Harworth Group plc
Annual Report and Financial Statements 2018
2 Harworth Group plc Annual Report and Financial Statements 2018
2 Harworth Group plc Annual Report and Financial Statements 2018
To create sustainable new communities for people to live, work and play
OUR PURPOSE
OUR VISION
To be the leading land and property regeneration specialist in
the North of England and Midlands
STRATEGIC REPORT
1 Harworth Group plc Annual Report and Financial Statements 2018
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
1
1
To create sustainable new communities for people to live, work and play
at a glance
Harworth is a leading regenerator of land and property for development and investment which owns,
develops and manages a portfolio of c.21,500 acres of land on around 120 sites located throughout the
North of England and the Midlands. The Group specialises in the regeneration of large, complex sites, in
particular former industrial sites, into new residential developments and employment areas.
11,077
consented housing plots
(2017: 10,448 residential plot)
10.7m sq. ft
of consented land for
commercial space
154.2MW
of low carbon capacity
installed on our sites
(2017: 12.1m sq. ft commercial space)
(2017: 159.7MW of low carbon energy)
Our land and property portfolio in the North of England
and the Midlands has potential to deliver:
Up to £3.6bn in
Gross Value Added
to UK plc
(2017: £2.9bn)
alongside a total of
To be the leading land and property regeneration specialist in
the North of England and Midlands
20,490
potential
homes
21.2m sq. ft
of commercial
space
294.5MW
to the
National Grid
(2017: 18,000+ potential homes)
(2017: 21.6m sq. ft of commercial space)
(2017: 300MW to the National Grid)
2 Harworth Group plc Annual Report and Financial Statements 2018
CORPORATE GOVERNANCE
Board of Directors and Company Secretary
Chairman’s introduction
Statement of Corporate Governance
Nomination Committee Report
Audit Committee Report
Directors’ Remuneration Report
Directors’ Report
Statement of Directors’ Responsibilities
74
76
79
92
94
100
120
124
Contents
STRATEGIC REPORT
Our strategy
How we add value
Markets we operate in
Our year: key 2018 achievements
Our track record since 2015
Chairman’s statement
Chief Executive’s statement
How we create new places and generate returns
Case study: Logistics North
Financial Review
Case study: Riverdale Park
Managing Risk
Business continuity assessments
Case study: Acquisitions
Corporate, Social and Environmental Responsibility
Our People
Our Partners
Operating Responsibly
Social Responsibility
Environmental Responsibility
04
06
08
10
12
14
16
20
22
24
32
34
45
46
48
50
56
64
66
70
Logistics North, Spring 2019 STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
3
FINANCIAL STATEMENTS
COMPANY INFORMATION
Independent auditors’ report
Consolidated income statement
Consolidated statement of comprehensive income
Balance Sheets
Consolidated statement of changes in equity
Company statement of changes in equity
Statements of cash flows
Notes to the financial statements
126
132
133
134
135
136
137
138
Company information and investor timetable
Definitions and abbreviations used
176
177
More information can be found by going to our
website harworthgroup.com
4 Harworth Group plc Annual Report and Financial Statements 2018
4 Harworth Group plc Annual Report and Financial Statements 2018
OUR STRATEGY
Our six strategic priorities to achieve our purpose and deliver our vision
STRATEGIC PRIORITY
DEVELOPMENT
Driving the capital growth of our portfolio through
delivery of planning permissions, site remediation and
infrastructure, before crystallising land sales
INVESTMENT
Ensuring sustainable income generation through asset
management of existing rental sites, direct development
of new space and recycling of portfolio into higher value
adding opportunities
SECTORS
Concentrating on those property markets with strong,
through-the-cycle returns (residential, and industrial &
logistics)
KPIs (SEE PAGES 12 AND 13 FOR PERFORMANCE)
WHERE WE ARE
WHERE WE WANT TO BE
KEY RISKS
EPRA NNNAV
growth and total
return per share
Value Gains
12.6% p.a. EPRA NNNAV per share
growth and total return of 13.3% in 2018
We continue to aim to achieve total return
of at least 10% per annum as a consistent
average through the property cycle
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
Consented and
potential residential
plots
Consented and
potential
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
REGIONS
Leveraging our strong relationships in our core areas in the
North of England and Midlands to expand our land and
property portfolio
Number and
geographic spread
of sites
Number and
geographic spread
of acres
Our portfolio remains focused on the
We want to expand our portfolio to the
North of England with an increasing
North West and Midlands to have similar
emphasis on the Midlands and the
strength to our Yorkshire and Central
North West
heartland
ACQUISITIONS
Growing our portfolio by utilising and recycling capital to
buy new sites to maintain net asset value growth across
the portfolio (including joint ventures)
Investment in
acquisitions and
JVs in the year
Disposals less
development spend
We invested c.£60m in 2018 (and c.
We want to keep replenishing the
£140m between 2014 and 2018) to
portfolio and delivering EPRA NNNAV
replenish and grow the portfolio in order
growth which will require the same, or
to sustain 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
2018 year-end gearing of 12.3%
Ideal target range gearing remains
10%-15% net loan to value
Turn to page 36 to read about our Key Risks
STRATEGIC REPORT
STRATEGIC REPORT
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
5
5
STRATEGIC PRIORITY
DEVELOPMENT
Driving the capital growth of our portfolio through
delivery of planning permissions, site remediation and
infrastructure, before crystallising land sales
INVESTMENT
Ensuring sustainable income generation through asset
management of existing rental sites, direct development
of new space and recycling of portfolio into higher value
adding opportunities
KPIs (SEE PAGES 12 AND 13 FOR PERFORMANCE)
WHERE WE ARE
WHERE WE WANT TO BE
KEY RISKS
EPRA NNNAV
growth and total
return per share
Value Gains
12.6% p.a. EPRA NNNAV per share
growth and total return of 13.3% in 2018
We continue to aim to achieve total return
of at least 10% per annum as a consistent
average through the property cycle
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
logistics)
REGIONS
property portfolio
ACQUISITIONS
Concentrating on those property markets with strong,
through-the-cycle returns (residential, and industrial &
Consented and
Consented and
potential residential
potential
plots
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
Leveraging our strong relationships in our core areas in the
North of England and Midlands to expand our land and
Number and
Number and
geographic spread
geographic spread
of sites
of acres
Our portfolio remains focused on the
North of England with an increasing
emphasis on the Midlands and the
North West
We want to expand our portfolio to the
North West and Midlands to have similar
strength to our Yorkshire and Central
heartland
Growing our portfolio by utilising and recycling capital to
buy new sites to maintain net asset value growth across
the portfolio (including joint ventures)
Investment in
acquisitions and
JVs in the year
Disposals less
development spend
We invested c.£60m in 2018 (and c.
£140m between 2014 and 2018) 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
2018 year-end gearing of 12.3%
Ideal target range gearing remains
10%-15% net loan to value
Risk icon key
Markets
Delivery
Politics
Finance
People
Legal & Regulatory
Governance &
internal controls
Communications &
stakeholder
management
Cadley Park, SwadlincoteR-evolution Phase 2, AMPSimpson Park, Harworth
6 Harworth Group plc Annual Report and Financial Statements 2018
6 Harworth Group plc Annual Report and Financial Statements 2018
HOW WE ADD VALUE
The Harworth effect
Competitive advantage comes from our ability to add value through
active management rather than reliance on market movement, with
80% of value gains achieved in 2018 attributed to management actions
RECEIPTS
CAPITAL REINVESTMENT
PLANNING APPROVAL
We currently have planning
consents for over 11,000
residential plots and nearly
11 million sq. ft of commercial
space. A large proportion of
these consents are taken forward
as 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.
ACQUISITIONS AND
LAND ASSEMBLY
We have a large landbank of
brownfield and greenfield land
across the North of England
and the Midlands, owning and
managing c.21,500 acres of
land on around 120 sites. An
important part of our strategy
is to replenish our portfolio
with acquisitions to ensure the
growth of the business.
Turn to page 36
to read about
our Key Risks
STRATEGIC REPORT
STRATEGIC REPORT
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
7
7
RISK ICONS
MARKETS
DELIVERY
POLITICS
FINANCE
PEOPLE
LEGAL
& REGULATORY
GOVERNANCE
& INTERNAL
CONTROLS
COMMUNICATIONS
& STAKEHOLDER
MANAGEMENT
CAPITAL RECEIPT
RECURRING INCOME
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.
We are now selling c.£20m p.a. of
mature income generating sites,
reinvesting the receipts in higher value
adding opportunities.
LAND REMEDIATION
AND 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.
TIME
8 Harworth Group plc Annual Report and Financial Statements 2018
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
RESIDENTIAL
GOOD DEMAND
Housing under-supply is driving consistently good
demand for land from housebuilders of all types in
our regions
COMPARATIVE AFFORDABILITY
New houses on our sites in the North of England
and the Midlands have a more affordable price to
earnings ratio than in many parts of the UK
COMMERCIAL
STEADY DEMAND
Steady demand for well-located industrial space
continues, with supply continuing to be squeezed
across all regions. UK vacancy rate stands at <6%
LEADING MARKET
Industrial sector is forecast to continue to
outperform both the office and retail markets in
the medium-term
BUILD ACCELERATION
STRONG SUPPORT
Housing remains the UK government’s key domestic
priority, supported by continued incentives for new
purchasers and new planning guidance through the
NPPF designed to accelerate housebuilding
Local support for sustainable new commercial
development remains strong, driven by the desire for
economic regeneration and the need for business
rate receipts
M1M69M6M6 TollM1M11M25A3(M)A1(M)A1(M)A1(M)M25M23M2M26M3M4M20M40M40M42M5M50M5M6M6M6A74(M)M74M56M62M61M62M180M18M56M57M54M8ManchesterLeicesterBirminghamCoventryDerbyNottinghamSheffieldStoke-on-TrentLiverpoolBristolGloucesterCardiffPlymouthCambridgeMiltonKeynesFolkestoneDoverFelixstoweLondonMiddlesbroughScarboroughWhitehavenDumfriesCarlisleLeedsImminghamGrimsbyYorkNewcastleUpon TyneEdinburghPerthGlasgowTSimpson Park, HarworthAMP, RotherhamPheasant Hill Park, DoncasterLogistics North, Bolton
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
9
121
SITES ACROSS THE UK
7
NORTH WEST
16
NORTH EAST
54
YORKSHIRE & CENTRAL
12
MIDLANDS
32
COMMERCIAL
CLAWBACKS
M1M69M6M6 TollM1M11M25A3(M)A1(M)A1(M)A1(M)M25M23M2M26M3M4M20M40M40M42M5M50M5M6M6M6A74(M)M74M56M62M61M62M180M18M56M57M54M8ManchesterLeicesterBirminghamCoventryDerbyNottinghamSheffieldStoke-on-TrentLiverpoolBristolGloucesterCardiffPlymouthCambridgeMiltonKeynesFolkestoneDoverFelixstoweLondonMiddlesbroughScarboroughWhitehavenDumfriesCarlisleLeedsImminghamGrimsbyYorkNewcastleUpon TyneEdinburghPerthGlasgowT 10 Harworth Group plc Annual Report and Financial Statements 2018
10 Harworth Group plc Annual Report and Financial Statements 2018
OUR YEAR
KEY 2018 ACHIEVEMENTS
AVAILABLE NOW
225,000 sq ft
1 ACQUISITIONS
AND LAND
ASSEMBLY
LOGISTICS 175
150,000 sq ft
AT LOGISTICS NORTH
A4
C1
C2
C3
C4
C5
2
A6/Salford Road
Phase 1
Plot
A1
A2
A3
A4
Status
Occupier/Availability
sq ft (GIA)
Acres
Completed
Completed
Completed
Greene King
Aldi
Costa
-
Plot available
-
-
-
-
76,000 sq ft
650,000 sq ft
Eleven sites purchased for c.£60
million which: already provide
£3.1m of additional recurring
income per annum; and could
deliver a further c.2,000 plots
and over 1.5m sq. ft of
additional commercial space
Transforming Regenerating Revitalising
www.logisticsnorth.com
Country park
358,000 sq ft
F2/A
F2/B
F1/A
E2
F2/C
F2/D
F2/E
F2/F
F2/J
F2/G
F2/H
H1/A
975,000 sq ft
G2
3 PLANNING
APPROVAL
Outline planning consents
granted for 778 residential
plots, of which 560 were
delivered from the Group’s
first three PPA1 successes in
Nottinghamshire, Derbyshire
and Yorkshire
SCHEDULE OF ACCOMMODATION
-
-
-
0.61
-
-
-
-
2.12
-
-
-
-
-
-
-
Logistics 225
Completed
Whistl
225,000
Logistics 175
Available Now
Available
B1
B2
C1
C2
C3
C4
C5
D1
E1
E2
Completed
Completed
-
Sold
Sold
On site
On Site
Completed
Completed
MBDA
Komatsu
Plot available
Aldi
Aldi
Q4 2017
Q4 2017
Aldi
Amazon
Under Offer
-
175,000
150,000
76,000
-
-
-
24,750
27,500
650,000
358,000
375,000
Phase 2
Plot
Multiply - F1/A
Multiply - F2/A
Multiply - F2/B
Status
On site
On site
On site
Multiply - F2/C
On site shortly
Multiply - F2/D
On site shortly
Multiply - F2/E
On site shortly
Multiply - F2/F
On site shortly
Multiply - F2/G
On site shortly
Multiply - F2/H
On site shortly
Multiply - F2/J
On site shortly
Occupier/Availability
sq ft (GIA)
Acres
Q4 2017
Q4 2017
Q4 2017
TBC
TBC
TBC
TBC
TBC
TBC
TBC
63,070
44,771
55,660
30,457
25,380
20,344
20,344
149,198
131,342
24,538
-
-
-
-
-
-
-
-
-
-
H1/A
G1
G2
-
Sold
-
Plot available
75,000
4.72
Lidl (UK)
975,000
-
Plot available
250,000
18.27
Transforming Regenerating Revitalising
www.logisticsnorth.com
1
Country park
0m
50m
100m
2 MASTERPLANNING
Applications submitted for over
3.3m sq. ft of commercial space
and 993 residential plots with
the majority due to be
determined in 2019
3
1
PPAs are agreements with landowners by which Harworth incurs the cost and risk of promoting land through planning. If successful,
Harworth shares some of the value gain, after first recovering its costs, when the land is sold.
2
Includes freehold, joint venture, PPA and overage sites.
STRATEGIC REPORT
STRATEGIC REPORT
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
11
11
4
5 PLOT SALE
AND BUILD OUT
6
1,049 residential plots sold across
nine parcels at an average value
of c.£30,000/plot (at book value).
1.15m sq. ft of consented
commercial land sold across four
parcels for a total consideration
of £30.9m, delivering a profit on
sale of £1.0m
5
4 LAND
REMEDIATION &
INFRASTRUCTURE
DEVELOPMENT
15 Major Developments being
delivered as at year-end.
Portfolio2 has consent for
11,077 residential plots and
c.10.7m sq. ft of commercial
space
6 ASSET
MANAGEMENT
Over 300,000 sq. ft of long-
term lettings secured on
eight new commercial
buildings, including new
headline rents secured at the
AMP and Logistics North.
Less than 100,000 sq. ft of
directly built space available
across the portfolio. Installed
energy capacity on our land
of 154.2MW
12 Harworth Group plc Annual Report and Financial Statements 2018
12 Harworth Group plc Annual Report and Financial Statements 2018
PERFORMANCE VS. KEY MEASURES
DEVELOPMENT
NNNAV GROWTH % / TOTAL RETURN %
VALUE GAINS (£’m)
19.0%
19.0%
20
15
10
5
0
13.2%
13.2%
13.3%
12.5%
12.5%
12.6%
60
50
40
30
20
10
0
40.4
43.7
47.4
51.3
2015
2016
2017
2018
2015
2016
2017
2018
PROFIT EXCLUDING VALUE GAINS (£’000)
INTEREST COVER
INVESTMENT
10
8
6
4
2
0
9,840
2,077
2,214
2,240
5.00x
4.00x
3.00x
2.00x
1.00x
0.00x
2.83x
3.41x
1.54x
4.65x
2015
2016
2017
2018
2015
2016
2017
2018
SECTORS
RESIDENTIAL PLOTS - CONSENTED/ PIPELINE
COMMERCIAL SQ. FT - CONSENTED/PIPELINE (k)
16,073
5,765
17,386
7,857
17,836
7,388
20,490
9,413
10,308
9,529
10,448
11,077
25
20
15
10
5
0
25
20
15
10
5
0
15,766
8,026
7,741
21,629
21,248
9,495
10,524
18,184
8,235
9,949
12,134
10,724
2015
2016
2017
2018
2015
2016
2017
2018
ACRES
Pipeline
Consented
REGIONS
SITES
25
20
15
10
5
0
23,758
21,977
21,005
21,632
200
150
100
50
0
121
146
143
136
2015
2016
2017
2018
2015
2016
2017
2018
Midlands
North East
Yorkshire and Central
North West
Commercial Clawbacks
STRATEGIC REPORT
STRATEGIC REPORT
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
13
13
ACQUISITIONS AND JV INVESTMENT (£’m)
DISPOSALS LESS DEVELOPMENT SPEND (£’m)
ACQUISITIONS
70
60
50
40
30
20
10
0
23.9
32.3
30.3
61.1
70
60
50
40
30
20
10
0
20.4
28.8
2015
2016
2017
2018
2015
2016
FINANCING
NET LTV (%)
NET DEBT (£’000)
36.5
2018
14.0
2017
15
10
5
0
10.8%
9.9%
12.3%
7.0%
80
60
40
20
0
36,955
39,471
32,275
64,443
2015
2016
2017
2018
2015
2016
2017
2018
ACCIDENTS (All minor and includes figures for contractors)
RIDDOR REPORTS
SAFETY
10
8
6
4
2
0
6
0
10
3
5
4
3
2
1
0
0
0
0
0
2015
2016
2017
2018
2015
2016
2017
2018
EMPLOYEE NUMBERS (*As at date of report)
Employee Satisfaction (%)
EMPLOYEES
80
60
40
20
0
45
52
57
68
90
85
80
75
70
83%
84%
87%
88%
2015
2016
2017
2018
2015
2016
2017
2018
Chairman’s statement
Alastair Lyons
14 Harworth Group plc Annual Report and Financial Statements 2018
Chairman’s statement
alastair Lyons
As this is my first statement since
assuming the Chair at Harworth in
March last year, I would like to start
with some reflections on becoming
involved with the business. However,
may I first express my thanks to
my predecessor, Jonson Cox, for
everything he did to facilitate a smooth
transition from him to me and also
my recognition of the considerable
contribution he made to the creation
of Harworth in its current form as
an established, listed development
company with a differentiated, and
proven, specialism in the regeneration
of difficult former industrial sites.
A personal perspective
My principal previous property experience was serving as
Deputy Chairman at Bovis Homes for approaching 10 years
before my retirement last May. As a house builder, one is
primarily concerned with the sale of a standard product with
well-defined production costs and margins, such that progress
can be tracked against a generic build process that permits
measurement of uniform stages such as “slab” or “roofed-in”.
Sites may be acquired in different locations but what is produced
on each site largely conforms to standard house types.
I have rapidly discovered that property at Harworth is very
different – every site has its own very individual challenges and
opportunities to create value. Of course, one starts off with a
site assessment against required average returns but the
course the development takes may differ radically from how it
was first envisaged. As the team learns more about the site and
as market conditions change, so the pace and shape of
development may evolve. Parts of the site may be sold earlier or
later than planned; parts may be developed by Harworth itself
and held within our income generating portfolio rather than sold
for others to develop; adjacent land may be added to the
masterplan and change the balance of commercial and
residential uses; and skilful remediation may bring forward
additional areas that were not initially envisaged as suitable for
development. Every site has to be understood in great detail by
those responsible for its development. There is no such thing
as a “cookie cutter” approach to Harworth’s sites.
Successful development of large, complex and frequently
challenging sites requires particular skills and experience, and it
is Harworth’s people that are at the heart of its differentiation.
The well-used adage that an organisation is only as good as its
people has never been truer than at Harworth. There may only
be 68 people but our ability to create value derives from their
ability to: identify land and property opportunities; create
deliverable masterplans; negotiate acquisitions, disposals, and
leases; develop relationships with local stakeholders; build
partnerships with funders, developers, house builders, and
commercial clients; devise innovative remediation solutions for
complex heavy industrial legacies; identify the right point in the
market to offer sites for sale; and manage complex projects
requiring the organisation of, and interaction with, multiple
professional advisers and contractors.
The other notable difference between Bovis and Harworth is
time-scale. A house builder will typically look to be in and out of
a site in a couple of years. The scale of some of Harworth’s
developments means that we may be continuing to extract
value from a site for up to 20 years or more. A house builder will
determine whether or not to buy a site on its assessment of the
attractiveness to potential customers of the location and the
community of which the site is a part. Harworth will create
places and communities where none exist. It is Harworth’s
vision of the end game on a development that house builders
and commercial clients buy into. When our management
considers the potential of a development, they have to have a
long-term vision of their ability to create value over many years
into the future. Each year’s results in isolation are an important
guide to our commercial effectiveness but average return
across the cycle is the most accurate measure of the quality,
strateGiC rePOrt
COrPOrate GOVernanCe
FinanCiaL statements
15
and sustainability, of our delivery. It is the very long-term, and
through the cycle, characteristics of our business that
persuaded us that the Restricted Share Plan outlined in the
Directors’ Remuneration Report is a better fit to the strategy of
our business than the 3-year Long-Term Incentive Plan that we
have adopted previously.
realised outline planning consent during the year. Whilst 2018
was again characterised by substantial investment, this was
balanced by significant disposals, realising £93.2m during the
year. This enabled us to maintain our commitment to low
financial gearing, ending the year with a 12.3% net loan to value
(“LTV”), well within our target range.
The structure of Harworth’s shareholdings is also very different
to the listed companies that I have previously chaired. With the
Peel Group and the Pension Protection Fund holding slightly
over 50% of Harworth, and represented at the Board table, as
Chairman one receives directly and in real time shareholder
perspectives on decisions and feedback on issues faced by the
Group. This is invaluable. Importantly, by their support for our
cashbox placing in early 2017 they demonstrated their
alignment with our long-term objectives to grow our business.
Equally, I am very grateful for the welcome I have received from
our other material institutional shareholders and look forward to
seeing institutional participation on our register grow over time
as the potential inherent in Harworth becomes more broadly
communicated and recognised.
Governance
Whilst Harworth is a constituent member of the FTSE Small-
Cap index, it operates to all intents and purposes as if it were in
the FTSE-250 index and aspires to be a member in due course.
Its process of corporate governance is well-established and
substantially met the Code requirements of a premium-listed
company before we made the transition to the Premium List in
August 2018. The smoothness of that process is itself a credit
to our in-house company secretarial and finance teams and to
the many advisers that worked with us on the exercise. When
considering joining Harworth I was impressed by the content
and clarity of our annual report and broader shareholder and
media communications. We have a first-rate Board, as
evidenced by our recent external Board Effectiveness Review,
with a broad range of skills and relevant experience around the
Board table. With such as our non-executive participation on
the Group’s People Steering Group we are clearly cognisant,
and in the vanguard, of developments in corporate best
practice. The recruitment of new non-executive directors now
allows us to constitute our principal Board committees on a
fully independent footing.
2018 – the year
The other aspect of Harworth that attracted me to the
opportunity was its track-record of delivery and 2018 has been
no exception. Once again, the Group has met its objective of
over 10% through the cycle total return, this time delivering
13.3% in a year supported by a number of successes, not all of
which were envisaged at the start of the year. Owen provides
further commentary on this in his Chief Executive’s statement.
This bears out the capability of our teams to identify and then
realise opportunities for value creation. In any one year there
may be both upsides and downsides – what is much more
important is what the business achieves over the medium-term.
That medium-term delivery will be determined by our
development pipeline. Hence as important as our in year result
was what we did to support our future returns - the £14.2m that
we invested in development acquisitions, themselves supported
by £43.7m of income-generating acquisitions; our commitment
of £33.0m further investment, predominantly infrastructure, in
sites we own; the 993 residential plots and 3.3m commercial
square feet for which we applied for planning consent; and the
778 residential plots and c.0.1m commercial sq. ft on which we
Acquiring appropriate new sites is the life-blood of our future
growth and a strong understanding of, and relationships with,
local markets are, in our view, key to identifying, negotiating, and
subsequently developing such sites. Hence our decision during
2018 to move to a regional structure with new regional teams in
the Midlands, based out of Birmingham, and the North-West,
out of Manchester, complementing our existing Yorkshire and
Central area, based at our head office in Rotherham. We are
delighted to have secured proven, experienced, regionally-
based management to lead these new regions and they are in
the process of building out their teams to match the intended
growth of their regional portfolios. Our acquisition of 350 acres
at the former Ironbridge power station in Shropshire exemplifies
this regional expansion within Harworth’s existing focus on
transforming large, complex development sites.
The Board
We have added two new Non-Executive Directors over the last
month. This addressed both the retirement in September this
year of Tony Donnelly after nine years with Harworth, and the
need, as a premium-listed company, for at least half the Board,
excluding the chair, to comprise independent directors. It will
also enable us to add a further independent non-executive to
our Remuneration and Audit Committees from which Steven
Underwood, the representative of the Peel Group on our Board
and, therefore, not independent, will then stand down. In line
with our establishing a Midlands region, Ruth Cooke brings us
extensive experience in the Midlands real estate sector, having
been Chief Executive of Midland Heart, a large regional housing
association from 2012-2018, a founder member of the West
Midlands Housing Association Partnership, and a Board
member at Marketing Birmingham. She is a chartered
accountant and a corporate treasurer. Angela Bromfield has
extensive commercial strategy, marketing and communications
executive experience, having held leadership roles in these
areas at Premier Farnell, Anglo American, and Morgan Sindall.
She is currently a non-executive director and Remuneration
Committee Chair at Churchill China and Zotefoams.
We are disappointed that Andrew Kirkman, our Finance
Director, will be leaving us on 30 June to become the Chief
Financial Officer of CLS Holdings but understand this move as
the next step in his career. I would like to thank Andrew for his
contribution towards Harworth’s success while he has been
with us and wish him well for the future. The process of
recruiting his successor is underway.
Thank you
May I finish by thanking everyone who has contributed so much
to making 2018 another successful year for Harworth – our
management team, our colleagues, our customers, our
business partners, advisers and suppliers. As I said at the
beginning of my statement, Harworth is all about its people.
Alastair Lyons
Chairman
16 April 2019
Chief Executive’s statement
Owen Michaelson
16 Harworth Group plc Annual Report and Financial Statements 2018
ChieF exeCutiVe’s statement
Owen michaelson
Harworth Group has once again
delivered another year of strong
operational performance and
a double-digit total return to
shareholders, demonstrating the
focus and technical skills of the team
in creating sustainable, regeneration-
led developments. Our focus on
“beds and sheds” within the regional
markets of the North of England and
the Midlands underpins our decision
to invest in a regional delivery model
with new teams in areas of strong
projected growth, to sustain the
business moving forward.
In 2018, the Group delivered double-digit total return per share
growth of 13.3% (2017: 13.2%), with EPRA NNNAV of £466.5m
at the year-end (2017: £414.2m). This includes value gains of
£51.3m (2017: £47.4m), ahead of our expectations, whilst Profit
Excluding Value Gains (“PEVG”) rose to £9.8m (2017: £2.2m),
which includes £6.8m for the promote fee for the letting of M&G
Real Estate’s forward-funded LN175 unit at Logistics North.
Ongoing delivery of our strategy
Our performance is in line with the key strategic aim of the
business - to be the leading land and property regeneration
specialist in the North of England and the Midlands, delivering
double digit total returns to shareholders by providing innovative
and sustainable solutions on the land we bring forward for
remediation and development. We also aim to be a good
neighbour in the communities in which we operate and to
provide customer-driven solutions to our end users in a market
dominated by standard developments. In simple terms we listen
to our customers and key stakeholders in the communities in
which we operate, when masterplanning our developments.
Our operational focus remains consistent: extracting maximum
value from our land and property portfolio in the North of
England and the Midlands to grow EPRA NNNAV; building our
recurring income base with the aim of covering all operating
costs and dividends; acquiring brownfield, and urban edge, land
in sustainable locations; whilst at the same time buying and
developing income-producing property to underpin the
sustainability of our long-term business model. This is
underpinned by using our land assembly, masterplanning,
technical, placemaking and asset management expertise to
transform redundant land and sustainable urban edge locations
into places where people want to live and work. We continue to
focus on our core regions of Yorkshire & Central, the Midlands
and the North West in which to invest our management time and
capital whilst maintaining a watching brief on the strong markets
immediately to the south of our existing Midlands region.
Our strategy and business model remain well-suited to the
fundamentals of the “beds and sheds” markets across the
North of England and the Midlands. Our ongoing land sales to
house builders continue to be driven by steady demand for new
homes, supported by their comparative affordability and the
continued lack of delivery of the new homes the UK needs to
keep pace with the rate of household formation. The rise of
e-tailing and increasing demands of consumers supports
demand for logistics, distribution and manufacturing space,
with the industrial sector forecast to outperform both the office
and retail markets in the medium-term.
Central and local government support for our business model
remains stable, with an extension of Help to Buy confirmed until
March 2023 (albeit in more restricted form from 2021) alongside
fairly modest changes to the National Planning Policy
Framework. With changes to local government funding driving
the need for local authorities to work with trusted partners to
deliver high-quality development, which can then contribute to
Business Rates, Council Tax receipts and the New Homes
Bonus, our products remain as economically and socially
relevant as they have ever been.
Capital Growth
Four principal management actions continue to deliver capital
growth from our existing land and property portfolio: securing
planning consents on major schemes; remediating and
providing infrastructure on consented land for redevelopment;
placemaking followed by premium land sales to residential and
commercial occupiers; and directly developing our own
industrial units for either sale or letting. All have underpinned
strateGiC rePOrt
COrPOrate GOVernanCe
FinanCiaL statements
17
value gains during the year. To maintain the sustainability of our
business and support our continued growth it is essential that
we continue to replenish the portfolio as we work through our
more mature sites. To that end, we aim to grow our strategic
land portfolio by at least 10% each year.
Planning success and progress across the portfolio remained
strong in 2018, with outline planning consent secured for 778
residential plots (2017: 825) and 76k sq. ft of commercial space
(2017: over 3m sq. ft) across seven sites. This included three
Planning Promotion Agreement (“PPA”) successes, including
securing outline permission for 400 plots at Market Warsop in
Nottinghamshire in April 2018. As at 31 December 2018, total
consented residential plots under direct ownership and PPAs/
options stood at 11,077 plots and consented commercial space
on our land at c.10.7m sq. ft, providing a robust pipeline for
sales and direct development opportunities over at least the
next decade.
2019 will be a significant year for the business in securing new
outline planning consents to increase this pipeline still further. In
2018 we submitted planning applications on our land for 993
new residential plots and over 3.3m sq. ft of commercial space.
During 2019 a number of new applications are expected to be
submitted for over 3,000 further residential plots.
Plot sales for both residential and commercial uses continue to
be carefully planned, both to realise further value gains and to
reinvest capital into the ongoing development of our wider
portfolio and in new acquisitions. A total of 1,049 residential
plots were sold across nine parcels for £33.6m to national and
regional housebuilders during the year, with repeat customers
including Taylor Wimpey, Barratt and Avant Homes showing the
popularity of the de-risked engineered land parcels that we
make available, and the relative affordability of their products to
consumers. Profits on sale were also realised from the disposal
of engineered development land for commercial uses totalling
1.15m sq. ft, including the sale in October of the 55-acre
Lounge site in Leicestershire for £18.7m and the £10.9m sale of
the 18-acre G2 plot at Logistics North in December to Lidl (UK),
representing further repeat customers for the business.
One of our principal areas of focus is to sustain this momentum
by making further land acquisitions and cultivating industry and
stakeholder relationships as our operating geography grows.
2018 represented a record year for new acquisitions with eleven
land and property purchases made for a consideration
(inclusive of costs) of c.£60m in total, supported by the
extension of our Revolving Credit Facility to £100m in April. Our
acquisitions were a mix of strategic land and income-producing
properties with development potential. The largest of these was
the purchase in May of the 112-acre Nufarm site at Wyke,
Bradford, for £32.45m plus acquisition costs. Less than a mile
from Junction 26 of the M62, the site comprises an
agrochemical works set over 32 acres alongside 80 acres of
unoccupied land. It is let on a 50-year lease (expiring 2055) at a
current passing rent of over £2.1m per annum, representing a
net initial yield of 6.2% and a reversionary yield of 7.0% based
on rental increases. The 80 acres of unoccupied land has
long-term potential for commercial development. In the
previous month, we also purchased a 22-acre site in Flaxby,
North Yorkshire for £8.75m plus acquisition costs. Within half a
mile of Junction 47 of the A1(M), the site comprises a c.276k sq.
ft commercial unit occupied by Ilke Homes, the modular homes
manufacturer. A 14-year lease has been agreed with Ilke at a
stabilised rent of £1m per annum, representing a net initial yield
of 10.9% and a reversionary yield of 12.1%. The site’s very low
density of 29% also provides a potential opportunity for further
commercial development.
In support of our expanding regional presence, we acquired
land at two strategic sites in the Midlands in May, totalling
165 acres, for a total consideration of £3.88m plus acquisition
costs. At Cinderhill in Derbyshire, we acquired another
112 acres of strategic land across three parcels as part of site
assembly to support the promotion through Amber Valley
District Council’s Local Plan. Cinderhill has the potential to be a
substantial, residential-led development across 421 acres that
could deliver up to 3,000 new homes and 450k sq. ft of
commercial space. We also acquired 53 acres in Bardon,
Leicestershire, adjacent to the Group’s existing development at
Coalville. Close to Junction 22 of the M1, we are already
promoting the site through the planning process for a 350k sq.
ft scheme of manufacturing, distribution and roadside uses.
Our strategic move into the Midlands was further evidenced in
June with our acquisition of the 350-acre former Ironbridge
coal-fired power station in Shropshire. Located adjacent to
Ironbridge town centre, the site comprises around 240 acres of
brownfield land and a neighbouring parcel of over 100 acres of
agricultural land. We are already promoting the site through the
planning process, with the first public consultation held in
November. We are targeting a new mixed-use development of
at least 1,000 homes alongside commercial development,
leisure uses and a significant amount of public open space.
Further consultation on our plans will take place in Spring 2019
prior to submission of an outline planning application.
The final acquisition of the year represented our first move into
residential development in the North West. In November we
purchased 56 acres at Moss Nook in St Helens, Merseyside.
The site, which was under option for two years, is a brownfield
site situated just over a mile away from St Helens town centre
with an existing planning consent for 900 new homes. We are
already applying our masterplanning, land remediation and
infrastructure expertise to create a new vision for the site and to
prepare part of the site for a first sale of engineered land.
Progress has also been made in securing further land options
and new PPAs. As at 31 December 2018, 197 acres of third-
party land was secured under option, with PPAs secured to
promote 4,919 residential plots and 0.4m sq. ft of new
commercial space through the planning system.
The evolution of the business and pace of its growth has made
implementation of a regional structure the logical next step. As
a result, we appointed three Regional Directors in the Autumn
to take forward the acquisition, promotion and development of
all sites in our core regions of Yorkshire & Central, Midlands and
the North West. We believe that this will generate greater
management cohesion between the acquisition and delivery
functions and will create regional teams embedded in their
respective local markets, further increasing the profile of the
business and supporting us in securing more developable land
and property to grow the business in a sustainable manner.
Chief Executive’s statement
Continued
18 Harworth Group plc Annual Report and Financial Statements 2018
ChieF exeCutiVe’s statement
Continued
Income Generation
Excellent progress continues to be made by our Income
Generation team, growing the size and strength of our recurring
income base to cover, over time, all operating costs of the
business and dividends. The team also makes a significant
contribution to our achieved value gains through its work in
directly developing new commercial space and asset managing
our existing income portfolio.
The team’s strategy evolved further in 2018, with the sales of
mature assets with little further value-add potential, and of
low-yielding agricultural land and property with little development
potential, in turn supporting the purchase of higher-yielding assets,
in many cases with development potential. The team has
continued to undertake selective direct development in response
to the ongoing undersupply of good quality commercial space in
the regions, generating both value gains and new sources of
long-term income.
The extension of our Revolving Credit Facility to £100m in April,
coupled with the sale of Harworth Business Park in North
Nottinghamshire in March, enabled the acquisitions of Nufarm and
Flaxby referred to above. The additional income headroom these
acquisitions provide allowed us to dispose of all five built
commercial units, totalling 145k sq. ft, at Phase 1 of our Gateway
36 Business Park in Barnsley, South Yorkshire for £15.8m,
reflecting a net initial yield of 4.76% and generating a profit on sale.
This was a great result for the business, given the site did not have
outline planning consent in place until 2014.
Lettings progress has been strong in 2018, with over 787k sq. ft of
new and renewed letting activity to a variety of occupiers, at
favourable rents. At the end of December, only two of our wholly
owned speculative development units in the Business Space
portfolio (c.31k sq. ft) remained vacant, reflecting the underlying
strength of the industrial property market across the North of
England. Strong growth in rental values was also recorded on the
three sites where we have directly developed new commercial
space.
At Logistics North in Bolton, five key lettings were agreed. In
January, we agreed a 15-year lease with Vaclensa Limited for our
C5 “R-evolution” unit, totalling 28k sq. ft, at a then new headline
rent for Logistics North of £7.00psf, reflecting the continued strong
demand for high quality industrial assets in the region. Four new
leases were also agreed for the “Multiply Logistics North” units
that we are developing in joint venture with the Lancashire County
Pension Fund. In March, Hardscape, the UK’s premier
landscaping material supplier, became the scheme’s first tenant
on a 15-year lease for the 45k sq. ft Unit F2/A. This was followed
in October by a 15-year pre-let to rijo42, the UK’s leading supplier
of commercial coffee machines, coffee beans and coffee
ingredients, at a rent of £7.25psf for the 20k sq. ft Unit F2/E. A
further six “Multiply” units, totalling 271k sq. ft, were practically
completed in the Autumn. In November, UW Homes Services Ltd,
a smart meter installation and maintenance business, took a
10-year lease of the 31k sq. ft Unit F2/C at a new headline rent for
the North West of £7.75psf. Finally, kitchen supplier PJH Group
Limited took 63k sq. ft of space at the “Multiply” F1/A unit on a
ten-year lease. Five remaining units totalling c.275k sq. ft
(Harworth’s 20% share equating to c.56k sq. ft) remain available at
“Multiply” to let in 2019.
At the Advanced Manufacturing Park (“AMP”) in Rotherham, the
52k sq. ft “R-evolution Phase 2” is now fully let. With the market
for new-build commercial space remaining strong, driven by a lack
of good quality existing supply, we undertook construction of the
third phase of “R-evolution” at the AMP, comprising 57k sq. ft of
commercial space that practically completed at the end of August
2018. The first letting of that space, the c.25k sq. ft Unit 6A-D was
completed in October, with Bodycote taking a 15-year lease,
leaving two remaining units totalling 31k sq. ft available to let in
2019.
In addition to growing income from our own commercial
development, the team let M&G Real Estate’s LN175 unit, a 175k
sq. ft industrial unit at the front of Logistics North, to an advanced
manufacturer on a 20-year lease in December. Under the terms of
our forward funding agreement with M&G, this triggered a one-off
net “promote fee” of £6.8m, supporting the delivery of stronger
than anticipated PEVG across the portfolio.
The team also continues to asset manage our 2.7m sq. ft
Business Space portfolio to reduce voids and increase rental
returns. All of this activity meant that Business Space revenue in
2018 increased to £11.9m (2017: £8.4m). The weighted average
unexpired lease term (“WAULT”) to expiry across the portfolio now
stands at 14.1 years (2017: 7.5 years), whilst the vacancy rate has
reduced to 14% (2017: 17%).
Gateway 36 Phase 1, Barnsley strateGiC rePOrt
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19
Outlook
The quality and attraction of our engineered land and commercial
property space, matched with favourable market conditions in our
core regional markets, position the business strongly for continued
EPRA NNNAV growth and further improvement in the quality and
breadth of our recurring income base.
Over 50% of this year’s budgeted sales have already been agreed,
supporting the Group’s performance for the year ahead, although
we still expect performance to be second half weighted. So far in
2019 we have made two strategic land acquisitions, both in the
North West, for residential development and have agreed terms on
a number of other sites in all regions which are now moving
through the legal process. We also anticipate the majority of our
existing planning applications will be determined in 2019. With
healthy demand for new lettings and enough strategic land and
property opportunities for the business to pursue, the business
remains well set up for ongoing growth.
We expect the solid economic growth in the North West, Yorkshire
and the Midlands to continue into 2019. Whilst Brexit is causing
short-term uncertainty at a macro-level and pulling the
Government’s attention and time away from other important
economic and social challenges, the fundamental strengths of, and
opportunities in, our core regional markets remain, and we expect
them to endure in the medium to long-term.
Owen Michaelson
Chief Executive
16 April 2019
Our revenues for the period were bolstered by the work of our
Natural Resources and Operations teams seeking out new
opportunities. A total of 154.2MW (2017: 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. As a by-product of
our remediation, engineering and development activities, we
continue to generate income from recycled aggregates and coal
fines, albeit these will decline in the medium-term.
The outlook for the Income Generation business remains positive.
Demand for new commercial space in our regions remains solid,
with a national vacancy rate of less than 6%, continued growth of
on-line retailing and the need for supply chain suppliers to be near
original equipment manufacturers on our developments. As a
result, the business will continue to undertake selective direct
development on key sites to improve further the breadth and
quality of our income base and to support NNNAV growth.
Our people are central to our success
The four successive years of double-digit total returns to
shareholders, well in excess of industry averages, is principally due
to the innovation, technical expertise, experience, determination
and resilience of all our colleagues across the Harworth team. We
now comprise a team of 68 people working across three regional
offices and on sites. Our people remain committed to increasing
the value of our land and property portfolio by creating great new
places for people to live and work. My continued thanks go to the
entire team, our delivery partners and external professional teams
for their hard work in maintaining the Group’s growth trajectory,
whilst maintaining our values, culture and standards.
I have also developed a strong working relationship with our new
Chairman, who has brought a fresh challenge and perspective to
the business since his appointment in March last year. He shares
my view that the core of our success is due to the range and
quality of activities we undertake and oversee. I am delighted that
we are growing the business, both in terms of size and coverage,
in a sustainable manner, whilst retaining our core principles.
Alastair has also brought a new perspective to organisational
development and the mentoring needed for all senior members of
our executive team to support the growth of the business, whilst
maintaining our underlying culture.
Launch of R-evolution Phase 3, AMP How we create new places and generate returns
20 Harworth Group plc Annual Report and Financial Statements 2018
hOW We Create neW PLaCes anD
Generate returns
Thoresby Colliery was the Midlands’ last deep mine to shut, with its closure in July 2015 signalling the end of over nine
decades of mining that once produced 100,000 tonnes of coal per week. Following Harworth taking on the site from UK
Coal in October 2015, it has spent the past three years delivering a number of actions in acting as ‘master developer’ –
undertaking site safety and security measures, demolishing vacant structures, developing a vision and masterplan for
the site and importing and exporting materials to create development platforms and a new Country Park. It is therefore
an excellent long-term case study in showcasing the Group’s work.
Harworth has effectively exercised its skill in being able to drive NNNAV growth – with the site now Harworth’s fifth most
valuable site – whilst creating and delivering a vision for a high-quality sustainable development for local people in
Edwinstowe, Ollerton and beyond to be proud of. These pages provide a snapshot of how it’s been done.
ACQUIRING AND MANAGING THE SITE
Between the Colliery closing on 10th July 2015 and Harworth taking ownership and responsibility for the site from that October,
staff from UK Coal and Harworth worked on a comprehensive handover plan. This saw staff work up appropriate technical and
health & safety due diligence, including regular liaison with the Coal Authority, as the public body that works to resolve the
impacts of mining, to provide the information required to proceed with development.
As on all major sites, Harworth’s initial priority was on site safety and security works, including the establishment of a new security
presence at the site’s gatehouse, the treatment of the site’s former coal lagoons and the demolition of now-vacant structures, as
explained below.
DEMOLITION
A large number of structures on the site’s 150-acre former pit yard were identified early in Harworth’s ownership as being solely
for mining use and not suitable for any form of redevelopment. As a result, Harworth and its contractors spent part of 2015, 2016
and most of 2017 safely bringing down a number of industrial structures – including the site’s former pithead and rapid loader – in
order to clear the site ready for redevelopment as per its emerging masterplan (see below).
MASTERPLANNING
Prior to receiving an outline planning consent for 800 new homes and 250,000 sq. ft of commercial space in October 2017,
Harworth’s Major Projects team spent the best part of two years working with local stakeholders to develop an agreed vision and
masterplan for the site. This followed six principal steps:
•
•
•
•
•
establishing the initial masterplan following early stakeholder engagement and assessment of technical data;
running a series of initial stakeholder workshops, informed by the site’s existing assets and technical data, to establish a
broad consensus on site uses;
testing these principles with statutory bodies;
running a detailed public consultation, with over 400 attendees participating in a six-hour consultation including a tour to see
the site’s entire 450 acres;
refining the masterplan and supporting documents following this consultation, in close liaison with both Newark & Sherwood
District Council (as local planning authority) and Nottinghamshire County Council (as highways authority); and
•
submitting an outline planning application in Spring 2017, which was determined that October.
A seventh step, being the establishment of a site-specific management company to manage public open space, will be
undertaken ahead of the sale of Phase 1 of the site.
Thoresby’s final masterplan includes the agreement of a design code with Newark & Sherwood District Council to ensure the built
development fits within the character of the local area, including the adjacent Sherwood Forest.
strateGiC rePOrt
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21
LAND PREPARATION INCLUDING THE COUNTRY PARK
From late 2017, Harworth has committed its capital to preparing land and infrastructure on
a phased basis in order to accelerate development and secure ongoing interest in the
scheme. The site’s first phase of around 10 acres is close to Thoresby’s existing estate
road as part of the Group’s commitment to reuse as much of a site’s previous infrastructure
as possible.
Harworth has also accelerated the development of the site’s Country Park, totalling 350
acres, as part of making the site as attractive a place for all new residents to live as
possible whilst also confirming Thoresby’s ‘good neighbour’ use to residents in nearby
Edwinstowe and the adjacent Sherwood Forest.
MANAGING THE SALES PROCESS
As on all of its Major Developments, Harworth has worked with a specialist residential
agent to pull together a specific Phase 1 sales pack for housebuilders to scrutinise prior to
bids being made. Final bids ultimately provide prima facie evidence for Harworth’s year-end
valuation process. Harworth will be adopting the same approach on all of its remaining
residential and commercial development phases over the next ten years as the
development is eventually built out.
CGI of completed Thoresby development
SITE THEN - 2016SITE NOW - 2019 22 Harworth Group plc Annual Report and Financial Statements 2018
Logistics North
Harworth’s flagship development in the North West
went from strength to strength in 2018, with a series
of income-producing deals at gradually increasing
rents supporting the continual improvement of the
quality of its income portfolio whilst acting as a
source of value gains.
2018 saw the build out and practical completion of Phase 2 of “Multiply
Logistics North” – Harworth’s joint venture with the Lancashire County
Pension Fund, advised by Knight Frank Investment Management. Five
new warehouses ranging from 20k to 31k sq. ft in addition to a larger
warehouse at 149k sq. ft were built, adding to the three units built by the
joint venture in 2017.
Four new leases at “Multiply” were agreed for these units across the
year. In March, Hardscape, the UK’s premier landscaping material
supplier, became the scheme’s first tenant on a 15-year lease for the 45k
sq. ft Unit F2/A. This was followed in October by a 15-year pre-let to
rijo42, the UK’s leading supplier of commercial coffee machines, coffee
beans and coffee ingredients, at a rent of £7.25psf for the 20k sq. ft Unit
F2/E. In November, UW Homes Services Ltd, a smart meter installation
and maintenance business, took a 10-year lease of the 31k sq. ft Unit
F2/C at a new headline rent for the North West of £7.75psf. Finally,
kitchen supplier PJH Group Limited took 63k sq. ft of space at the
“Multiply” F1/A unit on a ten-year lease. Five remaining units totalling
c.275k sq. ft (Harworth’s 20% share equating to c.56k sq. ft) remain
available at “Multiply” to let in 2019.
This progress was supplemented by three other key deals in 2018. In
January, a 15-year lease with Vaclensa Limited for Harworth’s C5
“R-evolution” unit, totalling 28k sq. ft, at a then new headline rent for
Logistics North of £7.00psf. There was also the £10.9m sale of the
18-acre G2 plot at Logistics North in December to Lidl (UK), representing
a further repeat customer for the business at the development in order
for the retailer to build its new regional distribution headquarters.
Harworth also let M&G Real Estate’s LN175 unit, a 175k sq. ft industrial
unit at the entrance to the site, to an advanced manufacturer on a
20-year lease in December. Under the terms of our forward funding
agreement with M&G, this triggered a one-off net “promote fee” of
£6.8m, supporting the delivery of stronger than anticipated Profit
Excluding Value Gains across the portfolio.
Nearly 5,500 people are now employed at Logistics North and once fully
developed it is expected to create an additional 1,500 jobs and eventually
add over £300m in Gross Value Added (GVA) to the local economy. The
speed of delivery has exceeded all expectations, driven by the demand
for new commercial space in the region. Harworth is also close to
completing the 550-acre Country Park that bounds the site, with an
increased number of residents from nearby villages in Bolton, Salford
and Wigan using the site for activities including running, cycling and
birdwatching.
