.270,000 sq. ft ready for occupation for manufacturing
or distribution uses. Leasehold interest is also being sought on all remaining
plots at Logistics North, which could deliver units of up to 250,000 sq. ft.
Aerial of Logistics North, February 2018
Harworth Group plc Annual Report and Financial Statements 2017 23
Key facts
Location
Bolton, Greater Manchester
Full extent of Multiply Logistics North
development
10 new units totalling 564,000 sq. ft,
set over 31.2 acres
Phase 1 Multiply space built by
December 2017
Other commercial space built by
Harworth for income purposes in 2017
Tenants signed up between January
2017 and March 2018
Phase 2 Multiply space now being built
3 new units totalling c.164,000 sq. ft
Units C4 and C5, totalling c.52,900 sq. ft
New drive through unit for Costa,
totalling c.1,800 sq. ft
Whistl (M&G Real Estate’s Logistics 225)
Vaclensa, Northern Building Plastics
(Units C4 and C5)
Costa (drive-through unit)
2 other units in legals
6 new units totalling c.270,000 sq. ft
that will be practically complete in
Q4 2018
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Acquisitions in 2017
Gary Owens, Director, Acquisitions
24 Harworth Group plc Annual Report and Financial Statements 2017
Acquisitions in 2017
Gary Owens, Director, Acquisitions
Replenishing our land and property
portfolio to ensure the sustainable growth
of the business remains one of our six
strategic priorities. Utilising capital
to purchase: new, significant, mainly
brownfield development sites; edge of
settlement, strategic land opportunities;
or business parks with asset management
and/or development opportunities form the
backbone of our acquisitions strategy, with
a dedicated team now in place to deliver it.
Following the successful £27.1m equity raise in March 2017
for new acquisitions, we deployed all of the proceeds on five
strategic sites in the year that could potentially deliver a further
c.1,000 plots and over 5m sq. ft of additional commercial
space. Crucially, a number of these sites realised significant
capital growth marriage value at year-end, owing to their
proximity to landholdings within the existing portfolio, whilst
also deriving income as we continue to improve the quality of
the business’ recurring income base. In addition, we signed
options on another four sites and secured preferred bidder
position on a further significant site, providing a strong land
pipeline for further growth.
March 2017 equity raise
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 landbank.
At the time of placing, we advised shareholders that there were
no shortage of opportunities to deploy the proceeds in our
core markets of the North of England and the Midlands. By
November, we had successfully deployed all of this new equity
on principally Capital Growth opportunities, with a projected
rate of return in each case above our target rate.
Acquisitions made in 2017
Our first three acquisitions were made in August 2017 for a total
consideration of £16.3m plus costs on sites identified as part of
the equity placing.
Coalville, Leicestershire
The first, Coalville in Leicestershire, is a 145-acre site
purchased for £11.8m plus costs. It neighbours our existing
Coalville development and already benefits from an existing
planning permission for 914 new homes. This creates a
combined site with planning permission for over 2,000 new
residential plots and provides a 15-year development pipeline,
realising significant marriage value at year-end.
Chatterley Valley, Staffordshire
The second, Chatterley Valley in Staffordshire, is an 88-acre site
purchased for £2.6m plus costs that borders our existing
24-acre freehold site. The entire site benefits from Government
Enterprise Zone status and an extant planning permission to
deliver up to 1.2m sq. ft of new commercial development.
The combined site also benefits from a live rail connection and,
similarly to Coalville, realised significant marriage value at
year-end.
Wingates, Bolton
The final acquisition, Wingates in Bolton, involved the freehold
purchase or option to purchase three land parcels totalling
73 acres. The land is adjacent to Junction 6 of the M61, two
motorway junctions north of our existing Logistics North
development, and borders 221 acres of land that we already
own. When all of this land is combined, it could deliver a further
2.4m sq. ft of commercial employment space for both
manufacturing and distribution businesses. This site now forms
part of our strategic planning pipeline between now and 2020.
Our final two acquisitions in the year completed in
December 2017.
Harworth Group plc Annual Report and Financial Statements 2017 25
Strategic land site, Doncaster
Our penultimate purchase of the year was a privately sourced
131-acre site in Doncaster, South Yorkshire, for £3.0m plus
acquisition costs, with an option agreement for a further
131 neighbouring acres. Adjacent to Junction 5 of the M18 and
in a borough where we already have significant landholdings,
this site also forms part of our future strategic planning pipeline,
as it has the potential to deliver 2.4m sq. ft of distribution,
manufacturing and engineering space.
Berry Hill industrial estate, Worcestershire
Our final purchase of the year was an 8.7-acre site at Berry Hill
industrial estate in Droitwich, Worcestershire, from DHL, for
£5.2m plus acquisition costs. Three miles from Junction 5 of
the M5, the site currently comprises a 112,416 sq. ft
commercial unit, that has immediately been leased back to
DHL. The five-year term at a passing rent of £450,000 per
annum represents a net initial yield of 8.15% and a reversionary
yield of 8.65%, supporting the Group’s strategy of increasing
and improving the quality of its recurring income base, whilst
in the longer-term, the site’s very low density of 30%
provides attractive upside opportunity for a whole or partial
site redevelopment.
With significant value gains being achieved on these
acquisitions in 2017, given marriage value capture, this has
supported an overall return rate on all acquisitions made since
2014 of over 15% per annum. Acquired sites now account for
over a quarter of the value of the portfolio.
In addition to these acquisitions, we also have four further
option agreements in place to acquire, in aggregate,
approximately 250 acres of strategic land. These sites – two in
the North West, one in Yorkshire and one in the East Midlands
– could deliver in aggregate over 1,500 residential plots and
1,300,000 sq. ft of new commercial space if taken up.
Looking forward to 2018
The outlook for our principal markets in the North of England
and Midlands remains strong, with a scarcity of good quality
new commercial space continuing to drive the allocation of new
sites and occupier demand for well-connected new space.
We have an annual target of acquiring land with the ability to
deliver over 1,000 residential units and over 1m sq. ft of
commercial space, translating to over 200 acres of net
developable land. Whilst this target is a challenging one, our
track record as a business, our ability to transact quickly, the
fact that existing strong relationships with public bodies are in
place and the four land options already available to the
business provide a solid foundation to make further purchases
that will deliver a double-digit rate of return.
Good opportunities remain available to Harworth across its
core regions, specifically within our target growth areas of the
Midlands and North West. Our aim is 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 former coal-fired power
Coalville
Chatterley Valley
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 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 Berry Hill
industrial estate.
Gary Owens
Director, Acquisitions
24 April 2018
Crucially, a number of these sites realised
significant capital growth marriage value
at year-end, owing to their proximity to
landholdings within the existing portfolio.
GARY OWENS – DIRECTOR, ACQUISITIONS
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 26 Harworth Group plc Annual Report and Financial Statements 2017
Acquisitions case study
Purchase of site for future residential
development at Coalville, Leicestershire
The purchase of 145 acres of land at Coalville,
Leicestershire for £11.8m plus costs in August 2017 was
our first major site purchase following the successful
raising of £27.1m of new equity in March 2017.
This land already has an outline planning permission for housing, which could
deliver 914 new homes across 76 net developable acres. Crucially, the site is
also adjacent to our existing 200-acre Coalville site, which has planning consent
for 1,102 new homes. This combined scheme is now Harworth’s second largest
residential development, behind Waverley, and provides a 15-year pipeline of
land for residential sales.
The purchase delivered immediate marriage value as recognised in the 2017
valuation, whilst our development appraisal forecasts a rate of return in excess
of our required hurdle rate.
Our focus has now shifted to value engineering the first development platforms
to sell to housebuilders. We plan to select the site’s first housebuilder in 2018,
with a further 15 years of sales and development across the full scheme to
follow. Work will also take place to optimise the existing planning consent
across both sites to maximise eventual returns.
Aerial of coalville site, September 2017
Harworth Group plc Annual Report and Financial Statements 2017 27
Key facts
Location
Total acreage
Coalville, Leicestershire
346 acres – 183 of which can
be developed
Purchase price
£11.8m plus acquisition costs
Total number of homes that could be
built on-site
914 homes
Total number of homes that could be
built across our entire Coalville
development
2,016 homes
Projected development timetable
15 years
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Financial Review
Andrew Kirkman, Finance Director
28 Harworth Group plc Annual Report and Financial Statements 2017
Financial Review
Andrew Kirkman, Finance Director
Overview
Further significant progress was made across the business in 2017, which resulted in another year of double digit growth in
EPRA NNNAV. This growth was after including the impact of the March 2017 equity capital raise which had the impact of a c.2.0%
dilution in net assets per share. EPRA NNNAV rose by 12.5% to 128.9p per share (£414.2m) compared to 114.6p per share as at
31 December 2016 (£334.9m). NAV per share increased to 127.4p (£409.3m) as at 31 December 2017, which is an 11.2% increase
on the NAV per share as at 31 December 2016 of 114.6p (£334.9m).
Operating profit before exceptional items in 2017 was £39.7m (2016: £45.2m). However, the statutory measure does not now capture
the growth and profitability of the business fully as we are conducting some of our activities through joint ventures (2017: £4.0m,
2016: £0.6m) and, as set out below, the revaluation gains on development properties post re-categorisation (2017: £5.8m, 2016: £nil)
fall outside of this measure. Taking account of both of these additional sources of value creation, operating profits which contributed
to EPRA NNNAV rose by 8.1% to £49.6m (2016: £45.8m) reflecting active management across our portfolio.
We consider that the operating profits which contributed to EPRA NNNAV growth of £49.6m (2016: £45.8m) can best be understood
as being composed of two elements:
• Value gains (£47.4m; 2016: £43.7m) – profits on disposals of investment, development and available for sale properties £10.7m
(2016: £8.8m) and revaluation gains on our property portfolio of £36.7m (2016: £34.9m). Revaluation gains comprise: revaluation
movements on investment property of £32.1m (2016: £33.6m), profits from joint ventures of £4.0m (2016: £0.6m), gains on
overages of £0.6m (2016: £0.7m) and revaluation movements on development properties of £5.8m (2016: £nil) less a net
realisable value provision of development properties of £5.8m (2016: £nil). As development properties are held as inventory, the
revaluation gain is not included in the Balance sheet. Instead the revaluation amount is verified by BNP Paribas and Savills, our
external property surveyors. Profit from joint ventures are included within this measure as our joint ventures conduct similar
operations to Harworth, albeit in different ownership structures, and the principal profits in the joint ventures to date have been
from revaluation gains; and
• Profit excluding value gains (£2.2m; 2016: £2.2m) – this shows the ongoing profitability of the business which is not reliant on
property value gains or profits from the sales of properties and is therefore less susceptible to movements in the property cycle.
Profit excluding value gains rose by 1.2% in 2017.
The graph below shows the gain in net asset value, across the different measures, over 2017:
(0.7)p
(0.1)p
(0.8)p
(0.3)p
(2.5)p
2.1p
1.5p
1.8p
13.0p
135p
130p
125p
120p
115p
110p
105p
100p
95p
5.2p
(1.9)p
0.8p
114.6p
127.4p
Closing NAV/
EPRA NNNAV/
EPRA NAV
Opening NAV/
EPRA NAV
Capital
Raise
Profit excluding
Value Gains
Value Gains
Interest and
finance costs
Other (Pensions,
EBT, Current Tax)
Dividends
Tax/ Interest
rate Swap
Earnings per share rose by 15.4% to 15.8p (2016: 13.7p(1)) reflecting the progress in profits as well as the recognition of previously
unrecognised deferred tax assets following greater certainty of their recoverability. The total dividend per share for 2017 rose by 10%
to 0.828p (2016: 0.753p) reflecting the long-run ambition to deliver through the cycle double-digit growth in EPRA NNNAV.
Net debt at £32.3m or 7.0% net loan to value (2016: £39.5m and 9.9%) reflects Harworth’s continuing prudent gearing policy.
In February 2018, the Group extended the term of its £75.0m revolving credit facility with RBS, such that it now ends in
February 2023.
Note:
(1) The 2016 EPS has been restated following discussions with the Financial Reporting Council and their review of the 2016 Financial Statements, which did not correctly reflect the effect of the May
2016 1 for 10 share consolidation on EPS.
Harworth Group plc Annual Report and Financial Statements 2017 29
Business model and property categorisation
Harworth has become more firmly established in recent years, particularly as a result of the effective re-listing in March 2015 and the
development of a successful track record. At the same time, our business model has matured and evolved, notably with moves into
adjacent activities such as direct development and forward funding deals. As a consequence, following the capital raise in March
2017, which was to accelerate the acquisition of strategic land for development, we reviewed our most advanced and active sites and
re-categorised certain properties to reflect the intentions for the sites. The majority of Waverley, Logistics North and Prince of Wales
were re-categorised as development sites and as such are now disclosed within inventory. Development sites are held on the
Balance sheet at cost rather than fair/market value, albeit at the point of re-categorisation the property is transferred at fair value.
The Balance sheet value of these three development sites at the point of re-categorisation was £77.7m.
Following further evolution of Harworth’s business model during 2017, we have refined our thinking in the light of site and market
opportunities, and concluded that it is appropriate, on the whole, to re-categorise all properties which have received planning
permission as development properties. For until sites receive planning permission, our view is that the land is held for a currently
undetermined future use and should thus be held as investment property. The only site within Major Developments that has not
been re-categorised as a development property is Lounge in Leicestershire for which its future use is undetermined as a result of
the proposed HS2 Phase 2b route.
Property categorisation is reviewed as at 30 June and 31 December each year. Following the 2017 year-end review, a further
£151.4m has been re-categorised from investment property. The Balance sheet value of all development sites as at 31 December
2017 was £210.5m (reflecting sales and development expenditure at the three sites re-categorised in the first half). The market
value of all development sites as at 31 December 2017 was £216.3m reflecting the £5.8m uplift in value of these sites, which is
appropriately not reflected in the Balance sheet. In order to highlight the market value of development sites and be consistent with
our investment properties, we are using EPRA NNNAV, which includes the market value of development properties, less notional
deferred tax, as our primary metric. We will continue to report EPRA NAV which is EPRA NNNAV excluding deferred tax and the
mark to market movement on financial instruments.
Further significant progress was made
across the business in 2017, which
resulted in another year of double digit
growth in EPRA NNNAV.
ANDREW KIRKMAN – FINANCE DIRECTOR
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Financial Review
Continued
30 Harworth Group plc Annual Report and Financial Statements 2017
Financial Review
Continued
The table below sets out our top ten sites by value, split by their categorisation, and showing the total acres, residential plots and
commercial space:
Site
Waverley
Coalville
Rossington
Lounge
Waverley (AMP)
Asfordby
Gateway 36
Harworth
Walton Summit
Thoresby
Type
Total Acres
Consented
Development
Development
Development
Investment
Investment
Investment
Investment
Development
Investment
Development
454
346
334
103
115
141
430
440
19
460
TOTAL
2,842
3,890
2,016
1,200
–
–
–
–
996
–
800
8,902
Housing plots
Commercial space
Sold
1,218
0
170
–
–
–
–
118
–
0
1,506
Built
Consented
Built
800
0
100
–
–
–
–
118
–
0
–
–
0.1m sq. ft
0.8m sq. ft
2.1m sq. ft
0.3m sq. ft
0.2m sq. ft
0.8m sq. ft
0.3m sq. ft
0.3m sq. ft
–
–
0 sq. ft
0 sq. ft
1.2m sq. ft
0.3m sq. ft
0.2m sq. ft
0 sq. ft
0.3m sq. ft
0 sq. ft
1,018
4.9m sq. ft
2.0m sq. ft
March 2017 equity placing
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 Ordinary Shares (representing 9.9% of Harworth’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 Harworth’s
shares on the day before the announcement of the placing) to accelerate the continued expansion of our strategic land bank.
During 2017, we have invested all of the proceeds from the equity placing in five acquisitions at: Chatterley Valley near Stoke;
Coalville in Leicestershire; Wingates near Bolton; a strategic site near Doncaster; and a DHL depot in Droitwich. The first three
sites were all adjacent to existing Harworth properties. The total consideration including costs was £26.0m with additional spend
expected on these sites during 2018 for planning and initial development expenditure.
Operating profit
Revenues in 2017 were £53.7m (2016: £33.7m) split between revenue from operations £23.9m (2016: £33.7m) and revenue from
the disposal of development properties £29.8m (2016: £nil). Revenue from operations is split between: Income Generation £18.2m
(2016: £17.4m), where revenue mainly comprises rental and royalty income together with some sales of coal fines and salvage; and
Capital Growth £5.7m (2016: £16.3m). The increase in revenue from Income Generation reflected improved lettings and business
space acquisitions made in late 2016 and in 2017. The reduction in revenue from Capital Growth reflected the completion in
December 2016 of the two units at Logistics North which were forward funded by M&G Real Estate. The revenue in 2017 reflected
amounts received on completion of the work including a promote fee on the letting of the larger 225,000 sq. ft unit to Whistl in
January 2017. The smaller 175,000 sq. ft unit continues to be actively marketed on behalf of M&G Real Estate.
Revenue and cost of sales include amounts for the M&G Real Estate forward funding contract at Logistics North as Harworth acted
as principal in this transaction. This principal relationship was as a result of Harworth having exposure to potential construction and
credit risks as well as the potential rewards of managing the construction on time and to budget, and letting the buildings
favourably and early.
Cost of sales now comprises three elements being: sales of development properties; operating costs for business space, natural
resources, agricultural land and coal fines activities; and costs in relation to the M&G Real Estate contract for the construction and
letting of units. Cost of sales increased to £37.7m (2016: £20.9m) including some large movements being the first-time recognition of
sales of development property of £27.9m (2016: £nil) and a reduction in costs associated with the M&G Real Estate contract to
£3.7m (2016: £15.6m).
Harworth Group plc Annual Report and Financial Statements 2017 31
Total overheads, which include the overhead costs of the Capital Growth and Income Generation segments and central costs,
amounted to £12.0m (2016: £10.6m). The increase in costs reflected an increased accrual for the 2012 Harworth Estates Long Term
Incentive Plan, which concluded at the end of 2017, as a result of EPRA NNNAV outperformance, as well as increased staffing and
business costs reflecting greater, and more productive, operational activity. The table below, which is a non-statutory presentation,
shows the results of the business split between Capital Growth, Income Generation and Central Overheads:
2017
Capital
Growth
£m
Income
Generation
£m
Central
Overheads
£m
Revenue
Cost of sales
Overheads
Notional development
property costs (1)
Other operating income/(expense)
Profit excluding value gains (2)
Revaluation gains
Profit on disposals (2)
Pension charge
Operating profit before
exceptional items
Net exceptional items
Operating profit/(loss)
Joint ventures
Operating profit before
exceptional items plus JVs
Revaluation gains on
development properties (3)
Value gains (including
JVs and development
properties)
Notes:
35.4
(32.3)
(1.9)
(1.9)
–
(0.7)
20.6
8.0
–
27.9
–
27.9
–
27.9
5.8
18.3
(5.4)
(1.8)
–
–
11.1
6.3
2.7
–
20.0
–
20.0
4.0
24.0
–
21.0
26.4
–
–
(8.3)
–
0.1
(8.2)
–
–
–
(8.2)
0.3
(7.9)
–
(8.2)
–
–
Total
£m
53.7
(37.7)
(12.0)
(1.9)
0.1
2.2
26.9
10.7
–
39.7
0.3
40.1
4.0
43.8
5.8
47.4
2016
Income
Generation
£m
Central
Overheads
£m
Capital
Growth
£m
16.3
(16.0)
(1.8)
–
–
(1.5)
24.2
7.6
–
30.2
–
30.2
-
30.2
–
17.4
(4.9)
(1.5)
–
(0.1)
10.9
10.0
1.3
–
22.1
–
22.1
0.6
22.7
–
31.7
12.0
Total
£m
33.7
(20.9)
(10.6)
–
(0.1)
2.2
34.2
8.9
(0.1)
45.2
–
45.2
0.6
45.8
–
43.7
–
–
(7.3)
–
–
(7.3)
–
–
(0.1)
(7.2)
–
(7.2)
-
(7.2)
–
–
(1) The income statement has been re-presented to show development property sales (£7.7m) within profit on disposals and development property impairment (£5.8m) within revaluation gains. This
notional cost is the net amount.
(2) Profit excluding value gains comprises operating profit before exceptional items of £39.7m (2016: £45.2m) less pension costs of £nil (2016: £0.1m) and value gains of £37.6m (2016: £43.0m). Value
gains comprise profit/(loss) on disposals (being profits on sale of investment properties of £2.9m (2016: £9.2m), assets held for sale of £0.1m (2016: loss of £0.4m) and development properties of
£7.7m (2016: £nil) plus increase in fair value of investment properties of £26.9m (2016: £34.2m).
(3) This is the unrecognised mark to market gain since the properties were re-categorised into development properties.
(4) There are minor differences on some totals due to rounding.
Set out below are value gains for 2016 and 2017, which comprise profit on disposals, revaluation gains on investment properties
(including joint ventures) and revaluation gains on development properties:
£m
Development/Capital Growth
Major Developments
Strategic Land
Investment/Income Generation
Business Space
Natural Resources
Agricultural Land
Total
2017
Profit on
disposals
Revaluation gains
Management
Market
Total
Profit on
disposals
2016
Revaluation gains
Management
Market
Total
8.0
0.0
0.5
2.2
0.0
10.7
8.7
12.2
4.4
1.4
2.6
29.2
4.3
1.2
0.8
0.1
1.0
7.5
21.0
13.4
5.7
3.7
3.6
47.4
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
18.9
12.8
6.7
5.2
0.1
43.7
The Group made sales of properties of £54.8m in 2017 (2016: £58.9m). The sales were split between residential serviced plots of
£23.0m (2016: £20.5m), commercial development of £22.7m (2016: £26.8m) and other, essentially agricultural land, of £9.1m
(2016: £11.6m). Harworth made profit on disposals of £10.7m (2016: £8.8m), with all segments of the business achieving a profit on
disposals, with the two largest profits being from sales of land for residential and commercial occupiers at our flagship sites of
Waverley and Logistics North respectively. In addition, Harworth undertook direct development on its sites with a land value of
£2.1m and its share of property sales in its joint ventures was £0.9m.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
32 Harworth Group plc Annual Report and Financial Statements 2017
Financial Review
Continued
Cash proceeds from sales were £46.6m (2016: £53.4m) reflecting the sales in the year of £54.8m (2016: £58.9m) less deferred
consideration on sales in the year of £14.3m (2016: £10.9m) plus deferred consideration received from sales in prior year of £6.1m
(2016: £5.4m).
In 2017, the Group achieved revaluation gains of £36.7m (2016: £34.9m) comprising: revaluation gains from investment properties,
including overages of £32.7m (2016: £34.3m), revaluation gains from joint ventures of £4.0m (2016: £0.6m), revaluation gains from
development properties of £5.8m (2016: £nil) less impairment of development properties of £5.8m (2016: £nil). All of the
revaluation gains for development properties relate to Major Developments sites.
We have split the revaluation gains of £36.7m (2016: £34.9m) to reflect the contribution from active management of £29.2m
(2016: £29.2m) and market movements of £7.5m (2016: £5.7m). Whilst there is a degree of subjectivity in this split, it highlights that
the majority of the value gains continue to come from active management. The principal 2017 revaluation gains across the
divisions were as follows:
• Major Developments – Capture of marriage value from 2017 acquisitions which adjoined existing sites (Chatterley Valley and
Coalville) together with movements at maturing developments;
• Strategic Land – Outline planning consent granted at Thoresby (800 residential plots) and Kellingley (1.45m sq. ft of
commercial space);
• Business Space – Increases from direct development lettings and progress at recent acquisitions offset by some ageing
assets;
• Natural Resources – Profitable sales for future energy schemes and gains from asset management offset by declines in fixed
life assets; and
• Agricultural Land – Aftercare and restoration advances at former surface mines.
Exceptional items
Exceptional items in 2017 comprised three separate items which, as before, relate to sundry receipts and costs from the Group’s
legacy activities. The total amounts in 2017 were a credit of £0.3m (2016: £nil).
Taxation
The income statement credit for taxation in the year was £7.8m (2016: £3.6m charge) which comprised a deferred tax credit of
£9.3m (2016: £3.6m charge) and a current year tax charge of £1.5m (2016: £nil). The movement in deferred tax comprised
the following:
• a £5.9m credit due to the execution of a contract which resulted in increased certainty that the losses would not be lost;
• a number of chargeable gains and losses have crystallised in the period as a result of a number of disposals of investment
property and the categorisation of properties from investment property to development property. These gains have been
offset against tax losses that were previously not recognised from a deferred tax perspective. The losses crystallised have
been recognised whereas inherent capital losses have not. As such, there has been a credit to deferred tax of £13.2m;
•
•
the increase in valuation of the investment properties in the period together with the impact of indexation on the inherent gains
in the investment property portfolio for the period, along with some other smaller movements in deferred tax items, have given
rise to a £5.9m deferred tax charge in the period; and
following the submission of the tax computations and returns for prior periods, the Group utilised tax attributes resulting in a
deferred tax charge of £3.9m.
The current tax charge comprised the following:
• a current year tax charge of £1.9m (2016: £nil) resulting from profits on sales of development properties; and
• a land remediation relief tax credit of £0.3m (2016: £nil).
The Group is still utilising brought forward tax losses but as a result of categorising sites from investment to development,
Harworth has started to pay tax on development property sales. In the current period, in terms of cash tax paid or received,
Harworth received cash in respect of the land remediation relief claim and recovery of VAT on deal fees of £0.3m (2016: £nil).
At 31 December 2017, the Group had deferred tax liabilities of £13.0m (2016: £23.4m), related to unrealised gains on investment
properties and had recognised deferred tax assets of £7.5m (2016: £8.5m). The net deferred tax liability was £5.5m
(2016: £14.9m). Full details of the movements in tax are set out in note 9.
Due to recent changes in tax legislation, there is much greater flexibility in the utilisation of tax losses arising after 1 April 2017.
However, these losses, and those losses accrued historically are subject to a 50% restriction. Whilst the Group has a significant
level of accrued tax losses, these are in the form of capital losses which fall outside of these rules. As such, these rules are likely
to have a limited impact on the group’s tax profile going forward.
Harworth Group plc Annual Report and Financial Statements 2017 33
Recent legislation has aligned the computation of capital gains on disposals of properties between individuals and corporates by
removing the benefit to corporates of indexation. This will have the impact of increasing the tax liabilities in future periods.
Earnings per share and dividends
Earnings per share increased to 15.76p (2016: 13.65p) and underlying earnings per share, excluding exceptional items, increased
to 15.65p (2016: 13.65p). These increases reflect the positive progress made in the year with respect to profits and tax. The 2016
EPS has been restated following discussions with the Financial Reporting Council and their review of the 2016 Financial
Statements, which did not correctly reflect the effect of the May 1 for 10 share consolidation on EPS.
An interim dividend of 0.253p per share (2016 interim: 0.230p) equivalent to £813k (2016 interim: £672k) for the 2017 financial year
was paid on 13 October 2017. A final dividend for the 2017 financial year of 0.575p per share (2016 final: 0.523p) is proposed. The
total dividend for the year of 0.828p per share (2016: 0.753p) is in line with our progressive dividend policy and represents a 10%
increase over the prior year, reflecting ongoing growth and confidence in the business. The total dividend of £2.7m (2016: £2.2m)
is due to the 10% growth in the dividend and the c.10% increase in the number of shares following the March 2017 equity capital
raise. The final dividend will be paid on 1 June 2018 to shareholders on the register at the close of business on 4 May 2018. The
ex-dividend date will be 3 May 2018.
Net assets
As set out below, NAV increased to £409.3m as at 31 December 2017 from £334.9m as at 31 December 2016. This increase
was as a result of movements in the year, being operating profit before exceptionals plus joint ventures of £43.8m, the March 2017
equity capital raise of £27.1m, a tax credit of £7.8m, less interest costs of £2.3m and dividends of £2.7m plus other movements
of £0.7m.
Investment and development properties (including investments in joint ventures, assets held for sale,
overages and occupied properties)
Cash
Other assets
Total assets
Gross borrowings
Deferred tax liability
Derivative financial instruments
Other liabilities
Net assets
Number of shares in issue
Net assets per share
EPRA NNNAV per share (1)
EPRA NAV per share (2)
Notes:
31 December
2017
£m
457.1
8.4
31.5
497.0
40.6
5.5
0.1
41.5
409.3
31 December
2016
£m
400.3
13.0
25.2
438.5
52.5
14.9
0.4
35.8
334.9
321,250,750
292,269,786
127.4p
128.9p
131.0p
114.6p
114.6p
119.8p
(1) NAV (£409.3m; 2016: £334.9m) plus market value of development properties (£5.8m; 2016: £nil) less notional deferred tax (£1.0m; 2016: £nil) divided by number of shares in issue
(2) EPRA NNNAV (£414.2m; 2016: £350.1m) excluding deferred tax liability (£5.5m; 2016: £14.9m), notional deferred tax on development properties (£1.0m; 2016: £nil) and mark to market movement
on financial instruments (£0.1m; 2016: £0.4m) divided by number of shares in issue
Financing strategy and funding
Harworth’s financing strategy is to be prudently geared as we believe that this gives the Group a number of advantages:
• allows working capital swings to be managed appropriately given that infrastructure spend is usually in advance of sales and
thus net debt can increase by over £30m during the year;
• gives the Group the ability to complete acquisitions quickly, which is often a differentiating factor in a competitive situation;
• ensures that we do not combine financial gearing with Harworth’s existing operational gearing. Such operational gearing is the
appropriate levels of exposure we take in terms of planning, remediation/engineering, letting and sales risks; and
• higher gearing levels are not easily supported by Harworth’s existing activities – we do not gear our Capital Growth properties
being our Strategic Land and Major Developments’ sites.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
34 Harworth Group plc Annual Report and Financial Statements 2017
Financial Review
Continued
Harworth’s financing strategy also involves the Group trying to balance its cash flows by funding infrastructure spend and
investment in acquisitions through disposal proceeds. In 2017, Harworth achieved sales which were slightly ahead of Group
expectations and the expected partial acquisition of a site was delayed from before the year-end until 2018 resulting in a slight
decrease in net debt.
The graph below shows the Group’s management of net debt during the year:
£80,000k
£70,000k
£60,000k
£50,000k
£40,000k
£30,000k
£20,000k
£10,000k
£0k
32,558
(46,576)
1,131
2,492
4,250
39,471
(27,065)
26,015
32,275
Opening Net Debt
01/01/2017
Development
Spend
Disposal
proceeds
Investment
in JVs
Cash and working
capital used
in operations
Dividends
Capital Raise
Acquisitions
Closing Net Debt
31/12/17
As at 31 December 2017 Harworth’s gross Loan To Value (“LTV”) was 8.8% (2016: 13.1%) and net LTV was 7.0% (2016: 9.9%).
However, as set out above Capital Growth sites are deliberately not geared, so if gearing is just assessed against the value of
Business Space and Natural Resources properties this equates to a gross LTV of 26.3% (2016: 41.6%) and a net LTV of 20.8%
(2016: 31.3%).
On 13 February 2018, Harworth extended the term of its existing £75m Revolving Credit Facility (“RCF”) with RBS by two years
such that it now expires in February 2023. The extension was on substantially the same terms with the only notable change being
a slight increase in margin to 210bps over LIBOR (from 200bps). 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. As a consequence, Harworth has a £30m fixed rate swap at an all-in rate
of 2.955% (including fees) until June 2020. The interest rate swap is hedge accounted with any unrealised movements going
through reserves.
