Harworth Group plc
Annual Report and
Financial Statements
2020
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Transform
Regenerate
Revitalise
A leading Master
Developer and
regeneration
company in the
North of England
and the Midlands
Portfolio has
the potential to
create £3.9bn
per annum in
Gross Value
Added to UK plc
Portfolio could
deliver a total
of 30,668
new homes
Portfolio
could deliver
27.3m sq. ft
of commercial
space
Delivering our Purpose ................................................6
Doing business the Harworth Way ................................8
Our strategy ............................................................. 10
How we deliver value ................................................ 12
Our sectors .............................................................. 14
Track record ............................................................ 16
Chair of the Board’s Message ..................................... 18
Chief Executive’s Statement .......................................20
Financial Review .......................................................24
Effectively managing our risks ....................................32
Long-Term Viability Statement ....................................40
Case Study 1: Riverdale Park, Doncaster .......................42
The Harworth Way: Communities ...............................44
The Harworth Way: Planet ..........................................52
Case Study 2: Logistics ..............................................56
The Harworth Way: People .........................................58
The Harworth Way: Partners (including section 172 statement) ...64
Case Study 3: Income ................................................68
The Harworth Way: Governance .................................70
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Chair’s introduction ...................................................76
Board of Directors and Company Secretary ..................78
Statement of Corporate Governance ...........................82
Nomination Committee Report ..................................93
Audit Committee Report ........................................... 101
Directors’ Remuneration Report ................................ 108
Directors’ Report .....................................................132
Statement of Directors’ Responsibilities ..................... 136
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Independent auditors’ report ................................... 140
Consolidated income statement ............................... 148
Consolidated statement of comprehensive income ..... 149
Balance sheets ....................................................... 150
Consolidated statement of changes in equity ...............152
Company statement of changes in equity ................... 153
Statements of cash flows .......................................... 154
Notes to the financial statements .............................. 156
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Gateway 36, Barnsley
Our
Purpose
Harworth invests to transform land and
property into sustainable places where
people want to live and work
2020
Highlights
Harworth delivered a total return of 3.0% to shareholders in 2020 by continuing
to plan and create great places for people to live and work. Our pipeline of
over 30,000 homes and 27m sq. ft of commercial space in our core markets of
residential, and industrial and logistics, alongside our low gearing and strong
balance sheet, is a solid platform for future growth
• NAV growth to £488.7m and EPRA NDV1 growth to £515.9m
• Revenue of £49.6m from Capital Growth and £20.4m from Income Generation
• Strategic land acquisitions and planning promotion agreements signed to deliver c3,300
residential plots and c3.4m sq. ft of commercial space
• Annualised rental income grown to £19.8m through new acquisitions and asset management
initiatives
• Resilient rent collection of 96% during 2020
• Net debt £71.2m and net loan to portfolio value 11.5%
• Recommended final dividend per share of 1.466p: underlying growth of 10% and
supplemented to reflect the cancellation of the 2019 final dividend2
European Public Real Estate Association Net Disposal Value. Harworth discloses both statutory and alternative performance metrics (APMs). A full
description and reconciliation to the APMs is set out in Note 2 to the financial statements on pages 163 to 166.
If the 2019 final dividend had not been cancelled and included within the 2020 final dividend, the 2020 full year dividend would have been 1.102p
per share, an increase of 10% on the original declared 2019 dividend
1.
2.
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Residential development and attenuation pond at Waverley
Delivering
our Purpose:
How the business works
We balance the delivery of our Purpose and long-term 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.
Harworth invests to
transform land and
property into
sustainable places
where people want
to live and work
Take Pride in
our People and
Partnerships
Act with Integrity
and trust
Deliver Creative
Solutions
Communities
Planet
People
Partners
Governance
*See pages 44, 52, 58, 64
and 70 for more on
“The Harworth Way”
Our Purpose
Our Values
The
Harworth Way
6 Annual Report 2020
Development:
Driving the capital growth of our land
and property
Investment:
Income and value generation
through active asset management
Sectors:
Concentrating on those property
markets with strong, through-the-cycle
returns
Regions:
Leveraging relationships across our
core areas in the North of England
and Midlands
Underpinned
by a prudent
financial
approach with
low gearing
Measuring performance with our KPIs:
Total return, EPRA NDV per share growth, Value gains, Profit
excluding value gains, Net debt & net loan to portfolio value
together with the following operational KPIs:
• Residential plots & employment space delivered
• Planning permissions submitted & approved
• Future pipeline of residential plots and employment space
• Potential Gross Value Added that could be delivered from
the portfolio
• Sustainability and placemaking credentials
Key business risks: Markets, Delivery,
Politics, Finance, People, Environment,
Social, Governance, Legal & Regulatory
*See pages 10 and 11 for more on Our Strategy
Our business
model creates
long-term value for
our shareholders,
whilst delivering
thousands of
new homes and
millions of sq. ft of
employment space
*See pages 12 and 13:
How we deliver value
Our Strategy
Our Business
Model
7
Financial StatementsCorporate Governance Strategic Report
Doing business
the Harworth Way
Harworth 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 increased transparency on the
actions that we take in delivering our Purpose whilst creating long-term value.
In early 2020, we launched “the Harworth
Way”, encapsulating how we do business. We
have selected five principal themes to address
major social, economic and environmental
trends.
During the year, we embedded these principles
within the Group, including reporting against
the Harworth Way in all investment papers.
We have signed the UN Global Compact
statement reaffirming our commitment to the
Sustainable Development Goals.
We established an ESG Steering Group, with
members from every team across the business,
to commence work to identify our short
and long-term targets for the Harworth Way
themes.
We will continue to build on this in 2021 to
develop detailed targets and measures.
Communities
Planet
People
Partners
Governance
The
Harworth Way
Our work actively contributes to the delivery of ten of the UN’s sustainable development goals. More can be read about this within each individual
section by following these codes.
8 Annual Report 2020
Communities
Read more on pages 44 to 51
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:
•
•
commercial and residential sites in the Midlands and North, creating thousands of new jobs
with the potential to contribute over £3.9bn Gross Value Added (GVA) p.a.; and
helping to meet the UK’s undersupply of housing, with developments including affordable
housing and a range of tenures.
Planet
Read more on pages 52 to 55
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 development of renewable 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, and enhance biodiversity including surface water attenuation schemes being
installed across all of our major developments.
People
Read more on pages 58 to 63
We aim to build a business where people can flourish and placemake responsibly across
our developments to create places and spaces that promote health and wellbeing –
ultimately improving people’s lives
Our responsible approach to development also directly influences our master planning, with
hundreds of acres of new public open space being delivered each year to support more active
lifestyles and improved mental 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”.
Partners
Read more on pages 64 to 67
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 communities.
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 to
stimulate growth. This includes partnerships with three leading universities to promote new skills
and innovation relating to advanced manufacturing, wellness and rail.
Governance
Read more on pages 70 to 72
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. In
2021 we are working to better understand how our governance supports the delivery of our
long-term purpose and furtherance of our strategic priorities.
We aim to regularly review and continually improve in these areas and align with industry best
practice.
9
Financial StatementsCorporate Governance Strategic Report Our strategy:
Our five strategic pillars to
deliver our Purpose
Key business risks
Markets
Finance
Social
1
Development
Driving the capital growth
of our land and property
portfolio through new
strategic asset acquisitions,
delivery of planning
permissions, site
remediation and
infrastructure, before
crystallising land sales
Key Business Risks
2
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
•
•
Key Business Risks
10 Annual Report 2020
Delivery
People
Politics
Environment
Governance
Legal & Regulatory
Highlights
•
Growth in value and profitable sales contributing to 2.8% EPRA NDV per
share growth and total return of 3.0% in 2020
• Planning permission achieved at Gateway 36 and Woodville
•
Acquisitions taking the pipeline to 30,668 residential plots and 27.3m sq. ft
of commercial space
Key Performance Indicators
• Total return
• EPRA NDV per share growth
• Value gains
• Sustainability & placemaking credentials
Highlights
•
New acquisitions and asset management growing our rental income
and valuations
We are covering our Group overheads, interest costs and non-
transactional tax
Strong rent collection demonstrating the resilience of our income
stream
Key Performance Indicators
• Profit excluding value gains
• Future pipeline of employment space
• Sustainability & placemaking credentials
3
Sectors
Where we are
Concentrating on those
property markets with
strong, through-the-cycle
returns
We are focused on the ‘beds and sheds’ sectors which are structurally supported
by strong demand and under-supply in the regions in which we operate. We are
committed to delivering our engineered land products for both of these sectors,
with a particular focus on increasing the range of residential tenures on our sites
and supporting key regional industries
Key Business Risks
Key Performance Indicators
• Residential plots & employment space delivered
• Planning permissions submitted & approved
4
Regions
Where we are
Leveraging our strong
relationships in our core
areas in the North of
England and the Midlands
to deliver growth to our
portfolio and these
regions
Key Business Risks
Our regional teams structure is fully operational and we are bringing forward sites
across our regions in Yorkshire and Central, North-West and the Midlands. We
continue to work with all our stakeholders to deliver projects of regional
significance
Key Performance Indicators
• Potential GVA that could be delivered from portfolio
Where we are
With net debt of £71.2m and a net loan to portfolio value of 11.5%, we have
maintained our prudent balance sheet gearing to support our business
Key Performance Indicators
• Net debt
• Net loan to portfolio value
5
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
Key Business Risks
Implemented through our Business Model across 16,000 acres and around 100 land property sites
11
Financial StatementsCorporate Governance Strategic Report How we deliver value
Our Business Model
Our business model creates long-term value for our shareholders. Over the last five
years we have generated an average annual total return of 10.1% for our investors,
whilst delivering thousands of new family homes and 3.6m sq. ft of employment
space in the regions in which we operate.
What sets us apart is our approach as Master Developer. 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
We have a large strategic landbank across
the North of England and the Midlands,
where we own, manage and develop
approximately 16,000 acres of land on
around 100 sites.
Key to our strategy is to replenish our
portfolio with acquisitions to ensure the
future growth of the business. 51% of our
total portfolio by value has been acquired
since we re-listed in 2015.
2. Master Planning
3. Planning approval
5. Plot sale and build out
6. Placemaking
4. Land remediation &
infrastructure development
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,
create value.
We currently have planning consents for
9,355 residential plots and 9.2 million sq. ft
of commercial space. A large proportion of
these consents are taken forward as
Harworth Major Developments, which are
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 design and value engineering
or commercial purposes, or retain land to
alongside sales. Whether it is providing
principles through our in-house
grow our income portfolio –
schools and facilities alongside the new
development team in remediating land and
either through leasing directly developed
housing communities being created, or
creating development platforms
that match the proposed use.
commercial
units or renting out land.
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
12 Annual Report 2020
Recurring
income
Capital receipt
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.
1. Acquisitions &
land assembly
2. Master Planning
3. Planning approval
4. Land remediation &
infrastructure development
5. Plot sale and build out
6. Placemaking
We have a large strategic landbank across
Our core skill as a business is to create a
We currently have planning consents for
the North of England and the Midlands,
strategic vision and plan for all our sites
9,355 residential plots and 9.2 million sq. ft
where we own, manage and develop
which, when brought to market with
of commercial space. A large proportion of
approximately 16,000 acres of land on
planning permission for sustainable
these consents are taken forward as
around 100 sites.
residential or commercial uses,
Harworth Major Developments, which are
create value.
often seen as showcase projects for
regeneration.
Key to our strategy is to replenish our
portfolio with acquisitions to ensure the
future growth of the business. 51% of our
total portfolio by value has been acquired
since we re-listed in 2015.
Once a use for a site has been identified,
we apply design and 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 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
13
Financial StatementsCorporate Governance Strategic Report Our sectors
We operate within the industrial and logistics and the residential markets which have strong
fundamentals with structural under-supply in the North of England and the Midlands.
Strong demand for
quality space
We are seeing strong demand
for good quality, well-located
space in all regions. Take-up of
new space in 2020 was the
strongest ever recorded. There
has been a sharp decline in
availability, particularly of
Grade A space and there is
less than 10 months’ worth of
supply based on the rolling
3-year average take-up.
Favourable
structural trends
The pandemic has accelerated
the decline of the High Street
and the continued growth of
e-tailing and home delivery:
the demand from the
businesses who are benefitting
from these trends is set to
remain strong.
Supply remains
limited
Continued strong demand
means that supply of industrial
and logistics space remains
very tight.
INDUSTRIAL AND LOGISTICS
Supply: Sharp decline in Grade A availability
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Source: CBRE Research
14 Annual Report 2020
Strong demand
for land
During 2020 we continued to see
strong demand for prepared land
from housebuilders across our
regions. We have now sold land to
17 different housebuilders, both
regional specialists and national
operators. The UK residential
property market bounced back
strongly after the first lockdown
with total transactions for the year
at 88% of the average level of the
previous three years.
Supply of new
homes continues
to fall
Despite the strong demand for
affordable family homes,
planning consents for new
housing has continued to fall
during 2020.
House price
growth forecast to
continue
The government’s target to
deliver 300,000 new homes
per year represents a
significant challenge, with the
number of new homes granted
planning each year for the past
five years remaining well below
that target. The lack of supply
and the favourable affordability
ratios for first-time buyers in the
North of England and the
Midlands, particularly
compared to London and the
South East, means that the
regions in which we operate
are forecast to see the fastest
growth in house prices over
the next five years.
RESIDENTIAL
Total 2020 transactions were at 88% of the three-year average
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130,000
110,000
90,000
70,000
50,000
30,000
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
2017
2018
2019
2020
Source: Savills Research based on HMRC data
Homes granted consent in England 2015-2020
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Source: Savills Research using Glenigan
20+ plots
100+ plots
5-year UK house price forecasts 2020-2025 by region
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Other Regions
UK Average
Source: Savills Research
15
Financial StatementsCorporate Governance Strategic Report
Track record:
A long-term track record of success
Over the past five years, we have established a track record of delivering long-term, market
leading returns whilst helping to regenerate the regions in which we work, including areas
of economic and social deprivation.
Financial Track Record
Total Return
0 3 6 9
1
2
Delivering sites for homes and employment
4,542
residential plots
and 3.1m sq. ft
of employment land
sold over the past
five years
Long-term market leading returns
10.1%
average total return p.a.
delivered
between 2016
and 2020
16 Annual Report 2020
3.0%
7.8%
2020
2019
2018
2017
2016
13.3%
13.2%
13.2%
6
0
0
8
0
0
1
0
0
0
Net Asset Value and EPRA NDV
2
0
0
4
0
0
0
2020
3.0%
£488.7m
£515.9m
2019
2018
2017
2016
7.8%
£463.8m
£500.5m
£441.9m
13.3%
£466.5m
£409.3m
13.2%
£414.2m
£334.9m
13.2%
£334.9m
Net loan to portfolio value and Net debt
0 3 6 9
1
2
1
5
2020
2019
2018
2017
2016
11.5%
£71.2m
12.1%
£70.9m
12.3%
£64.4m
7.0%
£32.3m
7.0%
9.9%
£39.9m
0
2020
2019
2018
2017
2016
0
2020
2019
2018
2017
2016
2020
2019
2018
2017
2016
Economic and Social Track Record
Number of plots sold to housebuilders
3
0
0
6
0
0
1
5
9
0
0
1
2
0
0
Consented land sold for employment uses: sq. ft
.
0
0
.
0
2
.
0
4
.
0
6
.
0
8
.
1
0
.
1
2
1
2
0
0
873
2020
0.05m
1,379
1,049
2019
2018
2017
2016
0.55m
0.50m
1.15m
0.85m
622
619
Total identified pipeline: Residential plots
1
0
0
0
0
1
5
0
0
0
5
0
0
0
2
0
0
0
0
1
5
0
0
Total identified Commercial pipeline: sq. ft
1
0
1
5
2
5
0
0
0
3
0
0
0
0
30,668
29,596
0 5
2020
2019
2018
2017
2016
2
0
2
5
27.34m
24.40m
21.25m
21.63m
18.18m
20,490
17,836
17,386
Potential GVA that could be delivered from our land
and property portfolio
0
0
.
0
5
.
1
0
.
1
5
.
2
0
.
2
5
.
3
0
.
3
5
.
4
0
.
£3.9bn
£3.5bn
£3.5bn
£2.9bn
£2.8bn
1
0
0
Satisfaction of our employees
3
5
0
0
0
0
2
0
4
0
6
0
8
0
2020
2019
2018
2017
2016
93%
90%
88%
87%
84%
17
Financial StatementsCorporate Governance Strategic Report Chair of the
Board’s Message
Alastair Lyons
Introduction
In a year in which we all seem to
have had everything possible
thrown at us I am very proud
of what the Harworth team has
achieved. Despite the disruption
to the way in which we, and
all those with whom we deal,
normally work, the business
largely delivered what it had
set out to at the beginning of
the year in terms of progress on
developments, site sales, and the
acquisition of additional income
generating properties. The
extent of the £45.5m value gains1
realised in the second half has
been particularly encouraging,
reflecting in part the strong
progress we have made across our
sites, both in terms of planning
and partial realisations at or above
book value, and also our team’s
effective asset management of
income-generating properties
to improve valuation yields. This
performance allows us to show
a 5.4% increase in net asset
value and 3.1% increase in EPRA
NDV across 2020 as a whole,
a very creditable result in an
extraordinary year.
COVID-19
Thanks to the work our team had undertaken on our IT infrastructure over
the 12 months preceding the first wave of the pandemic we were able,
effectively overnight, to move entirely to home working across our offices,
and this has continued to the present day. Our first priority has been, and
remains, the safety of our people and those with whom we interact. Whilst
maintaining appropriate precautions and observing government
guidelines our contractors have been able to deliver the substantial works
we had planned on our sites, making it possible to realise the first sale on
our important development at South East Coalville in Leicestershire, and
further phases at our Waverley flagship site in Rotherham, at Micklefields
(Flass Lane) in Castleford, and at Thoresby. I would also like to express my
thanks to all our other stakeholders, in particular the planning authorities
with whom we interact and the contractors, consultants and professional
services firms that support our development activity, for the way in which
they have maintained what for us are essential services during these very
difficult times.
Business Value
The reduction at the half year in the valuation of our portfolio of major
residential developments was inevitable given market uncertainty at the
time, particularly as to future development timescales to sales realisation.
We were, therefore, very pleased to see valuations move forward strongly
in the second half, reflecting the good progress that we had achieved on
major developments such as the Advanced Manufacturing Park (AMP) at
Waverley, asset management initiatives we had taken which resulted in
improved valuation yields on parts of our income generating portfolio
such as at Brierley Hill in the West Midlands, and the reversal in part of first
half reductions on residential sites as we continue to sell sites at or ahead
of book value on developments such as South East Coalville.
Along with much of the market, our share price fell in 2020 with the onset
of the pandemic and, as at the time of writing this report, it remains at a
20% discount to EPRA NDV. We are clear that the way to narrow this
discount is to trade strongly by delivering a well thought through strategy,
and to communicate very clearly our progress and potential to both
current and potential investors. These are the key measures of success
against which the Board will assess the achievement of our management.
(1) Harworth discloses both statutory and alternative performance measures (APMs). A full description and reconciliation to the APMs is set out in Note 2 to the
Financial Statements.
18 Annual Report 2020
Dividends
Whilst we understand that with a yield of only 0.86% it is not dividends
that drive investor appetite for Harworth, we recognise that the
payment of dividends is an important litmus test of a company’s
progress and potential. As I said in my last statement written in June
2020, we had to be prudent in the face of the uncertainty created by
the first wave of the pandemic and plan accordingly, key to which was
ensuring the financial security of the business. For this reason, we
decided with regret not to pay the 2019 final dividend but to review the
potential to catch this up later in the year when we understood better
the implications of the pandemic for our business. Having achieved
strong sales during the second half of 2020 and with £50m undrawn
debt facilities at the beginning of 2021 we have the confidence to
declare a 1.466p 2020 final dividend. This includes both the passed
over 2019 final dividend of 0.698p and a 2020 final dividend of 0.768p,
and represents a 10% underlying progression of dividends in respect of
the 2020 year.
Our Strategy
Last year I explained the relevance of our Purpose: “Harworth invests to
transform land and property into sustainable places where people want
to live and work”. The previous year I took as my theme that Harworth is
all about its people: I wrote that our ability to create value derives from
their ability to identify opportunities; create master plans; negotiate
acquisitions, disposals, and leases; develop relationships with local
stakeholders; build partnerships with funders, developers, house-
builders, and commercial clients; devise innovative remediation
solutions for complex heavy industrial legacies; identify the right point
in the market to offer sites for sale; and manage complex projects
requiring the organisation of and interaction with multiple professional
advisers and contractors. The 80 people who make up Harworth are
specialist professionals in the various aspects of delivering our Purpose
– that is what Harworth is, hence our strategy will always be directly
aligned with that Purpose. It may vary in terms of its geographic and
sectoral reach and which parts of the value chain Harworth itself
undertakes but the fundamentals of our strategy will not change as
these are derived from our Purpose.
It is entirely appropriate, and to be expected, that as an incoming Chief
Executive, Lynda Shillaw will, once she has settled into the role and
completed her first year-end, undertake a comprehensive review of the
business and propose to the Board her medium-term objectives and
the path to their delivery. However, for the reasons set out above and
because our shareholders have invested in Harworth because of what
we are and do, I anticipate this to be evolution not revolution.
Our Purpose aligns clearly with the direction society is taking to place
much greater emphasis on sustainability and the environment, whilst
our primary sectors of edge of settlement residential and commercial
logistics are coming into even stronger focus post-COVID-19 as families
place greater value on their home space and the trend to online retail
accelerates. Our Northern operations are also well placed to benefit
from the Government’s levelling-up agenda and from its continued
focus on boosting the rate of UK housebuilding.
Our Board
2020 was a year of significant change. First and foremost we said
goodbye at the end of October to Owen Michaelson who retired after
10 years as Harworth’s Chief Executive. During that time he had taken
the business from being the estates division of UK Coal, focussed on
extracting cash to support the core mining business, to a premium-
listed company with its own clear identity and purpose and to a position
where its coal legacy is fast becoming a minor part of its activities.
Owen takes with him our grateful thanks and our best wishes for the
future.
In his place we are delighted to have Lynda Shillaw join us as Chief
Executive. Lynda comes to us after a long career in real estate, much of
it in the North of England, bringing with her a deep understanding of
our markets and strong existing relationships with many of our
stakeholders. Previously she was Group Property Director and a Board
Member at the listed Town Centre Securities plc where she led the
management of its land and property and its development pipeline.
Before that she was Divisional CEO, Property at the Manchester
Airports Group, where she was responsible for its investment portfolio
and development land bank, including its “Airport City” joint venture.
The end of October also marked the retirement after nine years of Lisa
Clement, our Senior Independent Director, who also chaired our
Remuneration Committee. At the same time, we were sad to say
goodbye to Andrew Cunningham who had joined the Board in 2016
and chaired our Audit Committee. We have much to thank both of them
for and will miss their wise counsel. As a consequence, Angela
Bromfield assumed the role of Senior Independent Director and
became Chair of the Remuneration Committee, and Patrick O’Donnell
Bourke joined the Board as an Independent Non-Executive Director to
take the role of Chair of the Audit Committee.
Patrick has significant senior international experience in investing in,
and managing, infrastructure, as well as having worked extensively in
the electricity and renewable energy sectors. His most recent executive
role was that of Group Finance Director for John Laing Group plc from
2011 until his retirement in 2019.
In anticipation of Lisa Clement’s retirement we announced at the
half-year the appointment to the Board of Lisa Scenna as an
Independent Non-Executive Director who has joined our Remuneration
and Audit Committees. Lisa has over 20 years’ experience working at
executive director level in large multinational corporations both private
and publicly listed with a strong background in strategic and financial
business change. Her most recent executive role was with Morgan
Sindall Group as Managing Director of MS Investments.
As Chair I am delighted by the depth of relevant experience and the
diversity of thought, background, and gender that we have around the
Board table. I am confident that we have a team capable of adding
significant value over the coming years and l much look forward to
being able to hold physical Board meetings again!
Thank you
First and foremost a huge thank you to our people for what the business
achieved last year despite the extraordinary environment created by
COVID-19. So many went above and beyond despite all the personal
concerns that the pandemic has brought with it. They would not have
achieved what they did without strong clear leadership by our
executive team who displayed sound judgement through a very
uncertain period. We would also not have done what we did without
the support of those stakeholders who are pivotal to the success of our
projects, and without the belief of our customers in the quality and
relevance to their businesses of the sites we create – to them also, thank
you.
Alastair Lyons
Chair
22 April 2021
19
Financial StatementsCorporate Governance Strategic Report Chief Executive’s
Statement
Lynda Shillaw
A personal perspective
I joined Harworth as Chief Executive
at the beginning of November
2020, arriving in the business as
the country went into a second
COVID-19 lockdown. The global
pandemic has dominated 2020 for
most businesses, and Harworth
has been no exception: that said,
our performance in 2020 was
very robust and we successfully
navigated the resulting changes
to working practices, maintaining
focus on delivery throughout
the year.
20 Annual Report 2020
From the initial lockdown in March when we closed our offices in
response to Government guidance, we have focussed on the health
and wellbeing of our people, our partners, our customers, the
communities in which we operate and the long-term financial strength
of the Group. Harworth did not furlough any staff in 2020 and apart
from the initial shutdown of construction sites at the beginning of the
March lockdown we, along with our supply chain and customers, have
continued to operate our sites safely and deliver key sales. As was
evident from our 2020 Annual Employee Engagement Survey, morale
has remained high and engagement levels amongst our people remain
in the top decile. Their passion for the business, what we deliver, how
we do it and living our values are, I believe, key differentiators of our
business.
Since I first met members of the Harworth team, I have been
consistently impressed by the quality of our people and the way that we
go about our business. The Group has assembled a talented group of
individuals who have a strong sense of social justice and are committed
to our Purpose and to doing things in the right way, for the communities
in which we work and which we help shape. The culture of the business
is apparent in everything we do and our unique assets and financial
strength underpin the long-term nature of the business. I believe that
Harworth is one of a kind: a Master Developer with a unique
combination of skills which have evolved as it successfully regenerated
its legacy coal mining assets for employment and housing, and now
increasingly focused on ambitious new strategic land and major
development projects which make up more than 50% of our portfolio
today. The scale of the opportunity at sites such as Waverley, Ironbridge
and Coalville cannot fail to impress and our products of well-designed,
sustainable new places where people want to live and work are more
relevant than ever following the COVID-19 pandemic.
It is also very clear that Environmental, Social and Governance (ESG) is
at the core of what Harworth does as a business. It is so much more than
a series of statements, a tick-sheet or targets that are not fully relevant to
our business: it is absolutely fundamental to how we operate, from
major site remediation to master planning, place making, mineral
extraction and energy generation. It is a source of enormous pride for
our people. The range of what we do is significant and enhancement of
the natural environment and creating great places for existing and new
communities are fundamental elements of what we deliver. However, it
also goes beyond this with the ongoing curation, oversight of and
involvement in the developments on our sites, and the way that we
work in partnership with local authorities, communities, universities,
employers and housebuilders to continue to deliver exceptional
outcomes. ESG is at the core of our Purpose.
Harworth is headquartered in Rotherham and our teams live and work
in the regions in which we operate: this is very important. We have a
deep understanding of those regions and the people who live and
work there. We are focussed on regenerating and improving local
economies and outcomes for our communities by working in
partnership with key local stakeholders.
We are likely to feel the impact of COVID-19 for years to come as
significant social divides have been laid bare, be they economic or
digital. Wellness, mental health and access to open space have moved
rapidly up society’s agenda and the importance of ‘community’
throughout the pandemic is something we have not seen for many
years. What Harworth does matters, and we intend to play a leading
role in the Government’s levelling up agenda and in driving the green
economy in the UK. Harworth is well-positioned to be a key partner to
central and local Government in rebalancing the economy, as well as
continuing to create long-term value for our investors. Our core sectors
of residential land and industrial property are both subject to long-term
structural under-supply, providing resilience to the business through
the cycle. Our ability to work with Government to regenerate and
transform major sites that have either been vacant for decades or are
what they are because of structural changes in the economy, such as
power stations and steelworks, has been proven, for example, at sites
such as Waverley. Put simply, Harworth has the track-record, the
capabilities, and the strategic sites to deliver more projects like
Waverley across our core regions.
Strong results demonstrate our resilience
in challenging times
Despite the challenges posed by the global pandemic, Harworth
delivered strong results in 2020 which is testimony both to the quality
of our underlying business and the resilience and dedication of our
teams. We continued to work through two national lockdowns during
the year and were able to complete all our major targeted sales for the
year, as well as undertake a number of important acquisitions that will
drive our future growth.
Over the year, net asset value grew to £488.7m from £463.8m with
EPRA NDV increasing to £515.9m (2019: £500.5m) representing EPRA
NDV per share growth of 2.8% (2019: 7.2%) to 160.0p (2019: 155.6p).1
This growth reflects the quality of our serviced land, the strength of the
underlying markets in our core regions, the diversity of our portfolio,
and the hard work of our teams in progressing sites and working closely
with our customers. We were able to drive value gains from our
underlying portfolio by continuing to prepare land for redevelopment,
bringing forward and securing planning consents on major schemes,
delivering sales for future residential and industrial end-uses and from
active asset management of our diversified portfolio.
During 2020, the Group was able to complete all its major serviced land
sales, driving value gains for the year. In total we sold 92.7 acres of
serviced land comprising 873 residential plots, 48,640 sq. ft of
commercial space, and land for an energy from waste facility for a
combined consideration of £59.8m, at prices ahead of, or in line with,
their 2019 book values. The continuing level of strong demand confirms
the popularity and quality of our products and the relevance of our core
Purpose of remediating and transforming land into attractive, sustainable
places where people want to live and work. The COVID-19 pandemic has,
if anything, accentuated the importance of the places that we create.