With no units or land remaining to accommodate any requirements above
150,000 sq. ft at Logistics North and with a limited supply of new
manufacturing or distribution units in Greater Manchester, Harworth’s
focus in 2019 will be on securing planning consent from Bolton Council
for Phase 1 of its Wingates site adjacent to Junction 6 of the M61 for 1.1m
sq. ft of commercial space, in addition to securing tenants for the
remaining “Multiply” units and completing the site’s Country Park.
strateGiC rePOrt
COrPOrate GOVernanCe
FinanCiaL statements
23
LOGistiCs nOrth: returns sinCe 2010
£
120,000k
100,000k
80,000k
60,000k
40,000k
20,000k
0k
31/12/10
NNNAV NBV
Development
Spend
Revaluation
Gains
Profit on
Sale
Promote
Fees
31/12/18
NNNAV NBV
Market Value
Development spend
Value Gains
Cost accrual
Net Disposal proceeds/Promote profit
KeY FaCts: LOGistiCs nOrth
Location
Site Acreage
Former use
Progress made on site
Junction 4 of M61, Bolton, Greater Manchester
800 acres: 250 acres for employment, 550 acres for
Country Park
Cutacre surface mine
Consent granted for 4m sq. ft of employment in
2013. Infrastructure and build out began in 2014
and has continued to present day, with full
completion expected in 2020
Key occupiers on site
Amazon, Aldi, Lidl, Whistl, MBDA, Komatsu
Total jobs on-site as at March 2019
c. 5,500
Financial Review
Andrew Kirkman, Finance Director
24 Harworth Group plc Annual Report and Financial Statements 2018
FinanCiaL reVieW
andrew Kirkman, Finance Director
In 2018, Harworth continued to build its track record since re-listing, delivering the
fourth consecutive year of over 13% total return; this is ahead of our long-term average
ambition of over 10% annual total return. Total return (NNNAV growth plus dividends) per
share over the last year was 13.3% (2017: 13.2%). The graph below shows the movement
in net asset value, and total return, over the last year:
150.0p
145.0p
140.0p
135.0p
130.0p
125.0p
2.1p
1.5p
127.4p
As at
31/12/17
0.9p
3.1p
7.7p
7.4p
0.2p
3.1p
1.0p
1.2p
0.4p
0.9p
0.3p
1.2p
146.1p
8.6p
137.5p
Value Gains
PEVG
Exceptional
items
Interest
& Finance Costs
Tax
Dividends
Other (pension,
swap, etc.)
As at
31/12/18
Dividends
Total Return
NAV
EPRA NNNAV
EPRA NAV
Total return
Summary
We use a number of Alternative Performance Measures
(“APMs”) alongside statutory amounts. We believe that these
assist in providing stakeholders with additional useful
information on the underlying trends, performance and position
of the Group. Note 2 to the Financial Statements gives a full
description and reconciliation of our APMs.
Operating profit before exceptional items contributing to growth
in EPRA NNNAV, rose by 23.0% to £61.1m, 19.0p per share
(2017: £49.6m, 15.4p per share). As set out in Note 2, this is
operating profit before exceptionals (2018: £33.6m, 2017:
£39.7m) plus profits from joint ventures (2018: £3.8m, 2017:
£4.0m) and the revaluation gains on development property
(2018: £22.9m, 2017: £5.8m) plus the revaluation gains on
overages (2018: £3.5m, 2017: £nil) less value gains on
development property released on sale (2018: £2.8m, 2017: £nil)
which, because they are held as inventory, are not included in
the balance sheet.
The operating profit before exceptional items which contributed
to growth in EPRA NNNAV growth is best understood as being
composed of two elements:
• Value gains (£51.3m, 2017: £47.4m) – unrealised revaluation
gains on investment and development property plus
overages and profits from joint ventures increased by 31.0%
to £48.1m (2017: £36.7m) mainly as a result of the
achievement of milestones in terms of planning, place-
making and lettings together with seizing site-specific
opportunities. Realised profits on disposals of investment,
development and available for sale properties fell by 70.0% to
£3.2m (2017: £10.7m) mainly as a result of previously
recognising value gains on prospective property sales at the
2017 year-end and 2018 half-year; and
• PEVG (£9.8m, 2017: £2.2m) – this represents 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. The significant increase over 2018 reflected the one-off
fee from successfully letting the remaining M&G forward
funded unit, Logistics 175, at Logistics North and the impact
of income acquisitions.
strateGiC rePOrt
COrPOrate GOVernanCe
FinanCiaL statements
25
Property categorisation is reviewed as at 30 June and 31
December each year. In 2018 no new properties were re-
categorised from investment to development property as a result
of planning permissions because: the planning permission
granted at Swadlincote was an amendment to an existing
planning permission; our part of the site at Athersley which
received planning permission has been transferred to assets
held for sale as it is now being actively marketed; and the
remaining planning permissions received were for our first three
PPA successes. There were some minor movements from
investment to development properties, and vice-versa, as a
result of sub-dividing some sites and the intentions for these
smaller parcels.
As at 31 December 2018, the balance sheet value of all
development sites was £204.2m and their market value was
£230.2m reflecting the £26.0m uplift in value of these sites. In
order to highlight the market value of development sites, and
overages, and to be consistent with our investment properties,
we are using EPRA NNNAV, which includes the market value of
development properties and overages less notional deferred tax,
as our primary net assets metric. We will, however, continue to
report EPRA NAV which is EPRA NNNAV excluding deferred tax
and the mark to market movement on financial instruments.
Net finance costs rose to £4.0m (2017: £2.3m) as a result of
higher levels of debt to fund the growth of the business and the
write-off of fees associated with the increase in our Revolving
Credit Facility. However, given higher PEVG, interest cover rose
to 4.65x (2017: 3.41x). Our tax rate in 2018 remained below the
statutory corporation tax rate as a result of ongoing progress
with land remediation relief claims and the recognition of
previously assumed lost tax losses. Cash tax payments continue
to be minimised by the utilisation of historic tax losses.
The fall in earnings per share to 10.61p (2017: 15.76p) reflects the
impact of the beneficial deferred tax movements in 2017 and the
fact that the statutory measure, as opposed to the EPRA
balance sheet movement, does not fully reflect the improved
value gains since movements on development properties and
overages are not included in the balance sheet. The total
dividend per share for 2018 has been increased by 10% to
0.911p (2017: 0.828p) consistent with previous years and
reflecting our long-run ambition to deliver double digit total return
through the cycle.
Net debt at £64.4m or 12.3% net loan to value (2017: £32.3m
and 7.0%) reflects our prudent gearing approach and is in-line
with our stated 10.0% - 15.0% target range. In February 2018,
the Group extended the term of its £75.0m Revolving Credit
Facility (“RCF”) with RBS to February 2023, on the same terms
except with an increase in margin from 200 to 210 basis points,
and in April 2018 the RCF was increased to £100.0m with
Santander joining the facility on the same terms as RBS.
Property categorisation
Until sites receive planning permission, our view is that the land
is held for a currently undetermined future use and should thus
be held as investment property. We categorise all properties/
land that have received planning permission as development
properties. As at 31 December 2017, the balance sheet value of
all development sites was £210.5m and the market value of all
development was £216.3m reflecting the £5.8m uplift in value of
these sites, which is appropriately not reflected in the balance
sheet. More detail is set out in the 2017 Annual Report and
Financial Statements.
Financial Review
Continued
26 Harworth Group plc Annual Report and Financial Statements 2018
FinanCiaL reVieW
Continued
The table below sets out our top ten sites by value, which represent 47% of the total value of all our properties, split by their
categorisation and showing the total acres, currently consented residential plots and commercial space:
Site
Waverley
Coalville
Nufarm
Waverley (AMP)
Thoresby
Melton CP
Rossington
Gateway 45
Four Oaks BP
Chatterley
Type
Region
Acres
Consented
Sold/Built
Consented
Built
Housing plots
Commercial space
Development
Development
Investment
Investment
Development
Investment
Development
Joint Venture
Investment
Development
TOTAL
Yorkshire
Midlands
Yorkshire
Yorkshire
Midlands
Midlands
Yorkshire
Yorkshire
North West
North West
454
346
112
113
460
141
307
166
19
129
2,247
3,890
2,016
–
–
800
–
1,200
–
–
–
7,906
1,218/850
0
–
–
0
–
522/170
–
–
–
–
–
0.30m sq. ft
2.10m sq. ft
0.25m sq. ft
0.30m sq. ft
0.10m sq. ft
2.60m sq. ft
0.43m sq. ft
1.20m sq. ft
–
–
0.30m sq. ft
1.50m sq. ft
0.00m sq. ft
0.30m sq. ft
0.05m sq. ft
0.00m sq. ft
0.43m sq. ft
0.00m sq. ft
1,740/1,020
7.28m sq. ft
2.58m sq. ft
Operating profit
Revenues in 2018 were £78.1m (2017: £53.7m), split between revenue from operations £33.2m (2017: £23.9m) and revenue from the
disposal of development properties £44.8m (2017: £29.8m). Revenue from operations is split between: Income Generation £25.6m
(2017: £18.2m), where revenue mainly comprises rental and royalty income together with some sales of coal fines and salvage; and
Capital Growth £7.6m (2017: £5.7m). The increase in revenue from Income Generation reflected improved lettings and business space
acquisitions made in 2017 and 2018. The revenue from Capital Growth reflected the recognition of promote fees for the lettings of the
two units at Logistics North which were forward funded by M&G Real Estate. The two units, LN175 and LN225, were let in 2018 and
2017 respectively.
Cost of sales comprises the inventory cost of development property sales and the operating costs for business space, natural
resources, agricultural land and coal fines activities. Cost of sales increased to £53.6m (2017: £37.7m) of which £43.1m related to
the inventory cost of development property sales (2017: £27.9m). Other costs were primarily the costs associated with coal fines
£5.0m (2017: £2.2m).
Revenue and cost of sales in 2017 include amounts relating to the M&G forward funding contract at Logistics North as Harworth acted
as principal in this transaction. This principal relationship was as a result of Harworth having exposure to potential construction and
credit risks as well as the potential rewards of managing the construction on time and to budget and letting the buildings favourably
and early.
Total overheads, which include the overhead costs of the Capital Growth and Income Generation segments and central costs,
amounted to £12.9m (2017: £12.0m) and were in line with expectations, reflecting increased costs due to the expansion of the business
in the regions.
strateGiC rePOrt
COrPOrate GOVernanCe
FinanCiaL statements
27
The table below shows the results of the business, on an alternative performance measure basis to tie to EPRA NNNAV, split
between Capital Growth, Income Generation and Central Overheads:
2018
Capital
Growth
£m
Income
Generation
£m
Central
Overheads
£m
52.5
(45.0)
(2.5)
(1.7)
–
3.2
9.0
1.5
–
13.7
–
13.7
–
13.7
22.9
3.5
(2.8)
25.6
(8.6)
(2.2)
–
–
14.8
11.7
1.7
–
28.2
–
28.2
3.8
32.0
–
–
–
–
–
(8.2)
–
–
(8.2)
–
–
(0.1)
(8.3)
(0.6)
(8.9)
–
(8.3)
–
–
–
2017
Capital
Growth
£m
Income
Generation
£m
Central
Overheads
£m
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
–
–
–
–
–
(8.3)
–
0.1
(8.2)
–
–
–
(8.2)
0.3
(7.9)
–
(8.2)
–
–
–
Total
£m
78.1
(53.6)
(12.9)
(1.7)
–
9.8
20.7
3.2
(0.1)
33.6
(0.6)
33.0
3.8
37.4
22.9
3.5
(2.8)
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
–
–
37.3
32.0
(8.3)
61.1
33.7
24.0
(8.2)
49.6
34.1
17.2
–
51.3
21.0
26.4
–
47.4
Revenue
Cost of sales
Overheads
Notional development
property costs (2)
Other operating income
Profit/(loss) excluding value
gains (1)
Revaluation gains (2)
Profit on disposals (2)
Pension charge
Operating profit/(loss) before
exceptional items
Net exceptional items
Operating profit/(loss)
Joint ventures
Operating profit/(loss) before
exceptional items plus JVs
Revaluation gains on
development properties
Revaluation gains on overages
Development property value
gains attributable to sales
Operating profit/(loss) before
exceptional items which
contributed to EPRA NNNAV
Value gains (including
JVs and development
properties)
Notes:
(1) A full description and reconciliation of the alternative performance measures in the above table is included in Note 2 to the Financial Statements
(2) The income statement has been re-presented to show the profit on development property sales (£3.5m; 2017: £7.7m) within profit on disposals and development property impairment (£1.7m;
2017: £5.8m) within revaluation gains. This notional cost is the reversal of these amounts
(3) There are minor differences on some totals due to rounding
Set out below are value gains for 2017 and 2018, which comprise profit on disposals, revaluation gains on investment properties
(including joint ventures) and revaluation gains on development properties and overages:
£m
Development/Capital Growth
Major Developments
Strategic Land
Investment/Income Generation
Business Space
Natural Resources
Agricultural Land
Total
Notes:
2018
2017
Profit on
disposals
Revaluation gains
Management
Market
Total(1)
Profit on
disposals
Revaluation gains
Management
Market
Total(1)
0.8
0.7
(0.0)
1.8
(0.0)
3.2
17.7
5.8
7.0
8.1
0.0
38.5
6.5
2.6
0.1
0.7
(0.3)
9.6
25.0
9.1
7.0
10.5
(0.3)
51.3
8.0
0.0
0.5
2.2
0.0
8.7
12.2
4.4
1.4
2.6
10.7
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
(1) A full description and reconciliation of the alternative performance measures in the above table is included in Note 2 to the Financial Statements
The Group made property sales of £93.2m in 2018 (2017: £54.8m) achieving a profit on disposals of £3.2m (2017: £10.7m). The
sales were split between those of residential serviced plots of £33.6m (2017: £23.0m), commercial development of £30.9m
(2017: £22.7m) and other, mainly mature income-generating sites and agricultural land, of £28.7m (2017: £9.1m). In addition,
Harworth undertook direct development on its sites with a land value of £1.0m (2017: £2.1m) and its share of property sales in its
joint ventures was £1.1m (2017: £0.9m).
28 Harworth Group plc Annual Report and Financial Statements 2018
FinanCiaL reVieW
Continued
Profits on disposals fell mainly as a result of previously appropriately recognising value gains on prospective property sales at the
2017 year-end and 2018 half-year. In addition, the introduction of IFRS 15 has resulted in the recognition of interest receivable on
deferred consideration such that interest of £0.2m (2017: £0.0m) will be recognised in future years relating to sales.
Cash proceeds from sales were £78.9m (2017: £46.6m) reflecting the sales in the year of £93.2m (2017: £54.8m), less deferred
consideration on sales in the period of £22.7m (2017: £14.3m), plus deferred consideration received from sales in the prior year of
£8.4m (2017: £6.1m).
We have split the revaluation gains of £48.1m (2017: £36.7m) to reflect the contribution from active management through the
achievement of milestones of £38.5m (2017: £29.2m) and market movements of £9.6m (2017: £7.5m). Whilst there is a degree of
subjectivity in this split, it highlights that the majority of the value gains continue to come from active management. In 2018, the
principal revaluation gains across the divisions reflected the following:
• Major Developments - Profitable sales, and evidence and progress, across most sites (notably Swadlincote, Lounge, Coalville
& Waverley) and a few minor reductions;
• Strategic Land - Uplifts at Cinderhill and Wingates ahead of 2019 planning decisions plus increases in the value of our
overages;
• Business Space - Good lettings secured across our portfolio, particularly our wholly owned and JV direct developments, plus
strong sales enquiries at Gateway 45;
• Natural Resources - Value uplifts from surface water management and a water abstraction license plus a site increase from
securing planning and interest for an Energy from Waste (“EfW”) plant. This alongside a good profit achieved on sale of land for
another EfW plant; and
• Agricultural Land – Minor reductions across a number of sites.
Exceptional items
Exceptional items in 2018 were a charge of £0.6m (2017: credit of £0.3m) and comprised the costs for the step-up from standard
to premium listing (see below). Exceptional items in 2017 comprised three separate items which related to sundry receipts and
costs from the Group’s legacy activities.
Tax
The income statement credit for taxation for the year was £1.3m (2017: £7.8m credit) which comprised a deferred tax credit of
£0.5m (2017: £9.3m credit) and a current year tax credit of £0.8m (2017: £1.5m charge). The movement in deferred tax comprised
the following:
•
the increase in valuation of investment properties has given a rise to £2.8m of deferred tax charge;
• a £3.1m credit due to the recognition of tax losses following both disposals in the period and the conclusion of a review
regarding the availability of existing tax losses;
•
following the submission of the tax computations and returns for prior periods, a reduction in the amount of tax attributes
utilised in the prior period resulting in a deferred tax credit of £0.5m;
• deferred tax recognised in relation to share options resulting in a deferred tax credit of £0.1m; and
•
the utilisation of tax losses against current year profits resulted in a deferred tax charge of £0.4m.
The current tax charge comprised the following:
• a current year tax charge of £0.9m (2017: £1.9m) resulting from profits from sale of development properties and rental income
in the period; and
•
the resubmission of the prior year tax computations and returns to reflect the land remediation relief and capital allowances
claims following a review resulted in an adjustment in respect of prior years of £1.7m.
At 31 December 2018, the Group had deferred tax liabilities of £12.3m (2017: £13.0m) related to unrealised gains on investment
properties and had recognised deferred tax assets of £7.3m (2017: £7.5m). The net deferred tax liability was £5.0m (2017: £5.5m).
Earnings per share and Dividends
Earnings per share fell to 10.61p (2017: 15.76p). This fall reflects the impact of the beneficial deferred tax movements in 2017 and
the fact that the statutory measure, as opposed to the EPRA balance sheet movement, does not fully reflect the improved value
gains with movements on development properties and overages not included in the balance sheet. Diluted earnings per share fell
to 10.53p (2017: 15.68p) for the same reasons.
strateGiC rePOrt
COrPOrate GOVernanCe
FinanCiaL statements
29
An interim dividend of 0.278p per share (2017 interim: 0.253p) equivalent to £893k (2017 interim: £813k) for the 2018 financial year
was paid on 19 October 2018. A final dividend for the 2018 financial year of 0.633p per share (2017 final: 0.575p) is proposed. The
total dividend for the year of 0.911p per share (2017: 0.828p) equivalent to £2.928m (2017: £2.66m) is in line with our progressive
dividend policy and represents a 10% increase over the prior year, reflecting our long run ambition to deliver double digit total
return through the cycle. The final dividend will be paid on 31 May 2019 to shareholders on the register at the close of business on
3 May 2019. The ex-dividend date will be 2 May 2019.
Net assets
As set out below, EPRA NNNAV increased to £466.5m as at 31 December 2018 from £414.2m as at 31 December 2017. This
increase was as a result of movements in the year, being operating profit before exceptionals plus share of profits of joint ventures,
overages and development property gains of £61.1m, less exceptional costs of £0.6m, interest costs of £4.0m, tax charges
(including overages and development properties notional deferred tax) of £2.7m and dividends of £2.7m plus other movements of
£1.2m.
Investment and development properties (including investments in joint ventures, assets held for sale
and occupied properties)
Cash
Other assets
Total assets
Gross borrowings
Deferred tax liability
Derivative financial instruments
Other liabilities
Net assets
Mark to market value of development properties and overages less notional deferred tax
EPRA NNNAV
31 December
2018
£m
496.1
8.6
69.6
574.3
73.0
5.0
0.1
54.3
441.9
24.6
466.5
31 December
2017
£m
457.1
8.4
31.5
497.0
40.6
5.5
0.1
41.5
409.3
4.9
414.2
Number of shares in issue less Employee Benefit Trust shares
321,314,989
321,250,750
NAV per share
EPRA NNNAV per share
EPRA NAV per share
137.5p
145.2p
148.3p
127.4p
128.9p
131.0p
(1) A full description and reconciliation of the alternative performance measures in the above table is included in Note 2 to the Financial Statements.
The increase in trade and other receivables to £66.7m (2017: £30.4m) was mainly as a result of £20.5m owing on deals which were
agreed in December, which has now been paid, and a £12.0m increase related to higher levels of deferred consideration due from
housebuilders reflecting greater sales volume. The increase in current trade and other payables to £52.6m (2017: £38.5m) was
mainly as a result of greater levels of VAT payable (c.£7.5m increase) as a result of higher sales and an increase of £2.4m to
£25.2m in development spend accruals again reflecting higher activity levels.
Financing strategy and funding
As has been consistently stated, Harworth’s financing strategy is to be prudently geared, in particular not gearing our Capital
Growth properties being our Strategic Land and Major Developments sites. We believe this prudence 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 materially during the year;
• gives the Group the ability to complete acquisitions quickly, which is often a differentiating factor in a competitive situation; and
• ensures that we do not combine financial gearing with Harworth’s existing operational gearing, being the company’s exposure
to planning, remediation/engineering, letting and sales risks.
Harworth’s financing strategy also involves the Group seeking in principle to maintain its cash flows in balance by funding
infrastructure spend and investment in acquisitions through disposal proceeds.
30 Harworth Group plc Annual Report and Financial Statements 2018
FinanCiaL reVieW
Continued
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
32,275
Opening
Net Debt
31/12/17
3,207
42,377
(78,931)
58,916
(9,840)
4,045
9,063
590
2,740
Development
spend
Investment
in JVs
Disposal
proceeds
Acquisitions
and
PPA Spend
Profit excluding
value gains
Interest,
finance costs,
pension charge
Cash and
working capital
used in
operations
Exceptionals
Dividends
64,443
Closing
Net Debt
31/12/18
To reduce refinancing risk, on 13 February 2018 Harworth extended the term of its existing £75m RCF with RBS by two years
such that it now expires in February 2023. The extension was on substantially the same terms, the only notable change being a
slight increase in margin to 210 basis points (“bps”) over LIBOR (from 200bps). To increase financing flexibility, drive continued
growth and maintain an efficient balance sheet, on 30 April 2018 Harworth increased the size of its RCF from £75m to £100m,
with Santander joining the facility alongside RBS. RBS’ commitment remains at £75m with Santander’s initial commitment at
£25m. There were no other material changes to the terms of the RCF. The Group also uses infrastructure funding, provided by
public bodies to promote the development of major sites for employment and housing needs, as part of our funding. At 31
December 2018 the Group had four infrastructure facilities with all-in funding rates of between 3.2% and 4.0%.
The Group’s hedging strategy is to have roughly half its debt at a fixed rate and half exposed to floating rates. On 20 July 2018,
Harworth cancelled its existing £30m fixed rate interest swap which was due to expire on 30 June 2020 (incurring total break
costs of £18.5k) and in its place entered into a 4-year, £45m fixed rate interest swap at an all-in cost of 1.235% (including fees) on
top of the existing 210bps margin paid under the RCF. The new swap was put in place to reflect increased levels of borrowing and
to increase its term commensurate with the extension in the term of the RCF. The interest rate swap is hedge accounted with any
unrealised movements going through reserves.
As at 31 December 2018, Harworth’s gross Loan To Value (“LTV”) was 13.9% (2017: 8.8%) and net LTV was 12.3% (2017: 7.0%).
This was in-line with our stated 10.0%-15.0% net LTV target range. 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 38.9% (2017: 26.2%) and a net LTV of 34.3% (2017: 20.8%).
The Group had borrowings and loans of £73.0m at 31 December 2018 (2017: £40.6m), being the RBS RCF of £58.7m (2017:
£23.4m) and infrastructure loans of £14.3m (2017: £17.2m). The Group’s cash and cash equivalents at 31 December 2018 were
£8.6m (2017: £8.4m). The resulting net debt was £64.4m (2017: £32.3m). The weighted average cost of debt, using 31 December
2018 balances and rates, was 3.3% with a 0.84% non-utilisation fee on undrawn RCF amounts (2017: 3.0% with a 0.8% non-
utilisation fee on undrawn RCF amounts). For the twelve months to 31 December 2018 Harworth’s interest cover, as calculated by
the RBS/Santander RCF covenant calculation, was 4.65x (2017: 3.41x) against a covenant test of 1.5x.
As a result of the receipt of cash from December 2018 transactions, cash and undrawn facilities as at the end of February 2019
increased by £6.8m to £56.4m, with net debt falling to £56.5m.
strateGiC rePOrt
COrPOrate GOVernanCe
FinanCiaL statements
31
The graph below shows the repayment profile of the £73.0m of borrowings and loans as at 31 December 2018:
£70,000k
£60,000k
£50,000k
£40,000k
£30,000k
£20,000k
£59,000k
£10,000k
£5,327k
£0k
2019
£2,766k
2020
£0k
2021
£6,347k
2022
2023
Premium listing and FTSE index inclusion
On 1 August 2018 Harworth confirmed that it had received approval from the UK Listing Authority for the transfer of the listing
category of all of its ordinary shares from a standard listing (shares) to a premium listing (commercial company). Harworth
subsequently satisfied the conditions for UK FTSE indices inclusion and joined the indices on 24 September 2018.
Andrew Kirkman
Finance Director
16 April 2019
Harworth’s Finance Team, March 2019 32 Harworth Group plc Annual Report and Financial Statements 2018
Riverdale Park
The 112-acre former McCormick Tractor Factory
site in Doncaster, purchased by Harworth in
December 2015, is the first of its non-legacy
portfolio to yield sales receipts following three
years of detailed planning, site investigation and
remediation works and the completion of on-site
infrastructure including new roads and drainage.
The site is adjacent to one of the principal gateways into Doncaster, less
than two miles from its town centre and close to both established
residential communities and commercial developments including retail
and showroom uses. Harworth replanned the site’s consent with
Doncaster Council in 2017 to create a market-facing outline of 600 new
homes and 250,000 sq. ft of commercial space including retail uses, a
care home and retirement village.
Parcel C1, a plot totalling approximately six acres, was sold to Arnold
Clark at the end of 2017 following its receipt of reserved matters planning
consent and Harworth’s preparation of an engineered development
parcel ready for development. Arnold Clark is now constructing a car
showroom which will complete in 2019.
Harworth built on this momentum in 2018 with the preparation of land for
the first of four residential phases at the development. Barratt Homes
acquired an 11.4 acre parcel in November, where it intends to construct
191 homes across a range of tenures from Spring 2019. Barratt is a
repeat customer of Harworth, following previous land purchases at
Waverley in Rotherham and Pheasant Hill Park, the former Rossington
Colliery further east in Doncaster.
Further land parcels will be prepared by Harworth in 2019, including for
the development’s second residential phase and for other commercial
uses. The development is expected to take around seven years to
complete in line with its outline planning consent.
strateGiC rePOrt
COrPOrate GOVernanCe
FinanCiaL statements
33
KeY FaCts: riVerDaLe ParK
Site’s previous use
Tractor factory between 1946 and 2007; site laid
dormant from then until 2015
Total acreage
112
Nearby development
Focus of Harworth work
between 2016 and 2018
Doncaster College; range of car dealerships;
Wheatley Hall Retail Park; long-established
residential communities in Wheatley
Demolition of vacant buildings;
re-masterplanning of previous outline consent; cut
and fill to create development platforms, alongside
creation of new access; negotiation with
housebuilders and commercial occupiers
Confirmed purchasers
Arnold Clark
Barratt Homes
Managing Risk
34 Harworth Group plc Annual Report and Financial Statements 2018
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, or sufficiently
mitigated 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 recognises that the Group’s insurance programme
plays an important part in reducing the impact of certain inherent risks which are neither
acceptable nor capable of removal.
The Group Risk Register (“GRR”) is the principal tool used by the Board and senior management team for monitoring the strategic
risk profile of the business and the measures in place at an operational level for mitigating and managing risk. The GRR maps the
risk profile of the business, with individual risks currently grouped into eight categories, being: markets (M); delivery (D); politics (P);
finance (F); people (PP); legal and regulatory (L); governance and internal controls (G); and communications and stakeholder
management (C). Those categories remain subject to regular review. Risks are scored on a “heat map”, from “very low” to “very
high”, according to residual risk status (after accounting for mitigation measures already in place) and materiality. Emerging risks
are also identified, together with steps that have been identified to mitigate them.
The GRR is now reviewed quarterly by both the senior management team and the full Board. Updates are made as necessary,
both to the profile of certain risks and, in some cases, risk categories, and to the risk mitigation and management measures
undertaken and planned, together with the anticipated impact of such measures to reduce risk exposure. Quarterly reviews also
identify any emerging risks. Those quarterly reviews are informed by both the Board’s high-level assessment of risk and more
detailed operational feedback from senior management, following consultation with their respective teams. The risk profile of the
business, as reflected in the GRR, is measured against the Board’s risk appetite, which is reviewed annually. The Board’s
objective is to maintain, as far as possible, an alignment between its risk appetite and the risk profile of the business.
5 - Severe
4 - Major
3 - Material
t
c
a
p
m
I
2 - Minor
1 - Insignificant
5
4
3
2
1
Harworth risk profile
10
8
6
4
2
F
C
P D
L
15
12
9
6
3
PP
G
20
16
M
M
8
4
25
20
15
10
5
1 - Highly unlikely
<15%
2 - Unlikely
15-35%
Likelihood
3 - Possible
36-65%
4 - Likely
66-85%
5 - Highly likely
>85%
Overall residual risk status (after mitigation)*
Anticipated movement in risk profile in next 12 months
Very low
1–2
Low
3–5
Medium
6–10
High
11–16
Very high
20–25
Increasing
Unchanged
Decreasing
* Impact risk scoring determined by one or more of Balance sheet, P&L or reputational inputs
sTRaTEgiC REPORT
CORPORaTE gOVERnanCE
FinanCiaL sTaTEMEnTs
35
The executive team, supported by the senior management team, 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 monitoring the continued
effectiveness of the same. Following regionalisation of the business the management of operational risks relies increasingly on a
framework of internal controls and processes for: monitoring existing and emerging (but identified) risks; identifying new
operational risks; and ensuring the effectiveness of risk mitigation measures. Work is ongoing to evolve those controls and
processes in the context of the new regional structure. That said, the business continues to have a relatively small team and short
reporting lines and members of the senior management team are, therefore, closely involved in day to day operations and often
able themselves to identify new and changing risks.
The GRR identifies an “owner” of each risk, being a member of the executive team, who takes responsibility for the status and
management of that risk, in some cases with support from other members of the senior management team. All members of the
senior management team consult regularly with their teams about, and feed-back (to the Management Board) on, existing and
new operational risks, and the effectiveness of risk management measures. This feed-back is reflected in the quarterly updates to
the GRR.
Alongside maintenance of the GRR:
• our Estates, Environment and Safety (“EES”) team maintains a site risk register through which we continuously monitor the risk
status of each of our sites. Material changes in their risk status are reported to the Board on a monthly basis and changes to
the profile of the site risk register are incorporated into the quarterly reviews of the GRR; and
•
the Chief Executive chairs a quarterly health and safety meeting which is attended by representatives of each regional and
centrally operated division, at which: incident briefings are given; site-specific and business-wide issues are identified and
discussed, with action points agreed; and best practice is shared. Action points are recorded and monitored by the Associate
Director of EES.
Board: Ultimate responsibility for risk appetite and management. Annual review of risk appetite. Quarterly review of risk profile and management, in conjunction with Management BoardAudit Committee: Delegated authority for monitoring internal controls and processes, including overseeing annual, external audit of controls and the need for an internal audit functionManagement Board: Responsible for day to day risk profie and ensuring implementation of, adherence to, and effectiveness of, risk mitigation and risk management measures. Quarterly review of risk profile and risk management ahead of Board reviewEES: 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 GRROperational Teams: Real-time reporting and feedback to Regional Directors and Divisions Leaders on existing and new risks and on risk management measures Managing Risk
Continued
36 Harworth Group plc Annual Report and Financial Statements 2018
Managing Risk
Continued
Principal risks and uncertainties
The Group is currently operating against a backdrop of heightened economic and political turbulence surrounding the UK’s exit
from the EU. The Board is mindful that these macro conditions could lead to a downturn in the regional residential and/or
commercial property markets in which the Group operates. Alongside the 2019 budget and five-year strategic plan presented to
the Board in the fourth quarter of 2018, the executive team modelled a severe market downturn lasting throughout 2019 and 2020.
It forecast the potential impact on, and headroom in, the Group’s property valuations and cashflow, and the measures available to
the Group to mitigate against the same. That analysis has demonstrated that the Group, which is well-capitalised and has low
financial gearing, is in a resilient position both to withstand adverse market movements and to capitalise on acquisition
opportunities which may arise in a climate of continued economic and political uncertainty. Further detail is set out in the viability
statement on page 45.
Notwithstanding the Group’s downside forecasting, the housing, logistics and manufacturing markets in the Group’s core regions
remain supported by long-term fundamentals and both local and central government policy, and currently do not show signs of a
material downturn. That said, there is some evidence of a slow-down in the rates of sales by housebuilders. This prompted a short
delay to, and a change to the payment structure of, one prospective sale of residential land at the turn of the year, albeit contracts
have now been exchanged for that sale. That example apart, we have not experienced any adverse impact on sales.
The increased likelihood of a downturn in the residential and/or commercial property markets, set against the current economic
and political backdrop, has been reflected in the GRR by an increase in the risk status of the markets risk category, from “medium”
to “high” risk (when compared to the 2017 Annual Report).
There has also been an increase in the risk status of the governance and internal controls category, from “low” to “medium” risk. This
reflects that the Group’s framework of internal controls and processes needs to evolve to respond to the regionalisation of the
business. We expect this category to revert to a “low” risk status over the coming months as controls and processes are embedded
into the regional structure, and certain other initiatives connected to cyber security and information security are implemented.
Whilst there have been some modest changes to the status of certain other individual risks across the business, there have been
no material changes to the overall profile of other risk categories since publication of the 2017 Annual Report, with all other
categories scored as either “medium” or “low” risks. We anticipate an increase in the risk status of the people category over the
coming months, reflecting the recruitment and succession challenge as our regional structure continues to bed in. The status of all
other categories is expected to remain unchanged.
Below is a detailed analysis of the Group’s principal risks and uncertainties, similar to that in the 2017 Annual Report, reflecting the
latest review of the GRR by the Board and the points referred to above. This analysis: (A) records the current profile of each risk
category, after mitigation; (B) lists the mitigation measures already in place and those identified for implementation over the next
12 months; and (C) indicates how each risk category could impact our strategic priorities.
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
Very Low
Low
Medium
High
Very High
Current risk profile
VL
L
M
H
VH
Anticipated movement in risk profile
Increasing
Unchanged
Decreasing
Current assessment of anticipated movement in
risk in the next 12 months
Link to Strategic Priorities
Link to Strategy
Development
Investment
Sectors
Regions
Acquisitions
Gearing
sTRaTEgiC REPORT
CORPORaTE gOVERnanCE
FinanCiaL sTaTEMEnTs
37
Summary of the Group’s Risk Profile
Risk categories
Markets (M)
Delivery (D)
Politics (P)
Finance (F)
People (PP)
Legal +
Reg’tory (L)
Governance +
Controls (G)
Communications
+ S’h M’mnt (C)
M
H
M
M
M
M
M
M
M
M
VL
L
L
M
M
L
Risk appetite
Risk profile
Expected
change
Note: based on the latest review of risk appetite and risk profile undertaken by the Board and referred to on page 34.
Turn to page 4 to read about Our strategy
R1. Markets
Commentary:
Determined by 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
property 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 profile:
Strategic priorities potentially impacted:
Anticipated movement in risk:
H
The “high” risk rating of this category reflects that we appear to be late in the property cycle and potential concerns about a
market downturn, together with the backdrop of heightened political and economic turbulence as negotiations continue for the
UK’s exit from the EU. Against that backdrop, we expect the risk rating will remain high during 2019.
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.
• The move to a regional operating structure will increase our “footprint” in the Midlands and North West, which will mitigate
against market movements at a regional level.
• 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 made a substantial investment in our recurring income portfolio during 2018, both through acquisitions and direct
development, to improve further the sustainability of the business during periods of market downturn.
• 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 team monitors, and updates the Board at least monthly on, prevailing market conditions. Given current
turbulence in the macro economic and political climate, the Group’s plans remain subject to ongoing review and will evolve
to respond to any material movements in the Group’s core regional markets.
Further actions to be taken to mitigate and manage risk:
• We will continue to take steps to widen our geographical footprint, which will further 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.
• We will explore and, if viable, undertake delivery of Build to Rent schemes on our sites, thereby widening our access to the
residential property market and increasing our potential points of sale.
38 Harworth Group plc Annual Report and Financial Statements 2018
Managing Risk
Continued
R2. Delivery
Commentary:
Determined by 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 and/or increased competition for attractive acquisition opportunities; adverse planning decisions;
or market-driven increases in development costs, or by internal factors, such as poor operational delivery.
Current risk profile:
Strategic priorities potentially impacted:
Anticipated movement in risk:
M
The “medium” risk rating of this category reflects the balance between: more competition for acquisition targets and some
uncertainty around future labour and raw material costs once/if Brexit is implemented, which elevate risk; and our successful
track record on planning promotion and continuous improvements to internal processes and controls, which mitigates the risk.
We expect the profile of this risk category to remain largely unchanged over the coming 12 months.
Mitigation and controls already in place for external factors:
• The move to a regional operating structure means that the acquisitions and planning promotion functions are now
embedded in the regions, with support from a very experienced central team in the case of planning promotion. This
facilitates a more focussed and intensive approach to both acquisitions and planning promotion at a regional level.
Alongside that refined approach we continue to: establish and strengthen our agency and local authority relationships in the
regions; enhance Harworth’s profile both regionally and nationally; and build our track record for delivery.
• We have introduced a standard acquisitions financial model to ensure consistency across the regions in appraising
acquisition opportunities.
• We have refined the way we appraise prospective PPAs.
• The executive team regularly reviews strategic priorities and the availability of capital to ensure the team can focus its time
and resources appropriately.
• Our planning promotion 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.
Further actions to be taken to mitigate and manage risk:
• The Governance and Internal Controls section below identifies the steps we are taking to embed our framework of internal
controls and internal reporting regime into the new regional structure, to ensure effective operational delivery and
appropriate reporting of financial and commercial information to the executive team and Board.
• We will recruit additional resources into the regional acquisition teams.
sTRaTEgiC REPORT
CORPORaTE gOVERnanCE
FinanCiaL sTaTEMEnTs
39
R3. Politics
Commentary:
Determined by exposure to external factors
Changes in national and/or local government policy, including planning, could impact the Group’s activities.
Current risk profile:
Strategic priorities potentially impacted:
Anticipated movement in risk:
M
The “medium” risk rating of this category reflects: the relative stability of central Government planning policy (Help to Buy
persists and there were only modest changes to the National Planning Policy Framework), and the broadly supportive backdrop
of local planning policy; balanced against the challenges faced as a result of HS2 safeguarding, and the medium-term potential
for a Land Value Capture initiative. We expect the profile of this risk category to remain largely unchanged over the coming
12 months.
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 planning promotion team monitors closely the political landscape and climate both at a national level, particularly with
regard to Land Value Capture and the National Planning Policy Framework, and at a local level, particularly where we have
current or prospective planning promotions. This informs our masterplanning, promotion, development and sales strategies.
• We have played an active role in Government consultations on Land Value Capture.
• Our proactive engagement with HS2 Limited has facilitated plot sales at our Gateway 45 site, notwithstanding safeguarding
of part of the site.
• During 2018 we effected a sale of the majority of our Lounge site, which is also subject to safeguarding by HS2 Limited.
Further actions to be taken to mitigate and manage risk:
• We will play an active role in the newly established BPF Regional Policy Committee, which is to be chaired by Owen
Michaelson.
• We will continue to contribute to ongoing Government consultations on Land Value Capture and any proposed changes to
the NPPF.
• We will continue to engage with HS2 Limited to accelerate payment of compensation for safeguarded land at Gateway 45
and the retained part of our Lounge site.
40 Harworth Group plc Annual Report and Financial Statements 2018
Managing Risk
Continued
R4. Finance
Commentary:
Determined by exposure 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/or 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, or our debt capacity is constrained, 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 profile:
Strategic priorities potentially impacted:
Anticipated movement in risk:
M
The finance category has a “medium” risk profile reflecting a balance between: a material increase in recurring income from
acquisitions, direct development and asset management, an increase in our revolving credit facility limit to £100m,
implementation of a new fixed interest rate hedge, and continuous improvements to financial reporting and forecasting; set
against an increase in overheads from regionalisation and growth, and further work needed to secure additional infrastructure
loan funding. We expect the profile of this risk category to remain largely unchanged over the coming 12 months.
Mitigation and controls already in place:
• At the end of the financial year ended 31 December 2018, our Net Loan to Value was held at 12.3%.
• The significant level of sales completed during 2018 maintains strong cashflows which mean acquisitions and development
spend can continue to be funded from internal cash reserves.
• During 2018 we secured a new infrastructure loan from Homes England for investment at our Harworth site. We also repaid
four existing infrastructure loans during 2018, freeing up some debt capacity.
• During 2018 we extended the term of our revolving credit facility to February 2023, increased the facility from £75m to
•
£100m with a margin increase of only 0.1%, and Santander joined RBS as lenders. We have entered into a new £45m fixed
rate swap, in substitution for a swap put in place in 2017, at an all-in-rate of 3.335% (including fees) until June 2022.
In 2018 we acquired two investment properties, Nufarm and Flaxby, which carry £3.1m of additional rental income. We have
begun to recycle capital from mature investments into ones with a higher yield. In 2018 we sold our Gateway 36 site in
Barnsley, a unit occupied by Costa Coffee at our Logistics North site in Bolton and Harworth Business Park, generating
proceeds of sale of £20.5m.
• We have continued to undertake selective direct development on certain of our sites, both solely and in joint venture, to
grow our recurring income. In 2018, this included a unit pre-let to McLaren and the next phase of our R-Evolution
speculative development, both at the AMP, and the second phase of our “Multiply” speculative development, in joint venture
with Lancashire County Council Pension Fund (“LCPF”), at Logistics North. There is already limited vacant space on these
speculative developments.
• 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. In 2018 we were paid a £6.8m promote fee by M&G following the letting of unit LN175 at Logistics North.
• There has been investment in additional resource in the Finance team which creates greater capacity to monitor key
performance indicators and cost plans.
• All covers were reviewed at the January 2019 insurance renewal, as a consequence of which a cyber security insurance
policy was put in place and business interruption cover was increased.
Further actions to be taken to mitigate and manage risk:
• We intend to commence construction of a third phase of the “Multiply Logistics North” speculative development, alongside
LCPF. Other direct development opportunities will be monitored.
• Development management opportunities are limited but continue to be explored.
• The proceeds of 2018 sales of mature investment property assets will be deployed on investment property acquisitions
projected to bear a higher yield and the active recycling of capital by the Income Generation division will continue.
• We will continue to pursue infrastructure loans and grant funding for investment in our sites.
sTRaTEgiC REPORT
CORPORaTE gOVERnanCE
FinanCiaL sTaTEMEnTs
41
R5. People
Commentary:
Determined by exposure to largely internal factors
We recognise that, alongside our property portfolio, Harworth’s people are its biggest asset. If we undertake inadequate
resourcing and succession planning or fail to engage properly with, develop and/or retain, our people, this will have a severely
adverse effect on the performance of the business and our ambitions for growth.
We also recognise the value of diversity at all levels of the business and aim to improve this progressively.
Current risk profile:
Strategic priorities potentially impacted:
Anticipated movement in risk:
M
The “medium” risk rating of this category reflects the challenge of a modest increase in staff turnover following implementation
of a regional structure, but also the opportunities it presents for career progression and the work undertaken (and ongoing) on
succession planning and employee engagement.
Given the continued bedding in of the regional structure and the modest increase in staff turnover, it is anticipated that
recruitment and succession will be more of a challenge over the coming months, reflected in an anticipated increase in risk rating
for this category.
Mitigation and controls already in place:
• The introduction of a regional operating structure and a new senior management structure has created opportunities for
career progression for existing employees. It has resulted in expansion of the overall team and greater resilience in capacity,
with team structures mirrored across our three regions. Recruitment for regional roles is well advanced. The change in
structure has inevitably prompted a modest increase in staff turnover, but successful recruitment campaigns have resulted
in the appointment of high-quality successors.
• Notwithstanding regionalisation, Harworth still operates with a relatively small team. Whilst this can amplify capacity and
“key-person” risks, it also means that the executive team can keep those risks under close and continuous review.
• During 2018 our Head of HR and Organisation Development improved our appraisal and personal development processes
and undertook and presented to the Board a comprehensive succession planning review for roles throughout the business.
• The Our People section of this report on page 50 sets out the initiatives we have introduced (and more we intend to
implement) to improve engagement with employees (including the establishment of our People Steering Group) and to
ensure we recruit, retain and develop the right people for the business.
• There has been some modest progress in improving diversity across the business, albeit there remains a lot more work to
do. There is an update on progress and initiatives on pages 51 to 53 of the Our People section of this report.
Further actions to be taken to mitigate and manage risk:
• We will recruit for the regional roles which have not yet been filled and for succession.
• We will implement the initiatives identified in the Our People section of this report which are aimed at improving engagement
with employees and diversity across the business.
• Our Head of HR and Organisation Development will undertake a Group-wide review of Harworth values, with the objective
of better defining those values and the Harworth culture. These in turn will be important in effective recruitment and the
alignment of behaviours.
42 Harworth Group plc Annual Report and Financial Statements 2018
Managing Risk
Continued
R6. Legal and Regulatory
Commentary:
Determined by exposure to both external and internal
factors
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, are key components of our activities and are afforded very high priority. The Board has
limited appetite for environmental risk and seeks to minimise health and safety risk as far as possible. Environmental and/or
health and safety incidents and/or regulatory breaches (under the General Data Protection Regulation (“GDPR”), Bribery Act or
Modern Slavery Act, for example) could result in costs, financial penalties, liabilities to third parties and/or reputational damage.
Current risk profile:
Strategic priorities potentially impacted:
Anticipated movement in risk:
L
The Board has a “very low” risk appetite for legal and regulatory risks. Given the nature of the business, there is an inherent
environmental and health and safety risk in the operations we undertake. This means that, whilst every effort is made to mitigate
risk to the greatest extent possible, the risk scoring of this category remains “low” rather than “very low” as per our risk appetite.
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 64 of this report provides an explanation of how we manage and monitor health and safety.
• We continue to engage an external health and safety consultant, JPW Consulting Limited, to advise on health and safety
matters, undertake site risk inspections, and manage health and safety on our consortium sites (i.e. where multiple
contractors are undertaking work).
• Our Environmental Manager has completed his Waste Management Industry Training and Advisory Board (“WAMITAB”)
qualification and, as a result, manages 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.
There were some further permit surrenders during 2018.
• Quarterly health and safety meetings are chaired by the Chief Executive and attended by heads of all regional and central
teams at which incident de-briefings are undertaken, common issues are discussed (and actions agreed) and best practice
is shared.
• We maintain an open dialogue with the Environment Agency (“EA”) about all of our permitted sites. If issues arise, we take
quick and proactive steps to address them, in collaboration with the EA.
• We also work closely with the Health and Safety Executive, particularly in relation to the sites we operate as quarries or are
demolishing.
• We implemented a number of policies, controls and processes to ensure compliance with the GDPR ahead of its coming
into force on 25 May 2018. All employees have been briefed on the importance of data protection compliance.
• Mandatory online training was delivered to all staff in the second half of 2018 on the avoidance of modern slavery, bribery
and facilitation of tax evasion, and whistleblowing. This coincided with the introduction of a new and more robust
whistleblowing policy and procedure.
Further actions to be taken to mitigate and manage risk:
• The structure and composition of the EES team will remain subject to review to ensure that it evolves, in terms of skillset and
experience, with the estate management needs of our portfolio.
• Another Group-wide safety training day will take place in the summer, attendance at which will be mandatory.
• From this year, our Audit Committee will review annually the effectiveness of the measures in place to ensure compliance
with the GDPR.
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R7. Governance and Internal Controls
Determined by exposure to largely internal factors
Commentary:
Deficiencies in our governance measures and/or internal controls and processes (including cyber and information security
measures) could lead to inefficiencies, financial underperformance, or even financial loss and/or liability.
Current risk profile:
Strategic priorities potentially impacted:
Anticipated movement in risk:
M
The “medium” risk scoring for this category is higher than the Board’s “low” risk appetite. This reflects that the Group has
identified that its framework of internal controls and processes and internal reporting regime needs to evolve to respond to the
regionalisation of the business. We expect this category to revert to a “low” risk status over the coming months as controls and
processes are embedded into the regional structure, and certain other initiatives connected to cyber and information security
are implemented.
Mitigation and controls already in place:
• 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. Our high standards of governance were reflected in the Financial
Position and Prospects Procedures (“FPPP”) report prepared by PricewaterhouseCoopers LLP (“PwC”) ahead of the
Company’s step up to the premium list, which identified that relatively few adjustments to the Company’s existing
governance framework were required for the step up.
• Our Delegated Authorities Policy was reviewed and updated in November to reflect the new regional and senior
management structure. This was accompanied by new controls and processes for the execution of documents and
approval of purchase orders.
• External reviews of certain of our internal controls and processes were undertaken by KPMG in November 2017 and PwC in
the first quarter of 2018 (as to which see the Audit Committee report on pages 97 and 98). All recommendations from those
reviews have been implemented. The Audit Committee undertakes annually a review of the effectiveness of internal controls
and processes.
• External reviews of cyber and information security were undertaken in 2018. All technical recommendations have been
implemented. Implementation of strategic recommendations, including the appointment of an information security manager,
are being implemented. From this year, the Audit Committee will undertake an annual review of the effectiveness of controls
and processes in place for cyber and information security.
• Business continuity and IT incident response plans are now in place.
• A new and more robust whistleblowing policy and procedure was implemented during 2018.
Further actions to be taken to mitigate and manage risk:
• Our internal controls and processes will remain subject to ongoing review, including external audits on an annual basis, to
ensure they remain “fit for purpose” as the business grows and delivers via a regional structure and across a growing
portfolio. This will continue to include an annual review by the Audit Committee as to whether the business should establish
an internal audit function. Such a function does not currently exist because, to date, the executive and the Audit Committee
has concluded that the business is neither large, nor complex, enough to warrant it.
• Work is ongoing to evolve our framework of internal controls and processes and internal reporting regime to respond to the
new regional operating structure. This will progress, and the framework will be embedded into the regional structure, during
2019.
• Measures will be implemented during the year to improve cyber and information security, following the recommendations
from external reviews undertaken in 2018. Implementation will be led by a newly appointed information security manager.
• Desktop tests will be undertaken of our business continuity and IT incident response plans.
44 Harworth Group plc Annual Report and Financial Statements 2018
Managing Risk
Continued
R8. Communications and stakeholder management
Determined by exposure 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 properly with our investors and maintain strong relationships with all stakeholders this will lead to
underperformance, both operationally and of our share price.
Current risk profile:
Strategic priorities potentially impacted:
Anticipated movement in risk:
L
The “low” risk profile of this category reflects the extensive work undertaken: to improve our investor relations programme; and
to review our engagement with stakeholders and formalise the way we consider stakeholder interests when making strategic
and significant operational decisions. We expect the profile of this risk category to remain largely unchanged over the coming
12 months.
Mitigation and controls already in place:
• We continue to work to improve our communications with investors. A communications tracker is maintained fortnightly to
ensure external communications remain timely and appropriate and subject to a planned programme. Increased investor
relations activity in 2018 included a briefing and site visit for current and prospective institutional investors and analysts, which
will be repeated in 2019.