The Group also uses infrastructure funding, provided by public bodies to promote the development of major sites for employment
and housing needs, as part of our funding. At 31 December 2017 the Group had six infrastructure facilities with all-in funding rates
of between 2.5% and 4.7%. During the year, to assist with funding requirements associated with greater activities and continued
growth, we secured an increase in our bonding line from £10.0m to £15.0m.
The Group had borrowings and loans of £40.6m at 31 December 2017 (2016: £52.5m), being the RBS RCF of £23.3m
(2016: £37.0m) and infrastructure loans of £17.3m (FY 2016: £15.5m). The Group’s cash and cash equivalents at 31 December
2017 were £8.4m (2016: £13.0m). The resulting net debt was £32.3m (2016: £39.5m). The weighted average cost of debt, using
31 December 2017 balances and rates, was 3.0% with a 0.8% non-utilisation fee on undrawn RCF amounts (2016: 2.9% with a
0.8% non-utilisation fee on undrawn RCF amounts). For the twelve months to 31 December 2017 Harworth’s interest cover, as
calculated by the RBS RCF covenant calculation, was 3.4x against a covenant test of 1.5x.
Premium listing
Reflecting Harworth’s continuing development since its relisting in 2015, the Board has engaged advisers on the workstreams to
be completed to move the Company’s shares from the Standard segment to the Premium segment of the Official List. This work is
expected to be completed over the coming months with the move taking place in the second half of the year, subject to the
approval of the UK Listing Authority. The Board believes that this will position the Company for potential future admission to the
UK FTSE indices.
Andrew Kirkman
Finance Director
24 April 2018
Harworth Group plc Annual Report and Financial Statements 2017 35
Harworth’s Finance Team, March 2018
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Managing Risk
36 Harworth Group plc Annual Report and Financial Statements 2017
Managing Risk
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.
Following the Company’s acquisition of Harworth Estates in March 2015, the Group undertook a review of its principal risks and
uncertainties which led to the development of a Group Risk Register.
During 2017, as part of its ongoing continual improvement programme, the Group undertook another detailed review of its
principal risks and uncertainties, including those that would threaten its strategic priorities, business model, future performance,
solvency or liquidity. This review was led by our Company Secretary in conjunction with the Board, the Audit Committee, the
Executive Committee and the Senior Management Team.
The Group’s current risk profile was mapped, with individual risks grouped into eight new categories, being: (R1) markets;
(R2) delivery; (R3) politics; (R4) finance; (R5) people; (R6) legal and regulatory; (R7) governance and internal controls; and
(R8) communications and stakeholder management. Risks were scored on a “heat map”, from “very low” to “very high”, according
to residual risk status (after accounting for mitigation measures already in place), materiality and anticipated movement in risk over
the next 12 months. This has led to further refinement of the Group’s Risk Register. This detailed review has confirmed that there
has been no material change in the Group’s overall risk profile since publication of the 2016 Annual Report and the profile remains
in line with the Board’s risk appetite, with all categories scored as either medium or low risk at the date of this report.
5
Severe
4
Major
3
Material
T
C
A
P
M
I
2
Minor
1
Insignificant
5
4
3
2
1
10
15
20
25
8
12
16
20
Overall residual risk status
(after mitigation)*
Very low
Low
Medium
High
1-2
3-5
6-10
11-16
R1
6
R2
R3
9
R5
R6
R8
4
R4
R7
2
6
3
12
15
Very high
20-25
Anticipated movement in risk
profile in next 12 months
8
4
10
5
Increasing
Unchanged
Decreasing
* Impact risk scoring determined by
one or more of Balance sheet,
P&L or reputational inputs
1 Highly unlikely
<15%
2 Unlikely
15-35%
3 Possible
36-65%
4 Likely
66-85%
5 Highly likely
>85%
LIKELIHOOD
Harworth Group plc Annual Report and Financial Statements 2017 37
Going forward, the Board will review its risk appetite and the overall risk profile of the business annually, in conjunction with its
review of strategy, to ensure that appetite and profile continue to align.
The Board has delegated to the Audit Committee responsibility for periodic, detailed review of the Group Risk Register and the
Group’s internal control systems and procedures. The Audit Committee carries out an interim review of the Group Risk Register in
June and a full review in November each year.
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 interim and
full-year 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.
Finally, alongside the Group Risk Register, our Estates, Environment and Safety (“EES”) team maintains a site risk register, which
continuously monitors the risk status of each of our sites. Material changes in the risk status of our sites are reported to the Board
on a monthly basis and incorporated into the periodic reviews of the Group Risk Register.
Board:
Ultimate responsibility for risk
appetite and management;
annual review of risk appetite
and profile, in conjunction with
strategy review
Executive Committee:
responsible for monitoring
day-to-day risk profile and
ensuring implementation of,
adherence to, and effectiveness
of, internal controls and processes;
detailed review of Group Risk
Register every six months
with recommendation to
the Audit Committee
EES:
Regular site visits and
maintenance of site risk register,
material changes to which are
reported to the Board monthly
and are incorporated in reviews
of the Group Risk Register
Audit Committee:
Interim and full review of Group
Risk Register every six months;
delegated responsibility for
monitoring internal controls and
processes, including overseeing
periodic, external audit of
controls and the need for an
internal audit function
Senior Management Team:
Implementation of internal
controls and processes; review
of operational risks with (and
feedback to) Company
Secretary, to inform
Executive Committee and
Audit Committee review
of Group Risk Register
Key risk management initiatives since the publication of the 2016 Annual Report
•
•
•
•
A further, detailed review of the Board’s risk appetite and the Group’s risk profile leading to refinements to the Group Risk Register.
A further review of the Group’s insurance programme for the 2018 renewal, leading to a change of property and liability insurer, cover
enhancements and material premium savings.
An external review engagement was performed by KPMG LLP (“KPMG”) of selected internal financial controls and of the need for an internal audit
function.
Implementation of: Anti-corruption and Bribery policy, a new business development approvals process and register; and an Anti-facilitation of tax
evasion policy.
Key risk management initiatives identified for implementation and/or progress in 2018
• An external audit of cyber-security resilience and business continuity plan and procedures (second half of 2018).
• Completion of active workstreams to ensure the Group is GDPR compliant before 25 May 2018 (first half of 2018).
• External review and refinement of our whistleblowing policy and procedures (first half of 2018).
• Mandatory training for employees on management of the following issues: modern slavery, bribery and corruption; facilitation of tax evasion and
GDPR (first half of 2018).
• Notification to our existing suppliers of our Supplier Code of Conduct on modern slavery and human trafficking (ongoing).
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Managing Risk
Continued
38 Harworth Group plc Annual Report and Financial Statements 2017
Managing Risk
Continued
Principal risks and uncertainties
The tables below set out the Group’s principal risks and uncertainties, reflecting the detailed review and evolution of the Group
Risk Register referred to on page 36. Each risk category has a current risk status, reflecting residual risk after accounting for
mitigation measures already in place. Some of those measures are listed, together with (where applicable) any further measures
we have identified for implementation over the next 12 months.
The Group is subject to both external and internal risk factors which could have a material effect, both positive and negative,
on the operation and performance of the business. External factors, which are largely outside of the Group’s control, include
macro-economic and political factors. As negotiations continue for the UK’s withdrawal from the EU, the Board expects that the
Group will continue to operate in an uncertain economic and political climate in the short to medium term. Whilst the Group is not
immune to that uncertainty, it is mitigated by the positive economic and consumer trends in our core markets, with the residential,
logistics and manufacturing sectors in the North of England and the Midlands continuing to have solid fundamentals and
favourable performance.
Key
Our estimate of the current level of risk taking
account of controls and mitigation already in place.
Risk is difficult to estimate with accuracy and so
may be more or less than indicated.
Current assessment of anticipated movement
in risk
Link to Strategic Priorities
Summary of the Group’s Risk Profile
Very Low
Low
Medium
High
Very High
Current risk profile
Anticipated movement in risk profile in next 12 months
Increasing
Unchanged
Decreasing
Link to Strategy
Development
Investment
Sectors
Regions
Acquisitions
Gearing
Risk categories
Markets (R1)
Delivery (R2)
Politics (R3)
Finance (R4)
People (R5)
Legal +
Reg’tory (R6)
Governance +
Controls (R7)
Communications
+ S’h M’mnt (R8)
Risk appetite
Risk profile
Expected
change
Note: based on the detailed review of risk appetite and risk profile undertaken by the Board and referred to on page 36.
Turn to page 2 to read about Our strategy
Harworth Group plc Annual Report and Financial Statements 2017 39
R1. Markets
Commentary:
Exposure to largely external factors
A downturn in one or more of the property markets in which we operate, being the residential, logistics and manufacturing
sectors in the North of England and the Midlands, could: limit value gains across our portfolio or, in extreme cases, cause parts
of our portfolio to drop in value; restrict the number of planned sales we make; and/or result in underperformance by our
Income Generation assets.
Those adverse consequences could be exacerbated if our strategy does not evolve to respond to changes in our core markets.
Current risk status:
Strategic priorities potentially impacted:
Anticipated movement in risk:
Mitigation and controls already in place:
• The diversity of our portfolio (sectors and geography) mitigates against a downturn in one of our core markets. Our core
regional markets are typically less volatile than the London and South East markets. The Income Generation portfolio
includes a diversity of income streams which has a similarly mitigating effect.
• Value gains are generally driven more by active management than market movements.
• We build headroom into our sales forecasts by identifying potential alternative sales in the event that planned sales do not
proceed as quickly as anticipated.
• We can control our working capital movements by managing acquisitions and development spend to respond to market
movements. Our cash flow forecasts also provide for a minimum £5m “buffer” throughout the year.
• The Executive Committee monitors, and updates the Board on, prevailing market conditions continuously and keeps the
strategy under review, to ensure that it evolves with market movements.
Further actions to be taken to mitigate and manage risk:
• We are taking steps to widen our geographical footprint, to mitigate against market movements at a regional level.
• Our development plans and projected sales will inform our strategy on acquisitions and masterplans, to ensure we maintain
a balanced mix of commercial and residential sites across our portfolio.
• We will continue to grow and strengthen our recurring income portfolio, through acquisitions, asset management and
targeted direct development, to further improve the sustainability of the business during periods of market downturn.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
40 Harworth Group plc Annual Report and Financial Statements 2017
Managing Risk
Continued
R2. Delivery
Commentary:
Exposure to both external and internal factors
Our ability to generate EPRA NNNAV growth and/or grow our investment returns could be adversely affected by external
factors, such as: a sparsity of attractive, strategic land acquisition opportunities; adverse planning decisions; or market-driven
increases in development costs, or by internal factors, such as poor operational delivery.
Current risk status:
Strategic priorities potentially impacted:
Anticipated movement in risk:
Mitigation and controls already in place for external factors:
• Our dedicated Acquisitions team is now well-established and continues to grow, with a dedicated Technical Manager
recruited into the team during 2017. The Executive Committee regularly reviews strategic priorities and the availability of
capital to ensure the team can focus its time and resources appropriately.
• Our Strategic Land team has a proven track record for promoting schemes through the planning application process.
Success is achieved through careful masterplanning and preparation of applications, alongside tireless stakeholder
management at a local level.
R3. Politics
Commentary:
Largely subject to external factors
Changes in national and/or local government policy, including planning, could impact the Group’s activities.
Current risk status:
Strategic priorities potentially impacted:
Anticipated movement in risk:
(1)
Mitigation and controls already in place:
• The diversity of our portfolio affords a degree of mitigation to adverse political changes which could impact our markets.
• We make representations on our own, alongside partners and in conjunction with key industry bodies, to minimise the
prospect of adverse policy changes being enacted.
• Our Strategic Land team monitors closely the political landscape and climate at a local level where we have current or
prospective planning promotions. This informs our masterplanning and promotion strategy.
• We are proactively engaging with HS2 Limited to minimise the potential impact of the proposed HS2 route on our
Gateway 45 and Lounge sites.
Further actions to be taken to mitigate and manage risk:
• We will input into upcoming Government consultations on land value capture and other policy matters which could affect the
Group’s activities.
(1) The anticipated increase to risk over the next 12 months reflects: (A) Government sentiment and initiatives in relation to land value capture; and (B) the inherent uncertainty in the current political
climate as the Government enters the advanced stages of negotiation on the UK’s departure from the European Union.
Harworth Group plc Annual Report and Financial Statements 2017 41
R4. Finance
Commentary:
Subject to both external and internal factors
It remains our ambition to cover the Group’s operating costs, interest, tax and dividends from ongoing rental and other operating
income. A shortfall in income could impair our ability to maintain activity levels to deliver EPRA NNNAV growth and investment
returns during periods of market downturn. It could also result in an interest cover covenant breach on our revolving credit facility.
We use debt capital, in the form of bank debt, infrastructure loans and a bonding facility, to help fund our activities. If that capital
is temporarily unavailable, or only available at a materially increased cost, that could fetter our ability to grow EPRA NNNAV
and/or investment returns.
Gaps in our insurance programme could lead to an irrecoverable financial loss.
Current risk status:
Strategic priorities potentially impacted:
Anticipated movement in risk:
Mitigation and controls already in place:
• We undertook an equity raise in March 2017 to fund acceleration of our acquisitions pipeline, whilst maintaining our policy of
prudent gearing. At the end of the financial year ended 31 December 2017, our Net Loan to Value was 7.0% or 20.8% when
calculated against the income portfolio.
• We have extended the term of our £75m revolving credit facility with RBS to 13th February 2023 and have increased our
bonding facility from £10m to £15m. We have a £30m fixed rate swap at an all-in-rate of 2.955% (including fees) until
June 2020.
• Since 2014 (when we began to replenish our portfolio) we have spent £33.1m (at 31/12/17) on investment properties,
acquiring £2.99m of rental income to replace wasting income assets such as our coal fines sales and coal mine methane
royalties.
• We have undertaken selective direct development on certain of our sites, both solely and in joint venture, to grow our
recurring income. At the date of this Report, all of our wholly owned direct developments are fully let.
• Our business model has evolved to include planning promotion, construction management, letting promotion and asset
management for third parties. These generate income, although we recognise that they represent variable, rather than
recurring income.
• We appointed a new insurance broker (Marsh) in 2016 and have carried out thorough reviews of our insurance programme
for the 2017 and 2018 renewals, resulting in material improvements in cover.
Further actions to be taken to mitigate and manage risk:
• We have earmarked funding for further income acquisitions in 2018-2020.
• Given the success of our direct development activities in 2017 and the strength of occupational demand at the AMP and
Logistics North, we have commenced construction of further phases of direct development.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
42 Harworth Group plc Annual Report and Financial Statements 2017
Managing Risk
Continued
R5. People
Commentary:
Largely subject to internal factors
We recognise that, alongside our property portfolio, our people are our biggest asset. If we undertake inadequate resourcing
and succession planning or fail to develop and/or retain our people, this will have a severely adverse effect on the performance
of the business and our ambitions for growth.
Current risk status:
Strategic priorities potentially impacted:
Anticipated movement in risk:
Mitigation and controls already in place:
• 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.
• We have recruited five new roles since publication of the 2016 Annual Report to ensure we have capacity to meet the
demands of a growing business and portfolio.
• During 2017 we appointed a new Head of HR and Organisation Development. She has undertaken a comprehensive review
of HR policies and processes, remuneration and our personal development programme and has identified a number of
initiatives for implementation during 2018.
• The ‘Our People’ section of this report on pages 55 to 57 sets out the initiatives we have introduced and intend to implement
to ensure we recruit, retain and develop the right people for the business.
R6. Legal and Regulatory
Subject to both external and internal factors
Commentary:
Given the nature of our operations and certain of our legacy and acquired sites, management: of environmental and health and
safety risks; and regulatory compliance, is a key component of our activities and is afforded very high priority. The Board has
limited appetite for environmental risk and no appetite for health and safety risk. Environmental and/or health and safety
incidents and/or regulatory breaches could result in clean-up costs, financial penalties, liabilities to third parties and/or
reputational damage.
Changes to regulatory and/or licensing regimes could also have an adverse effect on our strategy and/or business model.
Current risk status:
Strategic priorities potentially impacted:
Anticipated movement in risk:
Mitigation and controls already in place:
• Our Estates, Environment and Safety (“EES”) team manage health and safety, and environmental risks on a day-to-day
basis. Page 53 of this report provides an explanation of how we mange and monitor health and safety.
• Our Environmental Manager has completed his Waste Management Industry Training and Advisory Board (“WAMITAB”)
qualification and is now able to manage our waste licences in-house, with assistance from external consultants and contractors
where appropriate. We regularly review, amend and surrender permits as sites mature or activities change.
• We maintain an open dialogue with the Environment Agency (“EA”) in respect of all of our permitted sites. If issues arise, we
take quick and proactive steps to address them, in collaboration with the EA.
Further actions to be taken to mitigate and manage risk:
• A number of workstreams are underway to ensure that we will be compliant with the General Data Protection Regulation
when it comes into force on 25 May 2018.
• Online training (health and safety and management of modern slavery, bribery, facilitation of tax evasion and data protection)
will be rolled out to all staff during 2018.
Harworth Group plc Annual Report and Financial Statements 2017 43
R7. Governance and Internal Controls
Largely subject to internal factors
Commentary:
Deficiencies in our governance measures and/or internal controls and processes (including cyber-security measures) could lead
to inefficiencies, financial underperformance, or even financial loss and/or liability.
Current risk status:
Strategic priorities potentially impacted:
Anticipated movement in risk:
Mitigation and controls already in place:
• Whilst we are a standard listed Company on the London Stock Exchange we comply with the UK Corporate Governance
Code on a comply or explain basis, with explanations for only limited instances of non-compliance in our Annual Report.
The high standards of governance to which we aspire are reflected in the fact that we are in the process of applying to the
UKLA to step up to a Premium Listing.
• Our revised Delegated Authorities Policy, introduced in 2016, is now well established, as are improved Board and Executive
Committee processes and governance measures.
• An external review of some of our internal financial controls was undertaken by KPMG in Q4 of 2017. The results of that
review were reported to the Audit Committee and recommendations for improvements are being implemented.
• We are progressing a number of active workstreams to ensure that we will be compliant with the General Data Protection
Regulation when it comes into force on 25 May 2018.
• Our risk review process, which is led by our Company Secretary, includes regular meetings with the Senior Management
Team at which opportunities to improve internal controls, such as the process for vetting, appointing and/or paying
contractors, are identified. The Audit Committee undertakes a review of the effectiveness of internal controls and
processes annually.
Further actions to be taken to mitigate and manage risk:
• An external cyber-security and business interruption review will be undertaken during 2018.
• Our internal controls and processes are subject to ongoing review, including external audits on an annual basis, to ensure
they remain “fit for purpose” as the business grows and delivers across more and more sites.
R8. Communications and stakeholder management
Subject to both internal and external factors
Commentary:
Working with a broad spectrum of stakeholders is fundamental to our business activities and performance. If we do not
communicate and maintain strong relationships with them this will lead to operational underperformance and, ultimately,
underperformance of our share price.
Current risk status:
Strategic priorities potentially impacted:
Anticipated movement in risk:
Mitigation and controls already in place:
• Communications tracker maintained including bi-weekly review to ensure that our external communications remain timely and
appropriate. This tracker records, where possible, Harworth’s planned activities for the next six months.
• Please see the Harworth and its stakeholders section of this report on pages 46 and 47 for an explanation of the means by
which we identify, engage with, and consider the interests of our stakeholders.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Business continuity assessments
44 Harworth Group plc Annual Report and Financial Statements 2017
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 36 to 43.
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 £8.4m, net debt of £32.3m and a net loan to value of 7.0%. The Group has a £75m revolving credit facility with RBS,
which contains typical financial covenants and now runs until February 2023. At the year end there was headroom of £51.7m on
that facility. It also had infrastructure loans totalling £17.2m. The financial position of the Group, including information on cash flow,
can be found in the Financial Statements on pages 98 to 141. 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
strategy (pages 2 and 3), How we add value (pages 4 and 5), The markets we operate in (page 6) and the Group’s principal risks
and uncertainties (pages 36 to 43).
Viability statement
Viability period and rationale
In accordance with provision C.2.2 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’ statement. The Board conducted this review for a period of five years ending
31 December 2022, 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.
Key assumptions and sensitivity analysis
The five-year strategic review focuses on the expected growth of the business primarily in terms of EPRA NNNAV but also
dividends. The strategic review also considers the Group’s recurring income, cash flows, covenant compliance (particularly
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 sites. Where appropriate, 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.
Principal risks and uncertainties
The principal risks and uncertainties that are considered relate to economic assumptions, income generation variability and
appropriate staffing levels. Principally, these fall within the Markets, Delivery, Politics and People categories of risk identified on
pages 36 to 43. Sensitivity analysis has been applied in terms of income generation, cash flow and EPRA NNNAV 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.
Viability assessment
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.
Harworth Group plc Annual Report and Financial Statements 2017 45
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Our Operations team in action at Thoresby
Harworth and its stakeholders
46 Harworth Group plc Annual Report and Financial Statements 2017
Harworth and its stakeholders
The Board recognises that identifying, engaging with, and understanding the impact of
decisions on the Group’s key stakeholders is fundamental to the long-term sustainability
and success of the business, as well as being a core element of the Directors’ duties under
the Companies Act.
The Group’s key stakeholders can be grouped into ten main categories as shown below. Whilst there are unlikely to be regular,
material changes to the constituency of these stakeholders, they will remain subject to regular review. The Board feels that, overall,
the Group engages proactively with its various stakeholders and considers a broad range of interests when decisions are made, both
strategic and operational, but acknowledges that further work needs to be done to ensure that appropriate levels of engagement are
identified and maintained, and stakeholder interests become an embedded part of Harworth’s decision-making processes.
Our Advisers
We work with a select group of professional advisers
who know our business extremely well. At an
operational level, we work with a small legal panel and
core groups of accountancy firms and property
agencies. At a corporate level, we have spent time
identifying advisers who are the right fit for Harworth
and who have become our trusted advisers. These
include our corporate legal advisers, DLA, our brokers,
Canaccord and Peel Hunt, our communications
advisers, FTI Consulting, our remuneration consultants,
Kepler, and our insurance brokers, Marsh.
Our connections are as much with individuals at those
firms as the firms themselves and have been made at
all levels of our respective businesses, which makes for
lasting relationships. All relationships remain subject to
ongoing reviews.
Our Funders
The Group’s core debt facility is a £75m revolving credit facility
with The Royal Bank of Scotland (RBS), which is complemented
by a suite of public sector infrastructure loans (currently
c.£17.3m) and a flexible bonding facility provided by HCC
Insurance, which facilitates our development activity.
The keys to our funder relationships are transparency (about the
performance of the business) and delivery (against our
covenants and undertakings). As the business, and its
requirement for debt, continue to grow, these relationships will
remain fundamental to maintaining business momentum.
Our Communities, Our Environment,
and Our Responsibilites
See “Operating responsibly” on pages 48 to 54 for further detail.
Our Customers: commercial occupiers and
housebuilders
Our reputation for engagement with existing and prospective
commercial occupiers and housebuilders is fundamental to our
placemaking credentials and ability to monetise the value in our
portfolio and consequently recycle capital.
The maturity of sites such as the AMP and Logistics North and our
track record in delivering direct development for the likes of
McLaren Automotive and Whistl, demonstrate our now established,
but still growing, reputation for working with owner occupiers and
tenants to create development platforms and deliver built space
which is fit for purpose.
We have continued to make residential sales to both new and
repeat housebuilders, evidencing our reputation for delivery and the
increasing strength and breadth of our housebuilder relationships.
As our residential sites mature we are reviewing our estates
management function to ensure that our residential developments
remain attractive places to live. This will include a degree of
engagement with homeowners and occupiers.
Our Contractors and Suppliers
On our wide range of projects we work with a preferred group
of contractors and suppliers who have a track record for
delivery and with whom we have built trusted relationships.
With some we work under an umbrella framework agreement
and with most we work to a suite of precedent documents,
which makes for consistency of approach.
The most important aspects of these relationships are a
collaborative approach, and regular and open dialogue to
ensure that there are few surprises and solutions are identified
and delivered quickly where projects change and develop.
Harworth Group plc Annual Report and Financial Statements 2017 47
Our Public Sector Partners
We have built strong working relationships with local
authorities, in particular their planning and economic
development functions, in working up, securing and
implementing planning consents for our landholdings
across the North of England and the Midlands. This
approach involves early engagement on our initial ideas
for sites to ensure that our plans for each site are consistent
with the economic strategies for, and conditions within, that
particular area.
In addition, public sector funding remains a key part of our
funding strategy and we have used a mixture of public grant
and loan finance to deliver both on- and off-site infrastructure
works to ‘open up’ sites for development and to fund the
construction of new commercial units. This has involved
working with agencies including Homes England (the former
Homes & Communities Agency) and a number of regional
Local Enterprise Partnerships, in addition to local authorities.
Finally, we continue to make regular contributions to public
policy consultations run by both Central and Local
Government, ranging from the National Planning Policy
Framework through to key infrastructure projects such as HS2.
Our People
See pages 55 to 57 for detail.
Our Shareholders
We continue to benefit from a loyal and supportive shareholder
base, some of whom have held the Company’s shares since
Harworth Estates became a standalone business, and
indeed before.
The Board recognises the importance of open and regular
communications with Shareholders. To that end, we have made a
concerted effort over the last 12 months to explain better how the
Group creates value from its portfolio. This effort has included a
Capital Markets Morning in January 2017, an improved articulation
of the business model in investor communications and a marked
increase in the regularity of our RNS and RNS Reach
announcements. Towards the end of 2017, we also engaged FTI
Consulting to help improve our investor communications and
relations approach. This has already led to a more structured
investor relations and communications timetable, which will
include a briefing and site visits for institutional Shareholders and
analysts planned for June of this year.
The Group benefits from there being representatives on the
Board from its two largest shareholders: the Peel Group and the
Pension Protection Fund (“PPF”). Steven Underwood (Peel
Group) and Martyn Bowes (PPF) provide an ongoing shareholder
perspective on key strategic and operational decisions. The
Board ensures that it remains attuned to the views of its other
major investors, via regular reports and feedback collated by,
and briefings from, its brokers, as well as market expectations via
analyst research notes.
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Our Joint Venture Partners
We have four principal joint venture partners to help
deliver a number of our schemes:
•
Evans Properties, our partner at Gateway 45
in Leeds;
Dransfield Properties, with whom we are bringing
forward the local centre at our flagship Waverley site;
LCPF, with whom we partner on the Multiply scheme
at Logistics North in Bolton; and
M&G Real Estate, our forward funding partner on the
LN225 and LN175 units at Logistics North.
These ventures are only successful because of the
collaborative relationships we have established with our
partners. There are three key principles to this approach:
utilising our complementary skill sets in delivering
•
initiatives;
maintaining open and regular dialogue to ensure
interests remain aligned; and
setting clear milestones for delivery and creating a
track record of achievement.
•
•
Regulatory Bodies
We recognise how important it is that the Environment Agency (“EA”)
and Health and Safety Executive (“HSE”), the two regulatory bodies
with whom we deal most, have confidence in the way we undertake
our activities.
We maintain an open dialogue with the EA in relation to all of our
permitted sites, both at local and central levels. We are proactive in
reporting monitoring results to the EA and work closely with it to
review, amend and surrender permits when sites mature or activities
change, and to address issues quickly if they arise.
On the rare occasions that incidents occur at our sites, we are quick
to liaise with the HSE, typically on a precautionary basis.
Operating responsibly
48 Harworth Group plc Annual Report and Financial Statements 2017
Operating responsibly
Harworth takes its responsibilities as a socially aware and responsible
regeneration company extremely seriously. We are proud that our developments have
helped to bring new life to former industrial areas, whilst also being able to support a
number of key community initiatives that have an effect beyond our day-to-day work.
Acting responsibly in making this difference, both through minimising the
environmental effect of our work, and in working safely and with appropriate regard
to our legal responsibilities, also forms a critical part of being socially responsible in
what we deliver day-to-day. This section explains how we deliver this in practice.
With sites in eleven Local Enterprise Partnership (“LEP”) areas
across the North and Midlands (including residential sites in
six LEP areas), Harworth can contribute to delivering these
economic growth ambitions through development of
commercial floorspace, residential properties and low carbon
energy, supporting the LEPs as they seek to meet their
economic objectives and generate lasting change for
communities. Economic consultancy Ekosgen has estimated
that Harworth’s portfolio of sites has the potential to
accommodate 59,000 jobs that would generate c.£2.9bn of
Gross Value Added per annum when fully built out and
occupied. Harworth’s landholding also has the potential to
deliver more than 18,000 new homes. This potential is
significant in supporting the delivery of sustainable new
developments to improve the quality of life for people in the
North of England and the Midlands.
On a day-to-day basis, our work in local communities has also
meant that we have been able to support a number of
important social causes to extend the impact of what we do.
The three case studies from 2017 shown within this section
provide a snapshot of the sort of projects we support in the
North of England and the Midlands.
Our communities
In its work over the past decade, Harworth has helped to
deliver thousands of new jobs and homes on its land
across the North of England and the Midlands. In the case
of Waverley and Logistics North, these are leading
examples of regeneration in the North of England,
replacing many times over the jobs that were lost when
mining ended.
Using our land and property experience to deliver future
schemes in the same vein as Waverley and Logistics North is
essential in both regenerating former industrial areas and in
supporting the growth of UK plc. The recently published
Industrial Strategy White Paper sets out a long-term plan for the
rebalancing and growth of the national economy, building on
national strengths and helping to deliver a highly skilled,
competitive economy for the UK. Together with strategies to
deliver the ‘Northern Powerhouse’ and the ‘Midlands Engine’,
these provide the context to secure a step change in
investment and growth across the North and Midlands. The
provision of new commercial land and property to facilitate new
inward investment and indigenous growth has an extremely
important role to play.
Housing also has an important role to play in creating the
conditions for economic and productivity growth. This is
highlighted in the Industrial Strategy, with £11.6bn of investment
focused on housing through the National Productivity
Investment Fund. Building a sufficient number of high quality
houses to meet the needs of the economy is vital in order to
attract and retain skilled workers and support economic growth
across the North and the Midlands. Whilst the number of
completions has been increasing, further growth is required to
meet demand and address the shortfall in supply which has
worsened following the drop in house building in many areas
since the financial crisis.
Harworth Group plc Annual Report and Financial Statements 2017 49
Case study 1
City of Trees programme:
Supporting environmental change across
Wigan and Bolton
Starting in December 2017, we were
involved in ‘digging deep’ for environmental
charity City of Trees – a charity aiming
to regenerate the landscape of Greater
Manchester by planting trees in unused
and unloved areas. This work followed the
planting of 30,000 trees with the City of
Trees at Logistics North in 2015 as part of
the creation of its 550-acre Country Park.
Throughout the month, Harworth planted hundreds of trees
and volunteered many hours of staff time to the cause, working
in conjunction with the charity by planting trees within their
Smithhills project at Lady Mabels Wood – a former colliery in
Bickershaw on the Wigan-Bolton border.
Not only did this partnership with City of Trees aim to convert
the neglected site into a new country park, transforming the
quality of life for both the residents and the environment, we
also worked in conjunction with three primary schools in Bolton
on this project. To give back to the communities in which we
work, we feel it is important to educate schools about the small
but powerful efforts they can make themselves in preserving
woodlands, whilst involving them in the hands-on planting of
the trees.