2020 also highlighted the importance and resilience of our investment
portfolio in supporting the business with regular income which covers
business overheads and finance interest payments, as well as providing
the Group with additional value-add opportunities. Our team’s active
approach to managing our income portfolio ensured that, despite the
uncertain economic backdrop, we continued to collect rent
successfully from our tenants across the whole period with 96% of rent
collected in 2020. The vacancy rate in our Business Space portfolio
stood at 4.5% at 31 December 2020 (2019: 6.2%) and we continue to
see strong tenant interest for good quality industrial and logistics
space. Combined across our Income Generation and Capital Growth
teams, our earnings per share increased to 8.0p per share (2019: 7.9p).
Adding to our land and income portfolio
for future growth
Capital Growth
During the year we successfully added to our long-term pipeline of
strategic land through land purchases of over 132 acres for a combined
consideration of £10.5m. We also entered into three Planning
Promotion Agreements (PPAs), including a potential new residential site
in the West Midlands that could eventually deliver around 1,300 plots.
As at 31 December 2020, our long-term pipeline stood at 30,668
residential plots and 27.3m sq. ft of employment space (31 December
2019: 29,596 plots and 24.4m sq. ft). Replenishing and growing our
long-term pipeline of strategic land in our core areas are key to the
future growth of our portfolio and remain a strategic priority for the
Harworth management team.
Disposal of non-core assets
In line with our strategy of focusing our capital and management
attention on adding value to sites that we believe can deliver significant
capital growth or income, we continued to refine our portfolio during
the year with the sale of sites totalling 2,335 acres. Much of this was
agricultural land or mature income sites which we believe have limited
development potential.
Growing our income-producing portfolio
During the year we also delivered on our strategy of growing our
income portfolio, so that income therefrom will continue to cover all
Group overheads as the business expands. Further details are provided
on the following page: during the year, we made four income-
producing acquisitions for a total consideration of £40.0m, reflecting a
blended Net Initial Yield of 8.4%.
The continuing level of strong demand confirms the popularity and
quality of our products and the relevance of our core Purpose of
remediating and transforming land into attractive, sustainable places
where people want to live and work.
(1) Harworth discloses both statutory and alternative performance measures (APMs). A full description and reconciliation to the APMs is set out in Note 2 to the
Financial Statements.
21
Financial StatementsCorporate Governance Strategic Report Preparing land to create new communities
as Master Developer
As a Master Developer a core capability is our ability to assemble
packages of strategic land and bring them forward successfully through
the planning system. Obtaining planning permissions in the UK is often
not straightforward, but one of our core skillsets is managing complex
planning applications, often with multiple owners, and working closely
with Local Planning Authorities (LPAs) to achieve consent. Our
experience with the LPAs in our core regions and our reputation for
delivering high-quality, well-designed projects that benefit the local
community and environment are key to our success in this area.
The Government’s Planning for the Future White Paper was put out to
consultation in August, proposing reforms of the UK planning system.
The Government remains committed to the delivery of its target of
300,000 new homes each year. We have responded to Government as
part of the consultation process, confirming that we are cautiously
supportive of the proposed White Paper and are keen to work with
Government to refine the plans following the conclusion of the
consultation process.
The current planning system has adapted to the challenges of
COVID-19 and while we have seen some delays, many LPAs quickly
moved their planning committees to virtual meetings to determine
applications. However, there has also been slippage in some Local
Plans which we continue to factor into our plans.
During the year, we were successful in securing planning consent on a
number of sites, including a 300-plot residential site at Woodville which
is the subject of a PPA and permission for a further 1.1m sq. ft of
industrial space at our Gateway 36 development in Barnsley where we
have previously obtained consent for 0.2m sq. ft. Additionally, we have
a number of applications currently in the planning system; as at 31
December 2020, applications for more than 1.3m sq. ft of employment
space and over 2,500 residential plots were awaiting determination. Of
these, the most significant are our application for 1.1m sq. ft of
commercial space at our Wingates development where we expect the
outcome of the recent Examination in Public in the Summer and our
application at Ironbridge for 1,000 homes, together with a range of
leisure and supporting uses.
Delivering engineered land for new homes
and industrial spaces
Despite the challenges of the global pandemic, we were able to
continue safely with the infrastructure and development works on all
our development sites. The safety of our employees and those who
work alongside us remained our top priority throughout the year, and it
is a huge testimony to their hard work and dedication that we were able
to achieve this. Underlying demand for Harworth’s quality products
from purchasers of residential and commercial land remained strong,
despite the disruption caused by the pandemic. Highlights of the total
property sales of £75.8m completed during the year included:
•
19.5 acres of industrial land at Skelton Grange near Leeds to
Wheelabrator Technologies for a total consideration of £13.0m.
• Plot C1, a 2.2 acre plot at Logistics North to A&F Forecourts Ltd.
•
•
16.0 acres of residential land to Redrow at South East Coalville
which represented Harworth’s first transaction with Redrow.
16.0 acres at Thoresby Vale in Nottinghamshire to David Wilson
Homes.
•
•
12.5 acres representing the second phase of South East Coalville to
Bellway. This transaction was the first between Harworth and
Bellway and the seventeenth housebuilder to which Harworth has
sold engineered land since our formation.
Two parcels of land in Yorkshire at Waverley and Micklefields (Flass
Lane) to Avant Homes, with the latter marking the completion of the
last residential sales on that site.
Maximising our investment portfolio
Our investment portfolio provides a recurring income stream needed
to cover our overhead and finance interest costs, as well as making a
significant contribution to our profits and value gains. During the year,
our portfolio generated revenue of £20.4m (2019: £23.5m). Income is
generated from our Business Space portfolio and from our position as
landlord on our Natural Resources schemes, which include renewable
energy generation. Our strategy is to use our in-house asset
management skills and expertise to maximise capital values and rental
income, to grow our portfolio through the purchase of high-yielding
investments where we can add further value through active asset
management, and to undertake selective direct development of
industrial space on our existing sites. In time, it is our intention to grow
our investment portfolio to a scale that would allow us to sell assets
once we believe that their value potential has been maximised.
Existing investments
The tenant base of our investment portfolio is predominantly industrial
and well diversified between different economic sectors. This has
provided a high degree of resilience during the pandemic.
Furthermore, our Income Generation team was very proactive
throughout the year, working with our tenants during each of the
lockdowns, in line with the Government code of practice, supporting
them to trade through the period of economic disruption. Where
necessary this included moving a small number to monthly payment
plans. As a result, we collected 96% of the total rent owed for the year
as a whole.
Our team were also extremely successful in agreeing new and renewed
lettings during the year. The year-end average vacancy rate across our
portfolio remained low at 4.5% (2019: 6.2%), with a weighted average
unexpired lease term (WAULT) of 12.5 years (2019: 13.5 years).
Four new acquisitions
During the year, we continued our strategy of adding high-yielding
assets with asset management potential to our investment portfolio,
investing a total consideration of £40.0m in four income-producing
acquisitions:
•
•
Thorns Road Industrial Estate near Dudley for £10.1m plus costs,
reflecting a Net Initial Yield of 10.2% and a Reversionary Yield of
12.8%. The site’s fully-let industrial units totalling 360,000 sq. ft
generate rent of £1.1m per annum and an additional 4.2 acres of
vacant land provide further asset management potential.
Two Short Term Operating Reserve (STOR) facilities: one in
Gloucester for £1.2m plus costs reflecting a Net Initial Yield of 8.3%
and one in Newport for £0.5m plus costs reflecting a Net Initial
Yield of 8.5%.
• Our largest income-producing acquisition during the year was the
off-market purchase for £26.0m plus costs of Saturn Park,
Knowsley. The passing annual rent of £2.1m has a WAULT of
5.3 years, reflecting a Net Initial Yield of 7.7% and a Reversionary
Yield of circa 9.0%.
22 Annual Report 2020
Direct development activities
Outlook
We progressed three direct development opportunities on our
commercial development sites. This was in line with our stated strategy
to undertake a limited number of such developments providing they
satisfy three key tests: customer demand, funding and covenants, and
projected returns that meet our corporate risk appetite.
In the second half of the year, we completed the 23,000 sq. ft research
facility at the AMP in Rotherham, which has been let to the UK Atomic
Energy Authority on a 20-year lease.
Given the strong demand for industrial space in the region and the low
vacancy rates in our portfolio, we made the decision to start
construction on a new 50,800 sq. ft unit on the last remaining vacant
plot at Logistics North. Works started towards the end of 2020 and are
expected to be completed later this year. We also built two retail units
at Riverdale Park and Waverley, which have both been leased to Costa
Coffee.
Our People
Since joining the Group last November, it is very clear to me that one of
Harworth’s greatest strengths is our people. They give us not just the
skills required to transform land and property and create new
communities for people to live and work, but through their hard work
and dedication they also provide the drive and determination to deliver
these projects on time and on budget, whatever the circumstances.
This was particularly evident during 2020 in the face of the global
pandemic; with the health and safety of our staff of paramount
importance, we were able to remain fully operational throughout the
lockdowns. During the year, we recruited several new members to the
team to provide extra resources and skills and experience where
needed.
Looking ahead, while it seems that there is still some way to go to get
back to a normal business environment in 2021, our results for 2020
give us great confidence in the strength and resilience of our underlying
business and our ability to grow and prosper, despite the disruption
caused by COVID-19. It is particularly reassuring that demand for our
residential and industrial products in our core regions has remained
strong throughout. We are undertaking a comprehensive review of the
business to ensure that we both optimise the returns from our existing
portfolio and continue to be well positioned to deliver growth and
sustainable shareholder returns going forward. This work will be
undertaken over the spring and summer 2021. It will build on our
existing strengths, scale and the key attributes that position us to
succeed: specialist and highly experienced teams; a long track record
of acquiring, assembling and developing our strategic landbank; an
unrivalled focus on creating places where people want to live and work
and the ongoing curation of the places that we and our partners create;
the scale and optionality of our strategic pipeline and our ability to
unlock the latent value in the land portfolio; and our robust financial
position and balance sheet strength.
I am delighted to have joined Harworth and I am excited to lead the
business through its next phase of growth. I believe that Harworth can
play a key role in helping local and central Government deliver on their
core agendas on housing, ‘levelling up’, and the green economy, and
that our Purpose, the culture of our business and the way that we create
and curate places are more relevant now than ever. Demand for our
serviced land has remained strong and we continue to see this in the
first few months of 2021 as we make progress across the portfolio and
explore potential acquisitions. Together with our strong balance sheet
and opportunities in our core residential and logistics sectors, we are
very well-placed to trade successfully through the pandemic and play a
key role in delivering the infrastructure the country needs for regional
economic recovery and long-term growth.
Lynda Shillaw
Chief Executive
22 April 2021
Saturn Business Park, Knowsley
23
Financial StatementsCorporate Governance Strategic Report Financial Review
Kitty Patmore
Financial Highlights
Whilst impacted by COVID-19, the
solid operational performance
throughout 2020 allowed us
nonetheless to achieve 2.8% growth
in EPRA NDV per share across the
year.
During the period, revenue from our Capital Growth division
comprising sales of serviced land, totalled £49.6m. This was lower than
2019 (£62.0m), predominantly the result of revising scheduled activities
on site as the COVID-19 pandemic unfolded. We prioritised
expenditure on sites to achieve year-end sales and we were pleased
that all major sales were secured and completed on sites as planned.
Achieving these sales continues to demonstrate strong underlying
demand for our sites and our ability to manage our cashflows
sustainably.
Revenue from Income Generation, predominantly from rental income
was £20.4m (2019: £23.5m), reflecting strong rent collection
throughout the year and bolstered by new acquisitions and a promote
fee at Logistics North which partly offset the impact of the ongoing
winding down of income from coal fines.
In total, this resulted in Group revenue of £70.0m (2019: £85.5m) and
an operating profit of £27.8m (2019: £24.3m). The Group’s profit
excluding value gains (PEVG) was £3.5m (2019: £3.5m).
The independent valuations of our portfolio are an important part of the
financial results for the Group. Value growth is driven by management
actions on our sites, progressing the development and establishment of
communities. The market environment also has an impact and, in this
respect, 2020 had two distinct halves.
The first six months were characterised by uncertainties in the
residential market due to COVID-19, which resulted in valuation
reductions for our major residential development sites, largely
reflecting changes in underlying profit assumptions. Conversely, as the
structural changes already impacting the logistics sector were
accelerated due to growing e-commerce demand, and rent collection
remained high, the Business Space portfolio and the industrial land we
own saw valuation increases in the first half.
24 Annual Report 2020
In the second half of 2020, the progress that we made on our sites and
the sales that we completed, all in line with or above 2019 book values,
created value and demonstrated the resilience of our residential
markets. This resulted in the reversal of some of those half-year valuation
declines. On our industrial sites, letting activities, strong rent collection
and the ongoing development of schemes resulted in valuation
increases as the industrial market went from strength to strength. As a
result, the Income Generation portfolio continued to grow in value and
the Capital Growth portfolio also increased in value in the second half
of the year.
While at the half year, the independent valuations were subject to a
material uncertainty clause, the greater market clarity in the second half
of the year meant that the independent valuations as at 31 December
2020 are no longer subject to this clause.
Over the year as a whole Net Asset Value grew to £488.7m (2019:
£463.8m). With EPRA adjustments for development property valuations
included, EPRA NDV at 31 December 2020 was £515.9m (2019:
£500.5m) representing a per share increase of 2.8% to 160.0p (2019:
155.6p). This resulted in a total return (EPRA NDV growth plus dividends
per share paid in the year) of 3.0% (2019: 7.8%).
With housebuilders returning to all major development sites in the early
summer, an interim dividend of 0.334p (H1 2019: 0.304p) per share
was paid in October. The Board remained committed throughout 2020
to considering, at the time of the final 2020 dividend, an increased
payment for 2020 to reflect the cancellation of the 2019 full-year
dividend following the onset of COVID-19. Given the full-year 2020
performance, the Board has approved the recommendation of a 2020
final dividend of 1.466p. This comprises the cancelled 0.698p per
share final 2019 dividend and a 0.768p per share final 2020 dividend.
The 2020 final dividend and 2020 interim dividend total 1.102p per
share, an increase of 10% on the total 2019 dividend before
cancellation.
The Group’s Revolving Credit Facility was increased by £30.0m in May
2020 to £130.0m and the Group has continued to exercise a prudent
and disciplined approach to financing. Harworth remains well
capitalised and as at 31 December 2020 had substantial available
liquidity of £62.7m (31 December 2019 £35.8m). The closing net loan
to portfolio value (LTV) was 11.5% (31 December 2019: 12.1%), at the
lower end of our net LTV target range. This provides the potential to
support our future growth and means that we have significant
headroom at 31 December 2020 to withstand a further substantial fall
in residential values before we reach our tightest LTV covenant, whilst
our projected interest cover ratios could withstand a downside
scenario of a material loss of rental income before reaching the relevant
covenant.
Presentation of financial information
We find that as our property portfolio includes development properties
and joint venture arrangements, Alternative Performance Measures
(APMs) can provide additional valuable insight into our business
alongside the statutory results. 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 ALTERNATIVE PERFORMANCE MEASURES
Total return
the movement in EPRA NDV
plus dividends per share paid in
the year expressed as a
percentage of opening EPRA
NDV per share.
Net
loan to
portfolio
value
Group debt net of cash held
expressed as a percentage of
portfolio value.
Value
gains
these are 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.
EPRA
NDV per
share
EPRA NDV aims to
represent shareholder
value under an orderly
sale of business,
where deferred tax,
financial instruments
and certain other
adjustments are
calculated to the full
extent of their liability
net of any resulting
tax. This has replaced
the previously used
EPRA NNNAV
measure. EPRA NDV
per share is EPRA NDV
divided by the
number of shares in
issue less shares held
by the Employee
Benefit Trust.
A full description of all non-statutory measures and reconciliations
between all statutory and non-statutory measures are set out in Note 2
to the financial statements.
results. We believe that this measure continues to be the most
appropriate measure to explain our business. The new EPRA APMs and
previous APMs are reported in Note 2 for comparison purposes.
Harworth discloses some APMs which are 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. Following the
release of new best practice recommendations by EPRA, we have
replaced the reporting of EPRA NNNAV with EPRA NDV within these
Our financial reporting is aligned to our business units of Income
Generation and Capital Growth with items which are not directly
allocated to specific business activities, held centrally and presented
separately.
25
Financial StatementsCorporate Governance Strategic Report Income Statement(1)
2020
2019
Capital
Growth
£m
Income
Generation
£m
Central
Overheads
£m
Revenue
Cost of sales
Gross (loss)/profit
Administrative expenses
Other gains
Other operating expense
Operating (loss)/profit
Share of profit of joint ventures
Interest
(Loss)/profit before tax
Tax charge
(Loss)/profit after tax
49.6
(56.2)
(6.6)
(3.1)
12.6
-
2.9
8.0
0.4
11.3
-
11.3
20.4
(3.2)
17.2
(1.9)
19.1
-
34.4
0.7
-
35.1
-
35.1
Total
£m
70.0
(59.4)
10.6
-
-
-
(9.6)
(14.5)
-
(0.1)
(9.7)
-
(3.5)
(13.2)
(7.5)
(20.7)
31.7
(0.1)
27.8
8.7
(3.1)
33.4
(7.5)
25.9
Capital
Growth
£m
Income
Generation
£m
Central
Overheads
£m
62.0
(50.5)
11.5
(2.7)
-
-
8.9
7.0
0.3
16.3
-
16.3
23.5
(7.1)
16.4
(2.2)
9.3
-
23.4
1.4
-
24.9
-
24.9
-
-
-
(8.0)
-
(0.1)
(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
8.4
(2.4)
30.3
(4.8)
25.5
Note: (1) There are minor differences on some totals due to roundings
Revenue in 2020 was £70.0m (2019: £85.5m), split between revenue
from Income Generation of £20.4m (2019: £23.5m) and revenue from
Capital Growth of £49.6m (2019: £62.0m).
Capital Growth revenue, which results primarily from the sale of
development properties, was £49.6m which was lower than 2019
(£62.0m) as a result of rescheduled activities on sites.
Income Generation (Business Space, Natural Resources and
Operations) revenue mainly comprised property rental and royalty
income. Revenue in 2020 is lower as a result of the ongoing trend of
reduced sales of coal fines (2020: £0.0m, 2019: £4.0m), mitigated in
part by increased rental income from property acquisitions and asset
management. The core of our recurring income is from rental and
royalty income from Business Space and Natural Resources assets
which increased on an annualised basis from £15.0m to £19.8m in the
period.
Cost of sales comprised the inventory cost of development property
sales and the direct costs of the Income Generation business. Cost of
sales increased to £59.4m (2019: £57.5m) of which £43.9m related to
the inventory cost of development property sales (2019: £50.1m) and
£10.4m related to an increase in the net realisable value provision on
development properties (2019: £0.7m decrease). Administration
expenses increased with the completed expansion of the regional
teams and additional COVID-19 costs.
Other gains of £31.7m comprised the profit on sale of investment
properties, assets held for sale and overages of £6.6m (2019: £3.7m)
which included the sale of part of the site at Skelton Grange and a
£25.1m (2019: £5.6m) net increase in the fair value of investment
properties and assets held for sale.
Joint venture profits of £8.7m (2019: £8.4m) included an increase in the
value of the Gateway 45 Leeds and Ansty Development Vehicle LLP
prior to the acquisition of the remaining interest. Value (losses)/gains on
a non-statutory basis are set out below.
Prince of Wales, Pontefract
26 Annual Report 2020
Non-statutory value (losses)/gains(1)
Value (losses)/gains are made up of profit on sale, revaluation gains/(losses) on investment properties (including joint ventures), and revaluation
gains/(losses) on development properties, assets held for sale and overages:
£m
Categorisation
Capital Growth
Major Developments
Development
Strategic Land
Investment
Income Generation
Business Space
Natural Resources
Agricultural Land
Investment
Investment
Investment
2020
2019
2020
2019
Profit on
sale
Revaluation
gains/
(losses)
Profit on
sale
Revaluation
gains
Total
Valuation
Total
Valuation
Total
Total
0.1
6.1
(0.2)
0.0
0.7
(10.4)
(10.3)
6.5
12.6
14.8
5.1
(0.4)
14.6
5.1
0.3
5.1
0.0
0.1
3.3
0.0
27.9
(0.3)
33.0
(0.3)
4.8
3.9
4.9
7.2
(0.8)
(0.8)
248.1
96.2
227.6
38.3
8.0
277.3
75.7
172.8
46.8
12.7
Total
6.7
15.6
22.3
8.5
35.5
44.0
618.2
585.3
Note: (1) A full description and reconciliation of APMs in the above table is included in Note 2 to the financial statements
An independent valuation of the land and property portfolio was
completed by BNP Paribas and Savills as at 31 December 2020. This
resulted in revaluation gains over the whole of 2020 of £15.6m (2019:
£35.5m gains). The principal revaluation gains and losses across the
divisions reflected the following:
• Major Developments – progress on our major development sites,
the strength of the industrial market and sales of residential land
supported valuations although only partly reversed the half-year
residential land reduction as uncertainty remained in some parts of
the residential markets;
• Strategic Land – increased due to profit on sale and valuation
uplift at Skelton and demand for well-located industrial land across
the portfolio including on acquisitions made during the year;
• Business Space - good letting progress achieved across our
In 2020, the Group achieved revaluation gains of £15.6m (2019 £35.5m)
comprising;
Increase in fair value of
investment properties
2020
£m
2019
£m
25.4
5.8
Decrease in value of assets held for sale
(0.3)
(0.2)
Net realisable value provision on
development properties
Contribution to statutory
operating profit
Share of profits from joint ventures
(11.8)
(0.5)
13.3
8.7
5.1
8.4
(6.4)
22.0
portfolio including the lease re-gear at Moxon Way and an increase
in valuation at Nu-Farm reflecting a high quality covenant on a long
term lease;
Unrealised (losses)/gains on
development properties, overages
and assets held for sale
Total revaluation gains
15.6
35.5
• Natural Resources - valuation uplifts as a result of asset
management initiatives; and
• Agricultural Land – small reductions across a handful of assets.
The above valuation includes an industrial strategic land site in the
Midlands which, after the acquisition of the remaining joint venture
ownership, is now fully owned and has been consolidated from the
acquisition date.
The net realisable value provision as at 31 December 2020 was £17.3m
(2019: £6.9m) and held across nine development properties, with the
increase in the year reflecting the results of the independent valuations
undertaken. This provision reduces the value of these development
properties from their deemed cost (the fair value at which they were
transferred from investment property to development property) to their
net realisable value at 31 December 2020. The transfer from investment
to development property takes place once planning is secured and
development with a view to sale has commenced.
27
Financial StatementsCorporate Governance Strategic Report Cash and sales
The Group undertook property sales(1) of £75.8m in 2020 (2019: £79.9m) achieving profits on sale of £6.7m (2019: £8.5m). The sales were split
between residential serviced plots, totalling £44.4m (2019: £58.1m), commercial land, totalling £15.4m (2019: £4.4m) and other, mainly mature,
income-generating sites and agricultural land, totalling £16.0m (2019: £17.4m).
Cash proceeds, including receipt of deferred consideration from prior years, were £83.8m (2019: £58.0m) 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
2020
£m
75.8
(21.6)
29.6
83.8
2019
£m
79.9
(38.5)
16.6
58.0
Note: (1) A full description and reconciliation of APMs is included in Note 2 to the financial statements
Tax
The income statement charge for taxation in the year was £7.5m (2019:
£4.8m) which comprised a deferred tax charge of £7.9m (2019: £3m)
and a current tax credit of £0.4m (2019: £1.8m charge).
The current tax credit resulted from a current tax charge of £0.4m, arising
on profits from the sale of development properties, investment property
and assets held for sale offset by the impairment of some development
properties, and a £0.8m credit arising from the prior year reflecting the
finalisation of land remediation relief and capital allowances.
The movement in deferred tax from 31 December 2019 mainly arose
due to the increase in the valuation of investment properties as well as
the reversed change in future corporation tax rate from 17% to 19%
substantively enacted on 17 March 2020 and effective from 1 April
2020.
At 31 December 2020, the Group had deferred tax liabilities of £23.1m
(2019: £15.6m) which largely related to unrealised gains on investment
properties and recognised deferred tax assets of £7.3m (2019: £7.8m).
The net deferred tax liability was £15.8m (2019: £7.8m).
Basic earnings per share and dividends
Basic earnings per share for the year were 8.0p (2019: 7.9p) reflecting
the revaluation gains in investment properties, particularly across
Strategic Land and Income Generation at 31 December 2020.
Reflecting the improving backdrop, an interim dividend of 0.334p (H1
2019: 0.304p) per share was paid in October. Given the full year 2020
performance, the Board has approved the recommendation of a 2020
final dividend of 1.466p. This is made up of the cancelled 0.698p per
share final 2019 dividend and a 0.768p per share final 2020 dividend.
The 2020 final dividend and 2020 interim dividend total 1.102p per
share, an increase of 10% on the total 2019 dividend before cancellation
of the final dividend.
Property categorisation
Until sites receive planning permission and the future use has been
determined, our view is that the land is held for a currently
undetermined future use and should therefore be held as an investment
property. Where there is a subsequent change in use, typically in
properties and land that have received planning permission and where
development with a view to sale has commenced, these are
re-categorised as development properties. Property categorisation
is reviewed as at 30 June and 31 December each year.
As at 31 December 2020, the balance sheet value of all development
sites was £177.7m (2019: £202.1m) and the valuation (based on
valuations by BNP Paribas and Savills) was £207.5m, reflecting a
£29.8m cumulative uplift in 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 use EPRA NDV, which includes the market
value of development properties, assets held for sale and overages less
notional deferred tax, as our primary net assets metric.
Logistics North, Bolton
28 Annual Report 2020
Net asset value
Properties(1)
Cash
Trade and other receivables
Other assets
Total assets
Gross borrowings
Deferred tax liability
Derivative financial instruments
Other liabilities
Statutory net assets
Value of development properties on a mark to market basis, assets held for sale and overages less
notional deferred tax(2)
EPRA NDV(2)
Number of shares in issue (less Employee Benefit Trust shares)
EPRA NDV per share(2)
31 December
2020
£m
31 December
2019
£m
584.5
12.7
56.4
5.4
659.0
83.9
15.8
0.8
69.8
488.7
27.2
515.9
541.0
11.8
59.2
4.3
616.3
82.7
7.8
0.6
61.4
463.8
36.7
500.5
322,410,320
321,777,367
160.0p
155.6p
Notes: (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 APMs in the above table is included in Note 2 to the financial statements
EPRA NDV is £515.9m (2019: £500.5m) which includes the total mark to
market value of the development properties, assets held for sale and
overages. The total portfolio value as at 31 December 2020 was
£618.2m, an increase of £32.9m from 31 December 2019 (£585.3m).
Trade and other receivables include deferred consideration on sales as
set out above. At 31 December 2020, deferred consideration of
£33.5m was outstanding (2019: £41.1m) of which £nil (2019: £12.8m) is
due after more than one year.
The share of profits from joint ventures net of distributions resulted in
investments in joint ventures decreasing to £25.3m (2019: £31.8m),
adjusted on a like-for-like basis for joint ventures included in the Group
as at 31 December 2020). During the second half of 2020, Harworth
acquired the remaining 50% interest in Ansty Development Vehicle LLP,
with the full assets, liabilities and post-acquisition performance
incorporated within the Group results from the acquisition date.
The movement in EPRA NDV over the period is set out below and shows
the role of value gains in the growth achieved during the year. Further
detail on value gains is provided under Non-statutory value (losses)/
gains above.
Opening EPRA NDV
Profit excluding value gains
Value gains
Interest and finance costs
Tax
Dividends
Other movements in value
Closing EPRA NDV
31 December
2020
£m
500.5
3.5
22.3
(3.1)
(6.5)
(1.1)
0.3
515.9
31 December
2019
£m
466.5
3.5
44.0
(2.4)
(7.3)
(3.0)
(0.8)
500.5
29
Financial StatementsCorporate Governance Strategic Report The table below sets out our top ten sites by value, which represent 43% of our total portfolio, showing the total acres for each site and split
according to their categorisation, currently consented residential plots and commercial space:
Categorisation
Region
Acres
Consented
Sold/Built
Consented
Sold, built or
purchased
Residential plots
Commercial space (sq. ft)
Site
Waverley
Development
Yorkshire & Central
South East Coalville
Development
Midlands
Nufarm
Knowsley
AMP
Investment
Yorkshire & Central
Investment
North West
Investment
Yorkshire & Central
Pheasant Hill Park
Development
Yorkshire & Central
Four Oaks Business Park
Investment
North West
Melton Commercial Park
Investment
Ironbridge
Ansty
TOTAL
Investment
Investment
Midlands
Midlands
Midlands
419
316
112
35
113
307
19
141
359
145
3,890
2,016
1,714/1,124
370/0
-
-
-
-
-
-
1,200
522/240
-
-
-
-
-
-
-
-
-
-
0.3m
0.4m
2.1m
0.1m
0.4m
0.3m
-
-
-
-
0.3m
0.4m
1.5m
-
0.4m
0.3m
-
-
1,966
7,106 2,606/1,364
3.6m
2.9m
Financing strategy
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 gives the Group a number of advantages:
•
allows working capital swings to be managed appropriately given that expenditure on sites often occurs 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 the Group does not combine financial gearing with its existing operational gearing, being exposure to planning, remediation/
engineering, letting and sales risks.
Harworth’s financing strategy continues to target a net LTV of 10% to 15% and entails the Group seeking as a principle to maintain its cash flows in
balance by funding infrastructure spend and acquisitions through disposal proceeds. To take advantage of market opportunities, the Group may
consider additional project specific debt facilities in 2021 which could result in a short-term increase in net LTV.
