Harworth Group plc
Annual Report and Financial Statements 2019
New homes at Waverley
Construction of new units at Advanced Manufacturing Park
Our Purpose
Harworth invests to transform
land and property into sustainable places
where people want to live and work
Harworth employees at the Advanced Manufacturing Park
Gedling Country Park
2 Harworth Group plc
11 strategic land acquisitions
and 7 planning promotion agreements
signed to deliver 8,847
residential plots and
1.6m sq. ft of commercial space
4 income acquisitions
made for a total consideration
of £20.9m at
an 8.4% yield
17 major developments
now live across the portfolio
Our Purpose
Harworth invests to transform
land and property into sustainable places
where people want to live and work
2019 Highlights
Harworth delivered a total return of 7.8% to shareholders in 2019 by
continuing to plan and create great places for people to live and work.
Our pipeline of over 29,000 homes and 24m sq. ft of commercial space,
alongside our low gearing and strong balance sheet, puts us in a solid
position for further growth
Residential land sales of
£61.0m projected to deliver
1,379 new homes
Completed commercial land sales of
£30.3m (£15.2m Harworth share) at
Gateway 45 Leeds joint venture
21 new or renewed lettings, adding
(together with acquisitions) £1.9m
of recurring income per annum
Cooling towers pre-demolition at Ironbridge, Summer 2019
Portfolio has
potential to create
£3.5bn
per annum in Gross
Value Added to
UK plc
Transform
Regenerate
Revitalise
Portfolio could
deliver a total
of over
29,000
new homes
Portfolio could
deliver
24.4m sq. ft
of commercial
space
Capacity to
deliver
270MW
of low-carbon
energy from
portfolio
More information can be found by going
to our website harworthgroup.com
Land at Gateway 45 Leeds
Strategic Report
4
6
8
10
12
14
16
18
20
23
29
38
40
42
48
52
54
60
64
66
Delivering our purpose: how the business works
Doing business the Harworth Way
Our Strategy
How we deliver value
Our sectors
A long-term track record of success
Delivering our purpose in practice
Chair of the Board’s Message
Chief Executive’s Statement
Financial Review
Effectively managing our risks
Long-Term Viability Statement
Case Study 1: Waverley
The Harworth Way: Communities
The Harworth Way: Planet
Case Study 2: Ironbridge
The Harworth Way: People
The Harworth Way: Partners
Case Study 3: Growing Our Income Portfolio
The Harworth Way: Governance
Corporate Governance
Chair’s introduction
70
Board of Directors and Company Secretary
74
Statement of Corporate Governance
76
Nomination Committee Report
88
Audit Committee Report
96
Directors’ Remuneration Report
101
Directors’ Report
118
Statement of Directors’ Responsibilities
122
Financial Statements
124
130
131
132
133
134
135
136
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
Other Information
171
Company information and investor timetable
Annual Report and Financial Statements 2019 3
Delivering our purpose:
how the business works
We balance the delivery of our purpose and market-leading shareholder
returns through the application of the following model, reflecting that our
people and the ‘Harworth Way’ are absolutely central to our success.
Our Purpose
Our Values
The Harworth Way
Our Strategy
Our Business Model
4 Harworth Group plc
Harworth invests to transform land and property into
sustainable places where people want to live and work
Communities
Planet
People
Partners
Governance
*See pages 42, 48, 54, 60 and 66 for more on “The Harworth Way”
Development
Driving the capital growth of our land
and property portfolio
Investment
Income and value generation
through active asset management
Sectors
Concentrating on those property
markets with strong, through the
cycle returns – currently residential,
industrial & logistics
Regions
Leveraging relationships across
our core areas in the
North of England & Midlands
Underpinned by a prudent financial approach
with low financial gearing
Key business risks
Measuring performance with our KPIs
Delivery
Social
Legal & Regulatory
Governance
People
Finance
Environment
Markets
Politics
Total return
Residential plots &
employment
space delivered
EPRA NNNAV per share
growth
Planning permissions
submitted & approved
Value gains
Future pipeline of
residential plots and
employment space
Profit excluding
value gains
Potential GVA that could
be delivered from
portfolio
Net debt & net loan to
portfolio value
Sustainability &
placemaking credentials
*See pages 8 and 9 for more on Our Strategy
*See pages 10 and 11: How we deliver value
Annual Report and Financial Statements 2019 5
| Strategic Report | Corporate Governance | Financial Statements
Doing business
the Harworth Way
Harworth Group is committed to delivering shareholder returns in the right way by creating
sustainable new places that support the social and economic development of the North of
England and the Midlands.
Our stakeholders, including our shareholders, are also seeking increasing transparency on
the actions that we take in delivering our Purpose whilst creating long term value.
We have selected five principal themes to address major social, economic and environmental
trends whilst creating value for our stakeholders. These are set out below and represent how
we do business in “the Harworth Way”.
The Harworth way
Communities
Planet
People
Partners
Governance
We build, strengthen and support our
communities now and for future
generations
We deliver some of the North of England
and the Midlands’ largest new
developments. This includes:
•
•
delivering some of the largest
commercial and residential sites in the
Midlands and North, creating
thousands of new jobs with the
potential to contribute over £3.5bn
GVA p.a.; and
helping to meet the UK’s undersupply
of housing, with developments
including affordable housing and a
range of tenures.
We aim to create places in a sustainable
way, efficiently using natural resources
to minimise our own environmental
impact
In our role as master developer, we often
regenerate sites with former industrial
uses, safely managing any environmental
liabilities while we do so.
This also includes supporting the future of
energy. We are landlord for a number of
low carbon energy schemes and several
leading low-carbon firms are occupiers on
our sites such as ITM, Xeros and the UK
Atomic Energy Authority.
Our sustainability credentials also extend
to how we develop ‘natural’ assets into our
developments, including surface water
attenuation schemes being installed across
all of our major developments.
We aim to build a business where
people can flourish and placemake
responsibly across our developments
to create places and spaces that
promote health & wellbeing –
ultimately improving people’s lives
Developing the skills of our people is
crucial in delivering against our purpose
and an essential part of our day-to-day
work is ensuring that all of our employees
live the “Harworth Values” to set an
appropriate tone for our work.
Our responsible approach to development
also directly influences our masterplanning,
with hundreds of acres of new public open
space being delivered each year to
support more active lifestyles and
improved mental wellbeing.
We develop strong partnerships based
High standards of corporate
on shared goals - responsibly working
governance underpin the effective
towards a joint goal of long-term value
operation of our company
creation for a range of stakeholders
Good governance has been built into the
We focus on creating sustainable value
foundations of the Harworth approach
through continuing partnerships with
from the start. We are now profiling better
customers, local authorities, the
how governance supports the delivery of
Government and our suppliers to make
our long-term purpose and furtherance of
best use of our sites for local people.
our strategic priorities.
We engage regularly with our existing and
We aim to improve continually in these
potential shareholders and provide clear,
areas and align with industry best practice.
timely information on our long-term
strategy.
Harworth sites are often designated and
developed as centres of excellence for
industry and stimulate growth. This
includes partnerships with 3 leading
universities to promote new skills and
innovation relating to advanced
manufacturing, wellness and rail.
Read more on pages 42 to 45
Read more on pages 48 to 51
Read more on pages 54 to 58
Read more on pages 60 to 63
Read more on pages 66 to 67
Our work actively contributes to the delivery of ten of the UN’s sustainable development goals.
More can be read within each individual section:
6 Harworth Group plc
|
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
The Harworth way
Communities
Planet
People
Partners
Governance
We build, strengthen and support our
We aim to create places in a sustainable
We aim to build a business where
communities now and for future
way, efficiently using natural resources
people can flourish and placemake
generations
to minimise our own environmental
responsibly across our developments
We deliver some of the North of England
impact
and the Midlands’ largest new
developments. This includes:
In our role as master developer, we often
regenerate sites with former industrial
to create places and spaces that
promote health & wellbeing –
ultimately improving people’s lives
uses, safely managing any environmental
Developing the skills of our people is
•
delivering some of the largest
commercial and residential sites in the
liabilities while we do so.
Midlands and North, creating
thousands of new jobs with the
This also includes supporting the future of
energy. We are landlord for a number of
potential to contribute over £3.5bn
low carbon energy schemes and several
GVA p.a.; and
leading low-carbon firms are occupiers on
•
helping to meet the UK’s undersupply
of housing, with developments
Atomic Energy Authority.
including affordable housing and a
Our sustainability credentials also extend
range of tenures.
to how we develop ‘natural’ assets into our
developments, including surface water
attenuation schemes being installed across
all of our major developments.
crucial in delivering against our purpose
and an essential part of our day-to-day
work is ensuring that all of our employees
live the “Harworth Values” to set an
appropriate tone for our work.
also directly influences our masterplanning,
with hundreds of acres of new public open
space being delivered each year to
support more active lifestyles and
improved mental wellbeing.
our sites such as ITM, Xeros and the UK
Our responsible approach to development
High standards of corporate
governance underpin the effective
operation of our company
Good governance has been built into the
foundations of the Harworth approach
from the start. We are now profiling better
how governance supports the delivery of
our long-term purpose and furtherance of
our strategic priorities.
We aim to improve continually in these
areas and align with industry best practice.
We develop strong partnerships based
on shared goals - responsibly working
towards a joint goal of long-term value
creation for a range of stakeholders
We focus on creating sustainable value
through continuing partnerships with
customers, local authorities, the
Government and our suppliers to make
best use of our sites for local people.
We engage regularly with our existing and
potential shareholders and provide clear,
timely information on our long-term
strategy.
Harworth sites are often designated and
developed as centres of excellence for
industry and stimulate growth. This
includes partnerships with 3 leading
universities to promote new skills and
innovation relating to advanced
manufacturing, wellness and rail.
Read more on pages 42 to 45
Read more on pages 48 to 51
Read more on pages 54 to 58
Read more on pages 60 to 63
Read more on pages 66 to 67
Our work actively contributes to the delivery of ten of the UN’s sustainable development goals.
More can be read within each individual section:
New homes at Waverley, Autumn 2019
Annual Report and Financial Statements 2019 7
| Corporate Governance | Financial Statements
Our Strategy
Our five strategic pillars to deliver our Purpose
Development*
Driving the capital growth of our portfolio through new strategic property acquisitions, delivery of planning
permissions, site remediation and infrastructure, before crystallising land sales
Investment*
Ensuring sustainable income generation through new income acquisitions, asset management of existing
rental sites, direct development of new space and recycling of portfolio into higher value adding opportunities
Where we are
Where we want to be
Where we are
Where we want to be
7.2% p.a. EPRA NNNAV per share growth and total
return of 7.8% in 2019
To achieve a long-term market-leading return
We are covering our overheads and interest costs and have
To cover our overheads, financing costs and
been increasing the resilience of our income streams
taxation from operating activities with resilient
Key Business Risks
Key Performance Indicators
Key Business Risks
Key Performance Indicators
• Total return
• EPRA NNNAV per share growth
• Value gains
• Sustainability & placemaking credentials
Regions
Leveraging our strong relationships in our core areas in the North of England and Midlands to expand our
land and property portfolio
Sectors
Concentrating on those property markets with strong, through-the-cycle returns
(currently residential, and industrial and logistics)
Where we are
Where we want to be
Where we are
Where we want to be
Our portfolio remains focused on the North of England
with a growing emphasis on the Midlands and the North
West
To expand our portfolio to the North West and
Midlands to have similar weighting to our Yorkshire
and Central heartland
Our current focus is on the “beds and sheds” sectors which
We remain committed to delivering engineered
have strong fundamentals in the regions we operate in
land for the beds and sheds sectors, with a
Key Business Risks
Key Performance Indicators
Key Business Risks
Key Performance Indicators
•
Potential GVA that could be delivered from
portfolio
Underpinned by a prudent financial approach
Expanding our use of alternative capital sources whilst maintaining our low balance sheet gearing to support the
business and enhance returns.
Where we are
Where we want to be
Net debt of £70.9m and a net loan to portfolio value
of 12.1%
To continue to target a loan to portfolio value ratio
of between 10% and 15%
Key Business Risks
8 Harworth Group plc
Key Performance Indicators
• Net debt
• Net loan to portfolio value
income
• Profit excluding value gains
•
Future pipeline of employment space
• Sustainability & placemaking credentials
particular focus on increasing the range of
residential tenures on our sites and supporting
key regional industries such as manufacturing
•
Residential plots & employment space delivered
• Planning permissions submitted & approved
Development*
Driving the capital growth of our portfolio through new strategic property acquisitions, delivery of planning
permissions, site remediation and infrastructure, before crystallising land sales
Investment*
Ensuring sustainable income generation through new income acquisitions, asset management of existing
rental sites, direct development of new space and recycling of portfolio into higher value adding opportunities
Where we are
Where we want to be
Where we are
Where we want to be
7.2% p.a. EPRA NNNAV per share growth and total
To achieve a long-term market-leading return
return of 7.8% in 2019
Key Business Risks
Key Performance Indicators
• Total return
• Value gains
• EPRA NNNAV per share growth
• Sustainability & placemaking credentials
We are covering our overheads and interest costs and have
been increasing the resilience of our income streams
To cover our overheads, financing costs and
taxation from operating activities with resilient
income
Key Business Risks
Key Performance Indicators
• Profit excluding value gains
Future pipeline of employment space
•
• Sustainability & placemaking credentials
Regions
land and property portfolio
Leveraging our strong relationships in our core areas in the North of England and Midlands to expand our
Sectors
Concentrating on those property markets with strong, through-the-cycle returns
(currently residential, and industrial and logistics)
Where we are
Where we want to be
Where we are
Where we want to be
Our portfolio remains focused on the North of England
To expand our portfolio to the North West and
with a growing emphasis on the Midlands and the North
Midlands to have similar weighting to our Yorkshire
West
and Central heartland
Our current focus is on the “beds and sheds” sectors which
have strong fundamentals in the regions we operate in
We remain committed to delivering engineered
land for the beds and sheds sectors, with a
particular focus on increasing the range of
residential tenures on our sites and supporting
key regional industries such as manufacturing
Key Business Risks
Key Performance Indicators
Key Business Risks
Key Performance Indicators
•
Potential GVA that could be delivered from
portfolio
Residential plots & employment space delivered
•
• Planning permissions submitted & approved
Underpinned by a prudent financial approach
Expanding our use of alternative capital sources whilst maintaining our low balance sheet gearing to support the
business and enhance returns.
Where we are
of 12.1%
Key Business Risks
Where we want to be
of between 10% and 15%
Key Performance Indicators
• Net debt
• Net loan to portfolio value
Net debt of £70.9m and a net loan to portfolio value
To continue to target a loan to portfolio value ratio
Implemented through our Business Model across over 18,000 acres and 100 land and property sites
* Development and Investment pillars now incorporate the elements of our Strategy previously presented under the Acquisitions pillar.
Annual Report and Financial Statements 2019 9
How we deliver value
Our Business Model
Our business model creates long-term value for our stakeholders. In the five years since
re-listing we have generated an average total return of 13.3% p.a. for our investors, whilst
delivering thousands of new homes and nearly 4m sq.ft of employment space in the regions
we operate in.
What stands us apart is our approach to master development. Our experienced team take
the most challenging sites and work collaboratively with stakeholders, reflecting on a site’s
location and assets, to undertake sustainable development.
We have seven specific phases, adding value at all stages of our model.
Capital reinvestment
1. Acquisitions &
land assembly
2. Masterplanning
3. Planning approval
5. Plot sale and build out
6. Placemaking
4. Land remediation &
infrastructure development
We have a large landbank of brownfield and
greenfield land across the North of England
and the Midlands, owning and managing
c.18,000 acres of land on around 100 sites.
Key to our strategy is to replenish our
portfolio with acquisitions
to ensure the growth of the business.
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 sustainable
residential or commercial uses,
creates value.
We currently have planning consents for
over 9,500 residential plots and over
9 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.
Once a use for a site has been identified,
We either sell engineered land for residential
We continue to invest in our sites
we apply value engineering principles
or commercial purposes, or retain land to
alongside these sales. Whether it is
through our in-house development team
grow our income portfolio –
providing schools and facilities
in remediating land and creating
either through leasing directly developed
alongside the new housing
development platforms
that match the proposed use.
commercial
units or renting out land.
communities being created, or green
spaces for exercise alongside logistics
units where hundreds are newly
employed, we aim to make great places
where people want to live and work.
ACQUISITION
PLANNING
DEVELOPMENT
10 Harworth Group plc
7. 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 to grow our
income and managing our Business
Space and Natural Resources sites
to ensure overheads are minimised
and tenants are satisfied.
Where appropriate, we will sell
mature income generating sites,
reinvesting the proceeds into higher
yielding value adding opportunities.
Recurring
income
Capital receipt
1. Acquisitions &
land assembly
2. Masterplanning
3. Planning approval
4. Land remediation &
infrastructure development
5. Plot sale and build out
6. Placemaking
We have a large landbank of brownfield and
Our core skill as a business is to create a
We currently have planning consents for
greenfield land across the North of England
strategic vision and plan for all our sites
over 9,500 residential plots and over
and the Midlands, owning and managing
which, when brought to market with
9 million sq. ft of commercial space. A large
c.18,000 acres of land on around 100 sites.
planning permission for sustainable
proportion of these consents are taken
Key to our strategy is to replenish our
residential or commercial uses,
forward as Major Developments – often
creates value.
seen as showcase projects for regeneration.
portfolio with acquisitions
to ensure the growth of the business.
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.
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.
We continue to invest in our sites
alongside these sales. Whether it is
providing schools and facilities
alongside the new housing
communities being created, or green
spaces for exercise alongside logistics
units where hundreds are newly
employed, we aim to make great places
where people want to live and work.
ACQUISITION
PLANNING
DEVELOPMENT
Annual Report and Financial Statements 2019 11
| Strategic Report | Corporate Governance | Financial Statements Our sectors
We operate within the residential, industrial and logistics markets
which have strong fundamentals in the North of England and
Midlands and long-term opportunities for growth(1)
Residential
GOOD DEMAND FOR LAND
Continuing nationwide housing undersupply is driving consistently good demand for prepared land from housebuilders of
all types in our regions. Fifteen separate housebuilders have now purchased land from Harworth, helping to tackle the UK’s
continued under-supply of around 100,000 homes per annum of all types in our regions, as shown by national completions
data for 2018/19
COMPARATIVE AFFORDABILITY OF NEW HOMES
New houses on our sites in the North West, Midlands and Yorkshire & Central remain more affordable than in the South. Each
of our regions has an affordability ratio(2) for first time buyers of less than 8, compared to over 11 in London and the South East
GOVERNMENT SUPPORTS ACCELERATION OF BUILD-OUT
Housing remains the UK government’s key domestic priority, supported by Help to Buy remaining in place until 2023 for first
time buyers and maintenance of NPPF as UK’s key planning document
NET ADDITIONAL
DWELLINGS DELIVERED
PER 1000 STOCK
IN 2018
Source: MHCLG, 2019
Prospective first-time buyer affordability ratios, by region
England and Wales, 2018
London
South East
East
South West
East Midlands
West Midlands
Yorkshire & Humber
Wales
North West
North East
0
2
4
6
8
Affordability ratios
10
12
14
Source: ONS, 2019
(1) Whilst the markets in which we operate continue to have strong fundamentals notwithstanding the economic and social impact of the COVID-19 pandemic, it should be noted that the statements,
and data referred to, in this section reflect the status of those markets before the onset of the pandemic.
(2) Calculated by dividing median house prices by median gross annual workplace-based earnings.
12 Harworth Group plc
Industrial & Logistics
CONSISTENT DEMAND FOR NEW SPACE
Steady demand for well-located industrial space of all sizes remains in our regions. UK vacancy rate continues to
stand at well below 10%. Reported demand from our agents in our regions for units of under 100,000 sq. ft is strong
and has continued to improve into 2020
LEADING PROPERTY SUB-SECTOR
Industrial sector is forecast to be one of the best performing property asset classes in the medium-term
SUPPORTED BY STAKEHOLDERS
On the whole, local and national support for sustainable new commercial development remains, driven by the
desire for economic regeneration and the need for business rate receipts
Growth projected to continue in 2020
0.8%
Nationally, distribution rents
are forecast to grow by 0.8%
in 2020.
The investment market remained
resilient in 2019 with good levels
of demand for logistics assets.
Source: JLL, UK Big Box Industrial and Logistics Market Report, January 2020
)
ft
q
s
(
y
p
p
u
S
l
100m
90m
80m
70m
60m
50m
40m
30m
20m
10m
0m
Supply and vacancy broadly stable
Supply
Vacancy
25%
20%
15%
10%
5%
0%
e
t
a
R
y
c
n
a
c
a
V
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
YTD
Source: Savills, 2020
Annual Report and Financial Statements 2019 13
| Strategic Report | Corporate Governance | Financial Statements
A long-term track record
of success
Since re-listing in March 2015, we have delivered market-leading
returns whilst helping to regenerate the regions within which we work
Delivering sites for homes and employment
Long-term market leading returns
Financial Track Record
Total Return
Number of plots sold to housebuilders
Consented land sold for employment uses
2019
2018
2017
2016
2015
7.8%
13.3%
13.2%
13.2%
19.0%(1)
0
Value Gains
5
10
15
20
Total identified pipeline: Residential plots
Total identified pipeline: Commercial sq.ft
2019
2018
2017
2016
2015
£44.0m
£51.3m
£47.4m
£43.7m
£40.4m
0.0
Acquisitions & JV investments made
51.3
MW of low-carbon energy capacity installed on our land
Potential GVA that could be delivered from our land and
property portfolio
2019
2018
2017
2016
2015
£30.3m
£32.3m
£23.9m
0.0
Net loan to portfolio value
2019
2018
2017
2016
2015
0.0
£43.5m
£61.1m
61.1
12.1%
12.3%
7.0%
9.9%
10.8%
12.3
14 Harworth Group plc
Number of employees
Satisfaction of employees
Delivering sites for homes and employment
Long-term market leading returns
4,314
residential plots and 3.89m sq. ft
of employment land sold in 2015
to 2019
13.3%
average total return p.a. delivered
between 2015 and 20191
Economic and Social Track Record
Total Return
Number of plots sold to housebuilders
Consented land sold for employment uses
2019
2018
2017
2016
2015
0
622
619
645
1,379
1,049
2019
2018
2017
2016
2015
0.55m sq ft
1.15m sq ft
0.50m sq ft
0.85m sq ft
0.84m sq ft
1379
0
115
Value Gains
Total identified pipeline: Residential plots
Total identified pipeline: Commercial sq.ft
2019
2018
2017
2016
2015
20,490
17,836
17,386
16,073
29,596
2019
2018
2017
2016
2015
24.40m
21.25m
21.63m
18.18m
15.77m
Acquisitions & JV investments made
0
30000
0.0
MW of low-carbon energy capacity installed on our land
Potential GVA that could be delivered from our land and
property portfolio
24.4
2019
2018
2017
2016
2015
52.4MW
120.2MW
154.2MW
159.7MW
144.5MW
2019
2018
2017
2016
2015
£3.5bn
£3.5bn
£2.9bn
£2.8bn
£2.6bn
Net loan to portfolio value
0
Number of employees
160
0.0
Satisfaction of employees
3.5
2019
2018
2017
2016
2015
75
68
57
52
45
2019
2018
2017
2016
2015
90%
88%
87%
84%
83%
0
1 On re-listing the business in March 2015, additional capital of c.£15m was raised. Given the complicated
nature of the transaction, it is not feasible to split this out of the 2015 total return.
75
50
Annual Report and Financial Statements 2019 15
90
| Strategic Report | Corporate Governance | Financial Statements Delivering
our purpose
in practice
The best example of our place making
abilities is Waverley – Yorkshire’s largest-ever
brownfield redevelopment. Harworth and
its predecessor businesses have worked with
a range of stakeholders over the past thirty
years to master develop the 740-acre former
Orgreave Colliery & Coking Works into a
major mixed use scheme that will eventually
deliver up to 4,000 new homes and over
4,000 jobs to the Sheffield City Region
Orgreave in 1990
Waverley in 2009
Waverley over time
Orgreave Colliery &
Coking Works closes
with the loss of 500 jobs
British Coal Opencast
gained permission to
restore the site’s tip and
make the land fit for
rebuilding
Outline planning
consent for Advanced
Manufacturing Park
secured for 2.1m sq. ft of
advanced manufacturing
space; University of
Sheffield’s AMRC with
Boeing created as key
industry-university
partnership
First part of AMRC built
at the AMP, with further
units including Nuclear
AMRC following in its
wake
Opencast mining ends;
four year restoration of
site undertaken
Outline planning
submitted for Waverley
new community of
3,890 homes
approved for Waverley
residential phase; first
Rolls-Royce buys land to
Outline planning
new community; land
engineered for site’s
first phase
Harron Homes
purchases first
residents move in.
Fourteen further phases
prepared and sold in
next seven years
build its 215,000 sq. ft
blade casting facility
University of Sheffield
AMRC Training Centre
completes, training
200+ young people per
year
McLaren Automotive
takes a 20-year lease on
a new carbon fibre tub
manufacturing facility
UK Atomic Energy
Authority becomes
latest organisation to
move onto AMP.
Development now
stands at over 900
homes, 1.5m sq. ft of
employment space and
over 300 acres of public
open space
1990
1995
2002
2004
2005
2008
2011
2012
2013
2014
2017
NOW
16 Harworth Group plc
ADVANCED MANUFACTURING PARK:
1.5m sq. ft built; 2,000 high-value jobs
on-site
Waverley in 2020
LOCAL CENTRE: Area to
act as heart of the
development, including
community and leisure
facilities
WAVERLEY NEW COMMUNITY:
Fifteen housing land parcels sold
between 2012 and 2019, with
over 900 homes now built; up to
3,890 homes to be built by 2040
Waverley in 2002
Waverley over time
Orgreave Colliery &
Coking Works closes
British Coal Opencast
gained permission to
restore the site’s tip and
with the loss of 500 jobs
make the land fit for
rebuilding
First part of AMRC built
at the AMP, with further
units including Nuclear
AMRC following in its
wake
Opencast mining ends;
four year restoration of
site undertaken
Outline planning
submitted for Waverley
new community of
3,890 homes
Outline planning
consent for Advanced
Manufacturing Park
secured for 2.1m sq. ft of
advanced manufacturing
space; University of
Sheffield’s AMRC with
Boeing created as key
industry-university
partnership
Outline planning
approved for Waverley
new community; land
engineered for site’s
first phase
Harron Homes
purchases first
residential phase; first
residents move in.
Fourteen further phases
prepared and sold in
next seven years
Rolls-Royce buys land to
build its 215,000 sq. ft
blade casting facility
University of Sheffield
AMRC Training Centre
completes, training
200+ young people per
year
McLaren Automotive
takes a 20-year lease on
a new carbon fibre tub
manufacturing facility
UK Atomic Energy
Authority becomes
latest organisation to
move onto AMP.
Development now
stands at over 900
homes, 1.5m sq. ft of
employment space and
over 300 acres of public
open space
1990
1995
2002
2004
2005
2008
2011
2012
2013
2014
2017
NOW
Annual Report and Financial Statements 2019 17
| Strategic Report | Corporate Governance | Financial Statements Chair of the Board’s Message
Alastair Lyons
OUR PURPOSE
OUR STRATEGY
A hallmark of investor thinking over recent years has been a view that the
businesses in which they are invested should be about more than just
the creation of shareholder value. This is obviously important, and the
reason institutions and retail investors invest, but it should be what
results from something more fundamental – the purpose of the
business. This is the contribution it makes to its stakeholders, both those
directly involved with it, such as its employees, customers, suppliers,
and shareholders, but also those indirectly benefitting from its activities
– communities where it is based or operates, and society more
generally, through the impact it has on the environment and the
contribution it makes to meeting wider society’s goals and challenges.
Harworth’s business lends itself to being very clear about our purpose:
“Harworth invests to transform land and property into
sustainable places where people want to live and work”. It is why
people join our business, why we are given a fair hearing when we
discuss development proposals with communities and their
representatives, and increasingly why funds that specialise in ESG
investing are actively investing in our business.
We have tried to make each word count! Transformation is our
business. We are expert in taking brownfield sites that have outlived
their industrial purpose and transforming them into sustainable new
commercial and residential development. There is no better example
than the Ironbridge power station, now being flattened and
transformed into a residential development of up to 1,000 new homes
with supporting uses including a retirement village, a school, allotments
and sports pitches. Similarly, we have transformed a disused sewage
works on the outskirts of Leeds next to the M1, Gateway 45 Leeds, into a
site for commercial development that is delivering hundreds of new
skilled jobs.
Elsewhere we recognise the desire of local authorities to ensure that,
where they seek to meet the country’s urgent need for more homes, this
does not outstrip the capacity of communities to support the new
residents with the local infrastructure they need, including schools,
healthcare facilities and shops. Rather, therefore, than pepper-potting
new houses within existing settlements, planners are looking to develop
new sustainable edge-of-town schemes with this core supporting
infrastructure and services. This is where Harworth’s capacity to master
plan comes into its own and why we talk of places where people want
to live and work. We aim to meet not only people’s needs but also their
aspirations, this in turn being why our sites are attractive to our
house-builder customers.
As I travel around our regions, in Yorkshire & Central where Harworth
originated, and in our other core regions in the North West and
Midlands, I meet people in Harworth who are passionately committed
to our purpose and what they are themselves able to create, delivering
against objectives that extend far beyond just an increase in the value of
the business. When potential residential acquisitions are presented to
the Board they talk of the new communities that will be built
progressively on our sites, in many cases requiring us to look up to 10-15
years ahead to visualise its transformation – this is what we mean by
“placemaking”. In turn we have to think about what society will need
and expect in that timeframe. What energy provision will it need? What
transport arrangements will by then be the norm? This is what
sustainability is all about.
One of the roles of a chair is to understand the thinking and aspirations
of the Group’s major shareholders. There is a well-worn adage that a
business should have shareholders that fit its strategy, not try to fit its
strategy to its shareholders! From my interaction with shareholders, I
believe Harworth is fortunate in having shareholders who support our
strategic priorities, recognising that this is a business that plans and
delivers across the long-term, albeit that in the short-term market
conditions may be influenced by economic and political uncertainties
and, as has been the case during the past year, planning decisions may
be delayed by political change at either a local or national level.
Whatever happens in the short-term, a good development will remain a
good development because it will become a place where people want
to live and work. What is important is not whether a decision is made this
side or the other side of the end of the year, allowing a value gain to be
realised in the accounts for the year in question, but whether the
characteristics of the site and its local market are going to deliver a
sustainable vision, with a required return, over the life of the project. If
those returns are realised then value will be created.
As one significant shareholder said to me recently, “Big is not
necessarily beautiful”. What is important is to buy the right sites on the
right terms and market conditions have been such that we have been
selective in what we have bought over the past year, albeit recognising
that the realisation of value in subsequent years is dependent upon what
we buy today. That said, we have been pleased to identify both a
number of new commercial and residential developments, where we
can achieve medium-term capital growth and also new income-
producing sites, bought on attractive yields and with asset management
opportunities, in pursuit of our strategy of covering our overheads,
financing costs and taxation from operating activities with resilient
income. Having been selective we start the new financial year with
appropriate financial firepower to take advantage of good opportunities
both to create capital growth and to generate further income as sources
such as our coal fines business erode with the closure of coal-fired
power stations.
Our aim is to deliver long term market-leading returns across the cycle:
where those will turn out in absolute terms will be determined by where
we are in the cycle. That objective does, however, make us very
discerning as to where we apply capital. Our UK Coal heritage means
that much of our asset base was inherited rather than selected and we
must, therefore, choose where we commit development capital and
where we believe another owner may be better suited to the site given
their own return profile. Hence our decision to divest of our industrial
and agricultural portfolio in the North-East. We will continue to apply
this strategy across all our sites aiming consistently to maximise the
value-creating potential of our portfolio. During 2019 we sold 1,918
acres of non-core land for £10.4m.
2019 – THE YEAR
The results of any particular year are determined by where the portfolio
is across its development life. As Harworth specialises in large, complex
sites, development gains will tend to be lumpy and our scale does not
afford us the averaging benefit inherent in a large portfolio. It is also only
relatively recently that Harworth has had the means to acquire new sites
beyond those it inherited from UK Coal. The realisation of value gains
on many of those new sites will, therefore, lie in the future.
18 Harworth Group plc
Harworth’s business lends itself to being very clear about our purpose:
“Harworth invests to transform land and property into sustainable places where people
want to live and work”.
It is why people join our business, why we are given a fair hearing when we discuss
development proposals with communities and their representatives, and increasingly
why funds that specialise in ESG investing are actively investing in our business.
As a result, our EPRA NNNAV growth per share at 7.2% was lower than it
has been in recent years which themselves benefitted from value gains
created in the early stage development of major sites, such as Waverley,
as they first gained planning consent and then realised uplifted site
values as place-making was achieved progressively. As we commented
at the half year, there are also a number of sites where changes in the
make-up of councils following spring local elections led to changes in
planning policy. In turn these changes delayed planning decisions that
we would otherwise have expected to fall into 2019 and be reflected in
the year-end valuation of those sites. As commented above, whilst to a
degree frustrating, this does not change the appropriateness of our
plans for these sites which reflect our commitment to sustainability and
only come forward after close consultation with a range of local
stakeholders.
We remain financially strong with year-end overall gearing at 12.1% and
£24.0m of undrawn facilities, well-placed to take advantage of
opportunities that may present themselves now last year’s General
Election is conclusively behind us.
COVID-19
Whilst the impact of this falls into 2020 the scale of that impact
necessitates mention here. Where able to do so safely, our contractors
have continued to deliver essential infrastructure and seasonally
sensitive earthworks, and we have sought to support our contracting
and professional services supply chain through this most difficult
period. Thanks to the work our team have undertaken on our IT
infrastructure over the past 12 months or so we have been able to move
entirely to home working across our offices. However, whilst our teams
may be able to continue doing business remotely the nature of our
business means that we face considerable uncertainty in most of what
we do. When will local authorities consider/pass planning consents?
How long will construction be able to continue on our sites? What
commitments will our normal house-builder and industrial customers
want to make this year? In the face of such uncertainty we have to be
prudent and plan for the scenario that what we would otherwise have
anticipated to happen won’t. Key to this is ensuring the financial security
of the business which we can do from a base of low financial gearing,
minimising discretionary expenditure and only spending on
development where and when we have high certainty of funds being
received from either previously contracted deferred consideration or
newly completed sales. We are grateful for the support that we have
received from our banks, RBS and Santander, in increasing our credit
facilities by £30m to £130m, allowing us to take advantage of suitable
land and property opportunities when they arise. We do not know
when business will start to return to normal but we commit to keeping
our shareholders updated as our 2020 trading position becomes
clearer.
THE BOARD
Alongside publication of our preliminary results on 17 March 2020, we
announced that our Chief Executive, Owen Michaelson, had advised
the Board of his intention to retire at the end of 2020 after 10 years
leading the business. In large part the Harworth Group owes its
existence to Owen. Having originally taken over the management of UK
Coal’s real estate activities when these were restructured as Harworth
Estates in 2010, he seized the regeneration potential of the former
collieries, and in doing so created a business that is now a leader in its
field, transforming former industrial sites and urban edge extensions
into new homes and employment areas across the breadth of the North
of England and the Midlands. When the company took over the
Harworth Estates business and relisted in 2015, he became Chief
Executive. Throughout the last 10 years, under Owen’s leadership,
Harworth has remained true to its purpose, to invest to transform land
and property into sustainable places where people want to live and
work, and in doing so has created material value for our shareholders.
He will take with him our every good wish for life after Harworth and we
have now begun the process to appoint a successor.
Last year, we said goodbye in June to Andrew Kirkman who had been
our Finance Director since the beginning of 2016 and in October
welcomed Kitty Patmore to take the role of Chief Financial Officer on our
Board. Kitty brings a wealth of real estate expertise and capital markets
knowledge and even in the few short months she has been with us has
already made a material contribution to the business. I would also like to
recognise the excellent work of Jenny Cutler, now our Director of
Finance, who took over the finance director’s remit in the interim until
Kitty joined us.
As I reported in my last statement as Chair, we also last year welcomed
Ruth Cooke and Angela Bromfield to the Board and said goodbye to
Tony Donnelly who retired after nine years as part of the Board team that
steered the business from being the property arm of UK Coal to a
self-determining premium listed specialist in large complex sites and
regeneration. This year we will also be losing another member of that
team. Lisa Clement, our Senior Independent Director and Chair of our
Remuneration Committee, will also have served nine years and will retire
in the autumn. Her role as Senior Independent Director will be assumed
by Andrew Cunningham who chairs our Audit Committee, having been
a member of our Board since April 2016, whilst Angela Bromfield will
become Chair of the Remuneration Committee and has also replaced
Lisa on our Nomination Committee. We are currently recruiting a further
independent non-executive director whom I would expect to join the
Board around the time of our AGM in June.
THANK YOU
In my personal perspective on Harworth in last year’s annual report, my
first statement as Chair, I commented that Harworth, more than most
companies, is all about its people. It is they who create value through
their ability to identify the right sites, negotiate acquisitions and
disposals, develop masterplans, project manage developments, deliver
on asset management plans and steer us successfully through critical
activities such as demolition and remediation. My greatest thanks are,
therefore, to them for what they have achieved in 2019 which in turn lays
the foundation for what the Group will achieve in coming years. My
thanks also to our executive for their leadership of the business, to my
colleagues on the Board for their wise counsel, to our shareholders for
their support and commitment, to our customers who recognise the
quality of the places we create, and to all our other stakeholders who
provide input and guidance into our projects.
Alastair Lyons,
Chair
4 June 2020
Annual Report and Financial Statements 2019 19
| Strategic Report | Corporate Governance | Financial Statements Chief Executive’s Statement
Owen Michaelson
A PERSONAL PERSPECTIVE
I am pleased to report that the Harworth team continues to deliver
on the key activities and milestones which underpin the long-term
performance of the business, delivering another solid set of results.
The team has continued to do this despite the challenges presented
by the COVID-19 pandemic. We focus on making money in the right
way – blending the delivery of great places to live and work through
the application of placemaking principles whilst also targeting
long-term market-leading financial returns. I am fiercely proud of how
our team thoughtfully plans the regeneration of land and property
and sensitively delivers it within prudent financial controls.
The Group has delivered a total return in 2019 of 7.8% (2018: 13.3%)
with EPRA NNNAV of £500.5m at the year-end (2018: £466.5m). The
in-year result is impressive when considered against the backdrop of
the unprecedented political headwinds we faced in 2019 and I am
pleased with the way the business adapted to the challenge. The
primary impact was the change of political control of some local
authorities following elections in May which delayed the
determination of a handful of our live planning applications. I am
confident that our swift work to amend planning strategies in these
cases has prevented any long-term value erosion in each individual
project. Ultimately the nature of our business means that we must
always take a long-term view and our acquisitions, planning and
delivery strategy reflects this discipline.
Despite these headwinds, we had a strong year of sales that
demonstrated continued demand for our developments and we
made significant progress in growing our portfolio, both in our
pipeline of new strategic land sites and increased recurring income
from investment property. We continue to drive value gains from our
underlying land portfolio in the North of England and the Midlands
through four principal management actions: preparing and securing
planning consents on major schemes; preparing land for
redevelopment; delivering sales for future residential and
commercial end uses; and actively asset managing our underlying
land and property portfolio.
GROWING AND REFINING OUR LAND AND
PROPERTY PORTFOLIO
The rollout of our regional operating model1 in 2019 has been the
primary driver of the increased number of acquisition opportunities
that we are appraising and ultimately securing. We made eleven
strategic land and four income acquisitions over the year across each
of our regions for a total consideration of £43.5m alongside the
signing of planning promotion agreements (PPAs) and land option
agreements with third parties.
Capital Growth
Freehold acquisitions and PPAs combined added a further 8,847
residential plots and 1.6m sq. ft of potential commercial space to our
pipeline during the year. This activity meant that, as at 31 December
1 Within the Capital Growth segment
20 Harworth Group plc
2019, we held 9,554 consented residential plots in the portfolio
alongside 9.1m sq. ft of consented employment space. In addition,
our identified planning pipeline now stands at 20,042 residential
plots and 15.3m sq. ft of future commercial space, the highest
quantum since re-listing in 2015. This helps to support the ongoing
economic development of the North of England and the Midlands
which underpins our business purpose.
Income-producing property
We have continued to deliver our strategy of growing our recurring
income base through selective acquisitions with asset management
potential. Three Business Space properties were purchased in the
year located at Etherow (Glossop), Brighouse in West Yorkshire and
Sherburn-in-Elmet in North Yorkshire for a combined consideration
of £20.5m (including costs), reflecting a blended net initial yield of
8.4%. Further information on these transactions is provided within
the ‘Growing our Income Portfolio’ section below.
Disposal of non-core assets
In line with our stated intent to focus management attention on those
of our Capital Growth and income producing sites with the highest
value-adding potential in our three core regions, a total of 1,918 acres
of non-core land, predominantly our agricultural landholdings and
sites in the North East, were sold during the year for a combined
consideration of £10.4m.
PREPARING LAND TO CREATE NEW COMMUNITIES
AS MASTER DEVELOPER
A significant proportion of our planning work in 2019 was spent
working with stakeholders on developing and agreeing key
development principles prior to the submission of major planning
applications including for the former Ironbridge power station in
Shropshire. Our approach to master development – working
collaboratively with stakeholders and reflecting on a site’s location
and assets prior to creating and delivering sustainable development
– puts us in good stead as we continue to manage local political risk.
Planning applications for over 1.3m sq. ft of commercial space and
1,918 residential plots were submitted in the year, meaning that a
total of over 4.1m sq. ft of employment space and over 3,000
residential plots were in the planning system awaiting determination
at year-end.
Despite local planning headwinds, we were still able to achieve
some planning success during the year. This included receiving
outline consent for our 53-acre Bardon Hill development for 356k
sq. ft of new commercial space. The site, within two miles of Junction
22 of the M1, now has a consent for an indicative layout of five
industrial units and is already in an established commercial location,
with nearby occupiers including Amazon, Eddie Stobart and DHL.
Further progress was made in preparing sites at the early stages of
development ahead of future sale or build out. The most eye-
catching of these milestones was the successful demolition of
When we transform former industrial sites such as collieries or power stations into places
where new communities can flourish, we are actively supporting economic growth in our
regions and helping to meet some of society’s key challenges.
Ironbridge power station’s four former cooling towers as part of
ongoing site works. Early infrastructure works have also been
completed at our Hugglescote Grange (Coalville, Leicestershire)
and Moss Nook (St Helens) residential sites ahead of the planned
sale of their respective first phases over the next 18 months,
ultimately unlocking the delivery of nearly 3,000 consented
residential plots across both developments.
DELIVERING SERVICED PLOTS FOR NEW HOMES
AND COMMERCIAL SPACES
The disposal of serviced land remains a central part of our strategy,
using our well-developed technical skills to de-risk our sites for our
housebuilder customers as well as utilising our placemaking skills to
enhance the attraction of our developments for new home owners to
support eventual house sales. Over the course of 2019, we
completed sales across six major development sites of 102 acres of
serviced land to accommodate 1,379 residential plots for a total
consideration of £61.0m. We have now worked with fifteen national
and regional housebuilders across our sites.
On the commercial side, The Aire Valley Land LLP, our 50/50 joint
venture with Evans Property Group, agreed three separate sales at
Gateway 45 Leeds that generated a total consideration of £30.3m
(£15.2m Harworth share). This included the sale of 10 acres of fully
serviced commercial land to the University of Leeds to build out their
Institute for High Speed Rail and Systems Integration, building on our
existing links with major academic institutions, in turn supporting
inward investment in the regions.
GROWING OUR INCOME PORTFOLIO
Our investment portfolio continues to make a significant contribution
to profits and value gains and provides the recurring income needed
to cover our overhead costs. As we aim to drive value growth by the
application of proven asset management techniques and local
market knowledge, we remain committed to ‘churning’ the portfolio.
This continued throughout 2019, with the purchase of high yielding
investments with asset management potential alongside the sale of
more mature income assets where our business plans developed at
the time of acquisition have been executed.
Business Space
In 2019, our Business Space team continued to improve the Group’s
existing income portfolio whilst also providing high quality and
flexible accommodation for businesses of all sizes. 21 new and
renewed lettings were agreed across our existing Business Space
portfolio.
A notable pre-let was agreed with the UK Atomic Energy Authority
for a new 20-year term at a local headline rent for a 22,300 sq. ft
bespoke fusion technology research facility at the AMP, further
cementing the AMP’s position at the heart of high-added-value
employment in the UK.
The Business Space team added to our annualised income by over
£1.7m through the acquisition of three commercial properties in
2019 with a total purchase price of £20.5m (including costs)
providing active asset management opportunities to drive further
value and income growth.
This combined activity meant that Business Space revenue in 2019
was £13.3m (2018: £11.9m). The WAULT across the portfolio stands at
13.5 years (2018: 14.1 years), whilst the vacancy rate at 31 December
2019 is 6.2% (2018: 14.4%).
Natural Resources and Operations
Our revenues for the year were also bolstered by the work of our
Natural Resources team. A total of 120.2MW (2018: 154.2MW) of low
carbon energy capacity remains installed on our land, providing a
long-term income stream from a combination of ground rents and
electricity royalties. The reduction in the year was due to the freehold
sale of our Solar Portfolio in December for £5.0m, representing a net
initial yield of 4.6%, as part of our ongoing income churn strategy.
The team’s focus continues to be on growing future income from
environmental technologies including low carbon energy, recycling,
and mineral processing.
At the same time, revenue from our coal fine sales reduced faster
than expected during the year with the accelerated closure of all coal
fired power stations across the UK (2019: £4.0m, 2018: £7.7m).
Regeneration at our heart
When we transform former industrial sites such as collieries or power
stations into places where new communities can flourish, we are
actively supporting economic growth in our regions and helping to
meet some of society’s key challenges. As master developer, we
have been shaping, creating and delivering sustainable
developments for over a decade and I am very proud of the
placemaking we have achieved at a local level. We are in the process
of formalising our own sustainability framework which will reflect the
way in which we approach our projects to continue to deliver
economic, environmental and social value for the future, supporting
‘good growth’ across the North of England and the Midlands.