Country Park at Logistics North, December 2017
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 50 Harworth Group plc Annual Report and Financial Statements 2017
Case study 2
Urban Outreach at Logistics North:
Giving something back over Christmas
Over the Christmas period, Harworth and
the LCPF helped to spread a bit of festive
cheer by offering the use of one of the
newly built ‘Multiply’ units at our Logistics
North site in Bolton to local charity Urban
Outreach free of charge. The use of this
large working space served as a distribution
headquarters to Urban Outreach Chief
Executive Dave Bagley and his army of 100+
volunteers to pack and distribute several
hundred hampers to families across Bolton
who would otherwise have struggled to put
food on the table for Christmas.
The charity had already packed some goods at Central Baptist
Church but it needed a base for finishing its mammoth packing
feat and preparing the hampers for distribution. Over 1,000
hampers were distributed in a single day.
Leader of Bolton Council, Cllr Cliff Morris, said: “This is the best
of Bolton coming together to help people in need and it shows
true Christmas spirit. We were contacted by Dave to see if we
could help the charity with a base and it is fantastic that
Harworth and the Lancashire County Pension Fund responded
so quickly and offered a solution.”
Mr Bagley said: “This is how Bolton rolls and the use of the unit
makes it much easier to plan our deliveries. 2017 is proving to
be the biggest year ever – 2,050 children along with over 2,060
adults will have an incredible Christmas thanks to everyone’s
combined efforts.”
Christmas hamper packing at Logistics North, December 2017
Harworth Group plc Annual Report and Financial Statements 2017 51
Case study 3
Active Towns programme at Waverley:
Encouraging greater physical activity through
estate-based intervention
Starting in September 2017, Harworth
has established an innovative partnership
with Sheffield Hallam University, in which
a team of experts and academics with
Health and Sport backgrounds are working
collaboratively with Harworth to construct
an ‘active environment’ prototype at our
Waverley development in Rotherham.
After a funding boost of almost £30,000 from Innovate UK,
the project has been designed to prioritise the views of local
communities. It is prepared to work on ideas that are put
forward by residents and employees for using the site to
encourage people to become more active, including the wider
use of Waverley’s 7km perimeter trails and the installation of
new community gardens. Earlier this year, the University’s
Advanced Wellbeing Research Centre (“AWRC”) and Outdoor
Recreational Research Group received £50,000 from the
Higher Education Innovation Fund to begin this new
partnership.
Residents believe that more parks and community orientated
spaces, fitness opportunities and an increase in child friendly
play spaces are key to future development. Additionally, AMP
employees are keen to see the site become increasingly walk
and cycle friendly. Harworth and Sheffield Hallam University
will be testing a range of ideas in the first half of 2018 to
encourage workers and residents to become more active.
The proposed project coincides with the AWRC’s aims to
create innovations that will improve the nation’s health, tackling
key challenges such as static levels of physical activity, mental
health and rising obesity. The main aim of this project is to
create a new environment which makes a positive impact on
one of the key challenges within modern society.
Public open space at Waverley, December 2017
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Operating responsibly
Continued
52 Harworth Group plc Annual Report and Financial Statements 2017
Operating responsibly
Continued
Our environment
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 recycling value from materials that can be recycled for uses
elsewhere. In addition, we consistently aim to reduce our
environmental impact as a business through active resource
management and waste minimisation. This section explains how
we minimise our environmental impact across all of our
operations as one of the UK’s leading regeneration companies.
Redeveloping sites in a responsible manner
In bringing forward sites for redevelopment – whether for
residential, commercial or low-carbon uses – we apply five key
principles in reducing our environmental impact across our estate.
1) 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.
2) 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.
3) 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.
4) 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 1.1m tonnes of coal slurry to power station
operators to produce electricity between 2011 and 2017 –
a material previously considered as waste.
5) 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 where we are working. 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.
Reducing greenhouse gas emissions from our
operations
Harworth also 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 2016 Annual Report that we were aiming to
improve performance in 2017 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 implemented a number of
actions to reduce fuel consumed per employee and electricity
consumption across our estate:
• Smart Working where staff have organised their diaries
to reduce business miles, with CO2e per employee
reducing; and
•
Isolating the electricity supply to buildings which are
unoccupied, ensuring lighting or heating cannot be
accidentally left on.
Although we were able to reduce yellow plant journeys on sites
we previously worked on in 2016, we increased the number of
sites where we operated yellow plant – both in the Major
Developments we are bringing forward and the number of sites
where we are recovering coal fines as part of the site restoration
process. As a result, the overall amount of gas oil used in plant
did increase in 2017.
This statement outlines the greenhouse gas emissions arising
from Harworth’s activities for 2017 and it follows the
Environmental Reporting Guidelines set by the Department for
Environment, Food and Rural Affairs.
Harworth Group plc Annual Report and Financial Statements 2017 53
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
Scope 3
Electricity (non-rechargeable) usage on
Harworth sites.
Emission source
Tonnes of
CO2e
(2017)
Tonnes of
CO2e
(2016)
Ratio
(2017)
Ratio
(2016)
Scope 1
Scope 2
Scope 3
Fuel for staff vehicles
Gas oil used in plant
Electricity usage
254 4.8:11
1,848 308:12
632 37.2:13
243
4.8:1
1,326 265:1
639 42.6:1
Total
Notes:
2,734
2,208
Ratios are calculated against the following quantifiable factors:
1 Average employee numbers (2017: 53, 2016: 51)
2 Number of sites where gas oil is used in plant (2017: 6, 2016: 5)
3 Number of business parks that we operate (2017: 17, 2016: 15)
We aim to improve performance further in 2018 by taking
forward the following actions on our sites:
• Continue the smart working programme where staff plan
efficiently to reduce their business miles;
• Ensure all newly acquired properties are run as cost
effectively as possible; and
• Continue using well maintained yellow plant and periodically
reviewing operational techniques.
Our responsibilities
In addition to being responsible in our operations, Harworth is
also committed to being a responsible employer as part of its
role as an employer of choice. This includes appropriately
developing and supporting its staff (as described in ‘Our
People’ from page 55), alongside working safely and fully
complying with all relevant aspects of UK law as this section
explains.
Health and safety
Health and safety has an extremely high profile in our business.
Day-to-day review and management rests with our EES team,
led by our Associate Director of EES. With effect from the start
of 2018, the EES team reports to our Company Secretary, who
has a wider responsibility for risk, compliance and governance.
Our Chief Executive has ultimate responsibility for all health and
safety matters.
Our EES team ensures that health and safety is embedded into
all of our activities. The team hosted a mandatory safety
training day for all employees in July 2017. Our 2018 initiatives
will include mandatory health and safety training in the form of
online tuition and testing carried out by a third party provider.
There is also targeted training for certain employees, such as
training on CDM and asbestos which was delivered to our
Major Developments and Operations teams in the first quarter
of 2018.
Harworth’s SHEMS is based on the Plan, Do, Check and Act
model advocated by the 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. At the date of this Report, there were no “high risk”
sites in the site risk register. Material risk movements in our site
risk register are fed into the bi-annual review of the Group Risk
Register.
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 ten 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 or indeed any contractors working on Harworth sites
during the year.
Since publication of the 2016 Annual Report, we have
increased our engagement of JPW Consultancy Limited
(“JPW”), an external health and safety consultant, to advise on
health and safety issues across the business. JPW focuses
on health and safety at our Major Development sites, including
management of consortium meetings between Harworth
and stakeholders at these sites, such as contractors and
local authorities.
In terms of monitoring health and safety across our portfolio:
• Meetings are held between our Company Secretary and the
EES team monthly, following which our Associate Director
of EES reports to both our Executive Committee and
the Board;
• Reference is always made to health and safety in the Chief
Executive’s monthly overview and update to the Board;
• There are quarterly safety meetings hosted by our
Associate Director of EES, attended by the Executive
Committee and employees from a cross-section of the
business; and
• Our Associate Director of EES 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.
Tackling modern slavery, bribery and corruption
and facilitation of tax evasion
We are committed to having in place practices to safeguard
respect for human rights, to combat slavery and human
trafficking in our business and those of third party contractors,
to ensure that no corruption or bribery takes place in our
business or supply chain and to ensure that our employees do
not deliberately or inadvertently act in such a way as to facilitate
tax evasion.
In June 2017, the Company published its first Modern Slavery
Statement, a copy of which appears on our website at
www.harworthgroup.com/investors/reports-presentations/.
The Company will publish its second Modern Slavery
Statement before the end of June 2018, which will reflect the
progress that has been made on the workstreams identified in
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
54 Harworth Group plc Annual Report and Financial Statements 2017
General data protection regulations (GDPR)
We do not hold extensive amounts of personal data, but
recognise the importance of protecting the data that we do
control. A number of workstreams are being undertaken to
ensure that the Group will be compliant with the General Data
Protection Regulation when it comes into force on 25 May
2018. Those workstreams include: an internal audit and
“mapping” exercise of personal data; the creation of a
“Personal Data Master Record” which will be subject to regular
review; changes to our employee terms and conditions; the
implementation of a new data protection policy, with
accompanying operational guidelines, such as for handling
data subject rights; new fair-collection (privacy) notices; data
processing terms and conditions for third parties with whom
we share data; and a suite of training materials. Our retained
corporate lawyers, DLA, are advising on and assisting with a
number of these workstreams.
Operating responsibly
Continued
the 2017 statement. In terms of progress to date, we can report
that: (A) our Company Secretary has instructed one of the
Group’s legal panel firms, Gateley plc (“Gateleys”) to prepare
and deliver training on tackling modern slavery and human
trafficking and we expect that training to be conducted in the
second or third quarters of 2018; (B) all new suppliers have
committed to complying with our Supplier Code of Conduct
on anti-slavery and human trafficking; (C) we have notified
145 of our existing suppliers of our expectation that they will
comply with our Supplier Code of Conduct and demonstrate
zero-tolerance of modern slavery and human trafficking; and
(D) the review of, and updates to, our suite of construction
agreement precedents, which has been facilitated by one of
our legal panel firms, will be completed shortly and those
updated precedents impose obligations on our contractors and
consultants in relation to anti-slavery and human trafficking.
Since publication of the 2016 Annual Report, the following new
policies have been introduced:
• Anti-Corruption and Bribery;
• Gifts, Donations, Sponsorship and Hospitality; and
• Anti-facilitation of tax evasion.
All employees have been made aware of these new policies.
They are available on the Group’s shared drive and
reminders are sent to employees periodically. Our policies
on anti-corruption and bribery and anti-facilitation of
tax evasion are also published on our website.
The Gifts, Donations, Sponsorship and Hospitality policy
introduces a more robust regime for the approval of business
development activity at all levels of the business and a register
of all activity. That register is monitored by the Company
Secretary on a regular basis and will be reviewed by the Audit
Committee on an annual basis.
Our People
Our People
Harworth Group plc Annual Report and Financial Statements 2017 55
The Harworth team is a small but growing team of dedicated and experienced professionals
who continue to drive consistent returns from our strategic land and investment property
portfolio, demonstrated by the extent to which value gains are driven by active management
of the Group’s assets. It is critical to the Group’s continued performance and growth
ambitions that we recruit, retain and develop the right people. We can only achieve that if
we engage with 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 6 to the financial statements.
Employee engagement
The Board recognises the importance of engaging with
employees and considering the interests of employees when
making decisions. Whilst there is already some engagement
between the Board and wider Harworth team, such as site
visits hosted by our operational teams, the Board is keen to
improve the level of engagement, both informally and formally.
One of the most important aspects of our employee
engagement strategy is our newly formed People Steering
Group, which we established in the first half of 2018. It
comprises a group of eight employees from different teams
across the business, with a variety of groups represented by
an appropriate mix of people, based on (amongst other things)
length of service, experience and gender.
The purpose of The People Steering Group is twofold. From
an operational perspective, it will take a lead in identifying and
developing a “people agenda” and in proposing and
implementing initiatives to drive that agenda. The group will,
for example, help to formulate an agenda and format for our
annual staff conference. The group will also be a forum for
engagement between the Board and employees. It met with
two of our Non-Executive Directors in March 2018, with the
intention that similar meetings will be repeated periodically, so
that the Board remains briefed and familiar with the views and
concerns of employees.
Our annual staff survey is now into its third year, covering a
range of themes including communication, development,
morale and motivation. Once again there was a high
completion rate, with 98% of employees responding to the
survey, up from 96% in 2016. This reflects the fact that the
annual survey is a meaningful exercise with feedback driving
tangible initiatives. In 2017, in response to feedback from the
2016 survey, we:
•
•
•
focussed on promoting entrepreneurship at our annual staff
conference;
introduced communications breakfasts for all employees,
hosted by our teams on a rolling basis so that thought
leadership and case studies can be shared;
introduced “CEO breakfasts” giving every employee (in
small groups) an opportunity to share their thoughts on a
range of topics with our Chief Executive; and
•
ran a time management course for some of our employees
(and will roll this out for all employees in 2018).
We have identified further initiatives from the 2017 survey
results and are looking to implement those during 2018,
including a continued focus on time and capacity management.
In addition to the new initiatives identified above, we have
continued to use the Harworth newsletter, annual staff
conference and post results employee roadshows to cascade
information to our teams. This is a priority for the business, to
mitigate against any risk of a “silo effect” as the business, and
our teams, grow.
Our culture
We believe we have a positive working culture at Harworth,
based on the results of our employee survey over the last three
years and the fact that we were identified by Property Week in
February 2018 as one of the 50 Best Places to Work in
Property. However, until we formally identify the fundamentals
of our culture and values, it is difficult for the Board and
Executive Committee to ensure that they are preserved and
promoted across the business. With that objective, over the
next 12 to 18 months, our newly appointed Head of HR and
Organisation Development will lead a collaborative process
with our employees to identify what makes Harworth a good
place to work, with a view to defining better our positive culture
and values so that we can use it as a framework for behaviour
and decision-making across all aspects of the business.
Recruitment, retention and development
Reflecting the momentum in, and continued growth of, the
business, we have recruited five new roles since publication of
our 2016 Annual Report into our Acquisitions, Strategic Land,
Major Developments, Finance and Business Support teams.
All of our employees have undertaken an externally facilitated
personality profile exercise, which helps us to understand the
dynamics of our teams and informs our recruitment of new
employees and our plans for CPD of existing team members.
During 2017 we overhauled our appraisal process so that all
employees will now have bi-annual performance reviews.
In 2017, a significant number of our employees attended
external training courses. This included a second wave of
employees who completed an external leadership programme,
comprising six modules. A third wave will start the course
shortly. Two of our employees continue to work towards
professional qualifications and we continue to provide financial
support to a number of our employees in renewing their
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Our People
Continued
56 Harworth Group plc Annual Report and Financial Statements 2017
Our People
Continued
Harworth’s team for Tour de Yorkshire Sportive
memberships of professional bodies, both in terms of ongoing
CPD requirements and renewal fees.
External coaching continues to be available to our Executive
Committee and Senior Management Team and we encourage
them all to use this resource from time to time.
There were three strategic promotions at the end of 2017,
including one promotion to our Senior Management Team.
This reflects the growing experience and strength in depth of
our teams.
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.
Bonuses for all employees are awarded, in part, for
performance against Group Financial Targets, which are
aligned with the Group’s strategy for long-term, sustainable
growth and applied consistently across the Group. In 2017,
these targets were based on NNNAV gains, sales volume,
acquisitions and profit excluding value gains.
During 2017, the first awards were made to our Senior
Management Team under the newly established Senior
Management Deferred Share Bonus Plan. A second set of
awards were made earlier this month. The performance
measures for these awards mirror aspects of the Executive
Committee long-term incentive plan, incentivising and
rewarding our Senior Management 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 also established the Harworth Group Save As You Earn
scheme, which gives employees an opportunity (annually) 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 the
SAYE Scheme as a tangible way in which our employees can
share in, as well as contribute to, the Group’s success.
Whilst offering an appropriate remuneration package for our
employees will always be a priority, recognition is important too.
During 2017, we have put greater emphasis on celebrating
successes, such as at our staff conference, quarterly breakfast
briefings and employee roadshows and in our newsletter.
Diversity And Equal Opportunities
Like much of the real estate and construction sectors, we have
a significant challenge to become the gender balanced
business we want to be. We are working hard to achieve that
objective but recognise that it will take time. The analysis over
the page demonstrates the gender imbalance across the
Harworth team, particularly amongst the Board, Executive
Committee and Senior Management Team (figures in brackets
denote the position at the date our 2016 Annual Report was
published). We are also mindful that there are no individuals
from an ethnic minority background working at Harworth.
Harworth has a diversity policy which provides that we are
“committed to providing equal opportunities… avoiding
unlawful discrimination in employment… and ensuring 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”. However, given the extent of the diversity challenge
Harworth Group plc Annual Report and Financial Statements 2017 57
facing the Group, the Board acknowledges the need for a more
progressive policy, which must underpin proactive initiatives.
To that end, as part of a wider review of employment terms and
policies Gateleys has undertaken a review of our diversity
policy and will be helping us to refine the policy in 2018.
Notwithstanding the need for improvements to the Group’s
diversity policy, there are already some initiatives in place
designed to ensure that opportunities for recruitment,
development and promotion are available to all and to promote
both gender and ethnic diversity in the business:
•
towards the end of 2016, the Remuneration Committee
approved enhancements to the Group’s maternity, paternity
and adoption pay policy;
• eight of our employees work part-time, whether that be a
reduced number of days or reduced hours every day,
including two members of our Senior Management Team,
and employees have the opportunity to work flexibly; and
•
we have tasked our recruitment consultants with presenting
candidate “long-lists” with a gender balance and one or
more individuals of an ethnic minority background,
wherever possible.
Board
Executive Committee
7/1
(7/1)
Male
Female
6/0
(6/0)
Senior Management Team
All employees
18/2
(18/1)
42/15
(40/12)
Some progress has been made since publication of the 2016
Annual Report. Of the five new roles for which the Group
recruited, a majority (4) were filled by female candidates.
However, there has been recruitment for two replacement roles
in that period, one of which was vacated by a female and filled
by a male. There were three promotions during the year. Two of
those were junior promotions of male employees. The third was
a promotion of a female employee to the Senior Management
Team. It is important to note that, whilst the Group’s desire to
improve diversity will be a consideration in decisions on
recruitment and promotion, selections will continue to be made
based on merit and ability.
Whilst Harworth is not obliged to publish gender pay gap
analysis, we are keen to be transparent about the extent of the
diversity challenge we face. To that end, the Board has decided
to undertake gender pay gap analysis and report on it
voluntarily. The results of that analysis appear below:
Gender pay gap
Mean gender pay gap
Median gender pay gap
Mean bonus gender pay gap
Median bonus gender pay gap
50%
46%
85%
75%
Proportion of men and women in each
quartile band
Males
Female
Lower
64%
36%
Lower
middle
69%
31%
Upper
middle
100%
0%
Upper
90%
10%
We believe that our gender pay gap is more a function of
historic trends across the property and construction sectors
than reflective of a “Harworth” approach. These figures reflect
the fact that, historically, men have held the vast majority of the
most senior jobs in the property, construction and mining
sectors and, as such, our gender imbalance is particularly stark
at the Executive Committee and Senior Management Team
levels. We are making efforts to address this, but the fact we
operate with a small team, with limited turnover (itself a positive)
means that it will take time to address current imbalances.
Whilst Harworth has a long way to go in improving diversity
across its business, we have long been, and remain,
committed to creating a working environment that is free from
discrimination, harassment and victimisation, where everyone
feels valued and respected. This approach includes:
• promoting equality and fairness for all in our employment;
• making reasonable adjustments for disabled employees
and giving full and fair consideration to disabled applicants
for roles in our business; and
• providing equal opportunities for CPD and promotion within
our business to any disabled employees.
The strategic report is approved by the Board and signed on its
behalf by:
Owen Michaelson
Chief Executive
24 April 2018
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Corporate Governance
58 Harworth Group plc Annual Report and Financial Statements 2017
Corporate Governance
60 Board of Directors and Company Secretary
62 Former Chairman’s introduction
64 Statement of Corporate Governance
72 Directors’ remuneration report
86 Audit Committee report
90 Nomination Committee report
92 Directors’ report
97 Statement of Directors’ responsibilities
Harworth Group plc Annual Report and Financial Statements 2017 59
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
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I
F
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Board of Directors and Company Secretary
60 Harworth Group plc Annual Report and Financial Statements 2017
Board of Directors and Company Secretary
Jonson Cox
Former Chairman*
Alastair Lyons
Chairman*
Owen Michaelson
Chief Executive
Andrew Kirkman
Finance Director
Lisa Clement
Senior Independent Director
Anthony Donnelly
Andrew Cunningham
Steven Underwood
Martyn Bowes
Chris Birch
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Group General Counsel and
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 May 2017.
Stepped down as Chairman and
Chair of the Nomination
Committee on 6 March 2018
(replaced by Alastair Lyons).
Resigned as a Non-Executive
Director on 31 March 2018.
Length of service
7 years 5 months (to
31 March 2018)
N R
Term of office
Joined the Board on 7 March
2018.
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 May 2017.
Term of office
Joined the Board on 1 January
2016. Last re-elected in May
2017.
R N
Term of office
Joined the Board on
15 December 2011. Last
re-elected in May 2017.
Chair of the Remuneration
Committee and Senior
Independent Director.
Length of service
2 months
Length of service
3 years 2 months (7 years
9 months including appointment
to HEPGL and Harworth Estates
division of UK Coal)
Length of service
2 years 4 months
Length of service
6 years 5 months
Length of service
Length of service
3 years 2 months (7 years
2 years
Length of service
7 years 9 months
R A
Term of office
A N
Term of office
R A
Term of office
Term of office
Term of office
Joined the Board on 24 March
Joined the Board on 26 April
Joined the Board on 2 August
Joined the Board on 24 March
Appointed on 6 June 2016.
2015 having previously been a
2016. Elected in May 2017.
2010. Last re-elected in May
2015 having previously been a
Non-Executive Director of HEPGL
Chair of the Audit Committee.
2017.
Company Secretary
from 10 December 2012 and a
Director of the Harworth Estates
division of UK Coal from
January 2011. Last re-elected in
May 2017.
4 months including appointment
to HEPGL and Harworth Estates
division of UK Coal)
Non-Executive Director of HEPGL
from 19 March 2013. Last
re-elected in May 2017.
Length of service
3 years 2 months (5 years
2 months including appointment
to HEPGL)
Independent
No
Independent
Yes
Independent
No
Independent
No
Independent
Yes
Independent
Yes
Independent
Yes
Independent
Independent
No, representative of the
No, representative of the PPF
Peel Group
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
through its 2012 restructuring.
He served as Non-Executive
Chairman following the
restructuring and led the
Company through its 2015
acquisition of Harworth Estates.
External appointments
Chairman of Water Services
Regulation Authority (Ofwat) and
the Cory Group. Advisor to I
Squared Capital LLP. Director of
Viridian Holdings Ltd and
Stonebrook Associates Ltd.
Skills and experience
Alastair is Non-Executive
Chairman of Welsh Water and
Deputy Chairman of Bovis
Homes Group PLC (but will retire
from the latter role in May 2018).
He was Non-Executive Chairman
of Admiral Group plc from 2000
to 2017 and of Serco Group plc
and Towergate Insurance until
June 2015. Previously in his
executive career, Alastair was
Chief Executive of the National
Provident Institution and the
National and Provincial Building
Society, Managing Director of the
Insurance Division of Abbey
National plc and Director of
Corporate Projects at National
Westminster Bank plc. He has
a broad base of business
experience with a particular focus
on mortgage lending and
insurance industries. He was
awarded the CBE in 2001 for
services to social security having
served as a non-executive
director of the Department for
Work and Pensions and the
Department of Social Security.
External appointments
Chairman of Welsh Water (Dwr
Cymru) and Deputy Chairman of
Bovis Homes Group PLC (but will
retire from his role at Bovis
Homes at its next AGM in
May 2018).
Skills and experience
Owen has more than 26 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 former UK
Coal 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
Skills and experience
Skills and experience
Skills and experience
Skills and experience
After early finance roles with
Andrew graduated from
Steven is Chief Executive of the
Martyn originally trained as an
Chris graduated from Sheffield
Scottish and Newcastle
Cambridge University and then
Peel Group of companies and
accountant and as a banker.
University in 2003 with a first
Breweries from 1986, Anthony
trained as a chartered accountant
brings to the Board the extensive
He has spent the majority of his
class LLB and a distinction in the
joined Morrison Homes Limited
with Deloitte Haskins and Sells
experience of the Peel Group in
career in banking, most recently
Legal Practice Course. He joined
(a predecessor firm of PwC).
brownfield land remediation and
from 2001 to 2007 with Barclays
Eversheds LLP, where he
as Finance Director in 1990.
In 2000 he was appointed
Managing Director of
In 1989 he was made a corporate
regeneration.
finance and audit partner. In 1996
Scotland-based AWG Property
he was appointed Finance
Limited and was subsequently
Director of Grainger plc, which
appointed Chairman. He has
was to become the UK’s largest
consequently overseen the
listed residential investor, and
workout and extraction of value
then Chief Executive in 2009.
from an extensive commercial
He retired from Grainger plc at
and residential property portfolio
the end of 2015. Andrew is a
across the UK and Ireland and its
Fellow of the Institute of
transformation into a strategic
Chartered Accountants and of
and income generating portfolio.
the Royal Institution of Chartered
Surveyors.
Capital as Managing Director,
qualified as a solicitor in 2005 and
Real Estate Finance. Since
spent 12 years as a corporate
leaving Barclays he has pursued
restructuring lawyer, before
a portfolio business career, which
joining Harworth as Group
in 2012 involved a takeover with
General Counsel and Company
fellow Directors of the South of
Secretary in June 2016.
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.
External appointments
Board member for Sheffield City
Region Local Enterprise
Partnership.
External appointments
None.
External appointments
Director of Everything But The
Cow Limited.
External appointments
External appointments
External appointments
External appointments
External appointments
Director of various private limited
The Banks Group Limited,
Alternate Director of Intu
Director of multiple private limited
None.
companies in the AWG Group.
Cussins Limited, and Cussins
Properties plc. Director of multiple
companies in the Welbeck Land
(North East) Limited.
private limited companies, mostly
Group. Non-Executive Director at
Commissioner at The Port of
connected to the Peel Group.
Clouston Group and Conger
Blyth.
Finance Limited.
* On 7 March 2018, Alastair Lyons was appointed Non-Executive Chairman in place of Jonson Cox. On 31 March 2018, Jonson Cox resigned as a Non-Executive Director.
15 November 2010 as Executive
2018.
2015 having previously been
2016. Last re-elected in May
Joined the Board on 7 March
Joined the Board on 24 March
Joined the Board on 1 January
Joined the Board on
Term of office
Term of office
Owen Michaelson
Chief Executive
Andrew Kirkman
Finance Director
Lisa Clement
Senior Independent Director
Chief Executive of HEPGL from
2017.
28 September 2012 and of the
Harworth Estates division of UK
Coal since August 2010. Last
re-elected in May 2017.
R N
Term of office
15 December 2011. Last
re-elected in May 2017.
Chair of the Remuneration
Committee and Senior
Independent Director.
Alastair Lyons
Chairman*
N R
Term of office
Jonson Cox
Former Chairman*
N R
Term of office
Joined the Board on
Chairman. Non-Executive
Chairman since December 2012.
Last re-elected in May 2017.
Stepped down as Chairman and
Chair of the Nomination
Committee on 6 March 2018
(replaced by Alastair Lyons).
Resigned as a Non-Executive
Director on 31 March 2018.
Length of service
7 years 5 months (to
31 March 2018)
Length of service
2 months
Length of service
2 years 4 months
Length of service
6 years 5 months
Length of service
3 years 2 months (7 years
9 months including appointment
to HEPGL and Harworth Estates
division of UK Coal)
Harworth Group plc Annual Report and Financial Statements 2017 61
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
Anthony Donnelly
Andrew Cunningham
Steven Underwood
Martyn Bowes
Chris Birch
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
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
May 2017.
Length of service
3 years 2 months (7 years
4 months including appointment
to HEPGL and Harworth Estates
division of UK Coal)
A N
Term of office
Joined the Board on 26 April
2016. Elected in May 2017.
Chair of the Audit Committee.
R A
Term of office
Joined the Board on 2 August
2010. Last re-elected in May
2017.
Length of service
2 years
Length of service
7 years 9 months
Independent
No
Independent
Yes
Independent
No
Independent
No
Independent
Yes
Independent
Yes
Independent
Yes
Skills and experience
Skills and experience
Skills and experience
Skills and experience
Skills and experience
Jonson’s early career was with
Alastair is Non-Executive
Owen has more than 26 years’
Prior to joining Harworth, Andrew
Lisa was formerly Chief Financial
Royal Dutch Shell and Kelda
Chairman of Welsh Water and
experience in the remediation of
was Finance Director of Viridor,
Officer of Sea Containers
Group. He joined Anglian Water
Deputy Chairman of Bovis
brownfield land and has held
the recycling and renewable
Limited, Managing Director of
as Chief Executive from 2004
Homes Group PLC (but will retire
executive roles at the Peel Group,
energy subsidiary of Pennon
Capita Learning and
until 2010. He was a
Non-Executive Director of
Wincanton plc from 2005 to
from the latter role in May 2018).
Black Country Properties and
Group plc, for five years. He has
Development and has held senior
He was Non-Executive Chairman
Viridor. Prior to becoming the
also previously held a number of
divisional roles at Cendant Inc
of Admiral Group plc from 2000
Chief Executive of Harworth
other senior finance roles,
and BPP Holdings plc.
2014. In November 2012 he was
to 2017 and of Serco Group plc
Group plc, he took over the
appointed Chairman of the Water
and Towergate Insurance until
stand-alone operations of
Services Regulation Authority
June 2015. Previously in his
(Ofwat).
executive career, Alastair was
Harworth Estates at the
commencement of the
including Chief Financial Officer at
Balfour Beatty Capital and Global
Head of Corporate Finance at
Bovis Lend Lease. Andrew is a
Jonson joined the Board in 2010
to lead the former UK Coal
through its 2012 restructuring.
He served as Non-Executive
Chairman following the
restructuring and led the
Company through its 2015
acquisition of Harworth Estates.
Chief Executive of the National
restructuring of the former UK
Fellow of the Institute of
Provident Institution and the
Coal in August 2010. He
Chartered Accountants and has
National and Provincial Building
established the business as a
an MA in politics, philosophy and
Society, Managing Director of the
recognised developer of
economics from Oxford
Insurance Division of Abbey
National plc and Director of
brownfield land, before being
University.
appointed to the Board of
Corporate Projects at National
Harworth Group plc following its
Westminster Bank plc. He has
acquisition of Harworth Estates in
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 and was subsequently
appointed Chairman. He has
consequently overseen the
workout and extraction of value
from an extensive commercial
and residential property portfolio
across the UK and Ireland and its
transformation into a strategic
and income generating portfolio.
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 plc 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.
a broad base of business
2015.
experience with a particular focus
on mortgage lending and
insurance industries. He was
awarded the CBE in 2001 for
services to social security having
served as a non-executive
director of the Department for
Work and Pensions and the
Department of Social Security.
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 May 2017.