Waverley New Community
30 Annual Report 2020
Debt facilities
The Group benefits from a £130m Revolving Credit Facility (RCF) with RBS and Santander, expiring in February 2023. The facility was increased by
£30m to £130m in May 2020 until July 2022. The Group also uses, as part of its funding, infrastructure financing provided by public bodies to
promote the development of major sites.
The Group had borrowings and loans of £83.9m at 31 December 2020 (2019: £82.7m), being drawings on the RCF (net of capitalised loan fees) of
£79.7m (2019: £75.8m) and infrastructure loans (net of capitalised loan fees) of £4.2m (2019: £6.9m). The Group’s cash at 31 December 2020 was
£12.7m (2019: £11.8m). The resulting net debt was £71.2m (2019: £70.9m). The movements in net debt over the year are shown below.
Opening net debt
Cash inflow from operations
Property expenditure and acquisitions
Disposal of investment property, assets held for sale and overages
Investments in and distributions from joint ventures
Interest and loan arrangement fees
Dividends
Tax paid
Other cash and non-cash movements
Closing net debt(1)
Note: (1) There are minor differences on some totals due to roundings
With the increase in RCF limit, the margin payable on the RCF was
increased by 0.15%. The weighted average cost of debt, using
31 December 2020 balances and rates, was 2.94% with a 0.9%
non-utilisation fee on undrawn RCF balances (2019: 3.1% with a 0.8%
non-utilisation fee on undrawn RCF balances).
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 2020, the Group’s net LTV was 11.5% (2019: 12.1%). If
gearing is just assessed against the value of the core income portfolio,
this equates to a net loan to core income portfolio value of 28.7% (2019:
35.3%). As at 31 December 2020, the portfolio could withstand a
substantial fall in asset values before reaching the tightest LTV covenant
and the Group’s projected interest cover ratios could withstand a
downside scenario of a material loss of rental income before reaching
the relevant covenant.
31 December
2020
£m
31 December
2019
£m
70.9
(25.8)
56.1
(27.7)
(8.6)
3.4
1.1
2.1
(0.4)
71.2
64.4
(29.6)
49.6
(18.1)
(1.2)
2.4
3.0
-
0.4
70.9
Outlook
The expertise of our team in creating value and great places combined
with the diversification of our portfolio across the residential and
industrial sectors has stood us well and Harworth has continued to
deliver positive returns for shareholders throughout an exceptional year.
The fundamentals of our business remain in good shape and, with the
financial resources available to us as at 31 December 2020, we are well
placed to continue to bring forward our sites, grow our business and
take advantage of opportunities in the residential and logistics markets.
Kitty Patmore
Chief Financial Officer
22 April 2021
31
Financial StatementsCorporate Governance Strategic Report 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.
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
Bi-annual GRR review – both Management Board and Board.
Informed by feedback from the Management Board, following
consultation with their respective teams. Updates are made to
the GRR as necessary including to reflect emerging risks.
Whistleblowing policy and reporting
reviewed by the Audit Committee to
ensure effectiveness.
AuditCo review of internal controls and
processes.
Quarterly health
and safety meeting.
Quarterly health and
safety meeting.
Bi-annual GRR review
– both Management
Board and Board.
Quarterly health and safety meetings: CEO chairs
meetings attended by representatives of each
division.
At all health and safety meetings, 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.
Annual review of
Board risk appetite1.
Quarterly health and
safety meeting.
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEPT
OCT
NOV
DEC
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.
1 Review undertaken in December and reported to Board in January
32 Annual Report 2020
The GRR maps the risk profile of the business. It is a dynamic document
and remains subject to continuous review and evolution. The GRR
currently identifies risks grouped into nine categories: Markets;
Delivery; Politics; Finance; People; Environment; Social;
Governance; and Legal and Regulatory. Risks are scored from “very
low” to “very high”, according to residual risk status (after accounting
for mitigation measures already in place) and materiality. 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.
During 2021 we are reviewing our risk management systems to ensure
that they evolve with the continuing growth of the business. This will
likely lead to some changes at an operational and Board level including
to the way we monitor risk profile and management and to our
framework of internal controls and assurance. Once implemented,
these changes will be explained in the 2021 Annual Report.
Principal risks and uncertainties
Within our 2019 Annual Report, we presented the risk profile of the
business both on a “business as usual” basis and with a “COVID-19”
overlay. Ahead of publication of this report, the Directors have carried
out a robust assessment of the Company’s principal and emerging
risks. Given its prolonged impact, our GRR now reflects risk on a
COVID-19 basis only. As would be expected, the materially higher risk
environment attributable to COVID-19 is reflected in a higher than
normal risk profile across some of our principal risk categories.
Changes in the status of our principal risks
Our principal Markets risks have returned to a “medium” risk status,
reflecting underlying strength in our core industrial and residential
markets, albeit the latter is expected to increase in risk as we head
towards the end of 2021. There have been reductions across our
Finance risk category including our capital, income and cashflow risks,
reflecting strong 2020 financial performance and metrics, and our
valuations risk, now that material uncertainty clauses have been
dropped and we have transaction evidence from the second half of
2020. However, our insurance risk has increased reflecting a very
challenging 2021 renewal. In our People risk category, our resourcing
risk has increased to a “high” risk status, reflecting resource stretch due
to COVID-19 in the short-term and the growth trajectory of the business.
However, our employee engagement and culture risks have reduced
thanks to extensive work undertaken to promote internal
communication, employee engagement and wellbeing. In our Social
risk category, sustainability risk has increased, reflecting the growing
impact of the climate change agenda on the business (as opposed to
the impact of climate change itself which is measured in our
Environment risk category).
A detailed analysis of our principal risk categories is set out on the
following pages.
Sky House at Waverley
33
Financial StatementsCorporate Governance Strategic Report Environment
E23. Environmental incident
E24. Harworth’s environmental impact
E25. Climate change
Social
S26. Purpose
S27. Sustainability
S28. Communities and stakeholders
Governance
G29. Investors
G30. Internal controls and processes
G31. Joint ventures
G32. Cyber and information security
G33. Business continuity
Legal and Regulatory
LR34. Health and safety incident
LR35. Other regulatory breach
LR36. Legislative and regulatory changes
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Dashboard
(key shown on opposite page)
Markets
M1. Commercial property market
M2. Residential property market
M3. Energy market
M4. Adaptation of strategy
Delivery
D5. Acquisitions
D6. Planning
D7. Project delivery
D8. Other operational shortfalls
D9. Mining legacy
Politics
P10. Planning policy changes
P11. Other policy changes
Finance
F12. Availability of capital
F13. Income
F14. Cashflow
F15. Valuations
F16. Insurance
People
PP17. Resourcing
PP18. Succession planning
PP19. Employee engagement
PP20. Communication and connectivity
PP21. Diversity
PP22. Culture
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M1. Adverse movements in commercial property market
PP19. Inadequate employee engagement
M2. Adverse movements in residential property market
PP20. Deficiencies in internal communications
M3. Adverse movements in energy market
PP21. Failure to address diversity challenge
M4. Failure to adapt strategy to reflect market changes
PP22. Failure to promote positive and consistent culture
D5. Inability to source new strategic sites
E23. Environmental incident
D6. Adverse planning decisions
E24. Failure to manage effectively Harworth’s environmental impact
D7. Increase in development costs due to market-wide cost increases
E25. Failure to plan for and respond to climate change
D8. Other operational shortfalls
S26. Failure to deliver on our Purpose
D9. Legacy mining issues result in adverse remediation costs
S27. Impact of climate change agenda and/or failure to deliver sustainable projects
P10. Adverse changes to national planning framework
S28. Ineffective engagement with local communities and other stakeholders
P11. Adverse changes to other national and/or regional policies
G29. Failure to communicate and engage effectively with investors
F12. Capital constraints
F13. Shortfalls in income
G30. Inadequacies in or ineffective internal controls and processes
G31. Inadequate governance of joint ventures
F14. Failure to budget and/or manage cashflow
G32. Failure to provide effectively for cyber and information security
F15. Deficiencies in valuations process
G33. Failure to plan for significant adverse events
F16. Gaps in or increased costs of insurance programme
LR34. A health and safety incident
PP17. Insufficient people resourcing
LR35. Other regulatory breach
PP18. Inadequate succession planning
LR36. Adverse legislative, regulatory and/or licensing changes
34 Annual Report 2020
Change in rating during last six months
Risk rating after mitigation
Forecast change in rating during next six months
Link to strategy
KEY
è Risk has not changed
Very low
è Risk forecast to remain unchanged
ê Risk has decreased
é Risk has increased
l Low
l Medium
l High
l Very high
ê Risk forecast to decrease
é Risk forecast to increase
Development
Investment
Regions
Sectors
Prudent financial approach
Detailed review
Markets
Markets
Commercial property market
Residential property market
Energy market
Adaptation of strategy
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Stakeholder groups impacted
Investors, suppliers, customers, advisers, joint venture
partners, our people
Risk profile
Despite the severe downturn and turbulence in the macro-economic
climate, largely attributable to COVID-19, industrial property market
evidence shows resilience and even strength. Both house prices and
housing sales volumes have remained strong nationally including on our
sites. There remains political support for our core markets, and the
agreement reached between the UK and the EU prior to the end of the
Brexit transition period affords some stability. This is reflected in our
principal Markets risks returning to a “medium” risk status. However,
demand in the housing market is being positively affected in the
short-term by the Government’s stamp duty holiday and the introduction
of the Mortgage Guarantee Scheme. Whilst the stamp duty holiday has
now been extended to the end of June and will then taper off until the end
of September, the housing market may soften as those deadlines
approach. There are also concerns about the outlook for employment
over the medium-term, notwithstanding recent budget initiatives, and this
might adversely affect the market for residential development land. Given
this, we expect the residential property market risk to increase in the
second half of FYE’21.
Examples of mitigation measures taken during 2020
• We continued to broaden our search for acquisitions and footprint of
projects.
• We continued to explore alternative residential tenure delivery models.
• The profile of our strategic land acquisitions was weighted towards
commercial projects, helping towards rebalancing of our portfolio.
• Regular property market updates were commissioned.
Examples of mitigation measures planned in 2021
• The business review will include horizon scanning of existing and
potential new markets, products and projects at a Group and regional
level, and a review of the balance of residential and commercial sites.
• Close monitoring of market dynamics.
• Energy sector initiatives across the portfolio.
35
Financial StatementsCorporate Governance Strategic Report
Delivery
Delivery
Acquisitions
Planning
Project delivery
Other operational shortfalls
Mining legacy
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Stakeholder groups impacted
Investors, suppliers, customers, advisers, regulatory bodies,
our people, communities
Politics
Politics
Planning policy changes
Other policy changes
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ê l è
Stakeholder groups impacted
Investors, advisers, joint venture parties, our people,
Government, communities
36 Annual Report 2020
Risk profile
The UK remains a highly competitive landscape for strategic land and
investment property acquisitions, with limited COVID-19 distress reflected
in pricing in our core markets to date. Despite a strong pipeline, this is
reflected in a “high” acquisitions risk status. Some local authorities have
slowed progress on their local plans pending progress and clarity on
central Government planning reforms, which could affect our short-term
pipeline of planning applications. That said, at the time of publishing this
report, it appears that local and mayoral elections will go ahead which
may assist with local political stability. Overall, we have retained a “high”
risk status for our planning risk. Our project delivery risk also retains a
“high” risk status, reflecting concerns about supply chain pressures
attributable to multiple factors, including COVID-19, the impact of major
infrastructure projects such as HS2 on materials, the recognised skills
shortage within the construction industry, and the increased cost of
insurance. Our other Delivery category risks remain unchanged, both
carrying a “medium” risk status.
Examples of mitigation measures taken during 2020
• Local political stakeholder mapping was undertaken and advisers were
appointed.
• Standardisation of our financial modelling for acquisitions.
• The Harworth Common Platform of resources was rolled out.
• PPA target parameters were agreed.
Examples of mitigation measures planned in 2021
• The business review will include a review of Group and regional
acquisition strategies.
• Further work will be undertaken on financial modelling for acquisitions.
• We will continue to promote consistency in procurement, led by our
Central Services team, particularly as we broaden our supply chain.
• Sales of more surplus land will further reduce our mining legacy.
Risk profile
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,
political risks remain largely unchanged with some increases in risk, such
as the growing prospect of some form of tax on development, being
offset by positive movement, such as on levelling up, regional devolution
and infrastructure investment.
Examples of mitigation measures taken during 2020
• Bio-diversity pilot schemes were appraised.
• Public funding applications were progressed, linked to regional
devolution.
Examples of mitigation measures planned in 2021
• The business review will continue to appraise alternative housing
models. A modular homes initiative is being explored.
• We will continue to progress funding for a new railway station at
Waverley, which has now been allocated to Sheffield City Region via
the National Infrastructure Fund.
• Ongoing negotiation with HS2 Ltd on our compensation claim for
Gateway 45 Leeds.
• Business cases will be worked up with LEPs to secure Government
funding support via the ‘Levelling Up Fund’.
• Engagement with central Government and Transport for the North on
rail freight use at certain sites.
Finance
Finance
Availability of capital
Income
Cashflow
Valuations
Insurance
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Stakeholder groups impacted
Investors, suppliers, funders, advisers, our people
People
People
Resourcing
Succession planning
Employee engagement
Communication and
connectivity
Diversity
Culture
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Stakeholder groups impacted
Our people
Risk profile
There have been reductions in our capital, income and cashflow risks,
reflecting strong financial performance and metrics in 2020 including our
net debt position and the corresponding headroom in our RCF, rent
collections, sales and deferred consideration payments, and investment
property acquisitions, offset to some extent by higher insurance and
headcount costs. That said, our capital and income risks continue to carry
“high” risk scores. This reflects persistent economic uncertainty and 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. Our valuations risk, which monitors the risk of
deficiencies in the valuation process, has reduced now that material
uncertainty clauses have been dropped and we have transaction evidence
from the second half of 2020. The insurance risk has been increased to a
“high” risk status, reflecting a very challenging 2021 renewal, resulting in
markedly higher pricing, material increases in excesses on certain sites and
some deterioration in the scope of certain aspects of cover.
Examples of mitigation measures taken during 2020
• A £30m increase in our RCF.
• Tight capital management during the early COVID-19 period including
strong rent collections.
• Acquisitions of investment properties in Brierley Hill and Knowsley and
direct development at AMP and Logistics North.
• The appointment of a Partnerships Manager to support public funding
applications.
• The appointment of a Head of Income and additional Business Space
resource.
• The appointment of a new insurance broker and extensive re-marketing
of our insurance programme ahead of the 2021 renewal.
Examples of mitigation measures planned in 2021
• Planned programme of direct development.
• Continued “churn” of investment property portfolio to further increase
recurring income.
• Long-term and temporary income opportunities will continue to form a
key element of Major Development site strategies.
• Proactive asset management will continue across the Business Space
and Natural Resources investment portfolio, including on rent
collections, new lettings and lease re-gears.
• Risk management and mitigation measures to be implemented across
the portfolio ahead of the 2022 insurance renewal with a focus on sites
perceived by insurers as high risk.
Risk profile
Our resourcing risk has increased to a “high” risk status, reflecting resource
stretch due to COVID-19 in the short-term and the growth trajectory of the
business. Short-term measures have been, and continue to be,
implemented to mitigate the COVID-19 impact whilst longer-term measures
will take time to bear fruit. Our other People risks have either remained
unchanged or reduced, reflecting the extensive work undertaken to
promote internal communication, employee engagement and wellbeing,
all of which have been impactful and well received, demonstrated by the
positive results from our most recent employee survey.
Examples of mitigation measures taken during 2020
• See the People section of this report (pages 58 to 63) for the measures
we have implemented during 2020 including to look after the health and
wellbeing of our people, to embed the Harworth Values into the
business, to promote diversity, and on engagement and communication,
recruitment, succession, reward and talent development.
Examples of mitigation measures planned in 2021
• The business review will cover organisation design, systems and resources.
• We will continue progress on recruitment for replacement and new roles.
Regular reviews of resourcing will be undertaken which may lead to
outsourcing of workstreams and/or appointment of additional interim
support where needed to overcome short-term capacity pressures.
• Further work on personal development plans for certain employees.
• Employee engagement initiatives will continue and, where they have
been curtailed by COVID-19, they will be revived when restrictions are
lifted.
• The People Steering Group will lead reviews of ‘How we want to work’
post COVID-19 and of what more can be done to promote all forms of
diversity across the business.
37
Financial StatementsCorporate Governance Strategic Report
Risk profile
Our environmental risks remain largely unchanged. The risk of an
environmental incident 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
continue to have “low” risk scores, reflecting that, overall, Harworth’s
projects have a positive environmental impact and that the physical
impacts of climate change, predominantly flooding, are limited at this
stage. The impact of the climate change agenda on the business is more
marked but this is reflected within the sustainability risk below.
Examples of mitigation measures taken during 2020
• We continued to operate a “re-use and re-cycle” approach to site
remediation to minimise off site waste and importation of virgin
materials.
• We continued to factor climate change guidance into remediation and
infrastructure design.
• We undertook a review of, and implemented improvements to, our
internal controls and assurance in respect of permitted activities
undertaken by tenants.
Examples of mitigation measures planned in 2021
• We will continue our collaborative engagement with the Environment
Agency.
• We will maintain a proactive approach to flood management.
• We will maintain our strong performance in recycling materials during
the land remediation process.
Risk profile
Our sustainability risk has increased to a “high” risk status reflecting the
current and anticipated impact of the climate change agenda on the
business (as opposed to the currently low impact of climate change itself
which is measured in our Environment risk category) including on project
delivery and costs, investor expectations, planning obligations, market
demand and, ultimately, valuations. The status of our other Social risks
remains unchanged.
Examples of mitigation measures taken during 2020
• An evolution in our articulation of “the Harworth Way” in investor
materials.
• The format of our Board and Investment Committee project appraisals
has been updated to promote analysis and debate as to the alignment
of new projects with our Purpose and the Harworth Way and their
impact on stakeholders.
• See the Partners section of this report (pages 64 to 67) for the ways we
engaged with our stakeholders and had regard for their interests
during 2020.
• We have made some progress with our funding bids for innovative
transport measures, health and wellbeing and 5G provision at new
developments. We have continued to promote certain of our sites for
rail freight use.
Examples of mitigation measures planned in 2021
• Establish an ESG Committee of the Board.
• We will further evolve our reporting on ESG matters including the
identification of KPIs and external benchmarks against which we will
measure our performance.
• Working with external suppliers, we will continue to review utility and
energy delivery strategies for our major developments.
• We will continue to explore and promote environmental initiatives
which align with the zero-carbon agenda, such as rail freight sites,
bio-diversity offsetting and solar panel retrofit of our existing
investment portfolio.
Environment
Environment
Environmental incident
Harworth’s environmental
impact
Climate change
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è l è
Stakeholder groups impacted
Investors, advisers, regulatory bodies, our people,
communities
Social
Social
Purpose
Sustainability
Communities and
stakeholders
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è l è
Stakeholder groups impacted
All
38 Annual Report 2020
Governance
Governance
Investors
Internal controls and
processes
Joint ventures
Cyber and information
security
Business continuity
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è l è
Stakeholder groups impacted
Investors, advisers, regulatory bodies, our people, joint
ventures
Risk profile
The status of our Governance risks remains unchanged. Our investors risk
retains a “high” risk status, reflecting the share price discount to EPRA
NDV which has narrowed but persists. Our other Governance category
risks continue to carry a “medium” risk status.
Examples of mitigation measures taken during 2020
• Virtual engagement with investors has been maintained throughout the
COVID-19 period. Lynda Shillaw has now met with our largest
shareholders.
• Upgrades to our finance platform including automation of our purchase
order and invoice payment systems.
• A comprehensive review of our risk management and internal controls
systems is underway which will lead to further improvements being
made.
• Our Delegated Authorities Policy has been updated and re-profiled
across the business.
• Continued improvements in data management.
• KPMG undertook a review of our COVID-19 remote working measures.
• Our annual cyber penetration test has been undertaken and IT system
vulnerability scanning has been implemented.
• A consistent approach to joint venture governance has been
implemented, overseen by our recently appointed Company Secretarial
Assistant.
Examples of mitigation measures planned in 2021
• We will continue to work with our brokers to maintain regular news flow
via RNS/RNS Reach and our engagement with existing and prospective
investors.
• Maintenance and evolution of cyber and information security measures.
• The review of our risk management and internal controls systems will be
completed.
• Desktop tests of our Business Continuity and IT Disaster Recovery plans
are scheduled.
Legal and
Regulatory
Legal and regulatory
Health and safety incident
Other regulatory breach
Legislative and regulatory
changes
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Stakeholder groups impacted
Suppliers, advisers, our people, regulatory bodies
Risk profile
There have been no material movements to the risks in this category,
which have all maintained a “medium” or “low” risk rating.
Examples of mitigation measures taken during 2020
• At the outset of COVID-19 we undertook a review of the risk status of
every site (accounting for reduced activity on certain sites) which
informed our inspection regime.
• We expanded our panel of health and safety consultants.
• We implemented measures to ensure compliance with IR35 and
payment practices reporting.
• We maintained our online health and safety training programme for all
employees.
• The Company Secretary continued to inform the Board and wider
business of applicable legislative and regulatory changes.
Examples of mitigation measures planned in 2021
• We will host our biennial Group-wide Health and Safety Day, in person
if possible but virtually if not, supplemented by ongoing online training.
• We will review the effectiveness of our new health and safety consultant
panel arrangements.
39
Financial StatementsCorporate Governance Strategic Report
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 going concern period
required by the Going Concern Statement (see the Statement of
Directors’ Responsibilities at page 136).
The Board conducted a review for a period of five years ending 31
December 2025. 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 forecasts to include the reversion arising from
such reviews.
The final two years of the period are by their nature less certain and are
less detailed in their projections.
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 through the second half of 2020.
The Group’s strategic shift over the last few years to expand teams into
the Midlands and North-West balances the exposure to any one region.
Net debt at year end of £71.2m represented a 11.5% net loan to
portfolio value. The Group’s senior debt facility, being the Revolving
Credit Facility, does not mature until 2023 and is assumed to be
refinanced in 2022.
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 this Report on pages 34 to 39.
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 NDV 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.
The key risks and the scenarios considered as part of the sensitivity
analysis are set out 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
NDV growth including dividend could be impacted temporarily, the
long-term business model is expected to continue to deliver the
Group’s purpose in a sustainable manner.
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 the Group’s Strategy
means that it has 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 the
business and interest due under the 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. The Group’s strategic
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 there
are plans reaching out to 2025;
rental income from income-producing industrial properties which,
at 31 December 2020, had a vacancy rate of 4.5%, a weighted-
average lease length of 12.5 years and a rent collection of 96%; and
• development and investment management, planning promotion
and investment fees.
This balance in the portfolio means that regular income from the
income-producing portfolio with low vacancy rates will help to provide
regular cost cover. The income-producing properties within the
industrial and natural resources sectors have a diverse range of tenants.
The land and property portfolio is spread across all stages of our
business model which gives the opportunity to advance sites at an
earlier stage (masterplanning and planning promotion) whilst waiting
40 Annual Report 2020
Risk
Markets
Scenario
Mitigation & Further Analysis
• A severe but temporary downturn in the residential
market would result in lower land sales and values.
• Notwithstanding strong rent collection to date in line
with previous quarters, an economic downturn could
impact on some tenants’ ability to pay rent and lead to
loss of rent or restructuring of rental payments.
• As a result, spend on new land and property
acquisitions could be restricted.
• Harworth invests to deliver long-term growth and many
of the sites have timeframes that extend beyond the
strategic plan period.
•
•
The portfolio provides a spread of sites across the 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.
The Group works closely with tenants in the Income
Generation portfolio on payment terms that support
both parties to continue to actively manage rent
collection.
• Development spend can be reduced and rephased to
match more closely market demand and conserve cash.
• 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 valuation movements.
• Based on the existing portfolio alone, the pipeline
comprises c.27m 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.
Finance
• A market downturn reducing sales volumes would lower
•
income.
There are no major refinancing deadlines ahead of when
the RCF expires in 2023 and a refinance is assumed
ahead of that.
• Short term downward valuation movement and lower
income receipts could be experienced which would
reduce headroom under the financial covenants in the
RCF.
• Reduced activity on sites as set out above would reduce
development spend and conserve cash resources.
•
The spread of sites in different regions, and an industrial
property income portfolio combined with tenants split
in size and end sector, diversifies exposure. The Group
will continue to implement its strategy to actively
manage the Income Generation portfolio.
• At year end, the Group had low gearing, good liquidity
with debt headroom and cash resources providing
sufficient financial flexibility to continue to operate
across its sites. Headroom is projected to remain in
covenants throughout.
Other risks
including
Delivery,
Politics and
People
• A future change in the political environment could lower
support for infrastructure in the Group’s key regions.
•
• Planning committees are currently operating well on a
remote basis but delays or refusals in planning approvals
could impact on progress on sites and EPRA NDV
growth.
• People resources needed to deliver the strategic plan
may not be available.
The Group has a strong track record in working
effectively with local planning authorities to secure
planning and continues to work on a council-by-council
basis to reduce any potential delays in the consideration
and determination of applications.
•
•
The Group has maintained activity across many of the
sites over 2020 with the Company and contractors
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 61 with new employees
joining over 2020.
Viability assessment
Based on the results of this analysis, and having considered the established controls and available mitigation actions for 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.
41
Financial StatementsCorporate Governance Strategic Report ,
K
R
A
P
E
L
A
D
R
E
V
R
I
:
1
Y
D
U
T
S
E
S
A
C
R
E
T
S
A
C
N
O
D
The closure of McCormick’s Wheatley
Hall Road Tractor Factory in 2007
marked the end of sixty years of farm
machinery production on this large
site close to Doncaster town centre,
and fronting the River Don. Since
2017 Harworth has been working to
regenerate the site into a new mixed
used development that will bring jobs
and homes to the local area.
Intended
development
timeframe:
2017 – 2026
History of site:
Former McCormick Tractor factory site
Intended
development on
completion:
600 homes, 215,000 sq.ft of new commercial
space, and 65,000 sq. ft of community facilities
Built Development
so far:
Over 50 homes and 1,800 sq. ft of commercial
space
Community
Infrastructure
delivered:
Next phase of
development:
New estate roads and drainage system
Further remediation of the site to deliver
additional residential phases and commercial
land sales, and public open spaces
The site for the Riverdale Park regeneration project was acquired by
Harworth in 2015. A mile from Doncaster town centre and a former
tractor factory site with a long history of former industrial use, the
112-acre site was bought by Harworth as brownfield land for
regeneration and taken forwards through the master planning process.
Once complete, it will create a mixed-use scheme with residential,
retail and employment alongside the riverbank and Wheatley Hall
Road.
Harworth initially secured planning in 2016 for 600 new homes,
215,000 sq. ft of commercial space, and 65,000 sq. ft of community
facilities to be built out by 2026. The masterplan delivers a mixed use
community benefitting from its proximity to all of the facilities and
public transport connections in the town centre to provide a
sustainable new neighbourhood in Doncaster.
Following acquisition, Harworth demolished all existing structures on
site and commenced a programme of extensive remediation and
earthworks. Infrastructure and utilities were put into place and the first
commercial serviced land sale was made in 2018.
In 2019, fully-serviced land was sold to Barratt Homes and
Taylor Wimpey who will each build 191 and 188 family homes
respectively: over 50 new homes have already been built and are
occupied. In the last year, we completed the direct development of a
Costa Coffee drive-thru unit on one of the commercial plots and sold
the adjacent plot to Erindale who are constructing a Burger King, which
is expected to open this Spring.
Harworth has continued to invest in new infrastructure, including the
construction of new estate roads, services and a new sustainable urban
drainage system.
When the site is completed, expected to be in 2026, as well as the 600
new homes on site, it is forecast that 800 new jobs will also be created.
This will add an annualised estimated £50m GVA to the local economy,
clearly demonstrating the benefit of delivering a sustainable mixed use
community.
43
Financial StatementsCorporate Governance Strategic Report The Harworth Way:
Communities
We build, create and curate new communities now
and for future generations.
Harworth is one of the largest property and regeneration companies operating
across the North of England and the Midlands. Our core skills lie in transforming
land, which is often brownfield sites requiring extensive remediation, into new
developments, creating communities of lasting economic and social value. We
work with partners, including local communities as well as public agencies and
developers, to create great places where people want to live and work: we call this
‘placemaking’.
The positive economic and social effects of
our developments
The developments that we have brought forward over the nine years
that Harworth has been master developing its sites have already
delivered very significant economic and social benefit to the areas in
which they are located, and to the broader economy as a whole. We
expect these benefits to continue to grow as we expand our portfolio
and our development activity. We currently have 110 sites which are
distributed across 43 Local Authority areas and 14 Local Enterprise
Partnership (LEP) areas in the North and Midlands.
As in previous years, we commissioned ekosgen, an independent
economic research consultancy, to appraise what we have already
delivered, and what we could deliver in the future from our
developments with a focus on jobs created, homes built and the GVA
each site has already generated or could potentially generate in the
future.
What we have already delivered
Over the past nine years, delivery has started, and in some cases
finished, across a wide range of commercial and housing
developments. Specifically:
• 21 employment sites across nine LEPs and 17 Local Authorities have
been fully or partly developed to date, creating around 704,900m2
of employment space, an increase of 3% during the year. This space
already accommodates over 11,700 Full-Time Equivalent (FTE) jobs,
generating an estimated £665m of GVA per annum.
•
Two of our largest strategic sites, Logistics North in Bolton and the
AMP in Rotherham account for over 60% of the new employment
space developed to date and both still have significant room for
further expansion as they are each only between 70-80%
complete.
• Both developments demonstrate how our sites can attract both
existing businesses and new commercial enterprises which want to
expand in high quality commercial and industrial locations.