• The responsibility for local authority relationships has now been placed directly with our regional and central planning
promotion and development management teams, whilst our Head of Communications and Investor Relations, now based in
London, remains our principal point of contact with Central Government.
• The Board undertook a detailed stakeholder mapping and engagement review exercise in October. This will be repeated
annually. One output from this review was a change to the format of Board presentations on proposed transactions, which now
include sections on stakeholder interests and engagement.
• We have actively engaged with shareholders about the proposed changes to our Remuneration Policy.
• We have increased our engagement with Homes England which will play an increasingly important role in the acceleration of
delivery of certain of our sites.
• Please see the Our Partners section of this report on pages 56 to 63 for more detailed explanation of the means by which we
identify, engage with, and consider the interests of our stakeholders. Measures have been implemented to improve
engagement between the Board and employees. Please see the Our People section of this report on pages 50 to 53 for
more details.
Further actions to be taken to mitigate and manage risk:
• Significant planning promotion and consultation exercises will continue in relation to our Ironbridge and Wingates sites,
amongst others.
• Our engagement with stakeholders will be subject to Board review annually. Internal communications will remain subject to
regular review.
Business continuity
assessments
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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; and
2. The Directors have a reasonable expectation that the Company and the Group will be able to continue in operation and meet
their 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 37 to 44.
Going concern statement
Accounting standards require that the Directors satisfy themselves that it is reasonable for them to conclude whether it is
appropriate to prepare financial statements on a going concern basis. There has been no material uncertainty identified which
would cast significant doubt upon the Group’s ability to continue using the going concern basis of accounting for a period of at
least 12 months following the approval of this Annual Report. In assessing going concern, the Directors take into account the
Group’s cash flows, solvency and liquidity positions and borrowing facilities – this is reinforced by the work performed as part of
the five-year strategic plan as set out in the viability statement below. At year end, the Group had cash and cash equivalents of
£8.6m, net debt of £64.4m and a net loan to value of 12.3%. The Group has a £100m revolving credit facility with RBS and
Santander, which contains typical financial covenants and runs until February 2023. At the year-end there was headroom of
£41.0m in that facility. It also has infrastructure loans totalling £14.4m. The financial position of the Group, including information on
cash flow, can be found in the Financial Statements on pages 126 to 175. 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 4 and 5), How we add value (pages 6 and 7), The markets we operate in (pages 8 and 9) and
the Group’s principal risks and uncertainties (pages 36 to 44)).
Viability statement
Viability period and rationale
The Directors have assessed the prospects 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 2023, with three years of
detailed assessment and two years in outline. This period was selected for the following reasons:
•
the Group’s strategic plan 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 property on and/or developing material 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 plan review focuses on the expected growth of the business primarily in terms of EPRA NNNAV including
dividends. The strategic plan review also considers the Group’s valuations, 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 the main assumptions underlying the forecast both individually and in unison. Further
work was performed in this year’s strategic plan to look at business resilience in 2019 and 2020 given heightened political and
economic uncertainty.
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 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 37 to 39 and 41. Sensitivity analysis has been applied in terms of value gains and valuations (particularly in the context of
loan to value covenants and availability of our banking facility), income generation, cash flow and EPRA NNNAV impacts. These
risks are fairly well balanced on the up and downside. If needed, more cash could be generated through increased sales and/or
reduced development spend and acquisitions. Such cash could be targeted toward the acquisition of income generating
properties, if needed to raise available income.
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.
46 Harworth Group plc Annual Report and Financial Statements 2018
Acquisitions
2018 was a record year of acquisitions for Harworth,
with eleven sites being purchased for a total
consideration of £57.9million – more than double
2017’s quantum. These acquisitions added £3.1m
of long-term income to improve the quality of
Harworth’s income base alongside strategic land
purchases that could deliver c. 2,000 plots and over
1.5m sq. ft of commercial space.
In total, 883 acres were acquired across the North of England and the
Midlands, with five key strategic land purchases of note. Significant
progress was made in the Midlands, with the purchase of the 350-acre
Ironbridge power station in Shropshire from Uniper marking Harworth’s
second former power station purchase since 2014. Public consultation
has already begun on a 1,000+ home residential and leisure
development, with a planning application to be submitted before the end
of the year. Two strategic land purchases were also made in
Leicestershire to supplement Harworth’s strategic landbank close to its
major development at Coalville, with the first application – for
c.365,000 sq. ft of commercial space across 53 acres – already
submitted to North West Leicestershire District Council for determination
in the first half of 2019.
Strong progress was also made in the North West, with the 56-acre
purchase of the Moss Nook site in St Helens from Banks Property Group
marking Harworth’s entry into the region’s residential development
market. The site was the subject of a range of industrial uses for the best
part of a century and with an outline consent already in place for 900 new
homes, Harworth will begin preparing land in 2019 to sell the first phase
to a housebuilder. As also referred to within the first case study, a further
97 acres of potential commercial land was purchased just off Junction 6
of the M61 in Bolton at Wingates as part of the assembly of land for a
new commercial development of 1.1m sq. ft of new manufacturing and
distribution space. This is now the subject of a planning application
which is expected to be determined by Bolton Council in the first half
of 2019.
Harworth now has an active churn strategy of selling mature income
generating sites with limited potential for further value uplift. The sales
proceeds are then reinvested into higher income yielding sites with future
development potential. This strategy resulted in two significant income-
producing sites being acquired in the year. The first, the 112-acre Nufarm
site in Bradford, includes a 32-acre agrochemical works let to Nufarm UK
Ltd on a lease that expires in 2055 at a current passing rent of £2.1m per
annum, alongside 80 acres of unoccupied land with the long-term
potential for a new commercial development. In addition, the 22-acre
Flaxby site in Harrogate, less than 1 mile from the A1(M), was purchased
for £8.75m prior to modular homes manufacturer, Ilke Homes, agreeing a
new 14-year lease that represented a stabilised initial yield of 10.9%. In
addition to generating an additional £3.1m of new income per annum
combined, both purchases contributed to Harworth’s improved WAULT
position at the end of the year of 14.1 years and a reduced vacancy rate
across its Business Space portfolio of 14%.
With a solid five-year track record of acquisitions now in place and over
£50m cash/facility headroom in place at the end of 2018, Harworth’s
investment in its regional model in Yorkshire & Central, the Midlands and
the North West provides a further source of competitive advantage in
developing the relationships required to bid successfully on further
strategic land and income-producing sites in the future.
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47
kEy FaCTs: aCQuisiTiOns
Quantum of purchases since 2014
Over £140m spent across c.30 sites
Split between acquired sites and former coal
mining sites now in Harworth’s portfolio
By value 31% acquired and 69% former coal mining
Geographic range of purchases since 2014
South: Droitwich, Worcestershire
North: Former Alcan Smelter, Northumberland
Total consideration of purchases made in 2018
£57.9m across 11 sites plus up to a further £3.25m
depending on planning
Additions to portfolio in 2018
£3.1m of additional income
Acquisitions focus
Over 2,000 potential residential plots and over 1.5m
sq. ft of potential commercial space to be the
subject of future planning applications
100+ acre strategic land purchases, including
former power stations and public sector owned
land
Income producing acquisitions with wider strategic
land potential
Former Ironbridge power station 48 Harworth Group plc Annual Report and Financial Statements 2018
CORPORATE, SOCIAL AND
ENVIRONMENTAL RESPONSIBILITY
Our long-term success as a business is underpinned by a commitment to Corporate,
Social and Environmental responsibility. Our approach falls into five core areas
which are explained in more detail over the following pages.
Our People
Long-term, sustainable performance must be underpinned by the development and
retention of our people, together with the recruitment of individuals who buy into the
Harworth culture, to support our growth ambitions. We can only achieve that if we:
promote a strong and positive culture; engage meaningfully with our employees; take
steps to improve diversity, in its widest sense and at all levels of the business; create an
environment in which our employees can develop their skills and experience; and reward
them appropriately for their hard work and contribution.
Our Partners
The Board recognises that effective stakeholder engagement is a key component of good
corporate governance and will help to promote long-term, sustainable success and
growth. The Board has always had regard to its obligations under section 172 of the
Companies Act 2006 but, having regard to the 2018 Code and to guidance published by
ICSA and the Investment Association, during 2018 the Board re-assessed its approach to
stakeholder engagement. One of the principal outputs from that review was a stakeholder
map which is summarised on pages 56 to 63. This identifies our key stakeholders, records
how we engage with them, identifies the strengths in that engagement but also, importantly,
the challenges we face and the improvements we can make.
CORPORATE, SOCIAL AND
ENVIRONMENTAL RESPONSIBILITY
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
49
Operating Responsibly
Harworth takes its responsibilities as a sustainable regeneration company
extremely seriously. Working safely and with appropriate regard to our
legal obligations forms a critical part of being socially responsible in our
day-to-day delivery.
Social Responsibility
As one of the UK’s leading regeneration companies, we recognise that
we influence the design and delivery of future communities. It is a serious
responsibility and one that we are proud to deliver on in the way we:
design and deliver our projects; and work with local communities during
their build-out.
Environmental Responsibility
With many years’ experience in regenerating large and often complex
development sites, Harworth has an established track record in
managing the environmental impact of its operations. This includes:
recycling materials from demolition and land remediation; tackling the
environmental legacy of previous industrial site uses; and encouraging
staff to take personal responsibility for reducing harmful emissions from
our activities.
Our People
50 Harworth Group plc Annual Report and Financial Statements 2018
Our PeOPle
Our PeOPle
The development of large and complex sites and the intensive asset management of our
investment properties is only possible with a team of skilled, experienced, innovative and
dedicated professionals. There is no better demonstration of this than the extent to which
value gains are driven by active management of the Group’s assets. Whilst the Harworth
team has grown during the year, with the introduction of a regional operating structure, it
remains relatively small. Long-term, sustainable performance must be underpinned by the
development and retention of our people, together with the recruitment of individuals who
buy into the Harworth culture, to support our growth ambitions. We can only achieve that
if we: promote a strong and positive culture; engage meaningfully with our employees; take
steps to improve diversity, in its widest sense and at all levels of the business; create an
environment in which our employees can develop their skills and experience; and reward
them appropriately for their hard work and contribution.
Our culture
We believe we have a strong and positive working culture at
Harworth, but we feel that it needs to be defined better so that
we can preserve and promote it as we continue to grow and
embed our regional operating structure. An exercise, led by our
Head of HR and Organisation Development, to formalise
Harworth’s core values, with the ultimate objective of defining
them and our culture, is well underway and will be completed
during this year. Once completed, we will use it as a framework
for recruitment, decision-making and behavioural training
across every aspect of the business.
Employee engagement
The Board and executive team recognise the importance and
benefits of engaging meaningfully with employees and
considering how both strategic and operational decisions will
impact the workforce. The Board is also mindful of the need to
comply with 2018 Code in this regard.
Engagement by the Board
Encouraging higher levels of employee engagement is a priority
and measures have been introduced to achieve that objective.
Recognising that effective engagement requires multiple forums
and means, the following initiatives are in place:
• our first Employee AGM will be held at the end of April 2019,
with the intention that this be repeated annually;
• we have established a People Steering Group (“PSG”) with
whom our Non-Executive Directors meet quarterly by
rotation (see further below);
•
regular site visits by our Non-Executive Directors are hosted
by our project teams;
• we are encouraging wider employee participation in
presentations at Board meetings;
• at some Board dinners the Board will be joined by members
of the wider senior management team; and
• when Board meetings are held at our head office, the Board
now breaks for an extended lunch with groups of
employees.
One of the most important aspects of our employee
engagement strategy is our PSG, which we established in the
first half of 2018. It meets quarterly and comprises twelve
employees, selected by our Head of HR and Organisation
Development, from different teams across the business,
seeking an appropriate mix, based on (amongst other things)
length of service, experience and diversity.
The purpose of the PSG is twofold. From an operational
perspective, it takes a lead in identifying and developing a
“people agenda” and in proposing and implementing initiatives
to drive that agenda. The group is also a forum for engagement
between the Board and employees. PSG meetings are
scheduled to take place immediately after Board meetings. This
means two or three of our Non-Executive Directors can attend
part of the PSG meeting where the views and concerns of
employees are identified and discussed. Those views and
concerns are fed back to the wider Board at the next Board
meeting.
Ahead of its coming into force, the Board considered at length
how best to satisfy the Group’s obligations on workforce
engagement under Provision 5 of the 2018 Code. Having
regard to the nature and scale of Harworth’s business the
Board considers that the combination of measures listed above
will facilitate effective engagement with employees. In particular,
it views the engagement with the PSG as being akin to there
being a designated “workforce” Non-Executive Director on the
Board. Indeed, rather than there being a single designation, all
Non-Executive Directors undertake that role at some point
during the year. The Board will review the ongoing effectiveness
of all engagement measures annually.
Whilst engagement with the workforce is important, it would be
of limited value if the Board does not then consider the interests
of employees when making its decisions, particularly those of a
strategic nature or having widespread operational implications.
The Our Partners section of this Report on pages 56 and 63
explains how the Board has taken steps to formalise the way in
which stakeholder interests, including those of employees, form
part of the Board’s discussions and decision-making process.
By way of example, the Board was mindful, and took account
of the fact, that the move to a regional operating structure
would present both challenges and opportunities for the
workforce.
STrATeGIC rePOrT
COrPOrATe GOVerNANCe
FINANCIAl STATeMeNTS
51
Engagement by the executive team
Engagement with employees at an operational level is equally
important, particularly as we grow and embed our new regional
structure which, without effective communication between
teams, carries the risk of a “silo effect”. The executive team, with
support from the wider senior management team, continues to
work hard to ensure effective engagement is maintained. We
have a framework of active engagement which includes:
• an annual staff survey, now in its fourth year and covering a
range of themes including communication, development,
morale, motivation and, this year, the impact of our
regionalisation programme. Once again there was a high
completion rate, with 94% of employees responding
(positively in most respects) to the survey, reflecting the fact
that the survey is considered a meaningful exercise with
feedback driving tangible initiatives;
• an internal Harworth newsletter published quarterly, which
comprises operational updates from the Chief Executive
and all our regional and central teams, alongside news
items of a non-operational nature;
• quarterly Staff Communication Breakfast Briefings which
are hosted by our regional and central teams on a rolling
basis so that regular operational updates can be given and
thought leadership and case studies can be shared;
• an annual staff conference, the theme for which was
creative thinking in 2018;
• employee “roadshows” following the preliminary and interim
results; and
• CEO breakfasts giving every employee (in small groups) an
opportunity to share their thoughts and questions on a
range of topics with our Chief Executive.
Diversity and equal opportunities
The challenge we face
We recognise the benefit of a diverse (in its widest sense)
workforce comprising individuals with different backgrounds,
experience, perspectives and ideas. Like much of the real
estate and construction sectors, we face a significant challenge
to achieve that but we are fully committed to meeting it.
We are working hard to address that challenge but recognise
that, with a small team and relatively low staff turnover (itself a
positive), this will take time. To do so effectively we must first be
transparent about the size of the challenge and the progress
we are making along the way.
The analysis over the following pages demonstrates the gender
imbalance across the Harworth team, particularly amongst the
Board and senior management team. We are also mindful that
there are still no individuals from an ethnic minority background
working at Harworth. For transparency, whilst Harworth is not
obliged to publish gender pay gap statistics, we have decided
to undertake gender pay gap analysis. We reported on it
voluntarily in the 2017 Annual Report and have done so again in
this report.
Steps we have taken in 2018
Since publication of the 2017 Annual Report, we have applied
more structure to our efforts in promoting and monitoring
diversity. At a Board level, the Nomination Committee takes the
lead on promoting and assessing the achievement of diversity
across the business, in alignment with the 2018 Code. The
Nomination Committee’s annual timetable includes a review of
diversity, particularly on the Board and at a senior management
level, and the effectiveness of measures to improve it. Diversity
is also an active and important consideration in the
Committee’s succession plans, reflected in the most recent
appointments to the Board (see further below). The Nomination
Committee reports and provides recommendations to the
Board annually.
In September, the Board approved the adoption of a new
Diversity and Equal Opportunities policy which addresses
diversity more explicitly, gives it the prominence it merits, and
reflects the proactivity with which the Board is looking to
address the diversity challenge.
Whilst appointments will always be based on merit, Harworth is
committed to giving women and people from ethnic minorities
every opportunity to apply for, and be appointed to, the new
and replacement roles for which we recruit and, as such, our
desire to encourage diversity is a prominent consideration
when we are recruiting at all levels of the business. We have
implemented a policy by which candidate long-lists prepared
by recruitment consultants will be rejected if they do not
contain a diverse list of candidates.
These measures complement some other initiatives which were
already (and remain) in place and are designed to ensure that
opportunities for recruitment, development and promotion are
available to everyone, regardless of circumstances or
background:
• we have enhanced maternity, paternity and adoption pay
policies; and
• eight of our employees (12%) 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 can work flexibly.
Progress
The appointments of Ruth Cooke and Angela Bromfield to the
Board represent positive progress on diversity. At an
operational level, despite the work we undertook with our
recruitment consultants to identify a diverse list of candidates,
our most senior external appointments during 2018 were
males. This means that all the members of our executive team
continue to be male. The senior management team comprises
three females and eleven males. That said, there has been
more gender diversity across the candidates we have recruited
for new roles in our regional structure. Overall, we have
recruited for 11 new roles since publication of the 2017 Annual
Report and 6 replacement roles. The gender balance of our
recruitment is shown below:
Our People
Continued
52 Harworth Group plc Annual Report and Financial Statements 2018
Our PeOPle
Continued
Recruitment into new roles
Recruitment into replacement roles
Females
Males
5
3
6
3
There were seven promotions during the year. Out of a
workforce which was split 71% male : 29% female, five were
promotions of male employees and two, including one to the
senior management team, were of female employees.
It is important to stress that, whilst the Group’s desire to
improve diversity will be a consideration in decisions on
recruitment and promotion, selections continue to be made
based on merit and ability.
The results of our latest gender pay gap analysis (which reflects
the position at April 2018) appear below, alongside the results
from 2017. Overall, this analysis reflects some modest
improvements in our gender pay gap statistics. Our mean and
median gender pay gap has reduced. Our mean bonus pay
gap remains broadly unchanged and our median bonus pay
gap has increased slightly. This is attributable to our
recruitment of females into more junior roles during the period,
which reduces the median bonus figure for females across the
business. We do not consider this to be a negative
development, as these individuals should represent our future
leaders. Positive movements in the lower and lower middle
quartile analysis reflect the recruitment of females into junior
and middle management roles in the regions. A positive shift in
the upper middle quartile analysis is attributable to the
promotion of our Head of HR and Organisation Development to
the senior management team during the period.
The composition of Harworth’s workforce (by gender)1
BOARD
INVESTMENT
COMMITTEE2
MANAGEMENT
BOARD3
ALL EMPLOYEES
3
7
(1)
(7)
0
8
(0)
(6)
3
11
20
48
(15)
(42)
Note – figures in brackets reflect 2017 position.
1 At the date of this Report
2
Investment Committee of 8 has replaced Executive Committee of 6
3 Management Board is a newly formed committee and so has no like for like comparator from 2017
Gender pay gap statistics
Mean gender pay gap
Median gender pay gap
Mean bonus gender pay gap
Median bonus gender pay gap
45%
50%
37%
46%
84%
85%
81%
75%
31 December 2018
31 December 2017
Proportion of men and women in each quartile band
Males
Females
Lower
Lower middle
Upper middle
Upper
2018
60%
40%
2017
64%
36%
2018
53%
47%
2017
69%
31%
2018
94%
6%
2017
100%
0%
2018
90%
10%
2017
90%
10%
STrATeGIC rePOrT
COrPOrATe GOVerNANCe
FINANCIAl STATeMeNTS
53
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 and construction sectors and,
as such, our gender imbalance is particularly stark at the
executive team level. Whilst we recognise this balance will take
time to address this is something we are committed to achieve.
Whilst Harworth has a long way to go in improving diversity
across its business, we have long been committed (since
Harworth’s formation in 2012) to creating a working
environment that is free from discrimination, harassment and
victimisation, where everyone feels valued and respected. This
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 continuing professional
development (“CPD”) and promotion within our business to
any disabled employees,
which one would expect from all responsible businesses.
Career development
The Nomination Committee leads on succession planning and
development for the Board and executive team.
In the second half of 2018 our Head of HR and Organisation
Development undertook a detailed review of succession and
development plans for each role in the business (outside of the
executive team). The output from that review was analysed first
by the executive team and then presented to, and scrutinised
by, the Board. A similar exercise will be undertaken each year
for the recently expanded executive team.
All our employees have undertaken an externally facilitated
“Insights” 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. It also assists in optimising the way
members of our executive and senior management teams
engage with each other.
During 2018 work was undertaken by our Head of HR and
Organisation Development to improve the structure of our
appraisal process. It now follows a more rigorous and
consistent process and timetable which ensures that
performance is managed and development needs are identified
early.
Many of our employees regularly attend external training
courses, often to satisfy ongoing CPD requirements for their
professional qualifications. This is often complemented by
workshops and webinars hosted internally, typically with input
from our professional advisers. Six of our employees continue
to work towards professional qualifications. We support all
employees in the pursuit and renewal of professional
qualifications: both financially, and by encouraging CPD and the
transfer of knowledge from senior to junior employees.
External coaching continues to be available to our executive
and senior management teams and we encourage them all to
use this resource from time to time.
Recognition and reward
We offer a comprehensive employee benefits package for all
employees, which includes a pension scheme with above-
market employer contributions, private medical insurance, life
insurance and income protection. The employer pension
contributions and insurance cover for employees is consistent
across the whole business.
Bonuses for those employees who are contractually entitled 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 2018, these targets were based on NNNAV gains,
sales volume, acquisitions and profit excluding value gains. The
balance of all bonuses are awarded for performance against
personal objectives.
Following a review of our Remuneration Policy we are proposing
to adopt a Restricted Share Plan (“RSP”) in place of the two
long-term incentive schemes we currently operate. Our ability to
cascade the RSP, the operation of which will be simple and
transparent, is one of the key reasons we are advocating this
change. Further details on our proposals for an RSP, and an
explanation of the rationale for it, appear at pages 100 to 102 of
this report.
We also operate an established Save-As-You-Earn (“SAYE”)
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. To date,
approximately half of our employees have chosen to participate
in the scheme and we expect more to do so this year.
Alongside the SAYE, we are proposing the introduction of a
Share Incentive Plan (“SIP”). If this is approved by shareholders
at the AGM it will afford a mechanism by which the Company
can encourage share ownership amongst employees by
awarding shares to employees, or encouraging them to
purchase shares, both in a tax efficient manner. Together, our
existing SAYE and a SIP are tangible ways in which we can
encourage share ownership amongst our workforce and 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 of high priority, recognition is equally
important. We, therefore, emphasise celebrating successes,
such as at our staff conference, quarterly breakfast briefings
and employee roadshows and in our newsletter.
Employee numbers and costs
The average number of persons, including Executive Directors,
employed by the Group and our staff costs for the period under
review are set out in Note 6 to the Financial Statements.
54 Harworth Group plc Annual Report and Financial Statements 2018
Masterplanning of Waverley, Spring 2019 STrATeGIC rePOrT
COrPOrATe GOVerNANCe
FINANCIAl STATeMeNTS
55
56 Harworth Group plc Annual Report and Financial Statements 2018
OUR PARTNERS
The Board recognises that effective stakeholder engagement is a key component of good corporate governance
and will help to promote long-term, sustainable success and growth. The Board has always had regard to its
obligations under section 172 of the Companies Act 2006 but, having regard to the 2018 Code and to guidance
published by ICSA and the Investment Association, during 2018 the Board re-assessed its approach to stakeholder
engagement. This assessment was undertaken to: identify the Group’s principal stakeholders; appraise the levels
of engagement by the Board and wider business with those stakeholders; and review how the Board takes into
account the interests of stakeholders when making decisions. There were two principal outputs from that review.
First, we established a “stakeholder map”, which is summarised over the next few pages.
STAKEHOLDER GROUP
SHAREHOLDERS
ENGAGEMENT
STRENGTHS
CHALLENGES AND SCOPE FOR IMPROVEMENT
• There is Board representation for our two largest shareholders, Peel Group and
•
Lines of communication with the Peel Group and the Pension
• There is scope to improve our profile further with generalist
the Pension Protection Fund
Protection Fund are strong given Board representation
investors
• Formal financial results reporting and webinar presentation twice a year (followed
•
Improved profile amongst investors, with the largest shareholders
• We must continue to implement a detailed and rigorous investor
by investor roadshows) alongside RNS and RNS Reach announcements
throughout the year
• We host an analyst and investor site visit annually
• A Private Client Fund Manager programme is delivered during the year with
support from Numis
• There has been engagement by the Chairman with the largest shareholders
following his appointment in March 2018
• There has been engagement with the largest investors and proxy advisory bodies
on proposed revisions to our Remuneration Policy ahead of the 2019 AGM
remaining long-term holders and new institutions joining the
relations programme in conjunction with our brokers and
share register in the past twelve months. We feel the latter in part
communication advisers
reflects improvements in the content and volume of our Investor
• We will continuously improve the look and feel of our investor
Relations programme
relations materials
• The step-up to premium list and admission to the FTSE index has
improved the profile of the Company’s shares
CONTRACTORS AND SUPPLIERS
• All contractors, consultants and suppliers are subject to an initial “take-on”
• Relationships are managed by small groups of Harworth
• We are currently operating with a long “tail” of approved
approvals process supervised by our Estates, Environment and Safety (“EES”)
team, which ensures a consistent vetting process. We assess all suppliers on
merit, regardless of whether we have worked with them in the past
• Whilst we operate a long list of approved suppliers (see Challenges and scope for
• We use overarching framework agreements for many of our
improvement), typically we engage small groups of trusted consultants and
contractors on a repeat basis across multiple sites at any one time
• The frequency of engagement will depend on the identity and specialisms of the
consultant, the type of works being undertaken, the stage works are at and the
number of assignments being undertaken at any one time. For example,
engagement with planning consultants will typically be dictated by planning
promotion milestones, whereas there is routinely daily engagement with some of
our direct development and engineering contractors and consultants
• Where there is heavy use of certain suppliers, we have a regime of regular
reporting and relationship management to enable performance monitoring and to
highlight any issues early
FUNDERS
Banks
Banks
• There is regular engagement with our principal banks, with the provision of
• We have a strong and well-established relationship with RBS and
management information (quarterly) and requests for transaction consent. This is
supplemented by relationship meetings at least every 6 months
Infrastructure funders
• Quarterly returns are made to our infrastructure funders as part of servicing
present infrastructure loans
• Relationship development with funders is largely driven by our funding needs
Bond provider
• Liaison with our bond provider is via our insurance brokers, Marsh Risk
Consulting (“Marsh”). Engagement is regular due to the frequency of new and
renewal bond applications
are well on our way to a similar relationship with Santander
following its entry into RCF in 2018. These positive relationships
reflect the transparency of our communication and the regularity
of our reporting, alongside consistent compliance with banking
covenants
Infrastructure funders
sector funders
Bond provider
HCC bonds
• Our track record of effective delivery of schemes and repayment
of loans means that we have a good reputation amongst public
• We have a strong track record with HCC as a result of our
successfully delivering infrastructure works which are backed by
employees, which promotes strong personal relationships
suppliers, whilst in practice we only use a small proportion of
between Harworth personnel and their counterparts at our
those on the approved list. We intend to rationalise our list of
various suppliers
approved suppliers to reflect the smaller number of trusted
parties with whom we work
trusted suppliers, with work orders for specific engagements.
• We are looking to implement a more robust mechanism for
This promotes consistencies between engagements
regular review of the ongoing status/suitability of suppliers. Work
is planned to update our finance system so that it triggers regular
• Payments are typically within 30 days of presentation of an
invoice, provided a purchase order has been raised in a timely
reviews of supplier status
manner
• Updates to our suite of precedent construction contracts are
• Work has been undertaken with our legal advisors to produce
progressing
“standard” consultant appointment documents which can be
• Our central functions (Planning, Engineering and Build) will need
rolled out across the regions
to ensure that, following regionalisation, a consistent approach is
maintained to our engagement of consultants and contractors.
This will be addressed as part of a wider initiative to evolve our
internal controls and processes to reflect our new regional model
• Discussions will continue with incumbent and additional funders
about site specific funding opportunities as and when these arise
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
57
This identifies our key stakeholders, records how we engage with them, identifies the strengths in that engagement
but also, importantly, the challenges we face and the improvements we can make. Second, we decided that the
consideration of stakeholder interests needed to be embedded into Board decision-making in a more systematic
way. We concluded that the best way to achieve that was to amend our Board transaction approval template to
include two new sections on stakeholder interests. Clearly it is not enough merely for Board papers to reference
stakeholder interest. It is those references which prompt discussion and form part of the decision-making process.
From this year, the Board will undertake an annual review of the “stakeholder map” and the effectiveness with
which it considers stakeholder interests in decision-making.
STAKEHOLDER GROUP
SHAREHOLDERS
ENGAGEMENT
STRENGTHS
CHALLENGES AND SCOPE FOR IMPROVEMENT
•
•
Lines of communication with the Peel Group and the Pension
Protection Fund are strong given Board representation
Improved profile amongst investors, with the largest shareholders
remaining long-term holders and new institutions joining the
share register in the past twelve months. We feel the latter in part
reflects improvements in the content and volume of our Investor
Relations programme
• The step-up to premium list and admission to the FTSE index has
improved the profile of the Company’s shares
• There is scope to improve our profile further with generalist
investors
• We must continue to implement a detailed and rigorous investor
relations programme in conjunction with our brokers and
communication advisers
• We will continuously improve the look and feel of our investor
relations materials
CONTRACTORS AND SUPPLIERS
• All contractors, consultants and suppliers are subject to an initial “take-on”
• Relationships are managed by small groups of Harworth
• We are currently operating with a long “tail” of approved
approvals process supervised by our Estates, Environment and Safety (“EES”)
team, which ensures a consistent vetting process. We assess all suppliers on
merit, regardless of whether we have worked with them in the past
employees, which promotes strong personal relationships
between Harworth personnel and their counterparts at our
various suppliers
• Whilst we operate a long list of approved suppliers (see Challenges and scope for
• We use overarching framework agreements for many of our
trusted suppliers, with work orders for specific engagements.
This promotes consistencies between engagements
• Payments are typically within 30 days of presentation of an
invoice, provided a purchase order has been raised in a timely
manner
• Work has been undertaken with our legal advisors to produce
“standard” consultant appointment documents which can be
rolled out across the regions
FUNDERS
Banks
Banks
• We have a strong and well-established relationship with RBS and
are well on our way to a similar relationship with Santander
following its entry into RCF in 2018. These positive relationships
reflect the transparency of our communication and the regularity
of our reporting, alongside consistent compliance with banking
covenants
Infrastructure funders
• Our track record of effective delivery of schemes and repayment
of loans means that we have a good reputation amongst public
sector funders
Bond provider
• We have a strong track record with HCC as a result of our
successfully delivering infrastructure works which are backed by
HCC bonds
suppliers, whilst in practice we only use a small proportion of
those on the approved list. We intend to rationalise our list of
approved suppliers to reflect the smaller number of trusted
parties with whom we work
• We are looking to implement a more robust mechanism for
regular review of the ongoing status/suitability of suppliers. Work
is planned to update our finance system so that it triggers regular
reviews of supplier status
• Updates to our suite of precedent construction contracts are
progressing
• Our central functions (Planning, Engineering and Build) will need
to ensure that, following regionalisation, a consistent approach is
maintained to our engagement of consultants and contractors.
This will be addressed as part of a wider initiative to evolve our
internal controls and processes to reflect our new regional model
• Discussions will continue with incumbent and additional funders
about site specific funding opportunities as and when these arise
• There is Board representation for our two largest shareholders, Peel Group and
the Pension Protection Fund
• Formal financial results reporting and webinar presentation twice a year (followed
by investor roadshows) alongside RNS and RNS Reach announcements
throughout the year
• We host an analyst and investor site visit annually
• A Private Client Fund Manager programme is delivered during the year with
support from Numis
• There has been engagement by the Chairman with the largest shareholders
following his appointment in March 2018
• There has been engagement with the largest investors and proxy advisory bodies
on proposed revisions to our Remuneration Policy ahead of the 2019 AGM
improvement), typically we engage small groups of trusted consultants and
contractors on a repeat basis across multiple sites at any one time
• The frequency of engagement will depend on the identity and specialisms of the
consultant, the type of works being undertaken, the stage works are at and the
number of assignments being undertaken at any one time. For example,
engagement with planning consultants will typically be dictated by planning
promotion milestones, whereas there is routinely daily engagement with some of
our direct development and engineering contractors and consultants
• Where there is heavy use of certain suppliers, we have a regime of regular
reporting and relationship management to enable performance monitoring and to
highlight any issues early
• There is regular engagement with our principal banks, with the provision of
management information (quarterly) and requests for transaction consent. This is
supplemented by relationship meetings at least every 6 months
Infrastructure funders
• Quarterly returns are made to our infrastructure funders as part of servicing
present infrastructure loans
• Relationship development with funders is largely driven by our funding needs
Bond provider
• Liaison with our bond provider is via our insurance brokers, Marsh Risk
Consulting (“Marsh”). Engagement is regular due to the frequency of new and
renewal bond applications
Our Partners
Continued
58 Harworth Group plc Annual Report and Financial Statements 2018
OUR PARTNERS
Continued
STAKEHOLDER GROUP
REGULATORY BODIES
ENGAGEMENT
Environment Agency (“EA”)
• Our Environmental Manager is in regular telephone contact with regional EA
officers to discuss permit compliance, monitoring results, variations and
surrenders
• We undertake regular site visits and inspections with EA representatives, hosted
by our Environmental Manager
• We report monitoring results to the EA in a timely fashion to comply with permit
expertise and openness
conditions for certain sites
• When issues do arise (infrequently), our Environmental Manager is proactive in
engaging with the EA
Health and Safety Executive (“HSE”)
• There is regular, informal engagement between our Operations Director and local
HSE officers to discuss quarry and demolition operations
• Otherwise, engagement is reactive in the event of (infrequent) incidents
Forestry Commission
• Our engagement is largely proactive, with regional officers, where we are in any
doubt about our entitlement to fell trees pursuant to planning permission
conditions. Engagement is typically via our retained ecologist for the site in
question
LOCAL COMMUNITIES
• We engage early with local communities on all planning applications and maintain
•
We have a track record for effective engagement with local
• We are working to establish a more structured approach to local
that engagement throughout all our planning promotion exercises. Once
development begins, we actively engage with community groups on all our Major
Development sites. For example, we meet monthly with the Cutacre (Logistics
North) and Waverley residents’ groups. A more detail explanation of our seven-
stage approach to local stakeholder engagement appears in the Social
Responsibility section on pages 66 to 68
• We have appointed the Lands Trust to manage the public open space at
Waverley, our most mature residential development site. The public open space
at all other residential development sites is managed internally by our
management company function and steps are being taken to align our systems
and service levels with those of the Lands Trust. For example, we have
introduced welcome packs for existing and new occupiers on all sites and have
established a more structured approach to service charge budgeting, invoicing
and collection
JOINT VENTURE PARTNERS
• We operate three principal joint venture arrangements on our sites at Waverley
• The success of all our joint venture arrangements is due, in large
• There are inevitably instances on some joint venture projects
(Waverley Square Limited), Gateway 45 (The Aire Valley Land LLP) and Logistics
North (Multiply Logistics North LP). The forward funding arrangement with M&G
Investments for the development and letting of units LN175 and LN225 at
Logistics North has also operated in a similar manner. We tailor engagement with
each of our joint venture partners to suit the project and partner. In most cases
engagement is very structured, with scheduled Board and/or project meetings.
Often, and particularly during periods of heightened activity, engagement is
intensive, but informal, with regular (often daily) telephone and face-to-face
contact as projects evolve and progress quickly
• At sites such as Cinderhill, we frequently work in collaboration (which can be
formal or informal) with adjoining landowners who share a common purpose,
typically the promotion of land for planning permission. In those circumstances,
and in a similar way to our careful engagement with local communities, our
planning managers work very closely with adjoining landowners and their agents
every step of the way
STRENGTHS
CHALLENGES AND SCOPE FOR IMPROVEMENT
• Our Environmental Manager has established a strong relationship
• The recent engagement by our environmental consultants with
with local officers who, we believe, appreciate our openness and
the EA has been sub-standard. We have recently appointed
respect our professionalism and desire to “do the right thing”
replacement consultants which should address this challenge
EA
EA
HSE
• Similarly, we have had positive feedback from the HSE as to our
communities, particularly for significant planning applications. At
community liaison on our less mature Major Development sites
Ironbridge and Thoresby, for example, we have hosted
successful public consultation events on site which were very
well attended and, feedback suggests, well received. At
• The engagement by our management company function with
residents on our residential development sites will continue to
improve as we embed the initiatives and structure introduced in
Thoresby, this has facilitated our securing planning permission
for an 800-plot residential scheme. See the Social Responsibility
2018
section on pages 66 to 68 for more details
• Liaison with local communities at our more mature developments
sites, such as Waverley and Logistics North, is well established,
which has led to improved communication, and collaboration,
with residents
• The recruitment of planning managers into our regional teams will
facilitate early engagement with the public ahead of more of our
planning applications
• The public sensitivity on some planning issues will continue to
require careful management, emphasising the importance of our
effective community engagement
part, to effective engagement between us and our joint venture
where aspirations diverge. We will continue to work transparently
partners. We have seen evidence of that success including: the
and collaboratively with our partners where this arises. Clearly
development and promotion of units LN175 and LN225, resulting
there may be strong and divergent characters and approaches
in sizeable fees paid to Harworth; our collaborative approach
amongst joint venture partners. We will continue to manage
with Evans Properties to engagement with HS2, facilitating sales
carefully our interface with all joint venture partners
at Gateway 45 notwithstanding HS2 safeguarding; and the speed
at which the “Multiply” units have been built and let at Logistics
North. Effective engagement stems from:
senior buy-in for, and visibility on, all joint ventures;
very regular contact, whether that be formal or, more often,
•
•
informal;
• openness, transparency and careful management in all
dealings, particularly where there is potential for a
misalignment of interests;
• a collaborative approach; and
• ultimately, delivery.
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
59
STAKEHOLDER GROUP
REGULATORY BODIES
ENGAGEMENT
Environment Agency (“EA”)
STRENGTHS
EA
CHALLENGES AND SCOPE FOR IMPROVEMENT
EA
• Our Environmental Manager is in regular telephone contact with regional EA
officers to discuss permit compliance, monitoring results, variations and
• Our Environmental Manager has established a strong relationship
with local officers who, we believe, appreciate our openness and
respect our professionalism and desire to “do the right thing”
• The recent engagement by our environmental consultants with
the EA has been sub-standard. We have recently appointed
replacement consultants which should address this challenge
• We undertake regular site visits and inspections with EA representatives, hosted
HSE
• We report monitoring results to the EA in a timely fashion to comply with permit
expertise and openness
• Similarly, we have had positive feedback from the HSE as to our
LOCAL COMMUNITIES
• We engage early with local communities on all planning applications and maintain
•
We have a track record for effective engagement with local
communities, particularly for significant planning applications. At
Ironbridge and Thoresby, for example, we have hosted
successful public consultation events on site which were very
well attended and, feedback suggests, well received. At
Thoresby, this has facilitated our securing planning permission
for an 800-plot residential scheme. See the Social Responsibility
section on pages 66 to 68 for more details
Waverley, our most mature residential development site. The public open space
• Liaison with local communities at our more mature developments
sites, such as Waverley and Logistics North, is well established,
which has led to improved communication, and collaboration,
with residents
• We are working to establish a more structured approach to local
community liaison on our less mature Major Development sites
• The engagement by our management company function with
residents on our residential development sites will continue to
improve as we embed the initiatives and structure introduced in
2018
• The recruitment of planning managers into our regional teams will
facilitate early engagement with the public ahead of more of our
planning applications
• The public sensitivity on some planning issues will continue to
require careful management, emphasising the importance of our
effective community engagement
JOINT VENTURE PARTNERS
• We operate three principal joint venture arrangements on our sites at Waverley
• The success of all our joint venture arrangements is due, in large
• There are inevitably instances on some joint venture projects
where aspirations diverge. We will continue to work transparently
and collaboratively with our partners where this arises. Clearly
there may be strong and divergent characters and approaches
amongst joint venture partners. We will continue to manage
carefully our interface with all joint venture partners
part, to effective engagement between us and our joint venture
partners. We have seen evidence of that success including: the
development and promotion of units LN175 and LN225, resulting
in sizeable fees paid to Harworth; our collaborative approach
with Evans Properties to engagement with HS2, facilitating sales
at Gateway 45 notwithstanding HS2 safeguarding; and the speed
at which the “Multiply” units have been built and let at Logistics
North. Effective engagement stems from:
•
•
senior buy-in for, and visibility on, all joint ventures;
very regular contact, whether that be formal or, more often,
informal;
• openness, transparency and careful management in all
dealings, particularly where there is potential for a
misalignment of interests;
• a collaborative approach; and
• ultimately, delivery.
surrenders
by our Environmental Manager
conditions for certain sites
engaging with the EA
Health and Safety Executive (“HSE”)
• When issues do arise (infrequently), our Environmental Manager is proactive in
• There is regular, informal engagement between our Operations Director and local
HSE officers to discuss quarry and demolition operations
• Otherwise, engagement is reactive in the event of (infrequent) incidents
Forestry Commission
• Our engagement is largely proactive, with regional officers, where we are in any
doubt about our entitlement to fell trees pursuant to planning permission
conditions. Engagement is typically via our retained ecologist for the site in
question
that engagement throughout all our planning promotion exercises. Once
development begins, we actively engage with community groups on all our Major
Development sites. For example, we meet monthly with the Cutacre (Logistics
North) and Waverley residents’ groups. A more detail explanation of our seven-
stage approach to local stakeholder engagement appears in the Social
Responsibility section on pages 66 to 68
• We have appointed the Lands Trust to manage the public open space at
at all other residential development sites is managed internally by our
management company function and steps are being taken to align our systems
and service levels with those of the Lands Trust. For example, we have
introduced welcome packs for existing and new occupiers on all sites and have
established a more structured approach to service charge budgeting, invoicing
and collection
(Waverley Square Limited), Gateway 45 (The Aire Valley Land LLP) and Logistics
North (Multiply Logistics North LP). The forward funding arrangement with M&G
Investments for the development and letting of units LN175 and LN225 at
Logistics North has also operated in a similar manner. We tailor engagement with
each of our joint venture partners to suit the project and partner. In most cases
engagement is very structured, with scheduled Board and/or project meetings.
Often, and particularly during periods of heightened activity, engagement is
intensive, but informal, with regular (often daily) telephone and face-to-face
contact as projects evolve and progress quickly
• At sites such as Cinderhill, we frequently work in collaboration (which can be
formal or informal) with adjoining landowners who share a common purpose,
typically the promotion of land for planning permission. In those circumstances,
and in a similar way to our careful engagement with local communities, our
planning managers work very closely with adjoining landowners and their agents
every step of the way
60 Harworth Group plc Annual Report and Financial Statements 2018
OUR PARTNERS
Continued
STAKEHOLDER GROUP
PROFESSIONAL ADVISERS
ENGAGEMENT
STRENGTHS
CHALLENGES AND SCOPE FOR IMPROVEMENT
• We have long-standing relationships with our managing agents,
• Our legal panel will be reviewed at the end of June. Following that
letting agents, our legal panel firms, valuers, external auditors,
review, we will be looking to establish a more structured
insurance brokers and tax advisers, all of whom have a very
programme of regular relationship reviews with all panel firms
good understanding of the business, our sites and the way we
work
• We are building strong relationships with Liberum, who were
appointed in February 2019 as joint brokers, and Deloitte, who
• Where relationships are less mature, such as with our current
were appointed as remuneration advisers in September 2018
corporate brokers and remuneration advisers, we work hard to
build relationships quickly, to help our advisers understand the
business and to establish consistent working practices
• A review of the insurance brokerage role will be undertaken
ahead of the 2020 renewal or, if the Rate Stability Agreement with
our incumbent insurers is extended (see Audit Committee report),
• Our advisers appreciate the “partnership” approach we adopt
the 2021 renewal
with all of them. We are demanding but collaborative and
appreciative of the work our advisers undertake
• A tender process for the external auditor’s appointment is
planned for the second half of 2019 and we are already engaging
• We have narrowed the focus of our Head of Communications
with prospective replacements for PwC
and Investor Relations who is now based in London. He has
established effective working relationships with our brokers and
communications advisers
• We are conscious that certain of our engagements with
professional advisers rely on the long-standing relationships of a
small number of people and so will be making a conscious effort
to broaden the interface between Harworth and each of our
advisers
•
Our business model relies heavily on professional advisers and, as such, involves
intensive engagement with many of them on a consistent basis
Corporate advisers
• Auditors. Engagement with the external auditors includes but is not limited to: a
review of audit strategy by the Audit Committee with the auditor every six months,
ahead of preparation of the preliminary and interim results; an annual audit
planning meeting between the auditor and the Finance team ahead of the year
end audit; extensive engagement during the external audit of the year-end results
and review of interim results; and lighter engagement throughout the year for the
subsidiary company audits
• Brokers. We have overarching engagements in place with Peel Hunt and
Liberum. Our engagement with brokers is ad-hoc as the need for advice arises
but is usually monthly. However, it is clearly more intensive ahead of the
announcements of preliminary and interim results and during periods of capital
markets activity
• Communication advisers. We have an overarching engagement agreement in
place with FTI Consulting (“FTI”). Fortnightly calls are held with FTI to review the
external communications tracker. There is more intensive engagement with FTI
alongside stock market and media announcements
• Remuneration consultants. We have recently appointed Deloitte LLP
(“Deloitte”) on a 3-year retainer. Our engagement with them has been intensive
since appointment, as Deloitte is advising on the proposed revisions to the
Remuneration Policy
•
Insurance brokers. We undertake annual relationship review meetings with
Marsh. Engagement is more intensive ahead of the insurance renewal. Otherwise,
engagement is ad hoc when claims and/or queries arise and/or acquisitions are
completed
• Tax advisers. Deloitte are the Company’s retained tax advisers. There is
intensive engagement ahead of the annual tax computations together with
ad-hoc advisory instructions during the year. Deloitte also provides pension
accounting advice
Operational advisers
• Legal panel. There are framework agreements in place with our six panel firms.
The panel is reviewed every 2 years. The Business Space team meets monthly
with Keebles LLP, which undertakes all asset management legal work on our
Business Space portfolio. Otherwise, relationship reviews with legal panel firms
are typically ad hoc and largely reactive to issues identified by the business or
firms
• Valuers. BNP Paribas and Savills are subject to annual appointments. There is
extensive engagement ahead of publication of the year-end valuations. BNP
Paribas and Savills are consulted on the half-year valuation review undertaken by
management, but this is “lighter touch”. There is also ad hoc engagement with
BNP Paribas during the year when we consult it on planned acquisitions
• Agents. Monthly operational review meetings are held with LSH and Savills, our
retained managing agents. Our sales and letting agents are subject to
overarching appointments by region. Typically, monthly operational meetings are
held with all agents in each region
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
61
STAKEHOLDER GROUP
PROFESSIONAL ADVISERS
ENGAGEMENT
STRENGTHS
CHALLENGES AND SCOPE FOR IMPROVEMENT
•
Our business model relies heavily on professional advisers and, as such, involves
• We have long-standing relationships with our managing agents,
• Our legal panel will be reviewed at the end of June. Following that
letting agents, our legal panel firms, valuers, external auditors,
insurance brokers and tax advisers, all of whom have a very
good understanding of the business, our sites and the way we
work
• Where relationships are less mature, such as with our current
corporate brokers and remuneration advisers, we work hard to
build relationships quickly, to help our advisers understand the
business and to establish consistent working practices
• Our advisers appreciate the “partnership” approach we adopt
with all of them. We are demanding but collaborative and
appreciative of the work our advisers undertake
• We have narrowed the focus of our Head of Communications
and Investor Relations who is now based in London. He has
established effective working relationships with our brokers and
communications advisers
review, we will be looking to establish a more structured
programme of regular relationship reviews with all panel firms
• We are building strong relationships with Liberum, who were
appointed in February 2019 as joint brokers, and Deloitte, who
were appointed as remuneration advisers in September 2018
• A review of the insurance brokerage role will be undertaken
ahead of the 2020 renewal or, if the Rate Stability Agreement with
our incumbent insurers is extended (see Audit Committee report),
the 2021 renewal
• A tender process for the external auditor’s appointment is
planned for the second half of 2019 and we are already engaging
with prospective replacements for PwC
• We are conscious that certain of our engagements with
professional advisers rely on the long-standing relationships of a
small number of people and so will be making a conscious effort
to broaden the interface between Harworth and each of our
advisers
intensive engagement with many of them on a consistent basis
Corporate advisers
• Auditors. Engagement with the external auditors includes but is not limited to: a
review of audit strategy by the Audit Committee with the auditor every six months,
ahead of preparation of the preliminary and interim results; an annual audit
planning meeting between the auditor and the Finance team ahead of the year
end audit; extensive engagement during the external audit of the year-end results
and review of interim results; and lighter engagement throughout the year for the
subsidiary company audits
• Brokers. We have overarching engagements in place with Peel Hunt and
Liberum. Our engagement with brokers is ad-hoc as the need for advice arises
but is usually monthly. However, it is clearly more intensive ahead of the
announcements of preliminary and interim results and during periods of capital
markets activity
• Communication advisers. We have an overarching engagement agreement in
place with FTI Consulting (“FTI”). Fortnightly calls are held with FTI to review the
external communications tracker. There is more intensive engagement with FTI
alongside stock market and media announcements
• Remuneration consultants. We have recently appointed Deloitte LLP
(“Deloitte”) on a 3-year retainer. Our engagement with them has been intensive
since appointment, as Deloitte is advising on the proposed revisions to the
Remuneration Policy
•
Insurance brokers. We undertake annual relationship review meetings with
Marsh. Engagement is more intensive ahead of the insurance renewal. Otherwise,
engagement is ad hoc when claims and/or queries arise and/or acquisitions are
completed
• Tax advisers. Deloitte are the Company’s retained tax advisers. There is
intensive engagement ahead of the annual tax computations together with
ad-hoc advisory instructions during the year. Deloitte also provides pension
accounting advice
Operational advisers
• Legal panel. There are framework agreements in place with our six panel firms.