Length of service
3 years 2 months (5 years
2 months including appointment
to HEPGL)
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.
Group General Counsel and
Company Secretary
Term of office
Appointed on 6 June 2016.
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
External appointments
External appointments
External appointments
External appointments
Chairman of Water Services
Chairman of Welsh Water (Dwr
Board member for Sheffield City
None.
Regulation Authority (Ofwat) and
Cymru) and Deputy Chairman of
Region Local Enterprise
the Cory Group. Advisor to I
Bovis Homes Group PLC (but will
Partnership.
Director of Everything But The
Cow Limited.
Squared Capital LLP. Director of
retire from his role at Bovis
Viridian Holdings Ltd and
Stonebrook Associates Ltd.
Homes at its next AGM in
May 2018).
External appointments
Director of various private limited
companies in the AWG Group.
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.
* During the year, Andrew was appointed,
but subsequently resigned, as
Chairman of Aviva Investors Secure
Income REIT PLC.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Former Chairman’s introduction
62 Harworth Group plc Annual Report and Financial Statements 2017
Former Chairman’s introduction
Dear Shareholder,
Whilst I stood down as Non-Executive Chairman of the Board
prior to publication of this Annual Report and Financial
Statements, as Chairman during the period under review it falls to
me to present the Company’s Corporate Governance Statement,
on behalf of the Board.
It comprises the Statement of Corporate Governance, the
Directors’ remuneration report, the Audit Committee report, the
Nomination Committee report, the Directors’ report and the
Statement of Directors’ responsibilities. The Board is accountable
to all stakeholders for good corporate governance. It recognises
the importance of good governance as a foundation for
long-term, sustainable growth and is committed to demonstrating
high standards and continuous improvement in this regard.
These reports explain the Company’s governance framework and
policies, which are subject to regular review and refinement.
While, at the date of this report, the Company remains a standard
listed Company on the London Stock Exchange, it aims to
comply with the UK Corporate Governance Code (the Code),
and workstreams are underway to apply to the FCA for the
Company’s shares to be moved from a standard listing to a
premium listing. I am pleased to report that, save as explained in
the Directors’ report on page 96, the Company has complied
with the Code for the period under review. The Company is
monitoring the consultation process in respect of the proposed
introduction of a revised Code and will continue to review and
update its policies and procedures to ensure compliance with the
new, revised Code.
Composition of the Board
There were no changes to the composition of the Board or the
Board committees during the period under review. However, on
7 March 2018 Alastair Lyons replaced me as Chairman of the
Board and I resigned from the Board with effect from 31 March
2018. Alastair will also become Chair of the Nomination Committee
and take my place as a member of the Remuneration Committee.
We continue to adopt best practice of submitting all Directors for
election or re-election at the Annual General Meeting.
The Nomination Committee’s focus in 2017 was on the
appointment of my replacement, which was announced in
December. Succession planning is underway for the two
longest-serving independent Non-Executive Directors. During
2018 a comprehensive review of succession and development
plans is being undertaken by our newly appointed Head of
HR & Organisation Development. This will ensure that there are
succession plans in place at all levels of the business and all
employees have the opportunity to reach their full potential. The
Nomination Committee will use those plans to inform its detailed
review of succession plans for the Executive Directors and wider
Executive Committee. The Board recognises the value that can
be derived from a broader range of ideas, skills, experience and
perspectives at all levels of the business, but particularly at Board,
Executive Committee and Senior Management Team levels.
It also acknowledges a better balance is needed across the
business in terms of gender and ethnicity. This is a big challenge
and will take time to address fully, but remains an ongoing and
important objective.
Harworth acknowledges a better balance
is needed across the business in terms
of gender and ethnicity. This is a big
challenge and will take time to address
fully, but remains an ongoing and
important objective.
JONSON COX – CHAIRMAN
(AS AT 31 DECEMBER 2017)
Harworth Group plc Annual Report and Financial Statements 2017 63
Remuneration
Our remuneration policy and arrangements are designed to
support the Group’s objectives. Having made some changes
to our Chief Executive’s bonus entitlement and our Finance
Director’s salary and bonus entitlement, we 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 75 to 77. The policy will be reviewed
towards the end of 2018 and early part of 2019, with a view to an
updated policy being tabled at the 2019 Annual General Meeting.
Annual General Meeting
Our Annual General Meeting will be held at 2.00 p.m. on
Tuesday 29 May 2018 at The Bessemer Conference Room,
AMP Technology Centre, Advanced Manufacturing Park,
Brunel Way, Waverley, Rotherham, S60 5WG. That meeting will
be chaired by my successor, Alastair Lyons. I would like to
encourage all Shareholders to attend.
Jonson Cox
Chairman (as at 31 December 2017)
24 April 2018
Leadership and Accountability
We aim to deliver above-market EPRA NNNAV growth with the
foundation of a strong Balance sheet and a sustainable business
capable of surviving property market fluctuations with a resilient,
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, all Directors must have a good knowledge of the
Group’s business and the markets in which it operates.
The Board timetable includes site visits, which help to improve
knowledge and understanding of our key 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. The Board also receives detailed operational updates
from the Capital Growth, Income Generation and Acquisitions
divisions each on a bi-annual basis, so that all Directors are alive
to the operational challenges facing the business, which is the
backdrop against which performance is delivered.
Once again, there has been a strong focus on risk management
and internal controls this year. The Audit Committee has overseen
another comprehensive review of the Group’s insurance
programme, a detailed review of the Board’s risk appetite and the
Group’s risk profile; and an external review of some of the Group’s
internal financial controls. The Audit Committee report on
pages 86 to 89 contains further details.
The Board and Executive Committee undertook the annual
review of the Group’s strategy in September. That review
re-affirmed the fundamentals of the Group’s long-term strategy,
although we did resolve to refine the way we articulate our
strategic priorities to stakeholders. This is reflected in the
Strategic Report on page 2. We believe the medium-term outlook
is positive given the ongoing performance of our core markets in
the North of England and Midlands, the continued shortage of
housing, the fundamentals underpinning manufacturing and
logistics markets and the largely supportive backdrop of
Government policy and sentiment.
Having established a formal internal Board evaluation process at
the end of 2016, during 2017 we: implemented action points to
address the areas identified for improvement, most notably on
inductions and continuous professional development for
Directors; undertook evaluations for each of our Board
committees; have analysed the results and are addressing areas
for improvement; and implemented a programme of 360 degree
self-appraisals for all of our Non-Executive Directors. Individual
appraisals have demonstrated that each Non-Executive Director
continues to contribute effectively and demonstrate commitment
to the role.
Another internal Board evaluation was undertaken in the first
quarter of 2018. It was pleasing to see that the results reflected the
actions taken in response to feedback the previous year. The
results do identify further areas for improvement, and these will be
looked at during the balance of 2018. In accordance with the
Code, we will instruct an external Board evaluation towards the
end of this year.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Statement of Corporate Governance
64 Harworth Group plc Annual Report and Financial Statements 2017
Statement of Corporate Governance
Nomination
Committee
Audit
Committee
Remuneration
Committee
Board
Executive
Directors
Executive
Committee
Approval of strategy,
oversight, guidance
and challenge
Implementation of strategy
and overall responsibility for
operational management
Senior
Management
Team
Leadership of business
segments, reporting into
Executive Committee
Role of the Board
The Company is headed by a Board of Directors. Its key responsibilities are summarised in the table below. The Group’s delegated
authorities policy was subject to a detailed review and updated in November 2016 and remains fit for purpose. It 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.
• Constitution and the structure of the corporate Group and
• Monitor management performance against strategy
its capital.
and targets.
• Annual and half-year reports and financial statements, and the
• Provide constructive challenge to management proposals
declaration of dividends.
and activity.
• The Group’s principal banking facilities and hedging
• Stewardship of the Group’s resources and overall
arrangements.
responsibility for management of the Group to ensure
long-term viability, sustainability and growth of the business.
• Ensure engagement with stakeholders and consideration of
stakeholders interests in decision-making.
• Ultimate responsibility for risk appetite and management.
• 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 whistleblowing, bribery, data protection,
anti-facilitation of tax evasion, 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. Those terms of reference were last
updated in December 2017.
Harworth Group plc Annual Report and Financial Statements 2017 65
Role of the Executive Committee
The Executive Committee has responsibility for implementing the
Group’s strategy and oversight of 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 Group General Counsel and
Company Secretary, together with: the Managing Director, Capital
Growth; the Executive Director, Income Generation; and the
Director, Acquisitions.
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 84.
The composition of the Board is reviewed regularly by the
Nomination Committee to ensure an effective balance of skills
and experience on the Board.
Role of the Senior Management Team
The Senior Management Team comprises ten senior
employees who lead each of the Group’s business segments,
being: Strategic Land; Major Developments; Business Space;
Building Delivery; Natural Resources; Operations; EES;
HR; Communications and Finance. Each member of the
Senior Management Team reports to a member of the
Executive Committee.
As well as ensuring that certain matters are reserved to the
Board, the Group’s delegated authorities policy ensures that
operational decisions are made at the most appropriate level in
the business.
Composition of the Board
Non-independent
Non-Executive
Directors, 2
Chairman, 1
(independent)1
Executive
Directors, 2
1 As at the date of this Report
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 60 and 61.
Independence
The Code recommends that, as a Company outside of the
FTSE 350, the Company should have at least two independent
Non-Executive Directors.
During the year under review, the now former Chairman
(Jonson Cox), previously held the role as an executive of the
Company prior to the restructuring of the former UK Coal in 2012,
thereafter continuing in the role in a non-executive capacity. As
such, the Board recognised that he was not independent.
Jonson Cox stepped down as Chairman on 6 March 2018 and
resigned as a Non-Executive Director on 31 March 2018. He was
replaced as Chairman on 7 March 2018 by Alastair Lyons. The
Board considers that the new Chairman is independent.
The Board considers that Lisa Clement, Anthony Donnelly and
Andrew Cunningham are independent.
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.
Going forward, there will be four independent and four non-
independent directors on the Board. The Board considers this
balance to be appropriate, but will keep the position under review,
particularly given that the proposed new Code provides that a
majority of the Board, including the Chairman, should be
independent.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Statement of Corporate Governance
continued
66 Harworth Group plc Annual Report and Financial Statements 2017
Statement of Corporate Governance
continued
Role/Committee
Chairman
Jonson Cox
(Alastair Lyons, from 7 March 2018)
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
• With support from the Company Secretary, sets the annual Board agenda programme and
Board meeting agendas, ensures that directors receive accurate, timely and clear information,
and ensures that there is adequate time available for discussion of agenda items in particular
strategic issues
• Ensures there is ongoing and effective communication with Shareholders
• Ensures that the Board identifies the Group’s key stakeholders, that there is appropriate
engagement with them, and their interests are considered when decisions are made
• 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
• Leads the establishment and maintenance of an appropriate culture and code of ethics for
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
• Leads on M&A and portfolio acquisitions
• Responsible for insurance and pensions, in conjunction with the Company Secretary
• Responsible for internal 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
• Available to Shareholders if they have concerns where communication through the Chairman or
Executive Directors is not successful or appropriate
• Leads the process for appointing a new Chairman
• Leads the annual appraisal of the Chairman’s performance
Non-Executive Directors
• Help to formulate a strategy for the Group and monitor the delivery of that strategy
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
Harworth Group plc Annual Report and Financial Statements 2017 67
Role/Committee
Key responsibilities
Remuneration Committee
• Determines and agrees with the Board the Company’s remuneration policy for Executive
Lisa Clement (chair)
Anthony Donnelly
Jonson Cox
(Alastair Lyons from 7 March 2018)
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
• Determines the long-term incentive arrangements of the Senior Management Team
• Monitors salary and bonus levels of all employees
• Approves grant of options for Save-As-You-Earn Scheme
• Carries out an annual review of benefits available to all Group employees
• Responsible for changes to certain Group-wide employment policies
Nomination Committee
• Leads the process for Board appointments by making recommendations to the Board, both for
Jonson Cox (chair)
(Alastair Lyons from 7 March 2018)
Lisa Clement
Andrew Cunningham
Audit Committee
Andrew Cunningham (chair)
Anthony Donnelly
Steven Underwood
Group General Counsel and
Company Secretary
Chris Birch
filling Board vacancies and appointing additional persons to the Board, following evaluation of
the balance of skills, knowledge and experience on the Board
• Carries out a regular review (typically annually) of succession and development planning for the
Executive Directors, the Chairman and Non-Executive Directors and members of the Executive
Committee, to maintain an appropriate balance of skills and experience on the Board and on the
Executive Committee
• Considers and makes recommendations to the Board on its composition, balance and
membership and on the endorsement of Directors for re-election at the AGM
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 (and was in 2017)
• Reviews the integrity of the Company’s annual and interim reports, preliminary and interim
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.
• Reviews the Group’s insurance programme.
• Reviews the terms of appointment, independence, effectiveness and remuneration of the
Company’s external auditors and makes recommendations to the Board on the reappointment
of the external auditors. Leads the re-tendering process for the appointment of external auditors,
if applicable.
• Reviews and if necessary updates the Group’s risk register.
• Reviews the Group’s anti-bribery policy (including an annual review of the Group’s hospitality
register) and other policies relating to financial security, business ethics and compliance
• Reviews the adequacy of the Group’s cyber-security measures and business continuity plans
and procedures
• 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 (including GDPR, Bribery Act, Modern Slavery Act, Criminal
Finances Act) 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 internal controls, systems and processes, in conjunction with the Finance
Director
• Responsible for insurance and pensions, in conjunction with the Finance Director
• Responsible for cyber-security and business continuity planning and procedures
• Manages EES team
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
68 Harworth Group plc Annual Report and Financial Statements 2017
Statement of Corporate Governance
continued
Board activities in 2017
The activities of the Board during the year ended 31 December 2017 included (operational approvals not listed):
Month
January
February
March
April
May
June
July
September
October
November
December
Activities
Capital Markets Day
Annual update from AD of EES
Capital Growth operational update
FYE 2016 Preliminary results and final dividend
Board evaluation feedback and action points
Acquisitions operational update
Approval of share placing
FYE 2016 Annual Report and Financial Statements
Income Generation operational update
Public sector funding update
Feedback from preliminary results investor roadshow
Capital Growth operational update
Annual General Meeting
H2 investor relations programme
Acquisitions operational update
People plan
FYE 2017 Interim results
Income Generation update
Strategy review
Feedback from interim results investor roadshow
Emerging government policies
Capital Growth operational update
Draft budget and strategic plan
Extension of term of revolving credit facility
Real Estate market - broker update
Final budget and strategic plan
Insurance programme renewal
Prospective appointment of new Chairman
Strategy
Delivery
Risk and
governance
Finance
Shareholder
relations
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
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 acutely aware of the fact there is only one woman
and no individuals of an ethnic minority amongst the Board and
Executive Committee and only two women and no individuals of
an ethnic minority on the Senior Management Team. The Board
recognises that the Company faces a significant challenge to
address the significant, historic imbalances in the workforce and is
committed to doing so over time. The Board has not, and will not,
set arbitrary numerical targets for diversity and future appointments
will continue to be made based on merit and objective criteria to
ensure that the best candidates are appointed for all roles.
However, diversity is an active and important consideration in all
succession plans and Harworth is committed to giving women and
ethnic minorities every opportunity to apply for the new and
replacement roles for which we recruit, as the business continues
to grow, and to ensuring that there are adequate measures in place
to support their progress and development within the organisation.
Further information on the Group’s diversity policy and initiatives
appears in the ‘Our People’ section of this report on pages 55
to 57.
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 2017.
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.
Harworth Group plc Annual Report and Financial Statements 2017 69
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.
Where actual or potential conflicts of interest arise, the relevant
Director does not receive Board papers and is excluded from
discussions and voting on the subject matter that gives rise to
the conflict.
Steven Underwood and Martyn Bowes are Board representatives
of the Peel Group 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 Group’s Board representative
and an executive Director of a number of Peel Group companies
one or more of which may deal with Harworth at an operational
level from time to time. These include Peel Environmental Limited
(“PEL”), with whom Harworth Estates Limited entered into certain
joint venture arrangements in 2011. Those joint venture
arrangements were varied during 2017, with the approval of
Shareholders at the 2017 Annual General Meeting. This resulted
in options being granted to PEL in respect of three sites (also
approved by Shareholders). PEL exercised two of those options
during the second half of 2017. During 2017, the Board also
considered a prospective sale of land to a joint venture to which
the Peel Group were party. That sale did not proceed. The joint
venture variations (including the new options granted to PEL) and
prospective sale gave rise to conflicts of interest for Steven
Underwood. Whilst those conflicts were approved by the Board,
Steven Underwood did not receive Board papers, was not
present for any Board discussions relating to, and did not vote on,
those matters.
Andrew Cunningham has previously 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.
During 2017, the Board approved Owen Michaelson’s
appointment to the Board of the Sheffield City Region Local
Enterprise Partnership. No conflicts of interest have arisen as a
result of that appointment. The Executive Directors are also
Directors of a number of Group subsidiary companies.
Each Non-Executive Director is aware of the need to allocate
sufficient time to the Company to discharge their responsibilities
effectively. This includes Board and Board committee meetings,
attendance at the Annual General Meeting, site visits, CPD,
participation in evaluations, participation in the recruitment of
Directors to the Board, and meetings with employees,
shareholders and other stakeholders, where appropriate.
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 election or re-election at every Annual General Meeting
and, as such, all Directors will stand for election or re-election by
Shareholders at the 2018 Annual General Meeting.
The terms of appointment of all Directors appear on pages 60 and
61. The Board is mindful that, under the Code, Non-Executive
Directors will be deemed to lose their independence after nine
years in office and that Anthony Donnelly (taking account of his
time as a director of HEPGL and the “Harworth Estates” division
of UK Coal) and Lisa Clement have been on the Board for over
7 years and 6 years, respectively. As such, having secured the
appointment of a new Chairman, the Nomination Committee’s
focus will now turn to plans for their succession.
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. Following Board evaluation
feedback, the induction programme for new Directors has been
improved and Alastair Lyons has recently undertaken an
extensive induction in the period leading up to his appointment in
March 2018.
Also in response to Board evaluation feedback, steps were taken
during 2017 to introduce some more structure to the CPD of
Directors. Board packs now include external CPD briefings for
Directors, with a short synopsis prepared by the Company
Secretary. In addition, the Company Secretary provides written
and verbal updates to the Board and the Board committees, as
appropriate, on governance and regulatory changes, such as the
General Data Protection Regulation and proposals for revisions to
the Code. Annually, external professional firms will deliver CPD
workshops for the Board and Board committees. KPMG hosted
a session with the Board in October 2017 and plans are in place
for DLA to do the same in 2018, with similar sessions timetabled
for the Board committees.
Performance evaluation
Formal Board and Board committee evaluations are now
undertaken annually. The first set of committee evaluations
were undertaken in the second half of 2017, led by the
committee chairs alongside the Company Secretary. A second
full Board evaluation was undertaken in the first quarter of
2018. The results reflected improvements made during 2017 in
response to feedback from the 2016 evaluation but also identified
areas for continuous improvement, which will be explored in the
second half of 2018. Aligned with the Code requirements for
FTSE 350 companies, the Company intends to instruct an
external Board evaluation towards the end of 2018. Annual
appraisals of each Non-Executive Director are also undertaken
on a rolling basis.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 70 Harworth Group plc Annual Report and Financial Statements 2017
Statement of Corporate Governance
continued
Board Evaluation Cycle
2016/2017
Year 1
Internal
Review
2017/2018
Year 2
Internal
Review
2018/2019
Year 3
Externally
Facilitated
Review
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 typically 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 in
September. The strategy will continue to be subject to internal,
annual reviews, with external input periodically when appropriate.
A draft budget and strategic plan, for implementation of the
strategy over a five-year plan period, is prepared by the Executive
Committee and presented to the Board in November each 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 budget and strategic plan.
Historically, Board and Board committee papers have been
circulated both in soft (by email) and hard (by post) copies in
advance of each meeting. From May, the use of electronic only
papers will be introduced. Papers are supplemented by reports
and presentations, as appropriate. The papers include monthly
reports from the Chief Executive, Finance Director (including
monthly financial management information to enable the Board to
monitor performance against the approved budget and strategic
plan) and Company Secretary. Detailed briefings are given to the
Board, both in writing and in person, by each of the Managing
Director, Capital Growth; the Executive Director, Income
Generation; and the Director, Acquisitions twice a year. 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.
Board papers are circulated not less than one full week prior to
each meeting. The Company Secretary maintains “Action
Schedules” for the Board and each Board committee which
records action points agreed at each meeting. That schedule,
together with the minutes of each meeting are reviewed by the
Chairman of the Board or the Chair of the relevant Board
committee (as appropriate) and then, at the following Board
or committee meeting, the wider Board or committee
(as appropriate).
Attendance at board meetings
There were 11 regular Board meetings scheduled during 2017 and three additional meetings held by conference call in February and
September (to consider specific operational items). Attendance by individual Directors at Board meetings is shown in the table opposite.
There were also site visits, a strategy review day offsite and a Board CPD workshop during the year.
Number of meetings attended
Attendance
Jonson Cox
Owen Michaelson
Andrew Kirkman
Lisa Clement
Anthony Donnelly
Steven Underwood
Martyn Bowes
Andrew Cunningham
14/14
14/14
14/14
13/14
14/14
11/14
13/14
14/14
100%
100%
100%
93%
100%
79%
93%
100%
Steven Underwood was unable to attend three Board meetings, one Remuneration Committee meeting and one Audit Committee
meeting during 2017 because of prior commitments in his capacity as Chief Executive of the Peel Group. It should be noted that two of
those Board meetings and the committee meetings were scheduled (the committee meetings and one of the Board meetings being
on the same day) and the other Board meeting was an additional telephone meeting.
In the lead up to the Company’s placing of shares in March 2017, authority was delegated to a sub-committee to approve certain
aspects of the placing. The sub-committee comprised Jonson Cox, Owen Michaelson, Andrew Kirkman and Andrew Cunningham
and met twice during March. All sub-committee members were present and certain other Directors were in attendance.
Harworth Group plc Annual Report and Financial Statements 2017 71
The Company has a planned programme of announcements
throughout the year, prepared by our Associate Director of
Partnerships and Communications with support from FTI
Consultancy and reviewed regularly by 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.
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.
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 Annual General Meeting to
be held on 29 May 2018, 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.
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 Statement of Corporate Governance has been approved by
the Board on its behalf by:
Jonson Cox
Chairman (as at 31 December 2017)
24 April 2018
Internal controls and risk
The Board acknowledges its responsibility for identifying
business risks, determining risk appetite and ensuring the
maintenance of a robust system of internal controls and
processes to monitor and manage risk. Pages 38 to 43 of the
Strategic Report identify the principal risks and uncertainties
facing the Group, the current risk profile of the business and the
anticipated movements in that profile over the next 12 months.
Page 37 of the Strategic Report and page 89 of the Audit
Committee report explain how internal controls and processes
for managing risk are monitored, which now includes an annual
external review of certain controls and of the Group’s need for an
internal audit function. The principal internal controls of the Group
are summarised below. Based on the Audit Committee’s most
recent review, the Board is satisfied that there are in place
effective systems for managing and mitigating significant risk.
Delegated authorities
The Company’s delegated authorities policy determines matters
reserved exclusively for the Board and also provides a framework
for decision-making throughout the business. It was subject to a
detailed review and update in November 2016.
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
During 2017, as part of its ongoing continual improvement
programme, the Group undertook another detailed review of its
principal risks and uncertainties. This review was led by our
Company Secretary in conjunction with the Board, the Audit
Committee, the Executive Committee and the Senior
Management Team. This review has led to a further refinement
of the Group’s Risk Register. Further details are set out in the
Strategic Report on pages 36 to 43.
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 with the purpose of better
explaining how the Group drives value from its portfolio. A briefing
and collection of site visits for institutional Shareholders and
analysts is planned for June of this year with a similar objective.
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 and reviews quarterly reports on
the main changes to the composition of the Company’s share
register and copies of notes prepared by analysts.
The Company benefits from there being representatives on
the Board from its two largest Shareholders. They provide
ongoing Shareholder feedback and perspective on key
strategic decisions.
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.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ remuneration report
72 Harworth Group plc Annual Report and Financial Statements 2017
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 2017, for
which we will be seeking approval at the Annual General Meeting
on 29 May 2018.
The Remuneration Policy
The Company’s Remuneration Policy has been designed to
support the Group’s strategy and help 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 and management’s contribution.
The Remuneration Policy was approved by Shareholders at
the 2016 Annual General Meeting with over 99% shareholder
support.
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
Directors’ remuneration report, which explains how the policy
was implemented in 2017 and how it will be implemented in 2018.
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 Report) (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
Code on a comply or explain basis.
In accordance with the Regulations, the following sections of the
Directors’ remuneration report are subject to audit: the single total
figure of remuneration for Directors and accompanying notes
(pages 78 and 79); scheme interests awarded during the financial
year (pages 80 and 81); payments to past Directors (page 82); and
the statement of Directors’ shareholdings and share interests (page
84). The remaining sections of the report are not subject to audit.
Salary increases for 2018
The salary of the Chief Executive has been increased by 2.5%,
in line with the median salary increases applied across the wider
workforce. With effect from 1 January 2018, the salary of the
Finance Director has been increased from £205,000 to £235,000,
in recognition of the additional responsibility he has taken on for
leading the Group’s M&A and large-scale (portfolio) acquisition
activity, in furtherance of the Group’s ambitious plans for growth.
Pension
The pension arrangements of the Executive Directors remain
unchanged. They may elect to receive a pension contribution of
10% of salary (which is consistent with the contributions made for
all other employees) or an equivalent cash allowance.
Members and attendance at meetings during the year ended
31 December 2017
Lisa Clement
Chair and Senior Independent Director
Anthony Donnelly
Independent Non-Executive Director
Steven Underwood
Non-Executive Director (not independent)
Jonson Cox
Chairman (not independent)
Key responsibilities
4(4)
4(4)
3(4)
4(4)
• 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 and members of the Executive
Committee.
• Determines the long-term incentive arrangements of the Senior
Management Team.
• Monitors salary and bonus levels of all employees.
• Approves grant of options for Group Save-As-You-Earn Scheme.
• 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, which were last reviewed
and updated in December 2017, are set out on the Company’s
website and can be found at www.harworthgroup.com/investors/
governance/
The Board undertakes an annual evaluation of the Committee’s
performance to ensure its continued ability to discharge its key
responsibilities.
Harworth Group plc Annual Report and Financial Statements 2017 73
Bonus
The annual bonus will continue to operate on the basis of a
combination of financial performance (including NNNAV, sales
volume, strategic business development and profit excluding value
gains), and personal objectives.
The Chief Executive’s bonus opportunity has been increased to
125% for 2018 only. This remains below the exceptional limit of
150% approved by Shareholders. This is the first time that the Chief
Executive’s bonus opportunity has exceeded 100% of salary and
reflects the additional stretch in the targets for 2018. Any payment of
bonus in excess of 100% of salary will be deferred for one year, in
accordance with the Remuneration Policy. The financial
performance targets and personal/strategic objectives for the Chief
Executive’s 2018 bonus will be reported in the 2019 Annual Report.
With effect from 1 January 2018, the bonus opportunity of the
Finance Director has been increased to 100%. This is an ongoing
increase in recognition of the additional responsibility he has taken
on for leading the Group’s M&A and large-scale (portfolio)
acquisition activity, in furtherance of the Group’s ambitious plans
for growth.
Long Term Incentive Plan
At the 2016 Annual General Meeting, Shareholders approved the
adoption of a new Long Term Incentive Plan (LTIP) with over 99%
Shareholder support. 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, for the 2017 awards the total
returns performance targets were considered by the Committee
and adjusted to range from 8% p.a. (threshold) to 12% p.a. (stretch)
having ranged from 8% p.a. (threshold) to 14% p.a. (stretch) for the
2016 awards, to align better with the Company’s plans over the
relevant 3 years. For the 2018 LTIP awards the performance
measures and targets remain unchanged.
Key activities of the Committee since publication of the
2016 Annual Report
• Reviewing the 2016 Remuneration Policy approved by
Shareholders to ensure it continues to align with Group strategy
and Shareholders’ interests.
• Approving the 2017 Directors’ Remuneration Report.
• Approving base salary increases for the Executive Directors and
members of the Executive Committee and an increase in bonus
entitlement for the Executive Directors.
• Adjudicating 2017 bonus outcomes.
• Approving 2018 bonus targets.
• Approving the vesting of awards under the Harworth Estates
Property Group Limited 2012 LTIP.
• Reviewing performance for the 2016 and 2017 LTIP awards and
projections for those awards.
• Approving 2018 LTIP awards and performance measures for the
Executive Committee and Senior Management Team.
• Reviewing a report on Group-wide remuneration for 2018.
• Carrying out an annual review of Group-wide employee benefits.
• Approving invitations and grant of options pursuant to the
Group-wide Save As You Earn Scheme.
• First meeting with People Steering Group, attended by the Chair
of the Committee.
• Review of gender-pay gap calculations.
Shareholding guidelines
During 2016, the Committee introduced shareholding guidelines of
100% of gross salary for Executive Directors. Until the relevant
shareholding levels are attained, 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 2017, the Committee approved the adoption of a deferred
share bonus plan for the Senior Management Team, to help align
senior management with Shareholders’ interests, and 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 in 2017 alongside the 2017
LTIP awards to the Executive Committee. Those awards vest
subject to absolute total return achieving the same performance
targets as in the LTIP. Further awards have been made to the
Senior Management Team under the plan alongside the 2018 LTIP
awards to the Executive Committee. The absolute total return
performance targets remain unchanged. Any awards that vest
will be satisfied with shares purchased in the market.
Harworth Estates long term incentive plan (2012)
Following the establishment of Harworth Estates as a standalone
business at the end of 2012, a one-off cash-based long-term
incentive plan was introduced by HEPGL to reward value created
by the Group in the period 1 January 2013 to 31 December 2017.
Awards under that scheme vested upon approval of the Group’s
financial statements for the year ended 31 December 2017 and
payments were made in March this year. The payments made to
the Chief Executive and Finance Director are included in the Single
Total Figure of Remuneration for Executive Directors which
appears on page 78. It is important to note that this scheme was a
one-off scheme and covered performance over a five-year period.
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 2017. Andrew Cunningham received an additional fee of
£7,500 for chairing the Audit Committee, and I received additional
fees of £7,500 for chairing the Remuneration Committee and
£3,000 as Senior Independent Director. The additional fees for
Committee Chairs remain unchanged for 2018. With effect from
1 January 2018, the additional fee payable to the Senior
Independent Director has been increased to £7,500, in recognition
of the increased time commitment that the role at Harworth entails.
This increase was determined by the Chairman and Executive
Directors in accordance with the Company’s Remuneration Policy.
The Committee considers that NED fees appropriately reflect the
work and responsibilities associated with each role.
Save As You Earn Scheme
At the 2017 Annual General Meeting, Shareholders approved a
Save As You Earn Scheme for all employees. Following that
approval, employees were invited to participate in the scheme and
shares were offered to participants at a 20% discount to the
prevailing market value. It was pleasing to see that more than half
of our employees chose to participate in the scheme. It is the
intention that invitations to participate in the scheme will be sent
annually and the 2018 invitations have been issued following
publication of the preliminary results for the year ended
31 December 2017.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Directors’ remuneration report
continued
74 Harworth Group plc Annual Report and Financial Statements 2017
Directors’ remuneration report
continued
Gender pay gap reporting
Although not obliged to publish a gender pay gap report, the
Company acknowledges the challenge it faces to improve
gender and ethnic diversity at all levels of the business and wants
to be transparent about the extent of that challenge and the
progress it is making in meeting it. As such, we have decided to
voluntarily report on the Company’s gender pay gap within the
‘Our People’ section of this report at page 57.