Our people are the core of the business
I would like to thank our teams for their hard work and dedication
over 2019. This was an important year in developing our staffing
capacity as we completed our transition to a regional operating
model and I am very pleased that all key regional appointments have
now been made, ultimately supporting the long-term growth of the
business. The appointment of Ian Ball as Chief Operating Officer on
1 May, alongside Kitty Patmore who joined the business as our new
Chief Financial Officer on 1 October, further enhances the strength
of our executive leadership team to plan and execute our strategy of
sustained long-term profitable growth. We have recently added a
new Head of Income to the management team to drive the active
churn and investment strategy within this side of our business.
Annual Report and Financial Statements 2019 21
| Strategic Report | Corporate Governance | Financial Statements Chief Executive Statement
continued
COVID-19
OUTLOOK
Our absolute priority in trading through the COVID-19 pandemic is
the health and safety of our workforce and the contractors that work
on our behalf. All directly employed staff are predominantly working
from home, with our IT and support systems working well. Social
distancing guidelines issued by Government are being rigorously
applied across all our sites by our staff and all contractors, including
those where either infrastructure or building works are continuing.
As for all other businesses, the pandemic has required us to stress
test our financial assumptions and to review all planned activity in
2020. With a number of housebuilder customers announcing a
pause on activity on live construction sites and new purchases at the
end of March, we have prioritised capital expenditure on our major
development sites that have agreed sales in place for later in the year.
Infrastructure works have therefore continued on six active
development sites across the portfolio, in keeping with our strategy
of effectively managing cash flows to fund sustainable growth.
Crucially, the business is also extremely well positioned to mitigate
any short-term market volatility and to take advantage of any land and
property opportunities that arise as a result of present market
conditions. As we announced in our trading update on 30 April
2020, we remain well capitalised and in support of the Company’s
long-term strategy, our lenders have agreed to increase our
Revolving Credit Facility limit by £30 million to £130 million,
providing both operational flexibility and the ability to take
advantage of future suitable land and property opportunities. Further
detail on this is provided within the Financial Review of this report.
Notwithstanding our current balance sheet strength and liquidity
headroom, the macro economic environment is one of heightened
uncertainty. Whilst it is too early to say with any certainty, it is likely
that the disruption caused by the COVID-19 pandemic will have a
material influence on the Company’s results for the financial year to
31 December 2020. Whilst we will continue to target long-term
market-leading returns, our priority this year is to manage the
business through and out of the pandemic by prioritising
development spend carefully, continuing to cover operating costs
from our income portfolio, maintaining focus on achieving key
planning milestones and deploying capital wisely on acquisitions that
provide the best long-term total returns for the business.
We are firmly of the view that businesses like ours will be central to
the UK’s economic recovery post-pandemic. The underlying
fundamentals of our “beds and sheds” markets in our regions remain
healthy and our sites persist in their popularity, evidenced by the
£13m sale in April 2020 of 19.5 acres of land at our Skelton Grange
site in Leeds to Wheelabrator Technologies. The stability of the
regional markets in which we operate remains underpinned by
comparatively low house prices, a continuing lack of consented and
engineered land for housing, and the need for new commercial
space where good quality stock is scarce.
Government initiatives aimed at helping to rebalance the UK
economy through additional investment in skills, infrastructure, rail
connectivity and in sectors such as advanced manufacturing is now
an essential part of the UK’s economic landscape to support
economic output and recovery. In creating new places to live and
work we will play an important part in that recovery.
Shareholders can be assured that we will maintain strong financial
discipline in the appraisal of projects and the deployment of capital
in the remainder of 2020, whilst supporting the ongoing
regeneration of our regions through the delivery of new homes and
jobs. Our strong financial position, significant landbank and
technical track record put the business in a strong position for
long-term growth to capitalise on the opportunities created by the
renewed political focus on the Midlands and the North of England.
Owen Michaelson
Chief Executive
4 June 2020
22 Harworth Group plc
Financial Review
Kitty Patmore
In 2019, Harworth continued to deliver
a solid financial performance across its
core business segments generating a
total return of 7.8% (2018: 13.3%). Over
the year, net asset value rose to £463.8m
(2018: £441.9m) with EPRA NNNAV
rising to £500.5m (2018: £466.5m)
representing an EPRA NNNAV per share
growth of 7.2% to 155.6p (2018: 145.2p).
ALTERNATIVE PERFORMANCE MEASURES
We find that as our property portfolio includes development
properties and joint venture arrangements, Alternative Performance
Measures (APMs) can provide valuable insight into our business
alongside the statutory amounts. In particular, revaluation gains on
development properties are not recognised in the Statutory Income
Statement and Balance Sheet. The APMs set out to show measures
which include movements in development property revaluations,
assets held for sale, overages and joint ventures, and also the
profitability of the business excluding value gains. We believe that
these APMs assist in providing stakeholders with additional useful
disclosure on the underlying trends, performance and position of the
Group.
Our key APMs are:
•
•
•
•
Total return - The movement in EPRA NNNAV plus dividends per
share paid in the year expressed as a percentage of opening
EPRA NNNAV per share
EPRA NNNAV per share growth - The movement in EPRA
NNNAV per share expressed as a percentage of opening EPRA
NNNAV per share
Value gains - This is the realised profits from the sales of
properties and unrealised profits from property value
movements including joint ventures and the mark to market
movement on development properties, assets held for sale and
overages
Profit excluding value gains - Property net rental, royalty and fee
income, net of running costs of the business which represents
the underlying profitability of the business not reliant on
property value gains or profits from the sales of development
properties
• Net loan to portfolio value - Group debt net of cash held
expressed as a percentage of portfolio value
A full description of all non-statutory measures and reconciliations
between all the statutory and non-statutory measures are given in
Note 2 to the Financial Statements.
Harworth discloses some APMs which are European Public Real
Estate Association (EPRA) measures as these are a set of standard
disclosures for the property industry and thus aid comparability for
our real estate investors and analysts. In October 2019, EPRA
announced changes to the Net Asset Value measurement to reflect
the evolution of the listed real estate sector. These changes are
applicable from accounting periods beginning on or after 1 January
2020 and will be reported in full in the 2020 Interim results.
SUMMARY
In 2019, the Group achieved value gains of £44.0m (2018: £51.3m).
This is the result of attaining milestones in remediating land,
place-making, new lettings and site specific opportunities, albeit that
progress across the portfolio was tempered by the impact of
planning headwinds primarily resulting from the May 2019 local
elections.
The Group’s profit excluding value gains was £3.5m (2018: £9.8m).
The reduction compared to the prior year is predominantly due to
one significant promote fee in 2018 of £6.8m and a reduction in coal
fine income in 2019 as a result of the accelerated wind down of coal
fired power stations.
Basic earnings per share for the year were 7.9p (2018: 10.6p)
reflecting lower promote fees, a reduction in income from coal fines
and higher tax charges in the year. The total dividend per share for
2019 has been increased by 10% to 1.0p (2018: 0.9p) which is
consistent with previous years reflecting our progressive dividend
policy and our confidence in the long-term potential of the business.
The closing net loan to portfolio value was 12.1% (2018: 12.3%), at the
lower end of our net LTV target range.
Annual Report and Financial Statements 2019 23
| Strategic Report | Corporate Governance | Financial Statements Financial Review
continued
7.8%
Total return over the
last year
EPRA NNNAV per share growth plus
dividends per share
7.2%
EPRA NNNAV
per share growth
12.1%
Net loan to portfolio
value
Capital
Growth
£m
62.0
(50.5)
11.5
(2.7)
-
-
8.9
-
8.9
7.0
0.3
16.3
-
16.3
2019
Income
Generation
£m
Central
Overheads
£m
23.5
(7.1)
16.4
(2.2)
9.3
-
23.4
-
23.4
1.4
-
24.9
-
24.9
-
-
-
(8.0)
-
(0.1)
(8.1)
-
(8.1)
-
(2.7)
(10.8)
(4.8)
(15.6)
Total
£m
85.5
(57.5)
27.9
(12.9)
9.3
(0.1)
24.3
-
24.3
8.4
(2.4)
30.3
(4.8)
25.5
Capital
Growth
£m
52.5
(45.0)
7.4
(2.5)
8.7
-
13.6
-
13.6
-
-
13.6
-
13.6
2018
Income
Generation
£m
Central
Overheads
£m
25.6
(8.6)
17.0
(2.2)
13.4
-
28.2
-
28.2
3.8
-
32.0
-
32.0
-
-
-
(8.2)
-
(0.1)
(8.3)
(0.6)
(8.9)
-
(4.0)
(12.9)
1.3
(11.6)
Total
£m
78.1
(53.6)
24.4
(12.9)
22.1
(0.1)
33.6
(0.6)
33.0
3.8
(4.0)
32.8
1.3
34.1
Revenue
Cost of sales
Gross profit
Administrative expenses
Other gains
Other operating expense
Operating profit/(loss)
before exceptional items
Exceptional expense
Operating profit/(loss)
Share of profit of joint ventures
Interest income/(expense)
Profit/(loss) before tax
Tax (charge)/credit
Profit/(loss) after tax
There are some minor differences on some totals due to roundings.
Entrance sign to Simpson Park,
North Nottinghamshire
Electric vehicle charging at
Advantage House
24 Harworth Group plc
Revenues in 2019 were £85.5m (2018: £78.1m), split between revenue from Income Generation of £23.5m (2018: £25.6m) and revenue from
Capital Growth of £62.0m (2018: £52.5m). The disposal of development properties was 36% higher in 2019 reflecting sales across multiple
residential and commercial sites including Swadlincote, Waverley, Riverdale Park and Thoresby.
Income Generation (Business Space, Natural Resources and Operations) revenue mainly comprises property rental and royalty income
together with some sales of coal fines. Revenue in 2019 was £23.5m (2018: £25.6m) and is lower as a result of reduced sales of coal fines as
the United Kingdom reduces its reliance on coal fired power leading to an accelerated wind down of the associated power stations and the
recognition of a £6.8m promote fee for lettings at Logistics North in 2018 . The core of our recurring income is from rental and royalty income
from Business Space and Natural Resources which increased from £17.9m to £19.5m in the year.
Cost of sales comprises the inventory cost of development property sales and the operating costs of the Income Generation business. Cost of
sales increased to £57.5m (2018: £53.6m) of which £49.5m related to the inventory cost of development property sales (2018: £43.1m).
NON-STATUTORY VALUE GAINS(1)
Value gains are made up of profit on sales, revaluation gains on investment properties (including joint ventures), and revaluation gains on
development properties, assets held for sale and overages:
Capital Growth
Major Developments
Strategic Land
Income Generation
Business Space
Natural Resources
Agricultural Land
Total
2019
2018
Categorisation
Profit on
sales
Revaluation
gains/(losses)
Development
Investment
Investment
Investment
Investment
5.1
0.0
0.1
3.3
0.0
8.5
27.9
(0.3)
4.8
3.9
(0.8)
35.5
Total
33.0
(0.3)
4.9
7.2
(0.8)
44.0
Profit on
sales
Revaluation
gains/(losses)
0.8
0.7
(0.0)
1.8
(0.0)
3.2
24.2
8.4
7.0
8.7
(0.3)
48.1
Total
25.0
9.1
7.0
10.5
(0.3)
51.3
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.
Profit on sales of £8.5m (2018: £3.2m) reflect sales above book value particularly in Natural Resources (solar portfolio sale) and across major
development sites.
Revaluation gains of £35.5m (2018: £48.1m) reflect our master-developer skills in planning new developments and the delivery of active asset
management across our sites. Whilst Harworth has a significant pipeline of both consented and “in the planning pipeline” residential and
commercial plots, timing and receipt of planning approvals is inherently uncertain. Hence, in 2019, the revaluation gains were tempered by
planning headwinds across a small number of sites, as reflected earlier in the statement. The principal revaluation gains across the divisions
reflected the following this year:
• Major Developments - profitable sales, and development progress, across the majority of our sites (notably Hugglescote Grange
(Coalville), Bardon Hill, Prince of Wales, Pheasant Hill Park, Riverdale & Waverley) and a few small reductions on a couple of sites due to
cost plan increases;
•
Strategic Land - uplifts at Ironbridge, Rockingham and Wingates as land is prepared with some reductions on sites as a result of planning
delays;
•
Business Space - good letting progress achieved across our portfolio;
• Natural Resources - valuation uplifts from surface water management plus an increase from progress on an agreed sale for an Energy from
Waste plant; and
•
Agricultural Land - uplifts as a result of market sales and some minor reductions across some assets.
The net realisable value provision as at 31 December 2019 was £6.9m (2018: £7.6m) across nine development properties with provisions
increased or decreased as a result of the latest business plan and market conditions.
Joint venture profits of £8.4m (2018: £3.8m) were largely a result of the sales from the Gateway 45 Leeds site. Value gains on a non-statutory
basis are set out below.
Annual Report and Financial Statements 2019 25
| Strategic Report | Corporate Governance | Financial Statements
Financial Review
continued
PROPERTY CATEGORISATION
Until sites receive planning permission, our view is that the land is held for a currently undetermined future use and should therefore be held as
investment property. We categorise properties and land that have received planning permission as development properties. Property
categorisation is reviewed as at 30 June and 31 December each year.
As at 31 December 2019, the balance sheet value of all development sites was £202.1m and the valuation (based on valuations by BNP Paribas
and Savills plc) was £242.2m, reflecting the £40.1m cumulative uplift in the value since they were classified as development properties. In
order to highlight the market value of development properties, and overages, and to be consistent with our investment properties, we are
using EPRA NNNAV, which includes the market value of development properties, assets held for sale and overages less notional deferred tax,
as our primary net assets metric.
The table below sets out our top ten sites by value, which represent 47% of the total value of all our properties, showing the total acres and
split by their categorisation, currently consented residential plots and commercial space:
Site
Categorisation
Region
Acres Consented
Sold/Built
Consented
Sold or Built
Housing plots
Commercial space
Development
Development
Investment
Development
Joint Venture
Investment
Investment
Development
Development
Investment
Yorkshire & Central
Midlands
Yorkshire & Central
Yorkshire & Central
Yorkshire & Central
Yorkshire & Central
Midlands
Yorkshire & Central
Yorkshire & Central
North West
432
346
112
307
110
113
141
447
416
19
3,890
2,016
-
1,570/ 900
-
-
1,200
522/170
-
-
-
800
996
-
-
-
-
143/0
316/170
-
2,443
8,902
2,551/1,240
-
-
0.3m
0.1m
1.3m
2.1m
0.3m
0.3m
-
0.4m
4.8m
-
-
0.3m
0.0m
0.6m
1.5m
0.3m
-
-
0.4m
3.1m
Waverley
Hugglescote Grange
Nufarm
Pheasant Hill Park
Gateway 45
Waverley AMP
Melton Commercial Park
Thoresby Vale
Simpson Park
Four Oaks Business Park
TOTAL
CASH AND SALES
The Group made property sales(1) of £79.9m in 2019 (2018: £93.2m) achieving profits on sales of £8.5m (2018: £3.2m). The sales were split
between those of residential serviced plots at £58.1m (2018: £33.6m), commercial development at £4.4m (2018: £30.9m) and other, mainly
mature, income-generating sites and agricultural land including those in the North East, at £17.4m (2018: £28.7m).
Cash proceeds from sales were £58.0m (2018: £78.9m) as shown in the table below:
Total property sales(1)
Less deferred consideration on sales in the year
Add deferred consideration from sales in prior years
Total cash proceeds
31 December
2019
£m
31 December
2018
£m
79.9
(38.5)
16.6
58.0
93.2
(22.7)
8.4
78.9
Notes: (1) A full description and reconciliation of the alternative performance measures is included in note 2 to the financial statements.
As at 31 December 2019, gross deferred consideration carried forward was £41.1m (2018: £19.2m). This reflects the maturity and scale of sites
now delivering higher sales of residential serviced plots to housebuilders over the course of the year.
26 Harworth Group plc
EXCEPTIONAL ITEMS
There were no exceptional items in 2019 (2018: £0.6m for the costs
of the step up to premium listing).
At 31 December 2019, the Group had deferred tax liabilities of
£15.6m (2018: £12.3m) which largely related to unrealised gains on
investment properties and recognised deferred tax assets of £7.9m
(2018: £7.3m). The net deferred tax liability was £7.8m (2018: £5.0m).
TAX
The income statement charge for taxation for the year was £4.8m
(2018: £1.3m credit) which comprised a current year tax charge of
£1.8m (2018: £0.9m credit) and a deferred tax charge of £3.0m
(2018: £0.4m credit).
The current tax charge resulted from profits from the sale of
development properties and assets held for sale as well as rental
income in the year together with the resubmission of prior year tax
computations and returns which, following a review, resulted in a
£0.5m credit.
The movement in deferred tax comprised the following:
•
•
•
•
•
•
the increase in valuation of investment properties (both currently
held and disposed of in the year) giving rise to £5.7m of
deferred tax charge;
a £0.2m credit due to the recognition of tax losses following
disposals in the year;
the utilisation of tax losses against current year profits resulting
in a deferred tax charge of £1.3m;
recognition of tax losses as a result of increased certainty as to
their availability resulted in a deferred tax credit of £2.2m;
following the submission of the tax computations and returns for
prior periods, a reduction in tax attributes utilised, resulting in a
deferred tax credit of £0.8m; and
a deferred tax credit of £0.8m in relation to other temporary
differences.
BASIC EARNINGS PER SHARE AND DIVIDENDS
Basic earnings per share fell to 7.9p (2018: 10.6p) reflecting lower
promote fees, a reduction in income from coal fines and higher tax
charges in the year. An interim dividend of 0.3p per share (2018
interim: 0.3p) equivalent to £1.0m (2018 interim: £0.9m) for the 2019
financial year was paid on 18 October 2019. As announced on 30
April 2020, notwithstanding the Group’s balance sheet strength and
liquidity, given the uncertain backdrop of the COVID-19 pandemic,
the Directors consider it prudent to not recommend the payment of
a final dividend for the 2019 financial year.
As such, the total dividend for the year will therefore be 0.3p per
share (2018: 0.9p) equivalent to £1.0m (2018: £2.9m). The Board
recognises the importance of dividends to shareholders and, as
such, intends to consider the appropriateness and timing of an
additional interim dividend (equivalent to the 2019 final dividend) for
the financial year ending 31 December 2020 when it has a clearer
view of the effects of COVID-19 pandemic on the Group.
EPRA NNNAV is £500.5m which includes the mark to market on the
value of the development properties, assets held for sale and
overages. The total portfolio value as at 31 December 2019 was
£585.3m, an increase of £59.6m over 31 December 2018 (£525.7m).
Three new joint ventures have been entered into over the year and
this together with the increase in profits from the existing joint
ventures has resulted in investments in joint ventures increasing to
£33.1m (2018: £25.8m). With the property sales in the joint venture
at Gateway 45 during 2019, the joint venture investment is now split
£23.1m in Capital Growth and £9.9m in Income Generation (2018:
£1.1m Capital Growth and £24.7m Income Generation).
NET ASSET VALUE
Properties(1)
Cash
Trade and other receivables
Other assets
Total assets
Gross borrowings
Deferred tax liability
Derivative financial instruments
Other liabilities
Net assets
Mark to market value of development properties, AHFS and overages less notional deferred tax(2)
EPRA NNNAV(2)
Number of shares in issue less Employee Benefit Trust shares
EPRA NNNAV per share(2)
(1) Properties include investment properties, development properties, assets held for sale, occupied properties and investment in joint ventures.
(2) A full description and reconciliation of the alternative performance measures in the above table is included in note 2 to the financial statements.
31 December
2019
£m
31 December
2018
£m
541.0
11.8
59.2
4.3
616.3
82.7
7.8
0.6
61.4
463.8
36.7
500.5
496.1
8.6
66.7
2.9
574.3
73.0
5.0
0.1
54.3
441.9
24.6
466.5
321,777,367
321,314,989
155.6p
145.2p
Annual Report and Financial Statements 2019 27
| Strategic Report | Corporate Governance | Financial Statements
Financial Review
continued
Trade and other receivables include deferred consideration on sales
as set out above. At year end, there was £41.1m (2018: £19.2m) gross
deferred consideration with £12.9m (2018: £nil) due after more than
one year.
FINANCING STRATEGY
As has been consistently stated, Harworth’s financing strategy is to
be prudently geared, with the Income Generation portfolio
providing a recurring income source to service debt facilities. We
believe this prudence gives the Group a number of advantages:
•
•
•
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 continues to target a net loan-to-value
of 10% to 15% and entails the Group seeking as a principle to
maintain its cash flows in balance by funding infrastructure spend
and investment in acquisitions through disposal proceeds.
DEBT FACILITIES
As at 31 December 2019, the Group benefitted from a £100m
Revolving Credit Facility (RCF) with RBS and Santander, expiring in
February 2023. The Group also uses, as part of our funding,
infrastructure financing, provided by public bodies to promote the
development of major sites. In April 2020, RBS and Santander
agreed to increase the RCF by £30m to £130m. The Group had
borrowings and loans of £82.7m at 31 December 2019 (2018:
£73.0m), being the RCF of £75.8m (2018: £58.7m) and infrastructure
loans of £6.9m (2018: £14.3m). The Group’s cash and cash
equivalents at 31 December 2019 were £11.8m (2018: £8.6m). The
resulting net debt was £70.9m (2018: £64.4m). The weighted
average cost of debt, using 31 December 2019 balances and rates,
was 3.1% with a 0.8% non-utilisation fee on undrawn RCF amounts
(2018: 3.3% with a 0.8% non-utilisation fee on undrawn RCF
amounts).
The Group’s hedging strategy is to have roughly half its debt at a
fixed rate and half exposed to floating rates. The Group currently has
a £45m fixed rate interest swap at an all-in cost of 1.2% (including
fees) on top of the existing margin paid under the RCF. The interest
rate swap is hedge accounted with any unrealised movements going
through reserves to the extent that the hedge is effective.
As at 31 December 2019, the Group’s gross loan to portfolio value
was 14.1% (2018: 13.9%) and net loan to portfolio value was 12.1%
(2018: 12.3%). If gearing is just assessed against the value of the core
income portfolio, this equates to a gross loan to core income
portfolio value of 41.2% (2018: 38.9%) and a net loan to core income
portfolio value of 35.3% (2018: 34.3%). Undrawn facilities under the
RCF were £24.0m putting the Group in a good position entering
2020.
28 Harworth Group plc
2020 AND OUR RESPONSE TO COVID-19
The Group entered this unprecedented period in a strong financial
position, with cash and undrawn debt facilities of £36 million (at 31
December 2019). Whilst this year is not as we expected at its outset,
we have adapted quickly to remote working and have continued to
exercise a prudent and disciplined approached to our capital
structure. It is important that we maintain maximum balance sheet
flexibility at this time and, to that end, we have taken a number of
actions in anticipation of a period of disruption.
As announced on 30 April 2020, with a number of housebuilder
customers announcing a pause on activity on live construction sites
and new purchases, we elected to prioritise capital expenditure on
our major development sites that have agreed sales in place for later
in the year. This is in line with our strategy of effectively managing
cash flows to fund sustainable growth and will remain under review
as we start to see housebuilders return to sites.
Sales and lettings continue to be completed and our income
collection, derived from our portfolio of industrial, logistics and
renewable energy assets with its diversified tenant base, remains
robust and covers all business overheads and interest on our loan
facilities, with rental payments received for the March quarter being
broadly in line with previous quarters.
In support of the Group’s long-term strategy, our lenders have
agreed to increase our RCF by £30m to £130m. The pricing will
increase marginally by 0.15%, taking the margin to 2.25% and the
weighted average cost of debt to 3.2% (2019: 3.1%). This means that,
at 30 April 2020, the Group’s net loan to portfolio value was 12.4%
(2019: 12.1%). There remains headroom in all banking covenants and
the expiry dates of our facilities remain unchanged meaning that
there are no significant debt maturities until 2023.
After due consideration of the ongoing economic uncertainty, the
Board has taken a prudent decision to not recommend a final
dividend of 0.7p per share for the financial year ended 31 December
2019, preserving a further £2.2m of cash.
As a result, as at 30 April 2020, the Group had substantial available
liquidity of £64.0m (2019: £35.8m), comprising £34m of cash and
£30m of undrawn facilities. We have run extensive scenario testing,
including a severe but plausible downside on our revised forecast, to
look at the potential impact of heightened risks on the Group, as set
out in the Going Concern Statement on pages 122 and 123. In every
scenario, the Group maintains a robust liquidity position and
headroom within financial covenants throughout. These scenarios
demonstrate the resilience of the business model and the flexibility it
affords to manage cashflows. We believe the strength of our balance
sheet, alongside our strong business fundamentals, will enable us to
come through this period in a position to grow, thrive and take
advantage of market opportunities.
Kitty Patmore
Chief Financial Officer
4 June 2020
Effectively managing our risks
The Board has ultimate responsibility for determining the risk appetite of the Group, for monitoring the risk profile of the business and ensuring
that measures and controls are in place to manage risk effectively. The Board recognises that not all risks can be eliminated, or sufficiently
mitigated at an acceptable cost, and that there are some risks which, given the nature of Harworth’s business and the track record and
experience of the team, it is prepared to accept. The Board also recognises that the Group’s insurance programme plays an important part in
reducing the impact of certain inherent risks which are neither acceptable nor capable of removal.
Harworth’s framework for monitoring and managing risk continued to evolve and mature during 2019. The Group Risk Register (GRR) remains
the principal tool used by the Board and Management Board to monitor the risk profile of the business and the measures in place at an
operational level for mitigating and managing risk. It forms part of a wider framework pursuant to which risks are monitored and managed
throughout the year, as captured below.
RISK REVIEW FRAMEWORK: ANNUAL CYCLE
Whistleblowing
reports reviewed by
the Board
Quarterly health and
safety meeting
Bi-annual GRR review
– both Management
Board and Board
Annual review of PLC
Board risk appetite
by reference to latest
GRR*
Quarterly health and
safety meeting
FEBRUARY
APRIL
JUNE
AUGUST
OCTOBER
DECEMBER
Our Estates, Environment and Safety team maintains a site risk register through which we continuously monitor the risk status of
each of our sites. Sites are inspected throughout the year and material changes in their risk status are reported to the Management
Board and Board on a monthly basis.
The GRR is a “living” management tool used throughout the year. All members of the Management Board consult regularly with
their teams about, and feed-back on, existing and new operational risks, and the effectiveness of risk management measures.
The Management Board 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.
JANUARY
MARCH
MAY
JULY
SEPTEMBER
NOVEMBER
Bi-annual GRR review
– both Management
Board and Board
Informed by both
high-level assess-
ment of risk and
feedback from
the Management
Board, following
consultation with
their respective
teams. Updates are
made to the GRR as
necessary including
to reflect emerging
risks
Quarterly health and
safety meetings:
CEO chairs
meetings attended
by representatives
of each division.
Incident briefings are
given; site-specific
and business-wide
incidents (including
near-hits) and
issues are identified
and discussed,
with action points
agreed; and best
practice is shared
Quarterly health and
safety meeting
AuditCo review of
internal controls
and processes – see
Audit Committee
Report on page 99
*Review undertaken in December and reported to Board in January
The GRR maps the risk profile of the business. It is a dynamic document and has continued to evolve during 2019, both to reflect emerging
risks and to make it a more user-friendly document including the introduction of a dashboard to give a “live” snapshot of the risk profile of the
business. This dashboard is replicated on page 31. The GRR currently identifies risks grouped into nine principal risk categories: Delivery;
Legal and Regulatory; People; Finance; Environment; Social; Governance; Markets and Politics. 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. The
GRR identifies an “owner” of each risk, being a member of the Management Board, who takes responsibility for the status and management of
that risk. It also records mitigation measures implemented in the previous 12 months and those planned over the coming 12 months.
Categories and risks remain subject to regular review. The Board’s objective is to maintain, as far as possible, an alignment between its risk
appetite and the risk profile of the business.
Annual Report and Financial Statements 2019 29
| Strategic Report | Corporate Governance | Financial Statements Effectively managing our risks
continued
PRINCIPAL RISKS AND UNCERTAINTIES
Harworth risk profile (before impact of COVID-19)
t
c
a
p
m
I
S
P
M
F
D
G
PP
LR E
Risk Key
Likelihood
Very Low
Low
Medium
High
Very High
Delivery (D), Legal and Regulatory (LR), People (PP), Finance (F), Environment (E),
Social (S), Governance (G), Markets (M), Politics (P)
We are presenting Harworth’s principal risks and uncertainties in this
Report against the unprecedented backdrop of the COVID-19 global
pandemic. Like all businesses, the pandemic has a severe, but
temporary, adverse impact on the risk profile of our business. To give
shareholders full but balanced disclosure we have presented
Harworth’s risk profile prior to the onset of the pandemic but with an
overlay showing its temporary impact.
“Business as usual” risk profile
During 2019, Harworth operated against a backdrop of heightened
economic and political instability surrounding the UK’s exit from the
EU. That backdrop did not have a materially increased adverse effect
on the housing, logistics and manufacturing markets in Harworth’s
core regions, due to their long-term fundamentals, but the Board
was mindful that these macro conditions had the potential to lead to
a downturn in the regional residential and/or commercial property
markets in which Harworth operates. That being so, our residential
and commercial property Markets risks retained a “high” status in
the GRR throughout 2019. Those Markets risks have returned to a
“medium” status following the latest review of the GRR, reflecting the
decisive outcome of the General Election and the UK’s departure
from the EU at the end of January 2020. We believe this has
generated increased political stability and resulted in improved
sentiment across both the commercial and residential property
markets in at least the short-term. The Board continues to monitor
Markets risks closely given that commercial markets in some
instances are considered to be operating late-cycle and macro-
economic uncertainty remains and is likely to increase as we
approach the end of the transition period agreed with the EU.
The macro-political backdrop did lead to turbulence at a local
political level, manifested by changes in local government control at
the May local elections and in local planning policy, creating
planning headwinds for a handful of our projects. These headwinds
persist and are reflected in the “high” risk status of our planning
Delivery risk (rather than in our Politics category, as to which see
30 Harworth Group plc
below). Evidence post-election suggests these headwinds may
begin to subside and we will continue to monitor this closely
throughout the year.
The UK also remains a highly competitive landscape for strategic site
acquisitions and, despite our success in securing new sites and
projects in 2019 and strong pipeline, this is a reflected in a “high”
acquisition Delivery risk status. Over the short term, we expect that
more acquisition opportunities will come forwards on which we are
well placed to capitalise. All other Delivery risks remain unchanged,
with a “medium” risk status.
In terms of Finance risks, our capital and income risks continue to
carry higher risk scores. This reflects that expanding our capital
sources and increasing the breadth and resilience of our income
portfolio, in both cases to support the growth of the business,
remain strategic priorities. Over the course of 2019, we have seen
lower income from coal fine sales, reflecting an accelerated
reduction in reliance on coal fired power stations. Although the
trend for coal fine sales is anticipated to continue, overall we expect
these risks to reduce in the medium term as our strategy is
implemented. There has also been an increase in our insurance risk,
due to challenging market conditions, which has resulted in material
increases in some insurance premiums, albeit a large proportion of
these increases are passed onto tenants. We expect this risk to
remain unchanged, if not increase, over the next 12 months and will
be undertaking a robust renewal exercise for 2021.
Whilst the macro-political backdrop and local political climate are
reflected in our Markets and Delivery risk categories, our Politics
category risks are informed by changes in central Government
policy. Overall, this category remains largely unchanged, with
increases in certain risks offset by reductions in others.
Our People and Legal and Regulatory risks remain largely
unchanged and no material movements are expected over the next
12 months. Most of our Governance risks retain a “medium” risk
status, notwithstanding modest reductions in our internal controls
and cyber security Governance risks, following measures
implemented in 2019.
Our Environment and Social risk categories were new to the GRR in
2019, reflecting emerging risks identified by our bi-annual reviews,
and our focus on business purpose, the sustainability and
environmental impact of our projects, and the effectiveness of our
engagement with local communities and other key stakeholders.
These risks carry a mixture of “low” and “medium” scores. They are
long-term risks, the status of which is not expected to change
materially over the next 12 months.
Impact of COVID-19
The COVID-19 pandemic has caused temporary increases across
approximately half of our risks in the Delivery, People, Finance,
Governance, Markets and Politics categories. In some cases those
increases are severe, albeit temporary. In all cases we have acted
quickly to implement measures to mitigate increase risks.
On pages 32 to 36 there is a detailed analysis of the Group’s risks
and uncertainties grouped into our nine principal risk categories. On
pages 36 and 37 there is analysis of how the COVID-19 pandemic
has affected the status of certain of those risks.
Dashboard (reflecting position pre-COVID-19)
Risk
Delivery
1.Acquisitions
2.Planning
3.Project delivery
4.Other operational shortfalls
5.Mining legacy
Legal and Regulatory
6.Health and safety incident
7.Other regulatory breach
8.Legislative and regulatory changes
People
9.Resourcing
10.Succession
11.Employee engagement
12.Communication and connectivity
13.Diversity
14.Culture
Finance
15.Availability of capital
16.Income
17.Cashflow
18.Valuations
19.Insurance
Risk
Environment
20.Environmental incident
21.Harworth’s environmental impact
22.Climate change
Social
23.Purpose
24.Sustainability
25.Communities and stakeholders
Governance
26.Investors
27.Internal controls and processes
28.Joint ventures
29.Cyber and information security
30.Business Continuity
Markets
31.Commercial property market
32.Residential property market
33.Energy market
34.Adaptation of strategy
Politics
35.Planning policy changes
36.Other policy changes
l
è l ê
é l ê
è l è
è l è
é l ê
l
è l è
è l è
è l è
l
è l è
è l è
l l è
è l è
è l è
è l è
l
è l è
è l è
è l è
è l è
é l é
l
è l è
l l è
l l è
l
l l è
l l è
l l è
l
è l è
ê l è
l l ê
ê l è
l l è
l
ê l è
ê l è
è l è
è l è
l
è l è
è l è
D1. Inability to source new strategic sites
D2. Adverse planning decisions
F19. Gaps in or increased costs of insurance programme
E20. An adverse environmental incident
D3. Increase in development costs due to market-wide cost increases
E21. Failure to manage effectively Harworth’s environmental impact
D4. Other operational shortfalls
D5. Legacy mining issues result in adverse remediation costs
LR6. A health and safety incident
LR7. Regulatory breach
E22. Failure to plan for and respond to climate change
S23. Failure to deliver on our purpose
S24. Failure to deliver sustainable projects
S25. Ineffective engagement with local communities and other stakeholders
LR8. Adverse legislative, regulatory and/or licensing changes
G26. Failure to communicate and engage effectively with investors
PP9. Insufficient people resourcing
PP10. Inadequate succession planning
PP11. Inadequate employee engagement
PP12. Deficiencies in internal communications
PP13. Failure to address diversity challenge
PP14. Failure to promote positive and consistent culture
F15. Capital constraints
F16. Shortfalls in income
F17. Failure to budget and/or manage cashflow
F18. Deficiencies in valuations process
G27. Inadequacies in or ineffective internal controls and processes
G28. Inadequate governance of joint ventures
G29. Failure to provide effectively for cyber and information security
G30. Failure to plan for significant adverse events
M31. Adverse movements in commercial property market
M32. Adverse movements in residential property market
M33. Adverse movements in energy market
M34. Failure to adapt strategy to reflect market changes
P35. Adverse changes to national planning framework
P36. Adverse changes to other national and/or regional policies
Risk rating after mitigation
Link to strategy
KEY
Change in rating during last year
Forecast change in rating during
next year
l Very low
l Low
l Medium
l High
l Very high
Development
Investment
Regions
Sectors
Prudent financial approach
è Risk has not changed
è Risk forecast to remain unchanged
ê Risk has decreased
ê Risk forecast to decrease
é Risk has increased
l No previous score (new risk)
é Risk forecast to increase
Annual Report and Financial Statements 2019 31
| Strategic Report | Corporate Governance | Financial Statements
Effectively managing our risks
continued
DETAILED REVIEW (REFLECTING RISK PROFILE PRE- COVID-19)
DELIVERY
Acquisitions
Planning
Risk profile
è l ê
é l ê
Mining legacy
Project delivery
Other operational shortfalls
é l ê
è l è
è l è
Our acquisitions risk continues to carry a high risk score, reflecting the competitive market for strategic land sites. We expect that, over the short-term, more acquisition
opportunities will come to market and the competition for sites will ease somewhat. Planning risk has increased, but we expect headwinds to subside as the political climate
settles down and are confident that the sustainability of our projects, and our intensive engagement and collaborative approach with local authorities and communities, will
mitigate this risk over the medium to long-term. Our mining legacy risk has increased temporarily whilst we undertake planned filling works on certain legacy mine shafts over
coming months. This will return to a low risk during the year once those works are completed and as more surplus legacy sites are sold.
Examples of mitigation measures taken during 2019
Examples of mitigation measures planned in 2020
• Acquisitions, planning and project managers have been
• Local political advisers will be appointed to assess planning risk on high-risk acquisition sites and
appointed in each of the regions. Our Central Services team has
also been established to support the regional teams and promote
consistency on planning and engineering workstreams.
• We have established a “Harworth Common Platform” which
promotes a consistent approach to key workstreams including
acquisitions, planning promotion and project delivery.
advise on local political stakeholder engagement.
• Further work to be undertaken on standard financial model for acquisition and planning promotion
agreement appraisals.
• Shaft filling works.
LEGAL AND REGULATORY
Health and safety incident
è l è
Other regulatory breach
è l è
Legislative and regulatory changes
è l è
Risk profile
There have been no material movements to the risks in this category.
Examples of mitigation measures taken during 2019
Examples of mitigation measures planned in 2020
• Group-wide Health and Safety Day together with ongoing
• Appointment of wider panel of health and safety consultants.
programme of online training.
• Advice taken on impact of IR35.
•
Implementation of IR35 measures.
• Compliance with payment practices reporting.
32 Harworth Group plc
PEOPLE
Resourcing
Employee engagement
Diversity
Risk profile
è l è
l l è
è l è
Succession
Communications and
connectivity
Culture
è l è
è l è
è l è
Employee engagement is a new risk and, as such, has no previous risk score. Its low risk score reflects the extensive work undertaken on this during 2019. All other risks
remain largely unchanged and no material changes in risk profile are expected over the coming year. This reflects that, whilst our people are critical to the success of the
business and, as such, people risks carry significant residual risk, we maintain a focus on resourcing, succession planning, engagement and communication, to mitigate them.
Our diversity risk score remains unchanged, acknowledging that, whilst progress has been made on gender diversity at a senior level, we are keen to improve diversity in its
widest sense and at all levels of the business and this remains a long-term challenge.
Examples of mitigation measures taken during 2019
Examples of mitigation measures planned in 2020
• Recruitment into regional and central support teams.
• Further recruitment: Head of Income, Business Space resource, central support resources.
• Comprehensive succession, talent and development management
• Maintenance, review of effectiveness, and evolution of existing measures, particularly around
planning exercise undertaken.
engagement and internal communications.
• Significant work undertaken on employee engagement – see the
• Harworth Intranet to be launched.
Strategic Report at pages 56 and 57.
• Talent Development Programme established – see Strategic Report
at page 94.
• ”Harworth Values” established.
• More PLC Board and Management Board meetings to be held in regional offices.
•
Integration of “Harworth Values” into recruitment, appraisals, remuneration and recognition and
internal communications.
FINANCE
Availability of capital
Cashflow
Risk profile
è l è
è l è
Insurance
Income
Valuations
é l é
è l è
è l è
A higher risk associated with capital availability reflects that, whilst we have low gearing and headroom in our Revolving Credit Facility, securing additional capital to support
our growth remains a priority. We anticipate that public funding opportunities will increase through regional devolution and investment and that, overall, capital risk will
reduce over the medium-term. Our income risk score remains high, acknowledging that the lifespan of our coal fines sales has shortened and that our strategy remains to
increase the breadth and resilience of our income portfolio. We forecast a reduction in this risk over the medium-term, reflecting the ongoing implementation of our strategy.
Our insurance risk has increased due to challenging market conditions resulting in material increases in insurance premiums, albeit a large proportion of these increases are
passed onto tenants. This was mitigated at the 2020 renewal by a rate stability agreement with our incumbent insurer but will be a challenge for the 2021 renewal.
Examples of mitigation measures taken during 2019
Examples of mitigation measures planned in 2020
• Acquisition of investment properties in Brighouse, Glossop and
• Appointment of Partnerships Manager to support public funding applications and, via new CFO,
Sherburn.
renewed engagement with Homes England.
• External review of year-end valuations process (see Audit
• Appointment of Head of Income and additional Business Space resource.
Committee report at page 99).
• Reorganisation of Finance team.
• Additional business partner resource in the Finance team.
•
Investment property acquisitions and direct development where appropriate.
• Review of insurance brokerage appointment and re-marketing of insurance programme.
Annual Report and Financial Statements 2019 33
| Strategic Report | Corporate Governance | Financial Statements
Effectively managing our risks
continued
ENVIRONMENT
Environmental incident
è l è
Haworth’s environmental impact
Risk profile
Climate change
l l è
l l è
This is a new risk category. Our environmental incident risk, previously located in the Legal and Regulatory category, continues to carry a medium risk profile. Whilst the
prospect is considered unlikely the impact of an incident could be material. As such, given the nature of the business, the profile of this risk is unlikely to reduce further.
Environmental impact and climate change are two new risks and so have no previous risk scores. The current low risk scores reflect that, overall, Harworth’s projects have
a positive environmental impact, and we are rising to the challenge of “future-proofing” our projects in terms of energy usage and the move to zero carbon, and that the
portfolio withstood the 2019 flooding in South Yorkshire without any material adverse impact.
Examples of mitigation measures taken during 2019
Examples of mitigation measures planned in 2020
• Appointment of new environmental consultants.
• See mitigation measures planned on bio-diversity in Politics section.
• ESOS audit undertaken.
• Better articulation of “the Harworth Way” in investor materials including greater analysis of
• See mitigation measures undertaken on bio-diversity in Politics
section.
environmental impact and sustainability of our projects.
• Promotion of rail freight sites to reduce HGV use.
• Existing future proofing measures employed across our sites.
• We will continue to operate a “re-use and re-cycle” approach to site remediation to minimise off site
waste and importation of virgin materials.
• We will continue to factor climate change guidance into remediation and infrastructure design.
• Progression of partnership with energy suppliers in connection with on-site energy generation for
residential developments.
SOCIAL
Purpose
Risk profile
l l è
Communities and stakeholders
Sustainability
l l è
l l è
This is a new category of risks, reflecting emerging risks and the Board’s and Management Board’s focus on business purpose, the sustainability of our projects, and the
effectiveness of our engagement with local communities and our other key stakeholders. A medium risk in relation to purpose reflects the refinement of our business purpose
but recognizes the need to embed a formal consideration of purpose into our assessment of projects. A medium sustainability risk reflects the challenge we face in “future-
proofing” our projects in terms of site infrastructure, community amenities and transport links. A medium risk score for communities and stakeholders acknowledges the work
we have undertaken on stakeholder mapping but also the need for community and stakeholder impact to become a more fundamental part of project appraisals.
Examples of mitigation measures taken during 2019
Examples of mitigation measures planned in 2020
• 2019 Strategy Day: detailed discussion about purpose
• Embed consideration of purpose into assessment of projects.
resulting in agreed statement.
•
Initial viability reviews undertaken on energy production
initiatives for commercial developments.
• Stakeholder mapping.
• Progress funding bids for innovative transport measures, health and wellbeing and 5G provision at
new developments.
• Better articulation of “the Harworth Way” in investor materials including greater analysis of societal
impact and sustainability of our projects.
• A pilot sustainable energy project at Kellingley.
• Embed into Board project appraisals a consideration of community impact.
34 Harworth Group plc
GOVERNANCE
Investors
Joint ventures
Risk profile
è l è
l l ê
Business Continuity
Internal controls and process
ê l è
Cyber and information security ê l è
l l è
This is an expanded risk category. Our Investors risk remains unchanged reflecting that, whilst diversification of our share register and liquidity in our shares has improved
during 2019, the evolution of our investor communications and engagement is a long-term objective. Our internal controls and cyber and information security risks have
reduced following extensive work on the “Harworth Common Platform”, data management and information security during 2019, albeit medium risk status remains for
both given the potential impact of such risks. Our joint venture risk, previously located in the Delivery category, has been expanded from pure financial risk (insolvency of
counterparties) to a wider governance risk. Business Continuity is a new risk with a medium risk profile, reflecting that Business Continuity and IT Incident Response Plans are
now in place, have been tested but will remain subject to regular review and improvement.
Examples of mitigation measures taken during 2019
Examples of mitigation measures planned in 2020
• New website launched, including improved investors section.
• Management and audit of “Harworth Common Platform” and new data management platform.
• External review of year-end valuations process (see Audit
• Evolution of Management Board and Board reporting.
Committee report at page 99).
• Establishment of “Harworth Common Platform”.
• Overhaul of data management.
• Establishment of information security function and upgrades to
IT network.
• Desktop test of Business Continuity Plan and IT Incident Response
Plan.
• Consistent approach to joint venture governance.
MARKETS
Commercial property market
Residential property market
Risk profile
ê l è
ê l è
Energy market
Adaptation of strategy
è l è
è l è
We have seen a reduction in commercial and residential property market risks, reflecting the political certainty afforded by the General Election result, which has resulted in
improved sentiment across both the commercial and residential property markets in the short-term. However, in the medium term, commercial markets are in some instances
considered to be operating late-cycle and macro-economic uncertainty remains. The sale of our solar portfolio has removed our exposure to solar market fluctuations, but this
is offset by the shorter lifespan of our coal fines market. Our strategy remains appropriate but is subject to regular review as macro-environment evolves and markets move.
Examples of mitigation measures taken during 2019
Examples of mitigation measures planned in 2020
• Establishment of regional offices is already increasing opportunities and
• Continue to broaden geographical search for acquisitions and footprint of projects.
mitigating against market movements at a regional level.
• Sale of solar portfolio.
• Exploration of alternative residential tenures including analysis and, if viable,
implementation of alternative affordable housing delivery model.
Annual Report and Financial Statements 2019 35
| Strategic Report | Corporate Governance | Financial Statements
Effectively managing our risks
continued
POLITICS
Planning policy changes
Risk profile
è l è
Other policy changes
è l è
Overall, political risks remain largely unchanged with increases and decreases in certain risks balancing each other out. There now appears to be limited prospect of a Land
Value Capture tax in the short-term, but there remains a risk of alternative measures having a similar effect, such as higher s106 contributions, increased affordable housing
requirements and bio-diversity off-setting. Government support for Help to Buy remains in place (with modifications) until 2023. The outcome of the General Election and
subsequent Government announcements has raised the prospect of more regional investment in the North and Midlands including on HS2, and of an extension of devolution
powers and monies.