Occupiers of the AMP already include highly innovative businesses
such as: McLaren Automotive, Rolls-Royce and the UK Atomic
Energy Authority, which opened its new fusion energy research
facility at the end of 2020. Occupiers at Logistics North include:
Whistl, Amazon, Aldi, Lidl, and Komatsu.
• Housing has been delivered, in full or in part, on 12 sites to date,
providing just over 2,750 new homes – an increase of over 400
homes over the past year. The new homes that have already been
delivered are estimated to generate £4.2m of annualised council
tax receipts.
•
The largest of our residential sites, Waverley New Community,
accounts for 36% of the new homes delivered on our sites so far
and with only just over a quarter of its consented plots built to date,
the site continues to offer very significant development potential.
Our developments have already made significant contributions to the
ongoing regional regeneration of the North and Midlands and to the
Government’s ‘levelling up’ agenda, but we believe that there is much
more to come as we continue to develop our sites and acquire more in
the future.
44 Annual Report 2020
What we could deliver in the future
Locations of Harworth Sites by Development Type
Key:
Housing
Energy
Employment
Mixed
LEP areas with Harworth Sites
Local Enterprise Partnership Key:
1.Cheshire and Warrington
2. Coventry and Warwickshire
3. D2N2
4. Greater Manchester
5. Lancashire
6. Leeds City Region
7. Leicester and Leicestershire
8.Liverpool City Region
9. North Eastern
10. Sheffield City Region
11. Stoke and Staffordshire
12. The Marches
13. Worcestershire
14. York, North Yorkshire and East Ridings
Source: ekosgen
9
14
3
7
5
1
8
12
6
4
10
11
13
2
When fully built out and occupied, ekosgen estimate that the current Harworth site
portfolio as shown above, has the potential to accommodate:
74,620 jobs 36,110 new homes
GENERATING
SUPPORTING
£3.9bn
of GVA per
annum
As well as significant levels of
business rates income
Between
£24m - £54m
per annum
in council tax receipts1
(1) The range of council tax receipts reflects the current number of approved plots and the maximum if all plots are approved
45
Financial StatementsCorporate Governance Strategic Report
Supporting deprived communities
Harworth is investing and delivering development in some of the most deprived parts of the country, where levels of both employment and
residential development have typically been well below average. As can be seen in the table below:
• Almost three fifths (57%) of the Group’s sites fall within the 50% most deprived areas of Great Britain. This includes some of the Group’s largest
sites, with 62% of commercial floorspace located in these areas.
• Almost 47,900 jobs (64% of the total employment potential of our sites) could be accommodated in the 50% most deprived areas, generating
£2.5bn of GVA per annum. Over 30% of these jobs (14,600) could be delivered on sites located in the 20% most deprived areas. These include
a mix of both full and part-time jobs, both of which have important roles to play in supporting local residents into employment and addressing
deprivation.
•
There are 16,850 potential new homes (47% of the Group’s total housing plots) located in the 50% most deprived areas, and almost half of
these potential new homes (8,010) are located in the 20% most deprived areas. The large housing sites in these areas include Simpson Park at
Bassetlaw (1,610 plots), Pheasant Hill Park in Doncaster (1,600 plots), Raikes Hall in Bradford (1,260 plots) and Hale Gate Road in Halton (1,070
plots).
Harworth’s Development in Deprived Areas – Portfolio versus Indices of Multiple Deprivation
Deprivation Decile
Commercial Floorspace (m2)
Total Jobs
10% most deprived
20% most deprived
30% most deprived
40% most deprived
50% most deprived
Percent
No.
Percent
18%
20%
29%
37%
62%
629,410
679,850
1,005,190
1,298,900
2,160,450
18%
20%
28%
37%
64%
No.
13,300
14,600
20,940
27,840
47,890
New Homes
Percent
7%
22%
31%
37%
47%
No.
2,560
8,010
11,350
13,250
16,850
All totals rounded. Indices of multiple deprivation, England 2019, Scotland 2020 & Wales 2019
Some of our most developed sites have seen the deprivation ranking of their local area improve greatly over the last few years. Although this will
clearly not be solely due to our investment, we believe that it is likely to have played an important role in helping to regenerate the wider area.
These include: the areas around the Waverley New Community and AMP, Melton Commercial Park and Etherow Business Park sites. Given the
significant scale of development delivered and deprivation improvements at Waverley New Community and the AMP, these could be viewed as
key examples of how investment can contribute to the Government’s rebalancing and levelling up agenda for Northern England.
The Advanced Manufacturing Park at Waverley
46 Annual Report 2020
Prince of Wales, Pontefract
Societal benefits through our Master Developer role
As well as the positive local economic impact we generate from our developments, as Master Developer we work very closely with communities,
not just through development phases, but on an ongoing basis to co-create, shape and curate the communities that our sites have created. These
can vary from small, one-off projects to long-term schemes and projects to improve the lives of those who live and work on or near our sites. Some
examples of activity undertaken during 2020 are described below:
Long-term habitat restoration at Sherwood Forest
Work to restore an area of traditional lowland heathland
habitat at Nottinghamshire Wildlife Trust’s, Rainworth Heath
SSSI Reserve started in 2020. Rainworth Heath is of one of
the last fragments of Sherwood Forest Heathland and for
many years the Trust had wanted to restore the site of an old
farmstead within the nature reserve to heathland, but had
struggled due to the level of nutrient enrichment in the
soils. With funding available through the Miner2Major
Landscape Partnership Scheme backed by the Lottery
Heritage Fund, the scheme, which is managed by
Nottinghamshire County Council, brings together a range
of partners to deliver habitat and heritage projects across
the Sherwood Forest landscape.
Having previously worked closely with the Nottinghamshire
Wildlife Trust to restore heathland on the site of the
neighbouring former Rufford Colliery and on the
regeneration of the former Thoresby Colliery site, Harworth
had the machinery and the expertise to carry out the work
to strip the soil sensitively and effectively, while minimising
the disturbance to wildlife. Following careful checks for
breeding birds and reptiles, the soil was stripped ready for
the Trust to sow an acid grassland seed mix which will act as
a nurse crop for heather over the next couple of years.
47
Financial StatementsCorporate Governance Strategic Report 5G Innovation Hub and the Connected Forest Project
Led by Nottinghamshire County Council (NCC), Harworth is a project partner delivering the 5G Innovation Hub at Thoresby Vale. Once
built, it will be leased to the Council and used to accommodate office space for specific 5G related research projects undertaken by
Birmingham City University and Nottingham Trent University. We are also delivering the essential infrastructure to support autonomous
vehicle provision connecting Thoresby Vale with Sherwood Forest Visitors Centre.
In addition, we are partnering NCC with their 5G Connected Forest project: centred around the ancient Sherwood Forest, its focus will
be to explore the potential for 5G applications in the preservation of forests and their environment, and to enhance the experience of
visitors to the forest and the surrounding area. From robotic environmental management and non-intrusive live monitoring of the health of
a forest, to live Augmented Reality (AR) and Virtual Reality (VR) experiences for visitors of all ages, the 5G project will also investigate
business models that can enable operators to boost rural connectivity and create innovative applications with the potential for
commercial development. Harworth is proud to be involved, along with our other partners, with this initiative led by NCC.
Active Towns Programme at Waverley
In 2017, we first established an innovative partnership with
Sheffield Hallam University, in which a team of experts and
academics with Health and Sports backgrounds are working
collaboratively with Harworth to construct an ‘active
environment’ prototype at our Waverley development.
The ‘Active Towns’ project has been designed to prioritise
the views of local communities and to work on ideas that are
put forward by residents and employees for using the site to
encourage people to become more active and to lead a
healthier lifestyle by using public open spaces. We have
worked with the new and expanding community at Waverley
to co-create the open and green spaces in innovative ways to
maximise health and wellbeing for local residents.
Additionally, AMP employees are keen to see the site
become increasingly walker and cyclist-friendly. Following
consultation with the local community we, in partnership with
Sheffield Hallam University, have tested and pioneered a
number of schemes to unlock the green spaces for maximum
benefit. This has included widening the use of Waverley’s
existing 7km perimeter trails, as well as planning the future
provision of facilities and access for cyclists which will
facilitate and encourage environmentally beneficial
connectivity between working and living for many people.
We are actively considering other projects across the
portfolio to continue to develop more active environments
for our communities.
48 Annual Report 2020
North Star Science School
In December, we were proud to welcome particle physicist, Professor Brian Cox CBE, to Waverley for the northern leg of his Science
Summer School, which was founded nine years ago through a partnership with the social entrepreneur, Lord Andrew Mawson. The
initiative is led by Well Rotherham (part of leading social enterprise business, WellNorth). In addition to Harworth, other partners include:
the University of Sheffield’s Advanced Manufacturing Research Centre (AMRC), Rotherham and Sheffield Councils, and AMP-based
employers, UK Atomic Energy Authority, Rolls-Royce and McLaren Automotive.
Due to COVID-19, the event was hosted virtually from Rotherham to an audience of 2,000 young people across Sheffield and Rotherham.
Professor Cox delivered the keynote presentation: Space, Time and Black Holes, and the three-day streamed interactive programme
included inspirational guests such as Dr Suzanne Imber, winner of BBC Astronauts and Associate Professor in Space Physics at the
University of Leicester, the team from McLaren Automotive and Phill O’Dell, pilot of the Rolls-Royce zero emission Spirit of Innovation
aircraft.
The North Star Science School shares the collective ethos that talent is everywhere and will succeed if the right way is found to inspire and
nurture it. The annual Science Summer School is designed to encourage more young people to consider the many Science Technology,
Engineering, Arts & Maths (STEAM) career options available.
Speaking about the North Star Science School, Professor Brian Cox CBE said:
“Home to the Advanced Manufacturing Park, this area
has a key role to play in our aim of making the UK the
best place in the word to do science. From pioneering
the next generation of electric aircraft to leading the
development of fusion energy for the UK, this region
has a key role to play in engineering a sustainable
future. We hope the initiative will inspire the next generation of scientists and
engineers in the North of England and help them realise their full potential.”
49
Financial StatementsCorporate Governance Strategic Report
Supporting a wide range of charities
During 2020, we continued to support a range of community and charitable activities across the areas in which we work. In previous years our
employees have committed time to a range of charitable activities and participated in a variety of sponsored events, although unfortunately in
2020 due to COVID-19 restrictions, many of these could not go ahead. In 2021 we have launched the new Harworth Charitable Giving Policy which
will be reviewed regularly. It recognises the important and positive role that Harworth plays in the communities in which our colleagues live and
work and, in particular, that the notion of ‘giving something back’ is fundamental to our ethos and values, especially in relation to partnerships.
Collectively across our offices, we want to make a difference to local and national initiatives that are tackling everyday problems affecting our
society. We believe that this will be best achieved through our new Charitable Giving Policy in a number of ways:
• Supporting charities nominated by our employees which are then reviewed by the People Steering Group (PSG). Each year the Senior
Management Team will agree the sum to be allocated to this initiative.
• We are committed to matching financial outcomes of charity fundraising efforts that our people engage with, providing they meet the criteria
guidelines and in 2021 we introduced a ‘Matchfunding’ commitment up to a maximum of £1,500 per application.
• Harworth also wishes to support non-financially driven activities such as volunteering or taking part in specific charitable projects. We
encourage all employees to participate in the Company’s commitment to ‘giving something back’ from a practical perspective. In 2021 we are
offering paid volunteer days to all employees, which can be applied for and taken on an annual basis to allow volunteer work to be carried out
during normal working hours.
Charitable giving and support in 2020
In 2020, alongside charitable donations made to employee-nominated charities, we continued to work with two national charities, LandAid and
The Wildlife Trusts with whom we have an established partnership to provide both financial and in-kind support to help them deliver their
programmes.
LANDAID
THE WILDLIFE TRUSTS
The Wildlife Trusts are a
collection of 46 independent
regional trusts that cover the
whole of the UK who look after
more than 2,300 nature reserves
and operate over 100 visitor and
education centres. Collectively
there are more than 850,000
members, 38,000 volunteers, 2,000 staff and 600
trustees. Each trust relies on financial donations, lottery
contributions and volunteer support to continue
its work.
In 2020, we made a financial donation to the Wildlife
Trusts of £12,500 as a corporate partner. The Wildlife
Trusts continued to work with us on a strategic basis to
provide advice on wildlife projects at a number
of our sites, including the 558-acre
Country Park at Logistics North and
Waverley’s 340 acres of public open space.
Established for over thirty years, LandAid brings
the property industry together to support
charities delivering life-changing services for
young people who are or have been homeless, or
are at risk of homelessness in the future. LandAid
uses the donations and skills of its charity partners
to provide accommodation and support for
young people aged 16 - 25. LandAid is supported
by many of our partners, including the British
Property Foundation, Carter Jonas, Cushman &
Wakefield, Jones Lang LaSalle, Savills, Knight
Frank and the Royal Institute of Chartered
Surveyors.
In 2020, we made a
financial donation of
£12,500 to LandAid as a
corporate partner.
50 Annual Report 2020
CHRISTMAS DONATIONS
As we were unable to hold our annual Christmas party in 2020, Harworth made
donations of £15,000 supporting a range of good causes across the North of
England and the Midlands. Harworth’s six main teams were each allocated £2,500 and
they, in turn, nominated a range of individual charities:
MIDLANDS:
Our Midlands team donated
£2,500 to High Riders,
a Bewdley-based charity that provides horse
riding activities for disabled children.
INCOME GENERATION:
The Income Generation team donated
£2,500 to GAIN,
the only organisation in the UK dedicated to helping
people affected by Guillain-Barré Syndrome and
associated inflammatory neuropathies.
NORTH WEST:
Our North West team donated
£2,500 to the Greater
Manchester Mayor’s Charity,
run by volunteers, the Charity helps people in need of
special care or support due to their circumstances, age,
disability or risk of abuse or neglect.
YORKSHIRE & CENTRAL:
Our team elected to make two separate donations:
£1,250 to Sheffield
Children’s Hospital,
one of only three dedicated children’s hospitals in the UK which
provide integrated healthcare for children and young people.
£1,250 to PACES,
a Sheffield-based specialist centre, charity and school for children
and adults with cerebral palsy and motor disorders.
CENTRAL SERVICES:
Our Central Services team elected to make a
£1,250 donation to Bluebell Wood
Children’s Hospital in Rotherham
and a
£1,250 donation to Roundabout,
South Yorkshire’s local youth
housing charity,
providing shelter, support and life skills to young people
aged 16 – 24 who are homeless or are at risk of
homelessness.
FINANCE, COMMUNICATIONS,
BUSINESS SUPPORT AND
ENVIRONMENT & ESTATES:
The team also elected to make a single donation of
£2,500 to Roundabout
Priorities for 2021
We are committed across all current major developments with
planning consent to deliver the homes, employment spaces,
community facilities and the economic and social uplift promised to
key stakeholders.
During 2021 we intend to focus on the tenure diversification of our
residential development sites, and consider alternative products on
our sites to increase the range and affordability of our developments
for local people.
We will continue to work with Government representatives and key
tenants, such as Blossom Homes, to trial new modular products, such
as those pictured here, on our sites.
We will continue to establish community groups on all our major sites
to encourage integration of all new residents.
51
Financial StatementsCorporate Governance Strategic Report
The Harworth Way:
Planet
Continuing to reduce our emissions and our
carbon footprint
Harworth’s Environmental Management Policy is to ensure the effective
control of environmental risks and as part of this, the Group operates a
management system to ensure environmental issues are considered at
all levels. The policy advocates the promotion of sustainable and
environmental opportunities by active resource management and
waste minimisation.
We declared in our 2019 Annual Report that we were aiming to improve
performance by implementing a plan covering four discrete areas:
• examining the prospect of smart working to reduce staff vehicle
fuel usage;
•
•
•
installation of Electric Vehicle (EV) chargers at our head office and at
other appropriate sites, to encourage employees to use electric or
hybrid vehicles, and change the company pool car to an EV;
investing in energy-efficient measures at properties where these
are cost effective, including the use of LED and passive lighting
systems where appropriate; and
analysing opportunities to manage plant journeys more efficiently
at operational sites.
Continued progress during 2020
We are pleased to report that in 2020, year-on-year performance has
improved with a reduction of 62.5% in the CO2 equivalents emissions
(CO2e) produced by the Group compared to the previous year. During
2020 we instigated the following actions and initiatives that drove this
improvement:
•
•
isolating the electricity supply to buildings which are unoccupied
which ensures that lighting or heating cannot be left on
accidentally;
continuing to install energy saving measures at our existing sites
and in new acquisitions: typically this includes fitting LED lighting as
standard and using passive lighting systems whenever appropriate;
• despite the acquisitions made in 2020, the CO2e tonnage from our
electricity usage on our estate declined overall by 9% due to
energy saving initiatives, an increase in the consumption of energy
generated from renewable sources, as well as lower activity on our
sites as a result of the pandemic; and
•
reducing oil usage which decreased very significantly due to the
ending of operations at our coal recovery sites during the year, with
only Pulverised Fuel Ash (PFA) removal at Ironbridge still continuing.
This statement and the table below set out the estimated greenhouse
gas emissions arising from the activities of Harworth for the 2020
financial year and in accordance with the Environmental Reporting
Guidelines set by the Department for Environment, Food and Rural
Affairs (DEFRA). Carbon dioxide equivalent emissions are calculated
using the UK Government GHG Conversion Factors. Where data is
obtained in litres used or distance travelled these conversion factors
have been used to convert figures to tonnes of CO2e.
Emissions, all of which relate to the UK area,are reported in tonnes of
CO2e and refer to three areas:
Area 1 Fuel use in vehicles by staff in pursuance of their duties (Scope 3)
Area 2 Gas oil used in plant at operational sites (Scope 1)
Area 3 Electricity (non-rechargeable) usage on Harworth sites (Scope 2)
•
in the face of the COVID-19 pandemic, our plans to move to smarter
working were accelerated, following the previous roll-out across
the entire business of Microsoft Teams to support video
conferencing. This had the benefit of not only successfully
supporting home working and allowing us to work at near-capacity
throughout the year, but also more than halving the CO2e” arising
from the fuel used in vehicles by our staff in pursuance of their work
duties. We plan to continue this method of smart working during
2021 and beyond;
Area 1
Area 2
Area 3
Total
Emission source
Fuel for staff vehicles
Gas oil used in plant
Electricity usage
Tonnes of
CO2e (2019)
203
Tonnes of
CO2e (2020)
98
1,707
443
2,353
381
403
882
•
continuing to expand the number of EV chargers during the year:
we now have a total of 13 chargers which each serve two parking
spaces, including at our head office and an increasing number of
our sites;
We are pleased to report that the intensity of the Group’s emissions
have also reduced significantly with the Group’s carbon emissions per
£million of revenue reducing from 27.5 CO2e tonnes per £million in
2019 to 12.6 CO2e tonnes per £million in 2020 driven by the progress
noted above.
The Group’s underlying energy usage is calculated using DEFRA
conversion factors and is related to our scope 1, 2 and 3 activities set
out above. For 2020 this was 1,776,198 KWh which represents a
reduction of 7.7% from 1,925,119 KWh in 2019.
52 Annual Report 2020
We aim to further improve performance in 2021 through the following initiatives:
OUR PRIORITIES FOR 2021
Smart working
programme
Well-
maintained
Continuing the smart working
programme to allow our staff
to plan efficiently to reduce
their business miles and work
remotely when necessary
New
properties
Ensuring all newly acquired
properties are run as energy
efficiently as possible
Continuing to use well-maintained,
fuel-efficient plant and equipment and
periodically analysing and reviewing
operational techniques and plant journey
data on our Major Development sites
Vehicles
Encouraging the greater use of
electric or hybrid vehicles and
continuing to expand the
number of EV chargers at our sites
Rainwater
Increasing rainwater
harvesting facilities where
possible
Photovoltaic (PV)
Reinforcing the structure and foundations of
buildings on our sites to allow retrofitting of
Solar PV panels by end-users
Environmentally responsible
Encouraging clients and tenants to act in an environmentally responsible way: we
recently made the installation of EV chargers a pre-condition of sale for serviced land at
one of our residential sites
Recycled
materials
Making greater use of recycled materials in
partitions and in floor and ceiling finishes
Natural
Widespread adoption
of natural material
53
Financial StatementsCorporate Governance Strategic Report How we are helping Britain reach its net
zero carbon targets
Many of the sites within the Harworth portfolio are in close proximity to
connections to the National Grid and are therefore suitable for energy
generation and storage. We are contributing to the Government’s
target of developing renewable energy resources on brownfield sites,
with a number of our sites being used for this purpose. Harworth
currently has involvement in solar, wind energy, energy from waste,
energy storage and STOR schemes and we are working with partners
including: Anesco, Alkane Energy, Peel Energy, Energy Prospects, First
Renewable, GreenPark Energy, Wind Energy Direct, Green Energy
Networks and Velox.
Currently, low carbon and renewable energy is being generated on 25
of our sites across six LEP areas (D2N2, Sheffield City Region, York,
North Yorkshire and East Ridings, North East, Leicester and
Leicestershire and Leeds City Region). There is also potential for energy
generation at a further seven sites across Leeds City Region, York &
North Yorkshire, D2N2, North East and Sheffield City Region.
We commissioned the specialist economic development and
regeneration consultancy, ekosgen, to estimate the total amount of
energy currently being produced (or that could potentially be
produced) at each site. In order to do this, it is necessary to take 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). Current levels of energy output are over 276
Gigawatt hours (GWh) per annum, with the potential for this to rise to
some 1,400 GWh per annum in the future, if all energy sites were run at
their optimum potential. As can be seen in the chart below, this equates
to the annual usage of some 74,600 households, with potential to
power a further 302,800 homes taking the total to 377,410 households,
once all sites are at capacity. To put the figures into context, current
energy output is almost sufficient to power all households in the Bury or
St Helens local authority areas and the potential output is more than
required to power all households in Manchester, Nottingham and York
combined.
Households capable of being powered by energy generation on Harworth sites
LEP/Region
D2N2
North East
York, North Yorkshire and East Ridings
Sheffield City Region
Leicester and Leicestershire
Leeds City Region
Total
Current (homes)
Potential total (homes)
38,550
17,010
10,030
4,880
2,810
1,320
74,600
54,460
19,000
29,120
23,170
2,810
248,860
377,410
All totals rounded and do not sum due to double counting where local authorities are in multiple LEPs
Our sites are already:
GENERATING ENERGY FOR
AND COULD POWER A FURTHER
74,600
homes
302,810
homes
54 Annual Report 2020
Developing and curating high quality public
open spaces
As Master Developer we have been responsible for the transformation
into public open space of nearly 900 acres of land, much of it on
remediated brownfield sites, which is now enjoyed by the people who
live or work on those sites, as well as by the wider community. For
example, the Cutacre Country Park next to Logistics North near Bolton
is used daily both by those who work at Logistics North, but also by
local residents from Bolton, and further afield, from Wigan and Salford.
Green public open spaces form an integral part of the initial masterplan
which we prepare for each site. Having undertaken meaningful
engagement through a formal public consultation and initial
stakeholder workshops, we are able to evaluate the competing
demands and uses for proposed public spaces, such as walking,
cycling, and running, as well as access requirements, and incorporate
these into the schemes that we take forward. Each of the public open
spaces on our developments is different, depending on local needs
and requirements as well as the topography of the original land.
However, all include dedicated footpaths for walkers, as well as tracks
for runners and cyclists. Our public spaces are typically very extensive:
Cutacre Country Park alone covers 550 acres and together with the
country park we have established at Waverley and are in the process of
creating at Thoresby Vale, Pheasant Hill Park, Cadley Park and Prince of
Wales, these will cover nearly 800 acres.
After we have planned and then created public open space, our
involvement continues: typically we remain involved in the ongoing
enhancement and curation of these spaces and we continue to work
with local communities and stakeholders to ensure that they are used
and enjoyed by as many people as possible. As discussed in more
detail in the Communities section on page 48, in 2017 Harworth
established an innovative partnership with Sheffield Hallam University
to construct an ‘active environment’ prototype at our Waverley
development. This has been the basis of the Active Towns project
which is designed to prioritise the views of local communities and to
encourage people to be more active and lead a healthier lifestyle by
using the public open spaces near to them.
A number of our sites, such as Thoresby Vale and Waverley, are on land
which was formerly used for coal mining or other industrial activities
and have required extensive remediation in order to restore and
‘re-green’ them. In such situations, we often work with other partners,
such as the local Wildlife Trust or ecology group. For example, we have
worked closely with the Nottinghamshire Wildlife Trust (NWT) to
restore the ecology at the Thoresby Vale Country Park we created on
the former spoil heap. We have also worked with the NWT at our
Rufford site over a number of years to restore ancient heathland. More
recently, and as discussed in more detail in the Communities section on
page 47, in 2020 we worked with the NWT at its Rainworth Heath Site
of Special Scientific Interest (SSSI) in Sherwood Forest to restore a
unique area of both wet and dry heathland. The heathland habitats of
Sherwood Forest represent a valuable asset to the area and support the
many species of birds, animals and insects that live there. Finally,
working with the Waverley residents nature group, we purchased and
built four new hedgehog houses around the site which will provide a
safe and secure place for Waverley’s flourishing hedgehog population
to hibernate during the winter months.
t
r
o
p
e
R
c
i
g
e
t
a
r
t
S
e
c
n
a
n
r
e
v
o
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e
t
a
r
o
p
r
o
C
s
t
n
e
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e
t
a
t
S
l
a
i
c
n
a
n
i
F
Priorities for 2021
All new Harworth-built commercial units will continue to be minimum
BREEAM ‘very good’, with a range of environmental enhancements.
We intend to implement further energy efficient Harworth build
specifications in our new developments in 2021, where possible
following completion of our low and zero carbon technologies
feasibility study.
We intend to remain a long-term landlord for low carbon energy
tenants as we continue to review our Income Generation portfolio to
identify opportunities to add low-carbon energy generation on sites,
reducing energy costs and increasing energy efficiencies for our
tenants. Where possible, we will continue to undertake a programme
to refurbish and repurpose investment buildings to increase the
energy efficiency of our standing-stock portfolio. We also intend to
invest in further energy efficiency measures in our income-producing
properties.
As demonstrated during 2020, we will continue to implement our
identified carbon reduction plan, including decreasing our fuel usage
where possible through smart and homeworking, and managing plant
journeys more efficiently.
Protecting the wildlife: hedgehog homes at Waverley
55
:
2
Y
D
U
T
S
E
S
A
C
S
C
I
T
S
I
G
O
L
Harworth has an impressive track
record of delivering major logistics
developments which bring jobs to an
area – often in locations of significant
economic and social deprivation:
our large commercial developments
in Bolton and Rotherham are good
practical examples of this.
Logistics North, in Bolton, is now a leading hub for manufacturing and
logistics operations. It was once the Cutacre surface mine site.
Harworth has managed the process to restore the site, using our
planning expertise to secure approval for over 4 million sq. ft of
bespoke Grade A industrial buildings and put in place important
infrastructure to open up the site. We have sold serviced land parcels
and also built our own developments, including most recently, a new
50,800 sq. ft building which is due for completion this Spring. Along
with other buildings constructed by Harworth, this will be a BREEAM
‘very good’ rated building, with EV charging-points and will enable the
installation of solar PV panels.
Once complete, this site will deliver over 4 million sq. ft. of bespoke
Grade A industrial and logistics buildings. It is forecast to add over
£300m of GVA to the local economy, in addition to over 7,000 jobs. To
date, 3 million sq. ft has been built and 5,500 people are already
employed at Logistics North. In 2020, Harworth sold Plot C1, a 2.2-acre
plot at the development’s entrance, to A&F Forecourts Ltd.
An innovative surface-water attenuation scheme is in place on the site
reducing the risk of flooding.
Progress has been made possible through our key partnership with the
University of Sheffield’s AMRC.
The site is already well-connected by road, but the next phase will see
further public transport initiatives including the potential for opening a
new railway station on the site. A new Waverley station was included in
the Government’s National Infrastructure Strategy published in
November 2020 for further consideration.
The AMP is next to the Waverley New Community residential project
and country park, an integral part of a sustainable mixed-use
community. A key component of future development will be
the new local centre which will serve both the residential and
employment communities.
Logistics
North
Advanced
Manufacturing
Park
2014 - 2023
2001 - 2025
Former Cutacre
opencast mine
Former Orgreave
Colliery
Harworth has planned and created a 550-acre country park, providing
unique surroundings for businesses, further providing the employees
and local residents with additional recreational amenities, including
18 km of new foot and cycle paths.
Overall Development
Timeframe
History of site
At the AMP in Rotherham, Harworth in partnership with the University
of Sheffield’s AMRC have transformed the former Orgreave mine into
the home of some of the world’s major manufacturers. The vision of the
AMP emerged from the decline that South Yorkshire had suffered in its
traditional industries of coal and steel over the last thirty years. Despite
this decline, the region had retained established skills and expertise in
the areas of advanced manufacturing. Harworth’s vision remains on
track to deliver 4,000 high-value jobs to the region – eight times that of
Orgreave when the site shut down in 1990.
Harworth progressed the site through planning and achieved planning
approval in 2001. The masterplanned site will deliver 2.1m sq. ft of high
technology manufacturing space. To date, 1.5 million sq. ft has been
built with manufacturers such as Rolls-Royce, Boeing and McLaren
Automotive now in occupation, alongside key SMEs.
We have constructed three phases of our R-evolution buildings with
unit sizes ranging between 5,000 – 20,000 sq. ft. These units are all
fully let and, in some cases, we have seen existing occupiers already
expand their presence on site. In 2020, we completed the construction
of a new 22,300 sq. ft bespoke building for the UK Atomic Energy
Authority (UKAEA) which became one of the most recent occupiers at
the AMP. The facility will be used to support the UKAEA’s research and
development into the commercialisation of nuclear fusion as a source of
sustainable energy and is expected to create 40 high-skilled jobs.