Engagement with our employees
The Board recognises the importance of engaging with, and
considering the interests of, the Group’s employees in its
decisions. The Committee ensures it is aware of the remuneration
and benefits of the wider workforce when setting remuneration
packages of Executive Directors and Executive Committee
members. The Committee already undertakes an annual review
of Group-wide benefits and reviews a report prepared by the
Head of HR and Organisation Development on Group-wide
salary increases and bonus payments, which informs the
Committee’s decisions on Executive Director and Executive
Committee remuneration. The Committee also oversees awards
under the senior management deferred share bonus plan. In my
capacity as Chair of the Committee, I met with the newly formed
People Steering Group in March 2018, together with
Martyn Bowes. That meeting was the first of a regular
programme of meetings between members of the Board and the
People Steering Group at which the Board will engage with
employee representatives on a host of issues including
remuneration.
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
24 April 2018
Harworth Group plc Annual Report and Financial Statements 2017 75
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 the 2015 Annual Report, which is also on the Company’s website
(www.harworthgroup.com/investors/reports-presentations/), 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?
How is it determined?
How much is it?
To provide competitive base
reward that recognises the
individual’s skill and experience
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 Chief Executive for 2018, in line with average annual pay
review across the Group. An above-average increase for the Finance
Director to reflect increase in responsibilities.
1 January 2017
1 January 2018
CEO
FD
£301,000
£205,000
£308,525
£235,000
Pension and benefits
What is it for?
What does it consist of?
How much is it?
To provide competitive benefits
Group pension scheme or cash
in lieu
Car allowance and fuel (or such
other benefits that the Committee
deems appropriate)
10% of salary
Varies by role and individual circumstances, cost is reviewed
periodically
Annual bonus
What is it for?
How does it operate?
What performance is measured?
How much is it?
To incentivise and reward strong
performance against financial
and personal annual targets,
aligned with progress against the
strategic plan and value delivered
to Shareholders
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 2018:
CEO
125% of salary
FD
100% 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
2018 performance conditions:
Financial*
Personal**
CEO
76%
24%
FD
75%
25%
Payment subject to health and
safety, business reputation,
covenant compliance, financial
irregularity and leadership underpins
* EPRA NNNAV gains: 47%
(CEO) 60% (FD), sales volume:
12% (CEO) 15% (FD), profit
excluding value gains: 8% (CEO)
10% (FD) and strategic
development of the business:
33% (CEO) 15% (FD)
** Payments for achieving personal/
strategic objectives may be reduced
in the event targets are missed
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
76 Harworth Group plc Annual Report and Financial Statements 2017
Directors’ remuneration report
continued
Remuneration policy – at a glance (continued)
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
Timing of 2018 pay
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
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
100% of salary for all Executive
Directors (or exceptionally 200%)
At least 2 measures, linked
to strategy, with Committee
discretion to add underpins
or override outcomes if they
are misaligned with underlying
performance
2018 performance conditions:
50% on Total Shareholder Return
between median and median
What pays out?
(as a % of maximum)
+9% p.a.*
50% on Absolute Total Return
(EPRA NNNAV 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
TSR
ATR
Below Threshold
0%
Threshold
12.5%
0%
5%
Target
– 12.5%
Maximum
50%
50%
TSR = Total Shareholder Return
ATR = Absolute Total Return
2018
2019
2020
2021
2022
2023
CEO pay
Salary
Pension
Benefits
£309k
10% of salary
c.£13k
Annual bonus
up to 125% of salary
LTIP
FD pay
Salary
Pension
Benefits
up to 100% of salary
50% held for at least 2 years
2018
2019
2020
2021
2022
2023
£235k
10% of salary
c.£13.5k
Annual bonus
up to 100% of salary
LTIP
up to 100% of salary
50% held for at least 2 years
Harworth Group plc Annual Report and Financial Statements 2017 77
Performance scenarios for 2018 pay ( £’000s)
Owen Michaelson
Andrew Kirkman
Minimum
100%
£352
29%
Minimum
100%
£272
32%
On-target
57%
31%
12%
£622
Annual bonus
On-target
61%
26% 13%
£448
Fixed pay
LTIP
Fixed pay
Annual bonus
LTIP
Maximum
34%
37%
29%
£1,046
Maximum
37%
32%
32%
£742
£0
£100
£200
£300
£400
£500
£600
£700
£800
£900 £1000 £1100
£0
£100
£200
£300
£400
£500
£600
£700
£800
£900 £1000 £1100
Single figure of total remuneration (£000s)
Single figure of total remuneration (£000s)
Performance scenario
Fixed pay
Minimum
On-target
Maximum
Salary (as at 1 January 2018) plus
Pension (10% of salary) plus
Benefits (based on 2017 actual)
Annual bonus
None
50% of maximum
100% of maximum
LTIP
None
25% of maximum(1)
100% of maximum
(1) Given that there are only threshold and maximum performance triggers for the TSR performance measure, the “on-target” performance scenario for the LTIP reflects vesting at the threshold
performance trigger for TSR (12.5%) and vesting at the target performance trigger (12.5%) for ATR.
NED fees
How are they structured?
What are the fees in 2018?
Chairman receives a single all-inclusive fee, set by the Committee
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 2018
£160,000
£42,500
£7,500
£7,500
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
78 Harworth Group plc Annual Report and Financial Statements 2017
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
• Head of HR and Organisation Development
• 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, advising on the performance conditions for awards
under the LTIP scheme and reviewing and advising on the Directors’ 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 2017 were £22,733 plus VAT. The Committee
evaluates the support provided by Kepler annually. Other than advice on remuneration, no other services were provided by Kepler to
the Group. The Company does retain Marsh, which is also a member of the MMC Group of companies, as its insurance brokers.
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 directorship appointments, although Owen Michaelson has been appointed as
a member of the Board of the Sheffield City Region Local Enterprise Partnership, which was approved by the Board on the basis that it
requires a limited time commitment and helps to promote both the profile and local relationships of the Group. Owen Michaelson
receives no fee for that appointment.
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 2017 with a comparison to the previous year, representing payments received in respect of the period for
which each individual was a Director of the Company.
Salary
Taxable benefits(1)
Relocation allowance
Single-year variable(2)
Multiple-year variable(3)
Pension benefit(4)
Total
Owen
Michaelson
Andrew
Kirkman
2017
£
301,000
12,810
–
242,681
805,475
30,100
2016
£
293,550
12,320
–
264,195
–
29,355
2017
£
205,000
13,669
–
128,600
175,740
20,500
29,355
21,375
2,667
13,614
1,392,066
599,420
543,509
2016
£
200,000
12,857
75,000
138,375
–
20,000
446,232
(1) Taxable benefits consist primarily of car and fuel allowance. For 2017 these were £11,826 for Owen Michaelson (£11,579 for 2016) and £12,879 for Andrew Kirkman (£12,417 for 2016). Other
benefits included life assurance and health insurance.
(2) Annual bonus payments for performance during 2017 were received by Owen Michaelson and Andrew Kirkman, details of which are included below in “Incentive outcomes for year ending
31 December 2017”. The annual bonus for 2017 was paid in March 2018.
(3) The Harworth Estates 2012 LTIP, which was a cash-based LTIP scheme implemented in 2013 with a five year performance period, vested on the approval of the financial statements for the
financial year ended 31 December 2017. Payments were made in March 2018. This was a one-off scheme and no previous or future payments have been or will be made under the scheme.
No other LTIP awards vested based on performance periods ending during 2016 or 2017.
(4) Owen Michaelson and Andrew Kirkman participated in the Company’s defined contribution scheme, in relation to which the Company contributed 10% of salary.
Harworth Group plc Annual Report and Financial Statements 2017 79
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 2016 and 31 December 2017, representing payments received in respect of the period for which
each individual was a Director of the Company.
J. Cox
L. Clement
S. Underwood(1)
A. Donnelly
M. Bowes
A. Cunningham
P Hickson(2)
Base fee
Committee
chair fees
SID fee
Total
2017
£
160,000
42,500
42,500
42,500
42,500
42,500
–
2016
£
160,000
42,500
42,500
42,500
42,500
29,008
21,667
2017
£
–
7,500
–
–
–
7,500
–
2016
£
–
7,500
–
–
–
1,200
–
2017
£
–
3,000
–
–
–
–
–
2016
–
750
–
–
–
–
–
2017
£
160,000
53,000
42,500
42,500
42,500
50,000
–
2016
£
160,000
50,750
42,500
42,500
42,500
30,208
21,667
(1) The fees for Steven Underwood are paid to Peel Management Limited.
(2) Peter Hickson resigned on 26 April 2016.
Incentive outcomes for year ended 31 December 2017
Annual bonus
Annual bonuses for 2017 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 75% on financial and 25% on personal performance for both Owen Michaelson and Andrew
Kirkman. Performance against targets and subsequent vesting of 2017 annual bonuses are set out in the tables below.
Financial performance outcomes
For 2017 bonuses, no bonus was paid for achieving below Target, 50% of bonus was paid for achieving Target, increasing on a
straight-line basis to 100% of bonus paid for achieving Stretch performance.
Measure
NAV gains
Sales volume
Acquisition (strategic development of the
business)
Performance targets
(£’000s)
Weight
(% of financial
performance)
‘Target’
‘Stretch’
Actual performance
38,900
60%
15%
50,000
15% Deployment of equity
raise proceeds
46,700
56,000
Target’ plus
material additional
acquisitions
2,750
47,400
57,800(1)
Equity raise
proceeds deployed
2,240
Profit excluding value gains
10%
2,200
Total vesting on financial performance
outcomes
Owen Michaelson (75% weighting)
Andrew Kirkman (75% weighting)
(1) This sales figure includes internal sales for direct development and sales by joint ventures.
Vesting
outcome
100%
100%
50%
50%
87.5%
87.5%
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
80 Harworth Group plc Annual Report and Financial Statements 2017
Directors’ remuneration report
continued
Annual Remuneration report (continued)
Personal performance outcomes
Executive Director
Achievements during the year
Vesting of
component
O. Michaelson (25% weighting)
• To reduce the share price discount to EPRA NNNAV, through business results, business
60%
profile and investor relations.
• To present and obtain Board approval of a five-year strategic plan which, over the plan
period, delivers a consistent 10% return and achieves the Company’s ambitious growth
plans.
• To grow the Company’s reputation into a nationally recognised go-to regional brownfield
land developer winning large scale redevelopment opportunities.
A. Kirkman (25% weighting)
• To reduce the share price discount to EPRA NNNAV, through business results, business
72%
profile and investor relations.
• To manage the Company’s Balance sheet, debt facilities and all forms of equity to fund the
strategic plan.
• To show clear leadership and support for all team members to develop a standard form of
capital appraisal for all projects enabling the Board to make clear judgements and
comparisons on the prioritisation of capital.
• To develop a clear and transparent tax management and mitigation plan which optimises the
Company’s position and allows the tax losses and tax assets held by the business to be
properly understood, modelled and protected.
Overall bonus outcomes
Financial
Personal vesting
Overall bonus outcome
Sum product of
weighting and vest%
Executive
O. Michaelson
A. Kirkman
Weighting
75%
75%
Vesting
87.5%
87.5%
Weighting
Vesting
% of bonus
% of salary
25%
25%
60%
72%
80.6%
83.6%
80.6%
62.7%
The overall bonus outcomes for the Chief Executive and Finance Director reflect a strong year of performance for the business, with
EPRA NNNAV growth of 12.5%, the deployment of the proceeds of the March 2017 equity raise (c.£27m) on strategic land acquisitions
and more stability in the Group’s recurring income stream.
Scheme interests awarded during 2017
2017 LTIP awards
LTIP awards of 100% of salary were made in 2017 to Owen Michaelson and Andrew Kirkman under the LTIP approved by
Shareholders at the 2016 AGM.
Executive Director
Type of award
Date of award
Number of shares
granted
O. Michaelson
A. Kirkman
2017 LTIP
2017 LTIP
5 April 2017
5 April 2017
310,256
211,304
Face value(1)
301,000
205,000
% receivable
at threshold(2)
End of
performance
period
17.5% 31 December 2019
17.5% 31 December 2019
(1) Face value based on the average share price on the three trading days immediately preceding the date of grant of 97p.
(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 2017 81
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
ATR p.a.
8%
10%
12%
% of
element
vesting
10%
25%
100%
(1) For 2017 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
The full details of the scheme are provided in the notes to the Remuneration Policy in the 2015 Annual 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
Number of
units granted
275
60
£ value created:
£ per unit:
Performance conditions
Threshold
£121m
£600
Target
£150m
£2,600
Stretch
£231m
£5,000
Any vesting of units under the Harworth Estates LTIP was subject to one-third of value created coming from disposal proceeds.
The awards under the Harworth Estates LTIP vested upon approval of the Group’s financial statements for the financial year ended
31 December 2017 and payments were made in March 2018. During the period 1 January 2013 to 31 December 2017 the value
created by HEPGL and its subsidiaries for the purposes of the scheme was £161,112,000 and the disposal proceeds underpin was
satisfied. This resulted in a payment of £2,929 to participants for each unit held. The following payments were made to
Owen Michaelson and Andrew Kirkman under the scheme:
Executive
O. Michaelson
A. Kirkman
Payment under Harworth Estates LTIP
£805,475
£175,740
This was a one-off scheme with a five-year performance period. No previous payments and no future payments have been or will be
made under the scheme.
Percentage change in CEO remuneration
The table below shows how the percentage change in the Chief Executive’s salary, benefits and bonus between 2016 and 2017
compares with the percentage change in the average of each of those components of pay for the employees of the Group as a whole.
CEO Pay
Average per employee
Salary
£’000
2017
301
2016
294
Percentage
change
2.5%
2.5%
Taxable benefits
£’000
2017
10
2016
10
Percentage
change
0%
0%
Bonus
£’000
2017
243
2016
264
Percentage
change
-8%
8%
Relative importance of spend on pay
Total employee pay expenditure
Distributions to Shareholders
2017
£7.849m
2016
£6.363m
% change
23%
2017
2016
£2.7m
0.828p per share
£2.2m
0.743p per share
% change
10%
Staff costs increased between 2016 and 2017 due to an increase in the size of the workforce and additional accrual for the HEPGL 2012
LTIP to reflect increased payments resulting from outperformance.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
82 Harworth Group plc Annual Report and Financial Statements 2017
Directors’ remuneration report
continued
Annual Remuneration report (continued)
Total dividends for the financial year ended 31 December 2016 were 0.753p per share, resulting in total dividends of £2.2m, ignoring
the March 2017 equity raise. Total dividends for the financial year ended 31 December 2017 are 0.828p per share, resulting in total
dividends of £2.7m. Part of this increase in total dividends is attributable to the March 2017 equity raise. As such, the percentage
change is shown above on a per share basis.
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 relisting on 24 March 2015 to 31 December 2017. 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 2017:
£160
£140
£120
£100
£80
£60
£40
£20
£0
Harworth
FTSE Small Cap
24th March 15
31 December 15
31 December 16
31 December 17
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
(1) Excludes vesting of Harworth Estates LTIP as this was a one-off scheme put in place by HEPGL in 2013.
Payment paid to past directors
During the year, no payments were made to past Directors.
Exit payments made in the year
No exit payments were paid to former Directors during the year.
2015
£
480
85.6%
n/a
2016
£
599
90%
n/a
2017
£
1,392
80.6%
n/a(1)
Implementation of Executive Directors’ remuneration policy for 2018
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, the responsibilities of the Executive Director and increases awarded to the
wider workforce.
The Committee approved the following base salary increases for 2018:
Executive Director
O. Michaelson
A. Kirkman
Annual base salary at
1 January 2017
Annual base salary at
1 January 2018
£301,000
£205,000
£308,525
£235,000
Percentage
increase
2.5%
14.6%
A typical salary increase of 2.5% was awarded across the Group at the annual pay review, effective 1 January 2018.
Harworth Group plc Annual Report and Financial Statements 2017 83
Pension
Executive Directors will continue to receive a pension contribution of 10% of salary or an equivalent cash allowance.
Performance related annual bonus
For 2018 the Committee has approved the following annual bonus opportunities for Executive Directors. The Chief Executive’s bonus
will be based 76% on financial measures and 24% on personal objectives. The Finance Director’s bonus will 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)
95%
75%
30%
25%
125%
100%
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 2018 will be measured against the following financial performance
measures:
Executive
Weight
(% of financial bonus opportunity)
NNNAV gains
Sales volume
Acquisitions (strategic development of business)
Profit excluding value gains
Acquisitions – super-stretch target
CEO
47%
12%
12%
8%
21%
FD
60%
15%
15%
10%
–
Payment of the personal element is subject to the Committee’s discretion in the event of material under-performance against the
financial element. 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 and no covenant breach or financial irregularity.
Performance targets are considered to be commercially sensitive at this time but the Committee intends that they will be disclosed in
the 2019 Remuneration report.
LTIP
LTIP awards of 100% of salary have been made in 2018 to Owen Michaelson and Andrew Kirkman under the LTIP scheme, the details
of which were outlined in the Remuneration Policy in the 2015 Annual Report. 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
ATR p.a.
% of
element vesting
0%
–
9%
25%
–
100%
8%
10%
12%
10%
25%
100%
(1) For 2018 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.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
84 Harworth Group plc Annual Report and Financial Statements 2017
Directors’ remuneration report
continued
Annual Remuneration report (continued)
Implementation of Non-Executive Director remuneration policy for 2018
• The Chairman of the Board receives a fee of £160,000 per annum, unchanged from 2017.
• Non-Executive Directors receive a base fee of £42,500 per annum, unchanged from 2017.
• 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, unchanged from 2017.
No additional fee is paid to the Chairman for chairing the Nomination Committee.
• A further additional fee of £7,500 is paid to Lisa Clement as Senior Independent Director. This additional fee has increased from
£3,000 paid in 2017.
Directors’ interests
A table setting out the beneficial interests of the Directors and their families in the share capital of the Company as at 23 April 2018
(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
as a percentage of salary is based on the middle market closing price for the shares on 5 April 2018 of 109.0p.
Shares held
Options held
Beneficially
owned
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?
275,090
200,000
716,504
–
–
17,333
38,385
–
90,000
21,413
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
904,690
638,843
–
–
–
–
–
–
–
100%
100%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
105%
93%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Yes
No
n/a
n/a
n/a
n/a
n/a
n/a
n/a
O. Michaelson
A. Kirkman
J. Cox(1)
L. Clement
A. Donnelly
A. Cunningham
S. Underwood
M. Bowes
A. Lyons(2)
(1) Jonson Cox resigned on 31 March 2018.
(2) Alastair Lyons was appointed on 7 March 2018.
The table above includes the following shares purchased and sold in the period between 31 December 2017 and 23 April 2018:
A. Kirkman (purchased on 6 March 2018)
A. Lyons (purchased on 7 March 2018)
J. Cox (sold on 7 March 2018)
60,000
90,000
150,000
Harworth Group plc Annual Report and Financial Statements 2017 85
Summary of Shareholder voting at the 2017 AGM
The table below shows the results of votes at the Harworth Group plc Annual General Meeting on 24 May 2017 on resolutions relating to
remuneration.
Resolution 11:
Approval of Annual Remuneration report
Votes
For and
discretion as a
percentage of
votes cast
For and
discretion
258,815,879
99.95%
Against as a
percentage of
votes cast
0.05%
Against
126,444
Withheld
29,716
The Directors’ remuneration report has been approved by the Board and signed on its behalf by:
Lisa Clement
Chair of the Remuneration Committee
24 April 2018
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Audit Committee report
86 Harworth Group plc Annual Report and Financial Statements 2017
Audit Committee report
Key areas of focus during the period since the publication of the 2016
Annual Report
• External review of selected internal financial controls.
• Categorisation of sites as investment or development properties.
• Oversight of detailed review of principal risks and uncertainties
and refinement of Group Risk Register.
• Comprehensive review of the Group’s insurance programme
prior to 2018 renewal.
• Scrutiny of operational cost report review process.
• Approval of new policies and supplier code of conduct in
relation to bribery and corruption and facilitation of tax evasion.
• Review of likely impact of International Financial Reporting
Standard (“IFRS”) 15 and IFRS 9.
Dear Shareholder,
I am pleased to present the Audit Committee report for the year
ended 31 December 2017.
The Committee comprises three Non-Executive Directors. I chair
the Committee and its other members are Steven Underwood
and Anthony Donnelly. The experience of each member of the
Committee is summarised on pages 60 and 61. The Board is
satisfied that we have recent and relevant financial experience,
in addition to 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 Board is also satisfied that the Committee has competence
relevant to the real estate sector, given that all members hold (or
in my case have held) senior positions at companies operating in
that sector.
The Company Secretary is secretary of the Committee.
The Chairman, Chief Executive, Finance Director and the
external auditors are invited to attend meetings when appropriate.
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 me on the day preceding the announcement of
the Company’s preliminary and interim results, so that I could
authorise their release, having been delegated the authority to do
so by 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
24 April 2018
Members and attendance at meetings during the year ended
31 December 2017
Andrew Cunningham
Chair and Independent Non-Executive Director
Anthony Donnelly
Independent Non-Executive Director
Steven Underwood
Non-Executive Director (not independent)
Key responsibilities
4(4)
4(4)
3(4)
• Reviews the integrity of the Company’s annual and interim
reports, preliminary and interim 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.
• Reviews the Group’s insurance programme.
• Reviews the terms of appointment, independence, effectiveness
and remuneration of the Company’s external auditors and
makes recommendations to the Board on the reappointment of
the external auditors. Leads the re-tendering process for the
appointment of external auditors, if applicable.
• Reviews and if necessary updates the Group’s Risk Register.
• Reviews the Group’s anti-bribery policy (including annual
reviews of the Group’s hospitality register) and other policies
relating to financial security, business ethics and compliance.
•
Reviews the adequacy of the Group’s cyber-security measures
and business continuity plans and procedures.
The Committee’s terms of reference, which were last reviewed
and updated in December 2017 are set out on the Company’s
website and can be found at www.harworthgroup.com/investors/
governance/.
The Board undertakes an annual evaluation of the Committee’s
performance to ensure its continued ability to discharge its key
responsibilities.
Harworth Group plc Annual Report and Financial Statements 2017 87
Annual and Interim reports
The areas to which the Committee has given particular focus
since the publication of the 2016 Annual Report and Financial
Statements are summarised below.
Significant financial statement reporting issues considered by the
Audit Committee
Categorisation of the property portfolio
During the year £229.1m of property was re-categorised from
investment to development property. This re-categorisation was
triggered by the evolution of Harworth’s business model, including
the March 2017 capital raise, as well as the consideration of site and
market opportunities. The Committee reviewed the appropriateness
and timing of the re-categorisation of properties and the future
categorisation policy. It was concluded that the categorisation of the
property portfolio was appropriate.
Valuation of the property portfolio
The property portfolio, which is composed of both investment and
development properties as well as assets held for sale, joint ventures,
overages and owner-occupied properties, comprises the vast majority
of the total assets of the business. Harworth continues to use the
same independent external valuers, BNP Paribas and Savills, to value
the portfolio. However, given the significance of the property values,
together with the different accounting treatment for investment and
development properties, there remain a number of key judgements.
These key judgements are primarily regarding the future intention for
the site as well as value per acre, rental amounts, yields and costs to
bring the sites forward, recognising 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 primarily include the
costs to complete from external firms. Given the increasing number
of Major Developments, further validation and reconciliation work
has been performed on the cost reports. The methodology for, and
adequacy of, the cost report totals are reviewed by the Committee.
Historically, a small number of sites, an assessment has been made
of the potential restoration costs that may be incurred by the Group if
the obligations are not completed by the mining tenants. The surface
mine sites were handed back during the year and this provision is now
within the cost report totals.
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 on page 44 of the Strategic Report.
Taxation
The Group recorded a credit for taxation in the year of £7.8m
(2016: £3.6m charge) and its first current year tax charge since
re-listing of £1.5m (2016: £nil). The movements were as a result
of: the execution of a contract giving greater certainty of tax
loss utilisation; and the disposals, valuation movements and
re-categorisation of property. The assumptions underlying these
movements and the tax treatment have been reviewed by the
Committee and they are comfortable with the tax position.
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,
Associate Director of Partnerships and Communications, actuary
and tax accountants. The Committee has also noted (i) 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 and (ii) the verification exercise which is undertaken in
respect of the financial metrics referred to in the Strategic Report
and Directors’ Report.
As a result, the Committee has concluded that the Annual Report
and Financial Statements for the year ended 31 December 2017,
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 on page 97.
External auditors
The Committee is responsible for making recommendations to
the Board on the appointment, reappointment and removal of the
external auditor. The year-end audit strategy is subject to review
and approval at the Committee’s meeting in September and the
external auditors’ appointment is subject to a formal review at the
Committee’s meeting in November each year.
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) Harworth does not need to undertake an audit tender
process before the financial statements 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 third 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 external auditor.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Audit Committee report
continued
88 Harworth Group plc Annual Report and Financial Statements 2017
Audit Committee report
continued
Analysis of fees paid to the external auditors and non-audit firms for the years ended
31 December 2016 and 31 December 2017
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 financial statements
– 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
Ratio of audit to non-audit fees paid to external auditor
Fees payable to non-audit firms for non-audit services
– audit related assurance services
– tax advisory services
– tax compliance services
– fees in relation to transactions
– pension accounting
Total
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 annually;
the Group has 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 appointed Deloitte LLP to provide advice and
assistance on most tax matters going forward and pension
accounting. KPMG has been appointed to advise on tax
matters relating to our joint venture agreements and to carry
out an external review of selected internal financial controls;
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
is shown above; and
•
the Committee reviews the external auditors’ report to the
Directors and the Committee confirming their independence
in accordance with auditing standards.
2017
£’000
40
111
8
159
15
7
6
–
28
187
5.7:1
22
69
19
–
5
1
115
2016
£’000
40
80
10
130
50
84
38
–
172
302
1:1.3
–
13
26
25
1
65
5
Resolutions to re-appoint PwC as the Company’s external
auditors and to authorise the Directors to determine its
remuneration will be proposed at the forthcoming Annual General
Meeting.
Establishment and implementation of policy for
categorisation of properties
In recognition of the evolution, diversification and track record of
the business and, in particular, the Group’s equity raise in March
2017 to fund the acquisition of strategic land for development, the
Company has implemented a new policy on the categorisation of
properties within the Group’s portfolio. This has been a
workstream led by the Finance Director and overseen by the
Committee. The portfolio was reviewed at the half-year, pursuant
to which the majority of our Waverley, Logistics North and Prince
of Wales sites, being our most active sites, were re-categorised
as development sites. Another review was undertaken at the
full-year, in the light of site and market opportunities, pursuant to
which the majority of sites within the Major Developments
segment of the business, were re-categorised as development
properties. Following completion of this workstream, re-
categorisations at the half-year and full-year, and consultation
with the Group’s external auditors, the Committee formally
approved the proposed new policy in February 2018. Further
details of the policy are set out in the Financial Review on
pages 29 and 30. Going forward, the Committee will oversee
reviews of property categorisations at 30 June and 31 December
each year.
Harworth Group plc Annual Report and Financial Statements 2017 89
Risk review and management
During the year, the Committee undertook an interim review of
the Group’s Risk Register in June and oversaw a detailed review
of the Group’s principal risks and uncertainties in the second half
of the year, led by the Company Secretary, culminating in a
refinement of the Group Risk Register in November. The outcome
of that review is explained in more detail at pages 36 to 43 of the
Strategic Report. In conjunction with the interim and detailed risk
reviews, the Committee also carried out a review of, and remains
satisfied as to, the effectiveness of the Company’s risk
management and internal controls systems, including financial,
operational and compliance controls. The Committee will
continue to carry out bi-annual reviews of the register, alongside
reviews of the effectiveness of the Group’s internal risk
management controls.
Internal financial controls
During the second half of 2017, the Group instructed KPMG to
undertake an external review of some of its principal financial
controls and processes. KPMG reported to the Committee on the
outcome of that review at the Committee’s scheduled meeting in
November. KPMG identified no major deficiencies in the controls
it reviewed but did identify some opportunities to improve
efficiencies and risk mitigation. Those recommendations will be
implemented during the course of 2018. At that same meeting,
the Committee reviewed and confirmed its view that the business
is not large or complex enough for a separate internal audit
function. KPMG was supportive of that view. The Committee did,
however, conclude that a rolling programme of annual external
reviews of controls ought to be maintained. For 2018, the Group
has instructed an external review of its cyber security resilience
and business continuity plans and procedures.
To support the Company’s application for its shares to be moved
from the standard segment to the premium segment of the
Official List, an external reporting accountant is undertaking a
review of the Group’s financial position and prospects
procedures. As well as supporting the Company’s application,
the outputs from that report will assist the Committee in its
ongoing review of the Group’s internal controls and processes.
Insurance programme
During the second half of 2017, the Company undertook another
detailed review of the Group’s insurance programme, in advance
of the 2018 renewal. That review has led to: (i) the Group moving
its property owner’s, employee and public liability insurance cover
from QBE to Tokio Marine Kiln (“TMK”), resulting in some
extensions of cover and cost savings; (ii) a rate stability agreement
with TMK by which premium rates will be fixed for up to three
years; and (iii) following a benchmarking exercise, an increase in
Directors and Officers insurance cover to £25m.
Cost reports
Since publication of the 2016 Annual Report, the Committee has
overseen improvements to the process by which cost plans are
regularly reviewed, validated and reconciled. This process has
also been reviewed by the external auditors as part of the
year-end audit process.
Financial Reporting Council
In 2017, the Financial Reporting Council (“FRC”) reviewed
Harworth’s 2016 Annual Report and Financial Statements as part
of its ongoing statutory monitoring requirements. The FRC
highlighted a number of areas where enhancements could be
made to our financial reporting and these improvements have been
reflected in this year’s Annual Report and Financial Statements.
At the FRC’s request, the Company has also restated 2016
Earnings Per Share, as the 2016 Annual Report did not correctly
reflect the effect of the May 2016 1 for 10 share consolidation. The
FRC is content that these improvements and restatement have
answered the points raised and the matters have now been closed.
When reviewing the Company’s 2016 Annual Report and
Financial Statements, the FRC has made clear to us the
limitations of its review as follows: (A) its review is based on the
2016 Annual Report and Financial Statements only and does not
benefit from a detailed knowledge of the Group’s business or an
understanding of the underlying transactions entered into;
(B) communications from the FRC provide no assurance that the
Company’s 2017 Annual Report and Financial Statements are
correct in all material respects and are made on the basis that the
FRC (and its officers, employees and agents) accepts no liability
for reliance on them by the Company or any third party, including
but not limited to investors and shareholders; and (C) the FRC’s
role is not to verify information provided but to consider
compliance with reporting requirements.
Whistle blowing
Following a review instructed by the Company Secretary in the
first quarter of 2018, Gateleys has recommended that our
whistleblowing policy and procedures be updated. That firm has
been instructed to implement those recommendations and a
revised whistleblowing policy will be tabled for approval by the
Committee in June, before it is communicated to employees.