Examples of mitigation measures taken during 2019
Examples of mitigation measures planned in 2020
• We have engaged an external consultant to advise on the prospect of our
• Our Natural Resources division will examine the viability of the bio-diversity pilot
establishing a bio-diversity “bank” and to undertake an appraisal of two pilot
schemes.
schemes proposed by our external consultant.
• Negotiations with HS2 Limited on our compensation claims.
• Pro-active engagement with HS2 Limited on our two safeguarded sites
• Public funding applications to be made following announcement of Sheffield City
Region devolution.
IMPACT OF COVID-19
Risk
Delivery
1.Acquisitions
2.Planning
3.Project delivery
4.Other operational shortfalls
People
9.Resourcing
12.Communication and connectivity
Finance
15.Availability of capital
16.Income
17.Cashflow
18.Valuations
19.Insurance
Before
COVID-19
After
COVID-19
Risk
Before
COVID-19
After
COVID-19
Governance
26.Investors
27.Internal controls and processes
29.Cyber and information security
Markets
31.Commercial property market
32.Residential property market
34.Adaptation of strategy
Politics
36.Other policy changes
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
*Where the table above appears to show no movement in risk status, there has been a small increase in risk score but within the same risk status banding.
l Very low
l Low
Risk rating after mitigation
l Medium
l High
l Very high
36 Harworth Group plc
Risk profile
• Politics. Government restrictions on movement are having a severe adverse effect across the business, reflected in the increased status of risks shown in the dashboard
above and the narrative below.
• Markets. A downturn in commercial and residential property markets is anticipated, albeit industrial and logistics market expected to weather and bounce back more
quickly than other sectors. Pipeline sales, direct development and valuations likely to be adversely affected.
• Delivery. Progression of pipeline acquisitions will be hampered by social distancing measures. However, as we emerge from COVID-19 restrictions, there are likely to be
acquisition opportunities we can capitalise on, subject to the availability of capital. The progression of certain planning applications could be slowed given the practical
challenges, and competing priorities, faced by planning authorities. Planning delays are likely to mean value gain deferrals. Progression of earthworks and infrastructure
works, together with direct development, more difficult due to Government restrictions on movement, albeit infrastructure works on six major development sites have
continued and activity is picking up as restrictions start to ease. This could affect the timing of completion of sales and receipts.
• Finance. The availability of capital will be constrained over the coming months and, as a result, cashflow will come under pressure, largely due to deferrals of sales and
scheduled payments and reduction in Business Space and Natural Resources rent receipts. However, we have continued to complete some sales (including a material sale
for £13m) and our senior lenders have agreed to extend our RCF by £30m to £130m, which mitigates this risk to a large extent. It is too early to know what the impact will
be on valuations but they may include “material uncertainty” clauses. A small increase in our insurance risk reflects that insurer appetite may be adversely affected for our
2021 renewal.
•
•
People. All employees have adapted to remote working, but capacity and productivity has been adversely affected by working from home policy and closure of schools.
We have not yet seen widespread illness across the business but contingency plans are in place should this occur. Maintaining internal communication and connectivity is
more challenging in a working from home environment.
Governance. Increase in investors risk reflects share price volatility and the wider stock market sentiment. Certain internal controls and processes have required
adaptation to reflect home working but these processes remain robust and are operating effectively. There is a small increase in cyber and information security risk
because the volume of cyber-attacks has increased globally.
Examples of mitigation measures implemented
• Planned Business Continuity measures implemented to facilitate home working and maintain connectivity with internal colleagues and external stakeholders.
• Cashflow is being monitored and managed very carefully including: reduction in purchase order approval levels; a temporary pause on uncommitted development
expenditure; and close liaison between Finance team and all divisions on sales and expenditure, meaning real-time updates to cashflow forecasts.
• Early engagement with the Group’s principal lenders has led to extension of our revolving credit facility by £30m to £130m.
• Proactive engagement with tenants, counterparties to completed, exchanged and pipeline sales, and contractors and consultants.
• The Board is not recommending a final dividend for FYE’19 but will consider an additional interim dividend for FYE’20.
• Changes implemented to certain finance processes (such as purchase order and invoice approvals) and to the process for executing legal documents to accommodate
home working, albeit effective controls remain in place.
• Contractual reviews undertaken by legal panel firms to inform engagement with counterparties.
• Volume and frequency of inspections increased for sites that have been vacated, subject to compliance with Government restrictions.
•
Internal connectivity and communication has been maintained. Most divisions are hosting regular (daily or twice weekly) meetings via Microsoft Teams. Increased
frequency of senior management meetings. Regular communications to all employees via email and business-wide update calls.
• Workstreams prioritised and, where necessary, reallocated to accommodate staff childcare obligations. A plan has been worked up to ensure cover for members of the
senior management team in the event of illness.
• Mental health first-aiders are speaking to every employee on a one-to-one basis.
•
IT managed service provider and information security manager on high alert for cyber-attacks. Communications to employees to remain vigilant despite operational
challenges.
Annual Report and Financial Statements 2019 37
| Strategic Report | Corporate Governance | Financial Statements Long-term Viability Statement
Viability period and rationale
The Directors have assessed the prospects of the Group and its principal risks over a longer period than the 12 months required by the Going
Concern Statement (see the Statement of Directors’ Responsibilities on pages 122 and 123).
In the first instance, the Board conducted a review for a period of five years ending 31 December 2024. 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.
The final two years of the period by their nature are less certain and are less detailed in their projections.
The initial strategic plan was put together and reviewed by the Board in both November 2019 and January 2020. Following the COVID-19
outbreak, the first 18 months of the strategic plan have been revisited and reviewed in detail by the Board. The plan has been updated to
reflect the anticipated impact of COVID-19 resulting in a downturn in 2020, as well as actions taken by management to respond to COVID-19.
These included an increase in the RCF to £130m and reduction of uncommitted development spend. These changes have an effect on the
later years of the plan which have been updated to reflect a medium-term recovery of the economy. At this stage, it cannot be known how
long the disruption will persist or the full future impact of COVID-19 and so the assumptions within the strategic plan will continue to be
monitored closely going forwards.
Resilience of business model
The Group’s purpose is the long-term transformation of land and property into sustainable places where people want to live and work. The
focus on both Development and Investment in our Strategy means that we have a diversified portfolio of income-producing properties within
the industrial, logistics and natural resources sectors which provides a regular income stream to cover the operating costs of our business and
interest due under our financing facilities. Major development sites could be active with phases of development combining to be fifteen years
or more and plans for sites can be adapted to the market conditions at the time. Our business plan has been prepared in the context of the
Strategy, and its principal income streams, which are:
•
•
sales of residential and commercial serviced land, for which we have plans reaching out to 2024;
rental income from income-producing industrial properties which, at 30 April 2020, had a vacancy rate of 4.8%, a weighted-average lease
length of 13 years and a rent collection profile broadly in line with previous periods; and
•
development and investment management, planning promotion and investment fees.
This balance in our portfolio means that regular income from our income-producing portfolio with low vacancy rates will help to provide
regular cost cover. Our income-producing properties within the industrial and natural resources sectors have a diverse range of tenants. Our
land and property portfolio is spread across all stages of our business model which gives us the opportunity to advance sites at an earlier
stage (masterplanning and planning promotion) whilst we wait for the commercial and residential property markets to return. The regional
residential market has a fundamental insufficient supply of housing and has seen robust demand prior to the onset of COVID-19. Our strategic
shift over the last 2 years to expand our teams into the Midlands and North-West balances our exposure to any one region.
Our prudent approach to borrowing resulted in net debt at year end of £70.9m representing a 12.1% net loan to portfolio value. Our senior
debt facility, being our Revolving Credit Facility, does not mature until 2023, just under 3 years’ away. This facility has recently been increased
by £30m to £130m providing cash and available debt headroom (subject to documentation) as at 30 April 2020 of £64m.
Principal risks and uncertainties
Reporting on the Group’s viability requires the Directors to consider those principal risks that could impair the solvency and liquidity of the
Group. To determine those risks, the Directors assessed the principal risks and uncertainties. The principal risks and uncertainties that the
Board considers could impair solvency and liquidity relate to economic assumptions, income generation variability and appropriate staffing
levels. Principally, these fall within the Markets, Delivery, Finance, Politics and People categories of risk identified in the Effectively managing
our risks section of the Report on pages 29 to 37.
Assessment of long-term prospects and sensitivities applied
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, 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.
38 Harworth Group plc
We have set out the key risks and the scenarios considered as part of the sensitivity analysis below. Throughout the strategic plan, the Group
continues to transform land and property into sustainable places where people want to live and work. Whilst under the sensitivity analysis,
EPRA NNNAV growth including dividend could be impacted temporarily, the long-term business model continues to deliver the Group’s
purpose in a sustainable manner.
Risk
Markets
Finance
Other risks
including
Delivery,
Politics and
People
Scenario
Mitigation and further analysis
•
•
•
•
•
•
•
•
•
COVID-19 is expected to result in a temporary downturn in
the residential and commercial property markets. At this
stage, the time that it will take for markets to return to normal
is unknown. The scenarios assume that a severe but
temporary downturn would result in lower land sales and
values.
Notwithstanding strong rent collection to date in line with
previous quarters, an economic downturn caused by
COVID-19 could impact on some tenants’ ability to pay rent
and leads to loss of rent or restructuring of rental payments.
We also stress test a restricted ability for new land and
property acquisitions.
A market downturn reducing sales volumes would lower
income.
Short term downward valuation movement and lower income
receipts could be experienced which would reduce
headroom under the financial covenants in the RCF.
There are no significant debt maturities in the first two years
of the strategic plan but the RCF expires in 2023 and a
refinance is assumed ahead of that.
A future change in the political environment could lower
support for infrastructure in our key regions.
Delays or refusals in planning approvals impacts on progress
on sites and EPRA NNNAV Growth. Under COVID-19,
although planning processes are continuing to progress on a
remote basis, we have stress tested delays in planning
approvals.
People resources needed to deliver the Strategic Plan are not
available.
•
•
•
•
•
•
•
•
•
•
•
•
Harworth invests to deliver long-term growth and many of our
sites have timeframes that extend beyond the strategic plan
period.
The portfolio provides a spread of sites across our three core
regions and properties are diversified across the residential and
industrial sectors, both of which have strong underlying demand
fundamentals. This helps to mitigate the impact of market
movements.
We work closely with our tenants in our Income Generation
portfolio on payment terms that support both parties to continue
to actively manage rent collection.
In the event of market turbulence, development spend can be
reduced and rephased to match more closely market demand and
conserve cash. To date, we have prioritised development activity
on sites with committed sales in place and continue to manage our
cash flow to invest sustainably in sites and grow the business.
Strategic plans for sites can be revisited and funding sources
expanded if recovery is delayed further. Rephasing the major
development sites and revisiting cost plans will help to mitigate
value movements.
Based on the existing portfolio on which alone to continue
activity, the pipeline is c.24m sq. ft commercial space and
c.30,000 new homes. In addition, a market downturn could
provide buying opportunities for the local teams in our core
regions.
Reduced activity on site as set out above would reduce
development spend and conserve cash resources.
The spread of sites in different regions, an industrial property
income portfolio combined with tenants split in size and end
sector, diversifies exposure. We will continue to implement our
strategy to grow our Income Generation portfolio.
At year end, the Group had low gearing, good liquidity with debt
headroom and cash resources maintaining sufficient financial
flexibility to continue to operate across our sites. Headroom is
projected to remain in covenants throughout.
We have a strong track record in working effectively with local
planning authorities to secure planning and we continue to work
on a Council-by-Council basis to reduce any potential delays in
the consideration & determination of applications.
We have maintained activity across many of our sites within the
period of COVID-19. This will continue to be monitored and
further delays could push back timescales to development and
sale completions. The Company and our contractors are adhering
strictly to all government guidelines on social distancing and safe
working practices during this period.
There are high levels of employee satisfaction within the business
as reported on page 15. Recruitment could be increased if
required.
Viability assessment
Based on the results of this analysis, and having considered the established controls and available mitigation actions for our principal risks and
uncertainties, 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.
Annual Report and Financial Statements 2019 39
| Strategic Report | Corporate Governance | Financial Statements CASE STUDY 1:
WAVERLEY
YORKSHIRE’S LARGEST EVER BROWNFIELD
REDEVELOPMENT WENT FROM STRENGTH
TO STRENGTH IN 2019, WITH A RANGE
OF SALES AND LETTINGS COMPLETED
THAT CEMENTED ITS PLACE AS ONE OF
THE NORTH’S KEY ONGOING MIXED-USE
DEVELOPMENTS.
Waverley (AMP in foreground) in early 2020
40 Harworth Group plc
The site, now unrecognisable from its history as the former Orgreave
Colliery & Coking Works and its industrial unrest in the 1980s, is now
home to over 900 homes, 2,000 workers at the internationally
renowned Advanced Manufacturing Park (AMP) – four times that
when the Colliery shut in 1990 – and over 300 acres of public open
space. By the time the site is fully developed by 2040, its
regeneration will have taken the best part of five decades by
Harworth, its predecessor companies and public sector partners
including Sheffield City Region LEP and Rotherham Council.
Three key deals were completed in 2019. Our Yorkshire & Central
team completed infrastructure works on the site’s eastern flank to
enable the sale of 11 acres of engineered land to Taylor Wimpey for
the construction of 175 new homes, alongside 12 acres to Barratt
Homes for the construction of 177 new homes. Both of these phases
will be built out over the next two years as the site continues to
deliver in the region of 150 built homes to the market each year – one
sixth of all new homes in Rotherham.
Another Original Equipment Manufacturer joined Boeing, Rolls-
Royce and McLaren Automotive at the AMP in 2019 - the UK Atomic
Energy Authority. The Government agency signed a 20-year lease
for a 22,300 sq. ft bespoke fusion technology research facility,
which we are in the process of constructing ahead of practical
completion this September. The £22m facility will see UKAEA
working with industrial partners, including the University of
Sheffield’s Nuclear Advanced Manufacturing Research Centre
(NAMRC) to put the UK in a strong position to commercialise nuclear
fusion as a major source of low-carbon electricity in the future.
As ever, the deals only tell part of the story of the site, with Harworth
continuing to bring forward a range of supporting community
infrastructure to ensure Waverley is a great place to live and work.
Construction of the first of two primary schools has begun, with the
roof completed in February ahead of a scheduled opening in
September (subject to COVID-19). We have also begun work on a
community garden and public space in front of the new school, due
to be completed before the school opens in September. The
community garden is one of the initiatives that has grown from a
partnership between local residents, Harworth and Sheffield Hallam
University’s Centre for Sports Engineering Research to encourage
active lifestyles. The garden will be managed by the local community
and will comprise of a series of raised planters set within an edible
hedge boundary with seating areas to promote community
gardening and social interaction.
Overall
Development
Timeline
Built development
so far
1990 - 2040
Over 900 homes across five housebuilders
Over 1.5m sq. ft of advanced manufacturing
space
Over 300 acres of public open space
Resident & worker
numbers
Estimated c. 2,000 residents and 2,000
workers
University
partnerships
in place
University of Sheffield’s Advanced
Manufacturing Research Centre (link to
OEMs including McLaren)
University of Sheffield’s Nuclear Advanced
Manufacturing Research Centre (link to UK
Atomic Energy Authority)
Sheffield Hallam University’s Centre for
Sports Engineering Research (Active Towns
programme to support healthier lifestyles)
Community
infrastructure
already delivered
Over 300 acres of public open space,
including extensive network of public
footpaths
2 major SUDS ponds for surface water
attenuation and drainage
Estate roads, drainage and services to
unlock entirety of development
Pocket parks within site
Marston’s Pub
Next phase of
development
Further c.600 homes to be built on land
already sold to housebuilders
Intended
development
on-completion
Completion of UKAEA facility
Completion of first primary school &
community garden in September
Up to 3,890 new homes
2.1m sq. ft of commercial space, delivering
over 4,000 jobs
Completion of community facilities,
including local centre (including medical
centre) and two new primary schools
Well developed public open space across
340 acres
Rail halt, utilising existing Sheffield-Lincoln
line
Annual Report and Financial Statements 2019 41
| Strategic Report | Corporate Governance | Financial Statements The Harworth Way:
Communities
We build, strengthen and support our communities now and for
future generations
We deliver some of the North of England and the Midlands’ largest new developments.
These include some of the largest commercial and residential sites in the Midlands and North,
creating thousands of new jobs with the potential to contribute over £3.5bn GVA p.a. We are
also helping to meet the UK’s undersupply of housing, with developments including affordable
housing and a range of tenures.
THE ECONOMIC & SOCIAL EFFECT OF OUR DEVELOPMENT
Our committed approach to development has already yielded significant economic and social benefit to the UK, which will extend further as
our sites gradually mature and evolve over time. Our c.100 sites are widely distributed across 41 Local Authority areas and 14 Local Enterprise
Partnership (LEP) areas in the North and the Midlands to create schemes of lasting economic and social value.
Over the past five years, we have asked economic research consultancy Ekosgen to appraise both what we have already delivered and what
we could potentially deliver through our developments – with a focus on jobs, homes and the Gross Value Added each of our sites generates
or could deliver (defined as the economic output derived from the occupiers on our sites).
What we’ve already delivered
In the eight years since Harworth has begun to master develop its sites:
•
•
•
21 employment sites across nine LEPs and 18 Local Authorities have been developed (in full or part), providing some
683,786m2 of employment space. This space already accommodates over 9,700 FTE jobs generating an estimated £558m of Gross
Value Added per annum.
Two of our largest sites - Logistics North in Bolton and the Advanced Manufacturing Park in Rotherham – account for just over 60% of the
employment space developed to date and both still have significant room for further expansion by each being just over 70% complete.
Housing has been delivered on 12 sites (in full or part), providing just over 2,340 new homes. The new homes are estimated to
generate over £3.4m of council tax receipts per annum.
• Our largest residential site – Waverley in Sheffield City Region – accounts for 40% of the of the new homes delivered to date, and with less
than a quarter of its consented plots built to date, the site continues to offer significant development potential.
These are important contributions to the ongoing regeneration of the regions and the rebalancing of the UK economy, but are just the
beginning as we develop our sites out over the longer-term.
What could be delivered
42 Harworth Group plc
When fully built out and occupied, our present land and property portfolio has the potential to accommodate:
•
•
61,000 jobs generating £3.5bn of GVA per annum, as well as up to £60.7m per annum business rates income.*
In addition, close to 30,000 new homes could be built on our sites, supporting between £22m and £44m per annum in council tax
receipts.**
* Post Enterprise Zone (EZ) business rate discount for businesses moving onto the Waverley site, which is part of the Sheffield City Region EZ.
** Range reflects the current number of approved plots / total if all plots are approved.
Supporting deprived communities
Crucially, unlocking the potential in our sites involves investment in and regeneration of some of the more deprived parts of the country where
levels of development have typically been below national averages. Over half of our sites fall within the 50% most deprived areas in England.
Specifically:
•
•
some 45,400 jobs (65% of all potential employment space on our sites) could be located in the 50% most deprived areas, generating
£2.1bn of GVA per annum;
over 32% of these jobs (14,670) could be delivered on sites located in the 20% most deprived areas. This includes a mix of both full and
part time jobs which have important roles to play in supporting local residents into employment and addressing deprivation; and
•
significant commercial sites within the 20% most deprived areas include Gateway 45 Leeds, which itself could create over 6,500 jobs.
• Over 13,700 new homes (46% of the Group’s total housing plots) could be built in the 50% most deprived areas, and half of these potential
new homes (6,600) could be located in the 20% most deprived areas.
Scale of potential Harworth development in deprived areas – Indices of Multiple Deprivation (IMD), 2019
Commercial Floorspace (m2)
Total Jobs
New Homes
IMD Decile
Percent
No.
Percent
10% most deprived
20% most deprived
30% most deprived
40% most deprived
50% most deprived
All totals (except new homes) rounded.
19%
20%
30%
39%
65%
612,670
673,810
999,150
1,292,860
2,155,800
19%
21%
30%
40%
65%
No.
13,140
14,670
20,910
28,100
45,370
Percent
4%
22%
30%
35%
46%
No.
1,310
6,600
8,850
10,490
13,730
SOCIETAL BENEFIT THROUGH OUR MASTER DEVELOPER ROLE
Aside from our economic impact, one of our unique features is the sheer range of community groups and causes we work with as a master
developer. Whilst we can’t name all of them here, the following three examples give a good sense of how we deliver sustainable
developments.
SUPPORTING ZERO-CARBON HOUSEBUILDING AT THORESBY
Increasing prominence is now being given to the energy efficiency of new homes as part of the UK’s 2050 net zero housing target. We
believe we have a responsibility to support those businesses leading the efforts to achieve this target – and we are doing this at our
Thoresby Vale site in North Nottinghamshire.
Blossom Homes is a new entrant to the housing market, intending to deliver affordable, ‘super-eco’ prefabricated homes that will set new
standards for the construction industry. Whilst it has previously constructed a small number of ‘trial’ units at its Yorkshire base, it has never
delivered its units at scale nor has its product been tested on a live development site.
To support Blossom Homes with its plans to ‘scale up’ and try new production techniques, we have made available the former workshop
building at the former Thoresby Colliery site on a short-term lease pro bono, from December 2019 to speed up effective production. In
addition, we have also identified a small part of the site, close to the main estate road, on which Blossom Homes will locate its first show
home. Further information on its innovative product can be found at blossomhomesltd.co.uk.
Annual Report and Financial Statements 2019 43
| Strategic Report | Corporate Governance | Financial Statements
Communities
continued
DELIVERING ACTIVE & ENGAGED COMMUNITIES AT WAVERLEY
Within our 2018 Annual Report & Financial Statements, we documented our partnership with Sheffield Hallam University to create ‘Active
Towns’ - using social research techniques and a detailed understanding of our landholding to exploit better our public open spaces for the
benefit of local residents and workers. Our pilot programme at Waverley in 2018, also supported by Innovate UK, tested a number of new
interventions including mapping out a series of routes to ‘gamify’ running & cycling, the introduction of an outdoor climbing wall on the
proposed site for the local centre and working with local residents to set up the first shared community gardens around the site.
As Waverley’s new community and Advanced Manufacturing Park matures, we continue to look for and test initiatives to engage and
connect residents and workers. Three in particular from 2019 are worthy of documenting here.
A new Community Garden
Rotherham Council is currently building Waverley’s first two-form entry primary school for planned opening in September (subject to
COVID-19). To coincide with this opening, we have begun work on a community garden and public space in front of the new school which
is due to be completed before the school opens. The community garden is one of the initiatives that grew from the original ‘Active Towns’
programme in 2018. It will be managed by the local community and will comprise of a series of raised planters set within an edible hedge
boundary with seating areas to promote community gardening and social interaction.
There will also be a formal space in front of the school that will provide additional seating and public realm to promote social interaction –
as a place for parents and children to meet before and after school. The design of this area takes inspiration from maths and geometry
through a series of painted spirals based around the Fibonacci sequence and will be a key focal point for the site once complete.
Northern Star Project
Plans are also underway to welcome Professor Brian Cox to Waverley in December 2020 as part of an initiative led by Well Rotherham (part
of leading social enterprise Well North) partnering with Harworth, the University of Sheffield’s AMRC, Rotherham and Sheffield Councils,
Gullivers and McLaren Automotive. Particle physicist, Professor Cox, is coming to Rotherham for a northern leg of his London-based
Science Summer School, which was founded nine years ago through a partnership with social entrepreneur Lord Andrew Mawson. The
event will include a series of workshops and speakers for secondary school children to inspire the next generation of scientists and
engineers and to build on the success of the AMP.
A growing bird population
Waverley’s two enormous man-made lakes – which act as the principal points of surface attenuation for the site - are a fantastic haven for
wildlife. We spent 2019 restoring land adjacent to the lakes, in line with our biodiversity action plan, to encourage a wide range of species.
The site is now home to hundreds of species of birds, including Water Rail and Great Crested Grebes. Our site custodian role will continue
to include the protection of these species as we regenerate Waverley over the next fifteen years.
CONNECTING PEOPLE TO JOB OPPORTUNITIES AT LOGISTICS NORTH
One of the biggest challenges that we face in delivering sustainable commercial development is ensuring local people can access the job
opportunities on offer. This has been particularly relevant at our Logistics North development in Bolton, where over 5,500 people from
across Greater Manchester and beyond are now employed on-site by companies including Amazon, Aldi, Lidl, Whistl, Komatsu and
MBDA.
Following the receipt of outline planning consent for the scheme in December 2013, one of the first initiatives we worked on with Bolton
Council and Transport for Greater Manchester was an effective travel plan for the development that included the provision of a ‘local link’
bus service (partly funded by Harworth) to connect local towns and villages to Logistics North – supporting the shift patterns of major
employers working on 24/7 rotas.
Starting in 2016 when the first occupiers began working at the site and still running successfully in 2020, this local link service means that
residents in parts of Bolton such as Westhoughton, Atherton, Farnworth, Little Lever and Breightmet can book a bus service at a specific
time slot to pick them up from their home. For those travelling outside these areas, the service collects those workers from one of Bolton’s
bus or train stations. The results demonstrate how effective this service has been: over 15,000 individual trips were recorded in 2019,
hugely reducing the volume of car traffic on the roads. Trip numbers year-on-year can be found here:
Year
Patronage
2016 (Apr - Dec)
1,374
2017
8,539
2018
13,003
2019
15,524
2020 (Jan & Feb)
3,096
Total
41,536
You can read more about the scheme here: https://tfgm.com/public-transport/bus/local-link/area/logistics-north
44 Harworth Group plc
WE CONTINUE TO SUPPORT A RANGE OF CHARITIES
A key part of our ethos remains supporting a range of community and charitable projects across the areas in which we work. Harworth gave over
£30,000 in financial donations in 2019, whilst many of our employees committed time to sponsored and charitable activities as varied as half
marathon running, organised cycle rides like the Tour de Yorkshire, the building of sheds for local community groups and even abseiling down
Birmingham’s tallest building.
We continued to partner with two national charities, Land Aid and The Wildlife Trusts to whom we provide both financial and in-kind support
to help deliver their programmes.
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.
In 2019, we made an annual financial donation to Land Aid as a corporate partner of £12,500, 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. Our initial
contribution has helped pay for the refurbishment of a house in Sheffield that now houses six young people that were previously homeless.
Our other contributions included:
•
•
Ten members of our team completed the charity version of the Tour de Yorkshire – one of Britain’s leading cycle races and a key part of
Yorkshire’s tourism drive. Team members took part in both the 78km and 123km routes, raising funds via a JustGiving page with the final
amount subsequently matched by the company – raising an additional £4,500.
Rather than send Christmas cards in 2019, we took the decision to donate money ‘in kind’ to LandAid instead, providing an additional
£1,000 to the charity.
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.
In 2019, we made an annual financial donation to The Wildlife Trusts as a corporate partner of £12,500. A number of our employees gave up
their time to help on some of their live projects. The Wildlife Trusts are also continuing to work 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 Waverley’s 340 acres of public open space.
Annual Report and Financial Statements 2019 45
| Strategic Report | Corporate Governance | Financial Statements Communities
continued
Harworth employees undertake the charity Tour de Yorkshire, Spring 2019
Harworth employees at a LandAid project in Sheffield, Summer 2019
46 Harworth Group plc
Professor Brian Cox at a previous Science Summer School event
LandAid sponsored charity running event
Annual Report and Financial Statements 2019 47
| Strategic Report | Corporate Governance | Financial Statements The Harworth Way: Planet
We aim to create places in a sustainable way, future proofing our
sites, minimising our environmental impact and supporting low
carbon users.
Our extensive experience as a leading master developer has defined Harworth’s approach to
sustainability and the way we minimise the effect of our activities on the environment.
Our approach is based on six principles.
REMEDIATION & RES TORATION
R
E
S
P
O
N
S
I
B
L
E
D
E
M
O
L
I
T
I
O
N
N
UR SITES
O
ARB
W C
N O
G LO
Y USERS O
PPORTIN
ENERG
SU
MINIMISING PUBLIC IMPACT
BLIC ASSETS
U
G P
SIN
RE-U
M
A
T
E
R
I
A
L
R
E
C
O
V
E
R
Y
48 Harworth Group plc
REMEDIATION & RESTORATION
We work with trusted contractors to clean and remediate land and remove dangerous
underground structures on our sites, as we prepare land for redevelopment. We now have
extensive experience working on former colliery sites which underpins our capacity to work on
‘big, dirty and complex’ projects.
RE-USING INDUSTRIAL ASSETS
We believe that, where practicable, former industrial assets should be retained to support and
complement future development uses and have followed this principle on a number of our sites,
including former collieries and power stations. 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, for example, we were able to export over 500,000
tonnes of former colliery discard via rail for re-use at the Port of Hull, whilst our plans for the former
Ironbridge Power Station include the re-use of the site’s former pumphouse for community uses
(pictured). Another key workstream in 2019 was our feasibility studies looking at whether rail
connections on a number of sites could be re-used, including at Waverley, Ironbridge and
Kellingley.
RESPONSIBLE DEMOLITION
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.
The 27-month demolition of the former Ironbridge power station also commenced in June 2019,
with the safe demolition of the site’s four iconic cooling towers – watched by hundreds of people
beyond an enforced 300 metre exclusion zone – in December.
MATERIAL RECOVERY
Whether it is coal slurry, metals, concrete or fill material, we have the capability to extract value
from derelict land and property, generating revenue that can ultimately be re-deployed in
preparing land for redevelopment whilst also being environmentally responsible. We have been
able to extract and sell over 1m tonnes of coal slurry to power station operators to produce
electricity between 2011 and 2019 – a material previously considered as waste.
MINIMISING PUBLIC IMPACT
We have been able to achieve all of this whilst minimising disruption to resident and businesses
living and operating 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 master developer. Management companies are in place across
all of our major developments, ensuring they are managed in the long-term beyond completion of
each development.
SUPPORTING LOW CARBON ENERGY OPERATORS ON OUR SITES
Finally, we have a proud track record in supporting low-carbon operators on our sites (see page
15). 120MW of capacity remains installed on our land, incorporating solar farms, wind farms and
coal mine methane extraction schemes on a number of former colliery sites.
An increasing number of companies that are involved in green or lower-carbon technologies are
now occupiers or tenants on some of our sites. This includes commercial occupiers at the AMP
including ITM Power (hydrogen fuel cells), Xeros (water-free cleaning technology) and the UK
Atomic Energy Authority (nuclear fusion research). In addition, we are the landlord of the Ilke
Homes’ modular housing factory near Harrogate. Its end product is classified as ‘zero carbon’ –
with a plan to deliver 5,000 green homes a year by 2025.
2019 was also the first year that we began to install Electric Vehicle (EV) charging points across our
estate, beginning with our Advantage House headquarters in the autumn and extending to
Ironbridge by the year-end. Further EV charging points are planned to be rolled out in 2020, in
line with our commitment to further reduce emissions from our estate.
Annual Report and Financial Statements 2019 49
| Strategic Report | Corporate Governance | Financial Statements Planet
continued
WE CONTINUED TO REDUCE OUR EMISSIONS IN 2019
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.
We declared in our 2018 Annual Report that we were aiming to improve
our environmental impact by implementing an improvement plan
covering four discrete areas:
•
•
•
•
examining the prospect of smart working to reduce staff fuel usage;
the installation of EV chargers at our head office and remote sites,
encouraging employees to switch to electric or hybrid vehicles
and change the Harworth pool car to an all-electric vehicle;
investing in energy efficient measures at our properties where
these are cost effective, including the use of LED and passive
lighting systems where appropriate; and
analysing opportunities to manage plant journeys more efficiently
on our major development sites.
We are pleased to report that our year-on-year emissions have
continued to reduce following the implementation of measures such
as the following:
•
•
•
smarter working has been undertaken via staff better organising
their diaries to reduce business miles, alongside the roll-out across
the entire business of Microsoft Teams to support video
conferencing. The latter has also successfully supported remote
working during the Covid-19 pandemic, allowing us to continue to
work at near-capacity.
through the work of our managing agents and our EES team, we
have isolated the electricity supply to buildings which are
unoccupied to ensure lighting or heating can’t be accidentally left
on, thereby reducing emissions as well as consumption and
electricity bills for the business.
fuel oil usage has decreased due to coal recovery operations on a
number of sites being scaled back, in line with the phasing out of
coal fired power stations by 2025.
This statement outlines the greenhouse gas emissions arising from
Harworth’s activities in the 2019 financial year and it follows the
Environmental Reporting Guidelines set by the Department for
Environment, Food and Rural Affairs.
Emissions are reported in tonnes of CO2 equivalents (CO2e) and refer to
three areas:
Fuel use in vehicles for staff in pursuance of their duties
Scope 1
Scope 2 Gas oil used in plant at operational sites
Scope 3
Electricity (non-rechargeable) usage on Harworth sites
Emission source
Fuel for staff vehicles
Gas oil used in plant
Electricity usage
Scope 1
Scope 2
Scope 3
Total Tonnes
Additional work on our sites
Tonnes
of CO2e
(2018)
Tonnes
of CO2e
(2019)
%
reduction
241
3,371
404
203
1,707
443
15.8%
49.4%
(9.7%)
4,016
2,353
41.4%
Aside from this work, we have also successfully rolled out EV
charging points on three of our sites during 2019 – the AMP (two
units), Advantage House (four units) and Ironbridge Power Station
(one unit). This initiative will be extended to include a number of our
other commercial developments in 2020, including Logistics North
and Kellingley. We also replaced the Harworth pool car during the
year with an all-electric vehicle.
We also completed the Phase 2 Energy saving opportunity scheme
(ESOS) in 2019 – a mandatory requirement for large UK companies
every four years. Energy audits were carried out across our
income-producing portfolio (including our Business Space sites),
with an ESOS phase 2 report subsequently submitted to the
Environment Agency. This has informed our approach to making
further reductions in our emissions in the future.
Supporting low-carbon uses on our sites
With Britain’s net zero carbon target by 2050 rightly focusing minds
on what the country needs to do to reduce its environmental impact,
we are continuing to support low carbon energy uses on sites that
benefit from close proximity to the National Grid. The scale of both
delivered and potential energy generation on our sites is significant,
making an important contribution to powering homes and
generating a substantial GVA uplift in its own right.
We have involvement in solar, wind, coal mine methane, energy from
waste, anaerobic digestion, gas, STOR and battery schemes,
working with partners including Anesco, Energy Prospects, First
Renewables, Alkane Energy, Peel Energy, Greenpark Energy, Wind
Energy Direct and Arevon.
Low carbon energy is currently being generated on 16 of our sites
across six LEP areas (D2N2, Leeds City Region, York and North
Yorkshire, Sheffield City Region, Leicester & Leicestershire and the
North East), with the potential to generate energy on several others.
We asked Ekosgen to calculate the economic and social effect of this
current and potential production, taking account of the load factor,
i.e. the proportion of time for which the site is operating and
producing energy. This is based on standard industry figures, with
the average utilisation rate for each type of renewable energy site
based on national data from the Digest of UK Energy Statistics
(DUKES).
50 Harworth Group plc
The work undertaken by Ekosgen calculated that current levels of
energy output from our sites total over 233m kWh per annum, with
the potential for this to rise to some 529m kWh per annum in the
future if all energy sites are run at their optimum potential. This
equates to the annual usage of some 75,270 households, with
potential to power a further 95,600 homes - taking the total to
170,870 households. The current energy output is sufficient to
power a town the size of Warrington.
This energy output is split as follows across our regions.
Households capable of being powered by energy
generation on Harworth sites
LEP
Current
Potential
D2N2
North Eastern
Leeds City Region
York, North Yorkshire & East Ridings
Sheffield City Region
Leicester & Leicestershire
Total*
All totals rounded
23,740
23,150
23,030
16,880
11,430
3,760
45,300
25,680
93,960
41,200
35,300
3,760
75,270
170,870
*Totals do not sum due to double counting where local authorities are in multiple LEP areas.
Energy generation on Harworth sites
Developing high quality open spaces for public use
As part of our master developer role, we have already transformed
over 1,000 acres of public open space across our major
developments – including the 558-acre Cutacre Country Park
adjacent to Logitics North, which benefit the 5,500 workers at
Logistics North and local residents in Wigan, Salford and Bolton.
Over 100 acres of country park and similar space has also been
established at Waverley, Thoresby Vale, Pheasant Hill Park, Cadley
Park and Prince of Wales. These are integral parts of the masterplan
for each site and are brought forward once local public demand is
known. As a minimum, our public open spaces include a series of
footpaths for walking, running and cycling, access to and from
neighbouring developments and dedicated areas for ecological
habitats. We often go beyond this. At Logistics North we planted
over 40,000 trees in partnership with Greater Manchester’s City of
Trees programme. At Waverley, our space includes two huge lakes
which whilst playing an important role in surface water attenuation
are also a haven for wildlife. Ultimately each site’s public open space
is different, responding to specific local needs and the constraints of
the original land.
At our Thoresby Vale in Nottinghamshire we have gradually restored
the site’s 350-acre former spoil heap into a new Country Park,
working closely with the Nottinghamshire Wildlife Trust (NWT).
Work commenced in 2016, with over half now restored to heathland
consistent with the local landscape.
We are also proud of the site’s links to the adjacent Sherwood Forest,
from which trees have been sourced to help establish an oak
plantation. This work has included collecting acorns from Sherwood
Forest, and saplings from local nature reserves, to guarantee the
provenance of the woodland. These acorns have been planted by
local school children across the new Country Park. In addition, the
top of the new park provides an uninterrupted 360 degree view of
the surrounding area, including a unique uninterrupted view of
Sherwood Forest. This will encourage local tourism whilst promoting
Thoresby Vale as a great place to live as it matures over the next ten
years.
Our partnership with NWT has also extended to our 550-acre
Rufford site, where we have been working with NWT to transform a
large proportion of the site into Rainworth Heath – one of the last
remaining areas of heathland in the county. This particular site is
notable as having areas of both dry and wet heath. Numerous bird
species can be seen on site including green woodpecker, tree pipit
and turtle dove.
We’re proud of what we’ve created on these sites.
Annual Report and Financial Statements 2019 51
| Strategic Report | Corporate Governance | Financial Statements
CASE STUDY 2: IRONBRIDGE
THE WORLD’S EYES WERE FIXED ON IRONBRIDGE POWER STATION AS THE SITE’S FOUR
COOLING TOWERS – AN INHERENT PART OF THE LOCAL LANDSCAPE SINCE THE 1960s –
WERE BROUGHT DOWN BY CONTROLLED DEMOLITION. THIS HUGE MILESTONE FORMED
JUST A SMALL PART OF A MUCH LARGER REGENERATION PROGRAMME THAT SIGNALS
HARWORTH’S EXPANSION AS A LEADING MASTER DEVELOPER INTO THE WEST MIDLANDS.
CGI of proposed Ironbridge redevelopment
Demolition of Ironbridge cooling towers, December 2019
52 Harworth Group plc
The 350-acre former Ironbridge Power Station is planned for
regeneration into a mixed-use scheme, creating a new
community at the heart of the region’s industrial heritage. The
site’s outline planning application, submitted in December 2019,
shows a mixed-use scheme for 1,000 new homes in addition to a
range of commercial, leisure and community uses including a
park and ride facility, a school, allotments and sports pitches.
It followed eighteen months of close collaboration with both
Shropshire and Telford & Wrekin Councils and two major public
consultation events with residents (attracting nearly 1,000
people) in October 2018 and May 2019. It is hoped that the
application will be determined this year.
This proposed redevelopment includes the re-use of the site’s
former rail connection, which Harworth is keen to use both to
remove sand and gravel from the site (required in order to create
a development platform for part of the site) and for the eventual
introduction of an intermediate rail connection for passengers,
which would link the site directly to Telford railway station via a
number of adjacent villages that have not been served by a
nearby railway since the 1960s. Feasibility work for this
connection has already begun and Harworth remains in close
contact with Network Rail on the work required to make it
happen.
Demolition of the former power station began in May 2019, with
Harworth appointing Demolition Services Ltd (DSL) – the
principal contractor it used on its Kellingley and Thoresby Colliery
demolition programmes – to lead the work. Demolition of the
four iconic cooling towers in December followed six months of
preparation, with steel and concrete separated post-demolition
for the alloy to be sold and for the concrete to be crushed and
stored for use during the eventual development phase. The
wider site was split into six demolition zones with asbestos safely
removed ahead of any demolition works. During 2019 DSL
removed and sold over 640 tonnes of non-ferrous metals and
over 7,800 tonnes of ferrous metals to support ongoing
demolition works. 2020 will see the explosive demolition of the
former boiler house amongst other structures.
Intended
development
timeframe
History of site
Full description of
planning
application
2020 – 2032
Power Station A opened in 1932, with
Power Station B opening in 1969 –
generating a combined 1200MW of
capacity. It ceased operating on
20 November 2015
Outline application (access for
consideration comprising formation of two
vehicular accesses off A4169 road) for the
development of (up to) 1,000 dwellings;
retirement village; employment land
comprising classes B1(A), B1(C), B2 and B8;
retail and other uses comprising classes A1,
A2, A3, A4, A5, D1 and D2; allotments,
sports pitches, a railway link, leisure uses,
primary/nursery school, a park and ride
facility, walking and cycling routes, and
associated landscaping, drainage and
infrastructure works
Internal demolition works, October 2019
Proposed rail
connection
11km link between Ironbridge and Telford,
re-using 9km of former railway not used for
a number of decades
Annual Report and Financial Statements 2019 53
| Strategic Report | Corporate Governance | Financial Statements The Harworth Way: People
We aim to build a business where people can flourish and
placemake to provide spaces that promote health and wellbeing,
ultimately improving peoples lives.
Promoting health, safety and wellbeing on our sites
Effective
employee
engagement
Developing
our talent
Recognition
and reward
Promoting a
positive
& supporting
culture
Ensuring the
health, safety
& wellbeing of
our people
Supporting our people to deliver places that promote health and wellbeing
Developing the skills of our people is crucial in delivering against our purpose and an essential
part of our day-to-day work is ensuring that all of our employees live the “Harworth Values” to set
an appropriate tone for our work.
Our responsible approach to development also directly influences our masterplanning, with
hundreds of acres of new public open space being delivered each year to support more active
lifestyles and improved mental wellbeing.
54 Harworth Group plc
PROMOTING A POSITIVE AND SUPPORTIVE CULTURE
The Board was confident that a positive and supportive culture was
already well established at Harworth, demonstrated by the success
of the business over its relatively short life and driven by its
employees. However, the Board was keen for the values
underpinning that culture to be well defined so that it can be
promoted and preserved following the move to a regional operating
structure and as the business continues to grow and evolve. To that
end, during the first half of 2019 our Head of HR and Organisation
Development worked collaboratively with all employees to identify
the Harworth Values which underpin our One Harworth culture.
A series of workshops were held, each led by an external facilitator
with up to 10 employees, in mixed groups, who were asked to
consider and debate the following questions:-
What is important at Harworth?
What is unique about Harworth?
Ideas were captured and collated to identify themes from the group
discussions. Every employee participated in one of these
workshops.
Some common themes were identified in these workshops. These
were subsequently discussed by our People Steering Group (on
which see below) and distilled down into three Harworth Values.
At Harworth, we:
all contributing to a collaborative One Harworth approach.
The Harworth Values were launched at the 2019 Staff Away Day.
During 2020, they are being embedded into the business. We have
incorporated them into appraisals and the setting and scoring of
bonus objectives, our internal communications, such as the Harworth
Newsletter and Harworth Intranet, and our programme of
recognition throughout the year (see more on this below). We will
monitor our progress on this via appraisals and the annual staff
survey.
ENSURING THE HEALTH, SAFETY AND WELLBEING
OF OUR EMPLOYEES
Health and safety is paramount 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, liaising closely with our Chief
Executive who has ultimate responsibility for 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. These ratings identify
where action needs to be taken at each site and how quickly. They
also inform the frequency of site inspections. 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 both the Management
Board and Board monthly. Movements in this profile are fed into the
quarterly reviews of the Group Risk Register (see the Effectively
managing our risks section of this report on page 29).
Our EES team ensures that health and safety is embedded into all our
activities. In 2019 mandatory health and safety training was delivered
to all employees in the form of a Health and Safety Day, led by both
internal and external facilitators, together with online tuition and
testing.
Other proactive safety initiatives are undertaken including health and
safety inspections and audits of our demolition and engineering
projects. 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.
During 2019, we continued to engage JPW Consultancy Limited, an
external health and safety consultant, to advise on health and safety
issues across the business. In 2020 we are expanding this to a panel
of three consultants, to meet the demands of our growing portfolio,
reduce our dependence on a single supplier, and to apply “fresh
pairs of eyes” to our approach. These consultants focus on health
and safety at our Major Development sites, including management of
consortium meetings between Harworth and its stakeholders, such
as contractors and local authorities.
There were only five 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 the Construction Design and
Management Regulations (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 our consultants 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 is given
the attention and profile it deserves. Three of our c.75 employees
now hold a mental health first aid qualification, alongside those with
traditional first aid qualifications. Our mental health first aiders have
played an important role during the COVID-19 pandemic, keeping in
touch with all employees and offering support for those struggling
with isolation. We have continued measures designed to promote
mental and physical health and wellbeing amongst our staff. These
include access to mental health professionals if needed, the
construction of shower facilities at our Head Office for those who
wish to exercise during the working day, lunchtime yoga sessions
and monthly massage appointments, all at our Head Office.
Annual Report and Financial Statements 2019 55
| Strategic Report | Corporate Governance | Financial Statements People
continued
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 and near hits, where
applicable, examples of good practice, as well as 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 representatives of each division, at
which incident and near hit briefings are given; site-specific and
business-wide issues are identified and discussed, with action
points agreed; and best practice is shared; 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.
EFFECTIVE EMPLOYEE ENGAGEMENT
The Board and Executive team recognise the importance and
benefits of engaging meaningfully with employees. The Board is also
mindful of the need to comply with UK Corporate Governance Code
(2018 Code) in this regard.