The panel is reviewed every 2 years. The Business Space team meets monthly
with Keebles LLP, which undertakes all asset management legal work on our
Business Space portfolio. Otherwise, relationship reviews with legal panel firms
are typically ad hoc and largely reactive to issues identified by the business or
firms
• Valuers. BNP Paribas and Savills are subject to annual appointments. There is
extensive engagement ahead of publication of the year-end valuations. BNP
Paribas and Savills are consulted on the half-year valuation review undertaken by
management, but this is “lighter touch”. There is also ad hoc engagement with
BNP Paribas during the year when we consult it on planned acquisitions
• Agents. Monthly operational review meetings are held with LSH and Savills, our
retained managing agents. Our sales and letting agents are subject to
overarching appointments by region. Typically, monthly operational meetings are
held with all agents in each region
62 Harworth Group plc Annual Report and Financial Statements 2018
OUR PARTNERS
Continued
STAKEHOLDER GROUP
ENGAGEMENT
STRENGTHS
CHALLENGES AND SCOPE FOR IMPROVEMENT
LOCAL AND CENTRAL GOVERNMENT
• We engage with Local Government and Local Enterprise Partnerships principally
•
Our representations to Central Government on matters such as
• Work is required to establish more regular engagement, and
via three methods:
•
submission of, and all work related to, planning applications and discharge of
planning conditions;
• bids for loan and/or grant monies to facilitate and/or accelerate infrastructure
delivery; and
• promotion of key strategic opportunities at certain of our sites
• We engage with Central Government and MPs principally via three methods:
• bids for grant or loan monies, for example via Homes England;
• active participation in Central Government consultation exercises on key
policy matters such as the National Planning Policy Framework (“NPPF”); and
• direct engagement and collaboration with MPs in connection with plans for,
and initiatives at, certain of our sites
CUSTOMERS (SITE PURCHASERS AND TENANTS)
Capital Growth
Capital Growth
• Our principal customers remain housebuilders and commercial developers/
• We have strong relationships with a number of national and
occupiers. We maintain regular contact with housebuilders, both directly and via
the residential agents, outside of the deal cycle
• Our engagement with existing and prospective commercial occupiers is
principally through direct deal-making and typically via our professional advisors,
including commercial agents
Income Generation
• Our customers principally comprise Business Space, Natural Resources and
agricultural tenants and power station operators
• Day-to-day engagement with Business Space and Natural Resources tenants is
largely via our managing agents. We hold monthly meetings with our managing
agents to identify where direct involvement and engagement with tenants by our
Business Space and/or Natural Resources teams is needed
• Business Space site inspections (which often include some engagement with
tenants) are undertaken by our site supervisor (fortnightly); our managing agents
(monthly); and our asset managers (quarterly)
• There is regular (typically daily) engagement with power station operators,
principally by our Director of Operations, to manage sales volumes
regional housebuilders, evidenced by the repeat buyers of our
engineered land parcels (Strata, Barratt, Taylor Wimpey, Harron
Homes, Avant Homes); the competition for our residential
development sites; and the breadth of our customer base
• We are now seeing direct approaches – sites brought to us with
development opportunities – because of our profile and track
record for delivering serviced land parcels for both housebuilders
and commercial occupiers
Income Generation
• Our relationships with existing tenants is good, evidenced by the
increased WAULT, reduced vacancy rate and comparatively little
tenant churn across our Business Space and Natural Resources
portfolios
HS2 alignment, the NPPF and Land Value Capture have been
improve the knowledge of Harworth, with Central Government
welcomed and accounted for, as evidenced by HS2 reducing
departments beyond the Department for Housing, Communities
land-take for its rolling stock depot at Gateway 45, Leeds
and Local Government
• Harworth is represented on a number of key professional bodies,
• We will continue to work with industry organisations such as the
with Owen Michaelson chairing the BPF’s Regional Policy
British Property Federation and Royal Institution of Chartered
Committee, Iain Thomson being a member of the BPF’s
Surveyors to participate in key Central Government
Communications Committee and Tim Love being a member of
consultations, such as on Land Value Capture
the Royal Institution of Chartered Surveyors’ Policy Panel
•
We plan to run tender processes for the Business Space
managing agent role during 2019 and for the Natural Resources
managing agent role in 2020
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
63
STAKEHOLDER GROUP
ENGAGEMENT
STRENGTHS
CHALLENGES AND SCOPE FOR IMPROVEMENT
LOCAL AND CENTRAL GOVERNMENT
• We engage with Local Government and Local Enterprise Partnerships principally
•
Our representations to Central Government on matters such as
HS2 alignment, the NPPF and Land Value Capture have been
welcomed and accounted for, as evidenced by HS2 reducing
land-take for its rolling stock depot at Gateway 45, Leeds
• Work is required to establish more regular engagement, and
improve the knowledge of Harworth, with Central Government
departments beyond the Department for Housing, Communities
and Local Government
• Harworth is represented on a number of key professional bodies,
with Owen Michaelson chairing the BPF’s Regional Policy
Committee, Iain Thomson being a member of the BPF’s
Communications Committee and Tim Love being a member of
the Royal Institution of Chartered Surveyors’ Policy Panel
• We will continue to work with industry organisations such as the
British Property Federation and Royal Institution of Chartered
Surveyors to participate in key Central Government
consultations, such as on Land Value Capture
CUSTOMERS (SITE PURCHASERS AND TENANTS)
Capital Growth
Capital Growth
• We have strong relationships with a number of national and
regional housebuilders, evidenced by the repeat buyers of our
engineered land parcels (Strata, Barratt, Taylor Wimpey, Harron
Homes, Avant Homes); the competition for our residential
development sites; and the breadth of our customer base
• We are now seeing direct approaches – sites brought to us with
development opportunities – because of our profile and track
record for delivering serviced land parcels for both housebuilders
and commercial occupiers
Income Generation
• Our relationships with existing tenants is good, evidenced by the
increased WAULT, reduced vacancy rate and comparatively little
tenant churn across our Business Space and Natural Resources
portfolios
•
We plan to run tender processes for the Business Space
managing agent role during 2019 and for the Natural Resources
managing agent role in 2020
via three methods:
planning conditions;
delivery; and
•
submission of, and all work related to, planning applications and discharge of
• bids for loan and/or grant monies to facilitate and/or accelerate infrastructure
• promotion of key strategic opportunities at certain of our sites
• We engage with Central Government and MPs principally via three methods:
• bids for grant or loan monies, for example via Homes England;
• active participation in Central Government consultation exercises on key
policy matters such as the National Planning Policy Framework (“NPPF”); and
• direct engagement and collaboration with MPs in connection with plans for,
and initiatives at, certain of our sites
• Our principal customers remain housebuilders and commercial developers/
occupiers. We maintain regular contact with housebuilders, both directly and via
the residential agents, outside of the deal cycle
• Our engagement with existing and prospective commercial occupiers is
principally through direct deal-making and typically via our professional advisors,
including commercial agents
Income Generation
• Our customers principally comprise Business Space, Natural Resources and
agricultural tenants and power station operators
• Day-to-day engagement with Business Space and Natural Resources tenants is
largely via our managing agents. We hold monthly meetings with our managing
agents to identify where direct involvement and engagement with tenants by our
Business Space and/or Natural Resources teams is needed
• Business Space site inspections (which often include some engagement with
tenants) are undertaken by our site supervisor (fortnightly); our managing agents
(monthly); and our asset managers (quarterly)
• There is regular (typically daily) engagement with power station operators,
principally by our Director of Operations, to manage sales volumes
Operating Responsibly
64 Harworth Group plc Annual Report and Financial Statements 2018
Operating respOnsibly
Harworth takes its responsibilities as a sustainable regeneration company extremely
seriously. Working safely and with appropriate regard to our legal obligations forms a
critical part of being socially responsible in our day-to-day delivery.
Health and safety
Health and safety has an extremely high profile in our business.
Day-to-day review and management rests with our Estates,
Environment and Safety (“EES”) team, led by our Associate
Director of EES. The EES team reports to our Company
Secretary, who has a wider responsibility for governance, risk
and compliance. Our Chief Executive has ultimate responsibility
for all health and safety matters.
Harworth’s Safety, Health and Environment Management
System (“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. The overall risk profile of our sites is
reported to Board monthly. Material movements in this profile
are fed into the quarterly reviews of the Group Risk Register
(see the Managing Risk section of this report on pages 34 to
44).
Our EES team ensures that health and safety is embedded into
all our activities. In 2018 mandatory health and safety training
was delivered to all employees in the form of online tuition and
testing. There was also targeted training for certain employees,
such as training on The Construction (Design and
Management) Regulations 2015 (“CDM”) and asbestos handling
which was delivered to our Major Developments and
Operations teams. The team is scheduled to host a mandatory
safety training day for all employees in June. This follows the
success of a similar training day hosted in 2017. 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 and monitored
by the EES team. This process is key to identifying areas for
improvement across the portfolio.
We continue to engage 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.
There were only three minor accidents recorded at our sites
during the year. For completeness, this statistic includes
accidents involving contractors we have supervised. Where we
have appointed a principal contractor under CDM they and
their sub-contractors take responsibility for health and safety
whilst works are ongoing, but we continue to monitor health
and safety via JPW and/or our project managers.
There were no RIDDOR accidents or incidents or lost-time
accidents reported by Harworth or any contractors working on
Harworth sites during the year.
We are keen to ensure that the “health” in health and safety has
equal prominence. Three of our employees now hold a mental
health first aid qualification and those with traditional first aid
qualifications have refreshed their training. Alongside this we
have continued to promote ancillary measures designed to
improve health and wellbeing amongst our staff, such as the
construction of shower facilities at our Head Office for those
who wish to exercise during the working day.
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 Management Board and the
Board. Those reports include incident briefings, where
applicable, as well as an overview of activity on our sites
and the overall risk profile of the portfolio;
• a report on health and safety forms part of the Chief
Executive’s monthly update to the Board;
•
there are quarterly safety meetings chaired by our Chief
Executive, attended by employees from a cross-section of
the business; and
• our Associate Director of EES reports to the Board in
January each year 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.
The Company has published Modern Slavery Statements in
2017 and 2018. A copy of the 2018 statement appears on the
opening page of our website at www.harworthgroup.com. The
Company will publish another statement before the end of June
2019, which will reflect the progress that has been made since
Operating responsibly
Continued
strategiC repOrt
COrpOrate gOVernanCe
FinanCial stateMents
65
publication of the 2018 statement. In that regard, we can report
that: (A) online training on tackling modern slavery and human
trafficking has been delivered to all of our employees; (B) all new
suppliers who have been approved during the year have
committed to complying with our Supplier Code of Conduct on
anti-slavery and human trafficking; and (C) our suite of precedent
consultancy agreements are now in place, which impose
obligations on our consultants in relation to anti-slavery and
human trafficking.
The following policies are also in place:
• Anti-Corruption and Bribery;
• Gifts, Donations, Sponsorship and Hospitality; and
•
Anti-facilitation of tax evasion.
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. During 2018 online training was delivered to all
employees on the prevention of bribery and corruption. We also
engaged Grant Thornton to run a workshop on the management
and mitigation of risks associated with facilitating tax evasion.
The Gifts, Donations, Sponsorship and Hospitality policy
imposes a regime for the approval of business development
activity at all levels of the business and a register of all activity.
At the start of 2019 it was updated to reflect the changes to our
senior management structure effected in 2018. The register of
business development activity is monitored regularly by the
Company Secretary and annually by the Audit Committee.
General Data Protection Regulations
We do not hold extensive amounts of personal data but
recognise the importance of protecting the data that we do
control. Workstreams were undertaken at the start of 2018 to
ensure that the Group was, and remains, compliant with the
GDPR, ahead of its coming into force on 25 May 2018. Those
workstreams included:
• an internal audit and “mapping” exercise of personal data,
resulting in the establishment of a “Personal Data Master
Record” which will be a living document which remains
subject to review;
•
•
•
the implementation of a new data protection policy, with
accompanying operational guidelines, such as for handling
data subject rights;
new fair-collection (privacy) notices; and
the incorporation of data processing terms and conditions
into our agreements with third parties with whom we share
personal data.
Work is ongoing to embed a culture of GDPR compliance into the
business. This will form part of a wider suite of initiatives
designed to ensure appropriate information security across the
business. These implement recommendations from a strategic
review of information security undertaken by NCC Group
(“NCC”). Further information on that review and NCC’s
recommendations can be found in the Audit Committee report
on page 98. One of the recommendations was the appointment
of an information security manager. That appointment has been
made and he is leading the implementation of all other initiatives,
which will include steps to embed the above-mentioned
measures, monitor their effectiveness, and improve GDPR
awareness amongst employees.
From 2019, the Audit Committee will undertake an annual review
of the Group’s ongoing compliance with GDPR.
Social Responsibility
66 Harworth Group plc Annual Report and Financial Statements 2018
Social ReSponSibility
As one of the UK’s leading regeneration companies, we recognise that we influence
the design and delivery of future communities. It is a serious responsibility and one
that we are proud to deliver on in the way we: design and deliver our projects; and
work with local communities during their build-out.
Our developments have helped to bring new life to former industrial areas, whilst also
supporting a number of key community initiatives that have an effect beyond our day-
to-day work. We’ve done this whilst also acting responsibly and consistently in the
way we interact with local communities.
The difference we make
In our work over the past decade, we have helped to deliver
thousands of new jobs and homes on our land across the
North of England and the Midlands. Our sites at Waverley and
Logistics North are leading examples of regeneration in the
North of England, replacing many times over the jobs that were
lost when mining ended. Three times as many people are now
employed at the Advanced Manufacturing Park than were
employed at Orgreave Coking Works when it closed in 1990.
Over 1,500 new homes and more than 7m sq. ft of commercial
space have been built out on land owned or prepared by
Harworth. Over 8,500 people are now employed across
Harworth’s Major Developments and Business Space sites.
Using our land and property experience to deliver future
schemes in the same vein as Waverley and Logistics North is
essential to the regeneration of former industrial areas and
supports the growth of UK plc. The recently published
Industrial Strategy White Paper sets out a long-term plan for
rebalancing and growth of a highly-skilled UK economy.
Together with strategies to deliver the “Northern Powerhouse”
and the “Midlands Engine”, these provide the foundation for a
step change in investment and growth across the North of
England and Midlands. The provision of new residential and
commercial land and property to facilitate that investment
remains an essential ingredient for sustainable growth.
Nowhere is this better shown than at the 150-acre Advanced
Manufacturing Park in Rotherham, where just under 1.5m sq. ft
of commercial space has delivered over 1,500 skilled jobs in
key sectors such as aerospace, automotive and energy,
including hydrogen fuel cells and battery storage. Key
occupiers (and employers) include Rolls-Royce, Boeing,
McLaren Automotive and the University of Sheffield’s Advanced
Manufacturing Research Centre, renowned as the UK’s leading
centre of manufacturing excellence.
Housebuilding remains the UK’s number one domestic political
priority, driven by a continued shortfall in supply (300,000
required homes versus c.225,000 home starts in 2018). The
Chancellor’s 2018 Budget reflected this priority by including
measures to support economic growth, including
improvements to national infrastructure and initiatives to
stimulate the provision of affordable housing arrangements and
support smaller house builders. With a portfolio benefitting
from outline consent for over 11,000 homes and a pipeline of
several thousand more, Harworth will continue to make a
meaningful contribution to delivering this national priority in the
long-term.
With sites extending across eleven LEP areas in the North of
England and Midlands, economic consultancy firm, Ekosgen,
has now estimated that our portfolio has the potential to
accommodate over 66,000 jobs and generate £3.6bn of Gross
Value Added (GVA) per annum, as well as significant levels of
business rates income. More than 20,000 new homes could be
built on Harworth sites, supporting up to £131.5m of income
through the New Homes Bonus and up to £32.9m per annum
in council tax receipts.
Our approach to development
As referenced in the Our Partners section on pages 58 and 59,
central to delivering this economic uplift through the
regeneration of land is a mature approach to engaging with
local stakeholders, including residents, statutory bodies and
those with an interest in the intended end-use of our land.
We use a seven stage approach to stakeholder engagement to
ensure the success of developments. The ultimate aim is for
positive, meaningful and timely public engagement which
encourages local stakeholders to take an active part in the
process and add genuine value at all stages of the
development lifecycle.
We are using this approach on our future Major Developments.
1. Establish Initial Masterplan
• Establish contact with, and encourage participation from, all
key interest groups including local authorities, MPs, key
activist groups and statutory bodies to establish their
desires or concerns regarding development.
• Create the first high-level masterplan to use, with
supporting information, as the basis of initial public
engagement work.
2. Initial Stakeholder Workshops
• Run a series of workshops close to site to critique formally
all aspects of the initial masterplan.
• Ensure representatives from the local authority and parish
councils including local councillors, Highways England,
Homes England, adjacent landowners and ecologists are
invited and formally participate.
Social Responsibility
Continued
StRateGic RepoRt
coRpoRate GoVeRnance
Financial StateMentS
67
6. Outline Application Submission & Determination
• Submit outline planning application and all supporting
documentation.
• Continue to work with key consultees to ensure concerns and
advice are understood and addressed throughout the
process.
7. Ongoing Delivery of Scheme & Establishment of
Management Company for Development
• Continue to work closely with all local stakeholders when
working up detailed planning applications for each phase of
the development. Support this process with regular meetings
with all relevant parties.
• Establish permanent digital presence – new website and
social media – to communicate with the public on
development plans and milestones.
• Create a site-specific management company upon
commencement of development to manage public open
space over the life of the development. The management
company will be managed by Harworth through the initial
stages of development before control is passed to residents
or a dedicated third party, such as Lands Trust
• Attendees to be split into groups to work through set
questions on potential future land uses and to take part in a
design workshop to explore specific uses.
This approach worked extremely well for the consultation at the
former Thoresby colliery in 2015, where over 70 attendees
attended both workshops to help guide a housing-led masterplan
on a green belt site through the start of the planning process.
3. Test Initial Proposals with Statutory Bodies
• Working with the appointed professional team, work closely
with all key statutory bodies to critique the masterplan and
supporting documentation to get the plan in a suitable form
for formal public consultation.
4. Formal Public Consultation
• Promote consultation events at key local centres close to the
site to encourage wide-ranging public feedback on plans. All
plans to include background to site, proposed uses and
rationale, and planned development mitigation measures
including highways and proposed developer contributions.
Request feedback via forms on the day and use of bespoke
consultation website in order to gauge public opinion and to
establish key areas of support or concern.
This approach worked particularly well at Thoresby, with over 400
attendees participating in a six-hour consultation onsite, and at
Ironbridge in October 2018, with over 500 attendees in
attendance. At both consultations, attendees toured the site in
order for our plans to be put in proper context. At both sites, two-
thirds of attendees were in favour of our initial ideas for the
respective sites.
5. Further Refinement of Masterplan & Supporting
Documents
• Revise masterplan in consultation with local planning officers
to account for all public feedback and to ensure all relevant
documentation is in place to make an active planning
application.
• Brief local councillors on nature and specifics of intended
application prior to submission.
We appraise the effectiveness of each engagement programme using four key indicators:
Early engagement
To what extent was there an opportunity to influence and shape development?
Meaningful
Inclusive
Was it a “real” consultation? How did the project change as a result of the comments
received? What tools and techniques were used?
Was the wider community involved? What steps were taken to “reach out” to those who
would not normally be involved in planning consultations?
Effective (map, gap and take note) Was it effective? Were the views expressed balanced and representative of the local
area? Taking account that monitoring should reflect the geography and demography of
the local area – was it reviewed and what action took place to address gaps?
68 Harworth Group plc Annual Report and Financial Statements 2018
Social ReSponSibility
continued
Supporting community and charitable projects
A key part of our ethos is supporting a range of community and charitable projects across the areas in which we work. This
includes support for a range of local causes, such as: sponsorship for local football teams in Rotherham and Pontefract; making
available commercial space for charitable uses; and supporting local events that promote community cohesion.
One major change we initiated towards the end of 2018 was to partner with two national charities. Following consultation with
employees, the People Steering Group chose to partner with Land Aid and The Wildlife Trusts.
Land Aid
Land Aid is the “property industry charity”, bringing together
the industry to support life-changing projects for young
people facing homelessness nationwide. Every year, Land Aid
uses the donations and skills of its charity partners to provide
accommodation and support for young people (aged 16-25)
who are homeless. Land Aid is already supported by many of
our partners including the British Property Federation, Carter
Jonas, Cushman & Wakefield, Jones Lang LaSalle, Knight
Frank, The Royal Institution of Chartered Surveyors and
Savills. In total, it currently has 81 partners.
We will be making an annual financial donation to Land Aid as a
corporate partner, whilst also holding two “open call” days per
year for Harworth employees to assist with building, managing
and maintaining a number of housing projects throughout
the UK.
The Wildlife Trusts
The Wildlife Trusts are a collection of 46 independent regional
trusts that cover the whole of the UK. Each trust is formed to
make a positive difference to local wildlife for future
generations. Collectively, these trusts look after more than
2,300 nature reserves and operate over 100 visitor and
education centres across the UK. Each trust relies heavily on
financial donations, lottery contributions and volunteer
support to continue their work.
We will be making an annual financial donation to The Wildlife
Trusts as a corporate partner. We will nominate the regional
projects we wish to support to tie in with our regional
footprint. We have also offered two “open call” days per year
for Harworth staff to donate their time to key Wildlife Trust
projects, including tree planting and maintenance of nature
reserves. In addition, the Wildlife Trusts will be working with
us on a strategic basis to provide advice on wildlife projects
on some of our sites, including the 558-acre Logistics North
Country Park and the 200-acre public open space at
Waverley
StRateGic RepoRt
coRpoRate GoVeRnance
Financial StateMentS
69
Logistics North Country Park, Spring 2019 Environmental Responsibility
70 Harworth Group plc Annual Report and Financial Statements 2018
EnvironmEntal rEsponsibility
With over twenty years’ experience in regenerating large and often complex development
sites, Harworth has an established track record in managing the environmental impact of
its operations. This includes: recycling materials from demolition and land remediation;
tackling the environmental legacy of previous industrial site uses; and encouraging staff to
take personal responsibility for reducing harmful emissions from our activities.
Managing our environmental impact
We continue to apply five key principles in reducing our environmental impact across our estate.
We work with trusted contractors to clean and remediate land and remove dangerous
underground structures at a range of brownfield sites, preparing that land for redevelopment.
rEmEDiation anD rEstoration
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. At our Kellingley site in North
Yorkshire, we were able to export over 500k tonnes of former colliery discard via rail for re-use at
the Port of Hull.
We are experts in project managing complex demolition works in a safe and efficient manner.
Over the past year we have successfully completed demolitions of the former Thoresby and
Kellingley collieries in preparation for redevelopment, including the removal of pithead structures.
DEmolition
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 coal slurry to power station operators to produce
electricity between 2011 and 2018 – a material previously considered as waste.
minimisinG pUbliC impaCt
The team has been able to achieve all of this whilst minimising disruption to residents,
businesses and other groups that are close to the sites we are working on. We pride ourselves in
maintaining clear communication and professionalism through all stages of the development
process, building on our track record as a responsible land and property regeneration company.
We continue to operate a Safety, Health and Environmental Management Policy (“SHEMS”) to ensure the effective control of
environmental risk and operate 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,
in line with our vision of becoming the leading regeneration company in the North of England and Midlands.
Harworth’s Environmental
Impact
Continued
stratEGiC rEport
CorporatE GovErnanCE
FinanCial statEmEnts
71
Greater emphasis on smart working
A range of smart working initiatives were instigated by
Harworth in 2018 principally to reduce the number of journeys
our staff make. These have included:
• accommodating requests from staff to work from home or
regional offices that are closer to their home;
•
•
introducing new technology to reduce the need for face-to-
face meetings, including video conferencing facilities at our
head office; and
improving the quality of our vehicle fleet, with our leased
vans now more fuel efficient than their predecessors.
Managing fuel efficient working on-site
Our Operations staff continue to minimise the use of yellow
plant and other fuel intensive machinery where possible.
Emissions from the operation of yellow plant increased during
the year, attributable in large part to Harworth taking back
control of the remediation of, and extraction of coal fines from,
the former Prince of Wales spoil heap (previously operated by
Hargreaves under licence), with a large proportion of coal fines
sold in year being generated from Prince of Wales operations.
Emissions from gas oil from plant increased to 3,371 tonnes of
CO2e (2017: 1,848 tonnes of CO2e). This will need additional
focus from management in 2019.
This has meant that even though we have had an increase in
staff numbers, emissions from fuel use has decreased to 241
tonnes of CO2e (2017: 254 tonnes of CO2e).
Improved asset management
Active management of our Business Space assets has also
improved in 2018, resulting in another reduction in emissions
from electricity usage on those sites. Proactive management
has included isolating the electricity supply to buildings which
are unoccupied, to ensure lighting or heating cannot be left on
accidentally, and working with tenants to minimise electricity
usage out of working hours. Emissions from electricity use
decreased to 404 tonnes of CO2e (2017: 632 tonnes of CO2e).
Our greenhouse gas emission
This statement outlines the greenhouse gas emissions arising
from Harworth’s activities during the financial year ended
31 December 2018. It follows the Environmental Reporting
Guidelines set by the Department for Environment, Food and
Rural Affairs (DEFRA).
Emissions are reported in tonnes of carbon dioxide 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
Scope
Emission Source
1
2
3
TOTALS
Fuel for staff vehicles
Gas oil used in plant
Electricity usage
Tonnes of CO2e
(2017)
254
1,848
632
2,734
Ratio
(2017)
4.8:11
308:12
37.2:13
Tonnes of CO2e
(2018)
241
3,371
404
4,016
Ratio
(2018)
4.2:11
561:12
22.4:13
1 Average employee numbers (2018: 58, 2017: 53).
2 Number of sites where gas oil is used in plant (2018: 7, 2017: 6).
3 Number of business parks that we operate (2018: 18, 2017: 17).
Improving our performance in 2019
Whilst our business continues to grow, typified by an
increased number of staff and Major Developments, we remain
committed to improving our environmental performance on a
per head and per site basis, taking forward the following
principal actions across our portfolio.
Smart working to reduce staff energy consumption
per head
We will continue to implement the smart working programme
where staff plan efficiently to reduce their business miles. We
will encourage employees to use the video conferencing
facilities now installed at our head office and will maintain our
commitment to flexible working across each of our regional
offices.
Effective asset management
Our existing and future sites will continue to be managed
actively to mitigate the environmental impact of our activities.
In particular, we will continue (working with tenants) to seek to
identify means of reducing electricity consumption on our
business park sites.
Managing our own on-site operations effectively
We will continue to use well maintained yellow plant and
periodically review operational techniques to reduce fuel
consumption. In addition – and whilst out of the scope of our
direct fuel usage – we will continue to promote the movement
of discarded materials via any on-site rail connections rather
than add vehicle movements to local road networks.
The Strategic Report was approved by the Board and signed on its behalf by:
Owen Michaelson
Chief Executive
16 April 2019
Corporate Governance
72 Harworth Group plc Annual Report and Financial Statements 2018
Corporate GovernanCe
74 Board of Directors and Company Secretary
76 Chairman’s introduction
79 Statement of Corporate Governance
92 Nomination Committee Report
94 Audit Committee Report
100 Directors’ Remuneration Report
120 Directors’ Report
124 Statement of Directors’ Responsibilities
StrateGIC report
Corporate GovernanCe
FInanCIaL StateMentS
73
Board of Directors and Company Secretary
74 Harworth Group plc Annual Report and Financial Statements 2018
BoarD oF DIreCtorS anD
CoMpanY SeCretarY
Alastair Lyons
Owen Michaelson
Andrew Kirkman
Lisa Clement
Anthony Donnelly
Andrew Cunningham
Ruth Cooke
Angela Bromfield
Steven Underwood
Martyn Bowes
Chris Birch
Chairman
Chief Executive
Finance Director
Senior Independent Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
N R
Term of office
Joined the Board on 7 March
2018. Elected in May 2018. Chair
of the Nomination Committee
Length of service
1 year 1 month
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 2018
Length of service
4 years 1 month (8 years 8
months including appointment to
HEPGL and Harworth Estates
division of UK Coal)
Term of office
Joined the Board on 1 January
2016. Last re-elected in May 2018
R N
Term of office
Joined the Board on
15 December 2011. Last
re-elected in May 2018.
Chair of the Remuneration
Committee and Senior
Independent Director
Length of service
3 years 3 months*
Length of service
7 years 4 months
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 2018
Length of service
4 years 1 month (8 years 3
months including appointment to
HEPGL and Harworth Estates
division of UK Coal)*
Independent
Yes
Independent
No
Independent
No
Independent
Yes
Independent
Yes
Independent
Yes
Independent
Yes
Independent
Yes
Independent
Independent
No, representative of the
No, representative of the
Peel Group
PPF
Skills and experience
Alastair is Non-Executive
Chairman of Welsh Water, Vitality
Health and AECS, Admiral’s
European holding company. He
was Non-Executive Chairman of
the Admiral Group from 2000 to
2017, Deputy Chairman of Bovis
Homes from 2008 to 2018,
Chairman of Serco from 2010 to
2015 and of Towergate Insurance
from 2011 to 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), Vitality Health and the
European subsidiary of the
Admiral Group
Skills and experience
Owen has more than 27 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. Owen is a Non-Executive
Director of Covanta Holding
Corporation, a global provider of
waste management services in
the USA. He is also a Board
member for the Sheffield City
Region Local Enterprise
Partnership and Chair of the
British Property Federation’s
Regional Policy Committee
External appointments
Non-Executive Director of
Covanta Holding Corporation.
Board member for Sheffield City
Region Local Enterprise
Partnership
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
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
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
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
External appointments
None
External appointments
Director of Everything But The
Cow Limited
External appointments
Director of various private limited
companies in the AWG Group
* On 1 April 2019 the Company
announced that Andrew had given
notice of his resignation, which will
take effect on 30 June 2019. Andrew
will not, therefore, seek re-election at
the 2019 Annual General Meeting.
* If re-elected at the 2019 AGM
Anthony will retire from the Board on
30 September 2019
A N
A
R A
Term of office
Term of office
Term of office
Term of office
Term of office
Term of office
Joined the Board on 26
Joined the Board on
Joined the Board on 1 April
Joined the Board on 2
Joined the Board on 24
Appointed on 6 June 2016
April 2016. Last re-elected
19 March 2019
2019
in May 2018. Chair of the
Audit Committee
August 2010. Last
re-elected in May 2018
March 2015 having
previously been a
Group General Counsel
and Company Secretary
Length of service
2 years 11 months
Length of service
Less than 1 month
Length of service
Less than 1 month
Length of service
8 years 8 months
Non-Executive Director of
HEPGL from 19 March
2013. Last re-elected in
May 2018
Length of service
4 years 1 month (6 years 1
month including
appointment to HEPGL)
Skills and experience
Skills and experience
Skills and experience
Skills and experience
Skills and experience
Skills and experience
Andrew trained as a
Ruth was Finance Director
Angela has extensive
Steven is Chief Executive of
Martyn has spent the
Chris trained with
chartered accountant with
(from 2008 to 2012) and
commercial strategy,
the Peel Group of
majority of his career in
Deloitte Haskins and Sells
then Chief Executive (from
marketing and
companies and brings to
banking, most recently
2012 to 2018) of Midland
communications executive
the Board the extensive
from 2001 to 2007 with
(a predecessor firm of
PwC). In 1989 he was
Heart, the housing
made a corporate finance
association group
experience. She was
Strategic Marketing &
experience of the Peel
Barclays Capital as
as a corporate restructuring
Group in brownfield land
Managing Director, Real
and audit partner. In 1996
operating across Central
Communications Director
remediation and
he was appointed Finance
England. Prior to that, she
at Morgan Sindall plc until
regeneration
Director of Grainger plc,
held senior finance and
which was to become the
resourcing roles at
Knightstone, a housing
2013 and prior to that held
senior roles at the Tarmac
Group, Premier Farnell plc
UK’s largest listed
residential investor, and
then Chief Executive in
2009. He retired from
association based in the
and ICI plc. Angela is a
South West, and Anchor
Non-Executive Director at
Trust, a provider of housing
Churchill China plc, where
Grainger plc at the end of
and care to those aged 55
she chairs the
2015. Andrew is a Fellow of
years old and above. Ruth
Remuneration Committee
the Institute of Chartered
has held a number of
Accountants and of the
voluntary and non-
and is a member of the
Audit Committee, and at
Royal Institution of
Chartered Surveyors
business career, which in
June 2016
Estate Finance. Since
leaving Barclays he has
pursued a portfolio
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
Eversheds LLP, where he
qualified as a solicitor in
2005 and spent 12 years
lawyer, before joining
Harworth as Group
General Counsel and
Company Secretary in
executive positions in the
Zotefoams plc, where she
social housing and
chairs the Remuneration
retirement community
Committee and is a
sector. She is an Associate
member of the Audit and
of the Institute of Chartered
Nomination Committees
Accountants and a
Chartered Corporate
Treasurer
External appointments
External appointments
External appointments
External appointments
External appointments
External appointments
Non-Executive Director of
Chair of Connexus Housing
Non-Executive Director of
Alternate Director of Intu
Director of multiple private
None
The Banks Group Limited,
and Member of West
Churchill China plc and
Properties plc. Director of
limited companies in the
Zotefoams plc
multiple private limited
Welbeck Land Group.
Cussins Limited, and
Cussins (North East)
Limited. Commissioner at
The Port of Blyth
Midlands Housing
Association Partnership
companies, mostly
connected to the Peel
Group
Non-Executive Director at
Clouston Group and
Conger Finance Limited
StrateGIC report
Corporate GovernanCe
FInanCIaL StateMentS
75
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
Alastair Lyons
Owen Michaelson
Andrew Kirkman
Lisa Clement
Anthony Donnelly
Andrew Cunningham
Ruth Cooke
Angela Bromfield
Steven Underwood
Martyn Bowes
Chris Birch
Chairman
Chief Executive
Finance Director
Senior Independent Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
N R
Term of office
Term of office
Term of office
R N
Term of office
R A
Term of office
Joined the Board on 7 March
Joined the Board on 24 March
Joined the Board on 1 January
Joined the Board on
2018. Elected in May 2018. Chair
2015 having previously been
2016. Last re-elected in May 2018
15 December 2011. Last
of the Nomination Committee
Chief Executive of HEPGL from
A N
Term of office
Joined the Board on 26
April 2016. Last re-elected
in May 2018. Chair of the
Audit Committee
A
Term of office
Joined the Board on
19 March 2019
R A
Term of office
Joined the Board on 1 April
2019
Term of office
Joined the Board on 2
August 2010. Last
re-elected in May 2018
Length of service
1 year 1 month
Length of service
3 years 3 months*
Length of service
7 years 4 months
Length of service
2 years 11 months
Length of service
Less than 1 month
Length of service
Less than 1 month
Length of service
8 years 8 months
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 2018
Length of service
4 years 1 month (6 years 1
month including
appointment to HEPGL)
Group General Counsel
and Company Secretary
Term of office
Appointed on 6 June 2016
Independent
Yes
Independent
No
Independent
No
Independent
Yes
Independent
Yes
Independent
Yes
Independent
Yes
Independent
Yes
Independent
No, representative of the
Peel Group
Independent
No, representative of the
PPF
Skills and experience
Andrew 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
Skills and experience
Ruth was Finance Director
(from 2008 to 2012) and
then Chief Executive (from
2012 to 2018) of Midland
Heart, the housing
association group
operating across Central
England. Prior to that, she
held senior finance and
resourcing roles at
Knightstone, a housing
association based in the
South West, and Anchor
Trust, a provider of housing
and care to those aged 55
years old and above. Ruth
has held a number of
voluntary and non-
executive positions in the
social housing and
retirement community
sector. She is an Associate
of the Institute of Chartered
Accountants and a
Chartered Corporate
Treasurer
Skills and experience
Angela has extensive
commercial strategy,
marketing and
communications executive
experience. She was
Strategic Marketing &
Communications Director
at Morgan Sindall plc until
2013 and prior to that held
senior roles at the Tarmac
Group, Premier Farnell plc
and ICI plc. Angela is a
Non-Executive Director at
Churchill China plc, where
she chairs the
Remuneration Committee
and is a member of the
Audit Committee, and at
Zotefoams plc, where she
chairs the Remuneration
Committee and is a
member of the Audit and
Nomination Committees
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
Skills and experience
Chris trained with
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
Skills and experience
Martyn 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
External appointments
External appointments
External appointments
External appointments
External appointments
Director of Everything But The
Director of various private limited
Cow Limited
companies in the AWG Group
Chairman of Welsh Water (Dwr
Non-Executive Director of
None
Cymru), Vitality Health and the
Covanta Holding Corporation.
European subsidiary of the
Board member for Sheffield City
Admiral Group
Region Local Enterprise
Partnership
External appointments
Non-Executive Director of
The Banks Group Limited,
Cussins Limited, and
Cussins (North East)
Limited. Commissioner at
The Port of Blyth
External appointments
Chair of Connexus Housing
and Member of West
Midlands Housing
Association Partnership
External appointments
Non-Executive Director of
Churchill China plc and
Zotefoams plc
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
28 September 2012 and of the
Harworth Estates division of UK
Coal since August 2010. Last
re-elected in May 2018
Length of service
4 years 1 month (8 years 8
months including appointment to
HEPGL and Harworth Estates
division of UK Coal)
re-elected in May 2018.
Chair of the Remuneration
Committee and Senior
Independent Director
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 2018
Length of service
4 years 1 month (8 years 3
months including appointment to
HEPGL and Harworth Estates
division of UK Coal)*
Skills and experience
Skills and experience
Skills and experience
Skills and experience
Skills and experience
Alastair is Non-Executive
Owen has more than 27 years’
Prior to joining Harworth, Andrew
Lisa was formerly Chief Financial
After early finance roles with
Chairman of Welsh Water, Vitality
experience in the remediation of
was Finance Director of Viridor,
Officer of Sea Containers Limited,
Scottish and Newcastle
Health and AECS, Admiral’s
brownfield land and has held
the recycling and renewable
Managing Director of Capita
Breweries from 1986, Anthony
European holding company. He
executive roles at the Peel Group,
energy subsidiary of Pennon
Learning and Development and
joined Morrison Homes Limited
was Non-Executive Chairman of
Black Country Properties and
Group plc, for five years. He has
has held senior divisional roles at
as Finance Director in 1990. In
the Admiral Group from 2000 to
Viridor. Prior to becoming the
also previously held a number of
Cendant Inc and BPP Holdings
2000 he was appointed
2017, Deputy Chairman of Bovis
Chief Executive of Harworth
other senior finance roles,
plc
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
Managing Director of
Scotland-based AWG Property
Limited and was subsequently
appointed Chairman. He has
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
Homes from 2008 to 2018,
Group plc, he took over the
Chairman of Serco from 2010 to
stand-alone operations of
2015 and of Towergate Insurance
Harworth Estates at the
from 2011 to 2015. Previously in
commencement of the
his executive career, Alastair was
restructuring of the former UK
Chief Executive of the National
Coal in August 2010. He
Provident Institution and the
established the business as a
National and Provincial Building
recognised developer of
Society, Managing Director of the
brownfield land, before being
Insurance Division of Abbey
National plc and Director of
appointed to the Board of
Harworth Group plc following its
Corporate Projects at National
acquisition of Harworth Estates in
Westminster Bank PLC. He has a
2015. Owen is a Non-Executive
broad base of business
Director of Covanta Holding
experience with a particular focus
Corporation, a global provider of
on mortgage lending and
insurance industries. He was
awarded the CBE in 2001 for
waste management services in
the USA. He is also a Board
member for the Sheffield City
services to social security having
Region Local Enterprise
served as a Non-Executive
Partnership and Chair of the
director of the Department for
British Property Federation’s
Work and Pensions and the
Department of Social Security
Regional Policy Committee
* On 1 April 2019 the Company
announced that Andrew had given
notice of his resignation, which will
take effect on 30 June 2019. Andrew
will not, therefore, seek re-election at
the 2019 Annual General Meeting.
* If re-elected at the 2019 AGM
Anthony will retire from the Board on
30 September 2019
Chairman’s introduction
76 Harworth Group plc Annual Report and Financial Statements 2018
ChaIrMan’S IntroDuCtIon
Dear Shareholder,
On behalf of the Board, I am pleased to present the Company’s
Corporate Governance Report.
The Board is responsible, and accountable to all stakeholders, for
the implementation and maintenance of good corporate
governance. It recognises the importance of good governance as
the foundation of long-term, sustainable growth and success
and, as such, is committed to demonstrating high standards and
continuous improvement.
The Company’s Corporate Governance Report comprises the
Statement of Corporate Governance, the Nomination Committee
Report, the Audit Committee Report, the Directors’ Remuneration
Report (which, this year, includes proposed revisions to the
Company’s Remuneration Policy), the Directors’ Report and the
Statement of Directors’ Responsibilities.
These reports explain the Company’s governance framework and
policies, which are subject to periodic review and refinement.
They focus on the period under review but also reference work
undertaken to ensure the Company’s compliance with the revised
UK Corporate Governance Code (“Code”), which was published
in July 2018.
ln August 2018, the Company’s shares moved from a standard
listing to a premium listing on the London Stock Exchange. As a
premium-listed business, the Company is now obliged to comply
with the Code on a “comply or explain” basis. However, this has
not required a material change to the Company’s corporate
governance framework since, as a standard-listed business, it
aimed to comply with the Code and has reported on compliance
in its last three annual reports. I am, therefore, able to report that,
save as explained in the Statement of Corporate Governance on
page 79, the Company has complied with the 2016 Code for the
period under review. The revised 2018 Code applies to the
Company’s current accounting period, which commenced on
1 January 2019. Where necessary, changes have been or are
being made to the Company’s policies and procedures to ensure
compliance with the 2018 Code. Some of these changes are
explained in this Corporate Governance Report. As an indication
that the Board is already focussed on compliance with the 2018
Code, this introduction and the Statement of Corporate
Governance adopt the headings it adopts.
Board Leadership and Company Purpose
The Company has a clear purpose: to create sustainable new
communities for people to live, work and play, and aims to be the
leading land and property regeneration specialist in the North of
England and Midlands. The Board and the wider Harworth team
are rightly proud of the positive impact the Company’s activities
have on the communities within, and alongside which, it operates.
This includes the supply of much needed housing, the
establishment of advanced manufacturing and logistics hubs
and, in some cases, the creation of new communities, typically on
redundant, former industrial land.
In pursuing this purpose, the Company aims to generate for its
shareholders a 10% average total return per annum, through the
property cycle. To achieve that we set ourselves stretching
strategic and financial objectives but with the foundations of: a
The Company has a clear purpose: to
create sustainable new communities
for people to live, work and play. We
are rightly proud of the positive impact
the Company’s activities have on the
communities within, and alongside which,
it operates.
aLaStaIr LYonS – ChaIrMan
StrateGIC report
Corporate GovernanCe
FInanCIaL StateMentS
77
strong balance sheet; a resilient, recurring income stream; and a
robust governance framework.
In September the Board and executive team undertook the
annual review of the Group’s strategy and in December the Board
approved the latest five-year strategic plan for the business. The
annual review re-affirmed the fundamentals of the Group’s
long-term strategy, which are reflected in the Strategic Report on
pages 4 and 5. Clearly, the Company is not immune to the
turbulent macro-economic and political climate which subsists
currently and which may affect one or more of the markets in
which the Company operates. Against that backdrop, the
Company’s strategic plan will remain subject to regular review by
the executive team and the Board over the coming months.
However, we believe the medium-term outlook for the business
remains positive, given: the ongoing and forecast performance of
the Company’s core markets in the North of England and
Midlands; the continued shortage of housing; the fundamentals
underpinning the manufacturing and logistics markets; and the
largely supportive backdrop of national and local Government
policy and sentiment.
The Board recognises that a clear purpose and robust strategy
must be supported by a strong, positive culture within the
business. The Board is confident that this already exists but is
keen for that culture to be well defined so that it can be preserved
and promoted, as we grow and make changes to our operational
design, such as the establishment of a regional structure in 2018.
To this end, during 2019 our Head of HR and Organisation
Development is working with representatives from across the
business to formalise and define the Company’s core values
and culture.
A good deal of work has been undertaken over the last
12 months to: identify the Company’s principal stakeholders;
review how the Board and wider business engages with those
stakeholders; and formalise the way in which stakeholder
interests form part of the Board’s discussions and decision-
making process. This work is outlined in the Corporate, Social
and Environmental Responsibility section of the Strategic Report
on pages 48 to 71. I would particularly mention the steps we have
taken to improve engagement with employees as detailed in the
Our People section of the Strategic Report on pages 50 to 55.
Division of Responsibilities
The revised Code provides that at least half of the Board,
excluding the chair, should be independent Non-Executive
Directors and no longer includes an exception for smaller
companies. When the Code was published in July 2018 we
recognised that the composition of our Board would not be
compliant with the revised Code because Steven Underwood
and Martyn Bowes, who are representatives of our largest
shareholders, the Peel Group and the Pension Protection Fund,
respectively, are not independent. We have addressed that
deficiency with the appointment of an additional independent
Non-Executive Director, alongside a further appointment as part
of our Board succession planning, as detailed below.
During 2018, as part of our preparatory work for the Company’s
step-up to the premium list, we established a Disclosure
Committee comprising the Chief Executive, Finance Director and
Group General Counsel and Company Secretary, which will liaise
closely with myself as Chairman. This formalises what was
already a robust review and decision-making process in respect
of the Company’s disclosure obligations. The terms of reference
for our other Committees will also be reviewed and updated
shortly to ensure alignment with the revised Code.
At an operational level, in conjunction with the regionalisation of
the business, changes have been made to the structure and
composition of the senior management team, with an Investment
Committee and a Management Board replacing the Executive
Committee. The new structure is set out on pages 80 and 85 of
the Statement of Corporate Governance. The Company’s
Delegated Authorities Policy has been updated, both to reflect
these changes to the senior management team and as part of
our programme of continuous review and improvement.
Composition, Succession and Evaluation
Succession planning for the Board and Investment Committee
remains a fundamental part of the Board’s role on which the
Nomination Committee takes the lead.
My appointment, as successor to Jonson Cox, took effect on
7 March 2018 immediately after the announcement of the
Company’s 2017 preliminary results. 2018 was another busy year
for the Committee, culminating in the appointments announced,
alongside the preliminary results, of two new Non-Executive
Directors, Ruth Cooke and Angela Bromfield.
These appointments both ensure that the composition of the
Board is compliant with the 2018 Code and provide succession
for Tony Donnelly, whose tenure at Harworth is approaching nine
years, reflecting the Company’s practice of seeking to recruit for
succession ahead of time. Whilst, therefore, Tony is seeking
re-election at the 2019 AGM he will step down from the Board at
the end of September after the announcement of the Company’s
interim results for the 2019 financial year. I would like to put on
record my sincere thanks to Tony for the significant contribution
he has made over his long tenure to the transformation of the
business from the property division of a mining business into the
well-established and respected listed property regeneration
business it is today.
As regards our new appointments, Angela Bromfield will join both
the Remuneration and Audit Committees whilst Ruth Cooke will
join the Audit Committee. This enables Steven Underwood to
step down from both Committees such that membership of those
Committees will now comprise only independent Non-Executive
Directors, in compliance with the Code. I thank Steven for his
valuable contribution to the work of both Committees during his
tenure. The Nomination Committee Report (pages 92 and 93)
includes a detailed report on the process undertaken to recruit
Angela and Ruth.
On 1 April 2019 the Company announced that Andrew Kirkman
had notified the Board of his resignation, which will take effect on
30 June 2019. The Board has commenced a process to recruit
Andrew’s replacement. The Nomination Report (page 93)
includes more information about that process.
Improving diversity at all levels of the business continues to be an
important objective for the Board and executive team. With the
appointment of Angela and Ruth, we have made good progress
in improving diversity on the Board but we will not stop there and
Chairman’s introduction
78 Harworth Group plc Annual Report and Financial Statements 2018
ChaIrMan’S IntroDuCtIon
Remuneration
It has also been a busy period for our Remuneration Committee.
In anticipation of the three-yearly review of our Remuneration
Policy (“Policy”), the Committee undertook a tender process for
the role of remuneration consultants. Four firms participated in
that process, culminating in the appointment of Deloitte. With
assistance from Deloitte, the Committee (and wider Board) has
undertaken a detailed review of our Policy. A revised Policy will be
tabled for approval at this year’s AGM and appears at pages 103
to 111. Following extensive engagement with a number of our
largest shareholders, ISS, Glass Lewis and IVIS, we are
proposing the adoption of a Restricted Share Plan, which we feel
better aligns with the very long-term and through the cycle nature
of the business, in place of our existing Long-Term Incentive
Scheme. A detailed explanation of the rationale for the proposed
changes to the Remuneration Policy appears in Lisa Clement’s
introduction to the Directors’ Remuneration Report (pages 100 to
103).
Annual General Meeting
Our Annual General Meeting will be held at 2.00 p.m. on Tuesday
21 May 2019 at The Bessemer Conference Room, AMP
Technology Centre, Advanced Manufacturing Park, Brunel Way,
Waverley, Rotherham, S60 5WG. I encourage all shareholders to
attend and look forward to welcoming them there.
Alastair Lyons
Chairman
16 April 2019
we are very conscious that hard work remains to improve
diversity amongst the senior management team and throughout
the business. The Our People section of the Strategic Report
(pages 50 to 55) outlines the steps we are continuing to take in
this regard.
In the fourth quarter of 2018 an external Board evaluation was
undertaken by an experienced independent Board assessor, Ian
White. Whilst it was pleasing to see the positive feedback from
that evaluation and its conclusion that we have an effective Board
there is always room for improvement and action points have
been agreed to implement Ian White’s recommendations. A
summary of the evaluation process and the recommendations
can be found on pages 88 to 90 of the Statement of Corporate
Governance.
We continue to adopt best practice of submitting all Directors for
election or re-election at the Annual General Meeting.
Audit, Risk and Internal Control
We have maintained a strong focus on risk management and
internal controls during this past year. The Audit Committee has
overseen: the implementation of all the recommendations from
the external review of internal financial controls towards the end of
2017; the financial position and prospects procedures (FPPP)
external review undertaken in support of the Company’s step-up
to the premium list and the implementation of all the resulting
recommendations; an external review of the Group’s cyber-
security and an external, strategic review of our information
security; and the Company’s preparations for the implementation
of the GDPR. The support of our advisers and consultants on all
these workstreams has been invaluable. The Audit Committee
Report on pages 94 to 98 contains further details on all of these
reviews.