Built Development so far
3.0 million sq. ft
1.5 million sq. ft
Partnerships in place
Community infrastructure
delivered
Next phase of
development
LPPI Real Estate
ACS
University of
Sheffield’s
AMRC
550-acre
country park,
sustainable
drainage system,
highways and
access
infrastructure,
and bus service
50,800 sq. ft
speculative unit
under
construction,
1.0 million sq. ft
by Lidl following
land sale
310 acres of
country park and
ecological
improvements,
including over
10km of cycle
and footways
100,000 sq. ft
advanced
manufacturing
facility for a
growing SME
and R-evolutiuon
speculative
development
next phases
Intended development on
completion
4.0 million sq. ft
2.1 million sq. ft
57
Financial StatementsCorporate Governance Strategic Report The Harworth Way:
People
Our people are our most important asset: it is through them
that our business can flourish and placemake to provide
spaces that promote health and wellbeing and ultimately
improve the lives of others.
Promoting a positive culture in which our people can flourish and
develop is crucial to delivering against our Purpose. This was
particularly important during 2020 when, in common with many other
businesses, COVID-19 required us to make many changes to our normal
working lives, with reduced face-to-face interaction and with most of
our staff working from home for much of the year.
In 2019 we launched the Harworth Values that underpin our One
Harworth culture and the way we do our business, and in 2020 they
were embedded into the business. These values are now fully
incorporated into appraisals, as well as into the setting and scoring of
remuneration objectives and are reflected in all internal
communications, including the quarterly Harworth Newsletter and the
Harworth Intranet. At our quarterly breakfast meetings, employees can
nominate colleagues for ‘celebrating the Harworth Values’ and, despite
COVID-19, we continued with these nominations in our ‘virtual
communications’ events during 2020. In December, we held our first
virtual Annual Values Awards ceremony which recognised employees
who had lived our ‘Harworth Values’, with three overall winners and
several runners up.
Meeting the people challenges of COVID-19
The challenges of COVID-19 and the resulting lockdowns had a huge
impact on people’s lives during 2020, and Harworth was no exception.
The PSG, which we established three years ago to shape the People
agenda was pivotal to the way that the organisation and our employees
were able to deal with the many challenges posed by the changing
restrictions. It enabled us to consult with our teams in a structured
forum and ensure that our employees were comfortable and engaged
with the evolving plans and decisions. Discussing and shaping plans
with the PSG ensured that our teams did not feel that the plans were
being imposed on them without adequate consultation. When, for
example, restrictions were eased last September and the Government
was encouraging people to return to their workplace, the PSG helped
us shape the plans for ensuring that our offices were a COVID-Secure
environment.
In common with many other businesses, where possible following the
imposition of the first lockdown in March, our employees moved to
homeworking. Although the business adapted extremely well and
quickly to new ways of virtual working, these can also, as has been
widely documented, bring new challenges. These particularly relate to
mental well-being caused by the lack of a ‘normal’ daily routine and
face-to-face contact with colleagues at work, as well as from having to
combine work with competing priorities, such as childcare and
home-schooling during lockdowns. From the outset of COVID-19, every
employee has received several ‘check in’ calls from one of our four
trained Mental Health First Aiders (MHFA). They have played an
important part in our employee engagement during 2020. When
restrictions eased, albeit temporarily as it turned out, we felt that it was
important to understand how our team felt about a possible return to
the workplace and their mental health and general morale and so, in
addition to our regular annual employee survey, in September we
conducted a shorter ‘pulse’ survey to answer these questions. The
results were reassuring and very positive: for many people, work life
balance had improved and 91% of our team rated their motivation as
‘good’ or ‘very good’ as they came out of the first lockdown. Feedback
from this survey indicated that they greatly appreciated the support
from our Mental Health First Aiders and overall, they felt well looked
after by the Company throughout the pandemic to date.
58 Annual Report 2020
We are also keen to ensure that the “health” in health and safety is given
the attention and profile it deserves. We now have four of our
employees who hold a mental health first aid qualification, alongside
those with traditional first aid qualifications. We have continued
measures designed to promote mental and physical health and
wellbeing amongst our staff. Before the impact of the COVID-19
pandemic we were supporting a number of activities at our Head Office
for those who wanted to exercise during the working day, including a
series of videos to show our employees how to maintain a good posture
and suitable exercises for them to do while working from home. Also,
during the lockdown periods and where access to our offices has been
limited, we have supported a number of offsite challenges to
encourage physical activity, for example participation in walking and
running activities.
We have recently launched an Employee Assistance Programme (EAP)
for all our employees: EAPs are intended to help employees deal with
any personal problems that might impact their work performance, and
health and wellbeing. These typically include assessment, short-term
counselling and referral services for employees and their immediate
family. There is also an App that employees can download and tailor its
content to their needs including, videos, mini health-checks and
nutritional advice. The EAP has been extremely well received.
When the COVID-19 pandemic hit, all our sites were risk assessed in
terms of additional risk that might have materialised due to the
pandemic and this was reported at both Management Board and Board
level. All Harworth’s offices were separately risk assessed for COVID-19
and additional measures put in place. Employees have worked from
home when required during the lockdowns. Following the end of the
first lockdown, when the Government encouraged people back to the
workplace, additional safety measures were installed at all offices and
rotas were established to ensure a safe and staggered return to the
office environment.
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, 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 Associate
Director of EES, 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 on priorities for the coming year.
Ensuring the health, safety and wellbeing of
our employees
Health and safety has an extremely high profile in our business:
day-to-day review and management rest with our Estates, Environment
and Safety (EES) team, led by our Associate Director of EES. The EES
team reports to our Company Secretary, who has a wider responsibility
for governance, risk and compliance. Our Chief Executive has ultimate
responsibility for all health and safety matters.
Harworth’s Safety, Health and Environment Management System is
based on the ‘Plan, Do, Check and Act’ model advocated by the Health
& Safety Executive. The EES team maintains a risk register which, from a
health and safety perspective, rates each of our sites as ‘low risk’,
‘medium risk’ or ‘high risk’. A medium or high-risk rating recognises that
action needs to be taken at the site, whether within a prescribed
timetable (medium risk sites) or immediately (high-risk sites). All our low
and medium risk sites are inspected at least annually and our high
risk-rated sites are inspected more regularly. At the date of this report,
there were no “high risk” sites in the site risk register. The overall risk
profile of our sites is reported to both the Management Board and
Board monthly. Movements in this profile are fed into the bi-annual
reviews of the Group Risk Register (see the Effectively Managing Our
Risks sections on pages 32 to 39).
Our EES team ensures that health and safety is embedded into all our
activities. In 2020 mandatory health and safety training was delivered to
all employees in the form of on-line courses provided by an external
resource, which included tuition and testing.
Other proactive safety initiatives are undertaken in the form of health
and safety inspections and audits of our demolition and engineering
projects. The geographical spread of our sites is wide and the type of
sites is varied. Any issues reported, whether they be 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 2020, we continued to engage JPW Consultancy Limited, an
external health and safety consultant, to advise on health and safety
issues across the business. We have now expanded 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 six minor accidents recorded at our sites during the year: of
these, there were no accidents to Harworth personnel and there were
two minor accidents involving supervised contractors. Where we have
appointed a Principal Contractor under the Construction Design and
Management (CDM) regulations, it and its sub-contractors take
responsibility for health and safety whilst works are ongoing, but we
continue to monitor health and safety via our consultants or via our
project managers, and it is on these sites where the remaining four
accidents were recorded.
There were no Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations (RIDDOR) accidents or incidents or lost-time
accidents reported by Harworth for any area under Harworth control.
There were two RIDDOR accidents reported by contractors acting in a
Principal Contractor role at a site where they were responsible for
health and safety under CDM Regulations.
59
Financial StatementsCorporate Governance Strategic Report The PSG has two main functions: firstly, from an operational perspective
it identifies and develops our ‘people agenda’, as well as proposing
and implementing initiatives to deliver that agenda. Secondly, the
group is also a forum for engagement between the Board and the
Company’s employees. PSG quarterly meetings are held immediately
after Board meetings, thereby enabling some of our Non-Executive
Directors to attend part of the PSG meeting on a rotational basis when
the views and concerns of employees are identified and discussed. In
turn, these views are then formally fed back to the whole Board at the
subsequent Board meeting.
Given the diverse nature and scale of Harworth’s business, there being
currently only 80 employees, the Board considers that the combination
of measures detailed above facilitates effective engagement with
employees. Collectively, we view these measures as a satisfactory way
to ensure that workforce engagement is delivered in accordance with
the UK Corporate Governance Code. The Board reviews the ongoing
effectiveness of all engagement measures annually, principally through
the results in the annual Employee Engagement Survey. Given the
challenges of 2020, it was very pleasing to note that the 2020 survey
found that 85% of employees (the same as in 2019) rated
Communication as being good. 77% of employees said that they felt
that the Non-Executive Directors have enough visibility of the business,
an increase from 74% in the previous year. The scores for awareness of
the Non-Executive Directors and their roles however dropped slightly
in 2020, compared to 2019. We believe that this is probably because,
as previously detailed due to COVID-19, we were not able to hold the
Employee AGM or the Board/Employee lunches in person, combined
with some of the personnel changes on the Board during the year. We
believe that this will be addressed by the planned Employee AGM later
this year.
Effective employee engagement
Both the Board and the Executive Team recognise the importance of
regular engagement with all of our employees.
Engagement by the Board
During 2020 the Board had planned to build on the various initiatives of
its employee engagement programme which had been rolled out in the
previous year. However, the restrictions arising out of COVID-19 meant
that some events were unable to go ahead as planned, albeit every
effort was made to rearrange events virtually, as we did with our Board
meetings.
• Our Employee AGM, which we first held in 2019 as a way of
explaining to our employees the role of the Board and each of its
committees, unfortunately had to be cancelled in 2020. However,
later in 2021 we are planning to hold our Employee AGM with
additional forum sessions for the Non-Executive Directors to
discuss their backgrounds and to share their experiences.
• We had previously scheduled extended breaks into our Board
meeting agendas each month to allow for informal lunchtime
meetings between groups of employees and different members of
the Board. Although we were unable to do this for most of 2020,
we did introduce employee catch-up calls each month as a virtual
alternative. Under the virtual Board/Employee catch-up
programme, typically the Chair of the Board will first take the
opportunity to speak to the full group of employees, before the
meeting splits into smaller, virtual break-out groups with two
Non-Executive Directors and three or four members of staff from
different parts of the business to allow for a more interactive
discussion. At such a time that the current restrictions are eased to
allow for face-to-face meetings, we anticipate resuming the monthly
programme of Board/Employee lunches at our Head Office in
Advantage House.
•
The PSG has continued to meet quarterly in virtual form and play a
very important role in our employee engagement strategy. We
have also re-started the attendance of Non-Executive Directors at
the quarterly PSG meetings on a rotational basis.
• We had planned to host some of our Board meetings in our North
West and Midlands regional offices during 2020, but were unable
to do so. Once restrictions are lifted, we will progress this initiative
with a Board dinner with the regional team on the evening before
the Board meeting is held in the relevant regional office. The
Regional Directors and the Head of Income also attended the
Board’s strategy day.
•
In the recent past, our project teams have hosted regular site visits
for our Non-Executive Directors, which has allowed them to see our
developments first-hand and to meet the wider members of the
Harworth team. Particularly given a number of changes to the
Board in 2020, it is planned to recommence the programme of site
visits as soon as this is feasible.
• When the Board is able to return to holding physical meetings and
host Board dinners, we will resume our programme of inviting
members of the wider Senior Management Team to attend the
dinners.
Particularly given the many restrictions that have been in place during
2020 due to COVID-19, the PSG has continued to play a very important
role in our employee engagement strategy. The PSG comprises twelve
employees from different teams across our business. We seek to
achieve an appropriate mix based on a number of factors including,
length of service, experience and diversity. We refresh its membership
with an annual rotation of three members.
60 Annual Report 2020
Whilst engagement and regular communication with the workforce are
clearly important, the Board is also mindful of the need to consider the
interests of all employees when making its decisions. For example
during 2020, the Board considered the following matters with regard
to the interests of Harworth’s employees:
• Resourcing formed a significant part of the Board’s discussions
during the year. This is especially important when the Board
appraises new, and particularly large, projects. Having the right
people and adequate and appropriate resources in place in order
to undertake such projects is crucial both for the health and mental
wellbeing of our staff, but also for our customers and suppliers.
• Health, safety and wellbeing of our employees and contractors
form an important part of the Board’s monthly review of health and
safety across our sites, and the annual briefing to the Board from
our Associate Director of EES. Clearly, during 2020 we faced the
additional and changing requirements of providing COVID-Secure
working environments for all our employees and other
stakeholders. Our 2020 Employee Engagement Survey included
some additional questions to measure and monitor employees’
mental health and their attitudes to returning to the workplace and
the new working arrangements for COVID-19.
•
The Board undertakes an annual review of talent management and
people development: this is described in more detail on page 110.
In 2020 it reviewed the results from the annual Employee
Engagement Survey and discussed and agreed with the Head of
People the priorities for addressing its output.
Engagement by the Executive Team
We also regard engagement with our employees at an operational level
to be of paramount importance. This was particularly the case during
2020 in the face of the unprecedented disruption and uncertainty
caused by the COVID-19 pandemic. With the majority of our employees
working remotely from March, we established a COVID-19 Working
Group to monitor Government guidance, oversee key communications
and ‘return to work’, as well as the training of MHFAs to support
colleagues as needed.
During 2020, much of our employee engagement and communication
had to be delivered virtually and we undertook the following initiatives:
The Chief Executive and the Head of People led monthly
communications sessions.
During a time of unprecedent uncertainty when many of our peers
and housebuilders were furloughing staff or taking pay cuts, it was
important that our employees were regularly briefed and felt
reassured about the outlook for the Group, albeit that Harworth did
not itself furlough any staff. Our Chief Executive and Chief Financial
Officer held regular briefing sessions for our employees.
•
•
Since she joined in November, we have arranged a number of
virtual CEO breakfasts for Lynda Shillaw which have enabled her to
gradually ‘meet’ all of our employees. There was no fixed agenda
for these breakfast meetings and employees were able to raise any
topics they wished.
Having rolled out the use of the Microsoft Teams video
conferencing facility in 2019 and during 2020, this played a critical
role in our ability to continue to work collaboratively across different
offices in our regional operating structure.
The effectiveness of our employee engagement during an exceptional
and difficult year was clear from the results of our 2020 Employee
Engagement Survey. As previously highlighted, not only did an
unchanged 85% of our employees rate the Company’s
Communications as being good, but overall scores for motivation
increased from 85% in 2019 to 92% in 2020. 97% of our employees said
they were happy in their jobs, and an impressive 100% of our
employees said that they respected the senior management of
Harworth, which was a 3% increase on the previous year. Finally, 98% of
employees who participated in the survey said that they would
recommend Harworth to others as a good place to work, which was an
increase of 1% on last year.
As well as undertaking a shorter, ‘pulse’ survey after the end of the first
lockdown to check on our employees’ attitudes to the new working
pattern and the Government’s wish to see a gradual return to offices,
our response to COVID-19 was also independently audited by KPMG.
Their summary, which was presented to the Audit Committee,
concluded:
“It is clear that management’s response
to the pandemic was well coordinated
and managed and effective in delivery, as
evidenced by the positive responses to
the people survey that was conducted.”
KPMG identified a number of areas of good practice in their audit of
Harworth’s response to the pandemic, which included the
establishment of our COVID-19 Working Group to oversee key
communications during the lockdowns and the ‘return to work’.
Developing our talent
The Nomination Committee leads on succession planning and
development for the Board and the Senior Executive team and
undertakes an annual review of those plans. The successful
appointment of a new Chief Executive and two Non-Executive
Directors during 2020 has demonstrated the resilience of the process.
We continued to celebrate success and nominated colleagues for
Values Awards, including holding our first virtual Values Awards
ceremony.
We built on the success of the Harworth Intranet which was
launched in 2019 and has become the principal platform for
communicating with our employees. We also continued to send
out our quarterly newsletter containing input from every
department, and including a section that celebrates the success of
employees who were nominated by their colleagues for living the
Harworth Values.
Below the Senior Executive level, our Head of People undertakes a
detailed review of succession and development plans for each role in
the business. The output from this review is considered first by the
Investment Committee and then presented to, and scrutinised by, the
Board.
All our employees have undertaken an externally facilitated ‘insights’
personality profile exercise, which is designed to help us 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.
61
•
•
•
•
Financial StatementsCorporate Governance Strategic Report Our Head of People has established a rigorous and consistent appraisal
process and timetable which ensures that performance is overseen and
managed and development needs are identified and fulfilled. The
Harworth Values are fully incorporated into the appraisals process and
the setting and scoring of bonus objectives.
Many of our employees regularly attend external training courses,
frequently to satisfy ongoing CPD requirements for their professional
qualifications. Currently four of our 80 employees are working towards
their professional qualifications, with a further three due to commence
this year. We support all employees in the pursuit and refreshment of
professional qualifications and skills: both financially and by
encouraging CPD and the transfer of knowledge from senior to junior
employees.
During the year, we also hosted a number of workshops and webinars
for our employees, typically with input from some of our professional
advisers. External coaching is also available for our employees and we
encourage them all to make use of this benefit and resource.
We are aware from our annual Employee Survey that Harworth’s flat
structure can feel somewhat limiting to younger, ambitious employees
who are keen to progress through the organisation. Addressing this to
ensure that we retain our younger talent is a key focus of the Head of
People.
The lakes and open space at Waverley
62 Annual Report 2020
Recognition and reward
We offer a comprehensive employee benefits package for all
employees. This includes a defined contribution pension scheme with
above-market employer contributions (including the option of salary
sacrifice with additional employer pension contributions), private
medical insurance and life insurance. The employer pension
contribution levels and insurance cover for employees are consistent
across the whole business. In response to feedback in the most recent
Employee Engagement Survey and in recognition of the additional
strain that homeworking has placed on the family lives of many of our
staff, we have awarded all our employees who worked for Harworth
during 2020 an increased additional holiday allowance for 2021. We are
also now making a ‘buying additional leave’ option available for our
employees.
Bonuses for those employees who are contractually entitled are
awarded, in part, for performance against the Group Financial Targets
which are aligned with the Group’s overall strategy for long-term,
sustainable growth and which are applied consistently across the
Group. In 2020, these targets were based on: total return, sales
volumes, acquisitions and profit excluding value gains. The balance of
all bonuses is awarded for performance against personal objectives
which incorporate and reflect the Harworth Values. In 2021, our bonus
structure will also incorporate a Group-wide ESG measure for the first
time.
During 2020 we operated a Restricted Share Plan (RSP) which we had
adopted in the previous year. The operation of the RSP is simple and
transparent and covers the executives and senior management team.
Further details on the terms and operation of the RSP appear in the
Directors’ Remuneration Report on page 114.
We also operate a Save-As-You-Earn scheme (SAYE) and a Share
Incentive Plan (SIP). The SAYE gives employees an annual opportunity to
save up to £500 a month over a 3-year period with the option to
purchase shares in the Company at a 20% discount to the market price
of the shares at the outset of the scheme. To date, a total of 67
employees have chosen to participate in the SAYE scheme since its
inception. The SIP provides a tax efficient mechanism by which the
Company can promote wider share ownership amongst its employees
by awarding shares to employees, or by encouraging them to purchase
shares. Together, we believe that the SAYE and the SIP are convenient
and cost effective methods by which we can widen share ownership
amongst our workforce and allow our employees to share in, as well as
contribute to, the Group’s future success.
We appreciate that offering an appropriate and competitive
remuneration package will always be a high priority for all our
employees, but we also believe that non-financial forms of recognition
can be equally important. We believe in creating a culture that
celebrates success across the business and this was reflected during the
year in several formats, including the employee communications
meetings, in the Harworth quarterly newsletter, and in our annual Values
Awards ceremony.
Promoting wellbeing and healthy lifestyles
Reflecting our commitment to ESG and our skills in creating, where
possible, attractive areas of communal open space at our
developments, we are keen that these amenities are enjoyed both by
our staff and the wider public. Although during most of 2020 communal
activities were restricted and many of our employees were working from
home for much of the year, a Harworth 5K run was successfully
organised in the summer to suit people of all abilities and standards.
This attracted 27 entrants and the first 5K event in 2021 has already
been planned.
People priorities for 2021
As the restrictions from the COVID-19 pandemic hopefully gradually
ease during 2021, it is clear that many aspects of our daily lives and
routines are likely to change as a result of our experiences over the past
year, particularly in the working environment. Accordingly, we have
asked the PSG to undertake an initial review of how we might wish to
work going forwards; in due course, this is likely to involve consultation
with all our employees and listening to their views. Remote working has
clearly had both advantages and disadvantages for all of us and we feel
that it is important to try and incorporate those learnings into our
ongoing working lives.
As previously outlined, a number of our employee engagement
activities and events were cancelled or altered due to the pandemic
and we are keen to reinstate those during 2021 when possible.
The PSG has also been asked to consider what diversity, inclusion and
equality looks like at Harworth and it is due to report back on this
during the first half of 2021.
In March 2021 we launched our new policy on charitable donations, the
Harworth Charitable Giving Policy. This is discussed in detail in the
Communities section on page 50.
We have continued to deliver public open space on our sites: in 2020
we completed the Logistics North Cutacre Country Park with 550 acres
providing footpaths and trails. We progressed the restoration of the
Country Park at Thoresby Vale and continued to develop the open
space at Waverley New Community. In total, we have delivered nearly
800 acres of public open space to date.
The public open space on all of our sites is managed and overseen by
our EES team which acts as site custodian. The EES team monitors and
maintains all spaces that are accessible to the public, and also protects
the public from any potential danger in the areas that are not accessible.
The public open space at our residential development sites is managed
by our Residential Management Company function, part of our EES
team. They undertake regular safety inspections and liaise with other
stakeholders including the Police, Fire Service and local community
groups to ensure the safe enjoyment of the public open spaces on our
sites and to stop the public accessing parts of our sites deemed to be a
risk. Further information on wider uses of our open spaces to support
public health and wellbeing can be found in the Harworth Way:
Communities section on page 48.
Diversity
Harworth recognises the importance and benefit of a diverse (in the
widest sense of the word) workforce, comprising talented 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 and we
adopted a new Diversity and Equal Opportunities policy in 2018.
Harworth runs Equality and Diversity training as a mandatory course for
all employees. This is run every six months for all new starters. We
regularly monitor the effectiveness of the initiatives we have taken to
improve diversity, as well as the progress made, and we publish this
data each year. The diversity analysis for 2020, including the
comparative figures for the previous year, appear on pages 98 to 100.
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Financial StatementsCorporate Governance Strategic Report
Our
people
The Harworth Way:
Partners
In this section, we identify our key
stakeholders and explain how we engage
with them and have had regard to their
interests when making strategic and
significant operational decisions during
2020. Whilst the Board recognises its
statutory obligation to do so under the
Companies Act 2006, our engagement
and collaboration with stakeholders is not
merely a matter of statutory compliance.
It is fundamental to creating sustainable
places where people want to live and
work.
Joint venture
partners
Regulatory
bodies
Investors
Advisers
Funders
Communities
Government
Suppliers
Customers
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 and one which we undertook ahead of Lynda Shillaw’s appointment in November and which
has informed the extensive stakeholder engagement programme she has undertaken since joining the business. In 2020, we concentrated
on embedding stakeholder impact into Board project appraisals. We have updated the project business case templates which are presented
to the Board to focus discussions on: how each project supports the delivery of our Purpose and aligns with our strategy; the environmental
and societal impact of each project; the impact of each project on our external stakeholder groups; and resourcing for each project.
Section 172 statement
Stakeholders How we engage
How have we “had regard” to their interests?
Our People
Investors
See the People section on pages 58 to 63 of the Strategic Report.
Two of our Non-Executive Directors, Martyn Bowes and Steven
Underwood, are conduits for engagement with two of our largest
shareholders. The CEO, CFO and Head of IR meet with existing
and prospective investors, including following our preliminary
and interim results announcements. The Chair also meets
regularly with our largest shareholders. During 2020, the Chair
and SID sought the views of our largest shareholders on the terms
of Owen Michaelson’s retirement. 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. When restrictions are lifted we hope to host another
Capital Markets Day at one of our project sites.
Resourcing is an important aspect of our project appraisals.
Against the unprecedented backdrop of the COVID-19
pandemic, it has been more important than ever that we
resource the business appropriately and look after our people.
You will see on pages 58 and 59 the steps we have taken to look
after our employees’ physical and mental wellbeing during this
challenging period.
Delivering long-term sustainable returns for investors is a key
objective and underpins all project appraisals. During 2020, the
Board has been mindful of the volatility of the share price and its
discount to the Company’s EPRA NDV. Narrowing that discount
remains a priority through strong trading, delivery against the
strategy, and clear communication to existing and prospective
investors. This remains at the forefront of the Board’s mind. When
making share awards in, and determining the bonus outturn for,
2020 the Remuneration Committee had regard to the economic
backdrop and shareholder experience.
64 Annual Report 2020
Stakeholders How we engage
How have we “had regard” to their interests?
Communities
Government
Suppliers
Customers
Advisers
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
and ongoing engagement with the public on all planning
applications; 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.
During 2020 we have embedded into project appraisals a
detailed review of the impact of each project on all stakeholders
but particularly the communities we create and work alongside.
Presentations include a briefing on our “placemaking” proposals
for each site. This is best demonstrated by the growing maturity
of our Waverley site, where a new primary school opened in
September and we are finalising our plans for “Olive Lane” which
will become the new heart of the site over the coming years, with
a supermarket, medical, retail and leisure facilities.
We engage with central Government and MPs formally, via
participation in consultation exercises on policy proposals such as
the Planning White Paper, and informally on national initiatives,
such as decarbonisation and the levelling up agenda, and
site-specific matters. We do this both collectively, with bodies
such as the British Property Federation, and individually. We are
also in regular contact with HS2 about the safeguarding of two
sites.
We engage with local Government and LEPs when 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 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. The
frequency of our engagement with contractors and consultants
depends on the type of works being undertaken, a project’s
status and the number of assignments a supplier is undertaking at
any one time. Where there is heavy use of certain suppliers, we
employ a regime of regular financial checks and reporting and
relationship management to monitor performance. In the period
following the outbreak of the COVID-19 pandemic, our
engagement with contractors intensified, as we worked with
them to pause and assess projects and then restart them in a
COVID-Secure environment.
The principal customers of our Capital Growth segment remain
housebuilders and commercial developers/occupiers.
Engagement is mainly 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 principally
Business Space, Natural Resources, and agricultural tenants.
Typically, day-to-day engagement with tenants is via our
managing agents and we identify where direct involvement and
engagement is needed via our monthly meetings with the agents.
During 2020 our direct engagement with tenants was more
intensive. This was in part due to the pandemic, which
necessitated more active negotiations about rent payments for
those tenants acutely affected. We also needed to manage
carefully the impact of the 2021 insurance renewal, which has
meant our passing on significant premium increases to tenants.
Our principal advisers comprise external auditors, valuers,
managing and sales agents, legal panel, corporate brokers, tax
advisers, communications advisers, remuneration consultants
and insurance brokers. Our engagement with each of them will
vary depending on their role and periods of activity and inactivity
by the business on certain matters. For example, our
engagement with the legal panel, agents, corporate brokers and
communications advisers is relatively consistent during the year
and includes regular meetings as well as liaison on specific
transactions and activities. Our engagement with the auditors,
valuers, tax advisers, remuneration consultants and insurance
brokers will be more intensive at certain points in the year. Like all
businesses we have had to find virtual ways of engaging with our
advisers during 2020.
Harworth has an important part to play in supporting some
important Government (and societal) priorities over the coming
years, both at a national and regional level, including the climate
change and levelling up agendas, persistent housing shortages
and trends in retail and logistics. These are prominent
considerations for the Senior Management Team and Board
when setting our strategy and making operational decisions.
Housing shortages within local planning authorities and central
and local Government priorities for infrastructure investment will
continue to be factors which inform project appraisals. Project
delivery is increasingly influenced by climate change initiatives.
The momentum we maintained on projects during 2020
demonstrated our strong relationships with suppliers. The safety
of our contractors was extremely important as the Senior
Executive Team, with support from the Board, navigated the
early stages of the pandemic. So too was the financial health of
our suppliers. We paused on all projects initially but, having
consulted with our active contractors, restarted quickly, at all
times in line with Government guidance. We were consistent but
pragmatic when it came to contractual matters, payment terms
and cashflow, mindful of the financial uncertainty and pressures
faced by all businesses at that time.
Rent collections were a prominent factor in the operational
performance of the business in 2020 and, as such, the financial
position of and negotiations with tenants were a focus of
management time and Board discussions during the pandemic
period. The impact of significant insurance rent increases on
some tenants already enduring tough economic conditions has
also been high on the agenda for the Senior Management Team
during the insurance renewal process.
We have been mindful throughout the pandemic period of the
capacity and logistical pressures faced by most businesses,
including professional firms, with COVID-19 restrictions in
place. We have factored this in when spreading the work
around our legal panel, for example, and into the deadlines we
have set for our advisers.
65
Financial StatementsCorporate Governance Strategic Report
Stakeholders How we engage
How have we “had regard” to their interests?
The Senior Executive Team have recognised the importance of
maintaining open lines of communication with our senior lenders
during the pandemic, having regard to their need for regular
updates and assurances about operational and financial
performance of which, understandably, the lenders were keen to
remain appraised given the macro-economic climate.
During 2020 we agreed to purchase Hallam Land’s 50% share in
one of our joint ventures, following an open and transparent
dialogue resulting in a mutually beneficial outcome for both
parties. We remain partnered with Hallam Land on one other
joint venture project.