Engagement by the Board
During 2019, a significant amount of work was undertaken to build
out an effective employee engagement programme. Recognising
that effective engagement requires multiple forums and means, the
following initiatives were introduced:
•
•
•
•
•
we held our first Employee AGM in April 2019, which we used as
a means of explaining to our employees the role of the Board
and each of its Committees, before breaking into smaller groups
for questions and more informal engagement. We were
planning to hold our next Employee AGM last month but have
postponed it until later in the year given the COVID-19 outbreak;
we now have a well-established People Steering Group (PSG),
with whom our Non-Executive Directors meet quarterly by
rotation (see more on this below);
extended lunch breaks are now scheduled into our Board
meeting agendas each month for lunch with groups of
employees. These have been particularly well received by our
staff (see below);
regular site visits by our Non-Executive Directors are hosted by
our project teams; and
at some Board dinners the Board are joined by members of the
wider Senior Management Team.
One of the most important aspects of our employee engagement
strategy is our PSG. It meets quarterly and comprises twelve
employees from different teams across the business, seeking an
appropriate mix, based on (amongst other things) length of service,
experience and diversity. Having been first established in 2018, we
have started, and will continue, to rotate and refresh its membership.
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 formally to the wider Board at the next
Board meeting.
Having regard to the nature and scale of Harworth’s business the
Board considers that the combination of measures listed above
facilitates effective engagement with employees. Collectively, we
view these measures, and particularly the engagement by Non-
Executive Directors with the PSG, as our way of ensuring workforce
engagement is provided for in accordance with the 2018 Code. The
Board reviews the ongoing effectiveness of all engagement
measures annually. The latest employee survey results demonstrated
that these measures have been well received. 83% of respondents
(an increase of 37% on the previous year) consider that the Non-
Executive Directors engage well with the business and 74% of
respondents believe that they have enough visibility in the business,
an increase of 29% on the 2018 score. Comments from the survey
included:
“There has been a massive improvement [in engagement] in
the past twelve months, driven by the Chair who deserves a lot
of credit.”
“The employee lunches have improved things significantly.”
“Much better engagement evidenced by higher quality
discussions at Board itself.”
Whilst engagement with the workforce is important, it would be of
limited value if the Board did not then consider the interests of
employees when making its decisions, particularly those of a
strategic nature or having widespread operational implications.
Below are examples of how the Board has had regard to the interests
of employees during 2019.
•
•
•
•
Resourcing formed a significant part of the Board’s discussions
ahead of the move to a regional operating structure, and has
remained at the forefront of the Board’s mind when monitoring
its implementation, with all regional roles now filled.
Health, safety and wellbeing of our employees and contractors
forms an important part of the Board’s monthly review of health
and safety across our sites, and of the annual briefing to the
Board from our Associate Director of EES.
The Board undertakes an annual review of talent management
and people development (see more on this on page 57). It also
reviews the annual employee survey results and agrees with the
Head of HR and Organisation Development the priorities for
addressing the output from those results.
Resourcing forms an important part of the Board’s appraisal of
new, particularly large, projects. It also formed part of the Board
discussions at the Strategy Day when a decision was made to
deploy more capital on the acquisition of income assets, leading
to the appointment of a new Head of Income.
56 Harworth Group plc
EFFECTIVE EMPLOYEE ENGAGEMENT CONTINUED
DEVELOPING OUR TALENT
The Nomination Committee leads on succession planning and
development for the Board and Investment Committee.
Each year our Head of HR and Organisation Development
undertakes a detailed review of succession and development plans
for each role in the business. The output from that review is analysed
first by the Investment Committee and then presented to, and
scrutinised by, the Nomination Committee (for Investment
Committee roles) and the Board (for all other roles).
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 continuous professional development
(CPD) of existing team members. A programme of externally
facilitated “Insights” workshops are being rolled out, which are
designed to optimise the effectiveness of our Senior Management
Team and each of our divisions.
Our Head of HR and Organisation Development has established a
rigorous and consistent appraisal process and timetable which
ensures that performance is managed and development needs are
identified early. During 2020, the Harworth Values are being
embedded into this process.
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 c.75 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 Senior
Management Team and we encourage them all to use this resource
from time to time.
Engagement by the Executive team
Engagement with employees at an operational level is equally
important. This is particularly so following implementation of our
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, 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 and motivation. 85% of employees responded to the
latest survey (positively in most respects). This is slightly lower
than in previous years, albeit our workforce has grown
substantially during 2019 and this still represents a strong
completion rate, reflecting the fact that the survey is considered
a meaningful exercise with feedback driving tangible initiatives;
our recently launched Harworth Intranet which will become the
principal means of communication with our employees;
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 and a recognition section based around
the Harworth Values;
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 and Placemaking” in 2019;
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.
During 2019 we have also rolled out our use of the Microsoft Teams
video conferencing facility, which has been embraced by our
regional teams and is supporting our collaborative One Harworth
ethos across offices. It has also played a critical role in our response
to the COVID-19 pandemic.
Annual Report and Financial Statements 2019 57
| Strategic Report | Corporate Governance | Financial Statements PROMOTING HEALTH, SAFETY AND WELLBEING ON
OUR SITES
As emphasised within both the Communities and Planet sections of
this Report, we are very keen for the public open space on our sites
to be used wherever possible by both our staff and the wider public.
This includes a number of employees forming a Harworth weekly
running club, using Waverley’s near-7km loop (the majority of which
comprises shale path surrounding the site) to support wider health
and wellbeing initiatives. Further information on wider uses of our
open spaces to support public health and wellbeing can be found
on pages 44 and 51.
This approach is actively supported by the work of our EES team
which acts as site custodian across our sites, maintaining spaces that
can be actively used by the public whilst also protecting them from
areas that shouldn’t be accessed. The public open space on all our
residential development sites is managed by our Residential
Management Company function, part of the EES team, which
ensures that regular inspections are undertaken. In addition, our EES
team also acts as first responder if anti-social behaviour is reported
on any of our sites, enabling a responsible and proportionate
response to be made.
Our approach can therefore be summed up as follows:
•
•
we maximise the use of our open space for people to use where
it is safe to do so as part of our commitment to create great new
places for people to live and work;
this approach is supported by the effective inspection and
management of public open space on our sites; and
• measures such as site security, warning signs and regular liaison
with the Police, Fire Service and local community groups are in
place to stop the public accessing parts of our sites deemed to
be a risk.
People
continued
RECOGNITION AND REWARD
We offer a comprehensive employee benefits package for all
employees, which includes a pension scheme with above-market
employer contributions (including the option of salary sacrifice with
additional employer contributions), private medical insurance and
life insurance. 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
2019, these targets were based on total return, sales volume,
acquisitions and profit excluding value gains. The balance of all
bonuses are awarded for performance against personal objectives.
From 2020, these personal objectives will incorporate and reflect
the Harworth Values.
In 2019 we revised our Remuneration Policy including the adoption
of a Restricted Share Plan (RSP) in place of two long-term incentive
schemes operated in the past. Our ability to cascade the RSP, the
operation of which is simple and transparent, is one of the key
reasons for its adoption. Further details on the rationale for and
operation of the RSP appear in the Directors’ Remuneration Report
on pages 101, 104 and 107.
We also operate a Save-As-You-Earn scheme (SAYE) and, from 2019,
a Share Incentive Plan (SIP). The SAYE 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, more
than half of our employees have chosen to participate in the scheme
and we expect more to do so this year. The SIP affords a tax efficient
mechanism by which the Company can encourage share ownership
amongst employees by awarding shares to employees, or
encouraging them to purchase shares. Together, our 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 a 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 the Harworth Newsletter. The Harworth Values
have become an integral part of the successes we celebrate.
58 Harworth Group plc
Waverley 10k event, held every July
Annual Report and Financial Statements 2019 59
| Strategic Report | Corporate Governance | Financial Statements The Harworth Way: Partners
We develop strong partnerships based on a shared socially
responsible approach, working towards a joint goal of long-term,
sustainable value creation
We focus on creating sustainable value through partnerships with customers, local authorities,
the Government and our suppliers to make best use of our sites for local people.
We engage regularly with our existing and potential shareholders and provide clear, timely
information on our long-term strategy.
Our sites are often designated and developed as centres of excellence for industry and stimulate
growth. This includes partnerships with three leading Universities to promote new skills and
innovation relating to advanced manufacturing, wellness and rail.
Stakeholders How we engage
How have we “had regard” to their interests?
Our People
• See the People section on pages 54 to 58 of the Strategic Report
Investors
• Martyn Bowes and Steven Underwood are conduits for
engagement with two of our largest shareholders.
• The CEO, CFO and Head of IR meet regularly with existing
and prospective investors. The Chair also meets regularly
with our largest shareholders.
• During 2019, the SID engaged widely with our largest
shareholders on proposed changes to our Remuneration
Policy.
• The Board receives regular feedback from our brokers and
the Executive Directors on the views of existing and
prospective shareholders. It also 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. The website is the
principal means of communication with shareholders
during the year.
Over the following pages we explain our approach to
consultation and collaborative working with the local
communities where we are transforming sites. This includes:
• early engagement with the public on all planning
applications through public consultation events and
continued liaison through the planning process;
liaison with key community groups on all Major
Developments as they mature; and
•
• careful management of the public open space on our
residential development sites including regular
communication with residents either through our internal
management company function or Lands Trust, our
managing agents.
• We engage with Local Government and Local Enterprise
Partnerships (LEPs) by three principal means: working
collaboratively with officers and members from local
planning authorities ahead of planning application
submissions and on the discharge of planning conditions;
bidding for grant or loan monies from local authorities and
LEPs for infrastructure investment; and promotion of
long-term strategic land projects with local authorities.
• We engage with Central Government and MPs via two
principal means: bidding for grant or loan monies, for
example from Homes England; and active participation in
consultation exercises on policy changes proposed by
Central Government.
Local
communities
Local & Central
Government
• Our aim to deliver market leading returns for investors is a fundamental
underpin of all transactional appraisals by the Board, setting a target
return rate for all new projects.
• The Board spent time at the outset of the 2019 Strategy Day discussing
how to articulate Harworth’s purpose to our investors and other
stakeholders, recognizing that our contribution to society is one of the
principal reasons our shareholders invest in the Company. To that same
end, the Board is also formalising our own sustainability framework,
which will reflect “The Harworth Way”: how our projects continue to
deliver economic, environmental and social value for the future,
supporting ‘good growth’ across the North of England and the Midlands.
• Alignment of executive remuneration with the interests of shareholders,
having regard to the long-term nature of the business and of our
shareholders’ investments, was a fundamental aspect of the
Remuneration Committee’s deliberation on the proposed changes to the
Remuneration Policy.
• When the Board appraises new acquisition opportunities, the Senior
Management team’s presentation includes a briefing on our
“placemaking” proposals for the site. This will reference an early-stage
masterplan together with the site’s connectivity to the transport network,
and our planning promotion strategy, which will include extensive
consultation with the local community. There was no better example of
this than the Board’s appraisal of the acquisition of the former Ironbridge
power station where we are planning to deliver a new community which
will include a school, allotments, sports pitches and rail connectivity,
where thousands of people will want to live.
• The Board continues to have regard for community interests throughout
the lifecycle of a project. The evolution of our plans for the Waverley
District Centre are a good example of this in action.
• Addressing housing shortages and increasing business rates revenue for
local authorities are tangible ways we can deliver a benefit to them and
form part of the Board’s appraisal of our planning promotion strategies
for all new sites. Our more mature sites, such as Waverley and Logistics
North, demonstrate best how Harworth delivers these benefits. Bolton
Council has seen millions of pounds of business rates uplift from Logistics
North over its life-cycle. Over recent years, one sixth of all new homes
built within the Rotherham MBC area have been at Waverley.
60 Harworth Group plc
Investors
Customers
Local
communities
Contractors &
Suppliers
s172 Companies Act 2006
On these pages we have identified our key stakeholders
and explained how we engage with each of them. In this
Report, we have chosen to focus on four stakeholder
groups: Our People, Investors, Local communities, and
Local and Central Government, giving examples of how
the Board has had regard to the interests of those
stakeholders when making strategic and significant
operational decisions. It is our intention to focus on other
stakeholder groups in future reports.
effectively each new project. 10+
The Board continues to monitor the effectiveness of the
Company’s engagement with its key stakeholders, with a
detailed review of our stakeholder “map” now an annual
Board activity. Whilst the Board has regard to the interests
of all stakeholders, reflected in presentations on and
discussions about operational items, we have resolved to
look particularly closely at the impact on all stakeholder
groups of proposals for the transformation of sites that we
acquire for development. Ultimately, we want to make
sure that new projects align with our core purpose. This
requires a detailed assessment of their likely impact (both
positive and negative) on the surrounding community and
the capacity of our workforce to manage and resource
How we engage with our other stakeholders
Local &
Central
Government
Contractors &
Suppliers
Joint venture
partners
Joint venture
partners
Regulatory
bodies
Regulatory
bodies
Customers
Our People
Advisors
Funders
Advisors
Funders
We apply a consistent
“take-on” approval
process for all suppliers.
Whilst we operate a long
list of approved suppliers
typically we engage small
groups of trusted
consultants and
contractors on a repeat
basis, fostering strong
relationships.
Frequency of
engagement will depend
on type of works being
undertaken, a project’s
status and number of
assignments a supplier is
undertaking at any one
time. For example,
engagement with
planning consultants is
typically dictated by
planning promotion
milestones, whereas
there is routinely daily
engagement with our
direct development and
engineering contractors
and consultants.
Where there is heavy use
of particular suppliers,
we employ a regime of
regular reporting and
relationship management
to monitor performance.
The principal customers
of our Capital Growth
segment remain
housebuilders and
commercial
developers/occupiers.
Engagement is
principally transactional,
although we maintain
regular contact outside
of deal cycles, both
directly and via
residential and
commercial agents.
The customers of our
Income Generation
segment are Business
Space, Natural
Resources, and
agricultural tenants, and
increasingly end-users
of secondary
aggregates recycled
from our development
sites.
Day-to-day engagement
with tenants is largely via
managing agents.
Monthly meetings with
managing agents
identify where direct
involvement and
engagement is needed.
As such, there is direct
engagement between
Harworth and tenants
where appropriate. We
have engaged
proactively with tenants
who are facing
challenges as a
consequence of the
COVID-19 pandemic.
There is regular contact
with prospective
end-users of secondary
aggregates, which can
be daily where
aggregates are being
exported.
External auditors:
re-tender process
under-taken during
2019. In the ordinary
course, appointment
reviewed annually and
audit strategy reviewed
every 6 months.
Valuers: appointments
reviewed annually.
Intensive engagement
across the business for
year-end revaluations,
culminating in meeting
with Senior
Management Team.
Legal panel: panel
reviewed every 2 years
(last in July 2019).
Relationship meetings
held every 6 months.
Corporate brokers:
monthly review
meetings with Head of
IR.
Communications
adviser: bi-weekly
review meetings with
Head of IR.
Remuneration
consultants:
attendance at
Remuneration
Committee meetings,
particularly ahead of
share scheme awards
and regular (albeit ad
hoc) engagement
throughout the year.
Managing agents:
monthly operational
review meetings with
our Business Space
division.
Insurance brokers:
annual relationship
meeting as part of
renewal process.
Senior lenders
(currently NatWest
and Santander):
relationship meetings
every 6 months
together with regular
engagement via the
provision of
management
information (quarterly),
utilisation requests,
and requests for
transaction consent.
Our positive
relationship with our
senior lenders has
been reflected in their
willingness to extend
our RCF facility,
affording operational
flexibility and
additional capital for
opportunistic
acquisitions, against
the COVID-19
backdrop.
Infrastructure
funders: quarterly
returns are made to
Homes England and
Sheffield City Region
and regular dialogue is
maintained with both
(see below).
Prospective funders:
expanding our capital
sources is a strategic
priority and, as such,
we are actively
engaging with a
variety of prospective
funders, both in the
public (Homes
England, for example)
and private sector
(including clearing
banks and funds).
We have applied a
consistent approach to
governance across all
our joint venture
arrangements, having
entered into three new
joint ventures in 2019,
which includes formal JV
board meetings, agreed
approval levels and
processes, and secure
and collaborative
document sharing.
Within this consistent
governance framework,
we tailor our
engagement for each
joint venture, informed
by the approach of our
partners on, and the
status of, each project.
Typically, on top of our
formal governance
structure, we overlay
regular dialogue via
telephone and face to
face meetings,
particularly during
periods of heightened
promotion,
development or
transactional activity.
For our three most
recent joint ventures, at
the outset of each
project, we have held an
informal “meet the team”
dinner, giving an
opportunity for
counterparts from each
team to get to know each
other and start to build
the strong relationships
needed to support a
successful joint venture.
We are proactive in our
engagement with the
Environment Agency
(EA) and Health and
Safety Executive (HSE),
being the two regulatory
bodies we interact with
the most in the ordinary
course of our business.
Environment Agency:
our Environmental
Manager takes the lead
on our engagement with
the EA. He hosts EA
regional officers on
regular site visits and
inspections,
supplemented by regular,
informal telephone
contact with them to
discuss permit
compliance, monitoring
results and variations.
Monitoring results are
reported regularly for
certain sites to comply
with permit conditions.
When issues do arise
(infrequently) our
engagement with the EA
is proactive and
collaborative.
Health and Safety
Executive: there is
regular, largely informal,
engagement between our
Operations Director and
local HSE officers to
discuss quarry operations
and demolition projects.
We have, for example,
worked closely with the
HSE on the demolition of
the former Ironbridge
power station.
We also have infrequent,
but proactive,
engagement with the
Forestry Commission,
typically via our
ecologists.
Annual Report and Financial Statements 2019 61
| Strategic Report | Corporate Governance | Financial Statements10
+
10
+
10
+
10
+
10
+
10
+
10
+
10
+
10
+
A
Partners
continued
Our engagement with local
communities
We deploy a mature approach to engagement with local
communities, including residents, statutory bodies and those with an
interest in the intended end-use of our land, utilising a seven stage
approach to stakeholder engagement to ensure the success of our
developments. Our 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.
Working effectively with local people in the communities in which
we operate leads to higher quality development and better places.
Throughout our seven stages of development, we check back our
performance against four main engagement indicators:
We use four indicators to appraise the effectiveness of
our engagement
•
Early Engagement
To what extent was there an opportunity to
influence and shape the scheme?
1. ESTABLISH INITIAL MASTERPLAN
Before any initial masterplan is prepared:
•
we proactively establish contact with, and encourage
participation from, all key interest groups including local
authorities, MPs, key activist groups and statutory bodies to
establish their aspirations and concerns regarding development.
This often brings out detailed local knowledge not necessarily
collected in engineering reports, including ongoing
development elsewhere that our proposed development needs
to account for or tie into and views on previously proposed
development (if applicable). This is essential in generating a
proportionate masterplan;
we appoint a core team of advisors, including land and highway
planners, engineers and ecologists, to understand the site’s
assets and constraints prior to working up an initial proposal.
Meaningful
Inclusive
Effective
(map, gap and
take note)
Was it ‘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?
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?
With our developments taking anywhere between 10 and 40 years
to be completed, having a robust, ongoing engagement process
with local stakeholders is essential. On sites recently masterplanned
such as Thoresby Vale and the former Ironbridge power station, we
have refined this approach into the seven stages shown below.
Central to this is understanding the needs and aspirations of local
people and effectively working with (rather than against) the assets
already in-situ in order to generate the best outcome from that
particular site.
A first high level masterplan is then used, with supporting
information, to form the basis of our first round of public engagement
work.
2. RUN INITIAL STAKEHOLDER WORKSHOPS
The barometer for our initial masterplanning work is an initial
stakeholder workshop – to be held either on-site if possible (as we
successfully managed at Ironbridge) or at a key local centre. These
workshops follow a consistent format as follows:
•
•
we ensure representatives from the local authority and parish
councils, including local councillors, Highways England, Homes
England, adjacent landowners and ecologists are invited and
participate; and
attendees are split into groups to work through a set of
questions on potential future land uses and take part in a design
workshop to explore specific uses.
This approach worked extremely well for the consultation at the
former Ironbridge power station, where over 70 stakeholders
reviewed our initial masterplan to test its relevance and quality.
3. TEST INITIAL PROPOSALS WITH STATUTORY
BODIES
Working with our professional team, we then work closely with all
key statutory bodies to critique the masterplan and supporting
documentation over a number of weeks to prepare the plan, and
supporting evidence, for formal public consultation.
62 Harworth Group plc
4. RUN A FORMAL PUBLIC CONSULTATION
7. ONGOING DELIVERY OF SCHEME &
Our public consultation events are either held on-site if a suitable
venue is available or at a key local centre close to the site to
encourage wide-ranging public participation and feedback. All our
plans at this stage reflect the history of the site, proposed uses and
rationale, supporting infrastructure, and planned development
mitigation measures. We request feedback from all participants both
via forms handed out on the day and the use of a bespoke
consultation website. This feedback gauges public opinion and
establishes key areas of support or concern.
5. FURTHER REFINE THE OUTLINE MASTERPLAN &
SUPPORTING DOCUMENTS
Following detailed consideration of public feedback, we revise our
masterplans in consultation with local planning officers. We also
ensure all relevant documentation is in place to make an active
planning application, including highways assessments, ecological
assessments and statements of community involvement. All local
councillors are briefed on the nature and specifics of our intended
application prior to submission, to enable them to answer questions
from constituents and to relay any further comments back to us.
6. SUBMIT AN OUTLINE PLANNING APPLICATION
AHEAD OF DETERMINATION
An outline planning application, alongside all supporting
documentation, is submitted to the local planning authority,
following which it is then subject to a further 21-day public
consultation period. If any final concerns are raised, we often submit
revised documents for further consultation, ahead of the formal
determination of the application either by planning committee or
delegation to a responsible officer.
ESTABLISHMENT OF MANAGEMENT COMPANY
FOR DEVELOPMENT
Once an outline planning consent is given, infrastructure work can
begin to prepare development plots. We act as master developer to
ensure the project is delivered in line with the consent and to
minimise any disruption to local neighbours and businesses. Where
design codes have been agreed with the local authority to govern
the overriding principles of development – as we have agreed at
sites including Waverley, Thoresby Vale and Riverdale Park – these
are rigorously adhered to.
Every phase of subsequent development – whether for residential,
commercial or low-carbon uses, is subject to further detailed
planning applications for each phase of the development. We work
proactively with the end users of these phases to facilitate
consultation and further meetings with local stakeholders. This is
supported by the establishment of a permanent digital presence for
each new development – including its own website and social media
accounts – to communicate with the public on development plans
and milestones.
As part of our ongoing master developer and site custodian role, we
create a site-specific management company to look after the public
open space on each site over the life of the development. The
management company function is managed by Harworth through
the various stages of development before control is passed to
residents or a dedicated third party, such as Lands Trust.
Finally, the employees individually responsible for each development
– our Development Managers for our 17 Major Development and our
Business Space or Natural Resources teams for income producing
sites – maintain regular liaison with key groups throughout the
lifecycle of development to appraise them of progress and to seek
feedback on how development is progressing. These groups
include local planning officers, ward members from both the local
authority and parish councils, the occupiers on our sites and key
community groups with an interest in the redevelopment of the site.
Annual Report and Financial Statements 2019 63
| Strategic Report | Corporate Governance | Financial Statements
CASE STUDY 3:
GROWING OUR INCOME PORTFOLIO
WE CONTINUE TO GROW OUR INCOME PORTFOLIO AND TO MAXIMISE RETURNS THROUGH
AN ACTIVE CHURN STRATEGY BOTH TO COVER OUR OPERATING COSTS AND AS A SOURCE
OF VALUE GAIN. WE SPECIALISE IN ACQUIRING ASSETS IN THE REGIONS THAT REQUIRE US
TO PUT OUR ASSET MANAGEMENT SKILLS TO GOOD USE, WITH FOUR INCOME PROPERTIES
PURCHASED IN THE YEAR FOR A COMBINED CONSIDERATION OF £20.9M (BLENDED NET
INITIAL YIELD OF 8.4%).
Etherow Industrial Estate, Glossop
Brighouse acquisition
Etherow acquisition
Brighouse acquisition
64 Harworth Group plc
Two Yorkshire acquisitions reflect our asset management capability
best. In October we purchased a c.65,000 sq. ft unit off Russell Way
in Brighouse, close to Junction 25 of the M62 for £3.6million.
We subsequently undertook two months of refurbishment works to
bring the property up to a modern, lettable standard, including
refurbishment of the office accommodation and energy efficiency
works such as roof repairs and the installation of new gas heaters to
the warehouse. We worked in parallel to secure a tenant, upholsterer
Mobus Fabrics, on a 10-year term, at a rent of £5.22 psf –
representing a net initial yield on the purchase of 9.44%. Agreeing
this lease involved our negotiating with Calderdale Council to
extend the site’s permitted use and to agree a noise management
plan to support the Mobus’ Fabrics operation, a further example of
our track record in working effectively with local planning
authorities.
In December, we purchased another Yorkshire asset - a 253,000 sq.
ft industrial unit across 12.1 acres in Sherburn-in-Elmet, close to our
existing Sherburn Rail Freight Terminal and Kellingley sites, for £9.2
million. An existing 10.5-year lease is in place with Esterform
Packaging Limited, a leading independent converter of PET
(Polyethylene Terephthalate), which provides a net initial yield of
7.1%. This will generate a future reversionary yield of 8.1% based on a
fixed rental uplift in 2020. The property also has low site coverage
(47%) which provides future asset management opportunities,
including expansion should the tenant require it.
We continue to search for acquisition opportunities with a
preference for units or parks in its core regions that are too difficult
for owners without our experience to asset manage, but too small in
lot size to tempt large institutional investors.
Total value & yield
of income
purchases in 2019
Total income-
producing business
space purchased in
2019
£20.9m, reflecting a blended net initial
yield of 8.4%
c.520,000 sq. ft, split as follows:
Etherow, Glossop: 202,000 sq. ft (NIY:
9.8%)
Russell Way, Brighouse: 65,000 sq. ft (NIY:
9.0%)
Esterform, Sherburn: 253,352 sq. ft (NIY:
7.1%)
Business Space
portfolio at FY 2019
Valuation: £172.8m
Annualised Rent: £11.8m
Vacancy: 6.2%
WAULT: 13.5 years
Income Portfolio at
FY 2019 (including
Natural Resources)
Valuation: £219.6m
Annualised Rent: £15.0m
Source of future
acquisitions
Local and national property agents
Law of Property Act receivers
Adjacent property owners
Corporates within our core regions
Government’s One Public Estate
programme
Brighouse acquisition
Annual Report and Financial Statements 2019 65
| Strategic Report | Corporate Governance | Financial Statements The Harworth Way: Governance
High standards of corporate governance underpin the effective
operation of the Group
The Code
What have we focussed on?
Board
leadership
and company
purpose
• Clarity of purpose and strategy. The Board and Executive team held the annual Strategy Day in October which began with a review of how
we articulate Harworth’s purpose. This resulted in a clear statement of purpose, with an emphasis on “sustainable transformation”. The
fundamentals of our existing strategy were reaffirmed, reflected earlier in this Strategic Report (pages 8 and 9), albeit a consensus was reached
on the need to deploy additional capital on income acquisitions to assure the resilience of our income, and to remain patient and disciplined at
this point in the cycle in the deployment of capital on strategic land projects.
• Culture: the Harworth Values. During 2019, the Board oversaw the establishment of our “Harworth Values”, following a collaborative
initiative to which all employees contributed. These values define the positive and supportive culture at Harworth and will help us promote and
preserve it across our regional operating structure.
• Resources: moving to a regional operating structure. In 2018 we moved to a regional operating model and introduced a new senior
management structure. The Board has monitored closely the recruitment into regional and central support teams, which is now complete.
Alongside this, the Board continues to review succession, talent management and development plans for key roles throughout the business.
• Engagement with stakeholders. During 2019 we made significant progress in implementing a programme of meaningful employee
engagement. The Board has also continued to monitor the effectiveness of its and the Company’s engagement with other key stakeholders,
whilst recognizing the need to look particularly closely at the impact on all stakeholders of our plans to transform the sites we acquire. There is
more on how the Board satisfies its section 172 obligations in the People (pages 56 and 57) and Partners (pages 60 and 61) sections of the
Strategic Report.
Division of
responsibilities
• Independent Non-Executive Directors. Two new independent Non-Executives Directors, Ruth Cooke and Angela Bromfield, were
appointed to the Board in March and April respectively. These appointments ensured that the composition of the Board, in terms of the
balance between independent and non-independent Directors, is compliant with the Code.
Composition,
succession
and evaluation
• Executive Director succession. In April, Andrew Kirkman notified the Board of his resignation, which took effect from 30 June. The
Nomination Committee led a search and recruitment process (see the Nomination Committee on pages 91) which culminated in the
appointment of Kitty Patmore as our new Chief Financial Officer. Kitty joined the business on 1 October and, ahead of that, Jenny Cutler, now
our Director of Finance, took over the finance director’s remit for an interim period.
• Non-Executive Director succession. The appointments of Ruth Cook and Angela Bromfield represented the culmination of planning and
recruitment in 2018 to, in part, appoint a successor for Tony Donnelly, who retired in September after serving for nine years on the Board. Lisa
Clement will also cease to be independent under the Code at the end of 2020 and, as such, the Nomination Committee began planning for
her succession towards the end of 2019, with a recruitment process now well progressed.
• Diversity. The Nomination Committee has taken a lead in monitoring the effectiveness of the initiatives we have introduced to improve
diversity across the business. We made some positive progress during 2019, the most high profile being changes to the Board’s gender
balance as a consequence of the appointments referred to above. We made more modest progress across the wider business and the
Board recognizes that, with a small team and relatively low staff turnover, meaningful improvements will take time and that there is a need to
address diversity in its widest sense. This remains a long-term challenge.
• Board evaluation. All of the recommendations from the external Board evaluation undertaken by Ian White in 2018 have been
implemented (see the Corporate Governance Statement on page 85) and, in the final quarter of 2019, the Chair conducted an internal
evaluation, the findings from which were presented to the Board in February 2020, with actions agreed for implementation during the
course of this year.
• External audit. The Audit Committee oversaw a tender process for the appointment of a new external auditor, culminating in the
recommendation to appoint Ernst and Young LLP (see more on this in the Audit Committee Report on pages 98 and 99).
• Risk management. Harworth’s framework for monitoring and managing risk has continued to improve during 2019. The has included an
evolution of the Group Risk Register, which remains the principal tool used by the Board and the Management Board to monitor the profile
and management of risks, most notably with the incorporation of a new dashboard which gives a “live” snapshot of the risk profile of the
business. For more on this see the Effectively managing our risks section on pages 31.
• Internal controls. The Audit Committee oversaw the establishment of the “Harworth Common Platform”, a toolkit of resources to ensure
key workstreams continue to be undertaken in a consistent manner across all regions.
• Cyber and information security. A significant amount of work was undertaken in 2019 on cyber and information security, to implement
recommendations from technical and strategic reviews in 2018. This has included the establishment of an information security function, the
implementation of an information security management system, an overhaul of the way our information and data is stored, and upgrades to
servers and our fleet of laptops. This will require ongoing, close monitoring and continuous improvement to respond to an ever-changing
risk environment.
Audit, risk
and internal
controls
Remuneration
• Remuneration Policy changes. Following a detailed review by the Remuneration Committee, the Board concluded that our
Remuneration Policy could be simplified and aligned better with the Code principles and the very long-term nature of “sustainable
transformation” of land and property. We engaged widely with, and secured strong support from, shareholders, with more than 99% of
the votes being cast in favour of the revised policy at the AGM. Changes included the introduction of a Restricted Share Plan for the
Senior Management Team, the implementation of a Share Incentive Plan for all employees and enhancements to our shareholding
guidelines for Executive Directors. Further information can be found in the Directors’ Remuneration Report (pages 101 to 117).
*See also Governance section on pages 70 to 121
66 Harworth Group plc
The Code
What have we focussed on?
How has it supported our strategy?
Good governance has been built into the foundations of the Harworth approach from the start. We are now
profiling better how governance supports the delivery of our long-term purpose and furtherance of our
strategic priorities.
We aim to improve continually in these areas and align with industry best practice.
• Our strategy is set to deliver on Harworth’s purpose. The Board is clear about our purpose and has ensured that it can be articulated succinctly
to all of our stakeholders, not least our employees, on whose shoulders delivery of the strategy falls.
• The annual Strategy Day is the principal forum in which the Board and Executive team test that the strategy remains robust, albeit with regular
review throughout the year.
• Harworth benefits from a well resourced business with a positive and engaged culture which supports the delivery of the strategy as the
business continues to grow.
• Engagement with our employees, who are responsible for delivery on a day to basis, and the local communities for and alongside which we
transform our sites, is an important aspect of the successful implementation of our strategy. This is borne out in one of our Harworth Values
— “Taking Pride in Our People and Partnerships”.
• Maintaining a balance of independent and non-independent directors promotes constructive discussions when the Board is setting, and
healthy challenge when it is monitoring implementation of, the strategy.
• The Board’s effective planning for and implementation of Non-Executive Director succession, promotion of diversity on the Board, and our
regular, meaningful Board evaluations all serve to enhance the Board’s effectiveness in all aspects of its role such that it can set an appropriate
strategy and support the business in delivering it.
• Our planning for, and execution of, Executive Director succession are critical to the successful implementation of the strategy and the
sustainable, long-term success of the business.
• Promoting diversity, in its widest sense and across the wider business, helps the business to “Deliver Creative Solutions”, another Harworth
Value which underpins the delivery of the strategy.
• The Board demonstrate to our investors that the business is successfully implementing an appropriate strategy via robust financial reporting.
The external auditor plays a fundamental role in that regard and the Board is confident in its recommendation of the appointment of Ernst and
Young LLP as the Group’s new external auditor. The veracity of our financial reporting is just one aspect of our commitment to all stakeholders
to “Act with Integrity and Trust”.
• Ineffective risk management and/or internal controls can undermine the best strategy and its successful implementation. The Board has
ensured that the components of the Company’s risk management and internal controls framework are effective.
• The changes made to our Remuneration Policy, being principally the introduction of a Restricted Share Plan, for senior management, and Share
Incentive Plan, for all employees, align with and support the strategy by rewarding long-term value creation and aligning the interests of
investors with those of our Executive Directors and senior management.
The Strategic Report was approved by the Board and signed on its behalf by:
Owen Michaelson
Chief Executive
4 June 2020
Annual Report and Financial Statements 2019 67
| Strategic Report | Corporate Governance | Financial Statements
Corporate Governance
Corporate Governance
70 Chair’s introduction
74 Board of Directors and Company Secretary
76 Statement of Corporate Governance
88 Nomination Committee Report
96 Audit Committee Report
101 Directors’ Remuneration Report
118 Directors’ Report
122 Statement of Directors’ Responsibilities
68 Harworth Group plc
Owen Michaelson speaking
at annual employee away day
Annual Report and Financial Statements 2019 69
| Strategic Report | Corporate Governance | Financial Statements Chair’s introduction
Chair’s introduction
Against that backdrop, I am pleased to present this year’s Corporate
Governance Report. In this introduction I highlight where some of
the Board’s time and focus has been directed in the implementation
and evolution of our governance framework during the period under
review. These are taken up in more detail in the Strategic Report
(pages 4 to 67) and in the balance of this Corporate Governance
Report, which comprises: the Statement of Corporate Governance,
the Nomination Committee Report, the Audit Committee Report, the
Directors’ Remuneration Report, the Directors’ Report, and the
Statement of Directors’ Responsibilities.
Purpose and strategy
In October the Board and Executive team undertook the annual
review of the Company’s strategy. We began by reviewing the way
we articulate Harworth’s core purpose, the output from which is
referenced above and can be found elsewhere in this year’s Report.
As one might expect, there followed a detailed discussion about the
turbulent macro-economic and political backdrop against which the
business seeks to implement its strategy and fulfil its purpose. There
was agreement that our existing strategy affords a robust platform
from which to withstand and identify opportunities that arise from
that turbulence. The fundamentals of the existing strategy were
re-affirmed but it was decided to: deploy additional capital on
income acquisitions, to improve further the “through-the-cycle”
resilience of the business; and to remain patient and disciplined in
the deployment of capital on strategic land projects, there being an
expectation that the current climate will create acquisition
opportunities as much as operational challenges.
Culture
Following on from the establishment of our regional operating
structure in 2018, the Board was keen to ensure that Harworth’s
positive and supportive culture was well-defined, so that it could be
promoted and preserved across all regions. To that end, during
2019 we have established our “Harworth Values”. The Strategic
Report (page 55) explains how the Harworth Values were
established and the way we plan to embed them into the business. I
am particularly pleased that they are the product of a collaborative
initiative, led by our Head of HR and Organisation Development, to
which every single one of our employees contributed. We believe
this makes the Harworth Values an honest reflection of the Harworth
culture such that they will endure the test of time.
Succession and Board composition
Succession planning once again featured prominently on the Board’s
agenda in 2019, on which the Nomination Committee continued to
take the lead.
Two new Non-Executive Directors were appointed to the Board:
Ruth Cooke (in March) and Angela Bromfield (in April) following a
combined recruitment process. The purpose of those appointments
was two-fold: to provide succession for Tony Donnelly, who retired in
September after 9 years on the Board, and to ensure the
composition of the Board is compliant with the 2018 Code. These
appointments also enabled Steven Underwood to step down from
the Remuneration and Audit Committees such that those
Committees now comprise only independent members, in
compliance with the code. In August, the Board was delighted to
announce the appointment of Kitty Patmore as Chief Financial
Officer.
Dear Shareholder,
Investors will see from this year’s Annual Report that the Board has
worked on articulating clearly and succinctly Harworth’s core
purpose:
“Harworth invests to transform land and property into
sustainable places where people want to live and work.”
“Sustainable transformation” of land and property is a long-term
endeavour – it takes years and for the largest sites over a decade! A
business can only deliver on this purpose if it has a clear and robust
strategy with strong foundations. Good governance, together with a
supportive culture, must form the cornerstones of those foundations.
One of my earliest observations when I joined Harworth, reflected in
my first statement as Chair for last year’s Annual Report, was the
relative maturity of its corporate governance. It was clear to me early
on that the Board and senior management team recognised the
fundamental importance of governance to long-term and sustainable
success and growth. This was reflected in the focus it is afforded
internally and a commitment amongst the senior team to its sustained
evolution and improvement, an essential enabler of our growth
ambitions. My early observations were endorsed by the transfer of
the Company’s shares from a standard listing to a premium listing on
the London Stock Exchange in August 2018.
That said, whilst corporate governance has been given the highest
profile internally, it has been somewhat “underplayed” in our
external communications. So, alongside the work we’ve undertaken
to articulate better Harworth’s purpose and strategy, this year’s
Annual Report seeks to give greater prominence to the important
role governance plays in Harworth’s achieving its purpose. This is
reflected in the Strategic Report, where we have explained: where
the Board has focussed to ensure compliance with the main
principles of the 2018 UK Corporate Governance Code (2018 Code)
(page 66); where governance has supported us in the delivery of our
strategy (page 67); and how the Board has met its obligations under
section 172 of the Act (pages 60 and 61).
70 Harworth Group plc
Whist all appointments to the Board are based on merit, it was
pleasing that these appointments improved markedly the gender
diversity of our Board. We hope this will demonstrate to our existing
and prospective employees the Board’s commitment to diversity (in
its widest form) at all levels of the business.
On 17 March 2020, alongside our preliminary results, we announced
Owen Michaelson’s intention to retire as Chief Executive at the end
of December 2020. The Board has commenced a process to
appoint a successor. The Nomination Report (page 91) includes
more information about that process.
Lisa Clement is also due to retire at the end of September after
9 years on the Board. At the end of 2019, the Board, therefore,
began to plan for Lisa’s succession, reflecting the Company’s
practice of seeking a period of transition when there is Board or
Executive succession. An update on those plans, which are well
progressed, is given in the Nomination Committee report.
Executive remuneration
Following a comprehensive review by the Remuneration Committee,
the Board concluded that the Company’s Remuneration Policy could
be simplified and aligned better with the very long-term nature of
“sustainable transformation” of land and property. Two fundamental
changes were proposed: the introduction of a Restricted Share Plan
in place of the then existing Executive Long-Term Incentive Plan, and
the implementation of a Share Incentive Plan for all employees. Both
initiatives were designed to encourage stewardship throughout the
business and particularly amongst senior management.
We engaged widely with shareholders on the proposed changes,
for which strong support was expressed, with more than 99% of the
votes being cast in favour of the revised policy at the Annual General
Meeting.
Stakeholder engagement
Implementing a programme of meaningful employee engagement
was a priority for the Board in 2019 and I am pleased with the
progress we have made. We held our first Employee AGM in April
and are planning for this to be an annual event, with another initially
scheduled for last month but postponed to later in the year due to
the COVID-19 outbreak. Our People Steering Group is now well
established. So too is our practice of Non-Executive Directors
meeting with that group quarterly on a rotation basis. We view this
as our way of ensuring workforce engagement is provided for in
accordance with the 2018 Code. A more detailed overview of our
employee engagement programme appears in the Strategic Report
(pages 56 and 57).
We recognise that engagement with the workforce would be of
limited value if the Board does not listen to the opinions of
employees expressed during that engagement and consider the
interests of employees when making strategic and significant
operational decisions. Workforce capacity and talent development
continue to be important considerations for the Board, particularly
given the accelerated growth of the business and implementation of
the regional operating structure.
The Board continues to monitor the effectiveness of the Company’s
engagement with key stakeholders, with a detailed review of our
stakeholder “map” now an annual Board activity. Whilst the Board
has regard to the interests of all stakeholders, reflected in
presentations on and discussions about operational items, we have
resolved to look particularly closely at the impact on all stakeholders
groups of proposals for the transformation of sites that we acquire for
development. Ultimately, we want to make sure that new projects
align with our core purpose. This requires a detailed assessment of
their likely impact (both positive and negative) on the surrounding
community and the capacity of our workforce to manage and
resource effectively the new project.
Audit, risk and internal controls
2019 was also a busy year for the Audit Committee. Following a
tender exercise led by the Committee, the Board unanimously
approved the proposed appointment of Ernst and Young (EY) as
external auditor in succession to PricewaterhouseCoopers LLP
(PwC). The rationale for that appointment is explained in the Audit
Committee’s report on pages 98 and 99. Subject to endorsement
by shareholders at the 2020 Annual General Meeting, EY will
replace PwC for the audit of FYE`20 year- end results.
The Audit Committee has also overseen the adoption and
implementation of a robust cyber and information security strategy,
including the establishment of an information security management
function and an overhaul of the way we store our electronic
information. Whilst no business can claim to be immune from cyber
or information security risks, the steps we have taken over the last 18
months have put our business on a firmer footing in this regard, both
in terms of mitigating the risk of, and responding to, any breaches of
security. Long-term deliverables remain and there is a commitment
from the Board to maintain and evolve our security framework.
A significant amount of work has also been undertaken during the
year to evolve our framework of internal controls, processes and
reporting, principally to respond to the new regional operating
structure. Another external review was undertaken in 2019, this time
of our year-end re-valuations process by KPMG LLP. The feedback
from that review was positive.
Reflecting the growing maturity of the business, a review of key
operational workstreams was undertaken during 2019 to identify
aspects of them which ought to be undertaken in a consistent
manner across all regions, both to mitigate risk and drive efficiencies.
This has led to the establishment of the “Harworth Common
Platform”. Ours is an innovative business and so, whilst this new
platform summarises the “Harworth Way” of undertaking certain
workstreams, a proportionate approach has been taken to
standardisation. Steps have also been taken to automate certain of
our processes, including purchase order approvals.
The output from the latest review of the Board’s risk appetite and the
risk profile of the business appears in the Strategic Report (pages 32
to 37). Our Delegated Authorities Policy was reviewed and updated
in October, principally to account for the establishment of the new
Chief Operating Officer role.
In accordance with the 2018 Code, responsibility for reviewing the
Group’s whistleblowing policy and procedures, and the appropriate
investigation of whistleblowing reports, has passed from the Audit
Committee to the full Board. There were no incidents of
whistleblowing during 2019.
Annual Report and Financial Statements 2019 71
| Strategic Report | Corporate Governance | Financial Statements Chair’s introduction
continued
Chair’s introduction
continued
Board evaluation
All recommendations made by Ian White, following his external
evaluation of Board effectiveness in December 2018, have now been
implemented. As is good practice, I led an internal evaluation in the
fourth quarter of 2019. The key conclusions and action points from
that evaluation exercise are summarised in the Statement of
Corporate Governance on page 86.
Annual General Meeting
This Report is being published against the unprecedented backdrop
of the COVID-19 pandemic. At the date of going to press, there
remain compulsory measures in place to respond to the pandemic
(COVID-19 Measures). These COVID-19 Measures include restrictions
on movement and public gatherings. To comply with the Companies
Act 2006 and the Company’s articles of association, our Annual
General Meeting (AGM) will be held at 8:00am on Monday 29 June
2020 at Unit 5A on the Advanced Manufacturing Park, Brunel Way,
Catcliffe, Rotherham S60 5WG. Shareholders are prohibited by the
COVID-19 Measures from attending the AGM and must not do so.
Shareholders can still vote on the resolutions to be considered at the
AGM by completing and returning a proxy form appointing the Chair
of the meeting as proxy and directing him or her how to vote on each
resolution. Instructions on how to do this are included in the Notice
of AGM which is being issued and posted alongside this Report.
Given the current circumstances I hope shareholders will understand
and respect the steps we are implementing to ensure that our AGM
complies with the COVID-19 Measures and does not put any of our
employees, shareholders or stakeholders at risk. I very much look
forward to our 2021 AGM when I hope we will be able to encourage
shareholders to attend and welcome those that do.
Alastair Lyons
Chair
4 June 2020
72 Harworth Group plc
Alastair Lyons (Chair) and
David Cockroft (Regional Director, Midlands)
at Hugglescote Grange, Coalville site
Annual Report and Financial Statements 2019 73
| Strategic Report | Corporate Governance | Financial Statements Board of Directors and Company Secretary
Board of Directors and Company Secretary
1
2
3
4
5
6
7
8
9
10
74 Harworth Group plc
1. Alastair Lyons
Chairman
N R
Term of office
Joined the Board on 7 March 2018. Elected in May 2018. Chair of the Nomination
Committee
Length of service
2 years 2 month
Skills and experience
Independent
Yes
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, the European subsidiary of the
Admiral Group and the Eaton House private schools group
2. Owen Michaelson
Chief Executive
Term of office
Joined the Board on 24 March 2015 having previously been Chief Executive of Harworth
Estates Property Group Limited (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
5 years 2 month (9 years 9 months
including appointment to HEPGL and
Harworth Estates division of UK Coal)
Independent
No
Skills and experience
Owen has more than 30 years’ experience in the remediation and development 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 the re-listing of the company in 2015
External appointments
Owen is a Non-Executive Director of Covanta Holding Corporation, a global provider
of waste treatment facilities in the USA, UK & China. 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
* On 17 March 2020 the Company announced that Owen will retire on 31 December 2020. At the 2020
Annual General Meeting he will seek re-election until that date.