The Board is acutely aware that sustained growth and the
introduction of a regional structure bear the risk of divergent and
inconsistent practices across the business and reduced visibility
for the executive team. Whilst Harworth is, and will remain, an
entrepreneurial business at heart, the Board and executive team
recognise the need for a framework of processes and controls,
and a reporting regime, which ensures that the business operates
in a controlled and, where appropriate, consistent manner across
the regions, and that the executive team retains the necessary
level of visibility on operations. This will mitigate risks and drive
efficiencies, whilst enabling a consistent approach to the
evaluation of new investment opportunities. To this end, our
Group General Counsel and Company Secretary is leading an
exercise to review all business workstreams to identify those that
are already, and those that should be, standardised to ensure
consistency, where appropriate, across the regions.
Statement of Corporate Governance
StrateGIC report
Corporate GovernanCe
FInanCIaL StateMentS
79
StateMent oF Corporate GovernanCe
1. COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE
During the period under review, the 2016 Code applied to all companies with a listing on the premium segment of the Official List. It is
publicly available on the website of the Financial Reporting Council. The Company was listed on the standard segment of the Official
List up to and including 31 July 2018 but still applied the main and supporting principles of the 2016 Code. The Company stepped up
to the premium segment on 1 August 2018 from which point it became obliged to comply with the 2016 Code. The Company
complied with the provisions of the 2016 Code throughout the year ended 31 December 2018, save in the following respects:
• The Audit Committee comprised two independent Non-Executive Directors (Andrew Cunningham and Anthony Donnelly) and
one non-independent Non-Executive Director (Steven Underwood). The Remuneration Committee comprised two independent
Non-Executive Directors (Lisa Clement and Anthony Donnelly), the Chairman (Jonson Cox until 6 March 2018 and then Alastair
Lyons from 7 March 2018) and one non-independent Non-Executive Director (Steven Underwood). Following the appointment
of Ruth Cooke, who has joined the Audit Committees, and Angela Bromfield, who has joined the Audit and Remuneration
Committees, Steven Underwood has stepped down from both Committees and, as such, at the date of this Report, the
composition of both Committees is compliant with the 2018 Code, which has superseded the 2016 Code.
• Given that Jonson Cox retired as Chairman, and was succeeded by Alastair Lyons, in March 2018, the Non-Executive Directors
did not meet during 2018 to appraise the performance of the former or current Chairman, but an appraisal of the new
Chairman’s performance has been undertaken in the first quarter of 2019.
The 2018 Code applies to the Company from 1 January 2019.
2. BOARD LEADERSHIP AND COMPANY PURPOSE
The clarity of Harworth’s purpose and vision is critical to its success. It informs our strategy and is the objective which motivates our
team.
purpoSe and vISIon
reSourCeS
CuLture
BuSIneSS MoDeL
StrateGY
Strategy
The Board engages in a robust process annually to review and approve the Group’s strategy. The Board and executive team
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, to implement the strategy over the next five years, is prepared
by the executive team and presented to the Board in November each year. The Board provides comment and challenge and,
ultimately, approves the plan subject to whatever consequent amendments are considered appropriate. The performance of the
business is then assessed by the Board throughout the year against the approved budget and strategic plan, the Board satisfying itself
as to the adequacy of management response to variations in performance against plan. The Chief Executive gives an operational
update at each Board meeting with periodic assessment of performance against strategic objectives. The strategic plan has been, and
is expected to continue to be, subject to particularly close and regular scrutiny by the executive team and Board during the course of
2019, given the turbulent political and economic backdrop resulting from the UK’s ongoing negotiations to exit the European Union.
Statement of Corporate Governance
continued
80 Harworth Group plc Annual Report and Financial Statements 2018
StateMent oF Corporate GovernanCe
continued
Communication with Shareholders
The Board places great emphasis on open and regular communications with shareholders. The Company benefits from there being
representatives of its two largest shareholders on the Board. They provide ongoing shareholder feedback and perspective on key
strategic decisions. The Chief Executive and Finance Director meet and present to large new investors, existing institutional
shareholders and analysts after the publication of the Company’s preliminary and interim results. Following his appointment in March,
the Chairman has had introductory meetings with the Company’s two largest shareholders and a number of the Company’s other
institutional shareholders, and he will continue to have regular meetings with shareholders. The Chairman of the Remuneration
Committee, who is also the Senior Independent Director, has held a series of meetings with, and spoken to, certain of the Company’s
largest shareholders as part of the Company’s engagement on the proposed revisions to its Remuneration Policy. Both the Chairman
and Senior Independent Director are available to meet with the shareholders to discuss governance and strategy. The Company
Secretary is also available and deals with shareholder queries throughout the year.
In June 2018, the Company also hosted an update briefing and accompanying site visits for institutional shareholders and analysts and
a similar event is planned for June this year.
The Board regularly receives feedback from the Company’s brokers and the Executive Directors on the views of existing and
prospective 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 has a planned programme of announcements throughout the year, prepared by our Head of Communications and
Investor Relations, with support from FTI Consultancy, and reviewed by the Board, to ensure that investors remain updated regularly
on progress in the business. The annual and interim reports, together with the www.harworthgroup.com website, are the Company’s
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 AGM.
The Board recognises the importance of engagement by the Company with its stakeholders. The Corporate, Social and Environmental
Responsibility section of the Strategic Report, on pages 48 to 71, identifies the Company’s principal stakeholders and explains how the
Company engages with them and how the Board considers stakeholder interests when making decisions. During 2018 the Board has,
in particular, reviewed how it can improve engagement with employees and the output from that review is referenced in the Our People
section of the Strategic Report on pages 50 to 55.
3. DIVISION OF RESPONSIBILITIES
noMInatIon
CoMMIttee
Ceo
FD
auDIt
CoMMIttee
DISCLoSure
CoMMIttee
reMuneratIon
CoMMIttee
MANAGEMENT BOARDINVESTMENT COMMITTEEBOARD StrateGIC report
Corporate GovernanCe
FInanCIaL StateMentS
81
Role of the Board
The Company’s governance structure is headed by a Board of Directors. Its key responsibilities are summarised in the table below.
The Group’s delegated authorities policy, including matters reserved for the Board, was subject to a detailed review and updated in
November 2018. Examples of Board reserved matters are also set out in the table below.
Key responsibilities
Examples of reserved matters
• Establish the Company’s purpose and strategy.
• Group strategy and budgets.
•
•
•
•
•
•
Stewardship of the Group’s resources and overall
responsibility for management of the Group to ensure
long-term and sustainable viability, and growth, of the
business.
Provide constructive challenge to management proposals
and activity.
Measure management performance against strategy and
targets.
Determine risk appetite and review risk profile and
management.
Promote a culture aligned to the Company’s purpose and
strategy and measure how embedded it is in the business.
Ensure appropriate engagement with stakeholders and
consideration of stakeholder interests in decision-making.
• Constitution, and corporate and capital structure, of the
Group.
• Annual report and financial statements, and the declaration
of dividends.
• The Group’s principal banking facilities and hedging
arrangements.
• Material sales, lettings, acquisitions and joint ventures.
• Risk appetite and insurance programme.
• Appointment of Non-Executive Directors, Executive
Directors and Company Secretary.
• Policies relating to whistleblowing, anti-bribery, data
protection, anti-facilitation of tax evasion, prevention of
modern slavery and business continuity.
The Board has delegated certain responsibilities to the Remuneration, Audit, Nomination and Disclosure Committees. The terms of
reference of those committees can be found on the Group’s website at www.harworthgroup.com/investors/governance. The terms of
reference for the Nomination, Audit and Remuneration Committees will be updated during 2019 to align with the 2018 Code.
The Board adds value through constructive dialogue with, and challenge to, the Executive Directors and wider executive team to
create accountability and drive performance. To that end, all Non-Executive Directors must have a good knowledge of Harworth’s
business and the markets in which it operates. The Board timetable includes site visits, which help to improve knowledge and
understanding of key sites and, at the same time, are an opportunity for Non-Executive Directors to get to know better the operational
teams driving growth from the portfolio. The Board also receives detailed updates from each of the regional teams and the Income
Generation division on a bi-annual basis. These updates focus on progress towards strategic objectives, typically covering: markets;
activity by competitors; relationships with stakeholders and business partners; development of capabilities and resources; and the
portfolio of projects needed to achieve those objectives. Board papers include a monthly report from our EES division on all health,
safety and environmental matters and compliance, together with an annual update, in person, from the head of EES.
Statement of Corporate Governance
continued
82 Harworth Group plc Annual Report and Financial Statements 2018
StateMent oF Corporate GovernanCe
continued
Role/Committee
Chairman
Alastair Lyons
Chief Executive
Owen Michaelson
Finance Director
Andrew Kirkman
Key responsibilities
•
Leads the Board and is responsible for its overall effectiveness in directing the Company by facilitating a
culture of openness and debate
• Ensures that the company has a clear strategy and objectives, and that the Board receives regular
transparent reporting as to the Company’s progress in achieving its objectives
• Facilitates a constructive relationship between the Non-Executive Directors and the executive team
• Ensures that a fixed schedule of matters is maintained for the Board’s review and approval
• With support from the Company Secretary, sets the annual Board programme and Board meeting agendas,
ensures that directors receive accurate, timely and clear information, and that there is adequate time
available for discussion of agenda items and an effective decision-making process in place
• 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
• With support from the Company Secretary, ensures that the effectiveness of the Board is subject to regular
review including by an external evaluator on a periodic basis
• Leads the establishment and maintenance of an appropriate culture for the Group
• Responsible for the design of the Company’s organisation and the appointment of appropriately skilled and
experienced individuals to the resulting management structure
• Leads on the formulation of strategy which, once agreed by the Board, falls to him to implement
• Responsible for all operational matters within the parameters of the authorities delegated by the Board
• Leads and chairs the Investment Committee and Management Board
• Responsible for maintaining the Group’s risk profile within the risk appetite determined by the Board,
including health and safety and environmental policies, procedures and matters
• Ensures that the Board is appraised of all material matters
• Responsible for the Group’s profile with shareholders and for engaging appropriately and effectively with the
Group’s key stakeholders
• Responsible for formulation and implementation of the People Strategy and for effective internal
communication
• 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 and debt capital
• Leads on investor relations and responsible for designing the communication of the Group’s performance to
investors and external stakeholders
• Reviews the financial analysis of all major transactions including acquisitions, sales and capital investments
• Leads on M&A and portfolio acquisitions
• Responsible for ensuring clear, effective, and timely measurement and reporting of commercial and financial
key performance indicators to support Board and management decision-making
• Responsible for insurance, in conjunction with the Company Secretary, and pensions
• Responsible for internal financial controls, systems and processes, in conjunction with the Company
Secretary
Senior Independent Director
Lisa Clement
• Provides a sounding board for the Chairman
• Acts as an intermediary with the Chairman 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 based on a proposal by the Chief Executive, agree strategic
Lisa Clement
Anthony Donnelly
Andrew Cunningham
Ruth Cooke
Angela Bromfield
Steven Underwood
Martyn Bowes
objectives and implementation plan
• 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 commercial and financial key performance indicators and other information
• Help to formulate the Group’s risk appetite and monitor the Group’s risk profile and risk management
framework
• Available for meetings if requested by major shareholders
StrateGIC report
Corporate GovernanCe
FInanCIaL StateMentS
83
Role/Committee
Key responsibilities
Remuneration Committee
Lisa Clement (chair)
Anthony Donnelly
Alastair Lyons
Steven Underwood
(until 1 April 2019)
Angela Bromfield
(from 1 April 2019)
Nomination Committee
Alastair Lyons (chair)
Lisa Clement
Andrew Cunningham
Audit Committee
Andrew Cunningham (chair)
Anthony Donnelly
Steven Underwood
(until 1 April 2019)
Ruth Cooke
(from 19 March 2019)
Angela Bromfield
(from 1 April 2019)
Disclosure Committee
Andrew Kirkman (chair)
Owen Michaelson
Chris Birch
Group General Counsel and
Company Secretary
Chris Birch
• Determines and agrees with the Board the Company’s remuneration policy for the 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 Investment Committee
• Reviews the remuneration approach adopted for all employees
• Will approve grant of options for Save-As-You-Earn Scheme and Share Incentive Plan, if both are approved
by shareholders at the AGM
• Carries out an annual review of benefits available to all Group employees
• Responsible for changes to certain Group-wide employment policies
• 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 regular (at least annually) review of succession planning for the Board and members of the
Investment Committee
Leads on promoting and assessing the achievement of diversity across the business, particularly on the
Board and at a senior management level
•
•
• Considers and makes recommendations to the Board on its composition, balance and membership and on
the proposal 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 chair.
This process will be led by the Senior Independent Director (as it was in 2017)
•
Reviews the integrity of the Company’s annual report, 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 controls and processes
• 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 tender process for the appointment of external auditors, if applicable
• 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 Group’s ongoing compliance with the GDPR
• Reviews the adequacy of the Group’s cyber-security measures, information security and business continuity
plans and procedures
• Reviews the Group’s whistleblowing procedures and the appropriate investigation of cases referred through
the process
•
•
Ensures a robust review and decision-making process in respect of the Company’s disclosure obligations
under the Market Abuse Regulation and the FCA’s Listing Rules and Disclosure Guidance and Transparency
Rules
Liaises closely with the Chairman
• Secretary to the Board and its committees and to the Investment Committee and Management Board
• 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 governance, both at Board and operational levels, including internal controls, systems and
processes
• Responsible for insurance, in conjunction with the Finance Director, and risk
•
Responsible for GDPR compliance
• Responsible for cyber-security, information security and business continuity planning and procedures
• Manages the Estates Environment and Safety (“EES”) team
84 Harworth Group plc Annual Report and Financial Statements 2018
StateMent oF Corporate GovernanCe
continued
Board activities in 2018
The activities of the Board during the year ended 31 December 2018 included (operational approvals not listed):
Month
January
February
March
April
May
June
July
September
October
November
December
Activities
Acquisitions operational update
Annual update from Associate Director of EES
FYE 2017 preliminary review of investor messages
Share price and share register analysis
FYE 2017 preliminary results and final dividend
Application to step-up to premium list: preliminary approval
Annual employee survey results
Income Generation operational update
Funding options: debt and equity
People Steering Group
FYE 2017 Annual Report and Accounts
Share price and share register analysis
Capital Growth operational update
Land Value Capture
Extension of revolving credit facility
Investor feedback from preliminary results roadshow
Feedback from internal Board evaluation
Application to step-up to premium list: update
Infrastructure funding update
Annual General Meeting
Application to step-up to premium list: final approval
Reforecast
Move to regional structure
GDPR update
Share price and share register analysis
Feedback from investor and analyst site visits
People Steering Group
Modern slavery statement
Acquisitions operational update
FYE 2018 interim results: preliminary review
FYE 2018 interim results: final sign-off
Strategy Day
Infrastructure funding update
Annual stakeholders review
People Steering Group
Budget and strategic plan: draft
Internal controls and processes, business continuity, cyber
security and information security
2019 investor relations timetable
Briefing on Letwin review
Budget and strategic plan: approval
Talent management and succession planning
People Steering Group
Feedback from external Board evaluation
Strategy
Delivery
Risk and
governance
Finance
Stakeholders
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StrateGIC report
Corporate GovernanCe
FInanCIaL StateMentS
85
Role of the Investment Committee and Management Board
The Chief Executive has responsibility for proposing and then implementing the Group’s strategy and leading the day-to-day
management of the Group’s business, with the agreement of the Board on reserved matters. The Chief Executive appoints the
Investment Committee and Management Board to support him in this regard. The Investment Committee assists in the development
of the Group’s strategy and implementation plans, and provides peer review and scrutiny of material capital deployments (such as
acquisitions and investment in site infrastructure) and matters of strategic importance. The Management Board provides leadership of
the distinct elements of the management structure and, so as not to overburden the Investment Committee, undertakes peer review
and scrutiny of other material transactions, such as sales and significant lettings.
The composition of the Investment Committee and Management Board are as follows:
Investment Committee
Chief Executive
Finance Director
Management Board
All members of the Investment Committee
Regional Director – North East
Executive Director – Income Generation
Financial Controller
Executive Director – Central Functions
Associate Director, Estates Environment and Safety
Regional Director – Yorkshire and Central Region
Head of HR and Operational Development
Regional Director – North West
Regional Director – Midlands
Associate Director, Business Space
Associate Director, Natural Resources
Group General Counsel and Company Secretary (secretary to
the Committee)
References in this report to the executive team are to the Investment Committee. References to the senior management team are to
the Management Board.
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.
External appointments, conflicts of interest and
time commitment
Upon appointment, each Director is required to notify the
Company of their 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 Board, with advice from the Company
Secretary, considers the time commitment of such appointment
and whether it 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 or 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 as a result arise.
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 an Executive Director of certain Peel
Group companies, one or more of which may deal with Harworth
at an operational level from time to time. During the period under
review the Group completed two material transactions with Peel
Environmental Limited. The Board deliberations on those
transactions took place ahead of the 2017 AGM, at which they
were approved by shareholders. Steven Underwood did not
receive Board papers on, 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 a Non-Executive Director
of The Banks Group Limited and the fact that Harworth Estates
Limited has a joint venture with Banks Property Limited for the
remediation, promotion and sale of land at the former Bates
Colliery in Blyth. During 2018 Harworth acquired a site at Moss
Nook in St Helens from the Banks Group. This represented an
actual conflict of interest for Andrew and, as such, he did not
have sight of any Board papers, and was not party to any Board
discussions or decision-making, on this matter.
Andrew 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.
Owen Michaelson is a member of the Board of the Sheffield City
Region Local Enterprise Partnership. No conflicts arose as a
result of this appointment during 2018.
During 2018, the Board approved Owen’s appointment as a Non-
Executive Director of Covanta Holding Corporation, a global
operator of energy from waste and waste management facilities,
headquartered in the United States. The Board was satisfied that
such appointment would not compromise Owen’s time
commitment to Harworth and gives rise to no more than a low
risk of a future conflict of interest.
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 Committee meetings,
attendance at the AGM, 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.
86 Harworth Group plc Annual Report and Financial Statements 2018
StateMent oF Corporate GovernanCe
continued
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. Alastair Lyons undertook an extensive induction prior to his appointment in March 2018 and both
Angela Bromfield and Ruth Cooke are undertaking a similar programme.
In terms of CPD: Board packs include external CPD briefings for Directors, with a short synopsis prepared by the Company Secretary;
the Company Secretary provides written and verbal updates to the Board and its Committees, as appropriate, on governance and
regulatory changes; and external advisers host CPD workshops for the Board, Remuneration Committee and Audit Committee
annually. DLA Piper UK LLP (“DLA”) hosted a full Board workshop in October, focussing on the changes introduced by the 2018 Code.
Kepler Associates hosted a Remuneration Committee workshop in July on remuneration trends and developments in remuneration
governance, ahead of the planned review of the Company’s Remuneration Policy. PwC hosted an Audit Committee workshop in
September on audit governance trends and recent changes to accounting standards. Detailed briefings were also given to the full
Board by both DLA and Canaccord Genuity on the obligations of directors of a premium listed company, ahead of the Company’s
step-up to the premium list in August.
All Directors have access to the advice and services of the Company Secretary.
Attendance at board meetings
There were 11 regular Board meetings scheduled during 2018 and one additional meeting held by conference call in August (to
consider specific operational items). Attendance by individual Directors at Board meetings is shown in the table opposite. There were
also Board calls to sign-off the Company’s 2017 preliminary results and 2018 interim results, site visits and a strategy review day offsite
during the year.
Number of meetings attended
Attendance
Jonson Cox
Alastair Lyons
Owen Michaelson
Andrew Kirkman
Lisa Clement
Anthony Donnelly
Steven Underwood
Martyn Bowes
Andrew Cunningham
2/3
10/10
12/12
12/12
12/12
12/12
9/12
12/12
11/12
66%
100%
100%
100%
100%
100%
75%
100%
92%
Jonson Cox stepped down as Chairman on 6 March 2018 but resigned as a director on 31 March 2018. He did not attend the March
Board meeting.
Steven Underwood was unable to attend three Board meetings during 2018 because of prior commitments in his capacity as Chief
Executive of the Peel Group.
Andrew Cunningham was unable to attend a specially convened Board meeting in August but attended all scheduled meetings.
In the lead up to submission of the Company’s application to have its shares moved from the standard segment to the premium
segment of the Official List, authority was delegated to a sub-committee to approve final submission of the application. The sub-
committee comprised Alastair Lyons, Owen Michaelson, Andrew Kirkman and Andrew Cunningham and met once in May. All
sub-committee members were present.
Board and Committee papers are circulated not less than one full week prior to each meeting and are supplemented by reports and
presentations, as appropriate. The papers include monthly reports from the Chief Executive, Finance Director (including monthly
financial and operational management information to enable the Board to monitor performance against the approved budget and
strategic plan) and Company Secretary.
The Company Secretary maintains “Action Schedules” for the Board and each 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 Committee (as appropriate) and then, at the following Board or Committee meeting, the wider Board or Committee (as
appropriate).
StrateGIC report
Corporate GovernanCe
FInanCIaL StateMentS
87
4. COMPOSITION, SUCCESSION AND EVALUATION
The Board comprises the Chairman, Chief Executive, Finance Director and, at the date of this report, seven Non-Executive Directors
although Anthony Donnelly will retire at the end of September (see further below). The Directors’ biographies appear on pages 74
and 75.
Composition of the Board and succession
ChaIrMan
(InDepenDent)
eXeCutIve
DIreCtorS
(2)
*Note, Tony Donnelly will retire at the end of September.
non-InDepenDent
non-eXeCutIve
DIreCtorS
(2)
The Board considers that its Non-Executive Directors bring the requisite balance of skills, experience and knowledge 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 section of the Directors’ Remuneration Report at page 119.
The composition of the Board is reviewed regularly by the Nomination Committee to ensure an effective balance. This is
demonstrated by the work undertaken by the Committee in 2017, resulting in the appointment of Alastair Lyons as Chairman, in
succession to Jonson Cox, and in 2018, culminating in the appointment of two new Non-Executive Directors, Angela Bromfield and
Ruth Cooke. These appointments address Non-Executive Director succession and ensure that there are an appropriate number of
independent directors on the Board. The process undertaken to make these latest appointments is explained in the Nomination
Committee report on pages 93.
Following the Company’s announcement on 1 April 2019 that Andrew Kirkman had notified the Board of his resignation, which will
take effect on 30 June 2019, the Board has commenced a process to recruit his replacement. Further information on that process
appears in the Nomination Committee Report on page 93.
Independence
The 2018 Code recommends that at least half of the Board, excluding the Chair, be independent.
During the year under review, the now former Chairman (Jonson Cox), who had previously held the role as an executive of the
Company prior to the restructuring of the former UK Coal in 2012, was not considered independent. He 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 Alastair Lyons is independent.
The Board also considers that Lisa Clement, Anthony Donnelly and Andrew Cunningham are independent. So too are Angela
Bromfield and Ruth Cooke, who did not serve as directors during the period under review but were appointed prior to publication of
this Report.
The Board recognises that Steven Underwood, who is a Director and representative of the Peel Group, which is a 26% 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.
Following the appointments of Angela Bromfield and Ruth Cooke and the anticipated retirement of Anthony Donnelly in September
2019, there will be four independent and four non-independent directors on the Board, together with the Chairman, who is also
independent. The Board considers this balance to be appropriate and it is compliant with the 2018 Code.
INDEPENDENT NON-EXECUTIVE DIRECTORS(5)* 88 Harworth Group plc Annual Report and Financial Statements 2018
StateMent oF Corporate GovernanCe
continued
Tenure
Number of years
1
2
3
4
5
6
7
8
9
10
Alastair Lyons
1 yr 1 mnth
Owen Michaelson
8 yrs 8 mnths
Andrew Kirkman
3 yrs 3 mnths
Lisa Clement
Anthony Donnelly
7 yrs 4 mnths
8 yrs 3 mnths
Andrew Cunningham
2 yrs 11 mnths
Ruth Cooke
Less than 1 mnth
Angela Bromfield
Less than 1 mnth
Steven Underwood
Martyn Bowes
Board diversity
8 yrs 8 mnths
6 yrs 1 mnth
The Board recognises the benefit of having a diverse (in its widest sense) range of individuals on the Board and in senior executive and
management positions. The appointments of two new female directors to the Board represent positive progress in this regard.
However, the Board is also mindful that the two external appointments to the Investment Committee during 2018 were of white males,
notwithstanding work undertaken with our recruitment consultants to promote diverse longlists for both roles. That said, there has
been more gender diversity across the candidates we have recruited for new roles in our regional operating structure.
The Board has not, and will not, set 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, not just at a senior level, and Harworth is committed to opening up opportunities to apply for,
and be appointed to, the new and replacement roles for which we recruit. As the business continues to grow, Harworth will ensure that
there are adequate measures in place to support everyone’s progress and development within the organisation. Further information on
the Group’s diversity policy, which was updated during 2018, and initiatives, together with a summary of progress made on diversity
during 2018, appears in the “Our People” section of this report on pages 51 to 53.
Evaluation
Since the Company’s re-listing in 2015, two internal Board evaluations have been undertaken, led by the Chairman (then being Jonson
Cox) and the Company Secretary. The Company aspires to membership of the FTSE 250 and, as such, the Board considers it good
practice to carry out an externally facilitated Board evaluation at least every three years. In 2018 an external evaluation process was led
by Ian White. Ian is an independent external consultant with experience of evaluating and making recommendations to improve Board
effectiveness of listed companies. Other than doing some consultancy work for a small company within the Equiniti group, the
Company’s Registrars, Ian White has no other connection with the Group. The objectives of the evaluation were: to provide an
assessment of the effectiveness of the Board; make recommendations to improve the Board process; and establish a clear set of
actions and objectives for the Board to prioritise and focus on in 2019 and beyond.
StrateGIC report
Corporate GovernanCe
FInanCIaL StateMentS
89
Board Evaluation Cycle
2018
externally
Facilitated
review
(next in 2021)
2019
Internal
review
2020
Internal
review
A comprehensive questionnaire was circulated for completion by all Directors and members of the formerly constituted Executive
Committee. The questionnaire considered:
•
•
•
the composition of the Board, including the balance of skills, knowledge and experience on the Board;
the role of the Board, including its engagement with the business and key stakeholders;
the strategy of the business and the Board’s role in setting the same;
• Board dynamics and culture (of the Board and wider business), including the relationship between Non-Executive Directors and
the executive team;
induction and personal development of Directors;
the management of Board and Committee meetings, including papers and presentations;
the Board’s oversight of risk management; and
leadership and succession planning, including the effectiveness of the new Chairman.
•
•
•
•
Ian then held interviews with each respondent to the questionnaire, and meetings with members of the People Steering Group (as to
which see the “Our People” section of the Strategic Report on page 50) and the Company’s auditors. He also attended two Board
meetings, a Remuneration Committee meeting and an Audit Committee meeting.
The results of the review were presented by Ian to the Board in December 2018. Overall, the review found that the Company has an
effective Board and one which is continuously improving. It highlighted the following characteristics:
• a talented group of competent individuals who have led Harworth through a very successful phase;
• a good range of skills around the Boardroom covering the main areas the Company needs in its leadership;
• generally effective Board dynamics where there are no cliques;
• openness and respect around the Boardroom where everyone has an opportunity to be heard;
• a forum where there is constructive challenge, debate on major issues and good decision making;
• a collegiate and values focused culture;
• Non-Executive Directors who make the appropriate commitment to the Board, its processes and success;
• Board and Committee information which is, in the main, of high quality and improving;
• good management of Board meetings and processes;
• a clear sense of delivering and communicating Harworth’s strategy;
• a Board which recognises the value in the work Harworth does in regenerating industrial areas, improving the environment and
creating work opportunities; and
• a group of Directors who want to do the best for the Group.
90 Harworth Group plc Annual Report and Financial Statements 2018
StateMent oF Corporate GovernanCe
continued
The following recommendations were identified as areas on which the Board might focus in 2019 and beyond in order to enhance the
Board’s effectiveness. Alongside each recommendation is an action point identified to implement the same:
Keep diversity - defined in its widest term - under regular review
and consider more innovative approaches to recruitment both
at Board level and below
An annual “diversity review” has been included as a standing
agenda item for the Nomination Committee (October) and
Board (November)
The Board should be absolutely clear on its purpose and what
Non-Executive and Executive Directors are expecting from
each other, their respective roles and how they can best
support and work with each other
The Non-Executive Directors should make further efforts to get
to know employees better, to enhance their visibility and
enhance their knowledge of the business – this is especially
important in respect of new Non-Executive Directors
The Board and Investment Committee met to discuss their
respective roles and expectations and identified means of
improving engagement between the two functions
Certain Board dinners will be joined by wider management
Board to meet a wider group of employees informally over
buffet lunch on Board days
Non-Executive Directors will be invited to attend quarterly staff
breakfast briefings
Site visits will continue to be hosted by project teams
An annual Employee AGM will be trialled
The Non-Executive Directors should meet alone on a pre-
planned basis where appropriate
Non-Executive Directors will advise the Chairman when they
consider there is a topic that merits NED-only consideration
Once a year the Senior Independent Director should meet with
the Non-Executive Directors without the Chair
The Non-Executive Directors (excluding the Chair) met in
March 2019 to appraise the Chairman’s performance
The Board should keep the number of Board Meetings held in
the annual cycle, previously 11, under review
The meeting scheduled for December has been removed from
the 2019 Board cycle
The membership of the Audit and Remuneration Committees
should be in accordance with the Code and restricted to
independent Non-Executive Directors. This is something the
Board intends to rectify.
Ruth Cooke has been appointed to Remuneration Committee
and Angela Bromfield has been appointed to both the
Remuneration and Audit Committees in place of
Steven Underwood
Communication of the Committees should be enhanced to
ensure all Board members are kept fully informed on their work
Committee minutes are now included in the Board
supplementary pack
Succession planning should be a high priority on the Board and
Nomination Committee’s agenda
The Board agenda now includes “Committee updates” as a
standing agenda item
Talent management is now a standing agenda item in the
Board cycle. Succession planning for the Board and
Investment Committee will remain a Nomination Committee
matter and be subject to annual review and reporting back to
the Board
The Chief Executive appraises annually the performance of the members of the Investment Committee. The Chairman, taking into
account the views of the other Directors, reviews the performance of the Chief Executive. The performance of the Chairman is
reviewed by the Board led by the Senior Independent Director. In addition to the feedback given on the Chairman’s leadership during
the external Board evaluation, the Senior Independent Director and other Non-Executive Directors met in March 2019 to review the
Chairman’s performance. Following that review, the Senior Independent Director considered and discussed with the Chairman the
comments and feedback that had been received from the Directors and was able to confirm that the performance of the Chairman is
considered effective and that he continues to demonstrate appropriate commitment to his role.
Re-election and contractual terms and conditions
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 AGM and, as such, all Directors
will stand for election or re-election by shareholders at the 2019 AGM.
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.
StrateGIC report
Corporate GovernanCe
FInanCIaL StateMentS
91
5. AUDIT, RISK AND INTERNAL CONTROL
Risk
The Board acknowledges its responsibility for identifying business risks, determining risk appetite and, in the context of that appetite,
ensuring that the business maintains an appropriate risk profile and a robust framework of controls and processes to monitor and
manage risk. Pages 36 to 44 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 34 of the Strategic Report explains
how the Board reviews its own risk appetite on an annual basis, undertakes regular (not less than quarterly) reviews of the Group’s risk
profile and monitors the Company’s risk management framework. Based on its latest review, the Board is satisfied that there are in
place effective systems for managing, and mitigating, strategic and operational risks.
Audit and internal controls
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 by the Board and updated in November 2018. It is
supplemented by a framework of internal controls and processes which, alongside the delegated authorities policy, form the
governance framework for the business. Responsibility for monitoring, and ensuring the ongoing effectiveness, of this framework, is
delegated to the Audit Committee. This includes a review annually as to whether the Company should establish an internal audit
function. To date, those reviews have concluded that the structure of, and processes within, the business are neither large, nor
complex, enough to merit a separate internal audit function. The work undertaken by the Audit Committee on internal controls,
processes and audit, as well as the external audit, is explained on pages 96 to 98 of the Audit Committee Report.
6. REMUNERATION
Responsibility for establishing and implementing an appropriate Remuneration Policy for Executive Directors, other members of the
Investment Committee, and the Chairman falls in the first instance to the Remuneration Committee. Its work in implementing the
existing policy during 2018, and the Board’s proposals for revisions to the policy, are set out in the Directors’ Remuneration Report on
pages 100 to 103.
7. ANNUAL GENERAL MEETING
The Annual Report and Financial Statements, and Notice of AGM are sent to Shareholders at least 20 working days before the
meeting. The Board encourages Shareholders to attend, participate and exercise their right to vote at the 2019 AGM.
The resolutions to be proposed at the AGM to be held on 21 May 2019, together with the explanatory notes, appear in the separate
Notice of AGM 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 attend the AGM and are available to answer
questions, both formally during the meeting and informally both before and after the meeting. The Board encourages 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:
Alastair Lyons
Chairman
16 April 2019
Nomination Committee Report
92 Harworth Group plc Annual Report and Financial Statements 2018
noMInatIon CoMMIttee report
Dear Shareholder,
I am pleased to present the Nomination Committee report for the
year ended 31 December 2018.
During the period under review, the Committee comprised three
Non-Executive Directors. Jonson Cox began the year as
Chairman of the Committee until my appointment on 7 March
2018, at which point I succeeded him. The other members of the
Committee have been Lisa Clement and Andrew Cunningham.
At all times during the year, a majority of the Committee
comprised independent Directors. The Company Secretary is
secretary of the Committee. The minutes of meetings of the
Committee are circulated to all Directors, where appropriate.
Typically, the Committee meets at least once a year to review
succession and development planning for the Board and
Investment Committee, which is informed by their existing
balance of skills, knowledge and experience and diversity. All
Non-Executive Directors are invited to attend meetings of the
Committee, as is the Chief Executive where appropriate.
When necessary, the Committee leads the process for
recruitment and appointment to the Board. Typically, this includes
a series of formal and informal meetings of the Committee (in
addition to those scheduled during the year) at which candidates
are appraised before a recommendation is made to the Board.
During the year, there was a scheduled meeting in June at which
the Committee considered: the composition of the Board and its
Committees, in anticipation of the proposed changes to the
Code on Board composition; succession planning for Tony
Donnelly, who would cease to be independent under the Code at
the end of 2019; and both initiatives and targets for improving
diversity in the business.
Following that meeting, the Committee initiated and led a
recruitment process for two new Non-Executive Directors: a
successor to Tony Donnelly and an additional independent
Non-Executive Director, culminating in the appointments of
Angela Bromfield and Ruth Cooke in March this year. Angela’s
appointment to the Remuneration and Audit Committees is in
replacement for Steven Underwood, resulting in those
Committees being compliant with the Code, as they now
comprise solely independent Non-Executive Directors.
The Committee’s immediate focus has now turned to the
process for recruiting a replacement for Andrew Kirkman, which
is underway.
I will be available at the AGM to respond to any questions or
discuss matters relating to the Committee’s activities.
Alastair Lyons
Chairman of the Nomination Committee
16 April 2019
Members and attendance at meetings during the year ended
31 December 2018
Jonson Cox*
Chairman of the Committee and the Board
(until 6 March 2018) (not independent)
Alastair Lyons
Chairman of the Committee and the Board
(from 7 March 2018) (independent)
Lisa Clement
Independent Non-Executive Director
Andrew Cunningham
Independent Non-Executive Director
0(0)
1(1)
1(1)
1(1)
*Jonson Cox retired as Chairman of the Board and the Committee on 6 March 2018 at
which point he was succeeded into both roles by Alastair Lyons. The only scheduled
meeting of the Committee took place in June 2018, after Jonson’s retirement. The
Committee met informally a number of times in the second half of the year in connection
with the recruitment of new Non-Executive Directors
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 Board and members of the
Investment Committee
Leads on promoting and assessing the achievement of diversity
across the business, particularly on the Board and at a senior
management level
•
• Considers and makes recommendations to the Board on its
composition, balance and membership and on the proposal of
Directors for re-election at the AGM
The Committee’s terms of reference, which were last reviewed and
updated in December 2018 are set out on the Company’s website
and can be found at www.harworthgroup.com/investors/governance.
During 2019 the Committee’s terms of reference will be updated to
reflect the 2018 Code.
The Board undertakes an annual evaluation of the Committee’s
performance to ensure its continued ability to discharge its key
responsibilities. In 2018 this took the form of an external Board
evaluation undertaken by Ian White (further details are in the Statement
of Corporate Governance on pages 88 to 90).
StrateGIC report
Corporate GovernanCe
FInanCIaL StateMentS
93
Nomination Committee activities in 2018
The activities of the Nomination Committee during the year ended 31 December 2018 comprised:
Activities
Composition Succession App’ments
Diversity
Month
June
Succession planning for Non-Executive Directors
Board and Committee composition ahead of proposed revisions to the Code
Diversity initiatives and targets
✔
✔
✔
✔
H2 2018
Recruitment of Non-Executive Directors
Board composition, succession and
appointments
The Committee is responsible for keeping under review the
composition of the Board, to ensure that its membership
comprises an appropriate balance of skills, knowledge and
experience and includes the right number of independent
Directors.
Non-Executive Directors
The 2016 Code provided that “smaller companies” (being those
below the FTSE 350) should have at least two independent
Non-Executive Directors. Whilst it was in force the Board included
three independent Non-Executive Directors and so was
compliant with the 2016 Code in this regard. The provisions in the
2018 Code have been aligned for companies inside and outside
the FTSE 350 such that at least half of all boards, excluding the
chair, should be directors whom the board considers to be
independent.
Ahead of its coming into force on 1 January 2019, it became clear
to the Committee that the composition of the Board would not be
compliant with the 2018 Code because (at that time) the Board
comprised the chair, three independent Directors and four
Directors who are not independent. As such, an additional
independent Non-Executive Director needed to be appointed to
the Board to ensure compliance with the 2018 Code (as to which
see further below).
It was noted in the 2017 Annual Report that, due to their lengths
of service on the Board (factoring in Tony Donnelly’s term of office
as a director of the Harworth Estates division of UK Coal and then
of HEPGL), Tony Donnelly will cease to be independent under the
Code in January 2020 and Lisa Clement will cease to be
independent in December 2020. That being so, the Committee’s
focus in the second half of 2018, following the appointment of
Alastair Lyons as successor to Jonson Cox in March 2018, turned
to identifying a successor for Tony (see further below).
At its scheduled meeting in June, bearing in mind the
composition and succession points referred to above, the
Committee resolved to commence a recruitment process with
the objective of appointing two new Non-Executive Directors to
the Board.
The Company subsequently appointed Warren Partners to
conduct a 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 specifications for the two roles.
Warren Partners identified a “long-list” of candidates. Following a
review of that “long-list” by the Nomination Committee and a
meeting with Warren Partners, a “short-list” of candidates was
identified. Warren Partners interviewed and provided feedback on
all “short-list” candidates, resulting in a refined “short-list”. The
Nomination Committee interviewed all these candidates pursuant
to which they identified preferred candidates for each role. Those
preferred candidates then met with the other Non-Executive
Directors, the Executive Directors and the Group General
Counsel and Company Secretary.
This process culminated in the Committee recommending, and
the Board resolving to make an offer, subject to references, to
Angela Bromfield and Ruth Cooke for the two roles. Upon
Angela and Ruth accepting the roles and the Board taking up
references, the appointments were announced on 5 March 2019.
Angela and Ruth are undergoing extensive induction
programmes which include: meetings with the Executive
Directors, members of both the Investment Committee and
Management Board and the external auditor; site visits; and
corporate governance briefings.
Executive Directors
The Committee undertakes a regular (typically annual) review of
the succession plans for Executive Directors. Following the
Company’s announcement on 1 April 2019 that Andrew Kirkman
had given notice of his resignation to join CLS Holdings plc as
Chief Financial Officer, the Committee’s focus has turned to the
process of recruiting his replacement for which it has engaged
Spencer Stuart. The Company does not retain Spencer Stuart in
any other capacity and it has no other connection with the
Company. The Company will make an announcement as soon as
Andrew’s successor has been selected and a full outline of the
recruitment process will be set out in the Annual Report for the
financial year ending 31 December 2019.
Investment Committee
Talent management and succession planning for the whole
business was reviewed by the Board in December following
implementation of a regional structure and a business-wide
process undertaken by the Head of HR and Organisation
Development, in conjunction with the executive team. Going
forward, the Committee’s remit will extend to succession planning
for the Investment Committee. Talent management and
succession planning for the rest of the business will be
considered by the full Board each year.
Diversity
The Committee takes the lead in assessing the achievement of
diversity (in its widest sense) in all parts of the business and in
reviewing the effectiveness of initiatives for improving the same.
Further information on the Group’s diversity policy, which was
updated during 2018; the Group’s gender pay-gap at the end of
2018; the initiatives that have been introduced to improve diversity
across the business; and the progress made in that regard since
publication of the 2017 Annual Report, appears in the Our People
section of the Strategic Report on pages 51 to 53.
The Nomination Committee Report has been approved by the
Board and signed on its behalf by:
Alastair Lyons
Chair of the Nomination Committee
16 April 2019
Audit Committee Report
94 Harworth Group plc Annual Report and Financial Statements 2018
auDIt CoMMIttee report
Dear Shareholder,
I am pleased to present the Audit Committee Report for the year
ended 31 December 2018.
During the period under review, the Committee comprised three
Non-Executive Directors. I chaired the Committee and its other
members were Tony Donnelly and Steven Underwood. Following
their appointments as Non-Executive Directors, Ruth Cooke and
Angela Bromfield joined the Committee on 19 March 2019 and
1 April 2019, respectively. On 1 April 2019, Steven Underwood
stood down from the Committee. As such, at the date of this
report, the Committee now comprises four independent
Non-Executive Directors. Tony Donnelly will retire from the Board
at the end of September at which point the Committee will revert
to three members. I would like to thank both Steven and, in
anticipation of his retirement from the Board, Tony for their
contributions to the Committee over the last few years.
The experience of each member of the Committee is summarised
on pages 74 and 75. The Board is satisfied that I have recent and
relevant financial experience. 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. I am a chartered accountant. So too are Tony Donnelly and
Ruth Cooke. Angela Bromfield is not a chartered accountant but
is a member of the Audit Committees of both Churchill China plc,
an AIM listed company, and Zotefoams plc, a premium-listed
FTSE SmallCap company. The Board is also satisfied that the
Committee has competence relevant to the real estate sector,
given that the majority of members (both during the period under
review and going forward) hold (or have held) senior positions in
businesses 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 scheduled meetings.
There were two further meetings connected to the Company’s
application to step-up to the premium list and calls between the
Chairman, Finance Director, Company Secretary and me on the
days preceding the announcement of the Company’s preliminary
and interim results, so that we could authorise their release,
having been delegated the authority to do so by the Board.
I will be available at the AGM to respond to any questions or
discuss matters relating to the Committee’s activities.
Andrew Cunningham
Audit Committee Chairman
16 April 2019
Members and attendance at meetings during the year ended
31 December 2018
Andrew Cunningham
Chair and Independent Non-Executive Director
Anthony Donnelly
Independent Non-Executive Director
Steven Underwood*
Non-Executive Director (not independent)
*On 19 March 2019 and 1 April 2019, respectively, Ruth Cooke and Angela Bromfield,
newly appointed Non-Executive Directors, joined the Committee. Steven Underwood
stood down from the Committee with effect from 1 April 2019
6(6)
6(6)
5(6)
Key responsibilities
• Reviews the integrity of the Company’s annual report,
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
controls and processes
• 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 tender process for the
appointment of external auditors, if applicable
• 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 Group’s ongoing compliance with the GDPR
• Reviews the adequacy of the Group’s cyber-security measures,
information security and business continuity plans and
procedures
• Reviews the Group’s whistleblowing procedures and the
appropriate investigation of cases referred through the process
The Committee’s terms of reference, which were last reviewed and
updated in December 2018 are set out on the Company’s website
and can be found at www.harworthgroup.com/investors/governance.
During 2019 the Committee’s terms of reference will be updated to
reflect the 2018 Code.
The Board undertakes an annual evaluation of the Committee’s
performance to ensure its continued ability to discharge its key
responsibilities. In 2018 this took the form of an external Board
evaluation undertaken by Ian White (further details are in the
Statement of Corporate Governance on pages 88 to 90).
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Audit Committee activities in 2018
The activities of the Audit Committee during the year ended 31 December 2018 included:
Month
February
April
May
June
September
November
Activities
FYE 17 preliminary results and investor presentation
Categorisation of properties: development vs. investment
Risk register
Whistleblowing reports
Application to step-up to premium list: PricewaterhouseCoopers LLP (“PwC”)
working capital and Financial Position and Prospects Procedures (“FPPP”)
reports – preliminary review
Application to step-up to premium list: PwC working capital and FPPP
reports – final review and approval
Year-end audit de-brief
Internal controls and processes: update on implementation of
recommendations from KPMG external review and PwC’s FPPP review
Cyber security: review of NCC Group’s (“NCC”) report and recommendations
Annual review of hospitality register
FYE 18 interim results and investor presentation
Risk register
External auditors’ feedback on audit and management (without management
present)
Internal controls and processes: update on implementation of
recommendations from KPMG external review and PwC’s FPPP review
Information security: review of NCC strategic report and recommendations
Internal controls and processes: update on implementation of
recommendations from KPMG external review and PwC’s FPPP review,
including review of need for internal audit function
Business Continuity Plan and Incident Response Plan: review and approval
Insurance programme renewal
Interim results de-brief, year-end audit strategy and review of external
auditors’ appointment
Financial
reporting
Risk and
internal
controls
Compliance
w’blowing
External
audit
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
Financial reporting
The areas to which the Committee has given particular focus since publication of the 2017 Annual Report and Financial Statements
are summarised below.
Significant financial statement reporting issues considered by the Audit Committee
Valuation of the property portfolio
As with previous years, 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 different property categories, there remain a
number of key judgements. These key judgements are primarily regarding the future intention and plans for the site as well as value per
acre, rental amounts, yields and costs to bring the sites forward and the applicability of comparable sales evidence, 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 alongside the valuations. With regard to the surface mine
sites which have been handed back, there is a provision for potential restoration costs which is included with the cost report totals and
disclosed separately.
Going concern
This is discussed on page 45 of the Strategic Report. The same methodology has been used as in previous years in terms of the
5-year forecast model which is produced and reviewed by the Committee and the Board. However, given heightened political and
economic uncertainty, further downside sensitivity testing has been performed.
Categorisation of the property portfolio
Harworth has an established policy for determining the categorisation of properties. This is discussed further in the Financial Review
and Accounting Policy in Note 1 to the Financial Statements. The Committee again reviewed the appropriateness and timing of the
re-categorisation of properties and the policy. It was concluded that the categorisation of the property portfolio was appropriate.
Audit Committee Report
continued
96 Harworth Group plc Annual Report and Financial Statements 2018
auDIt CoMMIttee report
continued
Alternative Performance Measures (“APM”s)
Harworth believes that the use of APMs alongside statutory measures is essential in communicating the performance of Harworth to its
stakeholders, particularly investors. In the Financial Statements, Note 2 gives a full reconciliation to statutory measures. The Committee
reviewed the prominence and appropriateness of APMs and concurred with their use.
Analysis of fees paid to the external auditors and non-audit firms for the years ended
31 December 2017 and 31 December 2018
2018
£’000
2017
£’000
Audit services
Fees payable to the external auditors for:
– the audit of the Company and the consolidated financial statements
– the audit of the Company’s subsidiaries 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
– remuneration services
Total
50
121
15
1
186
16
–
–
331
357
543
0.5:1
16
148
51
5
6
20
5
1
246
*Note, in 2018 this included the work undertaken by PwC to support the Company’s application to transfer its shares from the standard segment to the premium segment of the Official List
40
111
8
159
15
7
6
–
28
187
5.7:1
22
69
19
–
5
–
115
The Committee has reviewed the controls which are in place to
ensure the completeness and accuracy of the Company’s
financial records. These were also subject to external review by
PwC ahead of the Company’s application to step-up to the
premium segment of the Official List during 2018. The Committee
has also noted (i) the reviews that are undertaken during this
process by the various parties, including the external auditor and
valuers, to ensure consistency and balance in the presentation of
the Annual Report and Financial Statements and (ii) the internal
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 2018,
when 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. 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 124.
External audit
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 and the external
auditor’s appointment are subject to review annually at the
Committee’s scheduled meeting in November each year. The
effectiveness of the external audit is reviewed by the Committee
in June.
Having reviewed:
•
•
the independence and objectivity of the external auditor,
PwC, including consideration of the non-audit work it has
undertaken for the Company (see further analysis above);
the effectiveness of PwC’s audit of the Company’s
preliminary results and this Annual Report and Financial
Statements for the financial year ended 31 December 2018;
and
•
the quantum of fees payable for the audit (see further
analysis above),
StrateGIC report
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the Committee has recommended the re-appointment of PwC at
the forthcoming AGM for the external audit of the Company’s
financial statements for the financial year ending 31 December
2019.
PwC, then known as Coopers and Lybrand, was first appointed
as the Company’s auditors before 17 June 1994 and the
Committee intends to undertake a tender ahead of the audit of the
financial statements for the financial year ending 31 December
2020. This means that the audit of the financial statements for the
financial year ending 31 December 2019 will be PwC’s last as the
Company’s external auditor, coinciding with the expiry of Andy
Ward’s term as lead audit partner. The Company intends to
commence the tender process in the second half of 2019 with the
aim of appointing a new external auditor in the first quarter of
2020. There are no contractual obligations which restrict the
Committee’s choice of external auditor.
The Board recognises the importance of safeguarding auditor
objectivity and has taken the following steps to ensure that
auditor independence is not compromised:
•
•
•
•
the Committee reviews the audit appointment 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 (but 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 and pension accounting
going forward. KPMG has been appointed to advise on tax
matters relating to some of our joint venture agreements;
the Committee reviews on a regular basis all fees paid for
both audit and non-audit activity, with a view to assessing
the 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 auditor’s report to the
Directors and the Committee confirming their independence
in accordance with auditing standards.