There were no whistleblowing claims reported to the Committee
during 2017.
Compliance
The Committee remains responsible for monitoring the
effectiveness of, and compliance with, the Group’s policies and
procedures for combating modern slavery, bribery and
corruption, and the facilitation of tax evasion.
The Committee is also taking the lead in making sure that the
Group will be compliant with the General Data Protection
Regulation when it comes into force on 25 May 2018.
Further information on these policies, procedures and initiatives
appear in the Strategic Report at pages 53 and 54.
The Report of the Audit Committee has been approved by the
Board on its behalf by:
Andrew Cunningham
Chair of the Audit Committee
24 April 2018
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Nomination Committee report
90 Harworth Group plc Annual Report and Financial Statements 2017
Nomination Committee report
Members and attendance at meetings during the year ended
31 December 2017
Jonson Cox
Chairman of the Committee and the Board
(not independent)
Lisa Clement
Independent Non-Executive Director
Andrew Cunningham
Independent Non-Executive Director
1(1)*
1(1)
1(1)
* Jonson Cox was not present for the informal meetings at which the Committee
discussed his succession, but was present for the scheduled meeting of the
Committee in December 2017.
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.
• Carries out a regular review (typically annually) of succession
and development planning for the Executive Directors, the
Chairman and Non-Executive Directors and members of the
Executive Committee, to maintain an appropriate balance of
skills and experience on the Board and on the Executive
Committee.
• Considers and makes recommendations to the Board on
its composition, balance and membership and on the
endorsement of Directors for re-election at the AGM.
Key activities of the Committee since publication of the
2016 Annual Report
• Leading the process for identifying and appointing a successor
as Chairman, resulting in the appointment of Alastair Lyons
The Committee’s terms of reference, which were last reviewed
and updated in December 2017, are set out on the Company’s
website and can be found at www.harworthgroup.com/investors/
governance/.
The Board undertakes an annual evaluation of the Committee’s
performance to ensure its continued ability to discharge its key
responsibilities.
Dear Shareholder,
I am pleased to present to you the Nomination Committee report
for the year ended 31 December 2017. Whilst I chaired the
Committee during the year under review, the Committee’s
primary focus during the year was on the process for identifying
and appointing my successor and I played no part in that
process. The process was led by Lisa Clement, as Senior
Independent Director, alongside the other independent
Non-Executive Directors, Anthony Donnelly and
Andrew Cunningham, and culminated in the appointment
of Alastair Lyons as my successor on 7 March 2018. Alastair
will chair the Nomination Committee going forward.
Typically, 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. All Non-Executive
Directors are invited to attend meetings of the Committee. So
too is the Chief Executive when this is considered appropriate.
In addition to the informal meetings held during the year to
identify my successor, at which I was not present, the full
Committee met formally in December to consider the succession
plans in place for the Executive Directors, wider Executive
Committee and Senior Management Team, which had been
subject to a detailed review by the Committee 12 months
beforehand. It was agreed that a further detailed review would be
deferred until after the newly appointed Head of HR &
Organisation Development has undertaken a planned,
comprehensive review of succession and development plans at
all levels of the business during the course of 2018.
In 2018, the Committee will turn its attention to succession plans
for the two longest serving independent Non-Executive Directors,
Anthony Donnelly and Lisa Clement, who have both been
directors for more than six years.
Jonson Cox
Chairman of the Nomination Committee (as at 31 December 2017)
24 April 2018
Harworth Group plc Annual Report and Financial Statements 2017 91
Appointment of Alastair Lyons as Chairman
The appointment of Alastair Lyons as Chairman with effect from
7 March 2018 followed a rigorous process to identify the best
candidate for the role, a process led by the Board’s independent
Non-Executive Directors: Lisa Clement, Anthony Donnelly and
Andrew Cunningham.
Shortly after the 2017 Annual General Meeting, at which it was
announced that Jonson Cox would not stand for re-election at
this year’s Annual General Meeting, the Non-Executive Directors
(excluding Jonson Cox) asked three external search consultancy
firms for their proposals to identify a suitable successor. The
Company subsequently appointed Warren Partners to conduct
an executive search and recruitment process. The Company
does not retain Warren Partners in any other capacity and it has
no other connection with the Company. In conjunction with
Warren Partners, the Non-Executive Directors prepared the
selection criteria and a job specification for the role, which
included the expected time commitment.
At this point, it was agreed by the Board that the independent
Non-Executive Directors would lead, and conduct the first stages
of, the search and selection process. Warren Partners identified a
“long-list” of candidates. Following a review of that “long-list” by
the independent Non-Executive Directors and a meeting with
Warren Partners, a “short-list” of eight candidates was identified.
Warren Partners interviewed and provided feedback on all
“short-list” candidates, resulting in a refined list of five candidates.
The independent Non-Executive Directors interviewed all five
candidates pursuant to which they identified a preferred
candidate. That preferred candidate then met with the other
Non-Executive Directors, the Senior Independent Director (on her
own), the Executive Directors and wider Executive Committee
and the external auditors.
This process culminated in the Committee recommending, and
the Board resolving to make an offer to, Alastair Lyons for the role.
Upon Alastair accepting the role and the Board taking up
references, the appointment was announced to the market on
19 December 2017.
Prior to 7 March 2018, when Alastair’s appointment took effect,
he has undergone an extensive induction process which has
included multiple meetings with the Executive Committee, both
collectively and individually, with each member of the Senior
Management Team, the Company’s brokers and certain of the
Company’s Shareholders, along with multiple site visits including
to one target acquisition site.
At the date of this Report, in addition to his role as the Company’s
Chairman, Alastair is also Non-Executive Chairman of Welsh
Water (Dwr Cymru) and Deputy Chairman of Bovis Homes Group
PLC, although he will retire from his role at Bovis Homes at its
next Annual General Meeting in May 2018.
Succession planning and board composition
The Committee undertook a detailed review of succession and
development plans for the Executive Committee and Senior
Management Team in December 2016. A further review had been
planned for 2018 but it was recognised by the Committee that the
Group’s newly appointed Head of HR & Organisation
Development will be undertaking a comprehensive review of
succession and development plans across all levels of the
business during the course of 2018 and, as such, the Committee
resolved at its meeting in December 2017 to defer its own
planned review until that process has been completed.
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.
Anthony Donnelly and Lisa Clement have served on the Board for
more than seven and six years respectively (factoring in Anthony
Donnelly’s term of office as a director of the Harworth Estates
division of UK Coal and then of HEPGL). This means that Anthony
will cease to be independent under the terms of the Code in
January 2020 and Lisa will cease to be independent in December
2020. Having successfully identified and appointed a successor
as Chairman, the Committee will now turn its attention to the
succession plans for Anthony and Lisa. It will also consider
whether, in light of the terms of the proposed new Code, the
Company needs to appoint an additional independent
Non-Executive Director so that a majority of the Board, including
the Chairman, are independent.
Diversity
Alongside its property portfolio, the Company’s biggest asset is
its people. The Board recognises that the Company faces a
challenge to improve the diversity of its team at all levels of the
business. The Company has a diversity policy which promotes
equal opportunities and prohibits discrimination in employment
but that policy has recently been subject to an external review
pursuant to which it will be updated shortly. Further information
on the Group’s diversity policy, its initiatives and objectives for,
and progress in, promoting diversity appear at pages 56 and 57
of the Strategic Report.
The Nomination Committee report has been approved by the
Board and signed on its behalf by:
Jonson Cox
Chair of the Nomination Committee (as at 31 December 2017)
24 April 2018
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ report
Statements for the year ended 31 December 2017
92 Harworth Group plc Annual Report and Financial Statements 2017
Directors’ report
Statements for the year ended 31 December 2017
Introduction
The Directors present their report and the audited consolidated financial statements for the year ended 31 December 2017.
In accordance with legislation, some of the matters required to be included in this Directors’ Report have been included instead in the
Strategic Report on pages 2 to 57, because the Board considers them to be of strategic importance, such as the Group’s strategic
priorities, business model, markets and principal risks. Others are included in the wider Statement of Corporate Governance on
pages 60 to 97.
As such, the Directors’ Report should be read in conjunction with the Strategic Report (pages 2 to 57) and the wider Statement of
Corporate Governance (pages 60 to 97) which are incorporated by reference into this Directors’ Report.
The information required to be disclosed in the Directors’ Report 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 engagement
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, p65
Directors’ report, p94
Statement of Corporate Governance, p71
Directors’ report, p94
Board of Directors and Company Secretary, pp60-61
Directors’ report, p94
Directors’ report, p95
Directors’ report, p95
Statement of Corporate Governance, pp64-67
Statement of Corporate Governance, p68
Directors’ report, p94
Statement of Directors’ responsibilities, p97
Strategic report: Our people, pp56-57
Strategic report: Our people, p55
Strategic report: Our people, p55
Strategic report: Our people, p57
Strategic report: Our people, p56
Directors’ Remuneration report, p73
Strategic report, pp2-6
Strategic report, p44
Strategic report, pp52-53
Audit Committee report, pp87-88
Independent auditors’ report, pp98-103
Directors’ report, p95
Strategic report: Chief Executive’s Statement, p14
Financial Statements, Note 31, p141
Directors’ report, pp93-94
Directors’ report, p94
Strategic report, former Chairman’s statement, p11
Directors’ report, p93
Directors’ report, p93
Directors’ report, p93
Strategic report, pp36-43
Audit Committee report, p89
Strategic report, Financial review, p34
Directors’ report, p95
Financial statements, Note 23, p134
Directors’ report, p93
Financial statements, Note 30, p140
Directors’ report, p95
Directors’ report, p96
Directors’ report, p93
The liabilities of the Directors in connection with this Report are subject to the limitations and restrictions provided by English Company law.
Harworth Group plc Annual Report and Financial Statements 2017 93
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 16 of the Financial Statements.
Financial results
The Group’s consolidated income statement set out on page 104 shows Group profit before taxation of £41.8m (2016: £43.5m). The net
assets attributable to Shareholders of the Group increased to £409.3m (2016: £334.9m) over the financial year to 31 December 2017.
The Group’s NAV and EPRA NNNAV rose by 22.2% and 18.3%, respectively, during the year. The Group’s NAV per share and EPRA
NNNAV per share rose by 11.2% and 12.5% respectively. 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 104 to 141 which
accompany this report.
Share capital and authority to allot and purchase shares
The Company’s issued share capital as at 31 December 2016 was 292,269,786 Ordinary Shares of 10 pence each. On 22 March 2017,
the Company issued and allotted a further 29,226,974 Ordinary Shares of 10 pence each pursuant to a non pre-emptive placing of
shares so that, as at 31 December 2017, the Company’s issued share capital was 321,496,760 Ordinary Shares of 10 pence each.
Those shares were placed at a price of 95 pence, 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. The placing raised £27.1m (net of expenses) which the Company
deployed by acquiring, and making initial investments in, five new strategic land sites during 2017. There have been no further changes
to the issued share capital of the Company. As such, the issued share capital of the Company at 23 April 2018 (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.
As at 23 April 2018 (being the latest date prior to publication of this report), there are no 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, 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 2017, it held 246,010 Ordinary Shares of 10 pence each
in the Company in respect of future incentive awards under the Company’s employee share schemes. Details of outstanding awards to
the Executive Directors are set out in the Directors’ remuneration report on page 84. 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. On 22 March
2017, the Company issued and allotted 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, pursuant to the authority
to allot shares granted to the Company by Shareholders at the 2016 Annual General Meeting. In conjunction with the Share Capital
Management Guidelines published by the Investment Association, a resolution was passed at the 2017 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 has not utilised that authority in the
period since the 2017 Annual General Meeting. At the 2018 Annual General Meeting, the Directors propose to renew the authorities
granted to them at the 2017 Annual General Meeting.
Allotment of shares for cash
Under Section 561 of the CA06, 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 2017 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 have not made use of this authority since the 2017 Annual General Meeting. Prior to the 2017 Annual General Meeting,
they did issue shares for non-cash consideration pursuant to the non pre-emptive share placing in March 2017 referred to above.
The Directors propose to renew this authority at the 2018 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 exceeding 7.5% of the
Company’s issued share capital without prior consultation with Shareholders. The Directors intend to comply with that guidance.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ report
Continued
94 Harworth Group plc Annual Report and Financial Statements 2017
Directors’ report
Continued
Purchase of own shares
The Company has authority under a Shareholders’ resolution passed at the 2017 Annual General Meeting to purchase up to 32,149,675
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 2018 Annual General Meeting.
No shares have been purchased by the Company under the authority granted at the 2017 Annual General Meeting.
A special resolution will be proposed at the 2018 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.
Dividends
The Board is recommending a final dividend of 0.575 pence per share which, together with the interim dividend of 0.253 pence per
share paid in October 2017, makes a combined dividend of 0.828 pence (2016: 0.753 pence) per share. Payment of the final dividend,
if approved at the 2018 Annual General Meeting, will be made on 1 June 2018 to Shareholders on the register at the close of business
on 4 May 2018. The ex-dividend date will be 3 May 2018.
The dividend paid in the year to 31 December 2017 and disclosed in the Statement of Changes in Equity is 0.776 pence
(2016: 0.74 pence) per share, being the previous year’s final dividend of 0.523 pence per share and the interim dividend of 0.253 pence
per share in respect of the year ended 31 December 2017. These were paid on 30 May 2017 and 13 October 2017 respectively.
Directors and Directors’ interests
A list of the Company’s Directors who were in office during the year ended 31 December 2017 and up to the date of signing the financial
statements, along with their biographies, appear in the Statement of Corporate Governance on pages 60 and 61.
Details of the Directors’ remuneration and beneficial interests in, and options to acquire, Ordinary Shares in the Company as at
31 December 2017 are set out in the Directors’ Remuneration report on page 84. Details of the Directors’ beneficial interests in, and
options to acquire, Ordinary Shares as at 23 April 2018 (being the latest practical date prior to publication of this report) are set out in the
Directors’ remuneration report on page 84. 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.
Alastair Lyons will, therefore, be standing for election at the 2018 Annual General Meeting.
The Articles of Association 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 2018 Annual General Meeting.
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’ liability 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.
Harworth Group plc Annual Report and Financial Statements 2017 95
Political donations
No political donations were made during the year (2016: £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 2017 Annual General Meeting for certain political donations and expenditure, subject to financial limits. The Directors
will seek to renew this authority at the 2018 Annual General Meeting.
Charitable donations
The Group made charitable donations during 2017 in the aggregate sum of £22,735 (2016: £7,558).
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
pages 33 and 34.
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 2017 Annual General Meeting. The Directors are proposing to seek renewal of that authority at
the 2018 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
11,707,922
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 RBS and HEPGL in February 2015 and amended in August 2016,
December 2016, August 2017 and February 2018, 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/.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
96 Harworth Group plc Annual Report and Financial Statements 2017
Directors’ report
Continued
Agreements with related parties
At the start of 2017 there subsisted five joint venture agreements with members of the Peel Group, which were approved by
Shareholders in 2011, for the promotion and development of energy from waste schemes at five sites owned by the Group. Those joint
venture arrangements were varied during 2017, with the approval of shareholders 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 Code,
which applied during the financial year ended 31 December 2017 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 2017, 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 financial statements 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 as at 31 December 2017 and now Alastair Lyons as the date of this Report) 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 a majority of votes on the Committee.
• Given that Jonson Cox announced at the 2017 Annual General Meeting that he would not be standing for re-election at the
2018 Annual General Meeting and his successor was identified and appointed during the course of 2017, the Non-Executive
Directors did not meet during 2017 to appraise the (now former) Chairman’s performance. An appraisal of the new Chairman’s
performance will be undertaken before publication of the 2018 Annual Report.
• The Senior Independent Director was unable to attend the 2017 Annual General Meeting in person, but did attend the meeting,
and answered questions, by conference call. All directors will be in attendance at the 2018 Annual General Meeting.
Approval
This report was approved by the Board of Directors and signed on its behalf by:
Chris Birch
Group General Counsel and Company Secretary
24 April 2018
Statement of Directors’ responsibilities
in respect of the financial statements
Harworth Group plc Annual Report and Financial Statements 2017 97
Statement of Directors’ responsibilities
in respect of the financial statements
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared
the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European
Union and have prepared the 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 of the
Company for that period.
In preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
•
•
for the Group financial statements, state whether applicable IFRSs as adopted by the European Union have been followed,
subject to any material departures disclosed and explained in the financial statements;
for the Company financial statements, state whether applicable IFRSs as adopted by the European Union have been followed,
subject to any material departures disclosed and explained in the financial statements;
• assess the Group and Company’s ability to continue as a going concern, disclosing, as applicable, matters relating to their
going concern status; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and Group
will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group 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 CA06 and, as regards the
Group financial statements, Article 4 of the IAS Regulation. They are responsible for such internal control as they determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
The Directors are also responsible for taking such steps as are reasonably open to them to safeguard the assets of the Group and
hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for preparing a strategic report, corporate governance statement, directors’ remuneration report and
directors’ report that complies with applicable law and regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information which appears on the
Company’s website www.harworthgroup.com. Legislation in the United Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Each of the Directors who were in office during the year ended 31 December 2017 and up to the date of this Report, considers that the
2017 Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information
necessary for Shareholders to assess the Company’s position, performance, business model and strategy.
Each of the Directors who were in office during the year ended 31 December 2017 and up to the date of this Report, confirms to the
best of their knowledge:
•
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;
•
•
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; and
the Strategic report includes a fair review of the development and performance of the business and the position of the Group
and the Company, together with a description of the principal risks and uncertainties that they face.
Each of the Directors who were in office during the year ended 31 December 2017 and up to the date of this Report also confirms:
• so far as the Director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and
•
the Director has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any
relevant audit information and to establish that the Company’s auditors are aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of section 418 CA06.
The Directors’ report, prepared in accordance with the requirements of CA06 and the FCA’s Listing and Disclosure and Transparency
Rules, was approved by the Board and signed on its behalf by:
Chris Birch
Group General Counsel and Company Secretary
24 April 2018
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Independent auditors’ report
to the members of Harworth Group plc
98 Harworth Group plc Annual Report and Financial Statements 2017
Independent auditors’ report
to the members of Harworth Group plc
Report on the audit of the financial statements
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 2017 and of the group’s
profit and the group’s and the company’s cash flows for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union and, as regards the company’s
financial statements, as applied in accordance with the provisions of the Companies Act 2006; and
• 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.
We have audited the financial statements, included within the Annual Report and Financial Statements 2017 (the “Annual Report”), which
comprise: the Balance sheets as at 31 December 2017; the Consolidated income statement and Consolidated statement of
comprehensive income, the Statements of cash flows, and the Consolidated statement of changes in equity and Company statement of
changes in equity for the year then ended; and the notes to the financial statements, which include a description of the significant
accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of
our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided
to the group or the company.
Other than those disclosed in note 8 to the financial statements, we have provided no non-audit services to the group or the company in
the period from 1 January 2017 to 31 December 2017.
Our audit approach
Overview
• Overall group materiality: £5.0m (2016: £4.6m), based on 1% of total assets.
• Overall company materiality: £2.4m (2016: £2.2m), based on 1% of total assets.
• 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 30 reporting units within these two business
lines and the Group’s centralised functions.
• Of the Group’s 30 reporting units, we identified 5 which, in our view, had the most significant effect
on the Group 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 94% of total assets and 97% 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.
• Valuation of investment property (£216.6m) (Refer to note 15 of the financial statements) (Group).
• Valuation of development property (£210.5m) (Refer to note 17 of the financial statements) (Group).
Harworth Group plc Annual Report and Financial Statements 2017 99
The scope of our audit
As part of designing our audit, we determined materiality and assessed 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.
We gained an understanding of the legal and regulatory framework applicable to the group and the industry in which it operates, and
considered the risk of acts by the group which were contrary to applicable laws and regulations, including fraud. We designed audit
procedures at group and significant component level to respond to the risk, recognising that the risk of not detecting a material
misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment
by, for example, forgery or intentional misrepresentations, or through collusion. We focused on laws and regulations that could give rise
to a material misstatement in the group and company financial statements, including, but not limited to, Companies Act 2006. Our tests
included, but were not limited to, review of the financial statement disclosures to underlying supporting documentation, review of
correspondence with and reports to the regulators, review of correspondence with legal advisors and enquiries of management in so
far as they related to the financial statements. There are inherent limitations in the audit procedures described above and the further
removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less
likely we would become aware of it.
We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits we also addressed the risk of
management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the directors
that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures
thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Valuation of investment property (£216.6m) (Refer to note 15 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
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.
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 67% 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.
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.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
100 Harworth Group plc Annual Report and Financial Statements 2017
Independent auditors’ report
to the members of Harworth Group plc
Key audit matter
How our audit addressed the key audit matter
Valuation of development property (£210.5m) (Refer to note 17 of the
financial statements)
We focused on this area because the Group’s development property
assets represent a significant proportion of the assets in the
Consolidated Balance sheet.
The Group’s development properties were valued at £210.5m as at
31 December 2017. These properties are held at the lower of cost and
net realisable value, in accordance with IAS 2 – Inventory, following the
transfer from investment property at fair value and/or expenditure incurred
during the year, resulting in a deemed cost. As qualifying costs are
incurred on existing developments, these are added to the asset balance.
The Group’s portfolio consists of a variety of assets at varying stages of
completion, across various sectors, located throughout the UK. While
during the year there were several disposals recorded, the portfolio
includes certain assets transferred during the year from investment
properties where they were held at fair value which could indicate a
higher risk that the carrying value is higher than the net realisable value.
In addition, there are assets subject to significant judgements as a result
of costs to complete the development site ahead of a future sale.
The UK property market has varying capital values and Estimated
Rental Values (“ERVs”) across many sectors and geographic locations,
increasing the risk of impairment across the portfolio due to market
conditions. A change in conditions for specific assets or a relatively
small percentage change in the either the property or construction
markets could result in a material impact to the financial statements.
Management performed an assessment of the net realisable value for
each individual asset, including producing and reviewing development
appraisals. We assessed the competence and capabilities of
management and were satisfied that the individuals are sufficiently
qualified. We met with management to understand the status and future
plans for each asset and challenge key assumptions inherent in the
appraisals. We also visited a sample of assets with management.
Management further supported their development appraisals with
internal and external third party valuations on each individual site. We
read the third party property valuation reports obtained by management
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. Where applicable
due to the advanced stage of the development, we also agreed third
party documentation supporting the book value through a review
of pre-letting agreements, forward sales, quantity surveyor cost to
complete estimates, board minutes and planning consent forms. Where
applicable due to the advanced stage of the development, we also
agreed third party documentation supporting the book value through a
review of pre-letting agreements, forward sales, quantity surveyor cost
to complete estimates, board minutes and planning consent forms.
Additionally, we performed a look-back test, comparing historic book
values of assets to disposal proceeds following their sale. There have
been no significant losses made on disposals in recent years, including
assets previously subject to write-downs. Based on this work we are
satisfied with the evidence that development and trading properties are
held at the lower of cost and net realisable value.
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 structure of the group and the company, the accounting processes and controls, and the industry in
which they operate.
The Group is structured along two business lines being Capital Growth and Income Generation. The Group financial statements are a
consolidation of the 30 reporting units within these two business lines and the Group’s centralised functions. Of the Group’s 30 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 94% of total assets and 97% 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.
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 in aggregate 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 materiality
How we determined it
Rationale for benchmark applied
Group financial statements
Company financial statements
£5.0m (2016: £4.6m).
1% of total assets.
The key driver of the business and determinant of
the Group’s value is direct and indirect property
investments. Due to this, the key area of focus in
the audit is the valuation of investment properties
and carrying value of development properties. On
this basis, we set an overall Group materiality level
based on total assets, which is a generally accepted
auditing benchmark.
£2.4m (2016: £2.2m).
1% of total assets.
The key driver of the business and determinant of
the company’s value is direct and indirect property
investments. Due to this, the key area of focus in the
audit is the valuation of investment properties and
carrying value of development properties. On this
basis, we set an overall materiality level based on
total assets, which is a generally accepted auditing
benchmark.
Harworth Group plc Annual Report and Financial Statements 2017 101
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range
of materiality allocated across components was between £1.4m and £4.6m. Certain components were audited to a local statutory audit
materiality that was also less than our overall group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £236,000 (Group
audit) (2016: £196,000) and £236,000 (Company audit) (2016: £196,000) as well as misstatements below those amounts that, in our
view, warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw
attention to in respect of the directors’ statement in the financial
statements about whether the directors considered it appropriate to
adopt the going concern basis of accounting in preparing the financial
statements and the directors’ identification of any material uncertainties
to the group’s and the company’s ability to continue as a going concern
over a period of at least twelve months from the date of approval of the
financial statements.
We have nothing material to add or to draw attention to. However,
because not all future events or conditions can be predicted, this
statement is not a guarantee as to the group’s and company’s ability to
continue as a going concern.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any
form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to
perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information,
we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ report, we also considered whether the disclosures required by the UK Companies
Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006,
(CA06) and ISAs (UK) require us also to report certain opinions and matters as described below (required by ISAs (UK) unless
otherwise stated).
Strategic Report and Directors’ report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’
report for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements. (CA06)
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we
did not identify any material misstatements in the Strategic Report and Directors’ report. (CA06)
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 UK Corporate Governance Code (the “Code”), we are
required to report to you if we have anything material to add or draw attention to regarding:
• The directors’ confirmation on page 36 of the Annual Report 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.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The directors’ explanation on page 44 of the Annual Report 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 to report in respect of this responsibility.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
102 Harworth Group plc Annual Report and Financial Statements 2017
Independent auditors’ report
to the members of Harworth Group plc
Other Code Provisions
As a result of the directors’ voluntary reporting on how they have applied the Code, we are required to report to you if, in our opinion:
• The statement given by the directors, on page 97, that they consider the Annual Report taken as a whole to be fair, balanced
and understandable, and provides the information necessary for the 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
obtained in the course of performing our audit.
• The section of the Annual Report on page 86 describing the work of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
We have nothing to report in respect of this responsibility.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006. (CA06)
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ responsibilities set out on page 97, the directors are responsible for the preparation
of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The
directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as a
going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
Harworth Group plc Annual Report and Financial Statements 2017 103
Use of this report
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.
Other required reporting
Companies Act 2006 exception reporting
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
• certain disclosures of directors’ remuneration specified by law are not made; 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.
Appointment
Following the recommendation of the audit committee, we were appointed by the members on 22 February 1992 to audit the financial
statements for the year ended 31 December 1992 and subsequent financial periods. The period of total uninterrupted engagement is
26 years, covering the years ended 31 December 1992 to 31 December 2017.
Andy Ward (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Leeds
24 April 2018
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Consolidated income statement
for the year ended 31 December 2017
104 Harworth Group plc Annual Report and Financial Statements 2017
Consolidated income statement
for the year ended 31 December 2017
Revenue
Cost of sales
(20,905)
Gross profit
Administrative expenses
Other gains
Other operating income/(expense)
Operating profit before exceptional items
Exceptional income
Exceptional expense
(682)
Operating profit
Share of profit of joint ventures
Finance income
Finance costs
Profit before tax
Tax credit/(charge)
Profit for the financial year
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
Note
2
2
2
2
2
4
4
16
7
7
9
53,673
(37,678)
15,995
(12,020)
35,658
98
39,731
414
(83)
40,062
4,039
16
(2,277)
41,840
7,843
49,683
33,693
(20,905)
12,788
(10,457)
43,027
(204)
45,154
689
(682)
45,161
647
247
(2,588)
43,467
(3,566)
39,901
Profit per share from continuing operations attributable to the owners of the Group during the year
Basic and diluted earnings per share
Note
12
pence
15.8
pence
13.7*
*The 2016 earnings per share has been restated to reflect the impact of the May 2016 1 for 10 share consolidation.
The Notes on pages 110 to 141 are an integral part of the consolidated financial statements.