3. Katerina (Kitty) Patmore
Chief Financial Officer
Term of office
Joined the Board on 1 October 2019
Length of service
7 months
Skills and experience
Independent
No
Prior to joining Harworth, Kitty was Director with responsibility for Finance and
Operations at Harwood Real Estate, which managed one of the largest private rented
housing investment portfolios in the United Kingdom. She led the finance function with
responsibility for investor relations and capital markets, including leading an LSE main
market fundraising process
Kitty started her career in banking at Barclays specialising in structured real estate
finance before moving into real estate mezzanine finance across the UK and Europe for
a private debt fund, DRC Capital
External appointments
Having been a Director of the Investment Property Forum (a property investment group
with more than 2,000 members) for 6 years, she now chairs the IPF Finance Group
Senior Independent Director
R
7.Angela Bromfield
Non-Executive Director
R A N
4. Lisa Clement
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
8 years 5 months
Skills and experience
Independent
Yes
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
External appointments
Director of Everything But The Cow Limited
* If re-elected at the 2020 AGM, Lisa will retire from the Board on 30 September 2020. Given that one of
the Nomination Committee’s key activities in 2020 will be leading the identification and recruitment of
Lisa’s successor, Angela Bromfield has replaced Lisa on the Committee from 1 January 2020
5. Andrew Cunningham
Non-Executive Director
A N
Term of office
Joined the Board on 26 April 2016. Last re-elected in May 2018. Chair of the Audit
Committee
Length of service
4 years
Skills and experience
Independent
Yes
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
Term of office
Joined the Board on 1 April 2019. Membership of Nomination Committee
Length of service
1 year 1 month
Skills and experience
Independent
Yes
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 Marshalls plc, where she
is a member of the Nomination, Remuneration and Audit Committees, and at
Churchill China plc, where she chairs the Remuneration Committee and is a member
of the Audit Committee
External appointments
Non-Executive Director of Marshalls plc and Churchill China plc
*Angela will succeed Lisa Clement as Chair of the Remuneration Committee when Lisa steps down on
30 September 2020. At the same she will step down from the Audit Committee. Given that one of the
Nomination Committee’s key activities in 2020 will be leading the identification and recruitment of
Lisa’s successor, Angela has replaced Lisa on the Committee from 1 January 2020
8. Steven Underwood
Non-Executive Director
Term of office
Joined the Board on 2 August 2010. Last re-elected in May 2018
Length of service
9 years 9 months
Skills and experience
Independent
No, due to connection to Peel Group and
length of service
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
External appointments
External appointments
Non-Executive Director of multiple private companies in the Banks Group, Cussins
Limited, and Cussins (North East) Limited. Commissioner at The Port of Blyth
*Andrew will succeed Lisa Clement as Senior Independent Director when Lisa retires on 30
September 2020
6. Ruth Cooke
Term of office
Joined the Board on 19 March 2019
Length of service
1 year 2 month
Skills and experience
Non-Executive Director
A
Independent
Yes
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
External appointments
Chief Executive of Green Square Group, Chair of Connexus Housing and Member of
West Midlands Housing Association Partnership
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
Alternate Director of Intu Properties plc. Director of multiple private limited
companies connected to the Peel Group. Member of the Board of Trustees of the
Science Museum Group
*Steven was formerly a representative Director of Peel Group. Following the reduction of Peel
Group’s shareholding to below 25%, Steven now sits on the Board in a personal, rather than
representative, capacity. However, given his previous representative capacity Steven cannot be
regarded as independent for the purposes of the UK Corporate Governance Code.
9. Martyn Bowes
Non-Executive Director
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
Independent
5 years 2 month (7 years 2 month
including appointment to HEPGL)
No, representative of the PPF
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 real estate and healthcare
External appointments
Director of multiple private limited companies predominantly within the Welbeck
Land Group
10. Chris Birch
Group General Counsel and
Company Secretary
Term of office
Appointed on 6 June 2016
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
External appointments
None
Annual Report and Financial Statements 2019 75
| Strategic Report | Corporate Governance | Financial Statements Statement of Corporate Governance
Statement of Corporate Governance
THE 2018 UK CORPORATE GOVERNANCE CODE
The financial year ended 31 December 2019 was the first year in which the Company was subject to the 2018 UK Corporate Governance Code
(2018 Code), which was published in July 2018. Our 2018 Annual Report outlined the steps we took to effect early adoption. This year’s
Strategic Report explains where the Board has focussed to ensure compliance with the main principles contained within the 2018 Code (page
66) and how governance has supported delivery of the Company’s purpose and strategic priorities (page 67).
A copy of the 2018 Code can be found on the Financial Reporting Council’s website at https://www.frc.org.uk. Save as indicated below, the
Company has complied with the principles and provisions of the 2018 Code throughout the year ended 31 December 2019. The Company’s
compliance is demonstrated both in the Strategic Report and in the balance of this Governance Report, as follows:
Section 1: Board Leadership and Company Purpose
Section 2: Division of Responsibilities
Corporate Governance Statement
Strategic Report
Corporate Governance Statement
Nomination Committee Report
Section 3: Composition, Succession and Evaluation
Nomination Committee Report
Section 4: Audit, Risk and Internal Control
Audit Committee Report
Section 5: Remuneration
Director’s Remuneration Report
Prior to the appointment of Ruth Cooke and Angela Bromfield in
March and April respectively, Steven Underwood, who is a
non-independent Non-Executive Director, was a member of both
the Audit and Remuneration Committees. Ruth Cooke joined the
Audit Committee on her appointment and Angela Bromfield joined
both the Audit and Remuneration Committees on her appointment,
enabling Steven Underwood to step down from both Committees.
As such, from April 2019, membership of our Committees has been
compliant with the 2018 Code.
CULTURE
The Board recognises that a clear purpose and robust strategy must
be supported by a strong, positive culture within the business.
Whilst the Board was confident that this already existed it was keen
for that culture to be well defined so that it can be promoted and
preserved as the business grows and evolves. To that end, our Head
of HR and Organisation Development has worked collaboratively
with all employees during 2019 to identify the Harworth Values
which underpin our One Harworth approach.
PURPOSE AND STRATEGY
The Board and the executive Investment Committee engage in a
robust process annually to review and approve the strategy. In 2019,
our Strategy Day was held in October followed in November by the
presentation to, and approval by, the Board of a draft budget (for
2020) and strategic plan (for the period 2021-2024).
Whilst the Board has always been clear about Harworth’s purpose
(and rightly proud of the positive impact of our projects), there was a
productive discussion at the 2019 Strategy Day about how best to
articulate that purpose. This culminated in a succinct expression of
purpose: “Harworth invests to transform land and property into
sustainable places where people want to live and work”, which
is a central theme of this Annual Report.
The performance of the business is assessed by the Board
throughout the year against the approved budget and strategic plan,
with the Board satisfying itself as to the adequacy of management
response to variations in performance against the plan. The Chief
Executive gives an operational update at each Board meeting with
periodic assessment of performance against strategic objectives.
76 Harworth Group plc
Our 2020 priority is to ensure these Harworth Values are fully
embedded in the business, particularly having regard to the regional
structure that we have recently established. We will use our annual
staff survey and appraisals to monitor our progress on this.
Typical engagement with investors during the year
Jan
Trading update
March
Preliminary results announcement,
webcast and investor roadshow
April
Annual Report
May
AGM and trading update
June
Site visits with current and
prospective investors and analysts
Sept
Interim results announcement,
webcast and investor roadshow
* Throughout the year:
– Regular RNS announcements of operational progress
– Meetings with currect and prospective investors
STAKEHOLDERS
The Board has undertaken a significant amount of work during 2019
to identify its key stakeholders, understand how the business
engages with them, and review the effectiveness of that
engagement.
Our Strategic Report:
•
•
•
explains how we work closely and collaboratively with the local
communities surrounding our projects (pages 62 and 63);
demonstrates the significant amount of work that has been
undertaken in 2019 to implement an effective employee
engagement programme (pages 56 and 57); and
outlines how we engage with our other key stakeholders and
how the Board complies with its obligations as set out in section
172 of the Companies Act (pages 60 and 61).
There is more work for us to do in this regard and it remains a priority
for the Board in 2020. In particular, the Board will ensure, when
making strategic and significant operational decisions, particularly
those relating to our development sites, that those decisions
promote Harworth’s purpose, considering the likely impact of
Harworth’s projects on our communities, workforce and other key
stakeholders.
The Board recognises the importance of regular and open
engagement with our investors. Martyn Bowes, the Pension
Protection Fund’s representative Director, will continue to provide
ongoing shareholder feedback and perspective on key strategic
decisions. Whilst Peel Group has reduced its shareholding in 2019
and is no longer entitled to appoint a representative Director (see
Nomination Committee report at page 90), the Board has invited
Steven Underwood to remain a Director of the Company and he will,
therefore, continue to bring to Board considerations a thorough
understanding of the views of a substantial shareholder.
At the end of each year, the Board reviews and approves an investor
relations plan for the following year. The Chief Executive, Chief
Financial Officer and Head of Communications and Investor
Relations meet regularly with existing and prospective investors, and
analysts, including after publication of the Company’s preliminary
and interim results. The Chair also meets regularly with our largest
shareholders.
In January 2019, the Remuneration Committee Chair held a series of
meetings with, and spoke to, certain of the Company’s largest
shareholders to consult on the proposed revisions to its
Remuneration Policy, in particular the introduction of a Restricted
Share Plan (see Remuneration Committee report at page 104 and
107), which received overwhelming support at the 2019 Annual
General Meeting.
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 interim and annual
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, to ensure that investors remain updated
regularly on progress in the business. The interim results and Annual
Report, 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.
There have been no material votes against recommended
resolutions at recent Annual General Meetings. The Board would,
wherever practicable, seek to ensure that shareholder views were
canvassed on any unusual or potentially controversial proposals.
That said, if there were any significant vote against a proposal, the
Board would take action to understand the reasons behind that vote
and explain the same to shareholders, in line with the 2018 Code
principles.
Annual Report and Financial Statements 2019 77
| Strategic Report | Corporate Governance | Financial Statements Statement of Corporate Governance
continued
Statement of Corporate Governance
continued
DIVISION OF RESPONSIBILITIES
EXAMPLES OF BOARD RESERVED MATTERS*
There is a clear division of responsibilities between the Board, its
Committees and the Senior Management Team. The Delegated
Authorities Policy reserves certain matters for the Board. It also
ensures that operational decisions are made at the most appropriate
level in the business. It is reviewed annually. The Board has
delegated certain responsibilities to the Remuneration, Audit,
Nomination and Disclosure Committees. The terms of reference of
those Committees are reviewed annually and appear on the website:
https://harworthgroup.com/investors/governance/.
The Chief Executive has responsibility for proposing and then
implementing the Company’s strategy and leading the day-to-day
management of the business, with the agreement of the Board on
reserved matters. He appoints the Investment Committee and
Management Board (together, the Senior Management Team) to
support him in this regard.
Approval of
acquisitions,
joint ventures
and other major
transactions
Changes to
constitution
or to capital
or corporate
structure
Remuneration
of Executive
Directors and
Investment
Committee
Setting strategy
and approval of
annual budget and
strategic plan
Board
appointments;
external
appointments of
Directors
Approval of
accounts, financial
reporting and
dividends
Changes to Group-
wide benefits,
employee terms
and certain policies
Placement
and renewal
of insurance
programme
Issue or settle
significant legal
proceedings
*Responsibility for some of these matters is delegated to the Committees, as
outlined on pages 79
NOMINATION
COMMITTEE
CEO
CFO
REMUNERATION
COMMITTEE
INVESTMENT COMMITTEE
MANAGEMENT
BOARD
AUDIT
COMMITTEE
DISCLOSURE
COMMITTEE
78 Harworth Group plc
BOARD The key responsibilities of the Board, Committees and roles are summarised in the table below.
Board
*See pages 74 and 75 for membership
•
•
•
•
•
•
•
Establishes Harworth’s purpose and helps to formulate a strategy for achieving it.
Stewardship of resources to ensure long-term and sustainable success.
Constructive challenge to the Executive Directors on matters referred to the Board.
Approval of significant transactions and other operational decisions.
Scrutinises the performance of the business against the strategy, agreed objectives and
targets.
Determines risk appetite and monitors risk management and internal controls.
Ensures an appropriate governance framework operates to support implementation of the
strategy.
• Oversight of health and safety management and reporting.
•
•
Approval of interim and annual financial results.
Dividend policy.
• Oversight of investor relations programme and messaging.
•
•
•
•
Promotes a culture that is aligned the Company’s purpose and strategy.
Ensures appropriate engagement with employees, the communities around Harworth’s
projects and other key stakeholders.
Ensures there is appropriate regard for the impact of Harworth’s projects and activities on
the environment and key stakeholders.
Reviews the Group’s whistleblowing procedures and the appropriate investigation of
cases referred through the process.
Nomination Committee
•
Reviews the size, composition and balance of the Board and its Committees.
Alastair Lyons (chair)
Andrew Cunningham
Angela Bromfield
Audit Committee
Andrew Cunningham (chair)
Ruth Cooke
Angela Bromfield
Remuneration Committee
Lisa Clement (chair)
Alastair Lyons
Angela Bromfield
• Oversight of succession planning for the Board and Investment Committee.
•
Leads the process for Board appointments.
• Oversight of progress in improving diversity across the business.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Reviews proposals for external appointments of Directors.
Reviews the integrity of the annual report, preliminary and interim results announcements
and any other announcements relating to financial performance.
Reviews the effectiveness of internal controls and processes.
Reviews the insurance programme.
Reviews the terms of appointment, independence, effectiveness and remuneration of the
external auditors and leads any tender process for the appointment of external auditors.
Reviews the effectiveness of and compliance with policies and procedures for promotion
of financial security and business ethics and the prevention of bribery and modern slavery.
Reviews ongoing compliance with the GDPR.
Ensures effective policy and procedures are in place for the detection of fraud and the
prevention of bribery.
Reviews the effectiveness of the cyber and information security strategy and measures,
and of business continuity plans and procedures.
Determines and agrees with the Board the 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 under the Save-As-You-Earn Scheme and Share Incentive Plan.
Undertakes an annual review of benefits available to all employees.
Responsible for changes to certain employment policies.
Annual Report and Financial Statements 2019 79
| Strategic Report | Corporate Governance | Financial Statements Statement of Corporate Governance
continued
•
Ensures compliance with disclosure obligations under the Market Abuse Regulation and
the FCA’s Listing Rules and Disclosure Guidance and Transparency Rules.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Leads the Board and is responsible for its overall effectiveness by facilitating a culture of
openness and debate.
Ensures that Harworth has a defined purpose and clear strategy and objectives.
Ensures that a fixed schedule of matters is maintained for the Board’s review and approval.
Sets the annual programme and meeting agendas.
Facilitates a constructive relationship between the Non-Executive Directors and the
Investment Committee.
Ensures that the Board receives regular reporting on performance.
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 key stakeholders, that there is appropriate engagement
with them, and their interests are considered when decisions are made.
Ensures that the effectiveness of the Board is subject to annual evaluation including an
external evaluation every three years.
Leads on the formulation of strategy which, once agreed by the Board, falls to the CEO to
implement.
Leads the establishment and maintenance of Harworth’s culture.
Responsible for the design of Harworth’s operational structure.
Responsible for formulation and implementation of Harworth’s People Strategy and for
effective internal communications.
•
Leads and chairs the Investment Committee and Management Board.
• Oversight of risk management, including health and safety.
•
•
•
•
•
•
•
•
•
•
Ensures that the Board is appraised of all material matters and that Board decisions are
implemented.
Responsible for Harworth’s relationships with shareholders and for effective engagement
with key stakeholders.
Leads on M&A and portfolio acquisitions.
Leads on all financial matters, including tax and treasury.
Responsible for preparing the annual budget and strategic plan.
Responsible for all statutory financial reporting, including the preparation of the interim
and year-end financial statements.
Responsible for raising new equity and debt capital.
Leads on investor relations and for designing the communication of performance to
investors.
Responsible for the financial analysis of all major transactions including acquisitions, sales
and capital investments.
Responsible for ensuring clear, effective, and timely measurement and reporting of
financial and non-financial key performance indicators to the Board.
•
Responsible for internal financial controls, systems and processes.
Disclosure Committee
Kitty Patmore (chair)
Owen Michaelson
Chris Birch
Chair of the Board
Alastair Lyons
Chief Executive Officer
Owen Michaelson
Chief Financial Officer
Kitty Patmore
80 Harworth Group plc
Chief Operating Officer
Ian Ball
Senior Independent Director
Lisa Clement
Group General Counsel and Company
Secretary
Chris Birch
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Responsible for all operational matters and the effectiveness of Harworth’s regional
structure.
Ensures there are appropriate resources across the business to implement the strategy.
Leads the year-end valuation process.
Provides a sounding board for the Chair.
Acts, where appropriate, as an interlocutor between the Chair and other Non-Executive
Directors.
Available to shareholders as an alternative point of contact.
Leads the process for appointing a new Chair.
Leads the annual appraisal of the Chair’s performance.
Secretary to the Board and its Committees and to the Investment Committee.
Ensures that all Board reserved matters are referred to the Board for review and approval.
Advises on regulatory compliance and corporate governance.
Leads on risk management.
Prepares Board and committee agendas and collates and distributes papers.
Available to advise the Directors on all legal and compliance matters.
Leads on inductions and continuous professional development for Directors.
Responsible for governance, both at Board and operational levels, including non-financial
internal controls, systems and processes.
Responsible for insurance, cyber and information security, business continuity planning
and GDPR compliance.
Provides legal support on operational matters and manages legal panel.
• Manages the Estates Environment and Safety team.
Supports the Chief Executive Officer on the formulation and implementation of the
strategy.
Responsible for capital allocation and deployment.
Undertakes a review of all material transactions before they are presented to the Board for
approval.
Reviews the performance of the business against agreed key performance indicators.
Provides leadership of each operating division and function.
Ensures effective communication and collaboration between all operating divisions and
functions.
•
•
•
•
•
•
Investment Committee
Owen Michaelson (chair)
Kitty Patmore
Ian Ball
Peter Henry (Regional Director)
Steven Knowles (Regional Director)
David Cockroft (Regional Director)
Richard Bousfield (Head of Income)
Tim Love (Director, Central Services)
Secretary: Chris Birch
Attendee: Jenny Cutler (Director of Finance)
Management Board
*As for Investment Committee above plus:
Catherine Macdonald (Head of HR and
Organisation Development)
John Hind (Associate Director, Estates
Environment and Safety)
Chris Warren (Natural Resources)
Andrea Morley (Business Space)
Iain Thomson (Head of Communications
and IR)
*The table above reflects roles and membership of Committees as at the date of this Annual Report. Changes which were effected during 2019 or the early part of 2020, or
which are planned in 2020, are identified in the Committee reports.
Annual Report and Financial Statements 2019 81
| Strategic Report | Corporate Governance | Financial Statements
Statement of Corporate Governance
continued
BOARD ACTIVITIES IN 2019*
*The table below excludes the transactions reviewed by the Board during the year
KEY
STRATEGY
OPERATIONS
GOVERNANCE
FINANCE
STAKEHOLDERS
RISK
BOARD
PEOPLE
January
Annual health and safety review
Annual review of risk appetite and review of risk profile and management
FYE’18 preliminary review of investor messages
Appointment of Ruth Cooke and Angela Bromfield
North West regional update
FYE’18 preliminary results and final dividend
February
Yorkshire and Central regional update
Review of whistleblowing policy and reports
March
FYE’18 Annual Report
Midlands regional update
Project review: Waverley
Investor feedback from preliminary results roadshow
Employee AGM
May
Review of employee engagement and annual employee survey results
Share price and share register analysis
Business Space and Natural Resources divisional update
People Steering Group
CPD update
April
FYE’19 reforecast
Harworth Values
Talent Management and People Development
North East regional update
Review of risk profile and management
June
Project review: Riverdale Park
North West regional update
People Steering Group
Modern slavery statement
July
FYE’19 reforecast
FYE’19 interim results: preliminary review
Share price and share register analysis
Update on implementation of external Board evaluation recommendations
FYE 2019 interim results: final sign-off
September
Project review: Northern Gateway
Business Space and Natural Resources divisional update
Update on IT strategy
Angela Bromfield – external appointment
82 Harworth Group plc
October
Budget and strategic plan
2020 investor relations plan
Appointment of external auditor
Key areas of focus in 2020
Strategy Day
Annual stakeholders review
Yorkshire and Central regional update
Annual review of Delegated Authorities Policy
Share price and share register analysis
Alastair Lyons: external appointment
Succession planning – Investment Committee
People Steering Group
November
Response to COVID-19
Succession for Owen Michaelson
Purpose and sustainability
Succession for Lisa Clement
Employee engagement
Stakeholders
External appointments
Upon appointment, each Director is required to notify the Company Secretary 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, this is
reviewed first by the Nomination Committee which, having considered the time commitment and potential conflicts of interest, makes a
recommendation to the Board. The Board makes a final decision on all new external appointments.
Conflicts of interest
Each Director can disclose actual or potential conflicts of interests, 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 relevant subject matter.
Martyn Bowes is a Board representative of the Pension Protection Fund. The Board has approved any actual or potential conflicts of interest
that arise as a result.
Steven Underwood was, but is no longer, a Board representative of the Peel Group (see the Nomination Committee Report on page 90).
However, he remains Chief Executive of the Peel Group and is an Executive Director of certain Peel Group companies which may deal with
Harworth at an operational level from time to time. Steven Underwood has previously declared by way of general notice, and the Board has
approved, a potential conflict of interest in that regard. During 2019 Harworth, via its joint venture with Evans Property Group, sold a parcel of
land at the Gateway 45 site to PLP, a joint venture in which Peel Group holds a minority stake. This represented an actual conflict of interest for
Steven 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 Cunningham has previously declared by way of general notice, and the Board has approved, potential conflicts of interest arising from
his appointment as a Non-Executive Director of The Banks Group. Before Andrew joined the Board, Harworth entered into a small joint
venture with The Banks Group. No decision on that joint venture has been referred to the Board since Andrew’s appointment. During 2019
Harworth acquired one parcel of land from The Banks Group. These acquisitions 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 these matters.
Owen Michaelson has previously declared by way of general notice, and the Board has approved, potential conflicts of interest arising from
his appointment as a member of the Board of the Sheffield City Region Local Enterprise Partnership. No conflicts arose as a result of this
appointment during 2019.
Annual Report and Financial Statements 2019 83
| Strategic Report | Corporate Governance | Financial Statements Statement of Corporate Governance
continued
Induction and ongoing support
Inductions
The Company Secretary oversees the delivery of a comprehensive and tailored induction programme for all new Directors. Inductions were delivered
for Ruth Cooke, Angela Bromfield and Kitty Patmore when they joined the Board in March, April and October 2019 respectively. This included:
• provision of a detailed induction pack ahead of their appointments
•
taking effect;
• briefings from the Chief Executive, Chief Financial Officer (the
Director of Finance in Kitty’s case), Chief Operating Officer and
Company Secretary;
• a series of one-to one meetings with members of the Senior
Management Team;
• meetings with PricewaterhouseCoopers LLP, the incumbent external
auditor;
in Kitty’s case, a programme of introductory meetings with our
largest shareholders and meetings with our other external advisers,
including BNP Paribas (valuers), Deloitte (tax and remuneration
advisers) and DLA (corporate legal advisers);
• site visits; and
•
in both Kitty’s and Ruth’s case, a briefing from DLA on the duties of
directors of companies with a premium listing.
Knowledge of business and markets
To give constructive challenge and support to the Investment Committee, all Non-Executive Directors must maintain a good knowledge and
understanding of Harworth’s business and the markets in which it operates. To that end, the Board timetable includes:
• site visits, which help to improve knowledge and understanding of
• annual health and safety updates from the head of our Estates
key sites and, at the same time, are an opportunity for Non-Executive
Directors to get to know better our operational teams;
Environment and Safety division (supplemented by monthly updates
included in each Board pack); and
•
regular updates from each of the regional teams and the Income
Generation division, focusing on progress against strategic
objectives.
Ongoing support and CPD
All Directors have access to the advice and services of the Company Secretary who also facilitates the continuous professional development (CPD) of
all Directors. To that end:
• Board packs include external CPD briefings for Directors,
with a short synopsis prepared by the Company Secretary;
• external advisers host CPD workshops for the Board and
Committees annually;
•
the Company Secretary provides written and verbal updates to the
Board and its Committees, as appropriate, on governance and
regulatory changes; and
• Directors are made aware of, and have the opportunity to attend,
external CPD updates.
Board and Committee meetings
Alastair Lyons
Owen Michaelson
Kitty Patmore (joined 1 October 2019)
Lisa Clement
Andrew Cunningham
Ruth Cooke (joined 16 March 2019)
Angela Bromfield (joined 1 April 2019)
Steven Underwood
Martyn Bowes
Andrew Kirkman (left 30 June 2019)
Anthony Donnelly (left 30 Sep 2019)
NomCo
1/1
1/1
1/1
Board
11/11
11/11
2/2
10/11
11/11
6/8
6/8
10/11
11/11
7/7
8/9
Meetings attended
RemCo
4/4
4/4
2/2
2/2
AuditCo
4/4
3/3
2/3
1/1
3/3
3/3
*There were 10 regular Board meetings scheduled during 2019 and one additional meeting held by conference call in May. There were also Board calls to sign-off the 2018
preliminary results and 2019 interim results, site visits and a Strategy Day offsite during the year, which are not reflected in the table above.
84 Harworth Group plc
Board and Committee papers are circulated not less than one full week prior to each meeting. The papers include monthly reports from the
Chief Executive, Chief Financial Officer and Company Secretary.
The Company Secretary maintains “Action Schedules” for the Board and each Committee which record action points agreed at each meeting.
That schedule, together with the minutes of each meeting, are reviewed by the Chair of the Board or the relevant Committee (as appropriate)
and then, at the following Board or Committee meeting, the wider Board or Committee (as appropriate).
Board evaluation
2018/2019
externally
facilitated
evaluation
2019/2020
internal review
2020/2021
internal review
2021/2022
next externally
facilitated
evaluation
The Board undertakes annual evaluations of its effectiveness and the contribution of individual Directors. The Company aspires to
membership of the FTSE 250 and, as such, the Board considers it good practice to instruct an externally facilitated evaluation every three
years, as prescribed by the 2018 Code for FTSE 350 companies.
In the final quarter of 2018 an external evaluation process was led by Ian White. Information about Ian and the evaluation process he led were
included in the 2018 Annual Report. Below is a summary of the recommendations from the evaluation and the actions taken during 2019 to
implement them:
Recommendation
Action taken during 2019
Keep diversity - defined in its widest term - under regular review and
consider more innovative approaches to recruitment both at Board level
and below.
Material progress made on the Board’s gender balance during 2019.
Diversity review now a standing agenda on the Committee’s annual
timetable.
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 knowledge of the business
– this is especially important in respect of new Non-Executive Directors.
The Non-Executive Directors should meet alone on a pre-planned basis
where appropriate.
In Q1 of 2019, the Board and Investment Committee met to discuss their
respective roles and expectations and identified means of improving
engagement between the two functions. At least one Board dinner
each year is set aside for the Board and Investment Committee to meet
informally. A collaborative review of purpose and strategy was undertaken
at the annual Strategy Day in October.
See the Strategic Report (pages 56 and 57).
It has been agreed that Non-Executive Directors will advise the Chair when
they consider there is a topic that merits NED-only consideration. Certain
matters were considered in this manner during 2019. Non-Executive
Directors meet once a year without the Executive Directors being present.
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 Chair’s performance.
The Board should keep the number of Board Meetings held in the annual
cycle, previously 11, under review.
Annual cycle reduced to 10 meetings.
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.
Communication of the Committees should be enhanced to ensure all
Board members are kept fully informed on their work.
Succession planning should be a high priority on the Board and
Nomination Committee’s agenda.
See Corporate Governance Statement (page 76).
Committee minutes are now included in the Board supplementary pack.
The Board agenda now includes “Committee updates” as a standing
agenda item.
Succession successfully executed (appointments of Ruth Cooke, Angela
Bromfield and Kitty Patmore) and planning initiated (ahead of Lisa
Clement’s retirement). Succession planning for the Board and Investment
Committee reviewed by the Committee annually. Talent and development
management of the wider business reviewed by the Board annually.
Annual Report and Financial Statements 2019 85
| Strategic Report | Corporate Governance | Financial Statements Statement of Corporate Governance
continued
The Chair has conducted an internal evaluation of the Board, its Committees and individual Directors. This took the form of online
questionnaires completed by all Directors, with responses collated to inform one-to-one meetings between the Chair and each Director. The
findings were reported to the Board in February with actions agreed for implementation in 2020. Some examples of the agreed actions are
listed below.
Theme
Actions agreed
2019/2020 internal evaluation
Transaction appraisals
Transaction appraisals presented to the Board should include an assessment of strategic fit (including fit with the
profile of the wider portfolio – see below), the sustainability of the project and its contribution to delivery against
our purpose.
Portfolio analysis
A review of our portfolio, its characteristics and fit to strategy should be undertaken and considered by the Board
every 6 months.
Reserved matters
The Board reserved matter levels should be reviewed for sales and lettings, with a view to their being increased.
Finance reporting and KPIs
The financial reporting to the Board should be updated, to make it more relevant to the Board’s level of oversight.
The financial and commercial KPIs reported to the Board should also be further developed, to track better both
annual and medium-term progress against strategic objectives.
Meetings
Resourcing
Business Unit updates
Board interaction with
stakeholders
Corporate purpose and
sustainability
The number of Board meetings should remain subject to review. Hosting more Board meetings in the regional
offices should be explored. Meetings of the principal committees – Audit / Remuneration - should, as a general
rule, take place on separate days to Board meetings, except where Committee agendas are particularly light.
An assessment of human resourcing and supporting IT systems should form part of the appraisal of the strategic
plan each year.
Business unit updates should include both an assessment of the local market and a review of one Major
Development project and/or one acquisition site as it moves through planning promotion and placemaking.
The prospect of inviting external stakeholders to Board site visits and dinners held in the regions should be
explored.
The management team should lead a discussion to identify and agree our desired sustainability outcomes, how
performance will be measured and what data would best evidence delivery.
An evaluation of the Chair’s performance is led annually by the Senior Independent Director. In addition to the feedback given on the Chair’s
leadership during the external Board evaluation, the Senior Independent Director and other Non-Executive Directors met in March 2019 to
review his performance. Following that review, the Senior Independent Director considered and discussed with the Chair the comments and
feedback that had been received from the Directors and was able to confirm that the performance of the Chair was considered effective and
that he continued to demonstrate appropriate commitment to his role.
The Chair, taking into account the views of the other Directors, reviews the performance of the Chief Executive annually.
The Chief Executive appraises the performance of the members of the Investment Committee twice a year.
86 Harworth Group plc
Annual General Meeting
Typically, the Notice of Annual General Meeting (AGM) is sent to shareholders at least 20 working days before the meeting. This year we have
not been able to meet that deadline due to the practical constraints caused by the COVID-19 pandemic but we have given shareholders 21
clear days’ notice of the AGM in accordance with the Companies Act 2006.
Whilst shareholders must not attend the 2020 AGM due to the restrictions on movement and public gatherings currently in place to respond
to the COVID-19 pandemic, the Board encourages shareholders to exercise their right to vote at the AGM by appointing the Chair of the
meeting as their proxy and directing him or her how to vote on each resolution. The resolutions to be proposed at the 2020 Annual General
Meeting, together with the explanatory notes, appear in the separate Notice of Annual General Meeting (Notice) accompanying this Annual
Report. The Notice is also available on our website.
Separate resolutions are proposed on each substantially separate issue. 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, will be
made available on our website. A vote withheld will not be counted in the calculation of the proportion of the votes for and against a
resolution.
If any shareholder had intended to ask a question in person at the AGM, we encourage them to email their question to investors@
harworthgroup.com to which we will respond in writing.
Alastair Lyons
Chair
4 June 2020
Annual Report and Financial Statements 2019 87
| Strategic Report | Corporate Governance | Financial Statements Nomination Committee Report
Nomination Committee Report
Committee members
Alastair Lyons (Chair)
Andrew Cunningham
Angela Bromfield
The terms of reference of the Nomination Committee are on the Company’s
website: https://harworthgroup.com/investors/governance/
Dear Shareholder,
Membership and meetings
I am pleased to report to shareholders on the work of the Nomination
Committee during the year ended 31 December 2019.
Introduction
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.
When necessary, the Committee leads the process for recruitment
and appointment to the Board. Typically, this includes a series of
formal and informal meetings (in addition to those scheduled during
the year) at which candidates are appraised before a
recommendation is made to the Board.
The Committee’s terms of reference were updated during the year to
take account of the 2018 UK Corporate Governance Code (2018
Code). Throughout 2019 the Committee has acted in accordance
with the principles of, and fulfilled its obligations under, the 2018
Code.
Membership and attendance at meetings in 2019 are shown below:
During 2019, the Committee comprised three independent
Non-Executive members. I chaired the Committee and its other
members were Lisa Clement and Andrew Cunningham. Given that
the appointment of Lisa’s successor is a priority for 2020 (see below),
the Board decided that Angela Bromfield, who is also an
independent Non-Executive Director, would replace Lisa on the
Committee with effect from 1 January 2020.
During the year, there was a scheduled meeting in October at which
the Committee considered: the composition of the Board and its
Committees, succession planning for Lisa Clement, and diversity
across the business. There were unscheduled meetings of the
Committee held to find a successor for the role of Chief Financial
Officer following Andrew Kirkman’s resignation in April 2019,
culminating in the appointment of Kitty Patmore, which was
announced in August 2019.
Independent
Committee tenure at
31 December 2019
Scheduled meetings attended/
eligible to attend
Alastair Lyons
Lisa Clement*
Andrew Cunningham
Chair
Member
Member
Yes
Yes
Yes
1 year 10 months
8 years 1 month
3 years 9 months
1/1
1/1
1/1
*Lisa was replaced by Angela Bromfield on 1 January 2020 (see below)
88 Harworth Group plc
The key activities of the Committee during 2019 and its priorities for 2020 are shown below:
The Committee’s key activities in 2019
Recruitment
Board composition and succession
Diversity
January
Appointment of Ruth Cooke and Angela Bromfield to the Board as Non-Executive Directors and consequential changes to Committee
membership.
July
Recruitment of Kitty Patmore as Chief Financial Officer.
October
Succession planning for Lisa Clement’s retirement in September 2020.
Review of Board composition including Steven Underwood’s re-election in his personal capacity following the material reduction in Peel
Group’s shareholding as a consequence of which their right to appoint a director ceased.
Review of succession plans for the Board and Investment Committee.
The Committee’s priorities for 2020
• Recruitment process, appointment and induction of a successor for Owen Michaelson.
• Recruitment process, appointment and induction of a successor for Lisa Clement, together with implementation of wider succession plans
(appointment of new Senior Independent Director and changes to Committee membership).
• Ongoing review of Board composition and of succession planning for the Board and Investment Committee.
• Ongoing review of diversity.
Board and Committee composition, succession planning and recruitment
The Board comprises the Chair, who is considered independent, the Chief Executive, the Chief Financial Officer and six Non-Executive
Directors.
Analysis of the composition of the Board and Investment Committee (at 31 December 2019) is shown below. The Directors’ biographies
appear on pages 74 and 75.
Board
Composition
Composition
Age
Age
Tenure
Tenure
30-40 years
41-50 years
51-60 years
61-70 years
Less than 1 year
1-3 years
3-6 years
6-10 years
Age
Tenure
Chair (independent)
Executive Directors
Independent Non-Executive Directors
Non-Executive Directors (not independent)
30-40 years
41-50 years
51-60 years
61-70 years
Less than 1 year
1-3 years
3-6 years
6-10 years
Annual Report and Financial Statements 2019 89
| Strategic Report | Corporate Governance | Financial Statements
Nomination Committee Report
continued
Nomination Committee Report
continued
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Individual tenures
Alastair Lyons:
Owen Michaelson:
Kitty Patmore:
Lisa Clement:
Andrew Cunningham:
Ruth Cook:
Angela Bromfield:
Steven Underwood:
Martyn Bowes:
*Martyn Bowes is the representative of the Pension Protection Fund, which holds 25% of the Company’s shares, and is not, therefore, independent. Steven Underwood
was, but is no longer, the representative of the Peel Group, which also has a material shareholding. Having previously been a representative Director and still being
connected to a material shareholder, Steven is not considered independent. The Committee has recommended to the Board, and the Board supports, Steven’s
re-election at the 2020 Annual General Meeting. The rationale for that support is explained below.
Investment Committee*
Age
Age
Tenure
Tenure
30-40 years
41-50 years
51-60 years
2
5
3
0-1 years
1-2 years
3-6 years
6+ years
2
2
3
3
*Includes Executive Directors, Company Secretary (as secretary to the Investment Committee) and Director of Finance (permanent attendee)
The composition of the Board and its Committees is reviewed regularly by the Committee to ensure that, in each case, membership comprises
an appropriate balance of skills, knowledge, and experience and includes the right number of independent Directors.
Board and Committee composition was reviewed by the Nomination Committee in October 2019, having regard to the appointment of Ruth
Cooke and Angela Bromfield earlier in the year (see below) and the anticipated retirement of Lisa Clement at the end of September 2020 (see
below).
That review included a thorough evaluation of Steven Underwood’s ongoing membership of the Board. Whilst Peel Group held more than
25% of the Company’s shares, Steven was its representative on the Board, pursuant to a relationship agreement dated 7 August 2013. During
2019, Peel Group sold a significant proportion of its shares in the Company with the result that the relationship agreement ceased to have
effect and, accordingly, Peel Group is no longer entitled to appoint a representative Director to the Board. That notwithstanding, the
Committee recognised Steven’s extensive real estate sector experience and financial background, and the extremely valuable contribution he
makes to the Board, such that it recommended to the Board, and the Board supports, Steven’s re-election at the 2020 Annual General
Meeting. With effect from 1 January 2020, Steven’s appointment is subject to a new service agreement, on terms identical to those of our
independent Non-Executive Directors, including a rolling annual tenure subject to annual re-election at the Annual General Meeting.
Having regard to all the above-mentioned matters, the Board considers that the composition of the Board is appropriately balanced.
Membership of the Committees is also compliant with the 2018 Code (as to which see the Corporate Governance Statement, page 76). The
Non-Executive Directors 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 116.
90 Harworth Group plc
Succession – Executive Directors
Succession – Non-Executive Directors
The Committee undertakes a regular (typically annual) review of the
succession plans for the Executive Directors.
On 1 April 2019, Andrew Kirkman (then Chief Financial Officer)
notified the Board of his resignation, which took effect on 30 June
2019. Following receipt of that notice, there followed a series of
unscheduled meetings of the Committee to initiate a previously
agreed succession plan for the role.
The Company appointed Spencer Stuart to conduct a search and
recruitment process. The Company does not retain Spencer Stuart in
any other capacity and it has no other connection with the Company.
In conjunction with Spencer Stuart and the Chief Executive, the
Nomination Committee prepared the selection criteria and
specifications for the role.
Spencer Stuart identified a “long-list” of candidates. Following a
review of that “long-list” by the Committee and the Chief Executive
Officer and a meeting with Spencer Stuart, a “short-list” of
candidates was identified. Spencer Stuart interviewed and provided
feedback on all “short-list” candidates, resulting in a refined
“short-list”. The Committee and Chief Executive interviewed all these
candidates pursuant to which they identified a preferred candidate
who then met with the other Non-Executive Directors and the Chief
Operating Officer.
This process culminated in the Committee recommending, and the
Board resolving to make an offer, to Kitty Patmore for the role. Upon
Kitty accepting the offer and the Board taking up references, her
appointment was announced on 6 August 2019. It took effect on 1
October 2019.
Between 30 June 2019, when Andrew left the business, and 1
October 2019, when Kitty joined, Jenny Cutler undertook the role of
interim Chief Financial Officer. Jenny was previously our Group
Financial Controller and, following Kitty’s appointment, has been
promoted into a wider and more senior role, that of Director of
Finance, which reflects a revised operational structure for the
Finance team.
Kitty has participated in a comprehensive and tailored induction
programme, details of which are set out in the Corporate
Governance Statement on page 84.
On 17 March 2017, alongside our preliminary results, we announced
that Owen Michaelson will be retiring as Chief Executive on 31
December 2020. The Committee has initiated a search and
recruitment process for Owen’s successor for which it has engaged
Thomas Cole Kinder. The Company does not retain Thomas Cole
Kinder in any other capacity and it has no other connection with the
Company. The Company will make an announcement as soon as
Owen’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 2020.
Ruth Cooke and Angela Bromfield were appointed as Non-Executive
Directors in March and April 2019 respectively. These appointments
represented the culmination of planning and recruitment undertaken
by the Committee in 2018 to: appoint a successor for Tony Donnelly,
who retired in September 2019 after serving on the Board for 9
years; and to ensure that the composition of the Board is compliant
with changes introduced by the 2018 Code, which prescribes for all
companies that at least half of the Board, excluding the Chair, be
independent. Details of the process undertaken to recruit Ruth and
Angela, including the appointment of Warren Partners to assist in the
search, were given in the 2018 Annual Report. Following their
appointments, Ruth and Angela have participated in comprehensive
and tailored induction programmes, details of which are set out in
the Corporate Governance Statement on page 84.
At the end of 2020, Lisa Clement will cease to be independent under
the 2018 Code, having served for 9 years on the Board, and she will,
therefore, retire at the end of September this year. That being so, in
October the Committee began to plan for Lisa’s succession. Given
that it would be inappropriate for Lisa to participate in the
identification of her successor, and this would be a priority for the
Committee in 2020, the Committee recommended to the Board,
and the Board approved, the appointment of Angela Bromfield to
the Committee in Lisa’s place, with effect from 1 January 2020. The
Committee also recommended to the Board, and the Board
approved: the appointments of Andrew Cunningham as Senior
Independent Director and Angela Bromfield as Chair of the
Remuneration Committee, in succession to Lisa and with effect from
1 October 2020. The Committee has also recommended that Lisa’s
appointed successor as Non-Executive Director, be appointed both
to the Remuneration and Audit Committees, subject to the
successful candidate having the appropriate skills, knowledge and
experience. The Board is supportive of this recommendation, which
would also enable Angela Bromfield to step-down from the Audit
Committee so that she can commit the appropriate time to her new
roles as Chair of the Remuneration Committee and member of the
Nomination Committee.
In January, the Company 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. That process is progressing well and we will
announce the appointment of Lisa’s successor in due course, with
the intention that the appointment be made in good time ahead of
Lisa’s retirement to facilitate a transition. Full details of the process
undertaken to recruit Lisa’s successor will be given in the 2020
Annual Report.
Annual Report and Financial Statements 2019 91
| Strategic Report | Corporate Governance | Financial Statements Nomination Committee Report
continued
Investment Committee
Diversity and equal opportunities
Succession plans are in place for each member of the Investment
Committee and those plans are reviewed regularly (typically
annually) by the Committee and the Board. Talent management and
succession planning for the whole business is considered annually
by the Investment Committee and then by the Board.
External appointments
The Committee reviews all proposals for external appointments of
Executive and Non-Executive Directors. Before making a
recommendation to the Board, the Committee considers the time
commitment required by the proposed appointment and its likely
impact on the prospective appointee’s commitment to his or her role
at Harworth, together with the prospect of conflicts of interest
arising. The Board makes a final decision on all new external
appointments.
The Board recognises the benefit of a diverse (in its widest sense)
Board and workforce comprising individuals with different
backgrounds, experience, perspectives and ideas. Like much of the
real estate and construction sectors, achieving that objective is a
significant challenge, but we are committed to it.
The Committee takes the lead in monitoring the effectiveness of the
initiatives we have introduced to improve diversity, and the progress
we are making. A review is undertaken annually, the results of which
are reported to the Board.
We took our first steps on this in 2017 by undertaking and publishing
our gender pay gap analysis, despite not being obliged to do so.
Whilst this demonstrated the extent of the challenge we face, the
Board felt that it was important to have a transparent benchmark
against which to measure our progress. We have published the same
analysis again below and over the page, alongside the comparative
results for 2018.
Proportion of men & women in each quartile band
Males
Females
Lower
Lower middle
Upper middle
Upper quartiles
2019
64%
36%
2018
60%
40%
2019
53%
47%
2018
53%
47%
2019
83%
17%
2018
94%
6%
2019
88%
12%
2018
90%
10%
Board succession in 2019 and H1 2020
APRIL 2019
Andrew Kirkman resigns
Recruitment process to appoint two
new Non-Executive Directors,
supported by Warren Partners
Recruitment process to appoint new CFO,
supported by Spencer Stuart
2019
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
MARCH 2019
Appointment of
Ruth Cooke
APRIL 2019
Appointment of
Angela Bromfield
92 Harworth Group plc
Gender pay gap analysis
Median
bonus
gender
pay gap
Mean
bonus
gender
pay gap
Median
gender
pay gap
Mean
gender
pay gap
81%
84%
64%
67%
37%
32%
45%
19%
2018
2019
There have been material reductions in our gender pay gap during
2019 across all measures. There have also been promotions of
female colleagues into more senior positions in the business. This is
encouraging, but we recognise that there is much more to do to
improve female representation at a senior level.
Since 2017 we have applied more rigour to our efforts in promoting
and monitoring diversity, including the following:
•
•
•
•
in 2018 we adopted 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;
diversity is an active and important consideration in the
Committee’s succession plans for the Board and Investment
Committee: this is evident from recent appointments to the
Board;
whilst appointments will always be based on merit, Harworth is
committed to giving everyone, regardless of gender, ethnicity,
sexuality or background, every opportunity to apply for, and be
appointed to, roles across the business and, as such, the desire
to encourage diversity is a prominent consideration when we
are recruiting for all roles. To that end, the requirement for
diversity is a pre-condition of candidate long-lists prepared by
recruitment consultants for all roles;
during 2019, we upgraded our IT servers, fleet of laptops and
office IT infrastructure and introduced a video conferencing
facility on all laptops, to promote “hot-desking” and remote,
flexible working; and
SEPTEMBER 2019
Tony Donnelly retires
MARCH 2020
Owen Michaelson announces retirement
SEP
OCT
NOV
DEC
JAN
FEB
MAR
APR
Recruitment process to appoint
Lisa Clement’s successor
Recruitment process
to appoint
Owen Michaelson’s successor
OCTOBER 2019
Appointment of Kitty Patmore
JANUARY 2020
Angela Bromfield replaces
Lisa Clement on Nomination Committee
Annual Report and Financial Statements 2019 93
| Strategic Report | Corporate Governance | Financial Statements Nomination Committee Report
continued
•
we have introduced a Talent Development Programme which
we hope will be instrumental in encouraging a diverse mix of
candidates.