During 2018, and following a tender, the Company instructed
PwC to undertake reviews of the Group’s working capital and
FPPP to support the Company’s application to transfer its shares
to the premium segment of the Official List. PwC’s engagement
was reviewed and approved by the Chair of the Committee,
Finance Director and Company Secretary, given PwC’s previous
work during the Company’s standard listing process in 2015.
PwC’s appointment was also endorsed by Canaccord Genuity
Limited, which acted as sponsor in connection with the step-up.
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 AGM.
Risk review and management
During the year, the Committee undertook reviews of the Group
Risk Register in February and September, ahead of the
announcements of the Company’s preliminary and interim results.
With effect from the start of 2019 it has been agreed that risk
review and management will revert to the full Board which will
undertake quarterly reviews of the same, together with an annual
review of Board risk appetite. The outcome of the Board’s latest
risk review is explained in detail in the “Managing Risk” section of
the Strategic Report on pages 34 to 44.
Internal controls and processes
In the 18 months prior to publication of this Report, the Group’s
internal controls and processes have been subject to the
following external reviews:
• During the second half of 2017, the Group instructed KPMG to
undertake an external review 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 2017. KPMG identified no major deficiencies in
the controls it had reviewed but did identify some opportunities
to improve efficiencies and risk mitigation.
• Ahead of its step-up to the premium segment of the Official
List, the Company instructed PwC to undertake an FPPP
review, which covered a range of internal controls and
processes (not solely financial) including: governance
framework; forecasting and budgeting; management reporting;
significant transactions; strategic projects and initiatives;
financial accounting and reporting; and IT environment. PwC’s
report concluded that the Company required relatively few
adjustments to its existing FPPP environment to be ready for
the move to the premium list. Nevertheless, it did make some
recommendations for improvements to the Company’s
framework of internal controls and processes. These
recommendations included: formalising the Company’s
policies and procedures in connection with its disclosure
obligations under the Market Abuse Regulation (see further
below); updates to the Group’s whistleblowing policy and
improvements to associated procedures (see further below);
documentation of certain finance procedures in the form of a
finance manual; establishment of an IT disaster recovery plan
and wider business continuity plan (see further below); and the
recruitment of additional resources into the finance team.
Certain of these workstreams had already been planned for
2018.
All of the recommendations from both external reviews have been
implemented.
The Group does not currently have an internal audit function but
the Committee reviews, at least annually, whether such a function
ought to be established, most recently at its scheduled meeting in
November 2018. The Committee maintained its view that the
structure of, and processes within, the business were neither
sufficiently large, nor complex, to merit a separate internal audit
function. The Committee did, however, conclude that the rolling
programme of annual external reviews of controls ought to be
maintained. During 2018 this extended to reviews of cyber and
information security undertaken by NCC (see further below) and in
2019 this will include an external review of the Group’s half-year
and year-end valuation processes. The absence of an internal audit
function was noted, but rated as low risk, by PwC during its FPPP
review, due to the Group’s ongoing programme of external reviews
and scrutiny.
98 Harworth Group plc Annual Report and Financial Statements 2018
auDIt CoMMIttee report
continued
Business continuity
During 2018 the Group instructed:
• Marsh to establish a Business Continuity Plan (“BCP”),
designed to guide the Group’s response to a physical
incident, such as: loss or material damage to head office;
severe weather incidents; extensive loss of personnel; and/
or loss of IT equipment and systems; and
• NCC to establish an Incident Response Plan (“IRP”),
designed to guide the Group’s response to loss or
corruption of data or our IT network, most likely due to a
cyber-attack.
Those plans were presented to, and approved by, the Committee
in November. Copies of the plans, and briefings, have been given
to those with a role to play under each plan. A desktop test of the
BCP will be undertaken during the first half of 2019. A desktop
test of the IRP will be undertaken in the second half of 2019 once
progress has been made in implementing the recommendations
from NCC’s strategic report.
Insurance programme
Following detailed reviews of the Group’s insurance programme
ahead of the 2017 and 2018 renewals, which led to a series of
insurance cover extensions, the Group’s insurance programme
was renewed on 1 January 2019, with the following minor
changes:
• business interruption insurance cover was increased,
reflecting advice from Marsh; and
• cyber insurance cover was taken out, reflecting a
recommendation from NCC.
The Audit Committee Report has been approved by the Board
and signed on its behalf by:
Andrew Cunningham
Chair of the Audit Committee
16 April 2019
Compliance and whistleblowing
Ahead of the Company’s step-up to the premium segment of the
Official List and in accordance with recommendations in PwC’s
FPPP report, the Company implemented certain measures to
formalise policies and procedures for compliance with its
disclosure obligations under MAR. These included the
establishment of an inside information policy and a Disclosure
Committee, comprising the Chief Executive, Finance Director and
Company Secretary (in close liaison with the Chairman) who had
hitherto monitored and reviewed the Company’s disclosure
obligations on a regular but informal basis.
The Audit 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 preventing the facilitation of tax evasion. This
includes an annual review of the Group’s register of gifts,
sponsorship and hospitality, undertaken at the Committee’s
scheduled meeting in June.
The Committee also took the lead in reviewing the policies,
procedures and agreements implemented by the Group to
ensure its compliance with the GDPR, ahead of its coming into
force on 25 May 2018. From 2019, the Committee will undertake
an annual review of the Company’s ongoing compliance with the
GDPR.
Further information on these policies, procedures and initiatives
appear in the Strategic Report at pages 64 and 65.
A revised whistleblowing policy and process were approved by
the Committee in May 2018 ahead of the Company’s step-up to
the premium list. There were no whistleblowing claims reported to
the Committee during 2018.
Cyber and information security
As trailed in the 2017 Annual Report and Financial Statements,
external reviews were undertaken in 2018 of the Group’s cyber
and information security resilience. Both reviews were undertaken
by NCC, a global expert in cyber security. The cyber security
review, which included a simulated penetration test, was
undertaken in the second quarter of 2018. The results, including
technical recommendations for improving the resilience of the
Group’s IT network, were presented at the Committee’s
scheduled meeting in June. All recommendations have been
implemented or, in the case of certain low risk measures and
following further consultation with NCC, marked as closed. The
strategic review of the Group’s information security and IT
function was undertaken in the third quarter of 2018 and the
results were presented at the Committee’s meeting in November.
NCC’s report made a series of recommendations, including the
appointment of an information security manager, initially on an
interim basis. That appointment has now been made and the
information security manager is taking the lead in implementing all
other recommendations from NCC’s report. Updates are given at
each of the Committee’s meetings on the Group’s progress in
implementing these recommendations. This will continue until all
recommendations have been addressed.
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Nufarm, Bradford, June 2018 Directors’ Remuneration Report
100 Harworth Group plc Annual Report and Financial Statements 2018
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 2018.
This report is divided into 3 sections: this Chair’s introduction, the
proposed Directors’ Remuneration Policy (“Policy”) for which we
will be seeking shareholder approval at the 2019 AGM and the
Annual Remuneration Report, which explains how the Policy was
implemented in 2018 and how it will be implemented in 2019.
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, the
Disclosure and Transparency Rules and the principles of the 2016
Code (which applied during the year under review) on a comply
or explain basis.
In accordance with the Regulations, the following sections of the
Annual Remuneration Report are subject to audit: the single total
figure of remuneration for Directors and accompanying notes
(pages 112 and 113); scheme interests awarded during the year
(page 116); payments to past Directors (page 117); and the
statement of Directors’ shareholdings and share interests (page
119). The remaining sections of the report are not subject to audit.
Our New Remuneration Policy
The Company’s current Policy, introduced in 2016, was 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.
Whilst the fundamental strategy of the Group has remained
relatively unchanged over the last three years, the Committee
believes that amendments to our Policy would better support our
core reward principles (set out in the table below). Our business
thrives on long-term decision making with strategies in place and
decisions made today which will benefit Shareholders over a
much longer timeframe than is reflected over a typical three-year
performance period under a classic “LTIP”. The setting of
appropriate long-term performance targets is a challenge given
the cyclical nature of Harworth’s business. So too is finding an
appropriate comparator group for TSR purposes given the unique
nature of the business, even within the real estate sector. Whilst
the Committee does not consider the existing Policy to be
“broken” per se, it does consider that the classic LTIP structure is
not the best approach for long-term incentivisation. With that in
mind, the Committee undertook a detailed review of the existing
Policy in the second half of 2018. A key objective was to identify
an approach which can be cascaded throughout our senior
management team, so that we may be consistent in the way we
use share awards to incentivise our business leaders for the
long-term. We concluded that a Restricted Share Plan is a far
better mechanism to support our Group strategy, culture and
core reward principles. As illustrated below, in-flight LTIP awards
are expected to vest at a similar level and we are, therefore, not
turning to a Restricted Share Plan because of poor vesting
outcomes.
Members and attendance at meetings during the year ended
31 December 2018
Lisa Clement
Chair and Senior Independent Director
Anthony Donnelly
Independent Non-Executive Director
Steven Underwood*
Non-Executive Director (not independent)
Alastair Lyons**
Chairman (independent)
Jonson Cox**
Chairman (not independent)
*On 1 April 2019 Angela Bromfield, a newly appointed Non-Executive Director, joined
the Committee and Steven Underwood stood down from the Committee
**Jonson Cox retired as Chairman of the Board and stepped down from the
Committee on 6 March 2018. On 7 March 2018 Alastair Lyons succeeded him as
Chairman and joined the Committee
7(7)
7(7)
5(7)
5(5)
2(2)
Key responsibilities
• Determines and agrees with the Board the Company’s
remuneration policy for the 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 Investment
Committee
• Reviews the remuneration approach adopted for all employees
•
Approves grant of options for Group Save-As-You-Earn (“SAYE”)
plan
• Will approve grant of options for SAYE plan and Share Incentive
Plan (“SIP”) awards, if the SIP is approved by shareholders at the
AGM
• Responsible for changes to certain Group-wide employment
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.
During 2019 the Committee’s terms of reference will be updated to
reflect the 2018 Code. The Board undertakes an annual evaluation
of the Committee’s performance to ensure its continued ability to
discharge its key responsibilities. In 2018 this took the form of an
external Board evaluation undertaken by Ian White (further details are
in the Statement of Corporate Governance on pages 88 to 90).
StrateGIC report
Corporate GovernanCe
FInanCIaL StateMentS
101
Remuneration Committee activities in 2018
The activities of the Remuneration Committee during the year ended 31 December 2018 included:
Month
Activities
Policy
Remuneration
All
employees
Advisers
January
February
2018 bonus: financial targets and personal objectives
2017 bonus scoring
LTIP: vesting and awards
SAYE
July
Initiation of tender for appointment of recruitment consultants
September
Appointment of recruitment consultants
October
Remuneration Policy review
November
Remuneration Policy review
December
Annual salary review
Annual review of Group-wide benefits
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
Core reward principles
Rewarding long-term value creation in a cyclical business
Supporting stewardship
Supporting our culture
Simplification
Bringing into focus sustainable growth via our strategic
priorities. Recognising the extended timeframes of our
business model and long-term effects of our decision making,
delivered in a way which reduces the impact of cyclical volatility
on reward outcomes and, therefore, facilitates retention through
the cycle
Encouraging and enabling substantial long-term share
ownership for all employees, supporting the long-term nature of
our business and its returns
Focusing incentives on Group performance to create collective
accountability and delivering a reward structure across all levels
of management
A simple and transparent framework which can be readily
cascaded
Following a detailed review and a Shareholder consultation, the Committee is proposing the following changes to the Policy to support
our core reward principles.
Changes to Policy
Rationale
Introduction of a Restricted Share Plan to replace the
current Long Term Incentive Plan for future awards
Introduction of overarching Remuneration Committee
discretion to Restricted Share Plan rules
To reflect our overarching reward principle of rewarding
long-term value creation in a cyclical business and to support
stewardship
To reduce vesting outcomes where the Committee considers
that they would not otherwise be representative of the
underlying business performance over the vesting period
Increase shareholding guidelines for Executive Directors
from 100% to 200% of salary
To emphasise alignment with shareholders and the importance
of long-term share ownership
Introduction of a post-employment shareholding
requirement
To support stewardship and the quality of the long-term
decision making of our executives
Flexibility to increase the normal annual bonus policy
maximum from 100% to 150% of salary (and only with
suitably stretching targets)
Extension of malus and clawback provisions
Introduction of a Group SIP
Annual bonus opportunity for 2019 will be equal to 100% of
salary. Although the Committee has no intention of increasing
maximum opportunity currently, flexibility has been provided in
order to support succession planning and potential changes to
business needs
To reflect current best practice and our adoption of the
provisions of the 2018 Code with respect to the ability to
recover variable remuneration
To encourage wider share ownership across all our employees
and support stewardship
We engaged widely with Shareholders as part of this process and their feedback was substantially supportive with an understanding of
our rationale for change and a recognition of how the new Policy is more suited to our business profile.
Directors’ Remuneration Report
continued
102 Harworth Group plc Annual Report and Financial Statements 2018
DIreCtorS’ reMuneratIon report
continued
Restricted Share Plan
The proposed Restricted Share Plan has the following design
features:
•
•
awards of 50% of salary. This compares to the current LTIP
maximum opportunity of 100% of salary, representing a
50% reduction in face value at grant;
the Committee has taken into account the expected vesting
levels of in-flight LTIP awards when determining the
reduction in face value at grant. The actual outcome for the
2016 LTIP which vested with respect to 31 December 2018
is 51.83% of maximum opportunity and for the following two
grants the expected average vesting is c.55% of maximum
opportunity. The Committee has been unable to consider
historic vesting levels as the first LTIP awards were granted
in 2016 following the Company’s re-listing in 2015; and
• vesting will be phased over a five year period, with 33%
vesting after three years, 33% after four years and 33% after
five years. A holding period will apply such that no shares
can be sold until after the end of the five-year period.
33% of award
33% of award
33% of award
Year 1
Year 2
Year 3
Year 4
Year 5
No shares can be sold until 5 years from grant
The Restricted Share awards will be subject to underpins which
reflect performance over the vesting periods. Further details are
provided on page 118. Furthermore, the Committee has
discretion to reduce vesting outcomes where it considers that
they would not otherwise be representative of the underlying
business performance over the vesting period. The Committee
will disclose how performance underpins and underlying
business performance over the vesting period has been taken
into account at the time of vesting.
Conventional best practice share plan provisions regarding leaver
and change of control arrangements have been included in
addition to the extension of malus and clawback provisions, as
discussed above.
Executive Director changes
As announced on 1 April 2019, Andrew Kirkman will leave the
business on 30 June 2019. Andrew’s remuneration arrangements
in respect of his cessation of employment are as follows:
Salary pension and
benefits
2019 bonus
Andrew will continue to receive his salary,
benefits and pension provision until
30 June 2019
Andrew will not be eligible to earn a bonus
for the period of his service in 2019
Unvested LTIP awards
2019 share awards
Andrew was employed for the entirety
of the three-year performance period
in respect of his 2016 LTIP award and
he will leave the business after 25 May
2019, being the vesting date. Therefore,
the vesting outcome of his 2016 LTIP
awards will be determined as normal
based on achievement against the relevant
performance metrics (see pages 115
and 116).
Andrew’s 2017 and 2018 LTIP awards will
lapse in full on 30 June 2019
Andrew will not be eligible to be granted an
award in 2019 under either the Restricted
Share Plan or the Share Incentive Plan
Salary increases for 2019
The salaries of the Chief Executive and the Finance Director have
been increased by 2.5% to £316,250 and £240,880 respectively,
in line with the median salary increases applied across the wider
workforce.
Bonus
The annual bonus will continue to operate on the basis of a
combination of financial performance (including NNNAV growth,
sales volume, acquisitions and profit excluding value gains) and
personal objectives. The financial performance targets and
personal objectives for the 2019 bonus will be reported in the
2020 Annual Report. The bonus entitlement for the Chief
Executive was exceptionally set at 125% last year. The bonus
entitlement for the Chief Executive will be 100% in 2019. As noted
above, the Finance Director will not be eligible to earn a bonus for
the period of his service in 2019.
Restricted Share Plan
As explained above, subject to approval of the new Policy and
the Restricted Share Plan Rules at our 2019 AGM, awards under
the Restricted Share Plan will be made to our Chief Executive and
other members of the senior management team. As noted above,
the Finance Director will not be granted an award under the
Restricted Share Plan. Details are set out on pages 118 and 119.
Chairman and Non-Executive Directors
The fees for the Chairman (£160,000) have remained unchanged.
The basic fees for Non-Executive Directors have increased from
£42,500 to £45,000 from the start of 2019, having not been
reviewed since 2015. 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 £7,500 as Senior Independent Director. The
Committee considers that NED fees appropriately reflect the
work and responsibilities associated with each role.
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 again
decided to report voluntarily on the Company’s gender pay gap
within the Our People section of this Report at pages 52 and 53.
StrateGIC report
Corporate GovernanCe
FInanCIaL StateMentS
103
Employee remuneration and engagement
The Committee ensures it is aware of the remuneration and
benefits of the wider workforce when setting remuneration
packages of Executive Directors and Investment Committee
members.
Over half of our employees currently participant in the Group’s
all-employee SAYE plan. We are also seeking shareholder
approval at the AGM to implement an all-employee SIP to
encourage more employee share ownership.
The Committee currently operates a deferred share bonus plan
for the senior management team outside of the Investment
Committee. If approved at the AGM, those individuals will instead
participate in the Restricted Share Plan.
The Board recognises the importance of engaging with, and
considering the interests of, the Group’s employees in its
decisions. To that end, we have been implementing a series of
measures to encourage and improve engagement, such as the
establishment of the People Steering Group. Further details on
employee engagement can be found in the Our People section of
this report on pages 50 and 51.
I hope that Shareholders are supportive of our new Policy, which
takes into account the 2018 Code provisions, and particularly the
adoption of our Restricted Share Plan and SIP. I will be available
at the AGM to respond to questions and discuss any aspect of
the new Policy, Annual Remuneration Report or the Committee’s
activities.
Lisa Clement
Chair of Remuneration Committee
16 April 2019
Directors’ remuneration policy
This section of the report sets out the Policy for Executive Directors which will be put to a binding shareholder vote at the 2019 AGM.
Subject to shareholder approval, the Policy will come into effect from the close of the 2019 AGM.
Operation
Opportunity
Performance metrics
Policy table
Function
Base salary
To recognise the
individual’s skills and
experience and to
provide a competitive
base reward.
Base salaries are ordinarily reviewed annually,
with reference to: salary levels for similar
roles at comparable companies; to individual
contribution to performance; and the
experience of the Executive. Any adjustments
will typically be effective 1 January in the year
following review.
None
None
Any base salary increases are
applied in line with the outcome
of the review as part of which
the Committee also considers
average increases across the
Group.
Salary increases will generally
be in line with the range of
increases awarded to salaried
employees (in percentage terms).
In exceptional circumstances
(including, but not limited to, a
material increase in job size or
complexity) the Committee has
discretion to make appropriate
adjustments to salary levels
to ensure they remain market
competitive.
10% of salary, plus the
amount of any employer social
security saving if an Executive
sacrifices any other element of
remuneration as referred to in the
“Operation” column.
Benefits vary by role and
individual circumstances: eligibility
and cost is reviewed periodically.
None.
The Committee retains the
discretion to approve a
higher cost in exceptional
circumstances (e.g. relocation) or
in circumstances where factors
outside the Company’s control
have changed materially (e.g.
increases in insurance premiums).
Pension
To provide an opportunity
for executives to build up
income on retirement.
Benefits
To provide benefits
which are competitive in
the market in which the
Executive is employed.
All executives are either members of the
Group pension scheme or receive a cash
pension allowance.
Salary is the only element of remuneration that
is pensionable.
Executives may be permitted to sacrifice
other elements of remuneration and receive
an equivalent contribution to a pension
scheme. Should any Executive elect to do so,
any employer social security saving for the
Group may also be contributed to a pension
arrangement on behalf of the Executive.
Executives receive benefits which consist
primarily of the provision of a car allowance
and fuel, although can include any such
benefits that the Committee deems
appropriate, and the Company may make
a payment in respect of any associated tax
liability where the Committee considers this to
be appropriate.
104 Harworth Group plc Annual Report and Financial Statements 2018
DIreCtorS’ reMuneratIon report
continued
Function
Annual bonus
To incentivise and reward
strong performance
against financial and
personal annual targets,
thus delivering value to
shareholders and being
consistent with the
delivery of the strategic
plan.
Operation
Opportunity
Performance metrics
For Executive Directors, the
normal maximum annual bonus
opportunity is 100% of base
salary, although the Committee
has discretion to award a bonus
opportunity of up to 150% of
salary.
For FY2019, the maximum
annual bonus opportunity will
be 100% of salary for each
Executive Director.
50% of maximum annual bonus
opportunity will be paid at Target
and 100% at Maximum, with
straight-line vesting between
each. The Committee may set a
Threshold level of performance
for which no more than 10% of
maximum would be paid.
Performance measures, targets and
weightings are set at the start of the year.
The scheme is based on a combination
of financial performance and personal
objectives. At the end of the year, the
Remuneration Committee determines the
extent to which targets have been achieved.
Bonus payments are ordinarily delivered
in cash. However, if a bonus in excess of
100% of salary is earned, the Remuneration
Committee has the discretion to defer any
bonus above 100% of salary into shares in
the Company for up to three years, subject
to malus provisions. The Remuneration
Committee also has discretion to require (or
to permit) the deferral into shares of any other
part of a bonus.
Malus (of deferred shares) and clawback
(of any bonus paid) may be applied during
employment or for two years post-termination
in the event of misconduct, material
financial misstatement, error in calculation
of outcomes, a significant health and safety
event or environmental incident, material
corporate failure or in any other circumstance
that the Committee considers appropriate.
If a deferred bonus award is granted on the
basis the Executive is not entitled to acquire
the shares until the end of the deferral period,
an additional payment (in cash or shares) may
be made in respect of dividends that would
have been paid on the shares subject to the
award during the period beginning with the
date of grant and ending with the date on
which the shares can first be acquired (this
payment may assume that dividends had
been reinvested in Harworth shares on such
basis as the Committee determines).
Performance is assessed on
an annual basis, as measured
against specific objectives
set at the start of each year.
The measures will include
financial measures and may
also include personal and/
or strategic performance
objectives.
Financial measures will be
weighted appropriately each
year according to business
priorities. Measures may
include, but are not limited
to, growth in net assets,
acquisitions, sales and profit
excluding value gains. No
less than 75% of the annual
bonus will be based on
financial measures.
Strategic and personal
objectives are set annually
to reflect the Group’s annual
strategic plan and individual
contribution to that plan,
developed in line with
shareholder expectations.
No more than 25% of the
annual bonus will be based
on strategic and/or personal
objectives. Any strategic and/
or personal element shall
not pay out unless there is
a payout under the financial
element.
Overall payout under
the annual bonus may
be subject to additional
underpins, determined by the
Committee at the start of the
financial year.
The Committee has
discretion to adjust the
formulaic bonus outcomes
in exceptional circumstances
to ensure alignment of pay
with performance. Any
such adjustments would
be fully explained in future
Remuneration Reports.
StrateGIC report
Corporate GovernanCe
FInanCIaL StateMentS
105
Function
Operation
Opportunity
Performance metrics
The RSP provides for a normal
annual award of up to 50% of
salary for Executive Directors. In
exceptional circumstances, such
as on recruitment, awards of up
to 100% of salary may be made.
Although no formal
performance measures apply
to any awards under the RSP,
the extent to which a tranche
of an award vests may be
reduced by the Committee
if a performance underpin
assessed to the end of the
financial year preceding
the date of vesting is not
achieved.
In addition, the Committee
may reduce the extent to
which a tranche vests if it
believes this better reflects
the underlying performance
of the group or participant
over the relevant period, or
if the Committee considers
that the vesting level is not
appropriate in the context
of circumstances that were
unexpected or unforeseen
at the grant date or other
relevant circumstances.
Restricted Share Plan
(“RSP”)
To encourage and enable
substantial long-term
share ownership and to
reflect our ethos of long
term stewardship.
Annual share awards will be made in the form
of conditional share awards or nil-cost options.
The awards will be subject to a performance
underpin explained further in the column
headed “Performance metrics”. An award
will vest in three equal tranches following
the assessment of the relevant performance
underpin, which will be assessed following the
end of a period of no less than three years as
regards the first tranche, no less than four years
as regards the second tranche and no less than
five years as regards the third tranche.
The first and second tranches of an award will
be subject to a holding period which begins
on the relevant vesting date and lasts until the
vesting date of the third tranche, with the award
not “released” until the end of the holding
period; no holding period will apply to the third
tranche of an award. The holding period will
be structured as either (1) the participant not
being able to acquire the shares until the end of
the holding period; or (2) the participant being
able to acquire shares following vesting but
that, other than as regards the sale of shares to
cover tax liabilities associated with the vesting
or acquisition, the participant not being able to
dispose of or otherwise deal with the shares
acquired until the end of the holding period.
If a holding period is structured on the basis
that the participant is unable to acquire shares
until its end, dividend equivalents (in cash
or shares) may be paid on vested shares in
respect of dividends that would have been
paid on those shares between vesting and the
date on which the shares can first be acquired.
The dividend equivalents may assume the
reinvestment of dividends into shares on such
basis as the Committee determines.
A tranche of an award under the RSP may be
cancelled (if shares have not been delivered
to satisfy it) or recovered from a participant
(if shares have been delivered) up to the
second anniversary of vesting in the event of
misconduct, material financial misstatement,
error in calculation of outcomes, a significant
health and safety event or environmental
incident, material corporate failure or in any
other circumstance that the Committee
considers appropriate.
106 Harworth Group plc Annual Report and Financial Statements 2018
DIreCtorS’ reMuneratIon report
continued
Function
Operation
Opportunity
Performance metrics
Share Incentive Plan
(“SIP”) and Save-As-
You-Earn plan (“SAYE”)
To motivate and to
facilitate share ownership
on an all-employee basis.
These plans are reviewed annually and if
offered are offered to all eligible employees in
accordance with their terms and applicable
legislation.
N/A
An Executive Director may
contribute up to £500 per month
(or such other limit as may be
permitted under the relevant
legislation) (SAYE) and £1,800 per
annum (or such other limit as may
be permitted under the relevant
legislation) (SIP) into these
tax advantaged all-employee
schemes.
Under the SAYE, the per share
option exercise price is set at
a discount of up to 20% (or
such other amount as may be
permitted under the relevant
legislation) to the share price
when participation is offered.
Under the SIP the Company may
match the shares up to a 2 for
1 basis (or on such other basis
as may be permitted under the
relevant legislation).
Under the SIP the Company
may also make an award to
an Executive Director of up to
£3,600 of free shares in any year.
Notes to the policy table
Performance measure selection and approach to target setting
Annual bonus
The measures used under the annual bonus plan are selected annually to reflect the Group’s main objectives for the year and reflect
both financial and personal contribution to the strategic plan, developed in line with shareholder expectations. Additional underpins
may be set, for example to ensure appropriate consideration of all relevant aspects of health and safety.
RSP
The terms of the underpins will be determined on an annual basis taking into account the Committee’s assessment of the metrics
which will best reflect overall business health over the applicable vesting periods. Underpins will ordinarily be qualitative, and the
Committee will use its judgement to assess “in the round” whether the level of vesting is appropriate having regard to the underpins
and business performance. The underpins applying for the RSP awards to be granted in respect of the Company’s FY2019 are set out
on pages 118 and 119.
SAYE and SIP
SAYE options and awards under the SIP are not subject to performance conditions in line with the treatment of such awards for all
employees and in accordance with the applicable tax legislation.
Variations
The Committee may vary or substitute any performance measure or RSP underpin if an event occurs which causes it to determine that
it would be appropriate to do so, provided that any such variation is fair and reasonable and (in the opinion of the Committee) the
change would not make the measure or underpin less demanding. If the Committee were to make such a variation, an explanation
would be given in the next Remuneration Report.
Operation of share plans
The Committee will operate its current and legacy share plans in accordance with their rules. Share awards may be made in the form
of conditional share awards, options (including nil cost options) or forfeitable share awards. Awards granted over shares may be settled
in cash. The Company does not intend to settle awards, or dividend equivalents on awards, granted to Executive Directors in cash and
would do so only where the particular circumstances make that appropriate, for example where there is a regulatory restriction on the
delivery of shares. In the event of a variation of the Company’s share capital or a demerger, special dividend or other event which, on
the Committee’s opinion may affect the price of shares, the Committee may alter the terms of awards under its share plans and the
number of shares subject to those awards in accordance with the terms of the relevant plan.
StrateGIC report
Corporate GovernanCe
FInanCIaL StateMentS
107
Remuneration policy for other employees
Harworth’s approach to annual salary reviews is consistent across the Group, with consideration given to the level of experience,
responsibility, individual performance and salary levels in comparable companies.
The majority of employees are eligible to participate in an annual bonus scheme with similar metrics to those used for the Executive
Directors. Opportunities and specific performance conditions vary by organisational level with business area-specific metrics
incorporated where appropriate.
Subject to its approval by shareholders, senior managers will be eligible to participate in the RSP. The terms on which they will
participate, including award sizes, may vary from the terms on which Executive Directors participate, including having regard to
organisational level, but will be consistent with the terms of the RSP approved by shareholders.
Shareholding guidelines
The Committee continues to recognise the importance of aligning Executive Directors’ interests with shareholders’ through building up a
significant shareholding in the Company. Shareholding guidelines are in place that require Executive Directors to acquire a holding
equivalent to 200% of base salary. Until the relevant shareholding levels are acquired, 50% of any shares vesting to the relevant Director
under the RSP (post-payment of tax) are required to be held. Shares subject to LTIP or RSP awards which have vested but which
remain subject to a holding period and shares subject to any deferred bonus award count towards the guidelines on a net of assumed
tax basis. Details of the Executive Directors’ current personal shareholdings are provided in the Annual Report on Remuneration.
Reflecting best practice, the Committee has adopted, with effect from 1 January 2019, a post-cessation shareholding requirement.
This requires that for the first 12 months following cessation, an Executive Director must retain such number of his or her “relevant
shares” as have a value (as at cessation) equal to half of the shareholding guideline that applies during service (currently 100% of base
salary, based on a guideline during service of 200% of salary), with that requirement tapering down to 0% over the following 12
months. If the Executive Director holds less than the required number of “relevant shares” at any time, he or she must retain the
“relevant shares” he or she holds. Shares which the Executive Director has purchased or which have been acquired pursuant to
awards granted before 1 January 2019 are not “relevant shares” for these purposes. Shares subject to RSP awards which have vested
but not been released, shares subject to released RSP awards which have not been exercised, and shares subject to deferred bonus
awards count towards the post-cessation guideline on a net of assumed tax basis. Unless the Committee determines otherwise, when
considering the extent to which this requirement is satisfied, an Executive Director or former Executive Director shall be deemed to
have disposed of shares which are not “relevant shares” before any ”relevant shares” that person holds.
Non-Executive Director remuneration
Non-Executive Directors are appointed for an initial term of three years which rolls forward on an annual basis, subject to the Non-
Executive Directors’ re-election at each Annual General Meeting. The appointment and re-appointment and the remuneration of
Non-Executive Directors are matters reserved for the full Board.
Details of the Non-Executive Directors’ appointments are set out on pages 74 and 75.
The Non-Executive Directors are not eligible to participate in the Company’s performance related bonus plan, long-term incentive
plans or pension arrangements.
Full terms and conditions for each of the Non-Executive Directors are available at the Company’s registered office during normal
business hours and will be available at the AGM for 15 minutes prior to the meeting and during the meeting.
Performance
metrics
None.
Function
Operation
Opportunity
Fees and benefits
To attract and retain Non-
Executive Directors of the
highest calibre with broad
commercial and other
experience relevant to the
Company.
Fee levels are ordinarily reviewed annually, with
any adjustments typically effective 1 January in
the year following review.
The fees of the Chairman are determined by
the Committee, whilst the fees of the other
Non-Executive Directors are determined by the
Board.
Additional fees are payable for acting as Senior
Independent Director and as Chair of any of the
Board’s Committees.
Fee levels are benchmarked against similar
roles at comparable companies. Time
commitment and responsibility are taken into
account when reviewing fee levels.
The Non-Executive Directors may be eligible to
receive benefits linked to the performance of
their duties, including but not limited to travel
and other expenses, and the Company may
make a payment in respect of any associated
tax liability where the Committee considers this
to be appropriate.
Non-Executive Director fee increases are
applied in line with the outcome of the annual
fee review. Fees for the year commencing
1 January 2019 are set out in the Annual
Remuneration Report.
Fee levels will next be reviewed during 2019,
with any increase effective from 1 January
2020.
It is expected that increases to Non-
Executive Director fee levels will be in line
with salaried employees over the life of the
policy. However, in the event that there is a
material misalignment with the market or a
change in the complexity, responsibility or time
commitment required to fulfil a Non-Executive
Director role, the Board has discretion to make
an appropriate adjustment to the fee level.
Where benefits are provided to Non-Executive
Directors they will be provided at a level
considered to be appropriate taking into
account the individual circumstances.
108 Harworth Group plc Annual Report and Financial Statements 2018
DIreCtorS’ reMuneratIon report
continued
Pay for performance scenarios
The chart below provides an illustration of the potential future reward opportunities for Owen Michaelson, and the potential split
between the different elements of remuneration under three different performance scenarios: ‘Minimum’, ‘On-target’ and ‘Maximum’,
along with an illustration assuming a 50% increase in the share price for the purposes of the RSP award.
Potential reward opportunities are based on Harworth’s remuneration policy, applied to Mr Michaelson’s base salary effective
1 January 2019. The annual bonus and RSP are based on the level of maximum opportunities applied in 2019. RSP values are based
on the face value at award rather than vesting (other than as regards that element of the charts assuming a 50% increase in the share
price for the purposes of the RSP award).
No chart has been included in respect of Andrew Kirkman, recognising that he will leave the business on 30 June 2019 and will not
stand for re-election at the 2019 Annual General Meeting.
1,000
)
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
800
600
400
200
0
£363K
100%
£838K
19%
38%
£917K
26%
34%
£679K
23%
23%
54%
43%
40%
Minimum Performance
Performance in line
with expectations
Maximum performance
Maximum performance
(with 50% share price increase)
Base salary, benefits and pension
Annual Bonus
RSP
The “minimum” scenario reflects base salary, pension and benefits (i.e. fixed remuneration) which are the only elements of
Mr Michaelson’s remuneration package not linked to performance. Base salary and pension (10% of salary) as at 1 January 2019 as
set out on page 118, benefits are based on the value of such benefits in FY2018 which are taken from the single total figure
remuneration table on page 112.
The “on-target” scenario reflects fixed remuneration as above, plus bonus payout of 50% of maximum annual bonus opportunity (50%
of salary for FY2019) and RSP vesting in full (50% of salary for FY2019).
The “maximum” scenario reflects fixed remuneration as above, plus full payout of all incentives (annual bonus of 100% of salary and
RSP vesting in full 50% of salary for FY2019).
The final scenario is based on the same assumptions as the “maximum” scenario, but also assumes, for the purposes of the RSP
element of the chart, that the share price increases by 50%.
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Approach to recruitment remuneration
External appointment
In the cases of hiring or appointing a new Executive Director from outside the Company, the Remuneration Committee may make use
of all the existing components of remuneration, as follows:
Component
Base salary
Pension
Benefits
Annual bonus
RSP
Approach
Maximum annual grant value
The base salaries of new appointees will be determined by reference to relevant
market data, experience and skills of the individual, internal relativities and
current basic salary. Where new appointees have initial basic salaries set below
market, any shortfall may be managed with phased increases subject to the
individual’s development in the role
New appointees will receive pension contributions or an equivalent cash
supplement in line with the existing policy
New appointees will be eligible to receive benefits which may include (but
are not limited to) the provision of a company car or cash alternative and fuel
allowance and any necessary relocation expenses
The structure described in the policy table will apply to new appointees with
the relevant maximum being pro-rated to reflect the proportion of employment
over the year. Targets for the personal element will be tailored to each executive
150% of salary in the first
year following recruitment
New appointees will be eligible to participate in the RSP, as described in the
policy table
100% of salary in the first
year following recruitment
In determining appropriate remuneration, the Remuneration Committee will take into consideration all relevant factors (including
quantum, nature of remuneration and the jurisdiction from which the candidate was recruited) to ensure that arrangements are in the
best interests of both Harworth and its shareholders. The Committee may make an award in respect of a new appointment to ‘buy
out’ remuneration arrangements forfeited on leaving a previous employer, which may be awarded in addition to the remuneration
structure outlined in the table above. The Committee will generally seek to structure ’buy-out’ awards on a comparable basis to the
remuneration arrangements forfeited and will consider relevant factors including time to vesting, any performance conditions attached
to these awards and the likelihood of those conditions being met. Any such ‘buy-out’ awards will typically be made under the annual
bonus or RSP, although in exceptional circumstances the Committee may exercise the discretion available under Listing Rule 9.4.2 R
to make awards using a different structure. Any ‘buy-out’ awards would have a fair value no higher than the awards forfeited (as
determined by the Committee).
Other elements of remuneration may be included in appropriate circumstances, such as:
• an interim appointment being made to fill an Executive Director role on a short term basis (including if exceptional circumstances
require that the Chairman or other Non-Executive Director takes on an executive function); or
•
if an Executive Director is recruited at a time in the year when it would be inappropriate to provide an annual bonus or long term
incentive award for that year. Subject to the limit on variable remuneration set out below, the quantum in respect of the months
employed during the year may be transferred to the subsequent year so that reward is provided on a fair and appropriate basis.
However, this discretion will not be used to offer non-performance related incentive payments (for example a “guaranteed sign-on
bonus”) and the maximum level of variable remuneration which may be granted (excluding any “buy-out” award) is 250% of salary.
Internal promotion
In cases of appointing a new Executive Director by way of internal promotion, the Remuneration Committee and Board will be
consistent with the policy for external appointees detailed above. Where an individual has contractual commitments made prior to their
promotion to Executive Director level, the Company will continue to honour these arrangements. The Remuneration policy for other
employees is set out on page 107. Incentive opportunities for below Board employees are typically no higher than Executive Directors,
but measures may vary.
Non-Executive Directors
In recruiting a new Non-Executive Director, the Remuneration Committee will utilise the policy as set out in the table on page 107. A
base fee in line with the prevailing fee schedule would be payable for Board membership, with additional fees payable for acting as
Senior Independent Director and /or as Chair of a Board Committee.
Service contracts and treatment for leavers and change of control
Executive Director service contracts, including arrangements for early termination, are carefully considered by the Committee. Each of
the current Executive Directors has a rolling service contract requiring six months’ notice of termination on either side. Such contracts
contain no specific provision for compensation for loss of office, other than an obligation to pay for any notice period waived by the
Company, where pay is defined as salary plus benefits only. Executive Director service contracts are available to view at the
Company’s registered office. The Remuneration Committee may offer a notice period of up to 12 months (on either side) for any
incumbent Executive Director or any Executive Director appointed after the date on which this Policy becomes effective.
When considering exit payments, the Committee reviews all potential incentive outcomes to ensure they are fair to both shareholders
and participants. The table below summarises how the awards under the annual bonus and RSP are typically treated in specific
circumstances, with the final treatment remaining subject to the Committee’s discretion:
110 Harworth Group plc Annual Report and Financial Statements 2018
DIreCtorS’ reMuneratIon report
continued
Reason for leaving
Annual Bonus
Leaving other than as a
“Good Leaver”1
“Good Leaver”1
Change of Control
RSP
Calculation of vesting/payment
Bonus for year of departure: No annual bonus payable
Deferred bonuses: Lapse
Bonus for year of departure: Cash bonuses will typically be paid to the extent that financial and individual
objectives set at the beginning of the plan year have been met. Any resulting bonus will typically be pro-rated
for time served during the year. The Committee retains discretion to waive time pro-rating in appropriate
circumstances.
Deferred bonuses: Typically vest on the normal vesting date subject, if the Committee so determines, to a
reduction to reflect the proportion of the deferral period that has elapsed at cessation. The Committee has
discretion to vest the awards earlier.
Bonus for year of relevant event: Cash bonuses will typically be paid to the extent that financial and
individual objectives set at the beginning of the plan year have been met. Any resulting bonus will typically
be pro-rated for time to the relevant event. The Committee retains discretion to waive time pro-rating in
appropriate circumstances.
Deferred bonuses: Vest on occurrence of the relevant event.
Leaving before vesting other
than as a “Good Leaver”1
If a participant holding an unvested tranche of an RSP award resigns or leaves for another reason which is
not a “good leaver” reason, it will ordinarily lapse
“Good Leaver”1 before vesting
Cessation after vesting
Change of control
If a participant ceases employment as a “good leaver” while holding an unvested tranche of an RSP award,
that tranche will continue and vest following the end of the ordinary vesting period, subject to the application
of the underpin in the ordinary way and, unless the Committee determines otherwise, a reduction to reflect
the proportion of the first three years of the underpin assessment period that has elapsed at the date of
cessation. The unvested tranche will ordinarily be released following the end of the holding period. The
Committee has discretion to vest and release any unvested tranche at cessation or to release any unvested
tranche as soon as it vests.
If a participant ceases employment while holding a tranche of an RSP award which is subject to a holding
period, it will ordinarily continue and be released following the end of the holding period. The Committee has
discretion to release the tranche at cessation. However, if a participant ceases employment due to dismissal
for misconduct during the holding period applying to a tranche, that tranche will lapse.
In the event of a change of control of the Company or other relevant corporate event, unvested share
awards under the RSP will usually vest. In the case of any unvested tranche of an RSP award, the number
of shares in respect of which the tranche vests shall be determined by the Committee taking into account
whether it is appropriate to reduce vesting to reflect the extent to which the underpin is not satisfied at the
date of the relevant event, or the extent to which the Committee determines it would have been satisfied at
the end of the ordinary assessment period, and, unless the Committee determines otherwise, the proportion
of the first three years of the underpin assessment period that has elapsed at the date of the relevant event.
Any tranche of an RSP award which has vested but which remains subject to a holding period will be
released in full.
1 “Good leaver” is defined as a participant ceasing to be employed by the Group by reason of death, disability, ill health, redundancy, retirement or any other reason that the Committee determines in
its absolute discretion
Options under the SAYE plan and awards under the SIP may vest and, where relevant, be exercised in the event of a cessation of
employment or change of control in accordance with the rules of the relevant plan. The plans do not permit the exercise of discretion
and, accordingly, the treatment for Executive Directors will be the same as for all other participants.
The terms applying to any “buy-out” award on cessation of employment would be determined when the award was granted.
The Committee reserves the right to make any other payments in connection with a director’s cessation of office or employment where
the payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an
obligation) or by way of settlement of any claim arising in connection with the cessation of a director’s office or employment. Any such
payments may include but are not limited to paying any fees for outplacement assistance and/or the director’s legal and/or
professional advice fees in connection with his cessation of office or employment.
External appointments
The Board will consider any request by an Executive Director to take potential non-executive appointments on a case by case basis,
taking account of the overriding requirements of the Group and the extent to which the NED opportunity supports the agreed personal
development objectives of the Executive.
StrateGIC report
Corporate GovernanCe
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111
Legacy arrangements
The Committee reserves the right to make remuneration payments and payments for loss of office, and to exercise any discretion
available to in relation to any such payment, notwithstanding that they are not in line with the Policy set out above:
• where the terms of the payment were agreed before the Policy came into effect; and
• where the terms of the payment were agreed at a time when the relevant individual was not a director of the Company and, in
the opinion of the Committee, the payment was not in consideration of the individual becoming a director of the Company.
For these purposes, ‘payments’ includes the satisfaction of variable remuneration and, in relation to an award over shares, the terms of
the payment are ‘agreed’ no later than the time the award is granted.
Any such payment shall include the satisfaction of any awards granted under the Company’s LTIP.
Consideration of conditions elsewhere in the Company
When making decisions on Executive Director remuneration, the Committee considers pay and conditions across the Group. Prior to
the annual salary review, the Head of HR and Organisation Development provides the Committee with a summary of the proposed
level of increase for overall employee pay. The Remuneration Committee does not formally consult with employees on the executive
remuneration policy and framework.
Consideration of shareholder views
The Remuneration Committee maintains a regular dialogue with its major shareholders. In late 2018 and early 2019, we conducted a
shareholder consultation regarding this Policy. Shareholders have been substantially supportive of the proposals for executive
directors’ remuneration and the introduction of a new RSP in place of the existing LTIP. The Committee will continue to monitor trends
and developments in corporate governance, market practice and shareholder views to ensure the structure of the executive
remuneration remains appropriate.
112 Harworth Group plc Annual Report and Financial Statements 2018
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;
• Head of HR and Organisation Development; and
• Representatives of Deloitte LLP and Kepler Associates (see further below).
No individuals are involved in decisions relating to their own remuneration. The minutes of Committee meetings are circulated to all
Directors, where appropriate.
During the year under review, the Committee received advice on executive remuneration matters from Deloitte LLP (“Deloitte”) and
Kepler Associates. Deloitte was appointed by the Committee on 18 October 2018 as its independent adviser following a competitive
selection process. Deloitte is a founder member of the Remuneration Consultants Group and, as such, voluntarily operates under its
Code of Conduct in relation to executive remuneration matters in the UK. Prior to Deloitte’s appointment, the Committee retained the
services of Kepler Associates, a brand of Mercer and part of the MMC Group of companies, which is a signatory to the Code of
Conduct. The Committee has satisfied itself that both Deloitte and Kepler Associates provided objective and independent advice
during 2018.
Deloitte’s fees in relation to remuneration advice provided to the Committee during 2018 were £20,000 plus VAT, charged on a time
and expenses basis. Deloitte also provided advice to the Group during 2018 in relation to corporate tax, pensions, accounting and
share plans. The Committee did not consider that these engagements impaired Deloitte’s independence.
The fees of Kepler Associates in relation to remuneration advice provided to the Committee during 2018 were £18,570 plus VAT,
charged on a time and expenses basis. Kepler Associates provided no other services to the Group during 2018. However, 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 did not impair the independence of Kepler Associates during their tenure.
External appointments
On 26 September 2018, Owen Michaelson was appointed as a Non-Executive Director of Covanta Holding Corporation, which is listed
on the New York Stock Exchange. He is entitled to retain his fees for this Directorship. The Board was satisfied that such appointment
would not compromise his time commitment to Harworth. Owen Michaelson is also a member of the Board of the Sheffield City
Region Local Enterprise Partnership. He receives no fee for this appointment, it requires a limited time commitment, and it helps to
promote both the profile and relationships of the Group. Both appointments were approved by the Board at the time.
Single total figure of remuneration for Executive Directors
The table below sets out remuneration received by each Executive Director of the Company for the year ended 31 December 2018
with a comparison to the previous year, representing payments received in respect of the period during which each individual was a
Director of the Company.
Salary
Taxable benefits(1)
Single-year variable(2)
Multiple-year variable(3)(4)
Pension benefit(5)
Total
Owen
Michaelson
Andrew
Kirkman
2018
£
308,525
15,339
330,122
193,136
30,853
2017
£
301,000
12,810
242,681
805,475
30,100
2018
£
235,000
13,070
198,600
131,586
23,500
29,355
21,375
2,667
13,614
877,975
1,392,066
601,756
2017
£
205,000
13,669
128,600
175,740
20,500
543,509
(1) Taxable benefits consist primarily of car and fuel allowance. For 2018 these were £13,959 for Owen Michaelson (£11,826 for 2017) and £12,002 for Andrew Kirkman (£12,879 for 2017). Other
benefits included life assurance and health insurance.
(2) Annual bonus payments for performance during 2018 were received by Owen Michaelson and Andrew Kirkman, details of which are included below in “Incentive outcomes for year ended
31 December 2018”. The annual bonus for 2018 was paid in March 2019.
(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 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.
(4) The 2016 LTIP awards will vest based on performance periods ending during 2018, details of which are included below in “LTIP awards vesting in respect of the year ended 31 December 2018”.
Awards will vest on 25 May 2019.
(5) Owen Michaelson and Andrew Kirkman participated in the Company’s defined contribution scheme, in relation to which the Company contributed 10% of salary.
StrateGIC report
Corporate GovernanCe
FInanCIaL StateMentS
113
Single total figure of remuneration for Non-Executive Directors
The table below sets out remuneration received by each Non-Executive Director of the Company for the year ended 31 December
2018 with a comparison to the previous year, representing payments received in respect of the period during which each individual
was a Director of the Company.
A. Lyons CBE(1)
J. Cox(2)
L. Clement
S. Underwood(3)
A. Donnelly
M. Bowes
A. Cunningham
Base fee
Committee
chair fees
SID fee
Total
2018
£
131,077
40,000
42,500
42,500
42,500
42,500
42,500
2017
£
–
160,000
42,500
42,500
42,500
42,500
42,500
2018
£
–
–
7,500
–
–
–
7,500
2017
£
–
–
7,500
–
–
–
7,500
2018
£
–
–
7,500
–
–
–
–
2017
–
–
3,000
–
–
–
–
2018
£
131,077
40,000
57,500
42,500
42,500
42,500
50,000
2017
£
–
160,000
53,000
42,500
42,500
42,500
50,000
(1) Appointed as Chairman of the Board, with effect from 7 March 2018.
(2) Stepped down from the Board, with effect from 31 March 2018.
(3) The fees for Steven Underwood are paid to Peel Management Limited.
Incentive outcomes for year ended 31 December 2018
Annual bonus
Annual bonuses for 2018 were paid to both Executive Directors based on a combination of financial performance and personal
objectives. Maximum annual bonus opportunities were 125% of salary for Owen Michaelson and 100% of salary for Andrew Kirkman.
Performance was measured based 76% on financial and 24% on personal performance for Owen Michaelson, and 75% on financial
and 25% on personal performance for Andrew Kirkman. Performance against targets and subsequent vesting of 2018 annual bonuses
are set out in the tables below.
As was reported in last year’s Remuneration Report, Owen Michaelson’s bonus opportunity was increased to 125% of salary for 2018
only to reflect the additional stretch in the targets. Andrew Kirkman’s bonus opportunity was increased to 100% of salary in recognition
of his additional responsibilities for M&A and large-scale (portfolio) acquisitions.
114 Harworth Group plc Annual Report and Financial Statements 2018
DIreCtorS’ reMuneratIon report
continued
annual remuneration report (continued)
Financial performance outcomes
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.