Consolidated statement of comprehensive income
for the year ended 31 December 2017
Harworth Group plc Annual Report and Financial Statements 2017 105
Consolidated statement of comprehensive income
for the year ended 31 December 2017
Profit for the financial year
Other comprehensive income/(expense) – items that will not be reclassified to profit or loss:
Actuarial loss in Blenkinsopp Pension Scheme
Revaluation of Group occupied property
Deferred tax on other comprehensive income/(expense) items
Other comprehensive income/(expense) – items that may be reclassified subsequently to profit or loss:
Fair value of financial instruments
Total other comprehensive income/(expense)
Total comprehensive income for the financial year
Note
25
13
9
23
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
49,683
39,901
(105)
12
(51)
244
100
94
(269)
(17)
94
(366)
(558)
49,783
39,343
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Balance sheets
as at 31 December 2017
106 Harworth Group plc Annual Report and Financial Statements 2017
Balance sheets
as at 31 December 2017
ASSETS
Non-current assets
Property, plant and equipment
Other receivables
Investment properties
Investment in subsidiaries
Investment in joint ventures
Retirement asset
Trade receivables
Deferred income tax asset
Current assets
Inventories
Trade and other receivables
Assets classified as held for sale
Cash
Total assets
LIABILITIES
Current liabilities
Borrowings
Trade and other payables
Current tax liabilities
Net current assets
Non-current liabilities
Borrowings
Trade and other payables
Derivative financial instruments
Deferred income tax liabilities
Retirement benefit obligations
(563)
Total liabilities
(4,099)
Net assets
SHAREHOLDERS’ EQUITY
Capital and reserves
Called up share capital
Share premium account
Investment in own shares
Fair value reserve
Capital redemption reserve
Merger reserve
Current year profit/(loss)
Retained earnings
Retained earnings/(deficit)
Total equity
Group
Company
As at
31 December
2017
£’000
As at
31 December
2016
£’000
As at
31 December
2017
£’000
As at
31 December
2016
£’000
Note
13
14
15
16
16
25
18
9
17
18
19
20
21
22
9
21
22
23
9
25
–
–
(563)
26
27
26
802
2,666
216,560
–
18,838
–
5,250
–
244,116
211,618
25,165
7,688
8,371
252,842
496,958
(6,145)
(38,497)
(1,538)
(46,180)
206,662
(34,501)
(760)
(122)
(5,521)
(563)
–
(41,467)
–
(87,647)
409,311
32,150
24,351
(263)
85,109
257
45,667
49,683
172,357
409,311
789
1,397
379,190
–
10,549
–
–
–
391,925
733
24,444
8,350
13,007
46,534
–
–
–
207,896
–
563
–
250
208,709
–
33,268
–
1,267
34,535
438,459
243,244
(1,819)
(33,719)
–
(1,885)
(35,538)
10,996
(50,659)
(1,520)
(366)
(14,851)
(602)
(67,998)
–
(3,536)
–
(3,536)
30,999
–
–
–
–
(563)
(563)
–
–
–
207,896
–
602
–
3,053
211,551
–
9,151
–
2,171
11,322
222,873
–
(1,885)
–
(1,885)
9,437
–
–
–
–
(602)
(602)
(103,536)
334,923
(4,099)
239,145
(2,487)
220,386
29,227
–
–
58,279
257
45,667
39,901
161,592
334,923
32,150
24,351
(263)
–
257
45,667
(5,759)
142,742
239,145
29,227
–
–
–
257
45,667
1,348
143,887
220,386
The financial statements on pages 104 to 141 were approved by the Board of Directors on 24 April 2018 and were signed on its
behalf by:
Owen Michaelson
Chief Executive
Andrew Kirkman
Finance Director
Company Registered Number 2649340
Consolidated statement of changes in equity
for the year ended 31 December 2017
Harworth Group plc Annual Report and Financial Statements 2017 107
Consolidated statement of changes in equity
for the year ended 31 December 2017
Balance at 1 January 2016
Profit for the financial year to 31 December 2016
Fair value gains
Other comprehensive (expense)/income:
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
Share
premium
account
£’000
Investment
in own
shares
£’000
Called up
share
capital
£’000
29,227
–
–
–
–
–
–
–
Note
25
13
23
9
129,121
–
–
–
–
–
–
–
27
– (129,121)
Fair value
reserve*
£’000
24,060
–
34,236
–
(17)
–
–
34,219
–
–
Capital
redemption
reserve
£’000
Merger
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
257
–
–
45,667
–
–
69,411
39,901
(34,236)
297,743
39,901
–
–
–
–
–
–
–
–
–
–
–
–
–
(269)
–
(366)
94
(269)
(17)
(366)
94
5,124
39,343
– 129,121
–
–
(2,163)
(2,163)
58,279
257
45,667 201,493 334,923
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 December 2016 and 1 January 2017
29,227
Profit for the financial year to 31 December 2017
Fair value gains
Transfer of unrealised loss
Other comprehensive (expense)/income:
Actuarial loss in Blenkinsopp pension scheme
Revaluation of Group occupied property
Fair value of financial instruments
Deferred tax on other comprehensive
(expense)/income items
Total comprehensive income for the year ended
31 December 2017
Transactions with owners:
Share issue less costs
Other transaction costs
Purchase of own shares
Dividends paid
17
25
13
23
9
26
27
26
11
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
32,636
(5,818)
–
–
–
–
–
–
12
–
–
26,830
2,923
–
–
–
24,142
209
–
–
–
–
(263)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
49,683
(32,636)
5,818
49,683
–
–
(105)
–
244
(51)
(105)
12
244
(51)
22,953
49,783
–
–
86
(2,492)
27,065
209
(177)
(2,492)
Balance at 31 December 2017
32,150
24,351
(263)
85,109
257
45,667 222,040 409,311
*The fair value reserve relates to unrealised gains and losses arising primarily from the revaluation of investment properties and historical gains/losses from
investment property that has now been transferred to development property.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Company statement of changes in equity
for the year ended 31 December 2017
108 Harworth Group plc Annual Report and Financial Statements 2017
Company statement of changes in equity
for the year ended 31 December 2017
Balance at 1 January 2016
Profit for the financial year to 31 December 2016
Other comprehensive income/(expense):
Actuarial loss in Blenkinsopp pension scheme
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
Balance at 31 December 2016 and 1 January 2017
Loss for the financial year to 31 December 2017
Actuarial loss in Blenkinsopp pension scheme
Deferred tax on actuarial loss on pension scheme
Total comprehensive expense for the year ended
31 December 2017
Transactions with owners:
Share issue less costs
Other transaction costs
Purchase of own shares
Dividends paid
Balance at 31 December 2017
Called up
share
capital
£’000
Share
premium
account
£’000
Investment
in own
shares
£’000
Capital
redemption
reserve
£’000
Note
Merger
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
29,227
–
129,121
–
–
–
257
–
45,667
–
17,170
1,348
221,442
1,348
25
27
25
26
27
26
11
–
–
–
–
–
29,227
–
–
–
–
–
–
–
(129,121)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,923
–
–
–
24,142
209
–
–
32,150
24,351
–
–
(263)
–
(263)
–
–
–
–
–
–
–
–
–
–
(269)
28
(269)
28
1,107
1,107
129,121
(2,163)
–
(2,163)
257
45,667 145,235 220,386
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5,759)
(105)
18
(5,759)
(105)
18
(5,846)
(5,846)
–
–
86
(2,492)
27,065
209
(177)
(2,492)
257
45,667
136,983
239,145
Statements of cash flows
for the year ended 31 December 2017
Harworth Group plc Annual Report and Financial Statements 2017 109
Statements of cash flows
for the year ended 31 December 2017
Cash flows from operating activities
Profit/(loss) before tax for the financial year
Net interest payable/(receivable)
Other gains
Share of profit of joint ventures
Depreciation of property, plant and equipment
Pension contributions in excess of charge
Operating cash inflows/(outflows) before movements
in working capital
Decrease in inventories
Increase in receivables
Increase in payables
Cash generated from/(used in) operations
Loan arrangement fees paid
Interest paid
Corporation tax received
Cash generated from/(used in) operating activities
Cash flows from investing activities
Interest received
Investment in/acquisition of joint ventures
Proceeds from disposal of investment properties
Expenditure on investment properties
Expenditure on property, plant and equipment
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
Proceeds from bank loans
Repayment of other loans
Investment in own shares
Other transaction costs
Dividends paid
Cash generated from/(used in) financing activities
Decrease in cash
At 1 January
Cash
Decrease in cash
At 31 December
Cash
Note
7
5
16
13
27
11
Group
Company
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
41,840
2,261
(35,658)
(4,039)
8
(144)
4,268
18,232
(5,970)
8,394
24,924
(214)
(1,277)
175
23,608
16
(4,250)
24,434
(60,431)
(9)
(40,240)
27,065
6,502
(57,000)
43,000
(5,111)
(177)
209
(2,492)
11,996
(4,636)
13,007
(4,636)
43,467
2,341
(43,027)
(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
(14,557)
(2,937)
(501)
–
–
–
(144)
(3,582)
–
(23,714)
1,787
(25,509)
–
–
–
(25,509)
–
–
–
–
–
–
27,065
–
–
–
–
(177)
209
(2,492)
24,605
(904)
2,171
(904)
(1,707)
(183)
–
–
–
(102)
(1,992)
–
(1,584)
1,014
(2,562)
–
–
–
(2,562)
9
–
–
–
–
9
–
–
–
–
–
–
–
(2,163)
(2,163)
(4,716)
6,887
(4,716)
8,371
13,007
1,267
2,171
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements
for the year ended 31 December 2017
110 Harworth Group plc Annual Report and Financial Statements 2017
Notes to the financial statements
for the year ended 31 December 2017
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 company limited by shares, incorporated and domiciled in the United Kingdom.
The address of its registered office is Advantage House, Poplar Way, Catcliffe, Rotherham, South Yorkshire, S60 5TR.
The Company is a listed public company 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 ‘Managing Risk’ section of this annual report, as well as taking into account the available
borrowing facilities in line with the Treasury Policy disclosed on pages 134 and 135.
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, income from construction contracts,
the sale of coal fines and the sale of development properties.
Rentals are accounted for on a straight-line basis over the lease term.
Income from construction contracts is recognised in line with the accounting policy for construction contracts. Revenue is
recognised when the Group is acting as a principal under a contract with primary responsibility for the contract and has exposure
to significant risks and rewards of the contract.
Revenue from the sale of coal fines is recognised at the point of despatch.
Revenue from the sale of development properties is recognised at the point of legal completion and where title has passed.
Revenue is recognised to the extent that it is probable that the economic benefit 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. 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.
Harworth Group plc Annual Report and Financial Statements 2017 111
1. Accounting policies: continued
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.
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 development properties, land held for development, options to purchase land, planning promotion
agreements and coal slurry that has been processed and is ready for sale.
Development properties are included in the consolidated Balance sheet at the lower of cost and net realisable value. Net realisable
value is the expected net sales proceeds of the developed property in the ordinary course of business less estimated costs to
complete and anticipated selling costs. Properties re-categorised to development properties from investment properties are
transferred at deemed cost, being the fair value at the date of re-categorisation. Properties are re-categorised as development
properties once planning is secured and the intention to bring those properties forward for development and sale has been agreed.
Land held for development is land that has planning permission and is being developed for onward 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. All costs, including the cost of entering the option, are capitalised. At each reporting date, the
recoverability of the costs are considered by management and where required provisions are made such that the agreements are
held at the lower of cost and net realisable value.
Planning promotion agreements are agreements that the Group has entered into with the landowners whereby the Group acts as
an agent to the landowners in exchange for a fee of a set percentage of the proceeds or profit of the eventual sale. The Group
promotes the land through the planning process at its own expense. If the land is sold the Group will receive a fee for its services.
The Group incurs various costs in promoting land held under promotion planning agreements, in some instances the agreements
allow for the Group to be reimbursed certain expenditure following the conclusion of a successful sale. These costs are held in
inventory at the lower of cost and net realisable value. Upon reimbursement, inventory is reduced by the value of the reimbursed cost.
Coal fines that have been processed and are ready for sale are stated at the lower of cost and estimated net realisable value.
Inventories comprise all of the direct costs incurred in bringing the coal fines to their present state.
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 by the Group. 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.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Notes to the financial statements
for the year ended 31 December 2017: continued
112 Harworth Group plc Annual Report and Financial Statements 2017
Notes to the financial statements
for the year ended 31 December 2017: continued
1. Accounting policies: continued
Investment properties are re-categorised as development properties and moved to inventory once planning is secured and the
intention to bring those properties forward for development and sale has been agreed.
A transfer from the fair value reserve to retained earnings is made if any net realisable value provision is required on any
development property where gains had previously been recorded as an investment property.
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’.
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.
Investment properties in the course of construction
Directly attributable costs incurred in the course of constructing a property are capitalised as part of the cost of the property.
Any resultant change in value is therefore recognised through the next revaluation.
Financial assets
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 are presented in the income statement within ‘other gains’
in the period in which they arise.
Interest income is recognised on financial assets by applying the effective interest rate, except for short-term recievables when the
recognition of interest would be immaterial.
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.
Harworth Group plc Annual Report and Financial Statements 2017 113
1. Accounting policies: continued
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.
During the years to 31 December 2017 and 31 December 2016 all contributions have been paid to the pension fund by the Company.
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 an indemnity from Harworth Estates Mines Property Limited for this liability if required.
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 basis 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 investment and development property portfolios, and includes planning and development activity, value engineering,
proactive asset management and strategic land acquisitions.
All operations are carried out in the United Kingdom.
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 value 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 the 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.
Intercompany 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.
Property, plant and equipment
Land and buildings relate to group occupied properties. These properties are stated at their fair value, based on market values,
less any subsequent accumulated depreciation or accumulated impairment loss. Depreciation is provided where it is considered
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 114 Harworth Group plc Annual Report and Financial Statements 2017
Notes to the financial statements
for the year ended 31 December 2017: continued
1. Accounting policies: continued
significant having regard to the estimated remaining useful lives and residual values of individual properties. 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
on these assets 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 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.
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 derivative 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
Harworth Group plc Annual Report and Financial Statements 2017 115
1. Accounting policies: continued
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.
Changes in accounting policy and disclosures
a) New standards, amendments and interpretations
At the date of the authorisation of these Financial Statements, the following standards, amendments and interpretations to existing
standards are effective or mandatory for the first time for the accounting year ended 31 December 2017:
Annual improvements (issued 2016)
IAS 7 (amended 2016)
IAS 12 (amended 2016)
‘Annual Improvements to IFRSs 2014–2016 Cycle’
‘Disclosure Initiative’
‘Recognition of Deferred Tax Assets for Unrealised Losses’
Effective from
1 January 2017
1 January 2017
1 January 2017
The adoption of these standards and interpretations has not had a significant impact on the Group.
(b) New standards, amendments and interpretations not yet adopted
At the date of the authorisation of these Financial Statements, the following standards, amendments and interpretations were in
issue but not yet effective:
Annual improvements (issued 2017)
IAS 28 (amended 2017)
IAS 40 (amended 2016)
IFRIC 22 (amended 2016)
IFRIC 23 (amended 2017)
IFRS 2 (amended 2016)
IFRS 4 (amended 2016)
IFRS 9 (issued 2014)
IFRS 9 (amended 2017)
IFRS 15 (issued 2014)
IFRS 16 (issued 2016)
IFRS 17 (issued 2017)
‘Annual Improvements to IFRSs 2015–2017 Cycle’
‘Long-term interests in Associates and Joint Ventures’
‘Transfers of Investment Property’
‘Foreign Currency Transactions and Advance Consideration’
‘Uncertainty over Income Tax Treatments’
‘Classification and Measurement of Share-based Payment Transactions’
‘Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts’
‘Financial Instruments’
‘Prepayment features with negative compensation’
‘Revenue from Contracts with Customers’
‘Leases’
‘Insurance contracts’
Effective from
1 January 2019*
1 January 2019*
1 January 2018*
1 January 2018*
1 January 2019*
1 January 2018*
1 January 2018
1 January 2018
1 January 2019*
1 January 2018
1 January 2019*
1 January 2021*
*Not yet endorsed by the EU.
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 SOCI and fair value through profit and loss. 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, subject to EU endorsement. The impact of IFRS 9 has been assessed on the
financial instruments of the Group. At present, based on these assessments, management do not believe that any significant
adjustments are required.
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. The Group has performed a detailed assessment of the impact of IFRS 15 on existing
revenue streams and policies. This review has highlighted that revenues relating to the sales of development properties,
particularly where revenue involves a deferred element or conditions subsequent exist, are specifically affected by the
standard. The Group expects the impact of implementing this standard on revenue to amount to a decrease of £2.1m for 2017.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
116 Harworth Group plc Annual Report and Financial Statements 2017
Notes to the financial statements
for the year ended 31 December 2017: continued
1. Accounting policies: continued
•
IFRS 16, ‘Leases’ addresses the definition of a lease, recognition and measurement of leases and establishes principles for
reporting useful information to users of financial statements about the leasing activities of both lessees and lessors. A key
change arising from IFRS 16 is that most operating leases will be accounted for on Balance sheet for lessees. The standard
replaces IAS 17 ‘Leases’, and related interpretations. The standard is effective for annual periods beginning on or after
1 January 2019 and earlier application is permitted, subject to EU endorsement and the entity adopting IFRS 15 ‘Revenue
from contracts with customers’ at the same time. The full impact of IFRS 16 continues to be assessed, however, management
does not believe it will have a significant impact.
Critical accounting estimates and judgements
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may
differ from these estimates.
In preparing these financial statements, the significant judgements made by management in applying the Group’s accounting
policies and the key sources of estimation uncertainty are as follows:
Estimation of fair value of investment property
The fair value of investment property reflects, amongst other things, rental income from our current leases, assumptions about
rental income from future leases and the possible outcome of planning applications, in the light of current market conditions.
The valuation has been arrived at primarily after consideration of market evidence for similar property, although in the case of
those properties where fair value is based on their ultimate redevelopment potential, development appraisals have been
undertaken to estimate the residual value of the landholding after due regard to the cost of, and revenue from, the development of
the property.
The Group has also estimated the extent to which existing mining tenants on investment property owned by the Group would
perform their obligations to remediate land at the conclusion of mining activity and therefore the impact of any restoration
obligations which may revert to the Group. The potential shortfall has been estimated at £3.2m (2016: £6.0m) and has been
treated as a reduction in the valuation of the properties which these former tenants occupied.
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 15.
Categorisation of the property portfolio
During the year £229.1m of property was re-categorised from investment to development property. This re-categorisation was
triggered by the evolution of Harworth’s business model, including the March 2017 capital raise, as well as the consideration of
site and market opportunities.
Revenue
Overdue rents and royalties from the mining businesses amounting to £2.2m were 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 in 2016 gave greater visibility of the recoverability
of this revenue and therefore revenue was recognised in 2016. This is a non recurring event and there is no such income
remaining in 2017.
Taxation
The recognition of deferred tax assets has been reviewed and re-assessed during the year. This has resulted in the recognition of
deferred tax assets of £19.1m (2016: £8.4m) based upon the certainty of recoverability. Of this £5.9m has been recognised due to
the execution of a contract which resulted in increased certainty that the losses would not be lost and £13.2m is due to the
crystallisation of chargeable gains and losses as a result of a number of investment property disposals and the re-categorisation
of properties from investment to development properties. These gains have been offset against tax losses that were previously not
recognised from a deferred tax perspective.
2. Segment Information
31 December 2017
Group
Revenue
Cost of sales
Gross profit(1)
Administrative expenses
Other gains(2)
Other operating income
Operating profit/(loss) before exceptional items
Net exceptional items
Operating profit/(loss)
Share of profit of joint ventures
Finance income
Finance costs
Profit/(loss) before tax
Other information
(1) Gross profit is analysed as follows:
Gross profit excluding sales of development properties
Gross profit on sale of development properties
Net realisable value provision on development properties
(2) Other gains are analysed as follows:
Increase in fair value of investment properties
(Decrease) /increase in fair value of assets classified as held for sale
Increase in fair value of overages
Profit on disposal of investment properties
Profit on disposal of assets classified as held for sale
Harworth Group plc Annual Report and Financial Statements 2017 117
Capital Growth
Note
Sale of
Development
Properties
£’000
29,765
(27,893)
5
5
4
16
7
7
1,872
–
–
–
1,872
–
1,872
–
–
–
1,872
–
7,690
(5,818)
1,872
–
–
–
–
–
–
Other
Property
Activities
£’000
Income
Generation
£’000
Unallocated
costs
£’000
5,671
(4,396)
1,275
(1,927)
26,924
–
26,272
–
26,272
26
–
–
26,298
1,275
–
–
1,275
26,139
(113)
586
216
96
26,924
18,237
(5,389)
12,848
(1,752)
8,734
17
19,847
–
19,847
4,013
–
–
23,860
12,848
–
–
12,848
5,994
30
–
2,703
7
8,734
–
–
–
(8,341)
–
81
(8,260)
331
(7,929)
–
16
(2,277)
(10,190)
–
–
–
–
–
–
–
–
–
–
Total
£’000
53,673
(37,678)
15,995
(12,020)
35,658
98
39,731
331
40,062
4,039
16
(2,277)
41,840
14,123
7,690
(5,818)
15,995
32,133
(83)
586
2,919
103
35,658
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
118 Harworth Group plc Annual Report and Financial Statements 2017
Notes to the financial statements
for the year ended 31 December 2017: continued
2. Segment information: continued
31 December 2017 continued
Segmental assets
Property, plant and equipment
Other receivables
Investment properties
Investments in joint ventures
Inventories
Non-current trade receivables
Current trade and other receivables
Assets classified as held for sale
Unallocated assets:
Cash
Total assets
Note
13
14
15
16
17
18
18
19
20
Capital
Growth
£’000
–
2,666
43,132
1,042
211,535
5,250
16,516
2,782
Income
Generation
£’000
Unallocated
£’000
–
–
173,428
17,796
83
–
6,762
4,906
802
–
–
–
–
–
1,887
–
Total
£’000
802
2,666
216,560
18,838
211,618
5,250
25,165
7,688
282,923
202,975
2,689
488,587
–
–
282,923
202,975
8,371
11,060
8,371
496,958
Financial liabilities are not allocated to the reporting segments as they are managed and measured on a Group basis.
31 December 2016
Group
Revenue*
Cost of sales
Gross profit
Administrative expenses
Other gains(1)
Other operating expenses
Operating profit/(loss) before exceptional items
Net exceptional items
Operating profit/(loss)
Share of profit of joint ventures
Finance income
Finance costs
Profit/(loss) before tax
Note
5
5
4
16
7
7
Capital
Growth
£’000
16,307
(15,967)
340
(1,765)
31,653
–
30,228
–
30,228
–
–
–
30,228
Income
Generation
£’000
Unallocated
costs
£’000
17,386
(4,938)
12,448
(1,416)
11,374
(117)
22,289
(682)
21,607
647
–
–
22,254
–
–
–
(7,276)
–
(87)
(7,363)
689
(6,674)
–
247
(2,588)
(9,015)
Total
£’000
33,693
(20,905)
12,788
(10,457)
43,027
(204)
45,154
7
45,161
647
247
(2,588)
43,467
* No activity relating to sale of development properties occurred in the year ended 31 December 2016.
Other information
(1) Other gains are analysed as follows:
Increase in fair value of investment properties
Decrease in fair value of assets classified as held for sale
Increase in fair value of overages
Profit on disposal of investment properties
Loss on disposal of assets classified as held for sale
23,433
–
747
7,473
–
31,653
10,280
(224)
–
1,693
(375)
11,374
–
–
–
–
–
–
33,713
(224)
747
9,166
(375)
43,027
Harworth Group plc Annual Report and Financial Statements 2017 119
2. Segment information: continued
31 December 2016 continued
Segmental assets
Property, plant and equipment
Other receivables
Investment properties
Investments in joint ventures
Inventories
Current trade and other receivables
Assets classified as held for sale
Unallocated assets:
Cash
Total assets
Note
13
14
15
16
17
18
19
20
Income
Generation
£’000
Unallocated
£’000
Capital
Growth
£’000
–
1,397
232,886
868
454
10,521
6,152
252,278
–
–
146,304
9,681
279
1,673
2,198
160,135
–
–
252,278
160,135
Total
£’000
789
1,397
379,190
10,549
733
24,444
8,350
425,452
13,007
438,459
789
–
–
–
–
12,250
–
13,039
13,007
26,046
Financial liabilities are not allocated to the reporting segments as they are managed and measured on a Group basis.
3. Operating profit
Operating profit before tax is stated after charging:
Net realisable value provision on development properties
Staff costs
Depreciation of property, plant and equipment
4.
Exceptional items
Exceptional income:
Settlements from the administration of legacy companies
Total exceptional income
Exceptional expense:
Sundry costs relating to legacy activities
Under recovery relating to the cessation of coal fines activities at Rugeley and stock provision
Total exceptional expense
Net exceptional items
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
5,818
7,849
8
–
6,363
2
Note
17
6
13
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
414
414
(83)
–
(83)
331
689
689
–
(682)
(682)
7
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
120 Harworth Group plc Annual Report and Financial Statements 2017
Notes to the financial statements
for the year ended 31 December 2017: continued
5. Other gains
Profit on disposal of investment properties
Profit/(loss) on disposal 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
Increase in fair value of overages
Total other gains
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
2,919
103
32,133
(83)
586
35,658
9,166
(375)
33,713
(224)
747
43,027
Note
15
19
14
Other operating income/(expense) in 2017 and 2016 represents expenses relating to the Blenkinsopp Pension Scheme (see note 25)
and other smaller items.
Employee information
6.
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
2017
Number
Year ended
31 December
2016
Number
Year ended
31 December
2017
Number
Year ended
31 December
2016
Number
53
53
51
51
4
4
4
4
Group
Company
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
6,650
884
315
7,849
5,418
689
256
6,363
2,749
379
61
3,189
1,520
219
44
1,783
Key management remuneration
Key management are Statutory Directors of the Company and its subsidiaries. Remuneration details for key management of the
Group (including Directors’ remuneration) is detailed below:
Short term employee benefits
Post employment benefits
Group
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
4,361
120
4,481
2,188
108
2,296
Included within the remuneration above are short term employee benefits under incentive plans of £2.9m (2016: £0.8m) payable
within twelve months of the Balance sheet date.
Detailed information relating to Directors’ remuneration is disclosed in the Directors’ remuneration report on pages 72 to 85 and
forms part of these financial statements.
Harworth Group plc Annual Report and Financial Statements 2017 121
7.
Finance income and costs
Total finance income
Finance costs
– Bank interest
– Facility fees
– Other interest
Total finance costs
Net finance costs
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
16
247
(994)
(807)
(476)
(2,277)
(2,261)
(1,559)
(545)
(484)
(2,588)
(2,341)
During the year no interest has been capitalised in investment or development properties (2016: £nil) .
8. 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
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
40
111
15
8
7
6
187
40
80
50
10
84
38
302
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.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
122 Harworth Group plc Annual Report and Financial Statements 2017
Notes to the financial statements
for the year ended 31 December 2017: continued
9.
Tax credit/(charge)
Analysis of tax credit /(charge) in the year
Current tax
Current year
Adjustment in respect of prior periods
Total current tax charge
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
Total deferred tax credit /(charge)
Tax credit /(charge)
Other comprehensive income items
Deferred tax – current year
Deferred tax – prior year
Total
The tax for the year is lower than the standard rate of corporation tax in the UK of 19.25%
(2016: 20.00%) . The differences are explained below:
Profit before tax
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
(1,874)
336
(1,538)
15,036
(3,898)
(1,757)
–
9,381
7,843
–
–
–
(2,510)
(1,652)
2,042
(1,446)
(3,566)
(3,566)
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
(51)
–
(51)
14
80
94
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
41,840
43,467
Profit before tax multiplied by rate of corporation tax in the UK of 19.25% (2016: 20.00%)
(8,054)
(8,693)
Effects of:
Adjustment in respect of prior periods – deferred taxation
Adjustment in respect of prior periods – current taxation
Non-taxable income
Expenses not deducted for tax purposes
Revaluation gains
Changes in tax rates
Capital gains tax transferred out
Re-assessment of recognition of recoverability of deferred tax assets
Utilisation of unrecognised deferred tax
Deferred tax not recognised
Total tax credit /(charge)
(3,898)
336
841
(1,395)
–
(1,757)
–
6,600
15,170
–
7,843
(1,652)
–
129
(390)
4,683
2,042
1,764
(1,446)
–
(3)
(3,566)
The movement within the tax reconciliation of £15.2m (2016: £nil) relating to the utilisation of unrecognised deferred tax is a result
of the crystallisation of a number of gains in respect of investment property due to the disposal or transfer of these properties to
development property (held in inventory) . The gains on which deferred tax liabilities have been recognised and were crystallised in
the year have been offset against previously unrecognised tax losses.
The tax losses remaining at the end of the year have largely been recognised as a result of the execution of a contract that related
to increased certainty that the losses would not be lost. As such these losses have been recognised in the year to reflect an
increased deferred tax asset carried forward. This gives rise to the £6.6m disclosed in the tax reconciliation.
As part of the filing of the prior year tax computations and returns, tax attributes were utilised to shelter chargeable gains arising
on the disposal of properties and the transfer of properties held for sale. This gave rise to a deferred tax charge of £3.9m
compared to the original tax provision prepared for inclusion within the prior year financial statements.
Harworth Group plc Annual Report and Financial Statements 2017 123
9.
Tax credit/(charge): continued
Deferred tax
The following is the analysis of deferred tax assets/(liabilities) presented in the consolidated Balance sheet:
Deferred tax liabilities
Deferred tax assets
The movement on the deferred income tax account is as follows:
At 1 January 2016
Recognised in consolidated income statement
Recognised in consolidated statement of comprehensive income
At 31 December 2016 and 1 January 2017
Recognised in consolidated income statement
Recognised in consolidated statement of comprehensive income
At 31 December 2017
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
(13,067)
7,546
(5,521)
(23,352)
8,501
(14,851)
Investment
properties
£’000
n
(11,379)
(11,973)
–
n
(23,352)
10,353
(68)
n
(13,067)
Tax
losses
£’000
–
8,427
–
8,427
(2,522)
–
5,905
Other
temporary
differences
£’000
–
(20)
94
74
1,550
17
1,641
Total
£’000
(11,379)
(3,566)
94
(14,851)
9,381
(51)
(5,521)
There are UK corporation tax losses carried forward of £15.9m (2016: £8.4m); these may be carried forward indefinitely as there is
no time limit in respect of using these deferred tax assets.
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 17% (2016: 17%) . A
reduction in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017) , and a further reduction to 17% (effective
from 1 April 2020) were enacted as part of the Finance Act 2015. The deferred tax liabilities are shown at 17% (2016: 18%) being
the rate expected to apply to the reversal of the liability.
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 £6.1m at 31 December 2017 have not been recognised owing to the uncertainty as to their recoverability.
Deferred tax assets of £19.7m were not recognised at 31 December 2016.
The Company has recognised a deferred tax asset in 2017 of £0.3m (2016: £3.1m) and has a potential deferred tax asset of £nil
(2016: £nil) in respect of unused tax losses.
(Loss) /profit for the financial year for the parent entity
10.
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 loss for the financial year was £5.8m (2016: profit
£1.3m) and the total comprehensive expense for the financial year was £5.8m (2016: income £1.1m) .
11. Dividends
Full year dividend for financial year ended 31 December 2015
Interim dividend for the six months ended 30 June 2016
Full year dividend for financial year ended 31 December 2016
Interim dividend for the six months ended 30 June 2017
2017
Per share
pence
–
–
0.52
0.25
Total
£’000
–
–
1,680
812
2,492
2016
Per share
pence
0.51
0.23
–
–
Total
£’000
1,490
673
–
–
2,163
The proposed final dividend for the year ended 31 December 2017 of 0.58 pence per share makes a total dividend for the year of
0.83 pence (2016: 0.75 pence) .
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a
liability in these financial statements.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
124 Harworth Group plc Annual Report and Financial Statements 2017
Notes to the financial statements
for the year ended 31 December 2017: continued
12. 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
2017 includes the adjustments necessary to reflect the new shares issued on 17 March 2017 (see note 26) .
Profit from continuing operations attributable to owners of the parent
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
49,683
39,901
Weighted average number of shares used for basic and diluted earnings per share calculation
315,296,192
292,269,786*
Basic and diluted profit per share (pence)
15.8
13.7*
* The 2016 earnings per share has been restated to reflect the impact of the May 2016 1 for 10 share consolidation following discussions with the Financial Reporting
Council and their review of the 2016 Financial Statements.
13. Property, plant and equipment
Group
Net book value at 1 January 2016
Additions at cost
Transfer from investment properties
Decrease in fair value
Depreciation charge
Net book value at 31 December 2016 and 1 January 2017
Additions at cost
Increase in fair value
Depreciation charge
Net book value at 31 December 2017
At 31 December 2017
Cost or fair value
Accumulated depreciation
Net book value
At 31 December 2016
Cost or fair value
Accumulated depreciation
Net book value
Note
15
Land and
Buildings
£’000
Office
equipment
£’000
Total
£’000
–
–
783
(17)
–
766
9
12
–
787
787
–
787
766
–
766
–
25
–
–
(2)
23
–
–
(8)
15
25
(10)
15
25
(2)
23
–
25
783
(17)
(2)
789
9
12
(8)
802
812
(10)
802
791
(2)
789
At 31 December 2017, the Group had entered into contractual commitments for the acquisitions of property, plant and equipment
amounting to £nil (2016: £nil) .
Information about the valuation of land and buildings is provided in note 15.
Harworth Group plc Annual Report and Financial Statements 2017 125
14. Other receivables
The benefit of overages is recorded as a non-current receivable as follows:
At 1 January
Additions
Re-categorisation from investment properties
Fair value gains
At 31 December
Note
15
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
1,397
17
666
586
2,666
650
–
–
747
1,397
Overages were valued at 31 December 2017 and 2016 in accordance with RICS Red Book Valuation by BNP Paribas Real Estate.
The same valuation process is used to value overages as described in note 15.
Investment properties
15.