•
6 of our employees (8%) work part-time, whether that be a
reduced number of days or reduced hours every day, including
1 member of our Management Board.
These measures complement some other initiatives which have been
in place for some time 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, which are scheduled for a detailed review in 2020; and
We took some positive steps forward in 2019 which are summarised
below. The highest profile changes were to the Board’s gender
balance, but we also made progress on gender diversity across the
wider business. We recognise that with a small team and relatively
low staff turnover (itself a positive), meaningful improvements will
take time, but are pleased with the direction in which we are headed.
Progress in 2019
Board gender balance
Female
Male
Investment Committee
Female
Male
2018
2019
2018
2019
Management Board
Female
Male
Wider workforce
Female
Male
* Includes Executive Directors, Company Secretary and
Director of Finance (attendee)
2018
2019
2018
2019
* Includes Investment Committee
* Excludes Management Board
*For consistency, where comparisons are given between 2019 and 2018, in each case the position reflected is at 31 December.
94 Harworth Group plc
Recruitment into new roles
Annual General Meeting
Female (4)
Male (9)
Promotions
Female (3)
Male (4)
All Directors are subject to annual re-election by shareholders. The
Directors’ biographies appear on pages 74 and 75. The Nomination
Committee has concluded that all Directors seeking election or
re-election continue to be effective and to demonstrate commitment
to their role. They have the requisite skills, knowledge and
experience to continue to discharge their duties effectively. The
Board considers that each Director provides valuable input to the
operation of the Board and that their contribution is important to the
Company’s long-term sustainable success, bringing a diverse range
of skills from different sectors and experience. As such, on the
recommendation of the Committee, the Board considers it
appropriate to propose and support the election and re-election of
those Directors seeking election or re-election at the 2020 Annual
General Meeting.
Recruitment into replacement roles
4 June 2020
Alastair Lyons
Chair of the Nomination Committee
Female (3)
Male (3)
It is important to stress that, whilst our desire to improve diversity will
be a consideration in decisions on recruitment and promotion,
selection continues to be based on merit and ability.
Equal opportunities for all
Since Harworth’s formation in 2012 we have been committed 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 and promotion within our business.
Annual Report and Financial Statements 2019 95
| Strategic Report | Corporate Governance | Financial Statements Audit Committee Report
Audit Committee Report
Committee members
Andrew Cunningham (Chair)
Ruth Cooke
Angela Bromfield
The terms of reference of the Audit Committee are on the Company’s
website: https://harworthgroup.com/investors/governance/
Dear Shareholder,
I am pleased to present the Audit Committee’s report for the year
ended 31 December 2019. It sets out the Committee’s
responsibilities, which extend to financial reporting, the external
audit and internal controls, and highlights the Committee’s activities
during 2019 and priorities for 2020.
The Committee’s terms of reference were updated during the year to
take account of the 2018 UK Corporate Governance Code (2018
Code). Throughout 2019 the Committee has acted in accordance
with the principles of, and fulfilled its obligations under, the 2018
Code and had regard to the FRC’s Guidance on Audit Committees.
Membership and meetings
There were some changes to the Committee’s membership during
2019. Ruth Cooke and Angela Bromfield joined the Committee when
they were appointed to the Board in March and April 2019,
respectively, enabling Steven Underwood, who is not independent,
to step down. Tony Donnelly continued as a member of the
Committee until his retirement from the Board at the end of
September 2019. As such, at the date of this report, the Committee
comprised three independent Non-Executive members As explained
in the Nomination Committee report (page 91) it is anticipated that
Angela Bromfield will be replaced on the Committee by Lisa
Clement’s successor as Non-Executive Director, when appointed,
subject to their having the appropriate skills, knowledge and
experience.
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 is 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 Marshalls plc, a
premium-listed FTSE company. The Board is also satisfied that the
Committee has competence relevant to the real estate sector, given
that two members hold (or have held) senior positions in businesses
operating in that sector. The experience of each member of the
Committee is summarised on page 75.
During the year, the Committee held four scheduled meetings. The
Committee also undertook reviews of the draft Annual Report in
March and of external audit tender proposals in October. The Chair
of the Board, Chief Executive Officer, Chief Financial Officer and
external auditors are invited to attend meetings when appropriate.
96 Harworth Group plc
Membership and attendance at meetings in 2019 are shown below:
Independent
Committee tenure at
31 December 2019
Scheduled meetings attended/
eligible to attend
Andrew Cunningham
Steven Underwood*
Tony Donnelly*
Ruth Cooke*
Angela Bromfield*
Chair
Member
Member
Member
Member
Yes
No
Yes
Yes
Yes
3 years 9 months
8 years 8 months
8 years 9 months
10 months
9 months
4/4
2/2
3/3
3/3
2/3
*Steven Underwood stepped down in March 2019. Ruth Cooke and Angela Bromfield joined in March and April 2019. Tony Donnelly retired in September 2019.
The key activities of the Committee during 2019 and its priorities for 2020 are shown below:
The Committee’s key activities in 2019
Committee membership
Financial reporting
External audit
Risk and internal controls
February
FYE’18 preliminary results and investor presentation
Categorisation of properties: development vs. investment
Update on cyber and information security initiatives
March/April
FYE’18 Annual Report
June
Change of Committee members
FYE’18 external audit de-brief
FYE’19 external audit planning
Report on desktop test of Business Continuity Plan
Briefing on proposals for upgrade to financial accounting platform
Update on cyber and information security initiatives
September
FYE’19 interim results and investor presentation
External auditors’ feedback on audit and management (without management present)
October
November
External audit tender proposals
External audit appointment tender presentations and decision on appointment
Proposed fee for FYE’19 external audit
Internal controls and processes including KPMG report on external review of valuation process and review of the need for internal
audit function
2020 renewal of insurance programme
Update on cyber and information security initiatives
Annual review of GDPR compliance
Annual review of hospitality register
The Committee’s priorities for 2020
• Oversee the transition of the external audit
• Oversee the 2021 insurance programme renewal
• Monitor the maturity of the Group’s cyber and information security systems, including ongoing compliance with GDPR
• Oversee implementation of the Group’s new finance system
• Oversee the next phase of external reviews of internal financial controls
•
•
Review the appointment of the Group’s valuers
Review financial reporting including oversight of significant financial judgements by management
Annual Report and Financial Statements 2019 97
| Strategic Report | Corporate Governance | Financial Statements
Audit Committee Report
continued
Audit Committee Report
continued
The valuation methodology, assumptions and judgements are
appropriate, made in conjunction with our external valuers and cost
consultants, and are consistent with previous years. The potential
restoration costs for the former surface mine sites have been
assessed independently and are disclosed separately.
Viability and Going Concern
This is discussed in the Long-Term Viability Statement (pages 38 and
39) and the Statement of Directors’ Responsibilities (pages 122 and
123). Given the heightened economic uncertainty in the light of
COVID-19 significant downside sensitivity testing has been performed
on these forecasts. The outputs from this testing have been reviewed in
detail and discussed by the Board. This sensitivity testing has shown
that the Group can continue to operate with available liquidity and
banking facilities throughout the stress scenarios. The Long-term
Viability Statement (pages 38 and 39) and the Statements of Directors’
Responsibilities (pages 122 and 123) have also been reviewed in detail
and approved by the Audit Committee and wider Board.
Alternative Performance Measures (APMs)
Harworth continues to believe that the use of APMs alongside
statutory measures is essential in communicating the performance
and position of the Group to its stakeholders. Note 2 to the Financial
Statements gives a full reconciliation to statutory measures. The
Committee has reviewed the appropriateness, prominence and
consistency of the APMs and has concurred with their use but has
challenged the Executive team to reduce the quantity and
prominence of APMs in the Company’s financial reporting to
shareholders.
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 June each year. The Committee
bases its recommendation on a review of:
•
•
•
•
•
•
•
the calibre of the external auditor, including its reputation,
sector experience and overall capacity;
the independence and objectivity of the external auditor,
including consideration of potential conflicts of interest and the
non-audit work it has undertaken for the Company (for 2019 see
analysis over the page);
the effectiveness of the last external audit;
the quality control processes that the external auditor has in
place, including any regulator’s public comments on the same;
the quality of the audit team, including the experience of the
audit partner and team and its capacity;
the proposed scope of the audit; and
the quantum of fees payable for the audit (see further comment
and analysis over the page).
Financial reporting
Ahead of the interim and preliminary results announcements, the
Committee receives reports from management and the external
auditor to satisfy itself of the integrity of the statements and disclosures
in those announcements and to ensure that all financial reporting is a
fair, balanced and understandable assessment of the Company’s
position and prospects. The Committee Chair also attends the
year-end valuations review meeting with the Company’s valuers,
external auditors and management team, to understand better the
market conditions and the assumptions underlying the valuations. The
Committee reviews the long-term viability, going concern and
directors’ responsibilities statements (including the assumptions
underpinning them) and recommend to the Board their adoption.
The Committee has reviewed the controls which are in place to
ensure the completeness and accuracy of the Company’s financial
records. The Committee has also noted (i) the reviews that are
undertaken during preparation of the Annual Report and Financial
Statements by various parties, including the external auditor and
valuers, to ensure consistency and balance and (ii) the internal
verification exercise which is undertaken in respect of the financial
metrics referred to in the Strategic Report and Directors’ Report. The
Committee meets the external auditor annually and independently of
management, giving the opportunity to ensure that it has full visibility
of matters that have been the subject of particular discussions.
The Committee has considered whether, in its opinion, the 2019
Annual Report and Financial Statements is, taken as a whole, fair,
balanced and understandable, and whether it provides the
information necessary for shareholders to assess the Group’s
position, performance, business model and strategy. The
Committee has concluded, and recommended to the Board, that the
disclosures, and the process and controls underlying their
production, are appropriate to enable it to determine that the 2019
Annual Report and Financial Statements is fair, balanced and
understandable. The Board’s conclusions in this regard are set out in
the Statement of Directors’ Responsibilities on page 122.
Significant financial statement reporting issues
considered by the Committee for FYE’19 financial
statements
Valuation of the property portfolio
The property portfolio accounts for the vast majority of the Group`s
total assets. This portfolio includes investment property,
development property, assets held for sale, overages, owner-
occupied properties and joint ventures. We acknowledge that
although the portfolio continues to be valued by independent
external valuers, BNP Paribas and Savills in accordance with the Royal
Institution of Chartered Surveyors Valuation – Professional Standards,
our valuations include a significant degree of judgement. The key
judgements within the external valuations are as follows:
the future intention and plans for the properties/site;
a)
b) value per acre;
c)
d)
e)
rental amounts and financial stability of tenants;
rental yields;
applicability of comparable sales evidence that is readily
available;
anticipated risk of delivery of a masterplan of a site; and
f)
g) costs to bring sites forward.
98 Harworth Group plc
The Company has no contractual commitment obliging it to select any
particular firm as external auditor. PricewaterhouseCoopers LLP (PwC),
then known as Coopers and Lybrand, was first appointed as the
Company’s auditors before 17 June 1994. PwC’s audit of the financial
statements for the year-ended 31 December 2019 is its last as the
Company’s external auditor. We indicated in the 2018 Annual Report
that we intended to undertake a tender ahead of the audit of the
financial statements for the financial year ending 31 December 2020.
That tender process was undertaken in the second half of 2019. Four
firms were invited to tender for the appointment as successor to PwC
with two firms submitting proposals following a due diligence process
which included site visits and meetings with the Chair of the Committee
and members of the Executive team. Detailed proposals were made in
October and the firms made presentations to the Committee in
November. The Committee applied the same selection criteria to that
which it applies ahead of its annual recommendation to the Board on
the external auditor’s appointment (see above).
The process culminated in a recommendation by the Committee to
the Board to appoint Ernst & Young LLP (EY) as the Company’s new
external auditors. As such, the Board recommends the appointment
of EY for the external audit of the Company’s financial statements for
the financial year ending 31 December 2020. Resolutions to appoint
EY as the Company’s external auditors and to authorise the Directors
to determine its remuneration have been proposed ahead of the
forthcoming Annual General Meeting.
Heavy scrutiny on, and anticipated regulatory changes for, the audit
sector has led to reductions in capacity and significant increases in
fees across the sector. Against that backdrop, there has been a
marked increase in PwC’s fee for the audit of the financial statements
for the year-ended 31 December 2019, notwithstanding negotiations
on price between the Company and PwC. Fees payable to EY for
future external audits will also be materially higher than those paid in
previous years, albeit the Company has negotiated what it considers
to be a competitive price given current audit market conditions.
The Board recognises the importance of safeguarding auditor
objectivity and takes the following steps to ensure that auditor
independence is not compromised:
•
•
•
•
•
the Committee reviews the audit appointment annually;
the Company 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 LLP (KPMG) has been appointed to advise on tax
matters relating to some of our joint venture agreements and
during 2019 undertook an external review of our year-end
valuations process;
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 below; and
the Committee reviews the external auditor’s report to the
Directors and the Committee confirming their independence in
accordance with auditing standards.
ANALYSIS OF AUDIT AND NON-AUDIT FEES
Audited
year ended
31 December
2019
£000
Audited
year ended
31 December
2018
£000
125
50
120
25
10
–
280
121
16
15
331
533
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
- Fees relating to transaction*
TSR vs Index
TSR vs Index
* 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
Risk management and internal controls
Risk and internal controls framework
Responsibility for monitoring the risk profile of the business and the
management of risk falls to the Board which undertakes bi-annual
reviews of the Group’s risk profile, together with an annual review of
the Board’s risk appetite. The processes undertaken to monitor and
manage risk, and the outcome of the Board’s latest risk review, are
explained in detail in the “Effectively managing our risks” section of
the Strategic Report on pages 29 to 37.
The Audit Committee ensures that there are procedures in place for
the detection of fraud. The external auditor addresses the risk of fraud
in its reports to the Committee on the interim and preliminary results.
The Audit Committee is responsible for monitoring the Group’s
internal controls and processes, including its financial, operational
and compliance controls, and reports to the Board on these matters.
The Committee is satisfied that the internal controls in place across
the business are fit for purpose.
The Committee oversees a rolling programme of external reviews of
internal financial controls. Each year an external review is undertaken
of a specific aspect of the financial controls framework. In 2019,
KPMG undertook a detailed review of the valuations process. It
concluded and reported to the Committee in November that the
valuation process was a well-managed process with effective
controls in place but recommended the formalistion of certain
controls. Those recommendations 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. The Committee undertook such a review in
November 2019, in conjunction with its appraisal of KPMG’s report.
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.
Annual Report and Financial Statements 2019 99
| Strategic Report | Corporate Governance | Financial Statements
Audit Committee Report
continued
Business continuity
Having established in 2018 a Business Continuity Plan and an IT
Incident Response Plan, both plans were subject to desktop
resilience tests during 2019, facilitated by external consultants. The
results from those tests were very positive. That said,
recommendations for improvement were presented to, and
approved by the Committee, and will be implemented in the first half
of 2020.
The resilience of our Business Continuity Plan was demonstrated in
the efficient and effective manner in which the business adapted to
the restrictions on movement imposed by the Government due to
the COVID-19 pandemic. Our IT infrastructure has played a critical
role in our response.
Insurance
The Committee oversaw the renewal of Harworth’s insurance
programme on 1 January 2020 with no material changes in the scope
or levels of cover. However, due to a tightening of the insurance
market, renewal of the Company’s professional indemnity and
directors’ and officers’ insurance policies proved more challenging
and expensive than in previous years. This dynamic is market driven
and, in terms of professional indemnity insurance, sector specific.
We have also been notified by Harworth’s incumbent property
owner’s insurer, Tokio Marine Kiln (TMK), that it is withdrawing from
the UK insurance market. Whilst a 2020 renewal of the property
owner’s insurance programme had been pre-agreed with TMK, this
insurance will need to be placed with another insurer for the 2021
renewal. Given these market dynamics, the Company will be
initiating an early and comprehensive renewal exercise during 2020.
Compliance
The Committee is 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.
The Company’s 2019 Modern Slavery Statement can be found on
our website at https://harworthgroup.com/investors/governance/,
together with our policies on anti-corruption and bribery and
anti-facilitation of tax evasion. The Company operates a regime for
the approval of business development activity at all levels of the
business and maintains a register of all activity. That register is
monitored regularly by the Company Secretary and annually by the
Committee.
Andrew Cunningham
Chair of the Audit Committee
4 June 2020
During the year, other improvements have been made to operational
controls and processes across the business, including:
•
•
•
revisions to the Delegated Authorities Policy and transaction
approvals process, to reflect the new Chief Operating Officer
role and formalise the triggers and process for referring Board
approved transactions back to the Investment Committee and
Board when there are material changes to deal parameters;
the establishment of a “Harworth Common Platform”, a toolkit of
resources that employees can use to guide and support them
through key workstreams undertaken across the business. It has
been created to ensure that, as the business continues to grow
and particularly following our move to a regional operating
structure, key workstreams and tasks continue to be undertaken
in a consistent manner across the business; and
an overhaul of our information management systems, which has
both driven efficiencies and improved information security (as to
which see below).
Cyber and information security
Improving the Group’s cyber and information security was a priority
for the Committee throughout 2018 and 2019. Following technical
and strategic reviews undertaken in 2018, 2019 was a year of
implementation. This has included:
•
•
•
•
•
•
the establishment of an information security function;
the implementation of an information security management
system;
registration with the National Cyber Security Centre Cyber
Information Sharing Partnership;
a rolling awareness programme;
appointments of “Information Champions” for each division
within the business leading to an overhaul of the way information
and data is stored;
implementation of information security policies and procedures,
including for information classification and mobile device use; and
•
upgrades to the Group’s server network and fleet of laptops.
The Committee recognises that cyber and information security
requires ongoing, close monitoring and continuous improvement.
The information security function will maintain and improve the
existing systems, with a particular focus during 2020 on: supporting
the upgrade of our finance systems and the implementation of
improved systems for mobile procurement and management, an
ongoing awareness programme, audits and project risk
assessments, maturity of the policy set and vulnerability scanning.
The new information security function has taken responsibility for our
General Data Protection Regulation (GDPR) and Data Protection Act
2018 compliance and the Committee continues to review that on an
annual basis. The Committee is satisfied that the measures in place,
including the overhaul in 2019 of our information and data
management, represent a proportionate response to our data
protection obligations but work will continue to embed a culture of
GDPR awareness and compliance into the business and to mature
our policies and processes in this regard.
The COVID-19 pandemic has unfortunately triggered an increase in
cyber attacks across the globe, but our cyber and information
security framework has responded well.
100 Harworth Group plc
Directors’ Remuneration Report
Directors’ Remuneration Report
Committee members
Lisa Clement (Chair)
Alastair Lyons
Angela Bromfield
The terms of reference of the Remuneration Committee are on the
Company’s website: https://harworthgroup.com/investors/governance/
The Committee is mindful of external developments linked to
COVID-19. None of us are currently certain what the impact will be, or
how long it will be felt. As set out below, we will proceed with great
care in determining the operation of our Policy in 2020 including the
assessment of performance under our annual bonus plan to ensure
that awards are appropriate in the context of all relevant factors. At
year-end, when we determine the performance outcomes for the
year, we will be thoughtful in our assessment of results, balanced with
the shareholder and workforce experience.
Our Policy and core reward principles
The Policy was approved at the AGM in 2019 with over 99% of votes
cast in favour of it, and we were delighted to see a similar level of
support for the 2018 Annual Remuneration Report and our new share
plans. Our Policy 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.
Dear Shareholder,
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for the year ended 31 December 2019.
This report is divided into 3 sections: this Chair’s introduction,
extracts from the Directors’ Remuneration Policy (Policy) that was
approved at the Annual General Meeting (AGM) in 2019, and the
Annual Remuneration Report, which explains how the Policy was
implemented in 2019 and how it will be implemented in 2020.
This report has been prepared in accordance with the provisions of
the Companies Act 2006 and the Large and Medium-sized
Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2008 (as amended) (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 2018 UK Corporate
Governance Code (2018 Code) 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 (page
110); scheme interests awarded during the year (pages 112 and 113);
payments to past Directors (page 114); and the statement of Directors’
shareholdings and share interests (page 116). The remaining sections
of the report are not subject to audit.
Alignment with the key factors set out in the 2018 Code is set out below:
Alignment to
strategy and
culture
The Committee is focused on ensuring a healthy culture exists across the entire Group and believes that the Executive Directors
and wider Management Board set the standards for behaviour and conduct across the Group.
Focusing incentives on Group performance creates collective accountability and delivers a consistent reward structure across all
levels of management. The Group financial performance measures applied to the annual bonus ensure that the extent to which
bonuses are earned reflects the delivery of our strategy for the benefit of shareholders. The application of personal objectives
enables us to incentivise and reward the behaviours needed to lay the foundations for longer-term success.
The introduction and operation of our RSP reflects a core principle of rewarding long-term value creation in a cyclical business.
Recognising the extended timeframes of our business model and long-term effects of our decision making, RSP awards reduce
the impact of cyclical volatility on reward outcomes and facilitate retention through the cycle.
Clarity and
simplicity
A core reward principle of our Policy is to operate a simple and transparent framework which can be readily cascaded. The
remuneration framework is made up of three key elements: fixed pay (including base salary, pension and benefits); annual
bonus; and the RSP. The structure is simple to understand for both participants and shareholders and promotes long-term
stewardship.
Annual Report and Financial Statements 2019 101
| Strategic Report | Corporate Governance | Financial Statements
Directors’ Remuneration Report
continued
Directors’ Remuneration Report
continued
Risk
Proportionality
and fairness
Annual bonus opportunities are set at levels which reward high performance, but which do not encourage inappropriate
business risk.
The Committee has discretion to reduce vesting outcomes under the annual bonus and RSP where it considers that they would
not otherwise be representative of the underlying business performance over the vesting period.
All Executive Director annual bonus and RSP awards are also subject to both malus and clawback provisions.
A significant proportion of an Executive Director’s reward is linked to performance through the incentive framework, with a clear
line of sight between performance and the delivery of long-term shareholder value.
Performance measures and the underlying targets for the annual bonus are reviewed by the Committee each year to ensure that
they are directly aligned to the Group’s strategic priorities, and targets are calibrated to reward Executive Directors for strong
performance.
Vesting under the RSP is phased over a five-year period, with one-third vesting after three years, one-third after four years and
one-third after five years. The holding period means that participants cannot acquire shares until the end of a five-year period,
aligning their interests with those of shareholders for the longer term.
Executive Directors are also required to build material shareholdings in the Group (200% of base salary). A post cessation
shareholding requirement also applies which ensures that they are aligned to the Group’s performance for two years post
cessation of employment.
We encourage and enable substantial long-term share ownership for all employees, supporting the long-term nature of our
business and its returns through the Share Incentive Plan (SIP) introduced in 2019 and the Save As You Earn scheme (SAYE).
Predictability
The range of possible rewards to individual Executive Directors are set out in the scenario charts on page 108 of the 2018
Annual Report.
Committee membership and attendance
Membership and attendance at meetings in 2019 are shown below:
Independent
Committee tenure at
31 December 2019
Scheduled meetings attended/
eligible to attend
Lisa Clement
Alastair Lyons
Steven Underwood*
Tony Donnelly*
Angela Bromfield*
Chair
Member
Member
Member
Member
Yes
Yes
No
Yes
Yes
8 years 1 month
1 year 10 months
8 years 8 months
8 years 9 months
9 months
*Steven Underwood stepped down in April 2019. Angela Bromfield joined in April 2019. Tony Donnelly retired in September 2019.
4/4
4/4
2/2
3/3
2/2
During the year, the Committee held four scheduled meetings. The Chair of the Committee also met or spoke with the Company’s largest
shareholders during December 2018 and January 2019 to obtain their feedback on proposed amendments to the Policy. The key activities of
the Committee during 2019 and its priorities for 2020 are shown below:
The Committee’s key activities in 2019
Policy design
Policy implementation
All employees
January
Engagement with shareholders on revisions to Policy
Approval of revised Policy for presentation to shareholders at 2019 AGM
2019 bonus: Group financial targets and Investment Committee personal objectives
February
2018 bonus scoring
Long-term incentive plan vesting
SAYE
July
Review market benchmarks
Approve remuneration for new Chief Financial Officer
Formal adoption of RSP and 2019 awards thereunder
Formal adoption of SIP and 2019 awards thereunder
November
Annual salary review
Annual review of Group-wide benefits and policies
102 Harworth Group plc
The Committee’s priorities for 2020
•
Set the 2020 Group financial targets for all employees and the overall remuneration for Executive Directors and members of the
Investment Committee
Determine the type and quantum of 2020 SIP awards to all eligible employees
• Make 2020 RSP awards to senior management
•
• Grant SAYE options to participating employees
• Oversee reviews of Group-wide salaries and benefits
• Oversee the review of, and if appropriate updates to, the Group’s maternity, paternity and shared parental leave and pay policies
• Manage the transition of the role of Committee Chair from Lisa Clement to Angela Bromfield and the induction of a new Committee
member upon Lisa’s retirement
Performance outcomes for the year ended
31 December 2019
We delivered another solid financial performance in 2019, albeit
Total Return, our principal performance measure, was lower (7.8%)
than in previous years (2018: 13.3%). This was largely due to the fact
that value gains were adversely affected by planning decisions and
delays primarily resulting from the local elections in May 2019.
Without these adverse external factors, value gains would have been
broadly in line with prior years.
Annual bonus
Owen Michaelson’s bonus opportunity for the year ending 31
December 2019 was 100% of salary, with 80% of the opportunity
based on financial measures and 20% of the opportunity based on
the achievement of personal objectives.
The Committee has approved a bonus of 44.2% of salary for the
Chief Executive for the year ended 31 December 2019. The
Committee believes that the level of pay-out is reflective of the
overall performance of the Group in the year, and appropriate in the
context of the shareholder experience. Further details are set out on
pages 110 and 111.
Neither Andrew Kirkman nor Katerina (Kitty) Patmore was eligible to
earn a bonus in respect of the 2019 financial year.
LTIP vesting in year
Owen Michaelson was granted an award in 2017 under the Harworth
Group plc Long-Term Incentive Plan (LTIP) which vested by reference
to performance over the three years ending 31 December 2019,
subject to performance measures based on Total Shareholder Return
and Absolute Total Return. Based on performance over the period,
the awards vested at 51.52%. Further information is set out on
page 112.
Executive Director changes
Andrew Kirkman retired from the Board and left the business on 30
June 2019. The treatment of Andrew’s remuneration in respect of his
leaving the Group was set out in the 2018 Directors’ Remuneration
Report. The only variable remuneration entitlement he retained was
his 2016 LTIP award, the vesting of which was reported in the 2018
Report.
Kitty Patmore joined the business as Chief Financial Officer on 1 October 2019. Her remuneration arrangements were determined in
accordance with the Directors’ Remuneration Policy approved at the 2019 AGM as follows:
Salary:
Pension:
£200,000
10% of salary (in line with the rate available for the wider workforce)
Annual Bonus:
Up to 75% of salary. No bonus opportunity was awarded for 2019
Long term incentives:
RSP award in line with the Directors’ Remuneration Policy. No award was made in respect of 2019
Notice period:
6 months
As announced alongside the preliminary results on 17 March 2020,
Owen Michaelson has advised the Board of his intention to retire as
Chief Executive of Harworth at the end of 2020 after 10 years leading
the business.
incentive (including RSP) awards will be determined by the
Committee in line with the Policy and the rules of the relevant plans,
and details will be disclosed in due course as well as in the 2020
Directors’ Remuneration Report.
Notwithstanding that his service contract requires six months’ notice
of termination on either side, Owen has agreed to work an extended
notice period to facilitate the transition to a new Chief Executive and
he intends to retire at the end of 2020. Owen will continue to
receive his current salary, benefits and pension allowance during this
period. As he is not retiring until the end of 2020, he will continue to
participate in the annual bonus and RSP grant for 2020 as detailed
below. The treatment of Owen’s annual bonus and long term
Salary increases for 2020
The Chief Executive’s salary has been increased by 2.8% to
£325,000, a rate of increase which is broadly in line with the median
salary increases applied across the wider workforce. Given that Kitty
Patmore joined the business on 1 October 2019, no salary increase
has been awarded to her for 2020.
Annual Report and Financial Statements 2019 103
| Strategic Report | Corporate Governance | Financial Statements Directors’ Remuneration Report
continued
Employee remuneration and engagement
The Committee ensures it is aware of the remuneration and benefits
of the wider workforce when setting the remuneration of Executive
Directors and Investment Committee members. Group-wide
reviews of salary and benefits, undertaken annually, are overseen by
the Committee.
Over half of our employees currently participate in the Group’s
all-employee SAYE plan. In 2019, we awarded free shares under the
SIP for the first time to 56 employees, giving them a stake in the
business. All members of the Senior Management Team below
Board level now participate in the RSP on the same basis as the
Executive Directors, aligning their interests with those of
shareholders and reflecting our ethos of applying a consistent
approach to reward.
The Board recognises the importance of engaging with, and
considering the interests of, the Group’s employees in its decisions.
To that end, during 2019 we implemented a series of measures to
encourage and improve engagement, further details of which can be
found in the Strategic Report on pages 56 and 57.
Conclusion
We remain committed to a responsible approach to executive pay.
Given the Group’s performance over the one and three-year periods
ended 31 December 2019, we believe that the remuneration of the
Executive Directors and wider workforce in respect of 2019
continues to reflect our success in the delivery of our strategy and
our aim to deliver long-term market leading returns.
Lisa Clement
Chair of the Remuneration Committee
4 June 2020
Bonus
The annual bonus will continue to operate with a combination of
financial performance measures (currently proposed to include total
return, sales volume, acquisitions and profit excluding value gains)
and personal objectives. As noted above, the Committee is mindful
of external developments linked to COVID-19 and the associated
uncertainty. We recognise that the performance conditions,
weightings and targets we have set for the year may need to be
adjusted to the circumstances as they unfold. We will monitor
business conditions and exercise judgement in applying discretion
relating to 2020 remuneration in the context of all relevant factors. At
year-end, when we determined the performance outcomes for the
year, we will be thoughtful in our assessment of results, balanced
with the shareholder and workforce experience. Details of the final
financial performance targets and personal objectives for the 2020
bonus will be reported in the 2020 Annual Report.
The bonus opportunity for the Chief Executive will be 125% of salary,
with the opportunity in respect of at least 95% of salary based on
financial measures and the opportunity in respect of the balance
based on personal objectives. This increase in the Chief Executive’s
opportunity reflects the introduction of measures based on specific
personal objectives linked to the successful transition to a new Chief
Executive. The bonus opportunity for the Chief Financial Officer will
be 75% of salary with at least 75% of the opportunity based on
financial measures and the balance based on personal objectives.
Restricted Share Plan (RSP)
RSP awards will be granted to our Executive Directors and other
members of the Senior Management Team in 2020. Awards of 50%
of salary will be granted to the Executive Directors. Vesting will be
phased over a five-year period, with one-third vesting after three
years, one-third after four years and one-third after five years. A
holding period will apply such that no shares can be sold until after
the end of the five-year period. The awards will be subject to
underpins which reflect performance over the vesting periods.
Details are set out on pages 107, 112 and 113.
Chairman and Non-Executive Directors
The Chairman’s and Non-Executive Directors’ fees will not be
increased for 2020.
Gender pay gap reporting
The Company has voluntarily reported its gender pay gap since
2017, highlighting the mean and median gender pay gap in both
salary and bonus pay-outs and its commitment to transparency in this
regard. The Company’s gender pay gap analysis for 2019, and
details on the initiatives it has introduced to promote diversity across
the business, in all its forms, can be found in the Nomination
Committee Report on pages 92 to 95.
104 Harworth Group plc
DIRECTORS’ REMUNERATION POLICY
Our Directors’ Remuneration Policy was approved by shareholders at the 2019 AGM, and is set out in full on pages 103 – 111 of the 2018
Annual Report and Accounts which are available on the Company’s website at https://harworthgroup.com/investors/reports-presentations/.
We have set out below those parts of the Policy which we think shareholders will find most useful.
Executive Director remuneration
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; individual
contribution to performance; and the
experience of the Executive. Any adjustments
will typically be effective 1 January in the year
following review.
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.
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).
Annual Report and Financial Statements 2019 105
| Strategic Report | Corporate Governance | Financial Statements
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 FYE ‘19, 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.
106 Harworth Group plc
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.
Annual Report and Financial Statements 2019 107
| Strategic Report | Corporate Governance | Financial Statements
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.
Shareholding guidelines
The Committee continues to recognise the importance of aligning Executive Directors’ interests with those of 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 on page 116.
Reflecting best practice, the Committee adopted, with effect from 1 January 2019, a post-cessation shareholding requirement. This requires
that for the first 12 months following cessation of employment, 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 AGM. 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.
108 Harworth Group plc
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 2020 are set out in
the Annual Remuneration Report.
Fee levels will next be reviewed during
2020, with any increase effective from 1
January 2021.
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.
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:
• Chief Executive;
• Head of HR and Organisation Development; and
•
representatives of Deloitte LLP (Deloitte) (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. 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. The Committee has satisfied itself that Deloitte provided objective and independent advice during 2019.
Deloitte’s fees in relation to remuneration advice provided to the Committee during 2019 were £35,850 plus VAT, charged on a time and
expenses basis. Deloitte also provided advice to the Group during 2019 in relation to corporate tax, pensions and share plans. The Committee
did not consider that these engagements impaired Deloitte’s independence.
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. Owen Michaelson is also a member of the Board of the Sheffield
City Region Local Enterprise Partnership. He receives no fee for this appointment. Both appointments were approved by the Board at the time.
Annual Report and Financial Statements 2019 109
| Strategic Report | Corporate Governance | Financial Statements
Directors’ Remuneration Report
continued
Single total figure of remuneration for Executive Directors
The table below sets out the remuneration received by each Executive Director of the Company for the year ended 31 December 2019 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(3)
Single-year variable
Multiple-year variable(4)
Pension benefit(5)
Total
Owen Michaelson
Andrew Kirkman(1)
Katerina Patmore(2)
2019
£
316,250
16,438
139,783
199,852
31,625
2018
£
308,525
15,339
330,122
216,422
30,853
2019
£
120,440
9,020
–
–
12,044
2018
235,000
13,070
198,600
147,450
23,500
2019
£
50,000
2,500
–
–
5,000
703,948
901,261
141,504
617,620
57,500
2018
£
–
–
–
–
–
–
(1) Andrew Kirkman resigned from the Board and left the business on 30 June 2019.
(2) Katerina Patmore was appointed as a Director with effect from 1 October 2019 and the table above reflects her remuneration from that date until the end of 2019.
(3) Taxable benefits consist primarily of car and fuel allowance. For 2019 these were £14,268 for Owen Michaelson (£13,959 for 2018), £5,958 for Andrew Kirkman
(£12,002 for 2018), and £2,500 for Katerina Patmore (Nil for 2018). Other benefits included life assurance and health insurance.
(4) The 2017 LTIP awards (in which Owen Michaelson participates) vested based on performance to 31 December 2019, as described below under the heading “LTIP
awards vesting in respect of the year ended 31 December 2019”. In the 2018 Directors’ Remuneration Report the values of the 2016 LTIP awards (which vested by
reference to performance to 31 December 2018) were calculated by reference to a share price of 118.69 pence, being the average share price over the three month
period ended 31 December 2018. In line with the applicable regulations, the values have been restated to reflect the share price on the date of vesting (133.00 pence
and 25 May 2019 respectively). As detailed in the 2018 Directors’ Remuneration Report, Andrew Kirkman’s 2017 and 2018 LTIP awards lapsed on 30 June 2019.
(5) Owen Michaelson, Katerina Patmore and Andrew Kirkman participated in the Company’s defined contribution scheme, in relation to which the Company contributed
10% of salary.
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 2019 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)
L. Clement
A. Cunningham
R. Cooke(2)
A. Bromfield(3)
S. Underwood(4)
M. Bowes
A. Donnelly(5)
J. Cox (6)
Base fee
Committee
chair fees
SID fee
Total
2019
£
160,000
45,000
45,000
35,308
33,750
45,000
45,000
33,750
–
2018
£
131,077
42,500
42,500
–
–
42,500
42,500
42,500
40,000
2019
£
–
7,500
7,500
–
–
–
–
–
–
2018
£
–
7,500
7,500
–
–
–
–
–
–
2019
£
–
7,500
–
–
–
–
–
–
–
2018
£
–
7,500
–
–
–
–
–
–
–
2019
£
160,000
60,000
52,500
35,308
33,750
45,000
45,000
33,750
–
2018
£
131,077
57,500
50,000
–
–
42,500
42,500
42,500
40,000
(1) Appointed as Chair, with effect from 7 March 2018
(2) Appointed as Independent Non-Executive Director, with effect from 19 March 2019.
(3) Appointed as Independent Non-Executive Director, with effect from 1 April 2019.
(4) Up to and including 31 December 2019 the fees for Steven Underwood were paid to Peel Management Limited. With effect from 1 January 2020 those fees are paid
directly to Steven Underwood.
(5) Retired from the Board on 30 September 2019.
(6) Retired from the Board on 31 March 2018.
Incentive outcomes for year ended 31 December 2019
Annual bonus
Owen Michaelson’s bonus opportunity for 2019 was up to 100% of salary based on a combination of financial performance (as regards 80% of
the opportunity) and personal objectives (as regards 20% of the opportunity). Performance against targets and subsequent vesting of 2019
annual bonuses are set out in the tables below.
Neither Andrew Kirkman nor Kitty Patmore were eligible to earn a bonus in respect of 2019.
110 Harworth Group plc
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 plus dividends (Total return)
Sales volume(1)
Acquisitions
(strategic development of the business) (3)
Weight
(% of financial
performance)
‘Target’
‘Stretch’
Actual performance
43,500
50%
100,000
15%
25% 10% increase in strategic
land pipeline
52,300
125,000
15% increase in
strategic land
pipeline
6,000
37,094
105,052(2)
34% increase in strategic
land pipeline
3,480
Vesting
outcome
0%
60%
100%
0%
34%
Profit excluding value gains
10%
5,000
Total vesting on financial performance
outcomes
80% weighting
(1) This sales figure includes internal sales for direct development and sales by joint ventures.
(2) Performance targets based on unconditional sales completed during the year. In determining the bonus outturn for this element, the Committee: took account of
non-cash consideration for sales, being infrastructure works undertaken by certain purchasers resulting in a corresponding cost plan reduction benefitting the
Company; and exercised discretion to include a £3.05m sale of the Group’s Wardley site, which management deferred into 2020 for commercially beneficial reasons
and which exchanged and completed during the first quarter of 2020.
(3) The figures cited for acquisitions are measured by reference to the Group’s pipeline of residential land (plots) and commercial space (square feet).
Personal performance outcomes
Executive Director
Objectives during the year
Performance against objectives during the year
O. Michaelson (20% weighting)
• To complete the transition from a centralised
to a regional operating structure, including:
• Recruitment into all regional teams
completed.
Vesting of
component
85%
•
•
recruitment for all regional roles;
implementation of common management
structures, reporting, and consistent
approach to key workstreams;
• establishment of planning and engineering
“centres of excellence” to support regional
teams and promote consistencies;
• establishment of Management Board and
Investment Committee functions.
• Establishment of Central Services function
providing support to and promoting
consistencies across the regional teams.
•
•
•
Establishment of the Harworth Common
Platform, which promotes a consistent
approach to key workstreams.
Management Board operating effectively.
Some further work required to optimise value
added by Investment Committee.
• To facilitate the Board’s evaluation of the
•
Evaluation of strategic options completed.
Company’s strategic options.
Overall bonus outcomes
Financial
Personal vesting
Overall bonus outcome
Sum product of
weighting and vest%
Executive
O. Michaelson
Weighting
80%
Vesting
34%
Weighting
20%
Vesting
85%
% of bonus
% of salary
44.2%
44.2%
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, following which it concluded the overall bonus outcomes to be appropriate.
Annual Report and Financial Statements 2019 111
| Strategic Report | Corporate Governance | Financial Statements
Directors’ Remuneration Report
continued
LTIP awards vesting in respect of the year ended 31 December 2019
Awards granted on 5 April 2017 were subject to the following performance conditions over the three-year period ended on 31 December
2019:
•
•
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.
A summary of the LTIP targets and actual performance is summarised below.
Performance condition Weighting % award
Threshold(1)
Target(2)
Maximum Actual performance Vesting (% of maximum)
ATR
TSR vs peer group
TSR vs Index
50%
35%
15%
8%
Median
Index median
10%
n/a
n/a
12%
Median +
Index median +
9% growth p.a.
11.4%
Below median
Median + 7.2%
77.51%
0%
85.1%
TSR vs Index
15%
Index median
n/a
Index median +
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 51.52% of maximum to be appropriate. Awards vested on 5 April 2020.
50% of vested shares (post tax) will be subject to a two-year post-vesting holding period.
Director
O. Michaelson
Number of shares
granted
Overall vestingNumber of shares vesting
310,256
51.52%
159,843
Face value(1)
£199,852
(1) The number of shares expected to vest multiplied by the average share price over the three-month period ending 31 December 2019 (125.03p). The LTIP awards did not
accrue dividend equivalents over the vesting period.
The following table sets out the amount of the face value attributable to the share price at the grant of the awards (97p based on the average
share price on the three trading days immediately preceding the date of grant) and the amount that is attributable to the growth in the share
price to 125.03p.
Director
O.Michaelson
Total value
£199,852
Value attributable to
share price at grant of 97p
Value attributable to growth in share
price to 125.03p
£155,048
£44,804
Deferred share bonus award granted in 2019
As detailed in the Directors’ Remuneration Report last year, 18.69% of the overall bonus awarded to the Chief Executive in respect of the year
ended 31 December 2018 was deferred into shares for 12 months and subject to clawback if the business materially underperformed against
the 2019 budget. On 12 April 2019 the Company granted an award (structured as a nil-cost option) over 49,364 shares to Owen Michaelson
under the rules of its Deferred Bonus Plan in respect of this element of the bonus earned for the financial year ended 31 December 2018.
Taking into account the underlying performance of the business during 2019 the Committee determined that the business had not materially
underperformed against the stretching targets set in the 2019 budget. No clawback has therefore been applied to this deferred bonus award
and it vested on 26 February 2020.
Restricted Share Plan awards granted in 2019
A Restricted Share Plan award was granted to the Chief Executive at 50% of salary in 2019. No award was granted to Andrew Kirkman or Kitty Patmore.
Executive Director
O. Michaelson
Type of award
Date of award
Number of shares granted
2019 RSP Award
Nil-Cost Option
17 September 2019
123,535
Face value(1)
£158,026
(1) Face value based on the average share price on the three trading days immediately preceding the date of grant on 17 September 2019 (127.92p)
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.
112 Harworth Group plc
The RSP award is 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 of the Group’s underlying
performance in the cyclical real estate sector
Corporate governance
Avoidance of governance and health and safety
failures
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
(1) The Committee has discretion to make a downward adjustment to awards if any of these events occur during the vesting periods.
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 at the time of vesting how performance underpins
and underlying business performance over the vesting period has been taken into account.
Percentage change in CEO remuneration
The table below shows how the percentage change in the Chief Executive’s salary, benefits and bonus between 2018 and 2019 compares
with the percentage change in the average of each of those components of pay for the employees of the Group as a whole.
Salary
£’000
2019
316
2018
309
Percentage
change
2.5%
2.5%
Taxable benefits(1)
£’000
2019
12.5
2018
12.5
Percentage
change
0%
0%
Bonus
£’000
2019
140
2018
330
Percentage
change
-58%
-56%
CEO Pay
Average per employee
(1) Car allowance only, as fuel and insurance benefits fluctuate according to personal circumstances
Chief Executive pay ratio
The Group has fewer than 250 UK employees and is therefore not required to publish a pay ratio. However, in line with best practice and the
2018 Code, the Committee takes account of both internal and external relativities when determining the remuneration packages of the Chief
Executive, Chief Financial Officer, and Investment Committee members. The Committee considers that the average or median salary and total
pay for the wider workforce compared to the pay and total remuneration of the Chief Executive reflects appropriately the relative roles and
responsibilities of the individuals. This is also consistent with the pay, reward and progression polices for the Group’s UK employees taken as a
whole. The Chief Executive’s package is weighted towards variable pay (including annual bonus and RSP awards) due to the nature of the role,
and this means the actual pay ratio is likely to fluctuate depending on the outcomes of the annual bonus in each year.
Relative importance of spend on pay
Total employee pay expenditure
Distributions to Shareholders
2019
£7.523m
2018
£7.846m
% change
-4.1%
2019
£1.0m
2018
£2.9m
% change
-66%
1.002p per share
£2.9m
Underlying staff costs increased between 2018 and 2019 but this was more than offset by lower bonus payments and a credit to the share
based payments charge arising on Andrew Kirkman’s resignation.
Total dividends for the year ended 31 December 2018 were 0.911p per share, resulting in total dividends of £2.928m. Total dividends for the
year ended 31 December 2019 were 0.304p per share, resulting in total dividends of £0.977m. This reduction reflects the Board’s decision to
not recommend a final dividends for the year 31 December 2019 given the uncertainty created by the COVID-19 pandemic. The percentage
change is shown above on a per share basis.
Annual Report and Financial Statements 2019 113
| Strategic Report | Corporate Governance | Financial Statements
Directors’ Remuneration Report
continued
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 2019. 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 2019:
£200
£180
£160
£140
£120
£100
£80
£60
24 March 2015
31 December 2015
31 December 2016
31 December 2017
31 December 2018
31 December 2019
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
2015
£
480
85.6%
n/a
2016
£
599
90%
n/a
2017
£
1,392
80.6%
n/a(1)
2018
£
901
85.6%
51.8%
2019
£
704
44.2%
51.5%
(1) Excludes vesting of Harworth Estates LTIP as this was a one-off scheme put in place by Harworth Estates Property Group Limited in 2013.
Payments 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.