O. Michaelson
Performance targets
(£’000s)
Measure
NNNAV gains
Sales volume
Acquisitions (strategic development of the
business)
Profit excluding value gains
Acquisitions – super-stretch performance
Weight
(% of financial
performance)
47%
12%
12%
8%
21%
Total vesting on financial performance
outcomes
76% weighting
A. Kirkman
Measure
NNNAV gains
Sales volume
Acquisition (strategic development of the
business)
Weight
(% of financial
performance)
60%
15%
15%
Profit excluding value gains
Total vesting on financial performance
outcomes
10%
75% weighting
‘Target’
‘Stretch’
Actual performance
42,500
63,900
HY – 30,000
FY – 60,000
2,200
57,950
70,290
Target plus 5-year
strategic plan
demonstrating
stretch in forecast
returns(3)
3,000
HY – 35,000
FY – 70,000
58,100(1)
95,300(2)
HY – 52,588(4)
FY – 61,150(4)
3,050(5)
HY – 52,588(4)
FY – 61,150(4)
Performance targets
(£’000s)
‘Target’
‘Stretch’
Actual performance
57,950
42,500
63,900
70,290
60,000 Target plus 5-year
strategic plan
demonstrating
stretch in forecast
returns(3)
3,000
2,200
58,100(1)
95,300(2)
HY – 52,588(4)
FY – 61,150(4)
Vesting
outcome
100%
100%
73%
100%
50%(6)
86.3%
Vesting
outcome
100%
100%
73%
3,050(5)
100%
96%
(1) This NNNAV figure includes the promote fee of £6.8m paid by M&G to Harworth upon the letting of LN175 at Logistics North. Whilst accounting treatment of this fee recognised it within PEVG, the
deal structure was put in place to secure additional profit share by the delivery of a direct development with M&G and, as such, it is more appropriate to treat it as a value gain for the purpose of
bonus performance outcomes
(2) This sales figure includes internal sales for direct development and sales by joint ventures
(3) This stretch in this objective was designed to incentivise the executive and wider senior management team to identify initiatives for elevating forecast returns over the strategic plan period. The
forecasts in the strategic plan approved by the Board are commercially sensitive and so not disclosed here. The Committee exercised its judgement to award 73% for this bonus performance
outcome
(4) The figures cited for acquisitions include deferred consideration payable for certain sites subject to delivery of residential plot numbers
(5) This PEVG figure excludes the promote fee of £6.8m paid by M&G to Harworth upon the letting of LN175 at Logistics North – see note (1) above for further explanation
(6) Given the importance of site acquisitions to the overall business strategy, the Committee considered it appropriate to include an additional element within Owen Michaelson’s annual bonus
subject to the delivery of exceptional acquisition performance. Targets were set on a half-year and full-year basis to recognise that acquiring sites earlier in the year creates scope for a more
positive impact on NNNAV performance during the year. Taking into account half-year and full-year performance against targets, the Committee considered that a vesting outturn of 50% against
this element was appropriate
StrateGIC report
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115
Personal performance outcomes
Executive Director
Objectives during the year
Performance against objectives during the year
Vesting of
component
O. Michaelson (24% weighting)
• Operational structure: establishment of a
• Regional operating structure implemented
83%
A. Kirkman (25% weighting)
regional operating structure
• 2019 budget: identification of initiatives to
stretch forecast returns(1)
• Strategic portfolios: identify and secure a
game changing site, strategic portfolio or
corporate target
• Funding strategy: optimise gearing and
secure necessary covenant changes to
facilitate an increase in overall gearing
• Fundraising: work with advisors to be
transaction ready for an equity raise which
also increases liquidity
• Premium listing: work with advisors to
secure premium listing and index inclusion
• Capital allocation and appraisal: present a
standard form of appraisal including
sensitivity analysis with an emphasis on
acquisitions
effectively. Effective internal
communication and engagement with staff
on the operational restructuring. Good
progress made on recruitment for new
regional roles
• Forecast returns in the 2019 budget
increased when compared to strategic
plan approved by the Board in December
2017(1)
• No portfolio or corporate target secured
50%
• RCF increased to £100m with bank
appetite for further lending demonstrated
• Transaction ready but no equity fundraise
required
• Premium listing and index inclusion
achieved
• Plan was presented but did not meet H1
timescale and further embedding needed
in the business
(1) This objective was designed to incentivise the Chief Executive to identify initiatives for stretching forecast returns in 2019. The forecasts in the 2019 budget approved by the Board are
commercially sensitive and so not disclosed here. The Committee exercised its judgement based on the forecast returns in the 2019 budget when compared to those in the strategic plan
approved by the Board in December 2017
Overall bonus outcomes
Financial
Personal vesting
Overall bonus outcome
Sum product of
weighting and vest%
Executive
O. Michaelson
A. Kirkman
Weighting
76%
75%
Vesting
86.3%
96.0%
Weighting
Vesting
% of bonus
% of salary
24%
25%
83%
50%
85.6%
84.5%
107.0%
84.5%
The overall bonus payments were also subject to additional underpins based on the Company’s health and safety record, no
deficiencies or material adverse issues which materially damage the reputation or performance of the business and no covenant
breach or financial irregularity. The Committee reviewed performance against these underpins and considered the underlying
performance of the Group during the performance period and concluded the overall bonus outcomes to be appropriate.
Payment for that element of the Chief Executive’s bonus that is attributable to 2019 forecast returns, which represents 18.69% of the
overall bonus awarded to the Chief Executive, has been deferred into shares for 12 months. This will be subject to clawback if the
business materially underperforms against the 2019 budget. In addition, in accordance with the Policy, the regular clawback provisions
will apply to the deferred and cash elements of the annual bonus for two years following the determination of the bonus outcome.
LTIP awards vesting in respect of the year ended 31 December 2018
Awards granted on 25 May 2016 were subject to the following performance conditions over the three year period ended on
31 December 2018:
• 50% of the award was subject to the Company’s absolute total return (“ATR”) performance.
• 35% of the award was subject to the Company’s total shareholder return (“TSR”) performance relative to a peer group
consisting of: Henry Boot, Inland Homes, St. Modwen, U+I, Urban and Civic.
• 15% of the award was subject to the Company’s TSR performance relative to the FTSE All Share Real Estate Investment
Services Index.
116 Harworth Group plc Annual Report and Financial Statements 2018
DIreCtorS’ reMuneratIon report
continued
annual remuneration report (continued)
A summary of the LTIP targets and actual performance is summarised below.
Performance
condition
ATR
TSR vs peer group
TSR vs Index
Weighting % award
Threshold(1)
Target(2)
Maximum
50%
35%
15%
8%
Median
Index median
10%
n/a
n/a
14%
Median +
9% growth p.a.
Index median +
9% growth p.a.
Actual
performance
13.2%
Below median
Vesting (% of
maximum)
85%
0%
Median + 4.46%
62.17%
Straight-line vesting occurs between defined levels of performance
(1) 10% of maximum opportunity vests in relation to the proportion of the awards subject to ATR performance. 25% of maximum opportunity vests in relation to the proportion of the award subject
to TSR performance
(2) 25% of maximum opportunity vests in relation to the proportion of the award subject to ATR performance
Vesting was also subject to the additional underpins that 30% of value created comes from disposal proceeds and that dividends are
sustainable. The Committee reviewed performance against these underpins, considered the underlying performance of the Group
during the performance period and concluded the proposed vesting outcome of 51.83% of maximum to be appropriate. Awards will
vest on 25 May 2019. 50% of vested shares (post tax) will be subject to a two-year post-vesting holding period.
Director
O. Michaelson
A. Kirkman
Number of shares
granted
Overall vesting
Number of shares
vesting
313,957
213,903
51.83%
51.83%
162,723
110,865
Face value(1)
£193,136
£131,586
(1) The number of shares expected to vest multiplied by the average share price over the three-month period ending 31 December 2018 (118.69p). The LTIP awards did not accrue dividend
equivalents over the vesting period
Scheme interests awarded during 2018
2018 LTIP awards
LTIP awards of 100% of salary were made in 2018 to Owen Michaelson and Andrew Kirkman under the LTIP.
Executive Director
Type of award
Date of award
Number of shares
granted
O. Michaelson
A. Kirkman
2018 LTIP
2018 LTIP
5 April 2018
5 April 2018
280,477
213,636
Face value(1)
£308,525
£235,000
% receivable
at threshold(2)
End of
performance
period
17.5% 31 December 2020
17.5% 31 December 2020
(1) Face value based on the average share price on the three trading days immediately preceding the date of grant (110p)
(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
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.
Vesting schedule
Threshold
Target
Maximum
50% weighting
35% weighting
15% weighting
ATR
8%
10%
12%
% element
vesting
10%
25%
100%
TSR vs
peer group(1)
Median
Median +
9% growth p.a.
% element
vesting
25%
100%
TSR vs Index(2)
Index
Index +
9% growth p.a.
% element
vesting
25%
100%
(1) The peer group consists of: Henry Boot, Inland Homes, St. Modwen, U+I, Urban and Civic
(2) The FTSE All Share Real Estate Investment Services Index
For Executive Directors, 50% of any vested shares (post-tax) 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.
StrateGIC report
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FInanCIaL StateMentS
117
Percentage change in CEO remuneration
The table below shows how the percentage change in the Chief Executive’s salary, benefits and bonus between 2017 and 2018
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
2018
309
2017
301
Percentage
change
2.5%
2.5%
Taxable benefits(1)
£’000
2018
12.5
2017
10
Percentage
change
25%
0%
Bonus
£’000
2018
330
2017
243
Percentage
change
36%
25%
(1) Car allowance only, as fuel and insurance benefits fluctuate according to personal circumstances
Relative importance of spend on pay
Total employee pay expenditure
Distributions to Shareholders
2018
£7.846m
2017
£7.849m
% change
0%
2018
2017
£2.9m
0.911p per share
£2.7m
0.828p per share
% change
10%
Staff costs slightly decreased between 2017 and 2018 due to a reduction from the cash-based Harworth Estates LTIP which was a
one-off scheme with a five-year performance period ending on 31 December 2017 offset by an increase in the size of the workforce.
Total dividends for the year ended 31 December 2017 were 0.828p per share, resulting in total dividends of £2.7m. Total dividends for
the year ended 31 December 2018 were 0.911p per share, resulting in total dividends of £2.9m. This increase reflects the Company’s
progressive dividend policy. The percentage change is shown above on a per share basis.
Review of past performance
The following chart shows the 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 2018. 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 (including re-investment of dividends) over the period from re-listing on 24 March
2015 to 31 December 2018:
£160
£150
£140
£130
£120
£110
£100
£90
24 March 2015
31 December 2015
31 December 2016
31 December 2017
31 December 2018
Source: Thomson Reuters DataStream
Harworth
FTSE Small Cap
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)
2018
£
878
85.6%
51.8%
118 Harworth Group plc Annual Report and Financial Statements 2018
DIreCtorS’ reMuneratIon report
continued
annual remuneration report (continued)
Implementation of Executive Directors’ remuneration policy for 2019
Base salary
The Committee approved the following base salary increases for 2019:
Executive Director
O. Michaelson
A. Kirkman
Annual base salary at
1 January 2018
Annual base salary at
1 January 2019
£308,525
£235,000
£316,250
£240,880
Percentage
increase
2.5%
2.5%
A typical salary increase of 2.5% was awarded across the Group at the annual pay review, effective 1 January 2019.
Pension
Executive Directors will continue to receive a pension contribution of 10% of salary or an equivalent cash allowance.
Performance related annual bonus
For 2019 the Committee has approved annual bonus opportunities equal to 100% of salary for the Chief Executive, based 75% on
financial measures and 25% on personal objectives. As noted on page 102, the Finance Director will not be eligible to earn a bonus for
the period of his service 2019.
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 2019 will be measured against the following financial performance measures:
Executive
NNNAV gains
Acquisitions (strategic development of business)
Sales volume
Profit excluding value gains
Weight
(% of financial
bonus opportunity)
50%
25%
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 additional underpins based on the Company’s health and safety
record during the year, no deficiencies or material 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 Annual Remuneration Report.
Restricted Share Award
Subject to shareholder approval at the 2019 AGM it is proposed that Restricted Share awards will be granted to the Chief Executive at
50% of salary in 2019. Vesting will be phased over a five-year period, with 33% vesting after three years, 33% after four years and 33%
after five years, although all vested shares must be held to the end of year five. As noted on page 102, the Finance Director will not be
granted a Restricted Share award.
The Restricted Share awards will be subject to performance underpins which take into account the Group’s financial health, the underlying
performance of the business relative to the real estate market and the quality of corporate governance over the vesting periods.
Performance underpin
Financial health
Underlying performance
Description
Detail(1)
Financial stability of the business
Sustainability in the Group’s underlying
performance in a cyclical market
A breach of financial covenants in the Group’s
principal banking facilities
A material deterioration in the Group’s underlying
performance which departs significantly from
any deterioration across the real estate sector
including, but not limited to, by reference to share
price, dividend and/or EPRA NNNAV
A material failure in governance or an act
resulting in significant reputational damage and/
or material financial loss to the Group. This
includes giving consideration to any successful
prosecutions in relation to health and safety
Corporate governance
Avoidance of governance and health and safety
failures
(1) The Committee has discretion to make a downward adjustment to awards if any of these events occur during the vesting periods
StrateGIC report
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FInanCIaL StateMentS
119
Furthermore, the Committee has discretion to reduce the vesting outcome if it is not deemed to reflect appropriately underlying
business performance over the vesting period.
The Committee will disclose how performance underpins and underlying business performance over the vesting period have been
taken into account at the time of vesting.
Implementation of Non-Executive Director remuneration policy for 2019
• The Chairman of the Board receives a fee of £160,000 per annum, unchanged from 2018.
• Non-Executive Directors receive a base fee of £45,000 per annum, an increase of £2,500 (5.8%) from 2018.
• 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 2018. 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, unchanged from 2018.
Directors’ interests
A table setting out the beneficial interests of the Directors and their connected persons in the share capital of the Company as at 31
December 2018 (or earlier, if the Director has resigned) 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 31 December 2018 of 114p.
Shares held
Options held
Beneficially
owned
399,768
200,000
716,504
–
–
17,333
38,385
–
90,000
Vested but
subject to
holding
period
Vested
but not
exercised
Unvested
and subject
to perf.
conditions
Shareholding
requirement(3)
% salary/fee
Current
shareholding
% salary/fee
Requirement
met?
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
904,690
638,843
–
–
–
–
–
–
–
100%
100%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
148%
97%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Y
N
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. The holding cited is at the date of resignation
(2) Alastair Lyons was appointed on 7 March 2018
(3) From 1 January 2019 subject to approval of the Policy at the 2019 AGM, the shareholding guidelines for the Executive Directors will be increased to 200% of salary
There have been no changes in the Directors’ interests between 31 December 2018 and the date of signing of these financial
statements.
Summary of Shareholder voting at the 2018 AGM
The table below shows the results of votes at the Harworth Group plc Annual General Meeting on 29 May 2018 on the resolution relating
to the approval of the Annual Remuneration Report:
Resolution 11:
Approval of Annual Remuneration report
Votes
For and
discretion as a
percentage of
votes cast
For and
discretion
184,146,824
99.78%
Against as a
percentage of
votes cast
0.22%
Against
405,369
Withheld
34,123
The table below shows the results of votes at the Harworth Group plc Annual General Meeting on 26 April 2016 on the resolution
relating to the approval of the Remuneration Policy:
Resolution 6:
Approval of Remuneration Policy
Votes
For and
discretion as a
percentage of
votes cast
For and
discretion
1,575,091,080
99.96%
Against as a
percentage of
votes cast
0.04%
Against
633,272
Withheld
267,524
The Directors’ Remuneration Report has been approved by the Board and signed on its behalf by:
Lisa Clement
Chair of the Remuneration Committee
16 April 2019
Directors’ Report
Statements for the year ended 31 December 2018
120 Harworth Group plc Annual Report and Financial Statements 2018
DIreCtorS’ report
Statements for the year ended 31 December 2018
Introduction
The Directors present their report and the audited consolidated financial statements for the year ended 31 December 2018.
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 4 to 71, 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 79
to 91.
As such, the Directors’ Report should be read in conjunction with the Strategic Report (pages 4 to 71) and the wider Statement of
Corporate Governance (pages 79 to 91) 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, p87
Directors’ Report, p122
Statement of Corporate Governance, p91
Directors’ Report, p122
Board of Directors and Company Secretary, pp74-75
Directors’ Report, p122
Directors’ Report, p123
Directors’ Report, p123
Statement of Corporate Governance, pp80-85
Statement of Directors’ Responsibilities, p124
Directors’ Report, p122
Strategic Report: Our People, pp51-53
Strategic Report: Our People, p53
Strategic Report: Our People, p50-51
Strategic Report: Our People, p53
Strategic Report: Our People, p53
Directors’ Remuneration Report, p103
Strategic Report, pp4-9
Strategic Report, p45
Strategic Report, p71
Audit Committee Report, pp96-97
Independent auditors’ Report, pp126-131
Directors’ Report, p123
Strategic Report: Chief Executive’s Statement, p19
Financial Statements, Note 32, p175
Directors’ Report, pp121-122
Directors’ Report, p122
Strategic Report, Financial Review, pp28-29
Directors’ Report, p122
Directors’ Report, p121
Directors’ Report, p121
Strategic Report, pp34-35
Audit Committee Report, p97-98
Strategic Report, Financial Review, pp29-30
Directors’ Report, p123
Financial statements, Note 24, pp167-168
Directors’ Report, p121
Financial statements, Note 31, pp174-175
Directors’ Report, p123
Statement of Corporate Governance, p79
Directors’ Report, p121
The liabilities of the Directors in connection with this Report are subject to the limitations and restrictions provided by English Company law.
StrateGIC report
Corporate GovernanCe
FInanCIaL StateMentS
121
The Company
Legal form
Harworth Group plc is a Company incorporated in England with Company number 02649340. All subsidiaries and associated
undertakings are listed in Note 16 to the Financial Statements.
Financial results
The Group’s consolidated income statement set out on page 132 shows Group profit before taxation of £32.8m (2017: £41.8m). The net
assets attributable to shareholders of the Group increased to £441.9m (2017: £409.3m) over the financial year to 31 December 2018.
The Group’s NAV per share and EPRA NNNAV per share rose by 7.9% and 12.6% respectively during the year. The results for the Group
are reviewed in the Chairman’s Statement, the Chief Executive’s Statement and Financial Review and the detailed results are set out in
the Financial Statements on pages 132 to 175 which accompany this report.
Share capital and authority to allot shares
The Company’s issued share capital as at 31 December 2017 was 321,496,760 Ordinary Shares of 10 pence each. There were no
changes to the Company’s issued share capital during the financial year ended 31 December 2018 and, as such, as at 31 December
2018, the Company’s issued share capital was 321,496,760 Ordinary Shares of 10 pence each.
On 7 February 2019 11,786 shares were issued to satisfy an option exercised by one of the Company’s former employees pursuant to
the Company’s Save-As-You-Earn scheme. Those shares were issued at a price of 80.6 pence, representing a discount of
approximately 31.7% to the closing mid-market price of the Company’s shares on the day before the issue of shares. There have been
no further changes to the issued share capital of the Company. As such, the issued share capital of the Company at 15 April 2019
(being the latest date prior to publication of this Report) was 321,508,546 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 15 April 2019 (being the latest date prior to publication of this Report), there were 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 were no restrictions on any voting rights or deadlines, other than those prescribed by law, nor was 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 Investment Committee and Management Board and certain other senior employees, subject to
the achievement of performance targets and/or underpins under the Company’s incentive schemes. At 31 December 2018, the EBT
held 181,771 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 119.
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 Companies Act 2006 (“CA06”) provides that the Directors may not allot shares (subject to certain exceptions,
including allotments pursuant to an approved employee share scheme) unless empowered to do so by shareholders. In conjunction with
the Share Capital Management Guidelines published by the Investment Association, a resolution was passed at the 2018 AGM 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 2018 AGM. At the 2019 AGM, the Directors propose to renew the authorities granted to them at the 2018 AGM.
Allotment of shares for cash
Under Section 561 of the CA06, if the Directors wish to allot unissued shares for cash (subject to certain exceptions, including allotments
pursuant to an approved 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 2018 AGM, 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 2018 AGM. The Directors propose to renew this authority at the 2019 AGM.
The Directors have no current plans to make use of the renewed authority should it be granted, although they consider its renewal
appropriate in order to retain maximum flexibility to take advantage of business opportunities as they may 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.
Purchase of own shares
The Company has authority under a shareholders’ resolution passed at the 2018 AGM to purchase up to 32,149,675 of the Company’s
Ordinary Shares, representing approximately 10% of the Company’s total issued share capital (at the date of the 2018 AGM), in the
market during the period expiring at the 2019 AGM. No shares have been purchased by the Company under that authority.
Directors’ Report
Continued
122 Harworth Group plc Annual Report and Financial Statements 2018
DIreCtorS’ report
Continued
A special resolution will be proposed at the 2019 AGM 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 and were so amended by a special resolution
passed at the 2018 AGM.
Dividends
The Board is recommending a final dividend of 0.633 pence per share which, together with the interim dividend of 0.278 pence per
share paid in October 2018, makes a combined dividend of 0.911 pence (2017: 0.828 pence) per share. Payment of the final dividend, if
approved at the 2019 AGM, will be made on 31 May 2019 to shareholders on the register at the close of business on 3 May 2019. The
ex-dividend date will be 2 May 2019.
The dividend paid in the year to 31 December 2018 and disclosed in the Statement of Changes in Equity is 0.853 pence (2017: 0.776
pence) per share, comprising the final dividend of 0.575 pence per share for the year ending 31 December 2017 and the interim dividend
of 0.278 pence per share for the year ending 31 December 2018. These were paid on 1 June 2018 and 19 October 2018 respectively.
Directors and Directors’ interests
A list of the Company’s Directors who were in office during the year ended 31 December 2018 and up to the date of signing the Financial
Statements, along with their biographies, appears on pages 74 and 75.
Details of the Directors’ remuneration are set out in the Directors’ Remuneration Report at page 112 (Executive Directors) and page 113
(Non-Executive Directors). Details of the Directors’ beneficial interests in, and options to acquire, Ordinary Shares in the Company as at
31 December 2018 and as at 15 April 2019 (being the latest practical date prior to publication of this Report) are set out in the Directors’
Remuneration Report on page 119. The Directors do not have any interest in any other Group Company, other than as Directors.
Save as set out on page 85 of the Statement of Corporate Governance 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 AGM may only hold office until the date
of the following AGM, at which time that Director must stand for election by shareholders. Angela Bromfield and Ruth Cooke will,
therefore, be standing for election at the 2019 AGM.
The Articles of Association also require one-third of the Directors to retire by rotation at each AGM. Any Director who has not retired by
rotation must retire at the third AGM after his or her last election or re-election. However, the Board has again decided that all other
Directors will also be subject to re-election at the 2019 AGM, save for Andrew Kirkman who is leaving the business on 30 June 2019.
The Directors may exercise all 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, insurance and independent advice
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 a Director has acted fraudulently or
dishonestly.
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 2018.
StrateGIC report
Corporate GovernanCe
FInanCIaL StateMentS
123
Political donations
No political donations were made during the year (2017: £nil). It remains the Company’s policy not to 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 CA06 remain very broad, which may have the effect of covering some 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 CA06, the Directors obtained authority from shareholders at the 2018 AGM for certain
political donations and expenditure, subject to financial limits. The Directors will seek to renew this authority at the 2019 AGM.
Charitable donations
The Group made charitable donations during 2018 in the aggregate sum of £4,350 (2017: £22,735).
Financial instruments and risk management
The Group’s exposure to, and management of capital, liquidity, credit and interest rate risk, are set out within Note 24 of the Financial
Statements.
General meetings
An AGM must be called on at least 21 days’ clear notice, although the Company gives not less than 20 working days’ notice of its AGM
following the latest edition of the Guidance on Board Effectiveness.
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 AGMs) to not less than 14
days was passed at the 2018 AGM. The Directors are proposing to seek renewal of that authority at the 2019 AGM. 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
83,582,667
80,374,189
31,993,428
27,480,851
19,902,272
25.997%
24.999%
9.951%
8.547%
6.190%
* Goodweather Holdings Limited is a member of the Peel Holdings Group Limited.
Change of control provisions
Under the terms of the revolving credit facility agreement entered between RBS and HEPGL in February 2015 and amended in August
2016, December 2016, August 2017, February 2018 and April 2018 (to which Santander is also now a party), if any person or Group of
persons acting in concert gains direct or indirect control of HEPGL the facility is capable of being cancelled in which event 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 AGM, a copy of which is available on the Company’s website at
www.harworthgroup.com/investors.
Agreements with related parties
Peel Group is a related party by virtue of its shareholding in the Company and Steven Underwood being Chief Executive of the Group.
Certain joint venture agreements with the Peel Group were varied during 2017, with the approval of shareholders at the 2017 AGM. By
virtue of those variations, options were granted by the Group to Peel Environmental Limited (“PEL”) in respect of three sites and the terms
of a surrender of an existing option over one site were agreed. During 2018: one of those options was exercised (the other two having
been exercised in 2017), resulting in a sale of land to PEL; and the surrender was completed, resulting in payment of a surrender
premium by the Group to PEL.
Banks Group is a related party by virtue of Andrew Cunningham’s appointment as a Non-Executive Director. During 2018 Harworth
acquired a site at Moss Nook in St Helens from two Banks Group companies, Banks Property Limited and HJ Banks and Company
Limited.
Approval
The Directors’ Report was approved by the Board of Directors and signed on its behalf by:
Chris Birch
Group General Counsel and Company Secretary
16 April 2019
Statement of Directors’ Responsibilities
in respect of the financial statements
124 Harworth Group plc Annual Report and Financial Statements 2018
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
regulation.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have
prepared both the Group and the Company Financial Statements in accordance with International Financial Reporting Standards
(“IFRS”) as adopted by the European Union. Under Company law the Directors must not approve the Financial Statements unless they
are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group
and 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;
•
state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures
disclosed and explained in the Financial Statements; and
• prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company and Group
will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and
enable them to ensure that the Financial Statements and the Directors’ Remuneration Report comply with CA06 and Article 4 of the
IAS Regulation. They are responsible for such internal controls as they determine are 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 safeguarding the assets of the Group and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company’s website www.harworthgroup.com. Legislation in the
United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors’ confirmations
Each of the Directors who were in office during the year ended 31 December 2018 and up to the date of this Report considers that the
2018 Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information
necessary for Shareholders to assess the Group’s and Company’s position and performance, business model and strategy.
Each of the Directors who were in office during the year ended 31 December 2018 and up to the date of this Report confirms, to the
best of their knowledge, that:
•
•
the Group and Company Financial Statements, which have been prepared in accordance with applicable IFRSs as adopted by
the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
the Directors’ 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 2018 and up to the date of this Report also confirms that:
•
•
so far as the Director is aware, there is no relevant audit information of which the Group’s and 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 Group’s and Company’s auditors are aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of section 418 CA06.
The Directors’ Report, prepared in accordance with the requirements of CA06, the FCA’s Listing and Disclosure and Transparency
Rules and the Code, was approved by the Board and signed on its behalf by:
Chris Birch
Group General Counsel and Company Secretary
16 April 2019
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Build out of Multiply Phase 2, Logistics North, Summer 2018 Independent auditors’ report
to the members of Harworth Group plc
126 Harworth Group plc Annual Report and Financial Statements 2018
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 2018 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 International Financial Reporting Standards (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 2018 (the “Annual Report”), which
comprise: the Balance sheets as at 31 December 2018; 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 2018 to 31 December 2018.
Our audit approach
Overview
• Overall group materiality: £5.7 million (2017: £5.0 million), based on 1% of total assets.
• Overall company materiality: £2.4 million (2017: £2.4 million), 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 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 4 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 85% of total assets and 84% 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 (£254.4m) (Refer to note 15 of the financial statements) (Group).
• Carrying value of development property (£204.2m) (Refer to note 17 of the financial statements) (Group).
• Carrying value of investments and intercompany receivables (£208.4m) (Refer to note 16 of the financial
statements) (Parent).
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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.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations
related to UK tax legislation, and we considered the extent to which non-compliance might have a material effect on the financial
statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such
as the Companies Act 2006 and Listing Rules. We evaluated management’s incentives and opportunities for fraudulent manipulation of
the financial statements (including the risk of override of controls), and determined that the principal risks were related to the posting of
inappropriate journal entries to increase revenue or reduce expenditure, and management bias in accounting estimates. The group
engagement team shared this risk assessment with the component auditors so that they could include appropriate audit procedures in
response to such risks in their work. Audit procedures performed by the group engagement team and/or component auditors included:
• Discussions with management, including consideration of known or suspected instances of non-compliance with laws and
regulation and fraud;
• Evaluation of management’s controls designed to prevent and detect irregularities;
• Challenging assumptions and judgements made by management in their significant accounting estimates, in particular in
relation to the valuation of investment property and carrying value of development property (see related key audit matters
below); and
•
Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations.
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. Also,
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.
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 (£254.4m) (Refer to note 15 of the financial
statements) (Group)
We focused on this area because the Group’s investment property
assets represent a significant proportion of the assets in the group
balance sheet and the level of judgement involved in the valuation of
such assets.
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 was 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 65% 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 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.
128 Harworth Group plc Annual Report and Financial Statements 2018
Independent audItors’ report
to the members of Harworth Group plc
Key audit matter
How our audit addressed the key audit matter
Carrying value of development property (£204.2m) (Refer to note 17 of the
financial statements) (Group)
We focused on this area because the Group’s development
property assets represent a significant proportion of the assets in the
group balance sheet and the level of judgement involved in the valuation
of such assets.
The Group’s development properties were valued at £204.2m as at
31 December 2018. These properties are held at the lower of cost and
net realisable value, in accordance with IAS 2 – Inventory. 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 was several disposals recorded, the
portfolio includes certain assets transferred during the previous 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 either the property or construction markets could
result in a material impact to the financial statements.
Carrying value of investments and intercompany receivables (£208.4m) (Refer
to note 16 of the financial statements) (Parent)
We focused upon this area because the underlying value in the
Company is represented by balances due from the wider group and the
investment held by the Company in its subsidiaries.
The key judgement is the underlying cash generation and profitability
of the wider group which can be affected by market conditions and
unexpected events.
Management received 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 was 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 to 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.
We also found that the assumptions used were within the ranges
typically used for similar valuations.
Using the third party valuations, 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.
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 compared the carrying value of the investments to the subsidiary’s
net assets and assessed the future cash flows of the subsidiaries. We
noted no concerns with the carrying value.
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.
Overall group materiality: £5.7 million (2017: £5.0 million), based on 1% of total assets.
Overall company materiality: £2.4 million (2017: £2.4 million), based on 1% of total assets.
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
£5.7 million (2017: £5.0 million).
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.
£2.4 million (2017: £2.4 million).
1% of total assets.
The principal activity of the company is a holding
company of the subsidiaries in the group. Due to this,
the key area of focus in the audit is the carrying value
of the investments in subsidiaries. On this basis, we
set an overall materiality level based on total assets,
which is a generally accepted auditing benchmark.
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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 £1.4 million and £4.6 million. 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 £289,000 (Group
audit) (2017: £196,000) and £240,000 (Company audit) (2017: £236,000) 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 are required to report if the directors’ statement relating to Going
Concern in accordance with Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the audit.
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. For example, the terms on which the
United Kingdom may withdraw from the European Union are not clear,
and it is difficult to evaluate all of the potential implications on the group’s
trade, customers, suppliers and the wider economy.
We have nothing to report.
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),
ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) 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 2018 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
We have nothing material to add or draw attention to regarding:
• The directors’ confirmation on page 34 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 45 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.
130 Harworth Group plc Annual Report and Financial Statements 2018
Independent audItors’ report
to the members of Harworth Group plc
We have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of the
principal risks facing the group and statement in relation to the longer-term viability of the group. Our review was substantially less in
scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements;
checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the “Code”); and
considering whether the statements are consistent with the knowledge and understanding of the group and company and their
environment obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the directors, on page 124, 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 94 describing the work of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
• The directors’ statement relating to the company’s compliance with the Code does not properly disclose a departure from a
relevant provision of the Code specified, under the Listing Rules, for review by the auditors.
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 124, 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.
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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 27
years, covering the years ended 31 December 1992 to 31 December 2018.
Andy Ward (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Leeds
16 April 2019
Consolidated income statement
for the year ended 31 December 2018
132 Harworth Group plc Annual Report and Financial Statements 2018
ConsoLIdated InCoMe stateMent
for the year ended 31 december 2018
Revenue
Cost of sales
(20,905)
Gross profit
Administrative expenses
Other gains
Other operating (expense) /income
Operating profit before exceptional items
Exceptional income
Exceptional expense
(682)
Operating profit
Share of profit of joint ventures
Net finance costs
Profit before tax
Tax credit
Profit for the financial year
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
Note
3
3
3
3
3
5
5
16
7
9
78,055
(53,612)
24,443
(12,870)
22,066
(70)
33,569
–
(590)
32,979
3,791
(3,962)
32,808
1,294
34,102
53,673
(37,678)
15,995
(12,020)
35,658
98
39,731
414
(83)
40,062
4,039
(2,261)
41,840
7,843
49,683
All activities in the year are derived from continuing operations.
Earnings per share from continuing operations attributable to the owners of the Group during the year
Basic earnings per share
Diluted earnings per share
Note
12
12
pence
10.6
10.5
pence
15.8
15.7
The Notes on pages 138 to 175 are an integral part of the consolidated financial statements.
Consolidated statement of comprehensive income
for the year ended 31 December 2018
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ConsoLIdated stateMent oF
CoMpreHensIVe InCoMe
for the year ended 31 december 2018
Profit for the financial year
Other comprehensive (expense) /income – 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 (expense) /income items
Other comprehensive income – items that may be reclassified subsequently to profit or loss:
Fair value of financial instruments
Total other comprehensive (expense) /income
Total comprehensive income for the financial year
Note
25
13
9
23
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
34,102
49,683
(18)
–
(1)
13
(6)
(105)
12
(51)
244
100
34,096
49,783
Balance sheets
as at 31 December 2018
134 Harworth Group plc Annual Report and Financial Statements 2018
BaLanCe sHeets
as at 31 december 2018
Group
Company
As at
31 December
2018
£’000
As at
31 December
2017
£’000
As at
31 December
2018
£’000
As at
31 December
2017
£’000
Note
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
13
14
15
16
16
25
18
9
17
18
19
20
21
22
9
21
22
23
9
25
–
–
(563)
27
28
27
794
–
254,409
–
25,830
–
–
–
281,033
207,009
66,699
10,956
8,595
293,259
574,292
(5,291)
(52,555)
(928)
(58,774)
234,485
(67,747)
(300)
(109)
(4,964)
(462)
–
(73,582)
–
(132,356)
(563)
441,936
32,150
24,351
(194)
99,825
257
45,667
34,102
205,778
441,936
802
2,666
216,560
–
18,838
–
5,250
–
244,116
211,618
25,165
7,688
8,371
252,842
496,958
–
–
–
208,400
–
462
–
1,926
210,788
–
30,219
–
1,116
31,335
–
–
–
207,896
–
563
–
250
208,709
–
33,268
–
1,267
34,535
242,123
243,244
(6,145)
(38,497)
(1,538)
–
(5,502)
–
(1,885)
(1,885)
–
(3,536)
–
(3,536)
30,999
–
–
–
–
(563)
(563)
(5,502)
25,833
–
–
–
–
(462)
(462)
(5,964)
236,159
(4,099)
239,145
32,150
24,351
(194)
–
257
45,667
(1,396)
135,324
236,159
32,150
24,351
(263)
–
257
45,667
(5,759)
142,742
239,145
(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
The financial statements on pages 132 to 175 were approved by the Board of Directors on 16 April 2019 and were signed on its
behalf by:
Owen Michaelson
Chief Executive
Andrew Kirkman
Finance Director
Company Registered Number 02649340
Consolidated statement of changes in equity
for the year ended 31 December 2018
strateGIC report
Corporate GoVernanCe
FInanCIaL stateMents
135
ConsoLIdated stateMent oF
CHanGes In eQuItY
for the year ended 31 december 2018
Balance at 1 January 2017
Profit for the financial year
Net 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
Balance at 31 December 2017
Profit for the financial year
Net fair value gains
Transfer of unrealised loss
Other comprehensive (expense) /income:
Actuarial loss in Blenkinsopp pension scheme
Fair value of financial instruments
Deferred tax on other comprehensive
(expense) /income items
Total comprehensive income for the year ended
31 December 2018
Transactions with owners:
Share based payments
Dividends paid
17
25
13
23
9
27
28
27
11
17
25
23
9
26
11
Called up
share
capital
£’000
29,227
Note
Share
premium
account
£’000
Investment
in own
shares
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Fair value
reserve*
£’000
58,279
–
32,636
(5,818)
–
12
–
–
26,830
–
–
–
–
–
–
–
–
2,923
–
–
–
24,142
209
–
–
–
–
(263)
–
–
–
–
–
Capital
redemption
reserve
£’000
Merger
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
257
45,667 201,493 334,923
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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)
32,150
24,351
(263)
85,109
257
45,667 222,040 409,311
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
19,483
(4,767)
–
–
–
–
69
–
–
–
–
14,716
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
34,102
(19,483)
4,767
34,102
–
–
(18)
13
(1)
(18)
13
(1)
19,380
34,096
1,200
(2,740)
1,269
(2,740)
Balance at 31 December 2018
32,150
24,351
(194)
99,825
257
45,667 239,880 441,936
*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.
Company statement of changes in equity
for the year ended 31 December 2018
136 Harworth Group plc Annual Report and Financial Statements 2018
CoMpanY stateMent oF
CHanGes In eQuItY
for the year ended 31 december 2018
Balance at 1 January 2017
Loss for the financial year
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
Loss for the financial year
Actuarial loss in Blenkinsopp pension scheme
Deferred tax on actuarial loss on pension scheme
Total comprehensive expense for the year ended
31 December 2018
Transactions with owners:
Share based payments
Dividends paid
Called up
share
capital
£’000
29,227
Note
Share
premium
account
£’000
Investment
in own
shares
£’000
Capital
redemption
reserve
£’000
Merger
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
–
–
–
–
–
–
–
–
–
2,923
–
–
–
24,142
209
–
–
32,150
24,351
–
–
–
–
–
–
–
–
–
–
–
–
25
27
28
27
11
25
11
–
–
–
–
–
–
–
(263)
–
(263)
–
–
–
–
69
–
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
–
–
–
–
–
–
–
–
–
–
–
–
(1,396)
(18)
3
(1,396)
(18)
3
(1,411)
(1,411)
1,096
(2,740)
1,165
(2,740)
Balance at 31 December 2018
32,150
24,351
(194)
257
45,667
133,928
236,159
Statements of cash flows
for the year ended 31 December 2018
strateGIC report
Corporate GoVernanCe
FInanCIaL stateMents
137
stateMents oF CasH FLows
for the year ended 31 december 2018
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)/decrease in receivables
Increase in payables
Cash (used in) /generated from operations
Interest paid
Corporation tax received
Cash (used in) /generated from operating activities
Cash flows from investing activities
Interest received
Investment in/acquisition of joint ventures
Net proceeds from disposal of investment properties, assets held
for sale and overages
Loan arrangement fees paid
Expenditure on 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
Note
7
3
16
13
28
11
Increase/(decrease) in cash
At 1 January
Cash
Increase/(decrease) in cash
At 31 December
Cash
Group
Company
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
32,808
3,962
(22,066)
(3,791)
9
(120)
10,802
4,609
(36,284)
13,598
(7,275)
(1,581)
99
(8,757)
4
(2,843)
47,801
(566)
(64,124)
(1)
(19,729)
–
8,650
(46,730)
81,739
(12,209)
–
–
(2,740)
28,710
224
8,371
224
8,595
41,840
2,261
(35,658)
(4,039)
8
(144)
4,268
18,232
(5,970)
8,394
24,924
(1,277)
175
23,822
16
(4,250)
24,434
(214)
(60,431)
(9)
(40,454)
27,065
6,502
(57,000)
43,000
(5,111)
(177)
209
(2,492)
11,996
(4,636)
13,007
(4,636)
(2,995)
(581)
–
–
–
(120)
(3,696)
–
3,049
3,235
2,588
–
–
2,588
1
–
–
–
–
–
1
–
–
–
–
–
–
–
(2,740)
(2,740)
(151)
1,267
(151)
(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)
8,371
1,116
1,267
Notes to the financial statements
for the year ended 31 December 2018
138 Harworth Group plc Annual Report and Financial Statements 2018
notes to tHe FInanCIaL stateMents
for the year ended 31 december 2018
Accounting policies
1.
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 the ‘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 167 and 168.
The key factor that has been considered in this regard is:
The Group has a £100m revolving credit facility with National Westminster Bank PLC and Santander UK plc, 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
and promote fees on the letting of forward funded units, 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.
Revenue from PPAs and overages are recognised when it is highly probable that all performance obligations have been
completed.
Revenue from the sale of coal fines is recognised at the point of despatch.
Following the adoption of IFRS 15 ‘Revenue from 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 goods of service. In respect of the sale
of development property, control is typically passed to a customer at the point of legal completion and when 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.
strateGIC report
Corporate GoVernanCe
FInanCIaL stateMents
139
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
Other receivables 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 recognised when they are highly probable to be received and
are recorded as revenue if related to previous development sales and profit on sale if related to previous investment property
sales.
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.
Investment in subsidiaries
Investment held by the Company in subsidiary undertakings are carried at cost less impairments to write them down to their
recoverable amount.
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,
Notes to the financial statements
for the year ended 31 December 2018: continued
140 Harworth Group plc Annual Report and Financial Statements 2018
notes to tHe FInanCIaL stateMents
for the year ended 31 december 2018: continued
1. Accounting policies: continued
independent valuation firms having appropriate, recognised professional qualifications and recent experience in the location and
category of property being valued are used.
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 control of the investment property has been passed to a customer, typically at the point of legal
completion and when title has passed. Profits or losses on disposal arise from deducting the asset’s net carrying value, selling
costs 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, not including interest, 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 include cash received from the sale of certain development properties but held in separate bank accounts over
which third party infrastructure loan providers have a charge.
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 year in which they arise.
Interest income is recognised on financial assets by applying the effective interest rate, except for short-term receivables when the
recognition of interest would be immaterial.
Financial liabilities
Liabilities within the scope of IFRS 9 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.
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.
strateGIC report
Corporate GoVernanCe
FInanCIaL stateMents
141
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 2018 and 31 December 2017 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 Investment Committee
that are used to assess both performance and strategic decisions. Management has identified that the Investment Committee 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 Investment Committee 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 capitalised 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 significant 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
142 Harworth Group plc Annual Report and Financial Statements 2018
notes to tHe FInanCIaL stateMents
for the year ended 31 december 2018: 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
Group would structure the sale via the disposal of the subsidiary holding the asset, to which a different tax rate may apply.
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143
1. Accounting policies: continued
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
The new standards, amendments or interpretations effective for the first time for the financial year beginning on or after 1 January
2018 are:
•
•
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 OCI and fair value through P&L. 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 OCI not
recycling through profit or loss. 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. The impact of
IFRS 9 has been assessed on the financial instruments of the Group and no adjustments have been 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 performed a detailed assessment of the impact of IFRS 15 on revenue
streams and policies for 2017. This highlighted that revenues relating to the sales of development properties, particularly where
revenue involves a deferred element or conditions subsequent exist, were specifically affected by the standard as were certain
promote agreements. The impact of implementing this standard on revenue would have amounted to £2.1m for 2017. However,
the Directors assessed that this impact was not significant enough for restatement. The impact of IFRS 15 on revenue for 2018
has amounted to £2.2m for 2018. There was no impact of IFRS 15 on profit for 2018 or 2017.
(b) New standards, amendments and interpretations not yet adopted
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning on or
after 1 January 2019 and have not been applied in preparing this preliminary financial information. None of these are expected to
have a significant effect on the financial statements of the Group including the following:
•
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, the Group
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 former 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 (2017: £3.2m) and has been
treated as a reduction in the valuation of the properties which these former tenants occupied.
144 Harworth Group plc Annual Report and Financial Statements 2018
notes to tHe FInanCIaL stateMents
for the year ended 31 december 2018: continued
1. Accounting policies: continued
The values reported are based on significant assumptions and a change in fair values could have a material impact on the Group’s
results. This is due to the sensitivity of fair value to the assumptions made as regards to variances in development costs
compared to management`s own estimates.
Investment properties are disclosed in note 15.
Valuation of development properties
For the purposes of calculating net realisable value for both EPRA reporting and ensuring that development properties are stated at the
lower of cost and net realisable value, the Group obtains an independent valuation of these properties, prepared in accordance with the
current edition of the Appraisal and Valuation Standards published by the Royal Institution of Chartered Surveyors.
If the net realisable value of the property is lower than cost, a provision is made, to reduce the value of the property.
Categorisation of the property portfolio
During 2017, £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. In 2018 no new properties were re-categorised from investment to development property as a
result of planning permissions. There were some minor movements from investment to development properties, and vice-versa,
as a result of sub-dividing some sites and the intentions for these smaller parcels.
Taxation
The recognition of tax losses and deferred tax assets has continued to be reviewed and re-assessed during the year. This has
resulted in the recognition of £2.4m (2017: £nil) of previously unrecognised tax losses due to increased certainty of their availability
to the Group. In 2017, deferred tax assets of £19.1m were recognised based upon the certainty of recoverability. In addition, during
2017, £5.9m was recognised due to the execution of a contract which resulted in increased certainty that the losses would not be
lost and £13.2m was 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 were offset against tax
losses that were previously not recognised from a deferred tax perspective.
2. Alternative Performance Measures (“APMs”)
Introduction
The Group has applied the June 2015 European Securities and Markets Authority (“ESMA”) guidance on APMs and the November
2017 Financial Reporting Council (“FRC”) corporate thematic review of APMs in these results. An APM is a financial measure of
historical or future financial performance, position or cash flows of the Group which is not a measure defined or specified in IFRS.
Overview of our use of APMs
The Directors believe that APMs assist in providing additional useful information on the underlying trends, performance and
position of the Group. APMs assist our stakeholder users of the accounts, particularly equity and debt investors, through the
comparability of information. APMs are used by the Directors and management, both internally and externally, for performance
analysis, strategic planning, reporting and incentive-setting purposes.
APMs are not defined by IFRS and therefore may not be directly comparable with other companies’ APMs, including peers in the
real estate industry. APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS
measurements.
The derivations of our APMs and their purpose
The primary differences between IFRS statutory amounts and the APMs that we use are as follows:
1. Capturing all sources of value creation – Under IFRS, the revaluation movement in development properties, which are held in
inventory, is not included in the balance sheet. Also, overages are not recognised in the balance sheet until they are highly
probable. These movements, which are verified by BNP Paribas and Savills (independent external property surveyors) , are
included within our APMs;
2. Recategorising income statement amounts – Under IFRS, the grouping of amounts, particularly within gross profit and other
gains, do not clearly allow Harworth to demonstrate the value creation through its business model. In particular, the statutory
grouping does not distinguish value gains (being realised profits from the sales of properties and unrealised profits from
property value movements) from the ongoing profitability of the business which is less susceptible to movements in the
property cycle. In addition, following the introduction of IFRS 15, profit on disposal also includes the interest received on
deferred consideration on residential sales (this was previously recognised as revenue) . Finally, the Group includes profits from
joint ventures within our APMs as our joint ventures conduct similar operations to Harworth, albeit in different ownership
structures; and
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FInanCIaL stateMents
145
2. Alternative Performance Measures (“APMs”): continued
3. Comparability with industry peers – Harworth discloses some APMs which are European Public Real Estate Association
(“EPRA”) measures as these are a set of standard disclosures for the property industry and thus aid comparability for our
stakeholder users.
Our key APMs
The key APMs that the Group focuses on are as follows:
• Value gains – This is the realised profits from the sales of properties and unrealised profits from property value movements
including joint ventures and the mark to market movement on development properties and overages;
• Profit excluding value gains – This profit measure represents the ongoing profitability of the business principally in terms of rents
and royalties. It is calculated as operating profit before exceptional items, less other gains, gross profit on development
properties and pension charges;
• EPRA NNNAV growth – The movement in EPRA NNNAV per share expressed as a percentage of opening NNNAV per share; and
• Total return – The movement in EPRA NNNAV per share plus dividends paid in the year per share expressed as a percentage of
opening NNNAV per share.
Changes to APMs
There have been no changes to the Group’s APMs in the year with the same APMs being defined, calculated and used on a
consistent basis.
Reconciliation of APMs
Set out below is a reconciliation of the APMs used in these results to the statutory measures.