Investment property at 31 December 2017 and 31 December 2016 has been measured at fair value. The Group holds five
categories of investment property being agricultural land, natural resources, business space, 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
space
£’000
Major
developments
£’000
Strategic
land
£’000
At 1 January 2016
Transfers
Direct acquisitions
Subsequent expenditure
(Decrease) /increase in fair value
Transfer to assets classified as held for sale
Transfer to property, plant and equipment
Disposals
At 31 December 2016 and 1 January 2017
Transfers between divisions
Direct acquisitions
Subsequent expenditure
Increase in fair value
Transfer to assets classified as held for sale
Re-categorisation as other receivables
Re-categorisation as development property in
inventories
Disposals
At 31 December 2017
16,763
4,617
1,390
286
(894)
(1,680)
–
(376)
20,106
–
–
1,684
3,660
(1,160)
–
–
(1,963)
22,327
16,954
5,682
–
1,663
5,203
–
–
(13)
29,489
277
–
1,154
1,438
(276)
–
–
90,896
(25,424)
21,134
5,998
5,971
(477)
(783)
(606)
96,709
11,686
5,536
8,960
896
(3,500)
–
–
(782)
(486)
31,300
119,801
157,589
64,763
–
11,223
12,103
(6,153)
–
(23,875)
215,650
4,137
15,281
13,100
13,072
(8,492)
(666)
(229,118)
(2,964)
20,000
Total
£’000
334,617
–
22,524
22,654
33,713
(8,310)
(783)
(25,225)
379,190
–
26,015
29,159
32,133
(13,778)
(666)
(229,118)
52,415
(49,638)
–
3,484
11,330
–
–
(355)
17,236
(16,100)
5,198
4,261
13,067
(350)
–
–
(180)
(6,375)
23,132
216,560
Included within investment properties (agricultural land) is a provision of £3.2m (2016: £6.0m) relating to the restoration liability on
sites formerly rented to mining tenants. This provision is treated as a reduction of the individual property valuations.
During the year £229.1m (2016: £nil) of investment property was re-categorised to development properties. Properties that have
obtained planning permission and are being taken forward for development are now held in inventory. Following further evolution
of Harworth’s business model during 2017, we have refined our thinking in the light of site and market opportunities, and
concluded that it is appropriate, on the whole, to re-categorise all properties which have received planning permission as
development properties. Until sites receive planning permission, our view is that the land is held for a currently undetermined
future use and should thus be held as investment property.
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 Estate and Savills. Both are independent firms acting in the capacity of external
valuers with relevant experience of valuations of this nature. The valuations are on the basis of Market Value as defined by the Red
Book, which RICS considers meets the criteria for assessing Fair Value under International Financial 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.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
126 Harworth Group plc Annual Report and Financial Statements 2017
Notes to the financial statements
for the year ended 31 December 2017: continued
Investment properties: continued
15.
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 2017
(2016: none) .
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 space
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.
The discounted cash flows across the different property categories utilise Value per acre, which takes account of the future
expectations of sales over time discounted back to a current value, and Cost report totals, which take account of the cost as at
today’s value, to complete remediation and provide the necessary site infrastructure to bring the site forward.
Harworth Group plc Annual Report and Financial Statements 2017 127
15.
Investment properties: continued
At 31 December 2017
Reversionary rental yield %
Land value per acre £’000
weighted average
low
high
weighted average
low
high
Cost report totals*
£’000
At 31 December 2016
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
space
Major
developments
Strategic
land
–
–
–
4
1
32
–
–
–
–
6
1
115
–
9.66
4.86
16.86
95
26
2,360
–
–
–
196
196
196
–
–
–
10
1
449
11,948
8,478
3,150
Agricultural
land
Natural
resources
Business
space
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
* Cost report totals represent the estimated cost to bring investment properties to their highest and best use. There is £184.3m (2016: £nil) of cost report totals that
now relate to development properties (shown in inventories at deemed cost) and therefore are not disclosed in this note.
The table below shows some possible sensitivities to the key valuation metrics and the resultant changes to the valuations.
At 31 December 2017
Valuation metric
Value per acre
Rental
Yield (e.g. 11% to 10%)
Cost report totals
At 31 December 2016
Valuation metric
Value per acre
Rental
Yield (e.g. 11% to 10%)
Cost report totals
+/– change
+/– effect on valuation
Agricultural
land
Natural
resources
Business
space
Major
developments
Strategic
land
5%
5%
1%
5%
1,116
–
–
–
1,565
–
–
–
5,990
4,872
12,564
597
1,000
–
–
424
1,156
–
–
158
+/– change
+/– effect on valuation
Agricultural
land
Natural
resources
Business
space
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
The property rental income earned by the Group from its occupied investment property, all of which is leased out under operating
leases amounted to £9.1m (2016: £8.4m) . Direct operating expenses arising on investment property generating rental income in
the year amounted to £3.5m (2016: £3.9m) . Direct operating expenses arising on the investment property which did not generate
rental income during the year amounted to £0.1m (2016: £0.1m) .
The bank and other loans are secured by way of fixed equitable charges over investment properties.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
128 Harworth Group plc Annual Report and Financial Statements 2017
Notes to the financial statements
for the year ended 31 December 2017: continued
16.
Investments
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
2017
£’000
Year ended
31 December
2016
£’000
207,896
–
–
207,896
207,896
–
–
207,896
–
–
–
–
–
–
–
–
207,896
207,896
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.
Investment in joint ventures
At 1 January 2016
Acquisitions
Share of profit of joint ventures
At 31 December 2016 and 1 January 2017
Investment in joint ventures
Share of profit of joint ventures
At 31 December 2017
£’000
768
9,134
647
10,549
4,250
4,039
18,838
On 26 April 2017, the Group entered into a joint venture agreement with Lancashire County Pension Fund to establish Multiply
Logistics North Holdings Limited to develop part of the site at Logistics North, near Bolton.
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.
On 14 March 2016 the Group purchased a 50% share of The Aire Valley Land LLP from Keyland Developments Limited for a
consideration of £8.5m plus costs of £0.5m. The 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.
The Group holds 50% of the ordinary issued shares of Bates Regeneration Limited, a joint venture with Banks Property Limited for
the development of an investment property at Blyth, Northumberland.
The Group received £nil (2016: £nil) of dividends from these joint ventures during the year.
Harworth Group plc Annual Report and Financial Statements 2017 129
Investments: continued
16.
Aggregate information of the Group’s share of assets, liabilities and results of joint ventures, that are not individually material are:
Investment property
Current assets
Total assets
Current liabilities
Net investment
Revenue
Share of profits after tax
As at
31 December
2017
£’000
As at
31 December
2016
£’000
18,740
2,596
21,336
(2,498)
18,838
11,000
2,314
13,314
(2,765)
10,549
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
–
4,039
–
647
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.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
130 Harworth Group plc Annual Report and Financial Statements 2017
Notes to the financial statements
for the year ended 31 December 2017: continued
16.
Investments: continued
Investment in subsidiaries
Particulars of the Group undertakings (including joint ventures) at 31 December 2017 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)
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)
Logistics North MC Limited (1)
POW Management Company Limited (1)
Rossington Community Management Company Limited (1)
Harworth Regeneration Limited (1)
Mapplewell Management Company Limited (1)
Gateway 45 No.1 Limited (1)
The Aire Valley Land LLP (1)
Flass Lane Management Company Limited (1)
Harworth Surface Water Management (North West) Limited (1)
Multiply Logistics North Holdings Limited (1)
Waverley Square Limited (3)
Activity
Non-trading
Non-trading
Dormant
Non-trading
Trading
Non-trading
Non-trading
Non-trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Dormant
Trading
Trading
Non-trading
Dormant
Non-trading
Non-trading
Trading
Non-trading
Trading
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
100
100
100
100
100
100
100
100
100
50
100
100
100
100
100
100
100
100
100
100
100
12.18
100
100
100
100
50
50
100
100
20
50
Harworth Group plc Annual Report and Financial Statements 2017 131
17.
Inventories
Development properties
Planning promotion and option agreements
Finished goods
Total inventories
Group
As at
31 December
2017
£’000
As at
31 December
2016
£’000
210,471
1,064
83
211,618
–
454
279
733
The cost of inventory is recognised as an expense within cost of sales in the year of £28.1m (2016: £0.4m) . Finished goods are
stated after a provision of £0.3m (2016: £0.3m) .
The movement in the development properties is as follows:
At 1 January 2017
Re-categorisation from investment properties
Subsequent expenditure
Disposals
Net realisable value provision
At 31 December 2017
Note
15
£’000
–
229,118
2,424
(15,253)
(5,818)
210,471
The bank and other loans are secured by fixed equitable charges over development properties. A transfer from the fair value
reserve to retained earnings of £5.8m (2016: nil) was undertaken as the development property requiring the net realisable
provision, stated above had, when previously classified as investment property, a revaluation gain in excess of this balance.
18. Trade and other receivables
Current
Trade receivables
Less: provision for impairment of trade receivables
Net trade receivables
Other receivables
Prepayments and accrued income
Amounts owed by subsidiary undertakings (note 30)
Non-current
Trade receivables
Group
Company
As at
31 December
2017
£’000
As at
31 December
2016
£’000
As at
31 December
2017
£’000
As at
31 December
2016
£’000
11,572
(207)
11,365
12,399
1,401
–
25,165
4,179
(221)
3,958
19,111
1,375
–
24,444
–
–
–
284
–
32,984
33,268
–
–
–
291
–
8,860
9,151
5,250
–
–
–
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.
Included within current other receivables are £9.6m (2016: £8.4m) of deferred consideration on the sale of investment property.
The non-current receivable of £5.3m relates to deferred consideration on the sale of a development property due in more than
one year.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables as disclosed in
note 23. The Group and Company do not hold any collateral as security.
The amounts owed to the Company by subsidiary undertakings are repayable on demand. Interest is payable at LIBOR +2%.
Group
Movements on the Group provisions for impairment of trade receivables are as follows:
At the beginning of the year
Receivables written off during the year as uncollectable
Released/(provided) for in the year
At the end of the year
Group
2017
£’000
(221)
10
4
(207)
2016
£’000
(121)
–
(100)
(221)
In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable
from the date the credit was initially granted up to the reporting date.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
132 Harworth Group plc Annual Report and Financial Statements 2017
Notes to the financial statements
for the year ended 31 December 2017: continued
18. Trade and other receivables: continued
The other classes of assets within trade and other receivables for the Group contain impaired assets of £0.1m (2016: £0.1m)
against which a provision of £0.1m (2016: £0.1m) is held.
As at 31 December 2017, trade receivables of £0.2m (2016: £0.1m) 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 2018.
The ageing of these was as follows:
Up to 3 months
Over 3 months
At the end of the year
Group
2017
£’000
142
74
216
As at 31 December 2017, trade receivables of £0.2m (2016: £0.2m) 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
Group
2017
£’000
150
57
207
2016
£’000
15
43
58
2016
£’000
46
175
221
Provision for impairment charged to the income statement in the year was a credit of £4,000 (2016: charge of £100,000) .
Company
The Company had no external receivables as at 31 December 2017 (2016: £nil) . The other classes of assets within trade and other
receivables do not contain impaired assets.
19. 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
2017
£’000
8,350
13,778
159
(83)
(14,516)
7,688
2016
£’000
9,128
8,310
1,588
(224)
(10,452)
8,350
The assets classified for sale at each year end relate to investment properties expected to be sold within twelve months.
20. Cash
Cash
Group
Company
As at
31 December
2017
£’000
As at
31 December
2016
£’000
As at
31 December
2017
£’000
As at
31 December
2016
£’000
8,371
13,007
1,267
2,171
21. Borrowings
Current:
Secured – other loans
Non-current:
Secured – bank loans
Secured – other loans
Harworth Group plc Annual Report and Financial Statements 2017 133
Group
As at
31 December
2017
£’000
As at
31 December
2016
£’000
(6,145)
(6,145)
(23,437)
(11,064)
(34,501)
(1,819)
(1,819)
(37,142)
(13,517)
(50,659)
At 31 December 2017, the Group had bank borrowings of £24.0m, £23.4m net of unamortised borrowings costs (2016: £38.0m,
£37.1m net of unamortised borrowing costs) and a further £17.5m, £17.2m net of unamortised borrowing costs (2016: £15.6m,
£15.3m net of unamortised borrowing costs) of infrastructure loans, which resulted in total borrowings of £40.6m net of
unamortised borrowing costs (2016: £52.5m net of unamortised borrowing costs) . The bank borrowings are part of a £75.0m
(2016: £75.0m) revolving credit facility from The Royal Bank of Scotland. The facility is repayable on 13 February 2023 (five year
term) after being extended for two years on 13 February 2018. The facility is non-amortising and subject to financial and other
covenants.
The infrastructure loans of £17.5m (2016: £15.6m) are provided by public bodies in order to promote the development of major
sites. They comprise a £0.4m (2016: £0.8m) loan from Leeds LEP in respect of the Prince of Wales site, £7.3m (2016: £11.7m) from
the Homes and Community Agency in respect of Waverley and £0.1m (2016: £0.1m) for Village Farm, £2.4m (2016: £2.3m) from
Sheffield City Region JESSICA Fund for Rockingham, £5.2m (2016: £0.7m) for the Advanced Manufacturing Park at Waverley and
£2.1m (2016: £nil) from the North West Evergreen Limited Partnership for Units 4 and 5 at Logistics North, Bolton.
The loans are drawn as work on the respective sites is progressed and they are repaid on agreed dates or when disposals are
made from the sites.
Current loans are stated after deduction of unamortised borrowing costs of £nil (2016: £nil) . Non-current bank and other loans are
stated after deduction of unamortised borrowing costs of £0.8m (2016: £1.1m) . The bank loans and overdrafts are secured by way
of fixed equitable charges over certain assets of the Group.
22. Trade and other payables
Current liabilities
Current
Trade payables
Amounts owed to subsidiary undertakings (note 30)
Taxation and social security
Other creditors
Accruals and deferred income
Group
Company
As at
31 December
2017
£’000
As at
31 December
2016
£’000
As at
31 December
2017
£’000
As at
31 December
2016
£’000
2,668
–
2,294
3,196
30,339
38,497
1,555
–
5,418
2,150
24,596
33,719
6
53
45
18
3,414
3,536
443
52
47
–
1,343
1,885
Accruals and deferred income for the Group includes £17.2m (2016: £15.4m) of liabilities relating to parcels of land that have been
sold but where infrastructure costs are yet to be incurred.
The amount owed by the Company to subsidiary undertakings is repayable on demand. Interest is charged at LIBOR +2%.
Non-current liabilities
Other creditors
Group
Company
As at
31 December
2017
£’000
As at
31 December
2016
£’000
As at
31 December
2017
£’000
As at
31 December
2016
£’000
760
760
1,520
1,520
–
–
–
–
Non-current creditors relate to deferred consideration due on land purchases after one year.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
134 Harworth Group plc Annual Report and Financial Statements 2017
Notes to the financial statements
for the year ended 31 December 2017: continued
23. Financial instruments and derivatives
On 21 June 2016 the Group 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 2017 was a loss of £0.1m (2015: £0.4m) .
During the year the following gain/(loss) was recognised in the other comprehensive income statement in relation to the interest
rate swap:
Gain/(loss) on interest rate swap - cash flow hedge
2017
£’000
244
2016
£’000
(366)
The Group’s principal financial instruments include trade and other receivables, cash, interest bearing borrowings and trade and
other payables.
Other financial assets and liabilities
Group
Assets
Cash
Trade and other receivables
Liabilities
Bank and other borrowings
Trade and other payables
Company
Assets
Cash
Trade and other receivables
Liabilities
Trade and other payables
31 December 2017
31 December 2016
Book value
£’000
Fair value
£’000
Book value
£’000
Fair value
£’000
8,371
28,741
8,371
28,741
13,007
22,792
13,007
22,792
40,646
34,612
40,646
34,612
52,478
27,904
52,478
27,904
31 December 2017
31 December 2016
Book value
£’000
Fair value
£’000
Book value
£’000
Fair value
£’000
1,267
32,994
1,267
32,994
2,171
8,813
2,171
8,813
3,491
3,491
2,446
2,446
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 2017 and 2016 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.
24. 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.
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.
Harworth Group plc Annual Report and Financial Statements 2017 135
24. Financial risk management: continued
Interest rate risk
The Group’s interest rate risk arises from external borrowings which are charged at LIBOR plus 2%. From 13 February 2018 this
rate has increased to LIBOR plus 2.1% following the two year extension to the facility. On 21 June 2016 the Group 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 six infrastructure loans with all in funding rates of between 2.5% and 4.7%.
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 2017 of £32.3m; (2016: £39.5m) . The Group utilised cash from operating activities and
investing activities for the year of £16.6m (2016: generated £0.2m) .
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 2017
Trade and other payables
Interest payable on borrowings
Bank and other borrowings
At 31 December 2016
Trade and other payables
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
33,852
697
5,448
26,384
–
1,819
760
2
5,156
1,520
34
8,626
–
61
29,282
–
694
41,305
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 in note 20.
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 at 31 December 2017 this was
£32.3m (2016: £39.5m) .
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 2023 (after being extended for two years from 13 February 2018) . 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 these requirements throughout the year.
25. 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 £0.3m (2016: £0.3m) . 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.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
136 Harworth Group plc Annual Report and Financial Statements 2017
Notes to the financial statements
for the year ended 31 December 2017: continued
25. Retirement benefit obligations: continued
The Balance sheet amounts in respect of retirement benefit obligations are:
Relating to continuing activities
Blenkinsopp
Group
Company
As at
31 December
2017
£’000
As at
31 December
2016
£’000
As at
31 December
2017
£’000
As at
31 December
2016
£’000
563
602
563
602
Contributions to the Blenkinsopp scheme of £0.2m were made by the Group during 2017 (2016: £0.2m) . It is expected that
contributions of a similar amount will be paid in 2018. At December 2017, no contributions remained unpaid (2016: £nil) .
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 65 for current pensioners (years)
Longevity at age 65 for future pensioners (years)
As at
31 December
2017
As at
31 December
2016
2.50% p.a.
2.15% p.a.
3.10% p.a.
2.10% p.a.
25.00%
2.55% p.a.
2.30% p.a.
3.25% p.a.
2.25% p.a.
20.00%
Year ended
31 December
2017
Year ended
31 December
2016
19.6 - 22.8
18.6 – 22.0
21.1 - 24.4
20.3 – 24.0
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:
2017
£’000
2,228
(2,791)
(563)
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)
Expenses
Interest cost
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
(32)
(13)
(45)
(74)
(13)
(87)
Harworth Group plc Annual Report and Financial Statements 2017 137
25. Retirement benefit obligations: continued
A further cost of £0.1m (2016: £0.3m) 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
Plan assets are comprised as follows:
Gilts
Corporate bonds
Diversified and multi-asset growth funds
Sterling liquidity fund
Other
Total
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
2,117
55
(19)
189
(32)
(82)
2,228
1,727
68
289
189
(74)
(82)
2,117
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
1,352
1
543
327
5
2,228
1,610
511
–
–
(4)
2,117
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
138 Harworth Group plc Annual Report and Financial Statements 2017
Notes to the financial statements
for the year ended 31 December 2017: continued
25. Retirement benefit obligations: continued
Change in defined benefit obligations
Present value of defined benefit obligations at the start of the year
Interest cost
Remeasurements:
– Loss arising from changes in demographic assumptions
– Loss arising from changes in experience
– Gain/(loss) 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
Employer contributions
Net actuarial loss recognised in the year
At the end of the year
The maturity of the defined benefit obligation is c.19 years (2016: c.20 years).
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:
– Loss arising from changes in experience
– Loss arising from changes in financial assumptions
Net actuarial loss
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
(2,719)
(68)
(2,162)
(81)
(117)
(10)
41
82
–
–
(558)
82
(2,791)
(2,719)
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
(602)
(45)
189
(105)
(563)
(435)
(87)
189
(269)
(602)
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
(57)
(105)
(162)
212
(269)
(57)
Year ended
31 December
2017
£’000
Year ended
31 December
2016
£’000
(19)
(10)
(76)
(105)
289
–
(558)
(269)
Contributions are determined by a qualified actuary on the basis of a triennial valuation, using the projected credit unit method.
The most recent valuation for the purpose of determining contributions was at 31 December 2015, which was agreed in
September 2017. This showed an estimated past service deficit of £1.2m. The next valuation has yet to be agreed and signed.
The sensitivity of the defined benefit obligations 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
2017
£’000
Year ended
31 December
2016
£’000
45
40
110
52
27
64
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.
Harworth Group plc Annual Report and Financial Statements 2017 139
25. Retirement benefit obligations: continued
The Scheme exposes the Company to actuarial risks such as: investment risk, interest rate risk and longevity risk.
•
Investment risk: the present value of the defined benefit obligation is calculated using a discount rate determined by reference
to high quality corporate bond yields; if the return on Scheme assets is below this rate, it will create a deficit. The majority of
the Scheme investments are held within index-linked government bonds or cash/liquidity funds.
Interest rate risk: a decrease in the corporate bond interest rate will increase the liability but this would likely be partially offset
by an increase in the return on the Scheme’s debt investments.
•
• Longevity risk: the present value of the defined benefit obligation is calculated by reference to the best estimate of the mortality
of Scheme participants both during and after their employment. An increase in the life expectancy of the participants will
increase the Scheme’s liability.
26. Called up share capital
On 17 March 2017, the Company issued 29,226,974 ordinary shares at 95 pence each, with a nominal value of 10 pence each.
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)
At 31 December
Own shares held
At 31 December 2017
2017
Number
of shares
292,269,786
29,226,974
–
321,496,760
(246,010)
321,250,750
2016
Number
of shares
2,922,697,857
3
(2,630,428,074)
292,269,786
–
£’000
29,227
2,923
–
32,150
(263)
31,887
292,269,786
£’000
29,227
–
–
29,227
–
29,227
The own shares represent the number and cost of shares purchased in the market and held by the Harworth Group plc Employee
Benefit Trust to satisfy Long Term Incentive Plan awards for Executive Directors and Senior Executives.
Long Term Incentive Plans
Long Term Incentive Plans were introduced in 2016 and 2017 for Executive Directors and Senior Executives. There were no shares
outstanding at 31 December 2017 (2016: nil) . The Directors’ remuneration report which forms part of these financial statements
provides details of current incentive plans.
27. Share premium account
Group and Company
At 1 January
Transferred to other distributable reserves
Premium on shares issued
Costs relating to share issue
Other transaction costs
At 31 December
2017
£’000
–
–
24,842
(700)
209
24,351
2016
£’000
129,121
(129,121)
–
–
–
–
On 18 May 2016, approval was granted from the High Court to cancel the £129.1m share premium account of the Company and
for it to be re-designated as distributable reserves.
28. Capital and other financial commitments
Capital expenditure contracted for at 31 December 2017 is £10.2m (2016: £4.2m) .
29. 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.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
140 Harworth Group plc Annual Report and Financial Statements 2017
Notes to the financial statements
for the year ended 31 December 2017: continued
29. Operating lease commitments: continued
a)
At 31 December 2017, the future minimum lease payments under non-cancellable leases were payable as follows:
Future minimum lease payments
Less than one year
Between one and five years
Amounts recognised in the income statement
Lease cost
Group
Company
As at
31 December
2017
£’000
As at
31 December
2016
£’000
As at
31 December
2017
£’000
As at
31 December
2016
£’000
34
17
51
64
35
10
45
60
–
–
–
–
–
–
–
Future minimum lease receipts
b)
As set out in note 15 property rental income earned during the year was £9.1m (2016: £8.4m) .
At 31 December 2017, the Group had contracted with tenants for the following future minimum lease payments:
Less than one year
Between one and five years
More than five years
Group
Company
As at
31 December
2017
£’000
As at
31 December
2016
£’000
As at
31 December
2017
£’000
As at
31 December
2016
£’000
8,342
25,001
34,814
68,157
6,150
17,170
29,039
52,359
–
–
–
–
–
–
–
30. Related party transactions
Group
The remuneration of Directors and key management is given in note 6.
Peel Group
The Peel Group charged £42,500 (2016: £42,500) in respect of fees for Steven Underwood, a non-executive director.
The Group paid £0.8m to Peel Group in respect of a deed of release at Logistics North (2016: £nil) . £0.3m (2016: £nil) of this was
subsequently re-charged to Multiply Logistics North Holdings Limited.
During the year the Group made two land sales to Peel Environmental Limited amounting to £3.1m (2016: £nil) resulting in a £1.2m
(2016: £nil) profit on sale. This was unpaid at the year end.
Multiply Logistics North Holdings Limited
The Group made two land sales to Multiply Logistics North Holdings Limited during the year amounting to £8.1m (2016: £nil) ,
recharged costs of £0.6m (2016: £nil) and charged a development management fee of £0.2m (2016: £nil) .
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 £nil (2016: £0.1m) .
Harworth Group plc Annual Report and Financial Statements 2017 141
30. Related party transactions: continued
Company
The Company carried out the following transactions with subsidiary undertakings.
Details of the Company’s intercompany balances and interest at 31 December 2017 are set out below:
EOS Inc Limited
Harworth Estates Limited
Harworth Guarantee Co. Limited
Harworth Estates Mines Property Limited
Harworth Estates Curtilage Limited
Harworth Estates Property Group Limited
Coalfield Estates Limited
As at 31 December 2017
£’000
As at 31 December 2016
£’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
308
17
(1)
–
–
172
5
501
22,774
709
(53)
7,000
2,000
277
224
32,931
162
14
(1)
–
–
–
5
180
7,465
1,127
(52)
–
–
49
219
8,808
Dividends received
During the year the Company received dividends of £nil (2016: £nil) from subsidiary undertakings.
Interest
During the year the Company received net interest of £0.5m (2016: £0.2m) from subsidiary companies.
All transactions occurred whilst the related parties were subsidiary undertakings.
Receivables and indebtedness
Details of the Company’s receivables and indebtedness are set out in notes 18 and 22 and amounts due from, or owed to, related
parties are set out below:
Owed to:
Harworth Guarantee Co. Limited
Owed by:
Harworth Estates Limited
Coalfield Estates Limited
EOS Inc Limited
Harworth Estates Curtilage Limited
Harworth Estates Mines Property Limited
Harworth Estates Property Group Limited
31. Post Balance sheet events
As at
31 December
2017
£’000
As at
31 December
2016
£’000
(53)
(53)
(52)
(52)
As at
31 December
2017
£’000
As at
31 December
2016
£’000
709
224
22,774
2,000
7,000
277
32,984
1,127
219
7,465
–
–
49
8,860
Financing
On 13 February 2018 the Group extended the terms of its existing £75m RCF with RBS by two years such that it now expires in
February 2023.
Chairman
Alastair Lyons became Chairman of the Group on 7 March 2018. Jonson Cox stepped down as Chairman at this point, and retired
from the Board at the end of March.
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Company information and investor timetable
142 Harworth Group plc Annual Report and Financial Statements 2017
Company information and investor timetable
Company information and investor timetable
Principal bankers
The Royal Bank of Scotland
3rd Floor
2 Whitehall Quay
Leeds, LS1 4HR
Company Registered Number
2649340
Share price information
The Company’s Ordinary Shares are
traded on the London Stock Exchange.
SEDOL number 07919072
ISIN number GB0007190720
Reuters ticket HWG.L
Bloomberg ticker HWG:LN
LEI Code
213800R8JSSGK2KPFG21
Independent Auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory
Auditors
Central Square, 29 Wellington St,
Leeds, LS1 4DL
Solicitors
DLA Piper UK LLP
1 St Paul’s Place
Sheffield, South Yorkshire,
S1 2JX
Brokers
Peel Hunt LLP
Moor House
120 London Wall
London
EC2Y 7QR
Canaccord Genuity Limited
88 Wood Street
London, EC2V 7QR
Registrars
Equiniti Limited
Aspect House
Spencer Road, Lancing
West Sussex, BN99 6DA
Former Chairman (1)
Jonson Cox
Chairman (1)
Alastair Lyons
Chief Executive
Owen Michaelson
Finance Director
Andrew Kirkman
Non-Executive Directors
Lisa Clement
Anthony Donnelly
Andrew Cunningham
Steven Underwood
Martyn Bowes
Company Secretary and
Registered Office
Christopher Birch
Advantage House
Poplar Way
Rotherham, S60 5TR
Financial Calendar
Ex-Dividend Date
Record Date for Dividend
Announced
Announced
Announced
3 May 2018
4 May 2018
29 May 2018
Annual General Meeting
Bessemer Room, AMP Technology Centre, Waverley, Rotherham, S60 5WG
Dividend Payment Date
Announced
1 June 2018
Proposed date for Interim Results Announcement 2018
Interim Results to be published at www.harworthgroup.com/investors
Proposed Record date for Interim Dividend
Proposed date for payment of Interim Dividend
12 September 2018
21 September 2018
19 October 2018
Registrars
All administrative enquiries relating to shareholdings should, in the first instance, be directed to Equiniti, Aspect House, Spencer Road,
Lancing, West Sussex BN99 6DA (telephone: 0371 384 2301) and should clearly state the registered shareholder’s name and address.
Dividend mandate
Any shareholder wishing dividends to be paid directly into a bank or building society should contact the Registrars for a dividend
mandate form. Dividends paid in this way will be paid through the Bankers’ Automated Clearing System (BACS).
Website
The Group has a website (www.harworthgroup.com) that gives further information on the Group.
Footnotes:
(1) On 7 March 2018, Alastair Lyons was appointed Non-Executive Chairman in place of Jonson Cox. On 31 March 2018, Jonson Cox resigned as a Non-Executive Director.
Harworth Group plc Annual Report and Financial Statements 2017 143
Definitions and abbreviations used
2012 Restructuring
AGM
AMP
ATR
AWRC
CA06
Code
The restructuring of the former
UK Coal in December 2012
Annual General Meeting
Advanced Manufacturing Park,
Rotherham
Absolute Total Return
Sheffield Hallam University’s
Advanced Wellbeing Research
Centre
Companies Act 2006
UK Corporate Governance Code
2016
Company
Harworth Group plc
CPD
DLA
EA
EBT
EES
EPRA NAV
Continuing Professional
Development
DLA Piper UK LLP
Environment Agency
The Harworth Group Plc
Employee Benefit Trust
Estates, Environment and Safety
team
EPRA NNNAV excluding deferred
tax, notional deferred tax on the
mark to market value of
development properties and the
mark in market movement on
financial investments
EPRA NNNAV or NNNAV NAV plus the mark to market value
of development properties less
notional deferred tax on this mark to
market
Earnings Per Share
Financial Conduct Authority
Financial Reporting Council
Financial Reporting Standards
Gateley plc
General Data Protection Regulation
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
Health and Safety Executive
International Financial Reporting
Standards
JPW Consulting Limited
Kepler Associates
EPS
FCA
FRC
FRSs
Gateleys
GDPR
Harworth Estates
Harworth or Group
HEMPL
HEPGL
HICL
HSE
IFRSs
JPW
Kepler
KPI
KPMG
LCPF
LEP
LTIP
LTV
NAV
Key Performance Indicator
KPMG LLP
Lancashire County Pension Fund
Local Enterprise Partnership
Harworth Group Plc
Long Term Incentive Plan
Loan To Value
Net Asset Value
Parent Entity
Harworth Group Plc
PEG Principles
The Pre-emption Group Principles
PEL
PEVG
PPAs
PPF
PRA
psf
PwC
RBS
RCF
Regulations
RIDDOR
Peel Environmental Limited
Profit excluding Value Gains
Planning Promotion Agreements
The Pension Protection Fund
Prudential Regulatory Authority
Per square foot
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
RNS
Regulatory News Service
Senior Management Team The team of directors and associate
SHEMS
SOCI
STOR
TMK
TSR
UKCMHL
WAMITAB
WAULT
directors who lead the various
divisions of the business and report
to the Executive Committee
Safety, Health and Environment
Management System
Statement of Comprehensive
Income
Short Term Operating Reserve
Tokio Marine Kiln
Total Shareholder Return
UK Coal Mine Holdings Limited
Waste Management Industry
Training and Advisory Board (UK)
Weighted Average Unexpired Lease
Term
www.harworthgroup.com