Implementation of Policy for 2020
Base salary
The Committee approved the following base salary increases for 2020:
Executive Director
O. Michaelson
K. Patmore
Annual base salary at
1 January 2019 (or if later date
of appointment to the Board)
£316,250
£200,000
Annual base salary at
1 January 2020
£325,000
£200,000
Percentage
increase
2.8%
n/a
The increase was broadly in line with the typical salary increase awarded across the Group at the annual pay review, effective 1 January 2020.
Pension
Executive Directors will continue to receive a pension contribution of 10% of salary or an equivalent cash allowance. This is in line with the rate
available to the majority of the wider workforce.
Performance related annual bonus
For 2020 the Committee has approved an increase in the annual bonus opportunity for the Chief Executive from 100% of salary to 125% of
salary. This increase in the Chief Executive’s opportunity reflects the introduction of measures based on specific personal objectives linked to
the successful transition to a new Chief Executive. The bonus opportunity in respect of at least 95% of salary may be earned based on financial
measures, with the balance based on personal objectives.
114 Harworth Group plc
The annual bonus opportunity for the Chief Financial Officer will be 75% of salary. At least 75% of the maximum annual bonus will be based on
financial measures and the balance on personal objectives.
The Committee has reviewed the financial performance measures to ensure they are appropriately aligned with the Company’s strategic plan
for the coming year. It is currently proposed that performance for 2020 will be measured against the following financial performance
measures.
Measure
Total return
Acquisitions
Sales volume
Profit excluding value gains
Weight
(% of financial bonus
opportunity)
40%
25%
20%
15%
As noted in the Committee Chair’s statement on page 101, as the position regarding COVID-19 develops further consideration to the
measures, weightings and targets will be given to ensure that they are appropriate in the context of all relevant factors.
In line with the Policy approved by shareholders at the 2019 AGM, the Committee is introducing a Threshold level of performance for the
2020 bonus. No bonus will be paid for achieving below Threshold, up to 10% of the bonus may be paid for achieving Threshold, increasing to
50% of the bonus for Target performance and 100% of bonus paid for achieving Stretch performance. Performance targets are considered to
be commercially sensitive at this time but the Committee intends that they will be disclosed in the 2020 Annual Remuneration Report.
Payment of the personal element is subject to the Committee’s discretion in the event of material under-performance against the financial
element and, in any event, the personal element will not pay out unless there is a threshold level of payout under one or more of the financial
elements. 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.
Restricted Share Award
Restricted Share awards will be granted to the Chief Executive and Chief Financial Officer at 50% of salary in 2020. 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.
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 the cyclical real estate sector
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.
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.
Annual Report and Financial Statements 2019 115
| Strategic Report | Corporate Governance | Financial Statements
Directors’ Remuneration Report
continued
Implementation of Non-Executive Director remuneration policy for 2020
The Chair’s and Non-Executive Directors’ fees will not be increased for 2020 and, accordingly, the following fee levels will apply, as for 2019.
Chair
Non-Executive Director Fee
Additional Fee for holding the office of Senior Independent
Director
Additional Fee for Chairing the Remuneration Committee
Additional Fee for Chairing the Audit Committee
£160,000
£45,000
£7,500
£7,500
£7,500
The Committee considers that the fees paid to Non-Executive Directors appropriately reflect the work and responsibilities associated with
each role.
Directors’ interests
The following table sets out the beneficial interests of the Directors and their connected persons in the share capital of the Company as at
31 December 2019 (or earlier, if the Director has resigned). None of the Directors have 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 2019 of 141p.
Shares held
Options held
Beneficially
owned
Vested but
subject to
holding
period
Vested
but not
exercised
Unvested
and subject
to perf.
conditions
Unvested
and not
subject
to perf.
conditions
Shareholding
requirement
% salary/fee
Current
shareholding
% salary/fee
Requirement
met?
period
Vested
m
421,342
200,000
-
90,000
-
17,333
-
-
38,385
-
43,957(3)
-
-
-
-
-
-
-
-
-
-
110,865
-
-
-
-
-
-
-
-
714,268
-
-
-
-
-
-
-
-
-
49,364
-
-
-
-
-
-
-
-
-
200%
200%
200%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
204%
120%
0%
Y
N
N
n/a
n/a
n/a
n/a
n/a
n/a
n/a
O. Michaelson
A. Kirkman(1)
K. Patmore(2)
A. Lyons
L. Clement
A. Cunningham
R. Cooke(4)
A. Bromfield(5)
S. Underwood
M. Bowes
(1) Andrew Kirkman stepped down from the Board on 30 June 2019. The holding cited is at the date of resignation.
(2) Kitty Patmore was appointed on 1 October 2019.
(3) Includes 42,987 shares vested on 25 May 2019 from the 2016 LTIP and subject to a holding period, and 970 shares awarded on 17 October 2019 from the 2019 SIP
(4) Ruth Cooke was appointed on 19 March 2019.
(5) Angela Bromfield was appointed on 1 April 2019.
Between 31 December 2019 and the date of signing of these financial statements, the following changes have occurred:
• On 26 February 2020, the nil-cost option over 49,364 granted to Owen Michaelson in 2019 under the Company’s Deferred Bonus Plan,
representing a deferral of part of his bonus for the financial year ended 31 December 2018, vested. Owen exercised his option on 8 April
2020.
• On 5 April 2020, the nil cost option granted to Owen Michaelson in 2017 under the Harworth Group plc Long Term Incentive Plan vested
in respect of 159,843 shares and lapsed in respect of 150,413 shares. Owen exercised his option on 14 April 2020.
116 Harworth Group plc
Summary of Shareholder voting at the 2019 AGM
The table below shows the results of votes at the Harworth Group plc Annual General Meeting on 21 May 2019 on the resolutions relating to
the approval of the Annual Remuneration Report, Remuneration Policy and new share plans:
Votes
For and
discretion
263,888,099
258,180,271
258,329,037
264,003,366
For and
discretion as a
percentage of
votes cast
99.93
99.93
99.99
99.98
Against as a
percentage of
votes cast
0.07
0.07
0.01
0.02
Against
183,964
191,584
24,790
51,299
Withheld
33,744
5,733,952
5,751,980
51,142
Approval of Annual Remuneration Report
Approval of Remuneration Policy
Approval of Restricted Share Plan
Approval of Share Incentive Plan
Lisa Clement
Chair of the Remuneration Committee
4 June 2020
Annual Report and Financial Statements 2019 117
| Strategic Report | Corporate Governance | Financial Statements
Directors’ Report
Directors’ Report
Introduction
The Directors present their report and the audited consolidated financial statements for the year ended 31 December 2019.
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 67, 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 76 to 87.
As such, the Directors’ Report should be read in conjunction with the Strategic Report (pages 4 to 67) and the wider Statement of Corporate
Governance (pages 76 to 87) 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
Annual General Meeting
Auditors
Composition and operation of administrative, management and
supervisory bodies and committees
Directors’ interests in shares
Directors’ remuneration
Disclosure of information to auditors
Diversity
Employee numbers
Employee engagement
Employees with disabilities
Employee share scheme
Future developments of the business
Going concern
Greenhouse gas emissions
Post-balance sheet events
Risk management and internal controls
Significant related party agreements
Stakeholders
Viability statement
UK Corporate Governance Code
Reference
Nomination Committee Report, p90
Chairman’s introduction, p72
Statement of Corporate Governance, p87
Audit Committee Report, pp98-99
Statement of Corporate Governance, pp78-81
Directors’ Remuneration Report, p116
Directors’ Remuneration Report, pp101-117
Statement of Directors’ Responsibilities, p123
Nomination Committee Report, pp92-95
Strategic Report, p15
Strategic Report, pp56-57
Nomination Committee Report, p95
Strategic Report, p58
Directors’ Remuneration Report, pp104,108
Strategic Report, pp4-13
Statement of Directors’ Responsibilities, p122
Strategic Report, p50
Chair of the Board’s Message, p19
Strategic Report: Chief Executive’s Statement, p22
Financial Review, p28
Financial Statements, Note 32, p170
Strategic Report, pp29-37
Audit Committee Report, p99
Financial statements, Note 31, pp169-170
Strategic Report, pp56-57 and pp60-63
Strategic Report, pp38-39
Strategic Report, pp66-67
Statement of Corporate Governance, p76
The liabilities of the Directors in connection with this Report are subject to the limitations and restrictions provided by English Company law.
Company status
Harworth Group plc is a company incorporated in England with company number 02649340. Its head office is in Rotherham. It is listed on
the London Stock Exchange Main Market. All subsidiaries and associated undertakings are listed in Note 16 to the Financial Statements.
Financial results and dividends
The Group’s profit before taxation for the financial year ended 31 December 2019 was £30.3m (2018: £32.8m). The net assets attributable to
shareholders of the Group increased to £463.8m (2018: £441.9m) over the financial year. The Group’s NAV per share and EPRA NNNAV per
share rose by 4.8% (2018: 7.9%) and 7.2% (2018: 12.6%) respectively during the year.
The Board is not recommending a final dividend due to the uncertainty created by the COVID-19 outbreak. An interim dividend of 0.304
pence per share was paid in October 2019.
The dividend paid in the year to 31 December 2019 was 0.937 pence (2018: 0.853 pence) per share, comprising the 2018 final dividend of
0.633 pence per share and the interim dividend of 0.304 pence per share for 2019.
118 Harworth Group plc
Share capital and allotment of shares
Details of the Company’s issued share capital are shown in Note 27 to the Financial Statements on page 167. There is only one class of share in
issue: ordinary shares of 10 pence each.
There are no restrictions on the transfer of shares 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 those specified by law or regulation (for example, insider trading laws) and
pursuant to the Listing Rules of the Financial Conduct Authority whereby certain employees of the Group require the approval of the Company
to deal in the shares.
All shares carry equal rights to dividends, 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.
On a show of hands at a general meeting of the Company, every holder of shares present in person and entitled to vote shall have one vote
and on a poll every member present in person or by proxy and entitled to vote shall have one vote for every ordinary share held. The notice of
the 2020 AGM specifies deadlines for exercising voting rights and appointing a proxy or proxies to vote in relation to resolutions to be passed
at the meeting. There are no restrictions on any voting rights or deadlines, other than those prescribed by law or the Articles of Association.
The Company is not aware of any 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 Employee Benefit Trust – see
below).
The Directors were granted authority at the 2019 AGM to allot shares up to a nominal amount of one-third of the Company’s issued nominal
share capital, as well as additional authority to allot a further one-third on a rights issue. This authority expires at the conclusion of the 2020
AGM and a resolution will be proposed for its renewal.
The Company’s issued share capital as at 31 December 2018 was 321,496,760 ordinary shares of 10 pence each. During 2019 the issued
share capital was increased as follows:
Date
Description
Number of shares issued
Description
Number of shares issued
Price (discount if applicable)
7 February 2019
23 September 2019
21 October 2019
Exercise of SAYE options
Vesting of LTIP awards
Grant of SIP awards
11,786
346,516
54,320
Price
80.6p
Nil consideration
Nil consideration
As such, as at 31 December 2019, the Company’s issued share capital was 321,909,382 ordinary shares of 10 pence each. On 7 April 2020 the
Company’s issued share capital was increased by 266,050 ordinary shares of 10 pence each, to satisfy the vesting of certain LTIP awards. As
such, at the date of this Report the Company’s issued share capital is 322,175,432 ordinary shares of 10 pence each.
Under Section 561 of the Companies Act 2006 (Companies Act), 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 2019 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 issue to existing shareholders, provided
that the aggregate nominal value of such shares does not exceed 5% of the Company’s total issued equity capital. The Directors have not
made use of this authority since the 2019 AGM. The Directors propose to renew this authority at the 2020 AGM.
Purchase of the Company’s own shares
The Company has authority under a shareholders’ resolution passed at the 2019 AGM to purchase up to 32,150,853 of the Company’s
Ordinary Shares, representing approximately 10% of the Company’s total issued share capital in the market during the period expiring at the
2020 AGM. No shares have been purchased by the Company under that authority. A special resolution will be proposed at the 2020 AGM to
renew this authority. 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.
Annual Report and Financial Statements 2019 119
| Strategic Report | Corporate Governance | Financial Statements
Directors’ Report
continued
Directors’ Report
continued
Directors
The Directors who held office during the financial year ended 31 December 2019 and up to the date of this Report are:
Chair
Alastair Lyons
Executive Directors
Owen Michaelson
Katerina Patmore
Chair
Chief Executive
Chief Financial Officer, appointed 1 October 2019
Independent Non-Executive Directors
Lisa Clement
Andrew Cunningham
Ruth Cooke
Angela Bromfield
Non-Executive Directors (not independent)
Steven Underwood
Martyn Bowes
Former Directors
Andrew Kirkman (formerly Finance Director)
Anthony Donnelly (formerly independent
Non-Executive Director)
Senior Independent Director
Appointed 19 March 2019
Appointed 1 April 2019
Resigned 30 June 2019
Retired 30 September 2019
Biographical details of the Directors are contained on pages 74 and 75.
The Directors’ Remuneration Report, which includes details of Directors’ service agreements and their interests in the shares of the Company,
is set out on pages 101 to 117. Copies of the service agreements of the Executive Directors and letters of appointment for the Non-Executive
Directors are available for inspection at the Company’s registered office during normal business hours and will be available for inspection at
the Company’s 2020 AGM.
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. Katerina Patmore will, therefore, be standing for
election at the 2020 AGM. In accordance with the UK Corporate Governance Code, all other Directors will offer themselves for election or
re-election at the 2020 AGM.
Save as set out on page 83 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.
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.
Directors’ indemnities, insurance and independent advice
The Company maintains Directors’ and Officers’ liability insurance. To the extent permitted by UK law, the Company indemnifies its Directors
against claims brought against them as a consequence of the execution of their duties as Directors of the Company. 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 2019.
Charitable and political donations
The Group made charitable donations during 2019 in the aggregate sum of £34,433 (2018: £4,350). The Group supported two principal
charities during the year: Land Aid and The Wildlife Trusts.
No political donations were made during the year (2018: £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 Companies Act 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 Companies Act, the Directors obtained authority from shareholders at the 2019 AGM for certain political
donations and expenditure, subject to financial limits, and will seek to renew this authority at the 2020 AGM.
120 Harworth Group plc
Employee Benefit Trust
The Harworth Group plc Employee Benefit Trust (EBT) holds shares in the Company for the purposes of satisfying awards that may vest under
the Company’s employee share plans. It also holds shares which have been issued following the vesting of awards under the Company’s
share-based incentive schemes but which are subject to holding periods in accordance with the terms of those schemes. At 31 December
2019, the EBT held 132,015 (2018: 181,771) ordinary shares of 10 pence each in the Company representing 0.04% of the Company’s issued
share capital.
The EBT has waived its right to receive dividends on shares that it holds beneficially in respect of future awards that have not vested. The
trustee of the EBT exercises any voting rights on such shares in accordance with the Directors’ recommendations.
Amendment of Articles of Association
The Articles of Association may be amended by special resolution of the shareholders.
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 2019 AGM. The Directors are proposing to seek renewal of that authority at the 2020 AGM.
Substantial shareholdings and agreements with shareholders
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:
Name of holder
Pension Protection Fund
London and Amsterdam Trust Company
Goodweather Holdings Limited*
Invesco Perpetual
Pelham Capital Management
Citigroup Global Markets Limited
Number of
Ordinary Shares
Percentage of total
voting rights
80,374,189
49,224,625
48,447,362
28,488,728
27,480,851
14,483,477
24.97%
15.29%
15.05%
8.85%
8.54%
4.50%
* Goodweather Holdings Limited is a member of the Peel Holdings Group Limited.
The Company’s relationship with the Pension Protection Fund (PPF) is governed by a relationship agreement pursuant to which, amongst other
things, the PPF is entitled to appoint a representative Director to the Board. The Company’s relationship agreement with Goodweather
Holdings Limited (Goodweather) ceased to have effect during 2019 when Goodweather reduced its shareholding to below 25% of the
Company’s issued share capital.
Change of control provisions
Under the terms of the revolving credit facility agreement entered between RBS and Harworth Estates Property Group Limited (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.
Agreements with related parties
Agreements entered into with related parties during 2019 are disclosed in Note 31 to the Financial Statements and referenced in the
Statement of Corporate Governance at pages 169 and 170.
The Directors’ Report was approved by the Board of Directors and signed by order of the Board:
Chris Birch
Group General Counsel and Company Secretary
4 June 2020
Annual Report and Financial Statements 2019 121
| Strategic Report | Corporate Governance | Financial Statements
Statement of Directors’ Responsibilities
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have prepared 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 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 comply with Companies Act 2006 and Article 4 of the IAS Regulation.
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.
Responsibility statements
Each of the Directors who were in office during the year ended 31 December 2019 and up to the date of this Report (see the list of names and
roles on page 120) confirms that, to the best of their knowledge:
•
•
•
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 and loss of the Company and Group; and
the Strategic Report includes a fair review of the development and performance of the business and the position of the Group and the
Company, together with a description of the principal risks and uncertainties they face; and
the 2019 Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Group’s and Company’s position, performance, business model and strategy.
Going concern
In assessing going concern and 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.
A review of the Group’s cashflows, solvency, liquidity positions and borrowing facilities has taken place alongside a review of progress against
the five-year strategic plan projections. A key focus of the assessment of going concern is the management of liquidity and compliance with
borrowing facilities for a minimum of the next 12 months.
In light of the current COVID-19 pandemic, which has had a significant impact on the Group and the wider economy, the first 18 months of the
strategic plan have been revised, reflecting management actions implemented in response and to reflect the effect and estimated impact of
COVID-19. At this stage, although we are starting to see a phased easing of restrictions on movement, it cannot be known with any certainty
how long and to what extent restrictions will remain in place, or the time it will take for the macro-economic climate and our markets to
recover.
The Group continues to remain in a strong position to withstand the potential impact, with cash and bank headroom of £64m (as at 30 April
2020). The spread of sites across its three core regions, and at all stages of their lifecycle, has enabled the close management of non-
committed expenditure to preserve liquidity. The Group benefits from diversification across its Capital Growth and Income Generation
businesses including an industrial and renewable energy property portfolio. The Income Generation portfolio has continued to generate
income that covers the overheads of the business and interest from loan facilities, with rent collections for the March quarter being broadly in
line with previous quarters.
122 Harworth Group plc
COVID-19 has created heightened risks with the potential to severely but, to a large extent, temporarily impact the Group’s liquidity. The key
risks to short-term viability in the context of COVID-19 are:
•
Finance – availability of capital, alongside shortfalls in income and valuation processes;
• Markets – a severe but temporary downturn in the residential and commercial markets could reduce potential sales of serviced land and
have an adverse impact on valuations;
•
•
Delivery – social distancing creating delays in project works on sites and in determining live planning applications; and
People – capacity and productivity are affected.
Since the onset of COVID-19, a number of management actions have been taken to adapt the Group. Capital has been prioritised on sites
where committed sales are in place resulting in infrastructure spend continuing on six major development sites. Sales of strategic and
non-core land have continued as expected and new lettings have been secured on properties. Discretionary overhead expenditure has been
reduced where possible. This aligns with our existing strategy to manage cashflows to fund our development spend and acquisition activity.
In April 2020, RBS and Santander agreed to increase the limit of the Revolving Credit Facility to £130m and provide greater flexibility in
covenants for the next 12 months. After due consideration of the ongoing economic uncertainty, the Board has taken a prudent decision to
not recommend a final dividend of 0.7p per share for the financial year ended 31 December 2019, preserving a further £2.2m of cash.
These actions have strengthened further what was an already robust liquidity position as we look ahead over the next 12 months. Whilst the
immediate focus is on the short-term liquidity, the longer-term impact of COVID-19 is also being considered.
Balance sheet and cashflow remain resilient throughout downside scenario analysis
A revised forecast was prepared to reflect the impact of COVID-19 and actions taken as set out above with a persisting downturn in activity
during 2020 and a medium-term recovery of the economy thereafter. Furthermore, a sensitised forecast was produced that had a number of
severe but plausible downsides reflected. These downsides included:
•
a severe reduction in sales to the housebuilding sector with the associated development spend being reduced to that which is only
committed at this point
• Minimal level of acquisitions spend
•
Reduced overhead and discretionary expenditure
• Notwithstanding strong rent collection to date in line with previous quarters, a material reduction in rents collected over the majority of the
going concern assessment period
•
A decline in land values and widening of industrial yields
Even allowing for these downsides, for at least 12 months from the signing of these financial statements, the Group continues to have sufficient
cash reserves, continues to operate with headroom on lending facilities and associated covenants and has additional mitigation measures that
could be deployed to create further cash and covenant headroom.
Based on these considerations, together with available market information and the Directors’ knowledge and experience of the Group’s
property portfolio and markets, the Directors considered it appropriate to adopt a going concern basis of accounting in the preparation of the
Company’s and Group’s financial statements.
Disclosure of information to the auditor
Each of the Directors who were in office at the date of approval of this Report also confirms that:
•
•
so far as they are aware, there is no relevant audit information of which the auditors are unaware; and
each Director has taken all the steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant
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 Companies Act.
This Statement of Directors’ Responsibilities was approved by the Board and signed by order of the Board:
Chris Birch
Group General Counsel and Company Secretary
4 June 2020
Annual Report and Financial Statements 2019 123
| Strategic Report | Corporate Governance | Financial Statements
Independent auditors’ report
to the members of Harworth Group plc
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 2019 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 2019 (the “Annual Report”), which comprise:
the Balance sheets as at 31 December 2019; 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 2019 to 31 December 2019.
Our audit approach
Overview
• Overall group materiality: £6.2 million (2018: £5.7 million), based on 1% of total assets.
• Specific group materiality: £1.2 million (2018: £0.6million), which represents 5% of profit before tax
excluding investment property valuation gains. This is applied to the consolidated income statement
excluding investment property valuation gains.
• Overall company materiality: £2.4 million (2018: £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 31 reporting units within these two business lines and the
Group’s centralised functions.
• Of the Group’s 31 reporting units, we identified 7 which, in our view, had the most significant effect on the
Balance Sheet and 7 on the Consolidated income statement due to their size or their risk characteristics. We
performed a full scope audit on the Balance Sheet and/or the Consolidated income statement as
appropriate. The reporting units subject to full scope audit work on the Balance Sheet and/or the
Consolidated income statement accounted for 98% of total assets and 88% of profit before tax. We also
identified 1 additional reporting unit that had large Balance sheet balances and 1 further reporting unit that
had large income statement balances. A full scope audit was performed over the large balances for these
reporting units.
•
This, together with additional procedures performed on the Group’s centralised functions, gave us the
evidence we needed for our opinion on the Group and company’s financial statements as a whole.
• Valuation of investment property (£293.8m) (Refer to note 15 of the financial statements) (Group)
• Carrying value of development property (£202.1m) (Refer to note 17 of the financial statements) (Group)
• Going concern consideration in relation to COVID-19 (Refer to the Statement of Directors’ Responsibilities
and note 1 of the financial statements) (Group)
• Carrying value of investments and intercompany receivables (£208.5m and £29.0m) (Refer to notes 16 and
18 of the financial statements) (Parent)
124 Harworth Group plc
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. 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 (£293.8m) (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 some 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 79% 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 evaluated 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.
Annual Report and Financial Statements 2019 125
| Strategic Report | Corporate Governance | Financial Statements 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 (£202.1m) (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 £202.1m as at 31
December 2019. 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.
Management received internal and external third party valuations on each
individual site. We read the third party property valuation reports obtained by
management for a sample of properties 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.
Going concern consideration in relation to COVID-19 (Refer to the
Statement of Directors’ Responsibilities and note 1 of the financial
statements) (Group and Company)
In assessing management’s consideration of the potential impact of COVID-19
on the Group and Company’s ability to continue as a going concern, we
undertook the following audit procedures:
Since the balance sheet date, the global COVID-19 pandemic has impacted
all businesses and continues to do so. Management and the board have
considered the potential impact of the COVID-19 pandemic on the current and
future operations of the Group and company. In doing so, management has
made assumptions that are critical to the outcomes of these considerations with
a particular focus on the Group, and hence company’s, liquidity and its ability to
pass the covenant tests within its external financing agreement.
Management renegotiated the facility in April 2020 to increase the available
facility to £130m on more flexible terms.
Management prepared a revised budget and forecast and also a sensitised
forecast that has severe but plausible downsides incorporated and modelled
this against the headroom on the revised facilities and associated covenants.
Due to the uncertainties created by the pandemic, there is a risk that the
pandemic may adversely impact on the performance and operations of the
Group, including the valuation of the property portfolio, may be adversely
impacted along with the Group’s and Company’s ability to continue as a going
concern for a period of at least 12 months from the date of approval of these
financial statements.
In discussing, challenging and evaluating the assumptions made by
management and the board, we noted the following factors that were
considered to be significant in their consideration of the potential impact of
COVID-19 on the current and future operations of the Group and which support
the statement of going concern and viability respectively:
• We obtained and read the renegotiated facility agreement and confirmed
the amendments made had been reflected by management;
• We obtained from management their latest assessments that support the
board’s evaluation and conclusions with respect to the statements of
going concern and viability respectively;
• We discussed with management and the board the critical assumptions
applied in their latest assessments so we could understand and challenge
the rationale behind underlying factors incorporated, and the sensitivities
applied as a result of COVID-19;
• We discussed with management and their external valuation expert the
potential impact of COVID-19 on the valuation of the property portfolio
and related covenant compliance. Together with our own valuation
experts, we challenged management and their experts as to potential
reductions in valuations and the plausibility of extreme reductions in the
valuations that would result in covenant breaches;
• We agreed deferred consideration included in the forecasts to the
underlying signed sales agreements;
• We agreed the cash receipts from the sale of development property in
April 2020 to the bank statements;
• We agreed proposed acquisitions to minutes from the Board meetings;
• We agreed rental income receipts in the first quarter of the year to 31
December 2020 to bank statements;
•
•
•
The ongoing collectability of rental income from tenants;
• We evaluated the stress testing and downsized sensitivities applied by
The recoverability of individually significant receivables balances relating
to previous property sales, specifically the deferred consideration within
Trade receivables from the sale of investment and development property
(see note 18);. and
The ability of the property portfolio valuation to withstand the impact of
COVID-19 on the wider economy and hence comply with the financial
covenants.
management, including the mitigating actions management could take,
to confirm that both management and the board have considered
plausible downside circumstances in their assessment of the potential
impact of COVID-19 on the Group and to confirm that the mitigating
actions are within management’s control and could be taken on a timely
basis;
• We assessed what changes in management’s forecasts were needed to
‘break’ the model of forecast headroom and covenant compliance.
Our findings in respect of going concern are set out in the “Going concern”
section below.
126 Harworth Group plc
Key audit matter
How our audit addressed the key audit matter
Carrying value of investments and intercompany receivables (£208.5m
and £29.0m) (Refer to notes 16 and 18 of the financial statements)
(Parent)
We compared the carrying value of the investments and the intercompany
receivables as at 31 December 2019 to the subsidiary’s net assets and assessed
the future cash flows of the subsidiaries.
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.
We have evaluated management’s IFRS 9 assessment for impairment of
intercompany receivables.
We also assessed the market capitalisation of the Company as at 31 December
2019.
Based on this work we are satisfied that the carrying value of the investments and
intercompany receivables are supported.
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: £6.2 million (2018: £5.7 million), based on 1% of total assets.
Specific group materiality: £1.2 million (2018: £0.6million), which represents 5% of profit before tax excluding investment property valuation gains.
This is applied to the consolidated income statement excluding investment property valuation gains.
Overall company materiality: £2.4 million (2018: £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
Group financial statements
£6.2 million (2018: £5.7 million).
Company financial statements
£2.4 million (2018: £2.4 million).
How we determined it
1% of total assets.
1% of total assets.
Rationale for benchmark applied
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.
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.
International Standards on Auditing (UK) also allow the auditor to set a lower materiality for particular classes of transactions, balances or disclosures
for which misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the
economic decisions of users taken on the basis of the financial statements. In this context, we set a lower level of materiality of £1.2 million (2018: £0.6
million), representing 5% of the Group’s profit before tax excluding investment property valuation gains. This is applied to the consolidated income
statement excluding investment property valuation gains.
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 £362,000 and £5.9 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 £310,000 (Group audit) (2018:
£289,000) and £120,000 (Company audit) (2018: £120,000) as well as misstatements below those amounts that, in our view, warranted reporting for
qualitative reasons.
Annual Report and Financial Statements 2019 127
| Strategic Report | Corporate Governance | Financial Statements Independent auditors’ report
to the members of Harworth Group plc
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.
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 2019 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 38 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 38 of the Annual Report as to how they have assessed the prospects of the group, over what period they have
done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the
group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing to report 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)
128 Harworth Group plc
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
•
•
•
The statement given by the directors, on page 122, 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 98 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 122, 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.
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 28 years, covering the years
ended 31 December 1992 to 31 December 2019.
Andy Ward (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Leeds
4 June 2020
Annual Report and Financial Statements 2019 129
| Strategic Report | Corporate Governance | Financial Statements Consolidated income statement
for the year ended 31 December 2019
Consolidated income statement
for the year ended 31 December 2019
Revenue
Cost of sales
Gross profit
Administrative expenses
Other gains
Other operating expense
Operating profit before exceptional items
Exceptional expense
Operating profit
Share of profit of joint ventures
Finance income
Finance costs
Profit before tax
Tax (charge)/credit
Profit for the financial year
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
Note
3
3
3
3
3
5
16
7
7
9
85,455
(57,512)
27,943
(12,926)
9,313
(69)
24,261
–
24,261
8,449
368
(2,775)
30,303
(4,823)
25,480
78,055
(53,612)
24,443
(12,870)
22,066
(70)
33,569
(590)
32,979
3,791
51
(4,013)
32,808
1,294
34,102
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
The Notes on pages 136 to 170 are an integral part of the consolidated financial statements.
Note
12
12
pence
7.9
7.9
pence
10.6
10.5
130 Harworth Group plc
Consolidated statement of comprehensive income
for the year ended 31 December 2019
Consolidated statement of
comprehensive income
for the year ended 31 December 2019
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
Deferred tax on other comprehensive (expense)/income items
Other comprehensive (expense)/income – items that may be reclassified subsequently to profit or
loss:
Fair value of financial instruments
Total other comprehensive expense
Total comprehensive income for the financial year
Note
25
9
23
Year ended
31 December
2019
£’000
25,480
Year ended
31 December
2018
£’000
34,102
(430)
149
(449)
(730)
(18)
(1)
13
(6)
24,750
34,096
Annual Report and Financial Statements 2019 131
| Strategic Report | Corporate Governance | Financial Statements
Balance sheets
as at 31 December 2019
Balance sheets
as at 31 December 2019
ASSETS
Non-current assets
Property, plant and equipment
Right of use assets
Trade and other receivables
Investment properties
Investment in subsidiaries
Investment in joint ventures
Retirement asset
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
Lease liability
Current tax liabilities
Net current assets
Non-current liabilities
Borrowings
Trade and other payables
Lease liability
Derivative financial instruments
Deferred income tax liabilities
Retirement benefit obligations
Total liabilities
Net assets
SHAREHOLDERS’ EQUITY
Capital and reserves
Called up share capital
Share premium account
Investment in own shares
Fair value reserve*
Capital redemption reserve
Merger reserve
Current year profit/(loss)
Retained earnings*
Total equity
Group
As at
31 December
2019
£’000
Note
Company
As at
31 December
2018
£’000
As at
31 December
2019
£’000
As at
31 December
2018
£’000
13
14
18
15
16
16
25
9
17
18
19
20
21
22
14
9
21
22
14
23
9
25
27
28
27
1,050
122
12,754
293,840
–
33,072
–
–
340,838
205,900
46,455
11,252
11,833
275,440
616,278
(2,842)
(56,608)
(58)
(2,725)
(62,233)
213,207
(79,902)
(1,200)
(70)
(558)
(7,765)
(771)
(90,266)
(152,499)
463,779
32,191
24,359
(67)
116,121
257
45,667
25,480
219,771
463,779
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)
441,936
32,150
24,351
(194)
118,563
257
45,667
34,102
187,040
441,936
–
–
–
–
208,473
–
771
1,970
211,214
–
29,167
–
1,506
30,673
241,887
–
(10,155)
–
–
(10,155)
20,518
–
–
–
–
–
(771)
(771)
(10,926)
230,961
32,191
24,359
(67)
–
257
45,667
(1,914)
130,468
230,961
–
–
–
–
208,400
–
462
1,926
210,788
–
30,219
–
1,116
31,335
242,123
–
(5,502)
–
–
(5,502)
25,833
–
–
–
–
–
(462)
(462)
(5,964)
236,159
32,150
24,351
(194)
–
257
45,667
(1,396)
135,324
236,159
*The Group fair value reserve and retained earnings reserves have been restated to reallocate fair value gains and losses between these reserves. See note 1 for further
detail.
The financial statements on pages 130 to 170 were approved by the Board of Directors on 4 June 2020 and were signed on its behalf by:
Owen Michaelson
Chief Executive
Company Registered Number 02649340
Katerina Patmore
Chief Financial Officer
132 Harworth Group plc
Consolidated statement of changes in equity
for the year ended 31 December 2019
Consolidated statement of changes in equity
for the year ended 31 December 2019
Called up
share
capital
£’000
Share
premium
account
£’000
Investment
in own
shares
£’000
Fair value
reserve
(restated)*
£’000
Capital
redemption
reserve
£’000
Merger
reserve
£’000
Retained
earnings
(restated)*
£’000
Note
Total
equity
£’000
Balance at 1 January 2018
32,150
24,351
(263) 105,064
257
45,667 202,085 409,311
Profit for the financial year
Fair value gains
Transfer of unrealised gains on disposal of properties
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
Balance at 31 December 2018 and
1 January 2019
Profit for the financial year
Fair value gains
Transfer of unrealised gains on disposal of properties
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 2019
Transactions with owners:
Share based payments
Dividends paid
Share issue
25
23
9
26
11
25
23
9
26
11
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
69
–
69
–
23,238
(9,739)
–
–
–
13,499
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
34,102
(23,238)
9,739
34,102
–
–
(18)
13
(1)
(18)
13
(1)
20,597
34,096
1,200
(2,740)
1,269
(2,740)
(1,540)
(1,471)
32,150
24,351
(194)
118,563
257
45,667
221,142 441,936
–
–
–
–
–
–
–
–
–
41
41
–
–
–
–
–
–
–
–
–
8
8
–
–
–
–
–
–
–
127
–
–
127
–
10,090
(12,532)
–
–
–
(2,442)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
25,480
(10,090)
12,532
25,480
–
–
(430)
(449)
149
(430)
(449)
149
27,192
24,750
(71)
(3,012)
–
56
(3,012)
49
(3,083)
(2,907)
Balance at 31 December 2019
32,191
24,359
(67)
116,121
257
45,667 245,251 463,779
*The fair value reserve and retained earnings reserves have been restated to reallocate fair value gains and losses between these reserves. See note 1 for further detail.
Annual Report and Financial Statements 2019 133
| Strategic Report | Corporate Governance | Financial Statements
Company statement of changes in equity
for the year ended 31 December 2019
Company statement of changes in equity
for the year ended 31 December 2019
Balance at 1 January 2018
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
Balance at 31 December 2018
and 1 January 2019
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 2019
Transactions with owners:
Share based payments
Dividends paid
Share issue
Note
25
11
25
11
Called up
share
capital
£’000
Share
premium
account
£’000
Investment
in own
shares
£’000
Capital
redemption
reserve
£’000
Merger
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
32,150
24,351
(263)
257
45,667 136,983 239,145
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
69
–
69
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,396)
(18)
3
(1,396)
(18)
3
(1,411)
(1,411)
1,096
(2,740)
(1,644)
1,165
(2,740)
(1,575)
32,150
24,351
(194)
257
45,667
133,928 236,159
–
–
–
–
–
–
41
41
–
–
–
–
–
–
8
8
–
–
–
–
127
–
–
127
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,914)
(430)
73
(1,914)
(430)
73
(2,271)
(2,271)
(91)
(3,012)
–
(3,103)
36
(3,012)
49
(2,927)
Balance at 31 December 2019
32,191
24,359
(67)
257
45,667
128,554
230,961
134 Harworth Group plc
Statements of cash flows
for the year ended 31 December 2019
Statements of cash flows
for the year ended 31 December 2019
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
Depreciation of right of use assets
Pension contributions in excess of charge
Operating cash inflows/(outflows) before movements
in working capital
Decrease in inventories
Decrease/(increase) in receivables
Increase in payables
Cash generated/(used in) from operations
Interest paid
Corporation tax (paid)/received
Cash generated/(used in) from operating activities
Cash flows from investing activities
Interest received
Investment in joint ventures
Distributions from joint ventures
Net proceeds from disposal of investment properties, assets held
for sale and overages
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
Loan arrangement fees paid
Share based transactions
Payment in respect of leases
Dividends paid
Cash generated from/(used in) financing activities
Note
7
3
16
13
14
11
Increase/(decrease) in cash
At 1 January
Cash
Increase/(decrease) in cash
At 31 December
Cash
Group
Company
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
30,303
2,407
(9,313)
(8,449)
96
43
(120)
14,967
2,161
7,490
4,953
29,571
(2,337)
(1)
27,233
368
(2,592)
3,799
18,108
(49,574)
(352)
(30,243)
49
–
(15,000)
32,000
(7,669)
(62)
(19)
(39)
(3,012)
6,248
3,238
8,595
3,238
11,833
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
(64,124)
(1)
(19,163)
–
8,650
(46,730)
81,739
(12,209)
(566)
–
–
(2,740)
28,144
224
8,371
224
8,595
(1,859)
(452)
–
–
–
–
(120)
(2,431)
–
1,052
4,344
2,965
(196)
–
2,769
648
–
–
–
–
–
648
49
–
–
–
–
–
(64)
–
(3,012)
(3,027)
390
1,116
390
1,506
(2,995)
(581)
–
–
–
–
(120)
(3,696)
–
3,049
3,235
2,588
–
–
2,588
1
–
–
–
–
–
1
–
–
–
–
–
–
–
–
(2,740)
(2,740)
(151)
1,267
(151)
1,116
Annual Report and Financial Statements 2019 135
| Strategic Report | Corporate Governance | Financial Statements
Notes to the financial statements
for the year ended 31 December 2019
Notes to the financial statements
for the year ended 31 December 2019
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 for the Group, as well as taking into
account available borrowing facilities.
In light of the current COVID-19 pandemic, which has had a significant impact on the Group and the wider economy, the first 18 months of the strategic
plan have been revised, reflecting management actions implemented in response and to reflect the effect and estimated impact of COVID-19. At this
stage, although we are starting to see a phased easing of restrictions on movement, it cannot be known with any certainty how long and to what extent
restrictions will remain in place, or the time it will take for the macro-economic climate and our markets to recover.
The Group continues to remain in a strong position to withstand the potential impact, with cash and bank headroom of £64m (as at 30 April 2020). The
spread of sites across its three core regions, and at all stages of their lifecycle, has enabled the close management of non-committed expenditure to
preserve liquidity. The Group benefits from diversification across its Capital Growth and Income Generation businesses including an industrial and
renewable energy property portfolio. The Income Generation portfolio has continued to generate income that covers the overheads of the business
and interest from loan facilities, with rent collections for the March quarter being broadly in line with previous quarters.
COVID-19 has created heightened risks with the potential to severely but, to a large extent, temporarily impact the Group’s liquidity. The key risks to
short-term viability in the context of COVID-19 are:
•
Finance – availability of capital, alongside shortfalls in income and valuation processes;
• Markets – a severe but temporary downturn in the residential and commercial markets could reduce potential sales of serviced land and have an
adverse impact on valuations;
• Delivery – social distancing creating delays in project works on sites and in determining live planning applications; and
•
People – capacity and productivity are affected.
Since the onset of COVID-19, a number of management actions have been taken to adapt the Group. Capital has been prioritised on sites where
committed sales are in place resulting in infrastructure spend continuing on six major development sites. Sales of strategic and non-core land have
continued as expected and new lettings have been secured on properties. Discretionary overhead expenditure has been reduced where possible. This
aligns with our existing strategy to manage cashflows to fund our development spend and acquisition activity.
In April 2020, RBS and Santander agreed to increase the limit of the Revolving Credit Facility to £130m and provide greater flexibility in covenants for the
next 12 months. After due consideration of the ongoing economic uncertainty, the Board has taken a prudent decision to not recommend a final
dividend of 0.7p per share for the financial year ended 31 December 2019, preserving a further £2.2m of cash.
These actions have strengthened further what was an already robust liquidity position as we look ahead over the next 12 months. Whilst the immediate
focus is on the short-term liquidity, the longer-term impact of COVID-19 is also being considered.
Balance sheet and cashflow remain resilient throughout downside scenario analysis
A revised forecast was prepared to reflect the impact of COVID-19 and actions taken as set out above with a persisting downturn in activity during 2020
and a medium-term recovery of the economy thereafter. Furthermore, a sensitised forecast was produced that had a number of severe but plausible
downsides reflected. These downsides included:
•
a severe reduction in sales to the housebuilding sector with the associated development spend being reduced to that which is only committed at
this point
• Minimal level of acquisitions spend
•
•
Reduced overhead and discretionary expenditure
Notwithstanding strong rent collection to date in line with previous quarters, a material reduction in rents collected over the majority of the going
concern assessment period
• A decline in land values and widening of industrial yields
Even allowing for these downsides, for at least 12 months from the signing of these financial statements, the Group continues to have sufficient cash
reserves, continues to operate with headroom on lending facilities and associated covenants and has additional mitigation measures that could be
deployed to create further cash and covenant headroom.
Based on these considerations, together with available market information and the Directors’ knowledge and experience of the Group’s property
portfolio and markets, the Directors considered it appropriate to adopt a going concern basis of accounting in the preparation of the Company’s and
Group’s financial statements.
136 Harworth Group plc
Accounting policies: continued
1.
Prior year adjustment
The fair value and retained earnings reserves have been restated at 1 January 2018 and 31 December 2018 to correctly reallocate fair value gains and
losses between these reserves. This restatement has reallocated negative fair values from the fair value reserve to retained earnings and removed fair
value gains on properties disposed of from the fair value reserve to retained earnings.
This restatement has no impact on the net assets of the Group at 1 January 2018 and 31 December 2018 or on the profit for the year to 31 December
2018. The impact of the restatement at 31 December 2018 is to increase the fair value reserve from £99.8m to £118.6m, and 1 January 2018 increase fair
value reserve from £85.1m to £105.1m and reduce the retained earnings reserve at 31 December 2018 from £239.9m to £221.1m, and 1 January 2018
reduce the retained earnings reserve from £222.0m to £202.1m.
This restatement has no effect on dividends paid or on the ability of the Group to pay future dividends.
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.
Changes in accounting policy and disclosures
(a) New standards, amendments and interpretations
The new standards, amendments or interpretations effective for the first time for the financial year beginning on or after 1 January 2019 are:
•
IFRS 16, ‘Leases’ addresses the definition of a lease, recognition and measurement of leases and establishes principles for reporting useful
information to users of financial statements about the leasing activities of both lessees and lessors. A key change arising from IFRS 16 is that most
operating leases will be accounted for on balance sheet for lessees. The standard replaces IAS 17 ‘Leases’, and related interpretations. The standard
is effective for annual periods beginning on or after 1 January 2019. On transition to IFRS 16 on 1 January 2019 the Group has recognised right to use
assets of £0.1m and a corresponding lease liability of £0.1m.
(b) New standards, amendments and interpretations not yet adopted
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning on or after 1 January 2020 and
have not been applied in preparing these financial statements. None of these are expected to have a significant effect on the financial statements of the
Group.
Revenue recognition
Under IFRS 15, ‘Revenue from Contracts with Customers’ revenue is measured based on the consideration specified in a contract with a customer and
excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers control over a product or service to a customer.
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.
Rental and other land related income is recognised on a straight line basis over the term of the lease. Lease incentives, including rent free periods and
payments to tenants, are allocated to the consolidated income statement on a straight line basis over the lease term as a deduction from rental and other
land related income.
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 planning promotion agreements, promote fees 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.
The sale of development properties, including land parcels sold to housebuilders for residential development, usually have performance obligations
such as transferring legal title that are satisfied at a point in time. Revenue is recognised when control of the property has passed to the buyer on
completion of contracts. Any variable consideration including overages is estimated at the point of sale taking into consideration the time to recover
overage amounts as well as other factors which may give rise to variability. It is only recognised to the extent that it is highly probable that there will not
be a significant reversal in the future. Any deferred consideration is discounted to present value with the discount being unwound to the consolidated
income statement as finance income.
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. Revenue on construction contracts is recognised in line
with when performance obligations are deemed to be satisfied. 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.
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.
Annual Report and Financial Statements 2019 137
| Strategic Report | Corporate Governance | Financial Statements Notes to the financial statements
for the year ended 31 December 2019: continued
Notes to the financial statements
for the year ended 31 December 2019: continued
Accounting policies: continued
1.
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 in subsidiaries
Investments in subsidiaries are reviewed for impairment if there is any indication that the carrying amount may not be recoverable.
When a review for impairment is conducted, the recoverable amount is assessed by reference to the higher of ‘value in use’ (being the present value of
expected future cash flows of the relevant cash generating unit) or ‘fair value less costs to sell’. Where there is no binding sale agreement or active market,
fair value less costs to sell is based on the best information available to reflect the amount the Company could receive for the cash generating unit in an arm’s
length transaction.
The impairment testing is carried out under the principles described in IAS 36 ‘Impairment of assets’ which includes a number of restrictions on the future
cash flows that can be recognised in respect of restructurings and improvements related to capital expenditure.
Investment properties
Investment properties are those properties which are not occupied by the Group and which are held for long term rental yields, capital appreciation or
both. Investment property also includes property that is being developed or constructed for future use as investment property by the Group. Investment
properties comprise freehold land and buildings and are measured at fair value. At the end of a financial year the fair values are determined by obtaining an
independent valuation prepared in accordance with the current edition of the Appraisal and Valuation Standards published by the Royal Institution of
Chartered Surveyors. External, independent valuation firms having appropriate, recognised professional qualifications and recent experience in the
location and category of property being valued are used. A transfer to the fair value reserve is made for all fair value gains in the year from retained earnings.
Where there have been previous fair value gains transferred to the fair value reserve and fair value losses have been incurred in the year then a transfer is
made to retained earnings to offset as much of the fair value losses as possible.
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) 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.
138 Harworth Group plc
Accounting policies: continued
1.