1) Reconciliation to statutory measures
a. Revaluations gains
Increase in fair value of investment properties
(Decrease) /increase in fair value of other receivables
Decrease in fair value of assets classified as held for sale
Other gains
Share of profit of joint ventures
Net realisable value provision of development properties
Reversal of previous net realisable value provision of development properties
Amounts derived from statutory reporting
Unrealised gains on development properties
Unrealised gains on overages
Revaluation gains
b. Profit on sale
Profit on sale of investment properties
Profit on sale of assets classified as held for sale
Profit on sale of development properties
Amounts derived from statutory reporting
Unrealised gains on development properties released on sale in the year
Profit on sale
c. Value gains
Statutory reporting revaluation gains
Statutory reporting profit on sale
Amounts derived from statutory reporting
Unrealised gains on development properties
Unrealised gains on overages
Gains on development properties released on sale in the year
Value gains (including development properties and overages)
d. Profit excluding value gains (PEVG)
Operating profit before exceptional items
Add pension charge
Less other gains
Less gross profit from development properties
PEVG
Year ended
31 December
2018
£000
Year ended
31 December
2017
£000
Note
3
3
3
3
3
3
3
3
3
3
3
3
3
21,483
(2,000)
–
45
3,791
(4,767)
3,031
21,583
22,945
3,541
32,133
586
(83)
–
4,039
(5,818)
–
30,857
5,846
–
48,069
36,703
2,374
164
3,469
6,007
(2,794)
3,213
21,583
6,007
27,590
22,945
3,541
(2,794)
51,282
33,569
70
(22,066)
(1,733)
9,840
2,919
103
7,690
10,712
–
10,712
30,857
10,712
41,569
5,846
–
–
47,415
39,731
39
(35,658)
(1,872)
2,240
146 Harworth Group plc Annual Report and Financial Statements 2018
notes to tHe FInanCIaL stateMents
for the year ended 31 december 2018: continued
2. Alternative Performance Measures (“APMs”): continued
e. Total property sales
Revenue from development properties
Revenue from other property activities
Revenue from income generation activities
Amounts derived from statutory reporting
Less revenue from other property activities
Less revenue from income generation activities
Add proceeds from sales of investment properties, assets held for sale and overages
Total property sales
f. Operating profit before exceptional items contributing to growth in EPRA NNNAV
Operating profit before exceptional items
Share of profit of joint ventures
Unrealised gains on development properties
Unrealised gains on overages
Less gains on development properties released on sale in the year
Operating profit before exceptional items contributing to growth in EPRA NNNAV
g. Portfolio value
Land and buildings
Other receivables
Investment properties
Investments in joint ventures
Assets classified as held for sale
Development properties
Amounts derived from statutory reporting
Cumulative unrealised gains on development properties as at year end
Cumulative unrealised gains on overages as at year end
Portfolio value
h. Net debt
Gross borrowings
Cash
Net debt
i. Net loan to portfolio value
Net debt
Portfolio value
Net loan to portfolio value (%)
j. Net loan to income portfolio value
Net debt
Income portfolio value (business space and natural resources)
Net loan to income portfolio value (%)
Year ended
31 December
2018
£000
Year ended
31 December
2017
£000
Note
3
3
3
3
3
3
3
13
14
15
16
19
17
44,825
7,629
25,601
78,055
(7,629)
(25,601)
48,338
29,765
5,671
18,237
53,673
(5,671)
(18,237)
25,008
93,163
54,773
33,569
3,791
22,945
3,541
(2,794)
39,731
4,039
5,846
–
–
61,052
49,616
787
–
254,409
25,830
10,956
204,157
496,139
25,997
3,541
787
2,666
216,560
18,838
7,688
210,471
457,010
5,846
–
525,677
462,856
21
20
(73,038)
8,595
(40,646)
8,371
(64,443)
(32,275)
(64,443)
525,677
12.3%
(32,275)
462,856
7.0%
(64,443)
187,648
(32,275)
154,877
34.3%
20.8%
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FInanCIaL stateMents
147
2. Alternative Performance Measures (“APMs”): continued
k. Gross loan to portfolio value
Gross borrowings
Portfolio value
Gross loan to portfolio value (%)
l. Gross loan to income portfolio value
Gross borrowings
Income portfolio value
Gross loan to income portfolio value (%)
m. Per share
Number of shares in issue at 31 December
Employee Benefit Trust Shares (own shares) at 31 December
Number of shares used for per share calculations
n. NAV per share
NAV £’000
Number of shares used for per share calculations
NAV per share (p)
2) Reconciliation to EPRA measures
a. EPRA NNNAV
Net assets
Cumulative unrealised gains on development properties
Cumulative unrealised gains on overages
Notional deferred tax on unrealised gains
EPRA NNNAV
b. EPRA NAV
EPRA NNNAV
Notional deferred tax on unrealised gains
Deferred tax liability
Mark to market valuation of financial instruments
EPRA NAV
c. EPRA NNNAV per share
EPRA NNNAV £’000
Number of shares used for per share calculations
EPRA NNNAV per share (p)
d. EPRA NAV per share
EPRA NAV £’000
Number of shares used for per share calculations
EPRA NAV per share (p)
Note
21
Year ended
31 December
2018
£000
Year ended
31 December
2017
£000
(73,038)
525,677
13.9%
(40,646)
462,856
8.8%
21
(73,038)
187,648
(40,646)
154,877
38.9%
26.2%
27 321,496,760
(181,771)
27
321,496,760
(246,010)
27
321,314,989
321,250,750
441,936
409,311
321,314,989 321,250,750
137.5
127.4
Year ended
31 December
2018
£000
Year ended
31 December
2017
£000
Note
441,936
25,997
3,541
(5,021)
409,311
5,846
–
(994)
466,453
414,163
9
466,453
5,021
4,964
109
476,547
414,163
994
5,521
122
420,800
466,453
414,163
321,314,989 321,250,750
27
145.2
128.9
476,547
420,800
321,314,989 321,250,750
27
148.3
131.0
148 Harworth Group plc Annual Report and Financial Statements 2018
notes to tHe FInanCIaL stateMents
for the year ended 31 december 2018: continued
2. Alternative Performance Measures (“APMs”): continued
e. EPRA NNNAV growth and total return
Opening EPRA NNNAV / share (p)
Closing EPRA NNNAV / share (p)
Movement in the year
EPRA NNNAV growth
Dividends paid per share (p)
Total return per share
Total return as a percentage of opening NNNAV
f. Net loan to EPRA NNNAV
Net debt £’000
EPRA NNNAV £’000
Net loan to EPRA NNNAV
Year ended
31 December
2018
£000
Year ended
31 December
2017
£000
128.9
145.2
16.3
12.6%
0.9
17.2
13.3%
114.6
128.9
14.3
12.5%
0.8
15.1
13.2%
(64,443)
466,453
13.8%
(32,275)
414,163
7.8%
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FInanCIaL stateMents
149
3. Segment Information
31 December 2018
Capital Growth
Revenue
Cost of sales
Gross profit(1)
Administrative expenses
Other gains(2)
Other operating expense
Operating profit/(loss) before exceptional items
Exceptional expense
Operating profit/(loss)
Share of profit of joint ventures
Net finance costs
Profit/(loss) before tax
(1) Gross profit
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
Reversal of previous net realisable value provision on
development properties
(2) Other gains
Other gains are analysed as follows:
Increase in fair value of investment properties
Decrease in the fair value of other receivables
Profit on sale of investment properties
Profit on sale of assets classified as held for sale
Other gains
Non-current assets
Property, plant and equipment
Investment properties
Investments in joint ventures
Current assets
Inventories
Trade and other receivables
Assets classified as held for sale
Cash
Total assets
5
16
7
Note
13
15
16
17
18
19
20
Note
Sale of
Development
Properties
£’000
44,825
(43,092)
Other
Property
Activities
£’000
Income
Generation
£’000
Central
overheads
£’000
7,629
(1,922)
5,707
(2,473)
8,658
–
11,892
–
11,892
(5)
–
11,887
25,601
(8,598)
17,003
(2,171)
13,408
–
28,240
–
28,240
3,796
–
32,036
–
–
–
(8,226)
–
(70)
(8,296)
(590)
(8,886)
–
(3,962)
(12,848)
1,733
–
–
–
1,733
–
1,733
–
–
1,733
–
3,469
(4,767)
3,031
5,707
–
–
–
17,003
–
–
–
1,733
5,707
17,003
–
–
–
–
–
–
9,859
(2,000)
799
–
–
8,658
11,624
-
1,575
164
45
13,408
–
–
–
–
–
–
–
–
–
–
–
Capital
Growth
£’000
Income
Generation
£’000
Central
overheads
£’000
–
55,019
1,087
56,106
206,635
42,976
2,775
–
252,386
308,492
–
199,390
24,743
224,133
374
22,076
8,181
–
30,631
254,764
794
–
–
794
–
1,647
–
8,595
10,242
11,036
Total
£’000
78,055
(53,612)
24,443
(12,870)
22,066
(70)
33,569
(590)
32,979
3,791
(3,962)
32,808
22,710
3,469
(4,767)
3,031
24,443
21,483
(2,000)
2,374
164
45
22,066
Total
£’000
794
254,409
25,830
281,033
207,009
66,699
10,956
8,595
293,259
574,292
Financial liabilities and derivative financial instruments are not allocated to the reporting segments as they are managed and
measured on a Group basis.
150 Harworth Group plc Annual Report and Financial Statements 2018
notes to tHe FInanCIaL stateMents
for the year ended 31 december 2018: continued
3. Segment Information: continued
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
Net finance costs
Profit/(loss) before tax
5
16
7
(1) Gross profit
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
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 sale of investment properties
Profit on sale of assets classified as held for sale
Capital Growth
Sale of
Development
Properties
£’000
Other
Property
Activities
£’000
Note
Income
Generation
£’000
Central
Overheads
£’000
29,765
(27,893)
1,872
–
–
–
1,872
–
1,872
–
–
1,872
–
7,690
(5,818)
1,872
–
–
–
–
–
–
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)
–
(2,261)
(10,190)
–
–
–
–
–
–
–
–
–
–
Total
£’000
53,673
(37,678)
15,995
(12,020)
35,658
98
39,731
331
40,062
4,039
(2,261)
41,840
14,123
7,690
(5,818)
15,995
32,133
(83)
586
2,919
103
35,658
strateGIC report
Corporate GoVernanCe
FInanCIaL stateMents
151
3. Segment information: continued
31 December 2017 continued
Segmental assets
Non-current assets
Property, plant and equipment
Investment properties
Investments in joint ventures
Trade receivables
Other receivables
Current assets
Inventories
Trade and other receivables
Assets classified as held for sale
Cash
Capital
Growth
£’000
Income
Generation
£’000
Central
Overheads
£’000
Note
13
15
16
18
14
17
18
19
–
43,132
1,042
5,250
2,666
52,090
211,535
16,516
2,782
–
230,833
–
173,428
17,796
–
–
191,224
83
6,762
4,906
–
11,751
Total
£’000
802
216,560
18,838
5,250
2,666
244,116
211,618
25,165
7,688
8,371
252,842
496,958
802
–
–
–
–
802
–
1,887
–
8,371
10,258
11,060
Total assets
282,923
202,975
Financial liabilities and derivative financial instruments are not allocated to the reporting segments as they are managed and
measured on a Group basis.
4. 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
5.
Exceptional items
Exceptional income:
Settlements from the administration of legacy companies
Total exceptional income
Exceptional expense:
Sundry costs relating to legacy activities
Costs associated with the step-up from standard to premium listing
Total exceptional expense
Net exceptional items
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
1,736
7,846
9
5,818
7,849
8
Note
17
6
13
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
–
–
–
(590)
(590)
(590)
414
414
(83)
–
(83)
331
152 Harworth Group plc Annual Report and Financial Statements 2018
notes to tHe FInanCIaL stateMents
for the year ended 31 december 2018: continued
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
2018
Number
Year ended
31 December
2017
Number
Year ended
31 December
2018
Number
Year ended
31 December
2017
Number
58
58
53
53
3
3
4
4
Group
Company
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
6,934
544
368
7,846
6,650
884
315
7,849
2,198
143
53
2,394
2,749
379
61
3,189
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
2018
£’000
Year ended
31 December
2017
£’000
5,086
–
5,086
4,361
120
4,481
Detailed information relating to Directors’ remuneration is disclosed in the Directors’ remuneration report on pages 100 to 119 and
forms part of these financial statements.
strateGIC report
Corporate GoVernanCe
FInanCIaL stateMents
153
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
2018
£’000
Year ended
31 December
2017
£’000
51
16
(1,888)
(1,507)
(618)
(4,013)
(3,962)
(994)
(807)
(476)
(2,277)
(2,261)
During the year no interest has been capitalised in investment or development properties (2017: £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
– Fees relating to transaction*
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
50
121
16
15
–
–
331
533
40
111
15
8
7
6
–
187
* This includes the work undertaken by PwC to support the Company’s application to transfer its shares from the standard segment to the premium segment of the Official List.
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.
154 Harworth Group plc Annual Report and Financial Statements 2018
notes to tHe FInanCIaL stateMents
for the year ended 31 december 2018: continued
9.
Tax credit
Analysis of tax credit in the year
Current tax
Current year
Adjustment in respect of prior periods
Total current tax credit/(charge)
Deferred tax
Current year
Adjustment in respect of prior periods
Effect of changes in tax rates
Total deferred tax credit
Tax credit
Other comprehensive income items
Deferred tax – current year
Total
The tax for the year is lower than the standard rate of corporation tax in the UK of 19.00%
(2017: 19.25%) . The differences are explained below:
Profit before tax
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
(922)
1,804
882
49
366
(3)
412
1,294
(1,874)
336
(1,538)
15,036
(3,898)
(1,757)
9,381
7,843
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
(1)
(1)
(51)
(51)
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
32,808
41,840
Profit before tax multiplied by rate of corporation tax in the UK of 19.00% (2017: 19.25%)
(6,234)
(8,054)
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
Re-assessment of recognition of recoverability of deferred tax assets
Deferred tax not recognised
Utilisation of unrecognised deferred tax
Losses not previously recognised
Share options
Total tax credit
366
1,804
828
(471)
2,404
(3)
–
(80)
–
2,432
248
1,294
(3,898)
336
841
(1,395)
–
(1,757)
6,600
–
15,170
–
–
7,843
The revaluation gains in the tax reconciliation of £2.4m (2017: £nil) relate to deferred tax recognised on chargeable gains of
investment property.
The tax losses, not previously recognised of £2.4m (2017: £nil), have been recognised during the year, as a result of increased
certainty regarding their availability to the Group.
The movement within the tax reconciliation of £nil (2017: £15.2m) relating to the utilisation of unrecognised deferred tax was 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 were recognised and were
crystallised in 2017 were offset against previously unrecognised tax losses.
The tax losses remaining at the end of 2017 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 gave rise to the £6.6m disclosed in the tax reconciliation in 2017.
strateGIC report
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FInanCIaL stateMents
155
Tax credit: continued
9.
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 current tax credit of £1.8m (2017:
£0.3m) and a deferred tax credit of £0.4m (2017: deferred tax charge of £3.9m) compared to the original tax provision prepared for
inclusion within the prior year financial statements.
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 2017
Recognised in consolidated income statement
Recognised in consolidated statement of comprehensive income
At 31 December 2017 and 1 January 2018
Recognised in consolidated income statement
Recognised in consolidated statement of comprehensive income
Recognised in consolidated statement of equity
Investment
properties
£’000
n
(23,352)
10,353
(68)
n
(13,067)
1,276
–
–
n
Tax
losses
£’000
8,427
(2,522)
–
5,905
52
–
–
At 31 December 2018
(11,791)
5,957
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
(12,312)
7,348
(4,964)
(13,067)
7,546
(5,521)
Other
temporary
differences
£’000
74
1,550
17
1,641
(916)
(1)
146
870
Total
£’000
(14,851)
9,381
(51)
(5,521)
412
(1)
146
(4,964)
There are UK corporation tax losses carried forward of £6.0m (2017: £5.9m) ; 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% (2017: 17%) . A
reduction in the UK corporation tax rate from 19% to 17% (effective from 1 April 2020) , was enacted as part of the Finance Act
2015. The deferred tax liabilities are shown at 17% (2017: 17%) 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 £5.5m at 31 December 2018 have not been recognised owing to the uncertainty as to their recoverability.
Deferred tax assets of £6.1m were not recognised at 31 December 2017.
The Company has recognised a deferred tax asset in 2018 of £1.9m (2017: £0.3m) and has a potential deferred tax asset of £nil
(2017: £nil) in respect of unused tax losses.
10. Loss for the financial year for the parent entity
As permitted by section 408 of the Companies Act 2006, the Company’s income statement and statement of comprehensive
income have not been included separately in these financial statements. The loss for the financial year was £1.4m (2017: £5.8m)
and the total comprehensive expense for the financial year was £1.4m (2017: £5.8m) .
11. Dividends
Full year dividend for financial year ended 31 December 2017
Interim dividend for the six months ended 30 June 2018
Full year dividend for financial year ended 31 December 2016
Interim dividend for the six months ended 30 June 2017
2018
Per share
pence
0.58
0.28
–
–
Total
£’000
1,847
893
–
–
2,740
2017
Per share
pence
–
–
0.52
0.25
Total
£’000
–
–
1,680
812
2,492
The proposed final dividend for the year ended 31 December 2018 of 0.63 pence per share makes a total dividend for the year of
0.91 pence (2017: 0.83 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.
156 Harworth Group plc Annual Report and Financial Statements 2018
notes to tHe FInanCIaL stateMents
for the year ended 31 december 2018: 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 27) .
Profit from continuing operations attributable to owners of the parent
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
34,102
49,683
Weighted average number of shares used for basic earnings per share calculation
321,284,013
315,296,192
Basic earnings per share (pence)
Weighed average number of shares used for diluted earnings per share calculation
Diluted earnings per share (pence)
10.6
15.8
323,754,853
316,918,340
10.5
15.7
The difference between the weighted average number of shares used for the basic and diluted earnings per share calculation is
the effect of share options of 2,470,840 (2017: 1,622,148).
13. Property, plant and equipment
Group
Net book value at 1 January 2017
Additions at cost
Increase in fair value
Depreciation charge
Net book value at 31 December 2017 and 1 January 2018
Additions at cost
Depreciation charge
Net book value at 31 December 2018
At 31 December 2018
Cost or fair value
Accumulated depreciation
Net book value
At 31 December 2017
Cost or fair value
Accumulated depreciation
Net book value
Land and
Buildings
£’000
Office
equipment
£’000
Total
£’000
766
9
12
–
787
–
–
787
787
–
787
787
–
787
23
–
–
(8)
15
1
(9)
7
26
(19)
7
25
(10)
15
789
9
12
(8)
802
1
(9)
794
813
(19)
794
812
(10)
802
At 31 December 2018, the Group had entered into contractual commitments for the acquisitions of property, plant and equipment
amounting to £0.1m (2017: £nil) .
Information about the valuation of land and buildings is provided in note 15.
strateGIC report
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FInanCIaL stateMents
157
14. Other receivables
Other receivables
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
–
2,666
Investment properties
15.
Investment property at 31 December 2018 and 31 December 2017 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 Income Generation and Capital Growth.
Income Generation
Capital Growth
Agricultural
land
£’000
Natural
resources
£’000
Business
space
£’000
Major
developments
£’000
Strategic
land
£’000
At 1 January 2017
20,106
29,489
96,709
215,650
Transfers between divisions
Direct acquisitions
Subsequent expenditure
Increase in fair value
Net 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
Direct acquisitions
Subsequent expenditure
Disposals
(Decrease) /increase in fair value
Net transfers between divisions
Re-categorisation as development properties
Net transfer (to) /from assets classified as held for
sale
–
–
1,684
3,660
(1,160)
–
–
(1,963)
22,327
–
–
–
(308)
(1,401)
220
(9,096)
277
–
1,154
1,438
(276)
–
–
11,686
5,536
8,960
896
(3,500)
–
–
(782)
(486)
31,300
119,801
–
2,014
(1,429)
8,713
5,533
182
(834)
43,651
5,365
–
3,219
(12,528)
(1,384)
(15,955)
4,137
15,281
13,100
13,072
(8,492)
(666)
(229,118)
(2,964)
20,000
–
73
(19,336)
3,001
6,159
(8)
–
Total
£’000
379,190
–
26,015
29,159
32,133
(13,778)
(666)
(229,118)
17,236
(16,100)
5,198
4,261
13,067
(350)
–
–
(180)
(6,375)
23,132
10,771
2,244
(120)
6,858
2,237
–
8
216,560
54,422
9,696
(20,885)
21,483
–
(990)
(25,877)
At 31 December 2018
11,742
45,479
142,169
9,889
45,130
254,409
Included within investment properties (agricultural land) is a provision of £3.2m (2017: £3.2m) 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 £1.0m net (2017: £229.1m) 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. 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.
Investment property is transferred between divisions to reflect a change in the activity arising from the asset.
158 Harworth Group plc Annual Report and Financial Statements 2018
notes to tHe FInanCIaL stateMents
for the year ended 31 december 2018: continued
15.
Investment properties: continued
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.
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 2018
(2017: 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 the 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 and individual business space properties 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.
strateGIC report
Corporate GoVernanCe
FInanCIaL stateMents
159
Investment properties: continued
15.
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.
At 31 December 2018
Reversionary rental yield %
Land value per acre £’000
weighted average
low
high
weighted average
low
high
Cost report totals*
£’000
At 31 December 2017
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
–
–
–
3
1
155
–
–
–
–
25
4
239
9.76
4.84
14.16
346
117
2,811
–
–
–
218
213
220
–
–
–
33
2
326
15,000
–
8,282
167,637
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
* Cost report totals represent the estimated cost to bring investment properties to their highest and best use. There is £205.5m (2017: £184.3m) 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 2018
Valuation metric
Value per acre
Rental
Yield (e.g. 11% to 10%)
Cost report totals
At 31 December 2017
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%
587
–
–
–
2,274
–
–
750
7,108
6,540
17,099
–
494
–
–
414
2,257
–
–
8,382
+/– 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
The property rental income earned by the Group from its occupied investment property, all of which is leased out under operating
leases amounted to £12.2m (2017: £9.1m) . Direct operating expenses arising on investment property generating rental income in
the year amounted to £4.9m (2017: £3.5m) .
The bank and other loans are secured by way of fixed equitable charges over investment and development properties.
160 Harworth Group plc Annual Report and Financial Statements 2018
notes to tHe FInanCIaL stateMents
for the year ended 31 december 2018: continued
16.
Investments
Investment in subsidiaries
Company
Cost and net book amount:
At 1 January
Grant of equity instruments to employees of subsidiaries
At 31 December
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
207,896
504
208,400
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
Investment in joint ventures
Share of profit of joint ventures
At 31 December
The Group holds investments in the following joint ventures:
• Multiply Logistics North LP
• Multiply Logistics North Holdings Limited
• Waverley Square Limited
• The Aire Valley Land LLP
• Bates Regeneration Limited
The details of ownership of these joint ventures is disclosed on page 162.
The Group received £nil (2017: £nil) of dividends from these joint ventures during the year.
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
18,838
3,201
3,791
25,830
10,549
4,250
4,039
18,838
strateGIC report
Corporate GoVernanCe
FInanCIaL stateMents
161
Investments: continued
16.
Summarised financial information in respect of each of the Group’s material joint ventures is set out below:
Investment property
Current assets
Total assets
Current liabilities
Non-current liabilities
Net investment
Share of profits after tax
The Aire Valley Land LLP
Multiply Logistics North LP
As at
31 December
2018
£’000
As at
31 December
2017
£’000
As at
31 December
2018
£’000
As at
31 December
2017
£’000
16,000
1,124
17,124
(1,857)
–
15,267
1,879
14,500
685
15,185
(1,796)
–
13,389
3,708
9,992
174
10,166
(70)
(620)
9,476
1,917
4,047
419
4,466
(59)
–
4,407
305
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
Share of (losses)/profits after tax
As at
31 December
2018
£’000
As at
31 December
2017
£’000
252
846
1,098
(11)
1,087
(5)
193
1,492
1,685
(643)
1,042
26
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.
162 Harworth Group plc Annual Report and Financial Statements 2018
notes to tHe FInanCIaL stateMents
for the year ended 31 december 2018: continued
16.
Investments: continued
Investment in subsidiaries
Particulars of the Group undertakings (including joint ventures) at 31 December 2018 are as follows:
Description
of shares
held
Ordinary
Limited by guarantee
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Limited by guarantee
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Limited by guarantee
Limited by guarantee
Ordinary
Limited by guarantee
Ordinary
Partnership
Limited by guarantee
Ordinary
Ordinary
Partnership
Ordinary
Limited by guarantee
Proportion of
nominal value
of issued share
capital held by
the Company
%
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
20
50
100
Company name
Coalfield Estates Limited (1)
Harworth Guarantee Co. 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 Land) 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)
Multiply Logistics North LP (1)
Waverley Square Limited (3)
Simpson Park Management Company Limited (1)
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
Trading
Trading
Trading
Trading
Dormant
Trading
Dormant
Trading
Trading
Trading
Trading
Trading
Trading
Dormant
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.
The following entities were incorporated post year end:
• Thoresby Vale Management Company Limited
• Cadley Park Management Company Limited
• Cutacre Country Park Management Company Limited
strateGIC report
Corporate GoVernanCe
FInanCIaL stateMents
163
17.
Inventories
Development properties
Planning promotion agreements
Option agreements
Finished goods
Total inventories
Group
As at
31 December
2018
£’000
As at
31 December
2017
£’000
204,157
1,773
705
374
207,009
210,471
1,064
–
83
211,618
The total cost of inventory recognised as an expense within cost of sales in the year is £42.6m (2017: £28.1m) comprised of:
£41.4m (2017: £22.1m) relating to the sale of development properties; £1.7m (2017: £5.8m) net realisable value provision against
development properties; and a credit of £0.3m (2017: £0.2m charge) relating to finished goods stocks. Finished goods are stated
after a provision of £0.3m (2017: £0.3m) .
The movement in the development properties is as follows:
At 1 January
Acquisitions
Subsequent expenditure
Disposals
Net realisable value provision
Re-categorisation from investment properties
At 31 December
The movement in the net realisable value provision on development properties is as follows:
At 1 January
Net realisable value provision for the year
Released on disposals
Reversal of previous net realisable provision
At 31 December
Group
As at
31 December
2018
£’000
As at
31 December
2017
£’000
Note
210,471
3,451
23,320
(32,339)
(1,736)
990
–
–
2,424
(15,253)
(5,818)
229,118
204,157
210,471
15
Group
As at
31 December
2018
£’000
As at
31 December
2017
£’000
5,818
4,767
(124)
(2,907)
7,554
–
5,818
–
–
5,818
The bank and other loans are secured by fixed equitable charges over development and investment properties. A transfer from
the fair value reserve to retained earnings of £4.7m (2017: £5.8m) 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.
164 Harworth Group plc Annual Report and Financial Statements 2018
notes to tHe FInanCIaL stateMents
for the year ended 31 december 2018: continued
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 31)
Non-current
Trade receivables
Group
Company
As at
31 December
2018
£’000
As at
31 December
2017
£’000
As at
31 December
2018
£’000
As at
31 December
2017
£’000
43,004
(142)
42,862
21,492
2,345
–
66,699
7,941
(207)
7,734
16,030
1,401
–
25,165
–
–
–
62
93
30,064
30,219
–
–
–
284
–
32,984
33,268
–
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 trade receivables are £19.2m (2017: £12.2m) of deferred consideration on the sale of investment and development
property.
The non-current trade receivable of £5.3m in 2017 related to deferred consideration on the sale of a development property due in
more than one year.
Included within other receivables are £12.7m (2017: £9.6m) of cash held in accounts over which third party infrastructure loan
providers have a charge.
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 in the year
At the end of the year
Trade receivables can be analysed as follows:
Amounts receivable not past due
Amounts receivable past due but not impaired
Amounts receivable impaired (gross)
Less impairment
Group
2018
£’000
(207)
39
26
(142)
2017
£’000
(221)
10
4
(207)
Group
As at
31 December
2018
£’000
As at
31 December
2017
£’000
42,492
370
142
(142)
42,862
11,943
1,041
207
(207)
12,984
strateGIC report
Corporate GoVernanCe
FInanCIaL stateMents
165
18. Trade and other receivables: continued
Ageing of past due but not impaired trade receivables:
31 – 60 days
61 – 90 days
91 – 120 days
120+ days
Ageing of impaired trade receivables:
31 – 60 days
61 – 90 days
91 – 120 days
19. Assets classified as held for sale
Investment properties
At 1 January
Net transfer from investment properties
Subsequent expenditure
Decrease in fair value
Disposals
At 31 December
Group
As at
31 December
2018
£’000
As at
31 December
2017
£’000
79
117
43
131
370
824
193
24
–
1,041
Group
As at
31 December
2018
£’000
As at
31 December
2017
£’000
–
–
142
142
–
7
200
207
Note
15
Group
As at
31 December
2018
£’000
As at
31 December
2017
£’000
7,688
25,877
6
–
(22,615)
10,956
8,350
13,778
159
(83)
(14,516)
7,688
The assets classified for sale at each year end relate to investment properties expected to be sold within twelve months.
20. Cash
Cash
21. Borrowings
Current:
Secured – other loans
Non-current:
Secured – bank loans
Secured – other loans
Total borrowings
Group
Company
As at
31 December
2018
£’000
As at
31 December
2017
£’000
As at
31 December
2018
£’000
As at
31 December
2017
£’000
8,595
8,371
1,116
1,267
Group
As at
31 December
2018
£’000
As at
31 December
2017
£’000
(5,291)
(5,291)
(58,745)
(9,002)
(67,747)
(6,145)
(6,145)
(23,437)
(11,064)
(34,501)
(73,038)
(40,646)
166 Harworth Group plc Annual Report and Financial Statements 2018
notes to tHe FInanCIaL stateMents
for the year ended 31 december 2018: continued
21. Borrowings: continued
Infrastructure loans
Sheffield City Region JESSICA Fund
Homes and Communities Agency
Leeds LEP
Homes and Communities Agency
Sheffield City Region JESSICA Fund
North West Evergreen Limited Partnership
Homes and Communities Agency
Gateway 36/Rockingham
Village Farm
Prince of Wales
Waverley
Advanced Manufacturing Park, Waverley
Units C4 and C5 R-evolution at Logistics North
Simpson Park
Bank borrowings
Revolving credit facility
Group
As at
31 December
2018
As at
31 December
2017
Net loan
£’000
Net loan
£’000
–
–
–
(4,875)
(2,766)
(2,691)
(3,961)
(2,353)
(141)
(396)
(7,205)
(5,108)
(2,006)
–
(14,293)
(17,209)
(58,745)
(73,038)
(23,437)
(40,646)
The infrastructure loans are provided by public bodies in order to promote the development of major sites. These loans are
secured by way of fixed equitable charges over certain assets of the Group. These loans have all-in funding rates of between 3.2%
and 4.0%. The bank borrowings are part of a £100m (2017: £75.0m) revolving credit facility from National Westminster Bank PLC
and Santander. The term of the facility was extended for two years on 13 February 2018 and is now repayable on 13 February
2023 (five year term). The facility was also increased from £75m to £100m on 30 April 2018, when Santander joined the facility.
The facility is non-amortising and subject to financial and other covenants. The interest rate on the RCF is ICE Libor Rate plus 2.1%
These loans are stated after the deduction of unamortised borrowing costs of £0.4m (2017: £0.8m).
22. Trade and other payables
Current liabilities
Trade payables
Amounts owed to subsidiary undertakings (note 31)
Taxation and social security
Other creditors
Accruals and deferred income
Amounts in accruals include amounts relating to parcels of land that have been sold
but where infrastructure costs are yet to be incurred
Non-current liabilities
Other liabilities
Non-current liabilities relate to deferred payments due on land purchases.
Group
Company
As at
31 December
2018
£’000
As at
31 December
2017
£’000
As at
31 December
2018
£’000
As at
31 December
2017
£’000
2,318
–
9,740
4,160
36,337
52,555
2,668
–
2,294
3,196
30,339
38,497
100
4,737
–
3
662
5,502
6
53
45
18
3,414
3,536
Group
Company
As at
31 December
2018
£’000
As at
31 December
2017
£’000
As at
31 December
2018
£’000
As at
31 December
2017
£’000
15,753
17,200
–
–
Group
Company
As at
31 December
2018
£’000
As at
31 December
2017
£’000
As at
31 December
2018
£’000
As at
31 December
2017
£’000
300
300
760
760
–
–
–
–
strateGIC report
Corporate GoVernanCe
FInanCIaL stateMents
167
23. Financial instruments and derivatives
On 20 July 2018, Harworth cancelled its existing £30m fixed rate interest swap with National Westminster Bank PLC which was
due to expire on 30 June 2020 (incurring total break costs of £18.5k) and in its place entered into a 4-year, £45m fixed rate interest
swap with Santander at an all-in cost of 1.235% (including fees) on top of the existing 210bps margin paid under the RCF. The
interest rate swap is hedge accounted with any unrealised movements going through reserves.
The fair value of the interest rate swap at 31 December 2018 was a loss of £0.1m (2017: £0.1m).
During the year the following gain was recognised in the other comprehensive income statement in relation to the interest rate
swap:
Gain on interest rate swap - cash flow hedge
2018
£’000
13
2017
£’000
244
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 2018
31 December 2017
Book value
£’000
Fair value
£’000
Book value
£’000
Fair value
£’000
8,595
64,354
8,595
64,354
8,371
28,741
8,371
28,741
73,038
43,115
73,038
43,115
40,646
34,612
40,646
34,612
31 December 2018
31 December 2017
Book value
£’000
Fair value
£’000
Book value
£’000
Fair value
£’000
1,116
30,219
1,116
30,219
1,267
32,994
1,267
32,994
5,502
5,502
3,491
3,491
In accordance with IFRS 9, the Group classifies the assets and liabilities in the analysis above as ‘loans and receivables’ and
‘other financial liabilities’, respectively. At the 2018 and 2017 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.
168 Harworth Group plc Annual Report and Financial Statements 2018
notes to tHe FInanCIaL stateMents
for the year ended 31 december 2018: continued
24. Financial risk management: continued
Interest rate risk
The Group’s interest rate risk arises from external borrowings. These are charged at LIBOR plus 2.1%. From 13 February 2018 the
rate increased from 2.0% to 2.1%, following the two year extension to the facility. On 20 July 2018 the Group entered into a
four-year swap with Santander to fix £45m (2017: £30m) of borrowing at an all in rate of 1.235% on top of the existing 210bps
margin paid under the RCF (2017: 0.955% plus 200bps margin) , including fees. The swap is hedge accounted with any unrealised
movements going through reserves.
The Group also has four (2017: six) infrastructure loans with all in funding rates of between 3.2% and 4.0% (2017: 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 2018 of £64.4m; (2017: £32.3m) . The Group utilised cash from operating activities and
investing activities for the year of £28.5m (2017: utilised £16.6m) .
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 2018
Trade and other payables
Bank and other borrowings (including interest payable)
At 31 December 2017
Trade and other payables
Bank and other borrowings (including interest payable)
Less than
1 year
£’000
Between
1 and 2 years
£’000
Between
2 and 5 years
£’000
52,555
5,291
33,852
6,145
100
5,041
760
5,158
200
62,706
–
29,343
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 2018 this was
£64.4m (2017: £32.3m) .
The Group has in place a £100m (2017: £75.0m) revolving credit facility from National Westminster Bank PLC and Santander . 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 the banks is subject to covenants over loan to market value of investment and development properties,
gearing, and minimum consolidated net worth.
The Group comfortably operated within these requirements throughout the year.
strateGIC report
Corporate GoVernanCe
FInanCIaL stateMents
169
25. Retirement benefit obligations
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 £0.4m (2017: £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.
The Balance sheet amounts in respect of retirement benefit obligations are:
Relating to continuing activities
Blenkinsopp
Group
Company
As at
31 December
2018
£’000
As at
31 December
2017
£’000
As at
31 December
2018
£’000
As at
31 December
2017
£’000
462
563
462
563
Contributions to the Blenkinsopp scheme of £0.2m were made by the Group during 2018 (2017: £0.2m) . It is expected that
contributions of a similar amount will be paid in 2019. At December 2018, no contributions remained unpaid (2017: £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
Life expectancy at age 65 for current pensioners (years)
Male
Female
Life expectancy at age 65 for future pensioners currently aged 45 (years)
Male
Female
As at
31 December
2018
2.80% p.a.
2.25% p.a.
3.20% p.a.
2.20% p.a.
25.00% of
pension at
a rate of
£9:£1
As at
31 December
2017
2.50% p.a.
2.15% p.a.
3.10% p.a.
2.10% p.a.
25.00% of
pension at a
rate of
£9:£1
Year ended
31 December
2018
Year ended
31 December
2017
19.5
22.8
21.0
24.1
19.6
22.8
21.1
24.4
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.
2018
£’000
2,249
(2,711)
(462)
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)
170 Harworth Group plc Annual Report and Financial Statements 2018
notes to tHe FInanCIaL stateMents
for the year ended 31 december 2018: continued
25. Retirement benefit obligations: continued
The amounts recognised in the Consolidated Income Statement are:
Expenses
Past service cost
Interest cost
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
(43)
(15)
(13)
(71)
(32)
–
(13)
(45)
The past service cost of £15k relates to GMP Equalisation.
A further cost of £0.0m (2017: £0.1m) 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
Change in defined benefit obligations
Present value of defined benefit obligations at the start of the year
Past service cost
Interest cost
Remeasurements:
– Gain/(loss) arising from changes in demographic assumptions
– Loss arising from changes in experience
– Gain arising from changes in financial assumptions
Benefits paid
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
2,228
57
(99)
189
(43)
(83)
2,249
2,117
55
(19)
189
(32)
(82)
2,228
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
1,301
–
183
379
386
2,249
1,352
1
543
327
5
2,228
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
(2,791)
(15)
(69)
20
(7)
68
83
(2,719)
–
(68)
(117)
(10)
41
82
Present value of defined benefit obligation at the end of the year
(2,711)
(2,791)
strateGIC report
Corporate GoVernanCe
FInanCIaL stateMents
171
25. Retirement benefit obligations: continued
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.18 years (2017: c.19 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
– Gain/(loss) arising from changes in financial and demographic assumptions
Net actuarial loss
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
(563)
(70)
189
(18)
(462)
(602)
(45)
189
(105)
(563)
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
(162)
(18)
(180)
(57)
(105)
(162)
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
(99)
(7)
88
(18)
(19)
(10)
(76)
(105)
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 finalised.
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
2018
£’000
Year ended
31 December
2017
£’000
40
35
100
45
40
110
The above sensitivity analysis 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.
The Scheme exposes the Group 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.
172 Harworth Group plc Annual Report and Financial Statements 2018
notes to tHe FInanCIaL stateMents
for the year ended 31 december 2018: continued
26. Share based payments
At 31 December 2018 there were three classes of equity-settled share incentive plans outstanding:
• Deferred Share Bonus Plan (DSBP) . Under this scheme share options with a nil-cost exercise price are granted to eligible
employees. Vesting of the share options is subject to the achievement of a performance condition relating to Total Return and
continued employment.
• Long Term Incentive Plan (LTIP) . Under this scheme share options with a nil-cost exercise price are granted to eligible
employees. Vesting of the share options is subject to the achievement of performance conditions relating to Total Return and
Relative Total Shareholder Return and continued employment. Details of the performance conditions are disclosed in the
Directors’ Remuneration Report.
• Save As You Earn (SAYE) . Under this scheme eligible employees enter into a savings contract for a period of three years.
Share options are granted on commencement of the savings contract and are exercisable using the amount saved under the
contract at the time it terminates. Share options are granted at a discount of up to 20% of the market value of the shares at the
time of invitation. The exercise of the share options is subject to continued employment only.
Share options granted under the DSBP and LTIP are exercisable no later than the tenth anniversary of the grant date. Share
options granted under the SAYE are exercisable for a six month period after the end of the three year savings period.
The movements in the number of share options outstanding and their weighted average exercise prices are as follows:
DSBP
Outstanding at beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding at end of the year
Exercisable at end of the year
Number of shares
Weighted average exercise price
2018
241,283
185,283
–
(64,239)
362,327
–
2017
–
241,283
–
–
241,283
–
2018
£0.00
£0.00
n/a
£1.25
£0.00
n/a
2017
£0.00
£0.00
n/a
n/a
£0.00
n/a
Weighted average remaining contractual life
8.78 years
8.79 years
LTIP
Outstanding at beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding at end of the year
Exercisable at end of the year
Number of shares
Weighted average exercise price
2018
1,698,754
826,691
(459,430)
–
2,066,015
–
2017
812,953
885,801
–
–
1,698,754
–
2018
£0.00
£0.00
n/a
n/a
£0.00
n/a
2017
n/a
£0.00
n/a
n/a
£0.00
n/a
Weighted average remaining contractual life
8.31 years
8.85 years
SAYE
Outstanding at beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding at end of the year
Exercisable at end of the year
Weighted average remaining contractual life
Number of shares
Weighted average exercise price
2018
383,881
68,827
–
–
452,708
–
2.11
2017
–
383,881
–
–
383,881
–
3.09
2018
£0.00
£0.00
n/a
n/a
£0.00
n/a
2017
n/a
£0.00
n/a
n/a
£0.00
n/a
The fair values of the share options granted under the DSBP, LTIP (subject to the Total Return performance condition) and SAYE
during the year were determined using Black-Scholes valuation methodology.
The fair values of the share options granted under the LTIP (subject to the Total Shareholder Return performance conditions) were
determined using Monte Carlo valuation methodology, as this incorporates the probability of achieving the Total Shareholder
Return performance conditions within the fair values at the grant date.
strateGIC report
Corporate GoVernanCe
FInanCIaL stateMents
173
26. Share based payments: continued
The significant inputs to the valuation models were as follows:
Share price at date of grant
Exercise price
Dividend yield
Expected volatility
Risk free interest rate
Expected term
Weighted average fair value
DSBP
£1.090
£0.00
0.76%
23.4%
0.90%
3 years
£1.07
LTIP
£1.090
£0.00
0.76%
23.4%
0.90%
3 years
£0.78
SAYE
£1.105
£0.876
0.75%
23.6%
0.88%
3.35 years
£0.28
The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily
be the actual outcome.
One of the DSBP Schemes vested in the year with a weighted average share price on exercise of £1.25 (2017: £nil) .
The total charge for the year relating to employee share based payment plans was £1.2m, all of which related to equity-settled
share based payment transactions.
27. 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.
Group and Company
Issued and fully paid
At 1 January
Shares issued
At 31 December
Own shares held
At 31 December 2017
2018
Number
of shares
321,496,760
–
321,496,760
(181,771)
321,314,989
2017
Number
of shares
292,269,786
29,226,974
321,496,760
(246,010)
£’000
32,150
–
32,150
(194)
31,956
321,250,750
£’000
29,227
2,923
32,150
(263)
31,887
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
The Directors’ remuneration report which forms part of these financial statements provides details of all incentive plans.
28. Share premium account
Group and Company
At 1 January
Premium on shares issued
Costs relating to share issue
Other transaction costs
At 31 December
Year ended
31 December
2018
£’000
Year ended
31 December
2017
£’000
24,351
–
–
–
24,351
–
24,842
(700)
209
24,351
29. Capital and other financial commitments
Future spend required to bring our investment and development properties to their highest and best use is disclosed in note 15,
and includes section 106 obligations. Capital commitments for the acquisition of property, plant and equipment are disclosed in
note 13.
174 Harworth Group plc Annual Report and Financial Statements 2018
notes to tHe FInanCIaL stateMents
for the year ended 31 december 2018: continued
30. Operating lease commitments
The Group leases a number of vehicles, office equipment and office facilities under operating leases. The leases run between one
year and three years.
Future minimum lease payments
a)
At 31 December 2018, the future minimum lease payments under non-cancellable leases were payable as follows:
Less than one year
Between one and five years
Amounts recognised in the Income Statement
Lease cost
Group
Company
As at
31 December
2018
£’000
As at
31 December
2017
£’000
As at
31 December
2018
£’000
As at
31 December
2017
£’000
49
6
55
77
34
17
51
64
–
–
–
–
–
–
–
–
Future minimum lease receipts
b)
As set out in note 15 property rental income earned during the year was £12.2m (2017: £9.1m) .
At 31 December 2018, 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
2018
£’000
As at
31 December
2017
£’000
As at
31 December
2018
£’000
As at
31 December
2017
£’000
11,587
31,505
98,899
141,991
8,342
25,001
34,814
68,157
–
–
–
–
–
–
–
–
31. Related parties
GROUP
The Group carried out the following transactions with related parties.
The remuneration of Directors and key management is given in note 6.
Details of the Company’s intercompany balances and interest at 31 December 2018 are set out below:
PEEL GROUP
Revenue
Sale of land
Resultant profit on sale from above land sales
Cost of sales/administrative expenses
Recharges in respect of fees for Steven Underwood, a non-executive director
Recharges in respect of expenses for Steven Underwood, a non-executive director
Recharges of shared costs
Payment in respect of a deed of release at Logistics North
Payment for the surrender of option to facilitate grant of new lease to third party
Receivables
Trade receivables
As at
31 December
2018
£’000
As at
31 December
2017
£’000
1,600
1,078
3,100
1,200
(43)
(1)
(27)
(148)
(934)
(43)
–
–
(800)
–
1,920
–
strateGIC report
Corporate GoVernanCe
FInanCIaL stateMents
175
31. Related parties: continued
MULTIPLY LOGISTICS NORTH HOLDINGS LIMITED & MULTIPLY LOGISTICS NORTH LP
Revenue
Sale of land
Recharges of costs
Development management fee
Asset management fee
Water charges
Payables
Trade payables
Shareholder loan made during the year
BANKS GROUP
Acquisition of land
Acquisition of land at Moss Nook
Trade payables
Deferred payment for the acquisition of land at Moss Nook
WAVERLEY SQUARE LIMITED
Shareholder loan made during the year
As at
31 December
2018
£’000
As at
31 December
2017
£’000
–
256
37
348
48
(5)
2,793
8,100
600
200
–
–
–
3,793
(5)
As at
31 December
2018
£’000
As at
31 December
2017
£’000
3,000
(1,000)
–
–
As at
31 December
2018
£’000
As at
31 December
2017
£’000
50
225
COMPANY
The Company carried out the following transactions with subsidiary undertakings.
Details of the Company’s intercompany balances and interest at 31 December 2018 are set out below:
EOS Inc Limited
Harworth Estates Limited
Harworth Estates Investments Limited
Harworth Guarantee Co. Limited
Harworth Estates Mines Property Limited
Harworth Estates Curtilage Limited
Harworth Estates Waverley Prince Limited
Harworth Estates Property Group Limited
Coalfield Estates Limited
As at 31 December 2018
£’000
As at 31 December 2017
£’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
585
(20)
(9)
4
–
56
(4)
(32)
–
580
21,008
(1,004)
(1,559)
(49)
7,000
2,056
(254)
(1,842)
(29)
25,327
308
17
–
(1)
–
–
–
172
5
501
22,774
709
–
(53)
7,000
2,000
–
277
224
32,931
Dividends received
During the year the Company received dividends of £nil (2017: £nil) from subsidiary undertakings.
32. Post balance sheet events
There are no post balance sheet events to disclose that have not been disclosed publicly by a regulatory news announcement.
Company information and investor timetable
176 Harworth Group plc Annual Report and Financial Statements 2018
COMPANY INFORMATION AND
INVESTOR TIMETABLE
Independent Auditors
PricewaterhouseCoopers LLP
Central Square, 29 Wellington St,
Leeds, LS1 4DL
Registrars
Equiniti Limited
Aspect House
Spencer Road, Lancing
West Sussex, BN99 6DA
Chairman
Alastair Lyons
Chief Executive
Owen Michaelson
Finance Director
Andrew Kirkman
Non-Executive Directors
Lisa Clement
Anthony Donnelly
Andrew Cunningham
Angela Bromfield
Ruth Cooke
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
Solicitors
DLA Piper UK LLP
1 St Paul’s Place
Sheffield, S1 2JX
Brokers
Peel Hunt LLP
Moor House
120 London Wall
London, EC2Y 7QR
Liberum Group Limited
Ropemaker Place
25 Ropemaker Street
London, EC2Y 9LY
Principal bankers
National Westminster Bank PLC (RBS)
3rd Floor
2 Whitehall Quay
Leeds, LS1 4HR
Santander UK plc
44 Merrion Street
Leeds, LS2 8JQ
Company Registered Number
02649340
Share price information
The Company’s Ordinary Shares are
traded on the London Stock Exchange.
SEDOL number BYZJ7G4
ISIN number GB00BYZJ7G42
Reuters ticket HWG.L
Bloomberg ticker HWG:LN
LEI Code
213800R8JSSGK2KPFG21
Announced
Announced
Announced
2 May 2019
3 May 2019
21 May 2019
Annual General Meeting
Bessemer Room, AMP Technology Centre, Waverley, Rotherham, S60 5WG
Dividend Payment Date
Announced
31 May 2019
Proposed date for Interim Results Announcement 2019
Interim Results to be published at www.harworthgroup.com/investors
Proposed Record date for Interim Dividend
Proposed date for payment of Interim Dividend
10 September 2019
20 September 2019
18 October 2019
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.
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
177
IRP
JPW
KPI
KPMG
LCPF
LEP
LTIP
LTV
Marsh
NAV
NBV
NCC
NPPF
Incident Response Plan
JPW Consulting Limited
Key Performance Indicator
KPMG LLP
Lancashire County Pension Fund
Local Enterprise Partnership
Harworth Group Plc Long Term
Incentive Plan
Loan To Value
Marsh Risk Consulting
Net Asset Value
Net Book Value
NCC Group
National Planning Policy Framework
parent entity
Harworth Group Plc
PEG Principles
The Pre-emption Group Principles
Peel Group
The Peel group of companies
PEL
PEVG
Policy
PPAs
PPF
psf
PSG
PwC
RBS
RCF
Regulations
RIDDOR
RSP
RNS
Santander
SAYE
SHEMS
TSR
WAMITAB
WAULT
Peel Environmental Limited
Profit excluding Value Gains
Remuneration Policy
Planning Promotion Agreements
The Pension Protection Fund
Per square foot
People Steering Group
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
Restricted Share Plan
Regulatory News Service
Santander UK plc
Save As You Earn scheme
Safety, Health and Environment
Management System
Total Shareholder Return
Waste Management Industry Training
and Advisory Board (UK)
Weighted Average Unexpired Lease
Term
Definitions and abbreviations used
2012 Restructuring
2016 Code
2018 Code
AGM
AMP
APM
ATR
BCP
bps
CA06
CDM
Code
Company
CO2e
CPD
Deloitte
DLA
EA
EBT
EES
EfW
EPRA
EPRA NAV
EPRA NNNAV or NNNAV
EPS
ESMA
FCA
FPPP
FRC
FTI
FYE
GDPR
GRR
Harworth Estates
Harworth or Group
HEPGL
HSE
IFRSs
The restructuring of the former
UK Coal in December 2012
the 2016 edition of the Code
the 2018 edition of the Code
Annual General Meeting
Advanced Manufacturing Park,
Rotherham
Alternative Performance Measure
Absolute Total Return
Business Continuity Plan
basis points
Companies Act 2006
The Construction (Design and
Management) Regulations 2015
UK Corporate Governance Code
Harworth Group plc
Carbon dioxide equivalents
continuing professional development
Deloitte LLP
DLA Piper UK LLP
Environment Agency
The Harworth Group Plc Employee
Benefit Trust
Estates, Environment and Safety team
Energy from Waste
European Public Real Estate
Association
EPRA NNNAV excluding deferred tax,
notional deferred tax on the mark to
market value of development
properties and the mark to market
movement on financial instruments
NAV plus the mark to market value of
development properties less notional
deferred tax on this mark to market
Earnings Per Share
European Securities and Markets
Authority
Financial Conduct Authority
Financial Position and Prospects
Procedures
Financial Reporting Council
FTI Consulting
Financial year ending
General Data Protection Regulation
Group Risk Register
Harworth Estates Property Group
Limited and its subsidiaries
Harworth Group plc and its
subsidiaries
Harworth Estates Property Group
Limited
Health and Safety Executive
International Financial Reporting
Standards
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