We have regard to feedback from the EA on site restoration and
permit compliance and from the HSE on projects about which
we consult with it. During 2020, we supported the EA in its
investigations into activities by a third party on one of our sites.
Funders
Joint venture
parties
Regulatory
bodies
Typically, we schedule relationship meetings with our senior
lenders (currently NatWest and Santander) every six months but
have a regular dialogue with them throughout the year when
providing management information and making requests for
transaction consents. Engagement was more regular during 2020
following the COVID-19 outbreak given the macro-economic
backdrop for all businesses. Our positive relationship with them
was reflected in their willingness to increase our RCF in May 2020,
at the height of macro-economic and social uncertainty caused by
the pandemic, affording operational flexibility and additional
capital for opportunistic acquisitions.
We have applied a consistent approach to governance across all
our joint venture arrangements, 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 (albeit these have been held virtually in recent
months), particularly during periods of heightened promotion,
development or transactional activity.
We are proactive in our engagement with the Environment
Agency (EA), the regulatory body we interact with the most in the
ordinary course of our business. 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. There is regular, largely informal, engagement with
the Heath and Safety Executive, led predominantly by our
Associate Director of EES and typically ahead of projects with a
particular health and safety dynamic. We have, for example,
worked closely with the HSE on the demolition of the former
Ironbridge power station and, in 2020, when filling a shaft at a site
in Nottinghamshire. We also have infrequent, but proactive,
engagement with the Forestry Commission, typically via our
ecologists.
Our engagement with local communities
Our Seven Stage Process
In our role as Master Developer, our approach is one of active
engagement and consultation with many local communities and
groups, including residents, statutory bodies and many voluntary and
charitable organisations. Ultimately, we believe that wide engagement
with those who have an interest in our plans and in the intended
end-use of our land is crucial to the success of our developments. We
believe that by positive, constructive and meaningful public
engagement, local stakeholders will take an active part in the process
and that this adds value for all parties, including Harworth, and will
ultimately lead to the creation of high quality developments and better
places to live and work.
Given the long-term nature of many of our developments, it is important
for us to have a robust, ongoing engagement process with all our
stakeholders throughout the period of development and beyond. As
part of our ongoing Master Developer and site custodian role, we
create a management company to look after the public open space on
each site over the life of the development, before control is eventually
passed to residents or a dedicated third party, such as Lands Trust. We
have employees who are responsible for each of our Major
Development and income producing sites and a key part of their role is
to maintain a regular dialogue with key stakeholder groups throughout
the lifecycle of development to update them on progress and to obtain
feedback from them on how development is progressing.
We have previously described the seven-stage process that we
typically follow for a Major Development to achieve meaningful, ‘real’
consultation which is both inclusive and effective. This is perhaps best
illustrated by the events we have hosted at our Ironbridge Major
Development site over the past three years before submitting an outline
planning application. A timeline of the process is illustrated on page 67,
starting with Harworth’s purchase of the 350-acre site of the former
Ironbridge coal-fired power station in June 2018.
Prior approval for the demolition works on the site, including the former
cooling towers, had been granted in 2017. By the end of 2019, we had
submitted an outline planning application for the total redevelopment
of the site to include: up to 1,000 houses, a retirement village,
employment land, allotments, sports pitches, a railway link, leisure
facilities, a new primary school, a park and ride facility, and routes and
tracks for walkers and cyclists. The process outlined below and on the
following page summarises how Harworth engaged with the local
community and other stakeholders.
Stakeholder Workshop
In September 2018, 60 guests attended a full-day workshop at
Ironbridge hosted by Harworth. They included officers and councillors
from Shropshire, Telford and Wrekin councils, as well as representatives
from five neighbouring parish councils, and a number of local and
national organisations, including: Network Rail, the National Trust, the
World Heritage Steering Group, Shropshire Wildlife Trust and
Ironbridge Railway Trust, as well as a range of local business owners
and landowners. The event included a presentation on the site, its
opportunities and its challenges. We hosted workshop sessions on
different subjects and attendees were all given the opportunity to
participate in a guided tour of the whole site.
66 Annual Report 2020
Public Exhibition
A public exhibition was held at Ironbridge in October 2018 which was
attended by nearly 550 people. This allowed local residents to view the
emerging proposals for development being displayed using Computer-
Generated Imagery on exhibition boards and to put their questions to
representatives from the development team.
Harworth has always placed a very high importance on ensuring that
the consultation process with the local community at, or around, our
Major Development sites involves as many people as possible,
particularly those who might not normally get involved in planning
matters. We are delighted to welcome members of the public to our
arranged site visits as part of the consultation process, as we believe
that seeing the whole site allows the scope and scale of the
development to be appreciated.
Details of the consultation process were distributed to the local
community as widely as possible: leaflets were distributed to local
residents and interest groups. We also created a dedicated website for
the development, so that local residents could follow the progress at
Ironbridge and view the emerging masterplan.
Second Stakeholder Presentation and
Public Exhibition
A second presentation to stakeholders was held in May 2019 at
Ironbridge, as well as a second public exhibition which was attended
by around 250 people. At these events the emerging preferred
masterplan was presented to the attendees.
The results of our consultations
A variety of different events were therefore held to reach out to local
residents, community groups, and stakeholders, and to seek their views
on the development of this landmark, but derelict site. Harworth was
able to use the feedback and comments from the various events to
inform and shape the creation of the site masterplan. Our masterplan
recognises many of the views of local residents, including the retention
and expansion of the existing rail connections, the opportunities for
leisure activities, and the provision of healthcare and educational
facilities on the site.
Priorities for 2021
We will maintain our long-term commitment to early, detailed public
consultation events to ensure effective scrutiny, challenge and support
on all future major developments.
We will maintain an effective digital profile through each individual
development website to provide the public and interested stakeholders
access to up-to-date information about our sites and our emerging
masterplans.
We intend to continually widen and diversify the many different
stakeholder groups, both national and local, with whom we will work
on our developments to support our placemaking ambitions. As well as
national and local government, these include: universities, major
employers, charities, and environmental groups. We also intend to
work with our partners in 2021 to encourage and support our
communities and residents to be more active.
We plan to extend our responses to key Government consultation
programmes, including low-carbon energy and decarbonising travel
and freight. We will provide a consistent company response across a
multitude of national and regional Government policy areas that are
aligned with our Purpose.
Design Timeline
2018
September 2018 and
October 2018
Public
Consultation
Discussions regarding ideas for
the masterplan and
development for the site
2019
May 2019
Public
Consultation
Presentation and discussions
regarding the proposed
masterplan
2019
May 2019
Demolition
Demolition of existing power
station commences
2019
Autumn 2019
Planning
Planning application
submitted for mineral
extraction outline planning
application submitted for
redevelopment
2022
Phase 1
Initial
infrastructure
works
2022
Housing construction
commences
Phase 1
Construction
2023
Phase 2
Phase 2
Construction
67
Financial StatementsCorporate Governance Strategic Report :
3
Y
D
U
T
S
E
S
A
C
E
M
O
C
N
I
Our new Head of Income, Richard
Bousfield, joined us in February 2020
and oversaw a busy year during which
our tenant relationships were key: we
collected 96% of the total rent due for the
year, despite the economic uncertainty
caused by the global pandemic. We
were also very busy with acquisition
activity to add further income to cover
our overheads and banking interest as the
business increases in size.
Total value and
yield of income
purchases in 2020
Total income
producing Business
Space purchases in
2020
• £40.0m reflecting a blended Net Initial
Yield of 8.4%
• 776,000 sq. ft, split as follows:
• Brierley Hill, West Midlands:
360,000 sq. ft (NIY 10.2%)
• Saturn Park, Knowsley: 416,000 sq. ft
(NIY 7.7%)
Business Space
portfolio at
31 December 2020
• Valuation £227.6m
• Annualised Rent £15.7m
Income portfolio at
FY 2020 (including
Natural Resources)
Source of future
acquisitions
• Vacancy 4.5%
• WAULT 12.5 years
• Valuation £265.8m
• Annualised Rent £19.8m
•
•
Local and national property agents
Law of Property Act receivers
• Adjacent property owners
• Corporates within our core regions
Over the year, we made four income acquisitions. In June,
we purchased Thorns Road Industrial Estate in the West Midlands.
Close to both Dudley and Stourbridge town centres and less than
ten miles from Birmingham City Centre, the 20.5-acre site comprises
three fully-let industrial units totalling c. 360,000 sq. ft and generates
a passing rent of £1.1m per annum, reflecting a Net Initial Yield of 10.2%
and a Reversionary Yield of 12.8%. On completion of the deal, Xandor
Automotive entered into a new 15-year lease for the c. 240,000 sq. ft of
factory space it currently occupies, whilst also agreeing a short-term
lease for an additional c. 15,000 sq. ft unit. Xandor Automotive is a key
manufacturer in the West Midlands, supplying plastic injection
moulded components and fluid conveyance products for customers
in the automotive and commercial vehicle industry including JLR, Ford,
Denso and Cummins Engineering. The remaining c. 110,000 sq. ft unit
is let to Sunrise Medical Ltd, a leading designer, manufacturer and
distributor of mobility products, on a lease expiring in July 2022.
The site also includes 4.2-acres of open storage land, providing further
asset management and residential development potential.
In June, we purchased a STOR facility in Gloucester. The facility, which
sits on 1.28 acres of land, is let to UK Capacity Reserve Ltd (Sembcorp
Energy UK Ltd) on a lease expiring in 2040, reflecting a Net Initial Yield
of 8.25%. This was followed by another purchase of a STOR facility in
Newport, South Wales in September. Harworth is now the landlord to
a number of third-party STOR operators across the North of England
and the Midlands. STOR facilities provide a source of extra power to
the National Grid to help manage demand on the system when it is
greater than forecast or when other sources are unavailable, adding
significant resilience to the network.
In November, we purchased Saturn Park in Knowsley, Merseyside,
a 35.2-acre site adjacent to Junction 4 of the M57. The site is very
well-positioned for access to The Port of Liverpool, the M58, M62
and M6 motorways. It provides 416,000 sq. ft. of modern warehouse
space across three units with ancillary offices, plus 13 acres of open
storage land. There is the potential for further development on 4.25
acres of currently vacant land. There is passing rent of £2.14m per
annum reflecting a Net Initial Yield of c.7.7% and a Reversionary Yield
of c.9.0%. Harworth will now use its asset management experience
to drive further value at Saturn, including refurbishment works.
69
Financial StatementsCorporate Governance Strategic Report The Harworth Way:
Governance
High standards of corporate governance underpin the effective
operation of the business and the long-term sustainable success
of the Company, for the benefit of all stakeholders
Good governance has been built into the foundations of the Harworth
approach from the start. We aim to improve continually in these areas
and align with industry best practice.
Code
What did we focus on in 2020?
How did it support our strategy?
Purpose and impact on stakeholders. Having identified a
clear statement of purpose in 2019, we have embedded into
Board project appraisals a review of the alignment of each
project with our purpose and the impact of projects on our
key stakeholders. We have achieved this by updating the
way projects are presented to the Board (see Division of
Responsibilities section below).
Long-term sustainable success. Notwithstanding the
short-term challenges created by the COVID-19 pandemic,
the Board has maintained its long-term focus on generating
sustainable new places and through the cycle returns for
investors.
Culture: the Harworth Values. Having launched the
Harworth Values in 2019, they have been fully embedded
into the business during 2020. They are now incorporated
into appraisals and remuneration objectives and reflected in
internal communications and we have held our first Annual
Values Awards. Our positive and collaborative culture has
underpinned our successful response to the COVID-19
pandemic, validated by an independent review undertaken
by KPMG.
Resourcing has formed a significant part of the Board’s
discussions during the year, both in terms of ensuring we
have the right people and adequate resources for each
project and safeguarding the health and wellbeing of our
employees during the pandemic, which has tested the
capacity of the business.
Engagement with external and internal stakeholders.
Our stakeholder mapping was updated ahead of Lynda
Shillaw’s joining as our new Chief Executive and, since her
appointment, Lynda has undertaken an extensive
programme of engagement (in an exclusively virtual
environment) with both external stakeholders and
employees. Maintaining the Board’s engagement with
employees has been challenging with COVID-19 restrictions
in place, but we have introduced monthly and informal
catch-up calls between small employee groups and our
Non-Executive Directors, which have replaced our Board
and employee lunches for the time being.
• Our strategy is set to deliver on Harworth’s
purpose for the benefit of all stakeholders.
The Board is clear about our purpose and it
plays an important role in Board decision-
making. So too does the impact of our
activities on our key stakeholders. Having
these factors at the forefront of the Board’s
mind ensures that the objectives of the
strategy are delivered.
• By prioritising the long-term implications of
its decisions, the Board ensures that the
strategy delivers sustainable success and
value for investors.
• Our positive, collaborative and innovative
One Harworth culture is a foundation stone
for the delivery of our strategy as the
business continues to grow.
• Our people are our most important asset.
Without them the business cannot deliver
against its strategy and achieve its
purpose. Against the unprecedented
backdrop of the COVID-19 pandemic, it
has been more important than ever that we
resource the business appropriately and
look after our people.
• “Taking Pride in Our People and
Partnerships” is one of our core Harworth
Values. Its importance is demonstrated in
our extensive engagement with
employees, who are responsible for
delivery on a day to basis, and with our
external stakeholders (as to which see The
Harworth Way: Partners on pages 64 to
67), particularly the local communities we
create and for which we transform our sites
into new and sustainable places where
people want to live and work.
Board
Leadership
and Company
Purpose
70 Annual Report 2020
Code
What did we focus on in 2020?
How did it support our strategy?
Board information. We have overhauled the project
business case templates which are presented to Board, to
focus Board discussion on purpose, strategy, stakeholders
and the Harworth Way.
Senior Independent Director. Angela Bromfield was
appointed as Senior Independent Director in succession to
Lisa Clement.
External appointments. The Board reviewed and
approved the appointment of Kitty Patmore as a Non-
Executive Director of London Metric Property plc
Division of
Responsibilities
Composition,
Succession
and Evaluation
Executive Director succession. In March, Owen Michaelson
notified the Board of his intention to retire at the end of 2020.
The Nomination Committee led a recruitment process (see
the Nomination Committee Report on page 96) culminating in
the appointment of Lynda Shillaw as his successor. Lynda
joined the business on 1 November 2020 both prior to and
after which she undertook an extensive induction process.
Non-Executive Director succession. The appointment of
Lisa Scenna in September represented the culmination of
planning for succession ahead of Lisa Clement’s retirement in
October. Following Andrew Cunningham’s decision to step
down at the end of October, the Nomination Committee’s
recent review of Board composition enabled it to identify
quickly the skills, experience and knowledge needed from a
successor, facilitating an efficient and robust recruitment
process and the appointment from a group of strong
candidates of Patrick O’Donnell Bourke on 3 November 2020.
Board evaluation. The Chair conducted an internal Board
evaluation in the final quarter of 2020, the findings and actions
from which were discussed and agreed by the Board in
February 2021 (see the Statement of Corporate Governance
on page 91).
Diversity. The Nomination Committee has continued to lead
in monitoring the effectiveness of the initiatives we have in
place to improve diversity across the business.
•
•
The presentation of information helps to
frame Board discussions and focus them on
these important matters.
The Senior Independent Director performs a
key role in supporting the Chair’s leadership
of the Board to set, and support delivery of,
the strategy. She is also available to engage
with investors on a variety of matters
including the strategy, interacting in any
event with them regularly in her role as Chair
of the Remuneration Committee.
• Having satisfied itself that Kitty would still
have sufficient time to meet her
responsibilities as Chief Financial Officer,
the Board concluded that she would derive
valuable experience from this external role
which would support the important part
Kitty plays in the delivery of the strategy.
• Our planning for, and execution of,
Executive Director succession are critical to
ensuring there is a strong management
team in place to implement the strategy
and deliver the sustainable, long-term
success of the business.
•
The Board’s effective planning for and
implementation of Non-Executive Director
succession, promotion of diversity on the
Board, and our regular, in depth Board
evaluations all serve to enhance the
Board’s effectiveness in setting an
appropriate strategy and supporting the
management team in its delivery.
• Promoting diversity, in its widest sense and
across the business, helps the business to
“Deliver Creative Solutions”, another
Harworth Value which underpins the
delivery of the strategy.
71
Financial StatementsCorporate Governance Strategic Report Code
What did we focus on in 2020?
How did it support our strategy?
Audit, Risk and
Internal Control
Remuneration
External auditor’s transition. The Audit Committee
oversaw an efficient and effective transition of the external
audit role from PwC to EY, despite the challenges posed by
COVID-19 restrictions. The feedback from EY to the
Committee about the transition was extremely positive.
The Delegated Authorities Policy was reviewed and
updated to focus more of the Board’s time on material
transactions and strategic debate, with a complementary
increase in operational oversight by the executive Investment
Committee.
Internal controls and cyber and information security.
KPMG were instructed to undertake an independent review
of our response to the COVID-19 pandemic including the
effectiveness of our internal controls in a remote working
environment. KPMG reported its conclusions to the Audit
Committee, which were very positive. Reports were also
made by the management team to the Committee on the
incidences of cyber-attacks. The frequency of attacks has
increased, but our cyber-security systems have been robust
and awareness levels maintained by our Information Security
Manager.
Insurance. During the second half of the year, significant
time was spent by the management team, with oversight
from the Audit Committee, on the 2021 renewal of the
insurance programme which, due to unprecedented
insurance market conditions, was extremely challenging.
Insurance was secured for all sites in the portfolio but subject
to materially higher premiums and increased excess levels.
•
•
•
•
The Board demonstrates to our investors
that the business is successfully
implementing an appropriate strategy via
robust financial reporting, reinforcing our
commitment to all stakeholders to “Act with
Integrity and Trust”. The external auditor
plays a fundamental role in that regard.
The Delegated Authorities Policy ensures
that strategic decisions are reserved for the
Board and that appropriate rigor is applied
at an operational level to decision-making in
the delivery of the strategy.
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 remain effective
in what has proved to be a prolonged
remote working environment.
The Group’s insurance programme plays an
important part in reducing the impact of
certain inherent risks which might otherwise
undermine the delivery of the strategy and/
or shareholder returns. In 2021 we are
seeking to optimise this programme by
enhancing our property risk management
framework and further reviewing the
structure of insurance cover available in the
market.
Share scheme awards. Given the economic uncertainty
and market volatility caused by the COVID-19 pandemic, the
Remuneration Committee deferred the 2020 awards under
the Company’s Restricted Share Plan and the Share
Incentive Plan and the launch of the 2020 Save As You Earn
Scheme, until such time as it was satisfied there was
sufficient protection from the potential for windfall gains.
• When considering share scheme awards in
2020 the Remuneration Committee struck
a careful balance between the shareholder
experience and the need to incentivise the
workforce, reward their long-term value
creation, and align the interests of investors
with those of our employees.
Chief Executive remuneration. Following careful review
and consideration, our Remuneration Committee agreed
the terms of Owen Michaelson’s retirement, having sought
the views of the Company’s largest shareholders, and set
the remuneration for his successor, Lynda Shillaw,
considering her previous salary and market reference
points. Those remuneration arrangements are disclosed in
the Directors’ Remuneration Report (pages 109 and 110).
• Setting appropriate remuneration for the
Executive Directors and senior
management ensures that we can attract
the best talent to lead the business, as
demonstrated by Lynda’s appointment as
Chief Executive, whilst incentivising and
rewarding delivery against the strategy and
long-term sustainable success and growth.
Priorities for 2021
We will continue to maintain, and improve where possible, our high standards of corporate governance, with a particular focus on evolving our risk
management systems and internal assurance programme to support the continued growth of the business.
In 2021, we have a focus on the governance of the Harworth Way and our ESG approach. We will continue with the ESG Steering Group and we
will form a Board ESG Committee. We will set appropriate targets for all key measures and continue collecting baseline data for these. This will
enable further disclosure in the 2021 Annual Report.
The Strategic Report has been approved by the Board of Directors and signed on its behalf by:
Chris Birch
Group General Counsel and Company Secretary
22 April 2021
72 Annual Report 2020
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73
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
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Multiply Logistics North, Bolton
Chair’s
Introduction
“Whilst COVID-19 has posed tough
challenges I am very proud of how the
business has responded, delivering our
2020 objectives in a well controlled and
purposeful manner.”
Dear Shareholder,
I am pleased to present this year’s Corporate Governance Report. It has
been the most challenging of years and, as one would expect, much of
the Board’s time and focus during the period under review has been
directed at supporting the Senior Executive Team’s navigation of the
COVID-19 pandemic. I am pleased to say that Harworth’s long-held
commitment to high standards of corporate governance has played an
important part in our swift and effective response.
In this introduction I outline both the role corporate governance has
played in our COVID-19 response and the areas on which the Board has
focussed during the period to promote its continued evolution. These
are developed in more detail in the Strategic Report (pages 6 to 72) 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.
In this Corporate Governance Report, references to the Senior
Executive Team are to the Executive Directors together with the Chief
Operating Officer and General Counsel and Company Secretary.
References to the Senior Management Team are to the Investment
Committee and Management Board. For further on the division of
responsibilities see pages 84 to 87.
The role of corporate governance in our
response to COVID-19
Our purpose
The restrictions imposed by Government to tackle COVID-19 have
made people much more conscious of their home environment
underlining the importance of Harworth’s purpose of “creating
sustainable places where people want to live and work.” So, whilst
COVID-19 has posed tough challenges, it has incentivised everyone at
Harworth to continue the path we have set out to fulfil our Purpose and
deliver benefits for the local communities we create and work
alongside.
Our people
In 2019 we defined the “Harworth Values” which underpin our positive
and supportive culture. That culture has been the foundation of our
COVID-19 response. Our people have drawn on their creativity, worked
collaboratively with each other and external stakeholders and remained
committed to “doing the right thing” notwithstanding the
unprecedented challenges we have faced as an organisation. We are
continuing to embed the Harworth Values into the business,
incorporating them into appraisals, the setting and scoring of bonus
objectives, internal communications, and our programme of
recognition throughout the year.
The health and wellbeing of our employees and the external
stakeholders with whom we interact have been our priority throughout
the pandemic. We have followed Government guidance, implemented
“COVID-Secure” measures at all our offices and operational sites, and
supported our tenants and contractors in doing the same. Our Mental
Health First Aiders have played a particularly important role since the
imposition of remote working. They have established a rota of regular
calls to all employees. This has proved very successful in identifying
employees who have found home working (and in some cases isolation)
particularly challenging, and we have funded training for additional
MHFAs to maintain the regularity of calls.
Communication and meaningful engagement with our workforce was
inevitably more challenging during the pandemic, but it was pleasing to
see positive feedback from two employee surveys carried out during
2020 about the regularity and clarity of communication from the Senior
Management Team during the period. Whilst the Board was not able to
maintain its programme of face-to-face engagement with employees,
76 Annual Report 2020
Non-Executive Directors continued to meet with small groups of
employees virtually. We are hopeful that our extensive employee
engagement programme can recommence soon “in person” with plans
for an Employee Annual General Meeting, but we will increase our
programme of virtual engagement if restrictions persist.
Risk management, internal controls and business continuity
The Board and Senior Executive Team have monitored closely the risk
profile of the business and ensured that all practical measures were
taken to mitigate the impact of COVID-19. The Group Risk Register has
remained our principal risk assessment and management tool and was
subject to regular review, both by our Management Board and the
Board, these reviews being reflected in “real-time” reporting in the
FYE’19 annual report and FYE’20 interim results announcement.
During Q4 of 2020 we asked KPMG to review the operational response
of the business to COVID-19 including its migration to full-time remote
working. KPMG presented a very positive report to the Audit
Committee.
Like all businesses, we experienced a spike in cyber-attacks during the
pandemic, particularly in the early weeks of enforced remote working.
It was testament to the technical and strategic cyber and information
security measures we implemented and the general cyber-security
awareness we have promoted in the two years prior to COVID-19, that
none of these attacks were successful. Our Business Continuity Plan,
which had not long since been tested, was also instrumental in the
Group’s immediate response to the COVID-19 restrictions.
External stakeholders
We are proud of the way our regional and functional teams have
collaborated with our stakeholders. For example, our project managers
worked with our contractors to ensure all operational sites were
“COVID-Secure” whilst also minimising disruption to development
projects. Our Business Space team also engaged proactively with
tenants to maintain rent collection levels whilst, in a handful of cases,
agreeing payment plans or lease re-gears to accommodate temporary
cashflow pressures on certain tenants.
Succession and Board composition
The Nomination Committee continued to take the lead on succession
planning which once again featured prominently on the Board’s agenda
in 2020.
In July, the Board was delighted to announce the appointment of Lynda
Shillaw as Chief Executive. Lynda joined us in November, succeeding
Owen Michaelson who, after 10 years with Harworth, handed over to
Lynda and retired from the business at the end of the year.
During the year, two new Non-Executive Directors were appointed to
the Board. Lisa Scenna was appointed in September to succeed Lisa
Clement, who retired following nine years on the Board. In November
we appointed Patrick O’Donnell Bourke as Audit Committee Chair in
succession to Andrew Cunningham. Consequent on these two
changes, Angela Bromfield was appointed Senior Independent
Director and Chair of the Remuneration Committee.
Whilst all recruitment is based on merit, it was pleasing to see the
gender diversity in our appointments. We hope this will continue to
demonstrate to both existing and prospective employees the Board’s
commitment to diversity (in its widest sense) at all levels of the business.
Stakeholders – engagement and decision-
making
In 2020 the Board continued to monitor the effectiveness of the
Company’s engagement with its key stakeholders, including its annual
stakeholder mapping exercise. We also overhauled our operational
Board papers to include a detailed appraisal of how new projects align
with our Purpose and the Harworth Way, including their impact on our
stakeholders, wider society, and the environment. This has helped to
formalise the role of purpose and stakeholder interests in the Board’s
decision-making process.
In the period since her appointment as Chief Executive, Lynda Shillaw
has undertaken an extensive programme of engagement with a wide
range of operational stakeholders and investors, building on well-
established partnerships across the business.
Audit, risk and internal controls
Given the unprecedented economic and political backdrop,
particularly in the early stages of the pandemic, the Board and external
auditors have taken an understandably prudent approach to the going
concern appraisal of the FYE’20 interim results and audited accounts,
modelling multiple, severe downside scenarios to the Board’s
forecasts, all of which demonstrated the resilience of the business.
Notwithstanding that challenging backdrop, the Senior Executive Team
and Audit Committee have overseen a successful transition from
PricewaterhouseCoopers LLP to the new external auditors, Ernst &
Young LLP.
The Senior Executive Team have engaged external consultants to
undertake an internal assurance mapping exercise, which will inform a
3-year rolling programme for the review of internal controls. The Audit
Committee will oversee, and give final approval to, this exercise.
Board evaluation
As is good practice, I led another internal evaluation of the Board’s
effectiveness in Q4 of 2020. The key conclusions and action points
from that exercise were discussed by the Board in February 2021 and
we agreed an action plan to implement the agreed recommendations.
We will instruct an external Board evaluation in the second half of this
year and report on its findings in the FYE’21 annual report.
Annual General Meeting
Our Annual General Meeting (AGM) will be held at 2:00pm on Tuesday
25th May 2021 at Mercure Sheffield St. Paul’s Hotel and Spa, City Suite,
119 Norfolk Street, Sheffield, S1 2JE. At the date of publication of this
report, restrictions on public gatherings in England remain in place due
to the ongoing pandemic. This means that, as things stand, shareholder
attendance at the AGM is not possible. If restrictions ease prior to
25th May 2021, we have contingency plans in place to facilitate
shareholder attendance and, in that event, we will make a further
announcement ahead of the AGM.
Alastair Lyons
Chair
22 April 2021
77
Financial StatementsCorporate Governance Strategic Report Board of Directors and
Company Secretary
KEY
N - Nomination Committee
R - Remuneration Committee
D - Disclosure Committee
A - Audit Committee
Chair
Alastair
Lyons
Chair
Term of office
Joined the Board on 7 March 2018. Last re-elected in June 2020
Length of service
Independent
Committees
3 years 2 months
Yes
N R
Lynda
Shillaw
Chief Executive
Term of office
Appointed on 1 November 2020
Length of service
Independent
Committees
6 months
No
N D
78 Annual Report 2020
Skills and experience
Alastair is Non-Executive Chair of Welsh Water, Vitality UK, AECS,
Admiral’s European holding company, and Eaton House Schools. He
was Non-Executive Chair of the Admiral Group from 2000 to 2017,
Deputy Chair of Bovis Homes from 2008 to 2018, Chair 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 the housing 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
Chair of Welsh Water (Dwr Cymru), Vitality UK, AECS, Admiral’s
European holding company, and Eaton House Schools.
Skills and experience
Prior to Lynda’s appointment as Chief Executive, she was Group
Property Director at Town Centre Securities plc where she led the
management of its land and property and its development pipeline.
Before that she was Divisional CEO, Property at Manchester Airports
Group (MAG), where she was responsible for MAG’s investment
portfolio and development land bank, including its “Airport City” joint
venture. This followed a long career managing both investment and
development real estate portfolios for BT and Co-operative Group
before joining Lloyds Banking Group as Global Head of its Real Estate
lending division.
External appointments
Non-Executive Director of The Crown Estate and Vivid Housing
Association.
Katerina (Kitty)
Patmore
Chief Financial Officer
Term of office
Joined the Board on 1 October 2019. Elected in June 2020
Skills and experience
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.
Kitty was recently appointed as a Non-Executive Director of London
Metric Property plc where she is a member of the Audit Committee.
Length of service
Independent
Committees
External appointments
1 year 7 months
No
D
Non-Executive Director of LondonMetric Property plc and Chair of
the Investment Property Forum Finance Group.
Angela
Bromfield
Senior Independent Director
Term of office
Joined the Board on 1 April 2019. Last re-elected in June 2020
Length of service
Independent
Committees
2 years 1 month
Yes
R N
Skills and experience
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.