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 assessed for their recoverability under the Expected Credit Loss model on a periodic basis with a provision being made if required under
this model. 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.
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 2019 and 31 December 2018 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.
Annual Report and Financial Statements 2019 139
| Strategic Report | Corporate Governance | Financial Statements Notes to the financial statements
for the year ended 31 December 2019: continued
Accounting policies: continued
1.
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 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
140 Harworth Group plc
Accounting policies: continued
1.
the subsidiary holding the asset, to which a different tax rate may apply. The deferred tax is then calculated based on the respective temporary
differences and tax consequences arising from recovery through sale.
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 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.
Estimation of 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.
Taxation
The recognition of tax losses and deferred tax assets is a judgement and continues to be reviewed and re-assessed during the year. This has resulted in
the recognition of £1.9m (2018: £2.4m) of previously unrecognised tax losses due to increased certainty of their availability to the Group
2. Alternative Performance Measures (“APMs”)
Introduction
The Group has applied the December 2019 European Securities and Markets Authority (“ESMA”) guidance on APMs and the November 2017 Financial
Reporting Council (“FRC”) corporate thematic review of APMs in these results. An APM is a financial measure of historical or future financial
performance, position or cash flows of the Group which is not a measure defined or specified in IFRS.
Overview of our use of APMs
The Directors believe that APMs assist in providing additional useful information on the underlying trends, performance and position of the Group.
APMs assist our stakeholder users of the accounts, particularly equity and debt investors, through the comparability of information. APMs are used by
the Directors and management, both internally and externally, for performance analysis, strategic planning, reporting and incentive-setting purposes.
APMs are not defined by IFRS and therefore may not be directly comparable with other companies’ APMs, including peers in the real estate industry.
APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measurements.
The derivations of our APMs and their purpose
The primary differences between IFRS statutory amounts and the APMs that we use are as follows:
1.
2.
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;
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
3.
Comparability with industry peers – Harworth discloses some APMs which are European Public Real Estate Association (“EPRA”) measures as
these are a set of standard disclosures for the property industry and thus aid comparability for our stakeholder users.
Our key APMs
The key APMs that the Group focuses on are as follows:
•
Total return – The movement in EPRA NNNAV per share plus dividends paid in the year per share expressed as a percentage of opening NNNAV per share;
• EPRA NNNAV growth – The movement in EPRA NNNAV per share expressed as a percentage of opening NNNAV per share;
• Value gains – This is the realised profits from the sales of properties and unrealised profits from property value movements including joint ventures and
the mark to market movement on development properties, assets held for sale and overages;
•
Profit excluding value gains – Property net rental, royalty and fee income, net of running costs of the business which represents the underlying
profitability of the business not reliant on property value gains or profits from the sales of development properties; and
• Net loan to portfolio value - Group debt net of cash held expressed as a percentage of portfolio value.
Annual Report and Financial Statements 2019 141
| Strategic Report | Corporate Governance | Financial Statements Notes to the financial statements
for the year ended 31 December 2019: continued
2. Alternative Performance Measures (“APMs”): continued
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 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 assets held for sale
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
Release of net realisable value provision on disposal 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
Revaluation gains
Profit on sale
Value gains
d. Profit excluding value gains (PEVG)
Operating profit before exceptional items
Add pension charge
Less other gains
Less gross profit from development properties
PEVG
e. Total property sales
Revenue
Less revenue from other property activities
Less revenue from income generation activities
Add gross 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 assets held for sale
Unrealised gains on overages
Less unrealised gains on development properties released on sale in the year
Operating profit before exceptional items contributing to growth in EPRA NNNAV
142 Harworth Group plc
Year ended
31 December
2019
£000
Year ended
31 December
2018
£000
Note
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
5,841
–
(229)
–
8,449
(3,574)
3,061
13,548
21,385
584
25
21,483
(2,000)
–
45
3,791
(4,767)
3,031
21,583
22,945
–
3,541
35,542
48,069
545
3,156
10,882
1,168
15,751
(7,247)
8,504
35,542
8,504
44,046
24,261
69
(9,313)
(11,537)
3,480
85,455
(964)
(23,468)
18,836
79,859
24,261
8,449
21,385
584
25
(7,247)
47,457
2,374
164
3,469
–
6,007
(2,794)
3,213
48,069
3,213
51,282
33,569
70
(22,066)
(1,733)
9,840
78,055
(7,629)
(25,601)
48,338
93,163
33,569
3,791
22,945
–
3,541
(2,794)
61,052
2. Alternative Performance Measures (“APMs”): continued
g. Portfolio value
Land and buildings
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 assets held for sale 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 core income portfolio value
Net debt
Income portfolio value (business space and natural resources)
Net loan to core income portfolio value (%)
k. Gross loan to portfolio value
Gross borrowings
Portfolio value
Gross loan to portfolio value (%)
l. Gross loan to core income portfolio value
Gross borrowings
Income portfolio value
Gross loan to core 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)
Note
13
15
16
19
17
Year ended
31 December
2019
£000
Year ended
31 December
2018
£000
787
293,840
33,072
11,252
202,092
541,043
40,135
584
3,566
787
254,409
25,830
10,956
204,157
496,139
25,997
–
3,541
585,328
525,677
21
20
(82,744)
11,833
(70,911)
(73,038)
8,595
(64,443)
(70,911)
585,328
12.1%
(64,443)
525,677
12.3%
(70,911)
200,984
35.3%
(64,443)
187,648
34.3%
21
(82,744)
585,328
14.1%
(73,038)
525,677
13.9%
21
(82,744)
200,984
41.2%
(73,038)
187,648
38.9%
27 321,909,382
(132,015)
27
321,496,760
(181,771)
27 321,777,367
321,314,989
463,779
321,777,367
441,936
321,314,989
144.1
137.5
Annual Report and Financial Statements 2019 143
| Strategic Report | Corporate Governance | Financial Statements
Notes to the financial statements
for the year ended 31 December 2019: continued
2. Alternative Performance Measures (“APMs”): continued
2) Reconciliation to EPRA measures
a. EPRA NNNAV
Net assets
Cumulative unrealised gains on development properties
Cumulative unrealised gains on assets held for sale
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)
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 EPRA NNNAV
f. Net loan to EPRA NNNAV
Net debt £’000
EPRA NNNAV £’000
Net loan to EPRA NNNAV
144 Harworth Group plc
Year ended
31 December
2019
£000
Note
463,779
40,135
584
3,566
(7,529)
Year ended
31 December
2018
£000
441,936
25,997
–
3,541
(5,021)
500,535
466,453
9
500,535
7,529
7,765
558
516,387
466,453
5,021
4,964
109
476,547
500,535
27 321,777,367
466,453
321,314,989
155.6
145.2
516,387
27 321,777,367
476,547
321,314,989
160.5
148.3
145.2
155.6
10.4
7.2%
0.9
11.3
7.8%
128.9
145.2
16.3
12.6%
0.9
17.2
13.3%
(70,911)
500,535
14.2%
(64,443)
466,453
13.8%
(10,821)
30,303
Segment Information
3.
31 December 2019
Capital Growth
Revenue
Cost of sales
Gross profit(1)
Administrative expenses
Other gains(2)
Other operating expense
Operating profit/(loss)
Share of profit of joint ventures
Finance income
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
Release of net realisable value provision on disposal of
development properties
(2) Other gains
Other gains are analysed as follows:
(Decrease)/increase in fair value of investment properties
Decrease in the fair value of assets classified as held for sale
Profit on sale of investment properties
Profit on sale of assets classified as held for sale
Non-current assets
Property, plant and equipment
Right of use assets
Other receivables
Investment properties
Investments in joint ventures
Current assets
Inventories
Trade and other receivables
Assets classified as held for sale
Cash
Total assets
Note
Sale of
Development
Properties
£’000
61,023
(49,486)
11,537
–
–
–
11,537
–
–
–
11,537
–
10,882
(3,574)
3,061
1,168
11,537
–
–
–
–
–
16
7
7
Note
13
14
18
15
16
17
18
19
20
Other
Property
Activities
£’000
964
(960)
4
(2,650)
24
–
(2,622)
7,026
317
–
4,721
4
–
–
–
–
4
(311)
–
–
335
24
Income
Generation
£’000
Central
overheads
£’000
23,468
(7,066)
16,402
(2,248)
9,289
–
23,443
1,423
–
–
24,866
16,402
–
–
–
–
16,402
6,152
(229)
545
2,821
9,289
–
–
–
(8,028)
–
(69)
(8,097)
–
51
(2,775)
–
–
–
–
–
–
–
–
–
–
–
Capital
Growth
£’000
Income
Generation
£’000
Central
overheads
£’000
–
–
12,754
84,737
23,149
–
–
–
209,103
9,923
120,640
219,026
205,217
39,668
600
–
245,485
366,125
683
4,825
10,652
–
16,160
235,186
1,050
122
–
–
–
1,172
–
1,962
–
11,833
13,795
14,967
Total
£’000
85,455
(57,512)
27,943
(12,926)
9,313
(69)
24,261
8,449
368
(2,775)
16,406
10,882
(3,574)
3,061
1,168
27,943
5,841
(229)
545
3,156
9,313
Total
£’000
1,050
122
12,754
293,840
33,072
340,838
205,900
46,455
11,252
11,833
275,440
616,278
Financial liabilities and derivative financial instruments are not allocated to the reporting segments as they are managed and measured on a Group
basis.
Annual Report and Financial Statements 2019 145
| Strategic Report | Corporate Governance | Financial Statements
Notes to the financial statements
for the year ended 31 December 2019: continued
Segment Information: continued
3.
31 December 2018
Capital Growth
Group
Revenue
Cost of sales
Gross profit(1)
Administrative expenses
Other gains(2)
Other operating expense
5
16
7
7
Operating profit/(loss) before exceptional items
Exceptional expense
Operating profit/(loss)
Share of profit of joint ventures
Finance income
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 fair value of other receivables
Profit on sale of investment properties
Profit on sale of assets classified as held for sale
Other gains
Segmental assets
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
Note
Sale of
Development
Properties
£’000
44,825
(43,092)
Other
Property
Activities
£’000
Income
Generation
£’000
Central
Overheads
£’000
1,733
5,707
17,003
1,733
–
–
–
1,733
–
1,733
–
–
–
1,733
–
3,469
(4,767)
3,031
–
–
–
–
–
–
Note
13
15
16
17
18
19
7,629
(1,922)
5,707
(2,473)
8,658
–
11,892
–
11,892
(5)
–
–
11,887
5,707
–
–
–
25,601
(8,598)
17,003
(2,171)
13,408
–
28,240
–
28,240
3,796
–
–
32,036
17,003
–
–
–
9,859
(2,000)
799
–
–
8,658
11,624
–
1,575
164
45
13,408
–
–
–
(8,226)
–
(70)
(8,296)
(590)
(8,886)
–
51
(4,013)
(12,848)
–
–
–
–
–
–
–
–
–
–
–
Capital
Growth
£’000
–
55,019
1,087
56,106
206,635
42,976
2,775
–
252,386
308,492
Income
Generation
£’000
Central
Overheads
£’000
–
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
51
(4,013)
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.
146 Harworth Group plc
4. Operating profit
Operating profit before tax is stated after (crediting)/charging:
Net movement in net realisable value provision on development properties
Staff costs
Depreciation of property, plant and equipment
5.
Exceptional expense
Costs associated with the step-up from standard to premium listing
Total exceptional expense
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
(655)
7,523
96
1,736
7,846
9
Note
17
6
13
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
–
–
(590)
(590)
Employee information
6.
The monthly average number of persons (including Executive Directors) employed by the Group and Company 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
2019
Number
Year ended
31 December
2018
Number
Year ended
31 December
2019
Number
Year ended
31 December
2018
Number
70
70
58
58
3
3
3
3
Group
Company
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
6,469
603
451
7,523
6,934
544
368
7,846
1,192
89
55
1,336
2,198
143
53
2,394
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
Share-based payments
Group
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
2,567
138
121
2,826
4,038
120
929
5,086
Detailed information relating to Directors’ remuneration is disclosed in the Directors’ remuneration report on pages 101 to 117 and forms part of these
financial statements.
Annual Report and Financial Statements 2019 147
| Strategic Report | Corporate Governance | Financial Statements
Notes to the financial statements
for the year ended 31 December 2019: continued
7. Net finance costs
Total finance income
Finance costs
– Bank interest
– Facility fees
– Other interest
Total finance costs
Net finance costs
During the year no interest has been capitalised in investment or development properties (2018: £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
– Fees relating to transaction*
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
368
51
(2,026)
(455)
(294)
(2,775)
(2,407)
(1,888)
(1,507)
(618)
(4,013)
(3,962)
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
125
120
25
10
–
280
50
121
16
15
331
533
* 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.
9.
Tax (charge)/credit
Analysis of tax (charge)/credit in the year
Current tax
Current year
Adjustment in respect of prior periods
Total current tax (charge)/credit
Deferred tax
Current year
Adjustment in respect of prior periods
Difference between current tax rate and rate of deferred tax
Total deferred tax (charge)/credit
Tax (charge)/credit
Other comprehensive income items
Deferred tax – current year
Total
148 Harworth Group plc
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
(2,346)
549
(1,797)
(4,331)
849
456
(3,026)
(4,823)
(922)
1,804
882
49
366
(3)
412
1,294
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
149
149
(1)
(1)
9.
Tax (charge)/credit: continued
The tax for the year is lower (2018: lower) than the standard rate of corporation tax in the UK of 19.00% (2018: 19.00%).
The differences are explained below:
Profit before tax
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
30,303
32,808
Profit before tax multiplied by rate of corporation tax in the UK of 19.00% (2018: 19.00%)
(5,758)
(6,234)
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 (losses)/gains
Share of profit of joint ventures
Land remediation relief
Difference between current tax rate and rate of deferred tax
Deferred tax not previously recognised
Losses not previously recognised
Share options
Total tax (charge)/credit
849
549
6
(526)
(4,287)
1,605
341
456
–
1,921
21
(4,823)
366
1,804
828
(471)
2,404
–
–
(3)
(80)
2,432
248
1,294
The revaluation losses in the tax reconciliation of £4.3m (2018: gains of £2.4m) relate to deferred tax recognised on chargeable losses and gains of
investment property.
The tax losses, not previously recognised of £1.9m (2018: £2.4m), have been recognised during the year, as a result of increased certainty regarding
their availability to the Group.
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 £0.5m (2018: £1.8m) and a deferred tax credit of £0.8m
(2018: £0.4m) compared to the original tax provision prepared for inclusion within the prior year financial statements.
At 31 December 2019, the Group had a current tax liability of £2.7m (2018:£0.9m).
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 2018
Recognised in consolidated income statement
Recognised in consolidated statement of comprehensive income
Recognised in consolidated statement of equity
At 31 December 2018 and 1 January 2019
Recognised in consolidated income statement
Recognised in consolidated statement of comprehensive income
Recognised in consolidated statement of equity
At 31 December 2019
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
(15,637)
7,872
(7,765)
(12,312)
7,348
(4,964)
Investment
properties
£’000
(13,067)
1,276
–
–
(11,791)
(3,846)
–
–
(15,637)
Tax
losses
£’000
5,905
52
–
–
5,957
231
–
–
Other
temporary
differences
£’000
1,641
(916)
(1)
146
870
589
149
76
6,188
1,684
Total
£’000
(5,521)
412
(1)
146
(4,964)
(3,026)
149
76
(7,765)
There are UK corporation tax losses carried forward of £6.2m (2018: £6.0m); these may be carried forward indefinitely as there is no time limit in
respect of using these deferred tax assets.
Annual Report and Financial Statements 2019 149
| Strategic Report | Corporate Governance | Financial Statements
Notes to the financial statements
for the year ended 31 December 2019: continued
Tax (charge)/credit: continued
9.
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 17% (2018: 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% (2018: 17%) being the rate expected to apply to the reversal of the liability. The Chancellor delivered in the March 2020 Budget that the
proposed reduction in the UK corporation tax rate to 17% on 1 April 2020 had been postponed. As this postponement had not been substantively
enacted at 31 December 2019 this is considered to be a non-adjusting post balance sheet event and no adjustment has been made to deferred tax as
at this date.
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 £3.7m at 31 December 2019 have not been recognised owing to the uncertainty as to their recoverability. Deferred tax assets of
£5.5m were not recognised at 31 December 2018.
The Company has recognised a deferred tax asset in 2019 of £2.0m (2018: £1.9m) and has a potential deferred tax asset of £nil (2018: £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 £1.9m (2018: £1.4m) and the total comprehensive expense for the
financial year was £2.3m (2018: £1.4m).
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 2018
Interim dividend for the six months ended 30 June 2019
2019
Per share
pence
–
–
0.63
0.30
Total
£’000
–
–
2,035
977
3,012
2018
Per share
pence
0.58
0.28
–
–
Total
£’000
1,847
893
–
–
2,740
The Board is not recommending a final dividend for the year ended 31 December 2019 whilst the uncertainty in the macro economic environment
persists. The total dividend for the year ended 31 December 2019 was 0.30 pence per share (2018: 0.91 pence per share).
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 2019 includes the adjustments necessary to reflect
the new shares issued on 25 January 2019, 23 September 2019 and 21 October 2019 (see note 27).
Profit from continuing operations attributable to owners of the parent
Year ended
31 December
2019
£’000
25,480
Year ended
31 December
2018
£’000
34,102
Weighted average number of shares used for basic earnings per share calculation
321,502,838
321,284,013
Basic earnings per share (pence)
Weighted average number of shares used for diluted earnings per share calculation
Diluted earnings per share (pence)
7.9
10.6
322,943,178
323,754,853
7.9
10.5
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 1,440,340 (2018: 2,470,840).
150 Harworth Group plc
13. Property, plant and equipment
Group
Net book value at 1 January 2018
Additions at cost
Depreciation charge
Net book value at 31 December 2018 and 1 January 2019
Additions at cost
Depreciation charge
Net book value at 31 December 2019
At 31 December 2019
Cost or fair value
Accumulated depreciation
Net book value
At 31 December 2018
Cost or fair value
Accumulated depreciation
Net book value
14. Right of use assets
Group
Right of use assets
Buildings
Vehicles
Lease liabilities
Current
Non-current
Land and
Buildings
£’000
Office
equipment
£’000
787
–
–
787
–
–
787
787
–
787
787
–
787
15
1
(9)
7
352
(96)
263
378
(115)
263
26
(19)
7
Total
£’000
802
1
(9)
794
352
(96)
1,050
1,165
(115)
1,050
813
(19)
794
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
53
69
122
58
70
128
–
–
–
–
–
–
In the previous year the Group did not have any leases that were classified as ‘finance leases’ under IAS 17 Leases. For adjustments recognised on
adoption of IFRS 16 on 1 January 2019 refer to note 30.
Additions to right of use assets during 2019 was £0.1m.
Group
Depreciation charge of right of use assets
Buildings
Vehicles
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
12
31
43
–
–
–
The total cash outflow for leases in 2019 was £0.0m.
The Group leases a number of offices and vehicles. Rental contracts are typically made for fixed periods of 3 years but may have extension options.
Contracts may contain both lease and non-lease components. The Group allocates the consideration in the contract to the lease and non-lease
components based on their relative stand-alone prices. However, for leases of real estate for which the Group is a lessee, it has elected not to separate
lease and non-lease components and instead accounts for these as a single lease component.
Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any
covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes.
Until the end of the 2018 financial year, leases of property, plant and equipment were classified as either finance leases or operating leases, see note
30 for details. From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is
available for use by the Group.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following
lease payments:
•
•
fixed payments (including in-substance fixed payments), less any lease incentives receivable
variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date.
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
Annual Report and Financial Statements 2019 151
| Strategic Report | Corporate Governance | Financial Statements
Notes to the financial statements
for the year ended 31 December 2019: continued
Investment properties
15.
Investment property at 31 December 2019 and 31 December 2018 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.
At 1 January 2018
Direct acquisitions
Subsequent expenditure
Disposals
(Decrease)/increase in fair value
Transfers between divisions
Re-categorisation as development property in
inventories
Net transfer (to)/from assets classified as held
for sale
Income Generation
Capital Growth
Agricultural
land
£’000
22,327
Natural
resources
£’000
31,300
–
–
–
(308)
(1,401)
220
–
2,014
(1,429)
8,713
5,533
182
Business
space
£’000
119,801
43,651
5,365
–
3,219
(12,528)
(1,384)
Major
developments
£’000
20,000
–
73
(19,336)
3,001
6,159
(8)
Strategic
land
£’000
23,132
10,771
2,244
(120)
6,858
2,237
–
Total
£’000
216,560
54,422
9,696
(20,885)
21,483
–
(990)
(9,096)
(834)
(15,955)
–
8
(25,877)
At 31 December 2018 and 1 January 2019
11,742
45,479
142,169
9,889
45,130
254,409
Direct acquisitions
Subsequent expenditure
Disposals
(Decrease)/increase in fair value
Transfers between divisions
Re-categorisation as development properties in
inventories
Net transfer to assets classified as held for sale
At 31 December 2019
–
56
–
(584)
(514)
–
454
946
(463)
3,306
1,183
–
20,507
811
(120)
3,430
(6,000)
–
5,337
498
–
(835)
–
–
11,973
8,651
(40)
524
5,331
(1,052)
38,271
10,962
(623)
5,841
–
(1,052)
(2,581)
8,119
(10,718)
40,187
–
–
(669)
(13,968)
160,797
14,889
69,848
293,840
Included within investment properties (agricultural land) is a provision of £3.2m (2018: £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 £1.1m (2018: £1.0m) 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.
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 2019 (2018: none).
152 Harworth Group plc
Investment properties: continued
15.
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.
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 2019
Reversionary rental yield %
Land value per acre £’000
Agricultural
land
Natural
resources
Business
space
Major
developments
Strategic
land
weighted average
low
high
weighted average
low
high
–
–
–
3
1
21
–
–
–
25
5
235
9.37
4.84
14.16
412
140
2,840
–
–
–
232
213
246
–
–
–
55
12
294
Cost report totals*
£’000
4,020
14,400
–
8,448
181,409
At 31 December 2018
Reversionary rental yield %
Land value per acre £’000
Cost report totals*
weighted average
low
high
weighted average
low
high
£’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
* Cost report totals represent the estimated cost to bring investment properties to their highest and best use. There is £201.0m (2018: £205.5m) of cost report totals that
now relate to development properties (shown in inventories at deemed cost) and therefore are not disclosed in this note.
Annual Report and Financial Statements 2019 153
| Strategic Report | Corporate Governance | Financial Statements
Notes to the financial statements
for the year ended 31 December 2019: continued
Investment properties: continued
15.
The table below shows some possible sensitivities to the key valuation metrics and the resultant changes to the valuations.
At 31 December 2019
Valuation metric
Value per acre
Rental
Yield (e.g. 11% to 10%)
Cost report totals
At 31 December 2018
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%
406
–
–
201
2,009
–
–
720
8,040
7,773
20,907
–
744
–
–
422
3,492
–
–
9,070
+/– 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
The property rental income earned by the Group from its occupied investment property, all of which is leased out under operating leases amounted to
£13.6m (2018: £12.2m). Direct operating expenses arising on investment property generating rental income in the year amounted to £5.1m
(2018: £4.9m).
The bank and other loans are secured by way of fixed equitable charges over investment and development properties.
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
2019
£’000
Year ended
31 December
2018
£’000
208,400
73
208,473
207,896
504
208,400
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
Group
At 1 January
Net (distribution from)/investment in joint ventures
Share of profit of joint ventures
At 31 December
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
25,830
(1,207)
8,449
33,072
18,838
3,201
3,791
25,830
154 Harworth Group plc
Investments: continued
16.
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
• Ansty Development Vehicle LLP
• Crimea Land Mansfield LLP
• Northern Gateway Development Vehicle LLP
The details of ownership of these joint ventures is disclosed on page 156.
The Group received £nil (2018: £nil) of dividends from these joint ventures during the year.
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
Revenue
Cost of sales
Gross (loss)/profit
Gross (loss)/profit
Administrative expenses
Other gains
Finance costs
Share of profits
The Aire Valley Land LLP
Multiply Logistics North LP
As at
31 December
2019
£’000
As at
31 December
2018
£’000
As at
31 December
2019
£’000
As at
31 December
2018
£’000
10,009
11,511
21,520
(1,372)
–
20,148
16,000
1,124
17,124
(1,857)
–
15,267
11,028
304
11,332
(153)
–
11,179
9,992
174
10,166
(70)
(620)
9,476
The Aire Valley Land LLP
Multiply Logistics North LP
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
–
(39)
(39)
(15)
8,416
(23)
8,339
–
(29)
(29)
(26)
2,015
(81)
1,879
251
(87)
164
(24)
578
–
718
60
(51)
9
(65)
1,973
–
1,917
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
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.
As at
31 December
2019
£’000
As at
31 December
2018
£’000
1,875
122
1,997
(252)
1,745
(608)
252
846
1,098
(11)
1,087
(5)
Annual Report and Financial Statements 2019 155
| Strategic Report | Corporate Governance | Financial Statements
Notes to the financial statements
for the year ended 31 December 2019: continued
Investments: continued
16.
Investment in subsidiaries
Particulars of the Group undertakings (including joint ventures) at 31 December 2019 are as follows:
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)
Thoresby Vale Management Company Limited (1)
Cutacre Country Park Management Company Limited (1)
Cadley Park Management Company Limited (1)
Riverdale Park Management Company Limited (1)
Ansty Development Vehicle LLP (1)
Crimea Land Mansfield LLP (1)
Northern Gateway Development Vehicle LLP (1)
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
Ordinary
Ordinary
Ordinary
Limited by guarantee
Partnership
Partnership
Partnership
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
10.86
100
100
100
100
50
50
100
100
20
20
50
100
100
100
100
100
50
50
50
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
Trading
Trading
Trading
Trading
Dormant
Trading
Trading
Dormant
All of the above companies are incorporated in England and Wales.
*These companies are directly held by Harworth Group Plc.
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 entity was incorporated post year end:
• South East Coalville Management Company Limited
156 Harworth Group plc
17.
Inventories
Development properties
Planning promotion agreements
Option agreements
Finished goods
Total inventories
Group
As at
31 December
2019
£’000
As at
31 December
2018
£’000
202,092
2,051
1,074
683
205,900
204,157
1,773
705
374
207,009
The total cost of inventory recognised as an expense within cost of sales in the year is £49.2m (2018: £42.6m) and comprised of: £50.1m (2018:
£41.4m) relating to the sale of development properties; a credit of £0.6m (2018: £1.7m charge) net realisable value provision against development
properties; and a credit of £0.3m (2018: £0.3m) relating to finished goods stocks. Finished goods are stated after a provision of £0.3m (2018: £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
The bank and other loans are secured by fixed equitable charges over development and investment properties.
Group
As at
31 December
2019
£’000
As at
31 December
2018
£’000
Note
204,157
3,158
23,235
(30,165)
655
1,052
210,471
3,451
23,320
(32,339)
(1,736)
990
202,092
204,157
15
Group
As at
31 December
2019
£’000
As at
31 December
2018
£’000
7,554
3,574
(1,168)
(3,061)
6,899
5,818
4,767
(124)
(2,907)
7,554
Annual Report and Financial Statements 2019 157
| Strategic Report | Corporate Governance | Financial Statements
Notes to the financial statements
for the year ended 31 December 2019: 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
2019
£’000
As at
31 December
2018
£’000
As at
31 December
2019
£’000
As at
31 December
2018
£’000
29,008
(109)
28,899
14,682
2,874
–
46,455
43,004
(142)
42,862
21,492
2,345
–
66,699
–
–
–
–
191
28,976
29,167
–
–
–
62
93
30,064
30,219
12,754
–
–
–
The carrying amount of trade and other receivables is approximate to their fair value due to the short time frame over which the assets are realised. All
of the Group and Company receivables are denominated in sterling.
Included within trade receivables are £27.9m (2018: £19.2m) of deferred consideration on the sale of investment and development property.
The non-current trade receivable of £12.8m (2018: £nil) relates to deferred consideration on the sale of development properties due in more than one
year.
Included within other receivables are £5.4m (2018: £12.7m) 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 24. 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
Ageing of past due but not impaired trade receivables:
31 – 60 days
61 – 90 days
91 – 120 days
120+ days
158 Harworth Group plc
Group
2019
£’000
(142)
–
33
(109)
2018
£’000
(207)
39
26
(142)
Group
As at
31 December
2019
£’000
As at
31 December
2018
£’000
41,453
200
109
(109)
41,653
42,492
370
142
(142)
42,862
Group
As at
31 December
2019
£’000
As at
31 December
2018
£’000
58
84
15
43
200
79
117
43
131
370
18. Trade and other receivables: continued
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
2019
£’000
As at
31 December
2018
£’000
–
–
109
109
–
–
142
142
Note
15
Group
As at
31 December
2019
£’000
As at
31 December
2018
£’000
10,956
13,968
341
(229)
(13,784)
11,252
7,688
25,877
6
–
(22,615)
10,956
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
2019
£’000
As at
31 December
2018
£’000
As at
31 December
2019
£’000
As at
31 December
2018
£’000
11,833
8,595
1,506
1,116
Group
As at
31 December
2019
£’000
As at
31 December
2018
£’000
2,842
2,842
75,785
4,117
79,902
82,744
5,291
5,291
58,745
9,002
67,747
73,038
Annual Report and Financial Statements 2019 159
| Strategic Report | Corporate Governance | Financial Statements
Notes to the financial statements
for the year ended 31 December 2019: continued
21. Borrowings: continued
Infrastructure loans
Homes and Communities Agency
Sheffield City Region JESSICA Fund
North West Evergreen Limited Partnership
Homes and Communities Agency
Bank borrowings
Revolving credit facility
Waverley
Advanced Manufacturing Park, Waverley
Units C4 and C5 R-evolution at Logistics North
Simpson Park
Group
As at
31 December
2019
Net loan
£’000
As at
31 December
2018
Net loan
£’000
–
2,842
–
4,117
6,959
75,785
82,744
4,875
2,766
2,691
3,961
14,293
58,745
73,038
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 (2018 : £100.0m) 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 bank borrowings are secured by fixed equitable charges over development and investment properties.
In April 2020 RBS and Santander agreed to increase the limit of the Revolving Credit Facility by £30m to £130m.
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 £0.3m (2018: £0.4m).
Group
Company
As at
31 December
2019
£’000
As at
31 December
2018
£’000
As at
31 December
2019
£’000
As at
31 December
2018
£’000
11,670
–
267
3,670
41,001
56,608
2,318
–
9,740
4,160
36,337
52,555
222
9,272
75
4
582
10,155
100
4,737
–
3
662
5,502
Group
Company
As at
31 December
2019
£’000
As at
31 December
2018
£’000
As at
31 December
2019
£’000
As at
31 December
2018
£’000
28,286
15,753
–
–
Group
Company
As at
31 December
2019
£’000
As at
31 December
2018
£’000
As at
31 December
2019
£’000
As at
31 December
2018
£’000
1,200
300
–
–
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.
160 Harworth Group plc
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. Management use an external party to assess the effectiveness of the hedge on an ongoing basis and review the
inputs and outputs as part of this review.
The fair value of the interest rate swap at 31 December 2019 was a liability of £0.6m (2018: £0.1m).
During the year the following (loss)/gain was recognised in the consolidated statement of comprehensive income in relation to the interest rate swap:
(Loss)/gain on interest rate swap - cash flow hedge
2019
£’000
(449)
2018
£’000
13
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 2019
31 December 2018
Book value
£’000
Fair value
£’000
Book value
£’000
Fair value
£’000
11,833
54,451
11,833
54,451
8,595
64,354
8,595
64,354
82,744
57,541
82,744
57,541
73,038
43,115
73,038
43,115
31 December 2019
31 December 2018
Book value
£’000
Fair value
£’000
Book value
£’000
Fair value
£’000
1,506
28,976
1,506
28,976
1,116
30,219
1,116
30,219
10,080
10,080
5,502
5,502
In accordance with IFRS 9, the Group classifies the assets and liabilities in the analysis above as ‘financial assets at amortised cost’ and ‘other financial
liabilities’, respectively.
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.
Interest rate risk
The Group’s interest rate risk arises from external borrowings. These are charged at ICE 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
(2018: £45m) of borrowing at an all in rate of 1.235% on top of the existing 210bps margin paid under the RCF (2018: 1.235% plus 210bps margin),
including fees. The swap is hedge accounted with any unrealised movements going through reserves.
The Group also has two (2018: four) infrastructure loans with all in funding rates of between 3.2% and 4.0% (2018: 3.2% and 4.0%).
Annual Report and Financial Statements 2019 161
| Strategic Report | Corporate Governance | Financial Statements
Notes to the financial statements
for the year ended 31 December 2019: continued
24. Financial risk management: continued
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 2019 of £70.9m; (2018: £64.4m). The Group utilised cash from operating activities and investing activities for
the year of £3.0m (2018: £28.5m).
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 2019
Trade and other payables
Lease liability
Bank and other borrowings (including interest payable)
At 31 December 2018
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
56,608
58
2,842
52,555
5,291
1,100
51
–
100
5,041
100
19
79,902
200
62,706
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 2019 this was £70.9m
(2018: £64.4m).
The Group has in place a £100m (2018: £100.0m) 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 on 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.
162 Harworth Group plc
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 (2018: £0.4m). 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
2019
£’000
As at
31 December
2018
£’000
As at
31 December
2019
£’000
As at
31 December
2018
£’000
771
462
771
462
Contributions to the Blenkinsopp scheme of £0.2m were made by the Group during 2019 (2018: £0.2m). It is expected that contributions of a similar
amount will be paid in 2020. At December 2019, no contributions remained unpaid (2018: £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
2019
2.05% p.a.
2.20% p.a.
2.95% p.a.
2.15% p.a.
25.00% of
pension at a
rate of
£9:£1
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
2019
As at
31 December
2018
19.2
22.4
20.6
23.9
19.5
22.8
21.0
24.1
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.
2019
£’000
2,313
(3,084)
(771)
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)
Annual Report and Financial Statements 2019 163
| Strategic Report | Corporate Governance | Financial Statements
Notes to the financial statements
for the year ended 31 December 2019: 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
2019
£’000
Year ended
31 December
2018
£’000
(57)
–
(11)
(68)
(43)
(15)
(13)
(71)
A further cost of £0.4m (2018: £0.0m) 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, which are all quoted investments, are comprised as follows:
Gilts
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 arising from changes in demographic assumptions
– Loss arising from changes in experience
– (Loss)/gain arising from changes in financial assumptions
Benefits paid
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
2,249
62
79
189
(57)
(209)
2,313
2,228
57
(99)
189
(43)
(83)
2,249
As at
31 December
2019
£’000
As at
31 December
2018
£’000
1,141
177
382
613
2,313
1,301
183
379
386
2,249
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
(2,711)
–
(73)
57
(248)
(318)
209
(2,791)
(15)
(69)
20
(7)
68
83
Present value of defined benefit obligation at the end of the year
(3,084)
(2,711)
164 Harworth Group plc
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 (2018: c.18 years).
Cumulative actuarial gains and losses recognised in equity
At the start of the year
Net actuarial loss in the year
At the end of the year
Experience gains and losses
Actual return on scheme assets excluding interest income
Remeasurements:
– Loss arising from changes in experience
– (Loss)/gain arising from changes in financial and demographic assumptions
Net actuarial loss
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
(462)
(68)
189
(430)
(771)
(563)
(70)
189
(18)
(462)
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
(180)
(430)
(610)
(162)
(18)
(180)
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
79
(248)
(261)
(430)
(99)
(7)
88
(18)
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 2018, which was agreed in March 2020. This showed an estimated past
service deficit of £1.2m. 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
2019
£’000
Year ended
31 December
2018
£’000
49
44
128
40
35
100
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.
Annual Report and Financial Statements 2019 165
| Strategic Report | Corporate Governance | Financial Statements
Notes to the financial statements
for the year ended 31 December 2019: continued
26. Share based payments
At 31 December 2019 there were four 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.
Restricted Share Plan (RSP). Under this scheme share options with a nil-cost exercise price are granted to eligible employees. Vesting of the share
options is subject to continued employment and the satisfaction of underpin conditions relating to Financial Health, Underlying performance and
Corporate Governance.
• 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, LTIP and RSP 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
2019
362,327
–
(15,484)
(177,044)
169,799
–
2018
241,283
185,283
–
(64,239)
362,327
–
2019
£0.00
n/a
£0.00
£1.30
£0.00
n/a
2018
£0.00
£0.00
n/a
£1.25
£0.00
n/a
Weighted average remaining contractual life
8.26 years
8.78 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
Weighted average remaining contractual life
RSP
Outstanding at beginning of the year
Granted during the year
Outstanding at end of the year
Exercisable at end of the year
Weighted average remaining contractual life
SAYE
Outstanding at beginning of the year
Granted during the year
Forfeited during the year
Outstanding at end of the year
Exercisable at end of the year
Number of shares
Weighted average exercise price
2019
2,066,015
–
(424,940)
(668,568)
972,507
–
7.73 years
2018
1,698,754
826,691
(459,430)
–
2,066,015
–
8.31 years
2019
£0.00
n/a
£0.00
£1.29
£0.00
n/a
2018
£0.00
£0.00
£0.00
n/a
£0.00
n/a
Number of shares
Weighted average exercise price
2019
–
379,230
379,230
–
9.71 years
2018
–
–
–
–
n/a
2019
n/a
£0.00
£0.00
n/a
2018
n/a
n/a
n/a
n/a
Number of shares
Weighted average exercise price
2019
452,708
163,931
(44,663)
571,976
–
2018
383,881
68,827
–
452,708
–
2019
£0.82
£1.04
£0.81
£0.88
n/a
2018
£0.81
£0.88
n/a
£0.82
n/a
Weighted average remaining contractual life
1.71 years
2.11 years
166 Harworth Group plc
26. Share based payments: continued
The fair values of the share options granted under the RSP and SAYE during the year were determined using Black-Scholes valuation methodology.
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
RSP
SAYE
£1.300
£0.00
0.72%
22.0%
n/a
4.5 years
£1.17
£1.335
£1.043
0.68 %
21.0%
0.93%
3.33 years
£0.348
The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual
outcome.
Awards under the 2017 DSBP Scheme were exercised in the year with a weighted average share price on exercise of £1.30 (2018: £1.25).
Awards under the 2016 LTIP Scheme were exercised in the year with a weighted average share price on exercise of £1.29 (2018: £nil).
The total charge for the year relating to employee share based payment plans was £0.1m, all of which related to equity-settled share based payment
transactions.
27. Called up share capital
On 25 January 2019, the Group issued 11,786 new ordinary shares at 81 pence each, with a nominal value of 10p each. On 23 September 2019, the
Group issued 346,516 new ordinary shares at 10 pence each, with a nominal value of 10p each. On 21 October 2019, the Group issued 54,320 new
ordinary shares at 10 pence each, with a nominal value of 10p each.
Group and Company
Issued and fully paid
At 1 January
Shares issued
At 31 December
Own shares held
At 31 December
2019
Number
of shares
321,496,760
412,622
321,909,382
(132,015)
321,777,367
2018
Number
of shares
321,496,760
–
321,496,760
(181,771)
£’000
32,150
41
32,191
(67)
32,124
321,314,989
£’000
32,150
–
32,150
(194)
31,956
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 and Share Investment Plan awards to employees.
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
At 31 December
Year ended
31 December
2019
£’000
Year ended
31 December
2018
£’000
24,351
8
24,359
24,351
–
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. At 31 December 2019 the Group had capital commitments due under construction contracts of £0.4m (2018: £nil).
Annual Report and Financial Statements 2019 167
| Strategic Report | Corporate Governance | Financial Statements
Notes to the financial statements
for the year ended 31 December 2019: continued
30. Leases
Transition to IFRS 16
a)
As noted in note 1, the Group has adopted IFRS 16 Leases retrospectively from 1 January 2019, but has not restated comparatives for the 2018 reporting
period, as permitted under the specific transition provisions of the standard. The reclassifications and the adjustments arising from the new leasing
rules are therefore recognised in the opening balance sheet on 1 January 2019.
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the
principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the Group’s
incremental borrowing rate applied as of 1 January 2019.
In applying IFRS 16 for the first time, the group has used the following practical expedients permitted by the standard:
•
accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short term leases;
• excluding initial direct costs for the measurement of the right to use assets at the date of initial application; and
•
using hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
The reconciliation between the operating lease commitments under IAS 17 as at 31 December 2018 and the opening IFRS 16 lease liability at 1 January
2019 is shown below.
Group
Operating lease commitments disclosed as at 31 December 2018
Less low value leases not recognised as a liability
Less contracts not recognised as lease contracts
Lease liability recognised as at 1 January 2019
Of which are:
Current lease liabilities
Non-current lease liabilities
Future minimum lease receipts
b)
As set out in note 15 property rental income earned during the year was £13.6m (2018: £12.2m).
At 31 December 2019 the Group had contracted with tenants for the following future minimum lease payments:
Year ended
31 December
2019
£’000
55
(1)
(33)
21
13
8
21
Less than one year
Between one and five years
More than five years
Group
Company
As at
31 December
2019
£’000
As at
31 December
2018
£’000
As at
31 December
2019
£’000
As at
31 December
2018
£’000
12,820
33,642
96,677
143,139
11,587
31,505
98,899
141,991
–
–
–
–
–
–
–
–
168 Harworth Group plc
31. Related parties
GROUP
The Group carried out the following transactions with related parties. All related party transactions are clearly justified and beneficial to the Group, are
undertaken on an arm’s-length basis on fully commercial terms and in the normal course of business.
The remuneration of Directors and key management is given in note 6.
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
Cash received during the year
As at
31 December
2019
£’000
As at
31 December
2018
£’000
–
–
(45)
–
–
–
–
–
1,920
1,600
1,078
(43)
(1)
(27)
(148)
(934)
1,920
–
During the year ended 31 December 2019 The Aire Valley Land LLP, of which the Group is a is a 50% partner of, sold a parcel of land at the Gateway 45
site to PLP, a joint venture in which the Peel Group holds a minority stake.
MULTIPLY LOGISTICS NORTH HOLDINGS LIMITED & MULTIPLY LOGISTICS NORTH LP
Revenue
Sale of land
Recharges of costs
Development management fee
Asset management fee
Water charges
Receivables
Trade receivables
Partner loan made during the year
BANKS GROUP
Revenue
Annual option sums
Acquisition of land
Acquisition of land at Moss Nook
Acquisition of land at Cinderhill
Payables
Trade payables
Deferred payment in respect of the acquisition of land at Moss Nook
Cash paid in the year in respect of the acquisition of land at Moss Nook
Cash paid in the year in respect of the acquisition of land at Cinderhill
WAVERLEY SQUARE LIMITED
Shareholder loan made during the year
As at
31 December
2019
£’000
As at
31 December
2018
£’000
2,175
2
–
121
92
10
407
–
256
37
348
48
–
2,793
As at
31 December
2019
£’000
As at
31 December
2018
£’000
15
15
–
2,412
(1,200)
–
1,000
2,412
3,000
–
–
(1,000)
–
–
As at
31 December
2019
£’000
As at
31 December
2018
£’000
25
50
Annual Report and Financial Statements 2019 169
| Strategic Report | Corporate Governance | Financial Statements
Notes to the financial statements
for the year ended 31 December 2019: continued
31. Related parties: continued
THE AIRE VALLEY LAND LLP
Partner loan made during the year
Partner loan repayment received during the year
BATES REGENERATION LIMITED
Shareholder loan repayment received during the year
ANSTY DEVELOPMENT VEHICLE LLP
Partner loan made during the year
CRIMEA LAND MANSFIELD LLP
Partner loan made during the year
NORTHERN GATEWAY DEVELOPMENT VEHICLE LLP
Partner loan made during the year
As at
31 December
2019
£’000
As at
31 December
2018
£’000
250
(3,000)
–
–
As at
31 December
2019
£’000
As at
31 December
2018
£’000
(799)
–
As at
31 December
2019
£’000
1,496
As at
31 December
2018
£’000
–
As at
31 December
2019
£’000
As at
31 December
2018
£’000
495
–
As at
31 December
2019
£’000
As at
31 December
2018
£’000
22
–
COMPANY
The Company carried out the following transactions with subsidiary undertakings.
Details of the Company’s intercompany balances and interest at 31 December 2019 are set out below:
EOS Inc Limited
Harworth Estates Limited
Harworth Estates (Agricultural Land) 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
Harworth Surface Water Management (North West) Limited
Coalfield Estates Limited
As at 31 December 2019
As at 31 December 2018
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
586
(41)
(12)
(53)
–
–
59
(7)
(83)
–
–
449
20,611
(1,659)
(1,512)
(2,313)
(49)
6,250
2,115
(261)
(3,399)
(50)
(29)
19,704
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
Dividends received
During the year the Company received dividends of £nil (2018: £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 other than in April 2020
RBS and Santander agreed to increase the limit of the Revolving Credit Facility by £30m to £130m.
170 Harworth Group plc
Company information and investor timetable
Company information and investor timetable
Chair
Alastair Lyons
Chief Executive
Owen Michaelson
Chief Financial Officer
Kitty Patmore
Non-Executive Directors
Lisa Clement
Andrew Cunningham
Ruth Cooke
Angela Bromfield
Steven Underwood
Martyn Bowes
Company Secretary and
Registered Office
Christopher Birch
Advantage House
Poplar Way
Rotherham, S60 5TR
Financial Calendar
External Auditors
PricewaterhouseCoopers LLP
Central Square, 29 Wellington St,
Leeds, LS1 4DL
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
Registrars
Equiniti Limited
Aspect House
Spencer Road, Lancing
West Sussex, BN99 6DA
Principal lenders
National Westminster Bank PLC
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 ticker HWG.L
Bloomberg ticker HWG:LN
LEI Code
213800R8JSSGK2KPFG21
Annual General Meeting
Unit 5A, Advanced Manufacturing Park, Brunel Way, Catcliffe, Rotherham, S60 5WG
Proposed date for Interim Results Announcement 2020
Interim Results to be published at www.harworthgroup.com/investors
Announced
29 June 2020
15 September 2020
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.
Annual Report and Financial Statements 2019 171
Company information and investor timetable
continued
This page is intentionally blank
This report was printed in the UK by CPI Colour Limited.
The printer and paper manufacturing mill are both ISO 14001 environmental
management system certified and Forest Stewardship Council® certified. The
inks used are vegetable based.
CPI Colour is a certified CarbonNeutral® printing company.
harworthgroup.com