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.
External appointments
Non-Executive Director of Marshalls plc and Churchill China plc.
Ruth
Cooke
Non-Executive Director
Term of office
Joined the Board on 19 March 2019. Last re-elected in June 2020
Length of service
Independent
Committees
2 years 2 months
Yes
A
Skills and experience
Ruth is currently Chief Executive of GreenSquareAccord, a housing
association operating across the North, Midlands and South West.
Before that she was Finance Director (from 2008 to 2012) and then
Chief Executive (from 2012 to 2018) of Midland Heart, a Birmingham
based housing association. 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 corporate treasurer.
External appointments
Chief Executive of GreenSquareAccord.
79
Financial StatementsCorporate Governance Strategic Report
Skills and experience
Lisa is a Non-Executive Director of Polypipe Group plc, where she is a
member of the Nomination, Audit and Remuneration Committees,
and of Cromwell Property Group, an Australian listed company, where
she chairs the Investment Committee.
Lisa has over 20 years’ experience working at executive director level
in large multinational corporations both private and publicly listed
with a strong background in real estate development and asset
management. Her most recent executive role was with Morgan
Sindall Group as Managing Director of MS Investments. Prior to this,
she held executive roles with Laing O’Rourke, having led their
infrastructure investment activities globally, and Stockland Group and
Westfield Group in Australia. Lisa has also been a director of various
public private partnerships, most recently as the Deputy Chair of the
Private Infrastructure Development Group.
Lisa is a member of the Australian Institute of Company Directors and
the Institute of Chartered Accountants in Australia.
External appointments
Non-Executive Director of Polypipe Group plc and of Cromwell
Property Group, an Australian listed company.
Skills and experience
Patrick was recently appointed as Chair of Ecofin US Renewables
Infrastructure Trust plc which undertook a successful initial public
offering in December 2020. He was also Chair of the Audit and Risk
Committee and a member of the Nomination and Remuneration
Committees of Calisen plc, the former FTSE 250 owner and manager
of smart meters, until March 2021 when Calisen was taken private.
Until September 2020, he was Chair of the Audit Committee and a
member of the Nomination Committee of Affinity Water Limited
having been a Non-Executive Director there since 2013.
Patrick has significant senior international experience in investing in,
and managing, infrastructure and utilities. His most recent executive
role was that of Group Finance Director for John Laing Group plc from
2011 to 2019. Prior to that he was Group Finance Director of Viridian
Group plc, the Northern Ireland based energy group from 2000 to
2006, before becoming Group Chief Executive from 2007 to 2011
after Viridian was taken private. Previously he was Group Treasurer for
Powergen plc and spent nine years in investment banking with
Barclays de Zoete Wedd and Hill Samuel, having qualified as a
chartered accountant with Peat Marwick (now KPMG).
External appointments
Chair of Ecofin US Renewables Infrastructure Trust plc.
Lisa
Scenna
Non-Executive Director
Term of office
Joined the Board on 1 September 2020
Length of service
Independent
Committees
8 months
Yes
R A
Patrick
O’Donnell
Bourke
Non-Executive Director
Term of office
Joined the Board on 3 November 2020
Length of service
Independent
Committees
6 month
Yes
A
80 Annual Report 2020
Steven
Underwood
Non-Executive Director
Term of office
Joined the Board on 2 August 2010. Last re-elected in June 2020
Length of service
Independent
Committees
10 years 9 months
No
None
Martyn
Bowes
Non-Executive Director
Representing the Pension Protection Fund
Term of office
Joined the Board on 24 March 2015 having previously been a
Non-Executive Director of Harworth Estates Property Group Limited
from 19 March 2013. Last re-elected in June 2020
Length of service
Independent Committees
6 years 2 months (8 years 2 months
including appointment to HEPGL)
No
None
Chris
Birch
General Counsel and Company Secretary
Term of office
Appointed on 6 June 2016
Length of service
Independent Committees
Appointed on 6 June 2016
No
D
Skills and experience
Steven is Chief Executive of the Peel Group of companies and brings
to the Board the extensive experience of the Peel Group in brownfield
land remediation and regeneration. 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.
External appointments
Director of multiple private limited companies connected to the Peel
Group. Trustee of the Science Museum Group.
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.
Skills and experience
Chris trained with Eversheds LLP (now Eversheds Sutherland 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
81
Financial StatementsCorporate Governance Strategic Report
Statement of
Corporate Governance
The 2018 UK Corporate Governance Code
The Strategic Report explains where the Board has focussed to ensure compliance with the main principles contained within the 2018 Code and
how governance has supported delivery of the Company’s purpose and strategic priorities (pages 70 to 72).
A copy of the 2018 Code can be found on the Financial Reporting Council’s website at https://www.frc.org.uk. The Company has complied with
the principles and provisions of the 2018 Code throughout the year ended 31 December 2020. The Company’s compliance is demonstrated both
in the Strategic Report and in the balance of this Governance Report, as follows:
Section
1
Section
2
Section
3
Section
4
Section
5
Board Leadership
and Company
Purpose
Division of
Responsibilities
Composition,
Succession and
Evaluation
Audit, Risk and
Internal Control
Remuneration
Corporate
Governance
Statement
Strategic Report
Corporate
Governance
Statement
Nomination
Committee Report
Nomination
Committee Report
Audit Committee
Report
Directors’
Remuneration Report
Purpose and strategy
In 2019, we developed a succinct expression of Harworth’s purpose:
“to transform land and property into sustainable places where people
want to live and work.” In 2020, the measures imposed to address the
COVID-19 pandemic have brought into sharp focus the importance of,
and the value derived from, our delivering on that purpose, with many
of us prioritising a need for quality homes and surrounding spaces.
Typically, the Board, together with the Investment Committee,
undertakes a formal review of strategy at an annual offsite Strategy Day
which is followed by a presentation to, and approval by, the Board of a
draft budget (for the following financial year) and a strategic plan (for
the following five years). In 2020, the COVID-19 restrictions prevented
our holding a Strategy Day in person and, given the impending
transition between Chief Executives, we undertook a lighter review of
strategy virtually in October before reviewing and approving the 2021
budget in November. Lynda Shillaw, our new Chief Executive, is leading
a review of strategy during the first half of 2021 which is anticipated to
be a matter of evolution rather than revolution.
82 Annual Report 2020
The performance of the business is assessed by the Board throughout
the year against the approved budget and strategic plan, the Board
satisfying itself as to the adequacy of management’s response to
variations in performance against the plan. Financial and operational
reforecasts are presented to the Board periodically and the Chief
Executive, Chief Financial Officer and Chief Operating Officer give
operational and financial updates at each Board meeting. The
performance of the business, and the actions implemented to ensure
the health and safety of our staff and those in the other organisations
and communities with which we engage, were subject to particularly
close scrutiny by the Board during 2020, in particular in the period
immediately following the onset of COVID-19 when the uncertainty
surrounding its impact was at its height and everyone was adapting to a
new way of working.
Culture
Stakeholders
The Harworth Values are the principles our employees consider most
important when we go about our business and they underpin our One
Harworth approach. At Harworth we:
We have navigated COVID-19 as One Harworth, in collaboration with
each other and our external stakeholders, by remaining innovative
during challenging times, and by always “doing the right thing”
notwithstanding unprecedented economic and social turbulence.
We worked hard during the year to embed the Harworth Values into
the business including through appraisals, the setting and scoring of
bonus objectives, internal communications, and our programme of
recognition. They have been at the heart of our response to COVID-19
and we will continue to use our annual staff survey and appraisals to
monitor our progress.
In 2019, the Board undertook a significant exercise to identify its key
stakeholders, understand how the business engages with them, and
review the effectiveness of that engagement. Stakeholder mapping is
now an important component of the Board’s annual timetable.
In 2020 we focussed on embedding the consideration of stakeholder
interests into the Board’s decision-making process. We overhauled our
transaction approval templates, to put purpose and the impact of our
projects on our stakeholders at the heart of the Board’s appraisal of
acquisitions and development projects. We standardised the regional
and functional updates given to the Board, so that we can monitor more
systematically the societal value, as well as the financial performance,
Harworth is delivering across the business.
Our Strategic Report outlines how we engage with our key
stakeholders and how the Board has complied with its obligations as
set out in section 172 of the Companies Act (pages 64 to 67).
The Board recognises the importance of regular and open engagement
with our investors. 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 Investor and Stakeholder
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 periodically with our largest
shareholders.
The Board receives regular feedback from the Company’s brokers and
the Executive Directors on the views of existing and prospective
shareholders. 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. During the period under review, the
Board monitored closely the volatility in the share price driven by
COVID-19, and some material changes in the composition of the
Company’s share register. It was pleasing to welcome a number of new
institutional shareholders to the register, including some motivated by
Harworth’s ESG credentials, and to see the confidence in Harworth’s
long-term prospects demonstrated by London and Amsterdam Trust
increasing its holding to become the Company’s largest shareholder.
The Company has a planned programme of announcements
throughout the year to ensure that investors remain updated regularly
on progress in the business. It also announces all material trading
developments, in particular significant site acquisitions and disposals
and progress with obtaining planning consent on Major Developments.
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.
We were forced to hold a closed 2020 AGM due to the restrictions on
movement imposed during the pandemic, albeit shareholders were
given an opportunity to pose written questions to the Board. At the
date of publication of this report, public gatherings are prohibited due
to COVID-19 restrictions, which means that, as things stand,
shareholders cannot attend the 2021 AGM. We are keeping this under
review and have contingency plans ready for enabling shareholder
attendance if restrictions are lifted.
There have been no material votes against recommended resolutions at
recent AGMs. 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 votes
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.
83
Financial StatementsCorporate Governance Strategic Report Division of responsibilities
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 subject to a thorough review annually, led by the
Company Secretary, to ensure that it keeps pace with Harworth’s
growing and evolving business.
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 (CEO) 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. The CEO appoints the Investment Committee and
Management Board to provide the appropriate support to the CEO.
Examples of Board Reserved Matters
Approval of corporate acquisitions
and joint ventures
New or material changes to senior
debt facilities
How the Company’s strategy delivers
against ESG principles
Approval of all projects and material changes in
project business plans, determined by
appropriate financial thresholds
Remuneration Policy, remuneration of
Directors and Investment Committee
Approval of accounts, valuations, financial
reporting and dividends
Setting strategy and approval of annual budget
and strategic plan
Oversight of the performance
of the business
Board appointments; external
appointments of Directors
Health & Safety Policy
Overall responsibility for risk
management and assurance
IT strategy
INVESTMENT
COMMITTEE
COO
CEO
CFO
MANAGEMENT
BOARD
AUDIT
COMMITTEE
REMUNERATION
COMMITTEE
BOARD
CEO
CFO
COO
DISCLOSURE
COMMITTEE
NOMINATION
COMMITTEE
84 Annual Report 2020
The key responsibilities of the Board, Committees and roles are summarised in the table below.
Board
See pages 78 to 81 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 projects and material changes to project business plans.
• Scrutinises the performance of the business against the strategy, agreed objectives and
targets.
• Determines risk appetite, monitors risk profile and risk management systems.
• 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.
• Ensures the Company’s strategy delivers against ESG principles and monitors performance
against these principles
• Promotes a culture that is aligned with 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.
Nomination Committee
• Reviews the size, composition and balance of the Board and its Committees.
Alastair Lyons (Chair)
Angela Bromfield
Lynda Shillaw
Audit Committee
Patrick O’Donnell Bourke (Chair)
Ruth Cooke
Lisa Scenna
Remuneration
Committee
Angela Bromfield (Chair)
Alastair Lyons
Lisa Scenna
• 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 and approves placement and renewal of 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, the detection of fraud and the prevention of
bribery and modern slavery.
• Reviews ongoing compliance with the General Data Protection Regulation (GDPR).
• 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 Company’s Remuneration Policy.
• 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.
• Determines the fee payable to the Chair (with the Chair recused).
• Reviews the remuneration approach adopted for all employees.
• Approves grant of options under the Restricted Share Plan, Save-As-You-Earn Scheme and
Share Incentive Plan.
• Undertakes a biennial review of benefits available to all employees.
• Approves changes to certain material employment policies.
Disclosure Committee
• Ensures compliance with disclosure obligations under the Market Abuse Regulation and
the FCA’s Listing Rules and Disclosure Guidance and Transparency Rules.
Kitty Patmore (Chair)
Lynda Shillaw
Chris Birch
85
Financial StatementsCorporate Governance Strategic Report Chair of the Board
•
Leads the Board and is responsible for its overall effectiveness by facilitating a culture of
openness and debate.
Alastair Lyons
• 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.
Chief Executive
•
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 operational risk management, including health and safety.
Lynda Shillaw
• 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.
• Responsible for ensuring the Group’s strategy delivers against ESG principles.
•
Leads on M&A and portfolio acquisitions.
Chief Financial Officer
•
Leads on all financial matters, including tax and treasury.
• Responsible for preparing the annual budget and strategic plan.
Kitty Patmore
• Responsible for all statutory financial reporting, including the preparation of the interim
and year-end financial statements.
• Responsible for formulating the Group’s funding strategy and 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.
•
Leads on the formulation of, and monitoring performance against, how the Company’s
strategy delivers against ESG principles.
• 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.
Chief Operating Officer
• Responsible for all operational matters and the effectiveness of Harworth’s regional
structure in delivering the agreed business plan.
• Ensures there are appropriate resources across the business to implement the strategy and
deliver the business plan.
•
Leads the year-end valuation process.
Ian Ball
86 Annual Report 2020
Senior Independent
Director
• 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.
Angela Bromfield
Group General Counsel
and Company Secretary
Chris Birch
• Secretary to the Board and its Committees.
• 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 for, and continuous professional development of, Directors.
• Responsible for governance, both at Board and operational levels, including non-financial
internal controls, systems and processes.
• Responsible for insurance, IT strategy, cyber and information security, business continuity
planning and GDPR compliance.
• Provides legal support on operational matters and manages the legal panel.
• Manages the Estates, Environment and Safety team.
Investment Committee
• Supports the Chief Executive in the formulation and implementation of the strategy.
• Responsible for capital allocation and deployment.
• Reviews all material projects and transactions including matters reserved for the Board
before they are presented 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.
Lynda Shillaw (Chair)
Kitty Patmore
Ian Ball
Chris Birch
Peter Henry (Regional Director)
Steven Knowles (Regional Director)
David Cockroft (Regional Director)
Richard Bousfield (Head of Income)
Tim Love (Director, Central Services)
Management Board
As for Investment Committee above plus:
Catherine Macdonald (Head of People)
John Hind (Associate Director, Estates
Environment and Safety)
Chris Warren (Associate Director,
Natural Resources)
Andrea Morley (Associate Director,
Business Space)
Tom Loughran (Head of Investor and
Stakeholder Relations)
David Elliott (Director, Building Delivery)
Stefan Morgan (Technical Director)
Dougie Maudsley (Financial Controller)
*The table above reflects roles and membership of Committees as at the date of this Annual Report. Changes which were effected during 2020 or the early part of 2021 are
identified in the Committee reports.
87
Financial StatementsCorporate Governance Strategic Report
Board activities in 2020*
*The table below excludes the monthly updates given by the CEO, CFO, COO, Company Secretary and Head of Investor and Stakeholder Relations and the transactions
reviewed by the Board during the year. There are no Board meetings scheduled for August or December.
KEY
STRATEGY OPERATIONS GOVERNANCE
FINANCE
STAKEHOLDERS
RISK
BOARD
PEOPLE
JANUARY
Annual health and safety review
Annual review of risk appetite, profile and management
Indicative FYE’19 results: preliminary review of investor
messages
Employee engagement and annual employee survey results
Briefing on political backdrop following General Election
Share price and share register analysis
Committee membership
JUNE
COVID-19: operational update
Central Services divisional update
Review of investor relations plan in light of COVID-19
Appointment of Lisa Scenna
Andrew Cunningham – external appointment
Modern slavery statement
Update on IT strategy, cyber and information security
FEBRUARY
JULY
FYE’19 preliminary results and final dividend
Appointment of Lynda Shillaw
Feedback from internal Board evaluation
Review of risk profile and management
Resourcing
MARCH
COVID-19: operational review
COVID-19: financial review
COVID-19: impact on employees
COVID-19: stakeholders (supply chain and tenants)
COVID-19: review of risk profile and management
COVID-19: site safety
Latest draft of FYE’19 Annual Report
Feedback from preliminary results investor roadshow
APRIL
COVID-19: operational review
COVID-19: financial review and FYE’19 final dividend
Trading update announcement
Share price and share register analysis
MAY
FYE’20 reforecast
COVID-19: operational update
Talent Management and People Development
FYE’19 Annual Report: final sign-off
Changes to bank facilities
88 Annual Report 2020
Share price and share register analysis
Mixed tenure on residential developments
Virtual employee lunch
Insurance market update
Embedding ESG principles in our strategy
SEPTEMBER
Review of strategy
FYE’20 reforecast
FYE’20 interim results and interim dividend
Income Generation divisional update
North West regional update
Senior Independent Director appointment – Angela Bromfield
Virtual employee lunch
OCTOBER
Midlands regional update
Annual stakeholder review
Waverley project update
Feedback from interim results investor roadshow
Share price and share register analysis
Appointment of Patrick O’Donnell Bourke
Virtual employee lunch
NOVEMBER
FYE’21 Budget
2021 investor relations plan
Yorkshire and Central regional update
Kitty Patmore external appointment
KEY AREAS OF FOCUS IN 2021
Review of the business and
implications for future value
creation and delivery of
ESG
principles
Post-COVID-19
operational
performance
Our people:
engagement, welfare,
talent development
and diversity
External Board
evaluation
The development
by the new CEO of
effective
relationships
with shareholders
and key external
stakeholders
Remuneration
Policy review
External appointments
Conflicts of interest
Upon appointment, each Director is required to notify the Company
Secretary of his or her 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.
Ahead of the appointments of Lynda Shillaw, Lisa Scenna and Patrick
O’Donnell Bourke the Board was notified of their existing external
appointments and the time commitment involved for each
appointment. In all cases the Board was satisfied that these existing
commitments would not adversely affect each director’s board
responsibilities and carried a low (if any) risk of actual or potential
conflicts of interest which, if they arose, could be managed (see below).
During the year, the Board also approved Kitty Patmore’s appointment
as a Non-Executive Director of LondonMetric Property plc, having been
satisfied that this appointment would assist in her development, would
not intrude on Kitty’s capacity to discharge her responsibilities as Chief
Financial Officer, and would give rise to no more than a low risk of
actual or potential conflicts of interest which, if one arose, could be
managed (see below).
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. No conflicts of interest arose in 2020.
Steven Underwood is 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 2020 no conflicts of interest arose.
Prior to his resignation, Andrew Cunningham had previously declared
by way of general notice, and the Board had approved, potential
conflicts of interest arising from his appointment as a Non-Executive
Director of The Banks Group with whom Harworth had certain
contractual relationships. During 2020 no conflicts of interests arose.
Prior to his retirement, Owen Michaelson had previously declared by
way of general notice, and the Board had approved, potential conflicts
of interest arising from his appointment as a member of the Board of the
Sheffield City Region Local Enterprise Partnership. During 2020 no
conflicts arose.
89
Financial StatementsCorporate Governance Strategic Report Induction and ongoing support
Inductions
Knowledge of business and markets
The Company Secretary oversees the delivery of a
comprehensive and tailored induction
programme for all new Directors. Inductions were
delivered for Lisa Scenna, Lynda Shillaw and
Patrick O’Donnell Bourke when they joined the
Board in September (Lisa) and November (Lynda
and Patrick), respectively. For all three this
included:
• provision of a detailed induction pack ahead
of their appointments taking effect;
• briefings from the Chair, the Chief Executive,
Chief Financial Officer, Chief Operating
Officer and Company Secretary;
a series of one-to one meetings with members
of the Senior Management Team; and
•
•
To give constructive challenge and support to the Senior Management Team, 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 typically includes:
•
•
•
site visits, which help to improve knowledge and understanding of key projects
and, at the same time, are an opportunity for Non-Executive Directors to get to
know better our operational teams, albeit these were curtailed by COVID-19
restrictions in 2020 and to date in 2021;
annual health and safety updates from the head of our Estates Environment and
Safety division (supplemented by monthly updates included in each Board
pack); and
regular updates from each of the regional and functional teams, focusing on
progress against strategic objectives, markets and resourcing and including
project-specific reviews.
site visits, where these could be compliant
with COVID-19 restrictions.
Ongoing support and CPD
Both Lynda and Patrick met with Ernst & Young,
the Company’s external auditor, and BNP Paribas
and Savills, the Company’s valuers.
In addition, Lynda met weekly (and virtually) with
the incumbent Senior Executive Team ahead of
her appointment as well as at regular intervals with
the Chair, and, in the weeks immediately following
her appointment, undertook an intensive
programme of introductory meetings with a range
of stakeholders.
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;
•
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.
The lakes and open space at Waverley
90 Annual Report 2020
Board and Committee meetings
*There were 10 regular Board meetings scheduled during 2020 and three additional meetings held during the year. There were also Board calls to sign-off the 2019 preliminary
results and 2020 interim results and a virtual Strategy Day during the year, which are not reflected in the table below.
Alastair Lyons
Lynda Shillaw (appointed 1/11/20)
Kitty Patmore
Angela Bromfield
Ruth Cooke
Lisa Scenna (appointed 1/9/20)
Patrick O’Donnell Bourke (appointed 3/11/20)
Steven Underwood
Martyn Bowes
Owen Michaelson (left 30/10/20)
Lisa Clement (left 30/10/20)
Andrew Cunningham (left 30/10/20)
Board
13/13
1/1
13/13
11/13
13/13
2/2
1/1
12/13
13/13
12/12
11/12
12/12
Meetings attended
RemCo
5/5
5/5
2/2
4/4
AuditCo
NomCo
4/4
0/0
4/4
6/6
8/8
2/2
2/2
6/6
3/3
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, Chief Operating Officer, Company Secretary, Head of Investor and Stakeholder Relations and Associate Director
of Estates, Environment and Safety.
The Company Secretary maintains “Action Schedules” for the Board and each Committee which record action points agreed at each meeting. These
schedules, together with the minutes of each meeting, are reviewed by the Chair of the Board or the relevant Committee (as appropriate), made
available to the Board or relevant Committee (as appropriate), and are subject to formal approval at the following Board or Committee meeting.
Board 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. An externally facilitated evaluation was last undertaken in 2018. The Chair conducted internal evaluations
in 2019 and 2020. These 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 of the 2020 internal evaluation were reported to the Board in February this year with actions
agreed for implementation in 2021. Some examples of the agreed actions are listed below.
Theme
Actions agreed
2020 internal evaluation
Stakeholder engagement More use should be made of existing relationships held by Non-Executive Directors with key stakeholders.
Board reserved matters
Board meetings
The Delegated Authorities Policy should be updated to focus more of the Board’s time on material transactions
and strategic debate, with a complementary increase in operational oversight by the Investment Committee. This
has been actioned.
The frequency of Board meetings should remain subject to review, and consideration should be given to whether
meetings could be restructured, where possible, to run through an afternoon, followed by a Board dinner, and
completing the following morning (once face-to-face meetings can resume). Opportunities to hold smaller
informal meetings between Directors should also be explored.
A regular item should be added to the Board agenda for discussion of pre-selected strategic topics, which may
also be used from time to time to bring external input to the Board from key stakeholders.
External reporting
The design and content of investor presentations should be reviewed, with a focus on improving the explanation
of the strategic direction of the business.
Succession planning and
retention
The Board’s annual review of talent management should be expanded to consider the effectiveness of
development plans for key employees.
Internal control
Internal assurance mapping should be undertaken and, following the Audit Committee’s annual review of the
system of internal controls, the Audit Committee Chair should report on the same to the Board.
91
Financial StatementsCorporate Governance Strategic Report
An externally facilitated Board evaluation will be undertaken in the second half of this year, the details of which will be reported in the FYE’21
Annual Report.
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 2020 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, maintains an ongoing review of the performance of the Chief Executive.
The Chief Executive appraises the performance of the members of the Investment Committee twice a year.
Annual General Meeting
Typically, the Notice of AGM is sent to shareholders at least 20 working days before the meeting. We were not able to meet that deadline in 2020
due to the practical constraints caused by COVID-19, albeit shareholders were given notice in accordance with the Companies Act. This year we
are reverting to the longer period of notice recommended in the Financial Reporting Council’s Guidance on Board Effectiveness.
At the date of publication of this report, restrictions on public gatherings remain in place, which means that, as things stand, shareholders cannot
attend the 2021 AGM. If those restrictions persist, 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 meeting,
together with the explanatory notes, appear in the separate Notice of Annual General Meeting accompanying this Annual Report. The Notice is
also available on our website.
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 is withheld for each resolution, together with the voting result, are given at the meeting and made available
on our website. A vote withheld is not counted in the calculation of the proportion of the votes for and against a resolution.
If any shareholder had intended to ask a question at the AGM, but cannot attend, we encourage them to email their question to
investors@harworthgroup.com to which we will respond in writing. If there are multiple questions on a common theme, we will post a response
on our website.
Alastair Lyons
Chair
22 April 2021
92 Annual Report 2020
Nomination
Committee Report
Committee
members
Alastair
Lyons
(Chair)
Angela
Bromfield
Lynda
Shillaw
The terms of reference of the Nomination Committee are on the Company’s website: https://harworthgroup.com/investors/governance/
Alastair
Lyons
Chair
Dear Shareholder,
I am pleased to report to shareholders on the work of the Nomination
Committee during the year ended 31 December 2020. It has been
another busy year with the recruitment of a new Chief Executive and
two new Non-Executive Directors.
The Committee’s terms of reference were reviewed during the year and
some minor amendments were made to them. Throughout 2020 the
Committee has acted in accordance with the principles of, and fulfilled
its obligations under, the 2018 UK Corporate Governance Code.
Priorities for 2021:
• Establish the ESG Committee of
the Board.
• Ongoing review of effectiveness
of initiatives to promote diversity
across the business including
review of recommendations to
be made by the People Steering
Group.
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Membership and meetings
I continued to chair the Committee throughout 2020. Recognising that a part of the Committee’s work in 2020 would be to identify and appoint
her successor given her planned retirement in the autumn, Lisa Clement stepped down from the Committee at the start of the year and was
replaced by Angela Bromfield. Andrew Cunningham remained a member of the Committee until he stepped down from the Board at the end of
October 2020 but played no part in the recruitment of his successor. Lynda Shillaw, our new Chief Executive, replaced Andrew on the Committee
from the beginning of November.
Typically, the Committee meets at least once a year to review succession and development planning for the Board and Investment Committee and
to review the effectiveness of the initiatives we have introduced to improve diversity throughout the business. Given that three active recruitment
processes were undertaken during 2020, the Committee held a series of meetings throughout the year at which candidates were appraised and
the Committee agreed upon preferred candidates for recommendation to the Board.
Membership and attendance at meetings in 2020 are shown below:
Independent
Committee tenure at 31
December 2020
Scheduled meetings attended/
eligible to attend
Alastair Lyons
Angela Bromfield
Lynda Shillaw*
Andrew Cunningham**
Chair
Member
Member
Member
Yes
Yes
No
Yes
3 years 2 months
1 year
2 months
4 years 7 months
4/4
4/4
0/0
3/3
*Lynda replaced Andrew Cunningham on 1 November 2020. No Committee meetings were held in 2020 after her appointment to the Committee.
**Andrew stepped down from the Board on 31 October 2020. He did not attend any meetings at which the appointment of his successor was discussed.
The key activities of the Committee during 2020 are shown below:
RECRUITMENT
BOARD COMPOSITION AND SUCCESSION
DIVERSITY
EXTERNAL APPOINTMENTS
Recruitment process for successor to Owen Michaelson culminating in the appointment of Lynda Shillaw who joined the Board as Chief Executive
at the beginning of November
Recruitment process for successor to Lisa Clement culminating in the appointment of Lisa Scenna who joined the Board as Non-Executive
Director in September
Recruitment process for successor to Andrew Cunningham culminating in the appointment of Patrick O’Donnell Bourke who joined the Board as
Non-Executive Director and Chair of Audit Committee in November
Review of Board and Committee composition including the appointment of Angela Bromfield as Senior Independent Director and Chair of
Remuneration Committee
Review of proposed external appointments for Andrew Cunningham and Kitty Patmore
Review of succession plans for the Board and Investment Committee
Review of progress in improving diversity across the business
94 Annual Report 2020
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,
two of whom are not considered independent.
Analysis of the composition of the Board and Investment Committee (at the date of this report) is shown below. The Directors’ biographies appear
on pages 78 to 81. Analysis of gender diversity on the Board, and across the workforce, is detailed later in this report.
Board
Composition
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
*Martyn Bowes is the representative of the Pension Protection Fund, which holds 25% of the Company’s shares, and he 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.
Board tenures
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Alastair Lyons:
Lynda Shillaw:
Kitty Patmore:
Angela Bromfield:
Ruth Cooke:
Lisa Scenna:
Patrick O’Donnell Bourke:
Steven Underwood:
Martyn Bowes:
Investment Committee
Age
Tenure
30-40 years
41-50 years
51-60 years
Less than 1 year
1-3 years
3-6 years
6+ years
The composition of the Board and its
Committees is reviewed regularly by the
Committee to ensure that, in each case,
membership comprises appropriate diversity
and balance of skills, knowledge, and
experience and includes the right number of
independent Directors. That review takes
account of the output from the annual Board
evaluation. A review of Board and Committee
composition informed the recruitment
processes led by the Committee for Lisa
Clement’s successor, in the first half of 2020,
and for Andrew Cunningham’s successor, in
the second half of the year.
Having regard to all the above-mentioned
matters, the Board considers that the
composition of the Board is appropriately
balanced, and we are particularly proud of the
gender balance we have achieved on the
Board. Membership of the Committees is also
compliant with the 2018 Code. 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 pages 130 and 131.
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Succession – Executive Directors
The Committee undertakes a regular (typically annual) review of the
succession plans for the Executive Directors.
Lynda undertook a comprehensive and tailored induction programme
ahead of her appointment, details of which are set out in the Corporate
Governance Statement on page 90.
On 17 March 2020, the Company announced that Owen Michaelson
would retire on 31 December 2020. Following that announcement, the
Committee initiated a previously agreed succession plan for the role of
Chief Executive.
The Company appointed Thomas Cole Kinder (TCK) to conduct a
search and recruitment process. The Company does not retain TCK in
any other capacity and it has no other connection with the Company. In
conjunction with TCK, the Committee prepared the specification and
selection criteria for the role.
TCK identified a “long-list” of candidates. Following a review of that
“long-list” by the Committee and a meeting with TCK, a “short-list” of
candidates, both external and internal, was identified. The Committee
interviewed all candidates on the “short-list” virtually, pursuant to which
a preferred candidate was identified who then had virtual or COVID-
Secure meetings with the Committee, other Non-Executive Directors
and members of the Senior Executive Team.
This process culminated in the Committee recommending, and the
Board resolving to make an offer to, Lynda Shillaw for the role. Upon
Lynda accepting the offer and the Board taking up references, her
appointment was announced on 30 July 2020. Lynda’s appointment
took effect on 1 November 2020, at which point Owen Michaelson
stepped down from the Board, but remained with the business as a
director of the Group’s principal trading subsidiaries, until 31 December
2020 to facilitate an effective handover.
Succession – Non-Executive Directors
In anticipation of Lisa Clement’s retirement towards the end of 2020,
the Committee began to plan for her succession towards the end of
2019 and, in January 2020, commenced a process to identify and
appoint her successor. 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. In conjunction with Warren Partners
and informed by a review of the balance of skills, knowledge, and
experience on the Board, the Committee prepared the selection
criteria and specifications for the role, including the need for candidates
to demonstrate experience to support their joining the Audit and
Remuneration Committees on appointment. Warren Partners identified
a “long-list” and then, following a review by the Committee and
interviews undertaken virtually by Warren Partners, a “short-list” of
candidates. The Committee and Chief Executive (Owen Michaelson at
that time) interviewed all candidates on the “short-list” virtually,
pursuant to which, following a COVID-Secure meeting in person with a
majority of the Nomination Committee, Lisa Scenna was identified as
the preferred candidate. She met virtually with the Chief Financial
Officer and other Non-Executive Directors during June 2020. At the
end of June 2020, the Board approved Lisa’s appointment, which took
effect on 1 September 2020.
96 Annual Report 2020
At the beginning of September 2020, Andrew Cunningham informed
the Board that he wished to step down as a Non-Executive Director.
Having worked closely and effectively with Warren Partners in the first
half of 2020, the Company appointed the same firm to conduct a
search for Andrew’s successor, both as Non-Executive Director and
Chair of the Audit Committee. A similar recruitment process was
undertaken to that resulting in Lisa Scenna’s appointment, save that
virtual interviews of short-listed candidates were undertaken by Alastair
Lyons and Angela Bromfield, in their capacity as Committee members,
together with Lisa Clement, who agreed to defer her retirement to the
end of October 2020 and, as a former member of the Committee and a
previous Audit Committee Chair at Harworth, to participate in the
recruitment process, Lynda Shillaw, ahead of her appointment as Chief
Executive, and Kitty Patmore as Chief Financial Officer. At the
beginning of November 2020 and on the Committee’s
recommendation, the Board approved Patrick O’Donnell Bourke’s
appointment as a Non-Executive Director and Chair of the Audit
Committee. His appointment took effect on 3 November 2020.
Angela Bromfield has succeeded Lisa Clement as Chair of the
Remuneration Committee as planned, albeit from 1 November 2020
following the short deferral of Lisa’s retirement to the end of October
2020.
Following Andrew Cunningham’s decision to step down from the
Board, the Committee recommended to the Board that Angela
Bromfield be appointed as Senior Independent Director, given her
breadth of experience as an independent Non-Executive Director. The
Board approved Angela’s appointment as Senior Independent Director
at the end of September 2020 to take effect on 1 November 2020.
As planned, Lisa Scenna joined the Remuneration Committee in
September and the Audit Committee in November 2020, the latter
appointment enabling Angela Bromfield to step-down from the Audit
Committee so that she could commit the appropriate time to her new
roles as Senior Independent Director and Chair of the Remuneration
Committee.
Both Lisa and Patrick undertook comprehensive induction programmes
following their appointments, details of which are set out in the
Corporate Governance Statement on page 90.
Finally, at the beginning of November the Board also approved Lynda
Shillaw’s appointment to this Committee in succession to Andrew
Cunningham.
Senior Independent Director and Committee appointments
Investment Committee
At the end of 2019, the Committee had recommended to the Board,
and the Board had approved, the appointments of Andrew
Cunningham as Senior Independent Director and Angela Bromfield as
Chair of the Remuneration Committee, in succession to Lisa Clement,
which appointments were to take effect from 1 October 2020 following
Lisa’s planned retirement on 30 September 2020.
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.
Multiply Logistics North, Bolton
97
Financial StatementsCorporate Governance Strategic Report 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.
During 2020 the Committee reviewed proposed appointments of Andrew Cunningham, as a Governor of Newcastle College Corporation, and
Kitty Patmore, as a Non-Executive Director of London Metric Property plc. Those appointments were recommended to, and approved by, the
Board. Prior to her appointment, the Committee agreed that Lynda Shillaw could retain, following her appointment at Harworth, her existing
appointments as a Non-Executive Director at Vivid Housing Limited and The Crown Estate.
Diversity and equal opportunities
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 have published our gender pay gap statistics since 2017 despite not being obliged to, as the Board feels it is important to have a transparent
benchmark against which to measure our progress. We have published the same analysis again in respect of 2020 below, alongside the
comparative results for 2019.
Gender pay gap analysis
In each case the reference point is 31 December
Proportion of men & women in each quartile band
Lower quartile
Lower middle
Upper middle
Upper quartile
Males
Females
2020
53%
47%
2019
64%
36%
2020
53%
47%
2019
53%
47%
2020
72%
28%
2019
83%
17%
2020
88%
12%
2019
88%
12%
Whilst we believe that our gender pay gap is a function of historic
trends across the property and construction sectors, this does not
diminish the importance of, nor the Board’s commitment to,
reducing it as quickly and effectively as we can.
Following Kitty Patmore’s appointment as Chief Financial Officer
towards the end of 2019, there have been material reductions in
our gender pay gap during 2020 across three of the reported
measures, and we expect that trend to continue following the
appointment in 2020 of Lynda Shillaw as Chief Executive. Whilst
leadership by two female Executive Directors is extremely
encouraging, we recognise that we have more to do to improve
female representation throughout the business, particularly at
other senior levels, and this is reflected in the slight increase in our
median bonus gender pay gap measure.
Gender pay gap analysis
Median
bonus
gender
pay gap
Mean
bonus
gender
pay gap
Median
gender
pay gap
68%
64%
67%
43%
30%
32%
Mean
gender
pay gap
9%
19%
2020
2019
98 Annual Report 2020
Promoting a diverse workforce
The following measures, some of which have
been long-established, are designed to
ensure that opportunities for recruitment,
development and promotion are available to
everyone, regardless of background or
personal circumstances:
• We adopted a new Diversity and Equal
Opportunities policy in 2018 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 appointments to both executive and
non-executive roles on the Board in
recent years.
• 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.
• We have an established talent
development programme (see more in
the Strategic Report at pages 61 and 62)
which, amongst other things, is designed
to create strong internal succession
wherever appropriate.
• Measures were already in place ahead of
the COVID-19 outbreak to facilitate
remote and flexible working and the
events of the past year have highlighted
the potential benefits of such different
working practices. They open up roles to
a wider range of internal and external
candidates regardless of their personal
circumstances.
• We have enhanced maternity, paternity
and adoption pay policies, which are
subject to regular review.
• Six of our employees (6.3%) work
part-time, whether that be a reduced
number of days or reduced hours every
day.
Assessing the diversity of our workforce
*For consistency, where comparisons are given between 2020 and 2019, in each case the
position reflected is at 31 December.
Board gender balance
5
2019
4
4
2020
5
Female
Male
Investment Committee
1
8
2019
7
2020
*Includes Executive Directors
Female
Male
Management Board
4
10
2019
13
2020
2
4
Female
Male
* Includes Investment Committee
Wider workforce 2020
12
19
33
2019
37
2020
Female
Male
* Excludes Management Board
99
Financial StatementsCorporate Governance Strategic Report
Recruitment into new roles
4
3
Female
Male
1
4
Female
Male
Promotions
We are pleased to have achieved gender balance on the Board and
across the Senior Executive team but recognise that more work is
needed to accelerate gender rebalancing across the wider Senior
Management Team and workforce. We are hopeful that leadership by
two female Executive Directors will send a positive signal to female
employees and external candidates for roles at Harworth such that
gender diversity across the business continues to improve. We are also
mindful that we have only made some very modest steps with regard to
ethnic diversity in the business and have a long way to go in this regard.
To these ends, our People Steering Group (PSG) will spend time in 2021
considering what more can be done to promote diversity (in its widest
sense) across the business. There is more information on the purpose,
composition and work of the PSG in the Strategic Report on pages 58
to 63.
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:
Recruitment into replacement roles
• promoting equality and fairness for all in our employment;
3
1
Female
Male
• 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 to any disabled
employees
Annual General Meeting
All Directors are subject to annual re-election by shareholders. The Directors’ biographies appear on pages 78 to 81. 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 his or her 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 the election and re-election of those Directors seeking election or re-election at the Annual General Meeting to be held on
25 May 2021.
Alastair Lyons
Chair
22 April 2021
100 Annual Report 2020
Audit
Committee Report
Committee
members
Patrick
O’Donnell
Bourke (Chair)
Ruth
Cooke
Lisa
Scenna
The terms of reference of the Audit Committee are on the Company’s website: https://harworthgroup.com/investors/governance/
Patrick
O’Donnell
Bourke
Chair
Dear Shareholder,
I am pleased to present my first Audit Committee report as Chair of the
Committee, this being for the year ended 31 December 2020. The
report sets out the Committee’s responsibilities and highlights the
Committee’s activities during 2020 and its priorities for 2021.
The Committee’s terms of reference were reviewed and updated
during the period under review and are available on the Company’s
website. Throughout 2020 the Committee acted in accordance with
the principles of, and fulfilled its obligations under, the 2018 UK
Corporate Governance Code and had regard to the FRC’s Guidance on
Audit Committees.
Priorities for 2021:
• Review reporting of FYE’20
preliminary results and FYE’21
interim results including going
concern and viability analysis and
significant financial judgements
by management
• Oversee and appraise first
external audit undertaken by
Ernst & Young LLP
• Oversee establishment of
internal risk assurance map and
rolling programme for review
• Oversee the 2022 insurance
programme renewal
• Monitor the maturity of the
Group’s cyber and information
security systems
• Review the appointment of the
Group’s valuers
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Membership and meetings
There were some changes to the Committee’s membership at the start of November 2020. I was appointed as a Non-Executive Director and Chair
of the Committee, succeeding Andrew Cunningham who stepped down as a Director of the Group. On behalf of the Board, I would like to thank
Andrew for his stewardship of the Committee over recent years. In addition, Lisa Scenna replaced Angela Bromfield as a Committee member,
following Angela’s appointment as Senior Independent Director and Chair of the Remuneration Committee in succession to Lisa Clement. At the
date of this report, the Committee comprises three independent Non-Executive members.
The Board is satisfied that I have recent and relevant financial experience. I was until recently Chair of the Audit and Risk Committee of Calisen plc,
which was then a constituent of the FTSE 250, and also Chair of the Audit Committee of Affinity Water Limited. My most recent executive position
was that of Group Finance Director for John Laing Group plc. I am a chartered accountant, and so too are Ruth Cooke and Lisa Scenna. The Board
is also satisfied that the Committee has competence relevant to the sectors in which the Company operates, given that I have extensive experience
in infrastructure investment and management, Lisa Scenna has a strong background in real estate development and asset management and Ruth
Cooke is the Chief Executive of a business operating in the real estate sector. The experience of each member of the Committee is summarised on
pages 79 and 80.
The Chair of the Board, Chief Executive, Chief Financial Officer and the external auditor are invited to attend meetings when appropriate.
During 2020, there were four scheduled meetings of the Committee, together with: (A) three additional meetings convened during March to May
to monitor and verify the extensive analysis and sensitivities applied by the management team and external auditor to the Group’s going concern
and long-term viability analysis following the onset of the COVID-19 pandemic. This was when there was great uncertainty as to the pandemic’s
likely impact on Harworth and the wider sector in which it operates, and (B) another additional meeting convened in December to approve
proposals for the annual renewal of the Group’s insurance programme.
Membership and attendance at meetings in 2020 are shown below:
Independent
Committee tenure at
31 December 2020
Scheduled meetings
attended/ eligible to attend
Patrick O’Donnell Bourke*
Ruth Cooke
Lisa Scenna*
Chair
Member
Member
Andrew Cunningham*
Angela Bromfield*
Former Chair
Former member
Yes
Yes
Yes
Yes
Yes
2 months
1 year 10 months
2 months
3 years 9 months
1 year 7 months
2/2
8/8
2/2
6/6
6/6
*Andrew Cunningham stepped down from the Board and Angela Bromfield stepped down from the Committee at the end of October 2020. Patrick O’Donnell Bourke and Lisa
Scenna joined the Committee in November 2020.
Entrance feature wall and the first homes at Hugglescote Grange, South East Coalville
102 Annual Report 2020
The key activities of the Committee during 2020 are shown below:
The Committee’s key activities in 2020:
COMMITTEE GOVERNANCE
FINANCIAL REPORTING
EXTERNAL AUDIT
RISK AND INTERNAL CONTROLS
February
Briefing on new EPRA reporting measures
External auditor’s report on FYE’19 preliminary results
FYE’19 preliminary results and investor presentation
Report on annual test of IT Disaster Recovery Plan
March - May
Going concern and viability testing following onset of COVID-19
External audit of FYE’19 accounts
FYE’19 annual report and accounts
Proposed increase in external auditor’s fee for additional work undertaken on going concern and viability testing following onset
of COVID-19
June
FYE’19 external audit de-brief
Transition to new external auditor
Areas of focus for FYE’20 interim results
Areas of focus for FYE’20 external review of internal controls
Annual review of appointments of valuers
Review of initial impact of, and response to, COVID-19 with focus on internal controls
Adoption of new EPRA measures
September
External auditor’s report on FYE’20 interim results
FYE’20 interim results and investor presentation
November
Planning for FYE’20 external audit
Report on FYE’20 external review of internal controls
Review of the need for an internal audit function
2021 renewal of insurance programme
Briefing on IT strategy, cyber and information security
Annual review of GDPR compliance
Annual review of Committee’s terms of reference
FYE’21 Committee timetable
Annual review of hospitality register
Feedback from new external auditor following transition (without management present)
December
2021 renewal of insurance programme
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Financial StatementsCorporate Governance Strategic Report
Financial reporting
The Committee examines the plan and timetable for the external
auditor’s review of the interim results in June each year. The year-end
external audit strategy and timetable are reviewed by the Committee in
November each year before detailed audit work commences.
Ahead of the interim and preliminary results announcements, the
Committee receives reports from management and the external auditor
to satisfy itself as to 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 in conjunction with the Company’s valuers,
external auditors and management team. The Committee reviews the
long-term viability, going concern and Directors’ responsibilities
statements (including the assumptions underpinning them) and
recommends to the Board their adoption. There was a persistently
turbulent macro-economic backdrop to the Company’s interim and
preliminary results announcements for the year ended 31 December
2020, due in large part to the ongoing impact of COVID-19, and the UK
and European Union’s future trading relationship. Against that
backdrop, extensive going concern and viability analysis was
undertaken by management and overseen by the Committee and
Board before publication of both announcements.
The Committee reviewed the controls which were in place to ensure
the completeness and accuracy of the Company’s financial records.
The Committee also noted (i) the reviews 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
undertaken in respect of the financial metrics referred to in the Strategic
Report and Directors’ Report.
The Committee meets the external auditor independently of
management annually, ensuring it has full visibility of matters that have
been the subject of particular scrutiny by the external auditor and/or
discussions between it and management.
The Committee has considered, concluded, and recommended to the
Board, that the disclosures, and the process and controls underlying
the production of the Annual Report and Financial Statements, are
appropriate to enable it to determine that they are fair, balanced and
understandable and provide the information necessary for shareholders
to assess the Group’s position and performance, business model and
strategy. The Board’s conclusions in this regard are set out in the
Statement of Directors’ Responsibilities on page 136.
Significant reporting issues considered by
the Committee for FYE’20 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. While 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, these valuations include a significant degree of
judgement. The key judgements within the external valuations are as
follows:
a)
the future intention and plans for the properties/site;
b) value per acre;
c)
rental amounts and financial stability of tenants;
d)
rental yields;
e) applicability of comparable sales evidence that is readily available;
f)
anticipated risk of delivery of a site’s masterplan; and
g) costs to bring sites forward.
The Committee reviewed the reports prepared by the external valuers
and challenged them on methodology, assumptions and judgements
underlying the disclosures in the consolidated balance sheet. The
Committee also took into account the work carried out by the external
auditor’s valuation team and overall is satisfied that the relevant
balances are appropriately stated in the financial statements.
Going Concern and Viability
These are addressed in the Long-Term Viability Statement (pages 40
and 41) and the Statement of Directors’ Responsibilities (pages 136 and
137), and also in the Notes to the Financial Statements (pages 156 and
157). Given the heightened economic uncertainty in the light of
COVID-19, management prepared forecasts on several bases: a base
case, a downside case, and a scenario which would result in a breach of
one or more financial covenants. The outputs, which were reviewed in
detail and discussed by the Committee, project that the Group can
continue to operate with available liquidity and banking facilities under
plausible downside scenarios. The Committee is satisfied that the
disclosures in the financial statements on going concern and long-term
viability are appropriate.
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 sets
out a full reconciliation of APMs to statutory measures. The Committee
reviewed the appropriateness, prominence and consistency of the
APMs and concurs with their use but has encouraged the management
team to keep reviewing the use of statutory measures and APMs, and
the distinction between them, in the Company’s financial reporting.
104 Annual Report 2020
External audit
The Committee is responsible for making recommendations to the
Board on the appointment, reappointment and removal of the external
auditor. The external auditor’s appointment is subject to annual review
by the Committee. The Company has no contractual commitment
obliging it to select any particular firm as external auditor. 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 (see further comment and
analysis below);
the effectiveness of the last external audit (albeit this was not
applicable for the FYE’20 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 Board recognises the importance of safeguarding external 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 auditor will not provide non-audit services to
the Group;
the Group retains Deloitte LLP to provide advice and assistance on
most tax matters and pension accounting. KPMG is retained to
advise on tax matters relating to some joint venture agreements and
to undertake annual reviews of aspects of the Group’s internal
controls framework (see more on this on the following page);
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 paid in 2020 is shown below; and
the Committee reviews the external auditor’s report to the Directors
and the Committee confirming its independence in accordance
with auditing standards.
the quantum of fees payable for the audit (see further comment and
analysis below).
Analysis of audit and non-audit fees
Following a tender process undertaken by the Committee in 2019,
details of which were included in the FYE’19 Annual Report, the Board
recommended the appointment of EY for the external audit of the
Company’s FYE’20 financial statements. That recommendation was
approved by shareholders at the 2020 AGM.
Extensive work was undertaken during 2020 by management and EY to
transition the external audit mandate smoothly and effectively from
PwC. This was a particularly challenging exercise given that most of the
work had to be undertaken remotely due to COVID-19 restrictions. At
the Committee’s meeting in November, at which the strategy and
timetable for the FYE’20 audit were reviewed and discussed, the team
from EY fed back positively on the external audit transition and their
review of the FYE’20 interim results. They also reported to the
Committee that much of the preparatory work for the FYE’20 audit had
already been undertaken or was well progressed. The Committee
spoke with the EY team without management being present, to discuss
their first impressions on the Company’s management team, systems
and financial controls.
In the FYE’19 Annual Report, we highlighted the marked increases in
fees across the audit sector, due to the heavy scrutiny on, anticipated
regulatory changes for, and reductions in capacity in, the sector, which
were reflected in the fees charged by PwC for the external audit of the
Company’s FYE’19 financial statements. The fees payable for EY’s first
external audit continue to reflect these market conditions as well as take
into account the transition work undertaken during 2020. The
Company has negotiated what it considers to be a competitive price
given current audit market conditions and the challenging COVID-19
backdrop.
Audited
year ended
31 December
2020
£000
Audited
year ended
31 December
2019
£000
EY PwC
EY
PwC
289
–
–
125
60
–
–
–
349
–
–
–
85
85
–
–
–
–
–
120
25
10
–
280
Fees payable to the external auditor and
its associates for the audit of the
Company and the consolidated financial
statements
Fees payable to the external auditor 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
Finalisation of fees relating to a prior
year
105
Financial StatementsCorporate Governance Strategic Report Risk management and internal controls
Risk and internal controls framework
Responsibility for monitoring the risk profile of the business and the
management of risk lies with the Board which undertakes bi-annual
reviews of the Group’s strategic risk profile, together with an annual
review of 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 32 to 39.
The 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
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 ahead of the
announcement of the Company’s preliminary results.
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 a review in November 2020
and currently maintains its view that the structure of, and processes
within, the business are not currently sufficiently large, nor complex, to
merit a separate internal audit function.
Over recent years, the Committee has overseen a programme of
external reviews of certain internal controls. Each year a review has
been undertaken by KPMG of a specific element of the internal controls
framework. The scope for that review has been determined by the
Committee in June with the output presented to the Committee in
November each year. In 2020, KPMG undertook a detailed review of
the Group’s response to the remote working conditions imposed due
to the pandemic. This included a review of certain financial and
operational controls and processes such as for the approval of new
suppliers, the payment of invoices, the execution of legal documents
and the recording of sickness absence; communication and
engagement with employees; and the preservation and promotion of
the Harworth Values, all against the background of a prolonged remote
working environment. The conclusions in KPMG’s report were positive
and its limited recommendations had already been identified by
management as actions for improvement and have since been
implemented.
During the year, other improvements have been made to operational
controls and processes across the business, including:
•
•
a detailed review and update of the Delegated Authorities Policy;
automation of, and improvements to, the Group’s purchase order
system, which enhances the controls environment and is more
efficient; and
• migration of the Group’s hitherto manual employment records and
processes to a new online platform and portal, which has both
mitigated risk and improved efficiencies.
The Committee is satisfied that the internal controls and risk
management systems in place across the business are effective. That
said, we continue to look for ways of improving internal assurance and,
at the end of 2020, the management team instructed Board Alchemy,
an external consultant with extensive experience in this field, to
optimise the Group’s internal assurance framework. The objective of
this exercise is to ensure that our risk framework remains fit for purpose
and can evolve with the rapid growth of the business. Board Alchemy is
working with the Senior Executive Team to establish an internal
assurance “map” and a rolling three-year (rather than annual) internal
audit programme. This output from Board Alchemy’s work will be
presented to the Committee in June 2021.
The substantial work undertaken in 2018 and 2019 on the Group’s IT
strategy and systems, cyber and information security played a
fundamental part in our successful response to COVID-19. During
2020, the Group’s newly established outsourced information security
function maintained and improved our information security
management systems, with a particular focus on project risk
assessments, the information security aspects of migration of our
finance and HR systems to online platforms, establishing data sharing
protocols and platforms for our joint ventures, employee inductions
and ongoing awareness and domain name management.
The Company’s information security function retains responsibility for
our GDPR and Data Protection Act 2018 compliance. The Committee is
satisfied that the measures in place, including the overhaul in 2019 of
information and data management, represent a proportionate response
to our data protection obligations, but the Committee continues to
review compliance on an annual basis.
Business continuity
The Group’s Business Continuity Plan (BCP) was instrumental in our
immediate response to the COVID-19 restrictions, demonstrating its
fitness for purpose. A desktop resilience test of the Group’s IT Incident
Response Plan was undertaken successfully in the first half of 2020.
Another test will be undertaken in 2021, alongside a test of the BCP
in the second half of the year, and the results will be presented to
the Committee.
Insurance
The FYE’19 Annual Report signposted that the Company’s insurance
renewal for 2021 would be very challenging and this proved to be the
case. The property, public liability, directors’ and officers’ and
professional indemnity insurance markets had already begun to tighten
ahead of the 2020 renewal. In addition, the Group’s long-term rate
stability agreement with Tokio Marine Kiln (TMK) expired in 2020 and
TMK gave notice that it was withdrawing from the UK insurance market.
COVID-19 has served only to exacerbate these adverse insurance
market conditions. The 2021 renewal resulted in markedly higher
pricing, material increases in excesses on certain sites and some
deterioration in the scope of certain aspects of cover.
Whistleblowing
The Board and Committee also continued to monitor the effectiveness
and continuing maturity of the Group’s IT strategy including how
initiatives introduced in 2019, such as the Harworth Common Platform
and the new information management system, have been embedded
and maintained.
The Committee has responsibility for the Group’s whistleblowing policy
and procedures, and the appropriate investigation of whistleblowing
reports. There were no incidents of whistleblowing in 2020. The
Committee undertook its annual review of the policy and procedures in
March and concluded that they remain fit for purpose.
106 Annual Report 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 2020 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, and a register, of all hospitality activity. This register is
monitored regularly by the Company Secretary and annually by the
Committee.
Patrick O’Donnell Bourke
Chair of the Audit Committee
22 April 2021
New Homes at Micklefields (Flass Lane), Castleford
107
Financial StatementsCorporate Governance Strategic Report Directors’
Remuneration Report
Committee
members
Angela
Bromfield
(Chair)
Alastair
Lyons
Lisa
Scenna
The terms of reference of the Remuneration Committee are on the Company’s website: https://harworthgroup.com/investors/governance/
Angela
Bromfield
Chair
Dear Shareholder,
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for the year ended 31 December 2020, my first
report as Chair of the Remuneration Committee. I would like to take this
opportunity to thank Lisa Clement for her dedicated contribution and
service as the previous Chair of the Committee prior to her retirement
from the Board in October 2020.
This report is divided into three sections: this Chair’s introduction; a
summary of the key elements of the Directors’ Remuneration Policy
(Policy) that was approved at the AGM in 2019; and the Annual
Remuneration Report, which explains how the Policy was implemented
in 2020 and how it will be implemented in 2021.
The Committee’s terms of reference were reviewed and updated
during the period under review and are available on the Company’s
website. Throughout 2020 the Committee acted in accordance with
the principles of, and fulfilled its obligations under, the 2018 UK
Corporate Governance Code.
Priorities for 2021:
• Operation of 2021 annual bonus,
including setting targets, and
grant of 2021 Restricted Share
Plan awards.
• Continue to keep wider
workforce remuneration
arrangements under review,
taking these into account when
considering remuneration
arrangements for Executive
Directors.
• Remuneration Policy review (to
be put to shareholder vote at the
2022 AGM).
108 Annual Report 2020
Committee membership
Executive Director changes
Lisa Scenna was appointed to the Board as a Non-Executive Director
and joined the Remuneration Committee on 1 September 2020. Lisa
has a strong background in real estate development and asset
management and serves on other remuneration committees. Her
experience is welcomed.
Performance outcomes for the year ended
31 December 2020
2020 was undoubtedly a challenging year for many businesses, as well
as us all personally. Whilst Harworth has not been immune to the effect
of COVID-19, the business is weathering the pandemic well. The
Group’s financial and operational resilience has been evident and, as set
out in the Strategic Report, very good progress has been made
notwithstanding the challenges being faced.
Following the initial COVID-19 outbreak, the business focussed on
ensuring adequate liquidity through robust capital management,
progress on sales, and strong collections of rent and deferred sales
consideration, enabling momentum to be maintained on projects over
the balance of the year.
Protecting the health and wellbeing of our people, and ensuring they
remained motivated and engaged, has remained a priority throughout
this period. The engagement scores in the most recent employee
survey speak for themselves, with the Senior Executive Team scoring
100% in terms of respect from our people and organisation-wide
engagement levels all continuing to improve despite the difficult
working environment.
The year-end valuations saw our industrial land and income portfolio
continue to strengthen and a partial unwind of the reductions in value of
certain of our residential major development sites at the half-year.
Highlights of the Company’s financial and operational performance in
FYE’20 are set out on pages 10 to 17 of the Strategic Report and are
testament to the pro-active management and leadership of the
Senior Executive Team and the commitment of all our people.
As outlined in further detail below, when determining vesting
outcomes, the Committee considered performance against Group
financial targets and personal objectives, as well as broader
perspectives including: the underlying performance of the business, the
Group’s financial position, and factors related to our business that have
affected our shareholders and employees.
Owen Michaelson retired from the Board as Chief Executive on 1
November 2020 but remained with the business until 31 December
2020 as a director of the Group’s principal trading subsidiaries to
facilitate a smooth transition. The treatment of his remuneration and
discretions exercised by the Committee in respect of his leaving the
business are set out on page 128.
Lynda Shillaw joined the business as Chief Executive on 1 November
2020. Her remuneration arrangements were determined in accordance
with the Policy as follows:
Salary
£400,000, higher than her predecessor Owen
Michaelson to provide a base reward taking into
account her previous salary, experience, and
market reference points based on companies of a
similar size and complexity.
Pension
10% of salary (matching the rate available for the
wider workforce)
Annual Bonus Up to 100% of salary. No bonus opportunity was
granted for 2020
Long term
incentives
Restricted Share Plan award in line with the Policy.
No award was made in respect of 2020
Notice period
9 months
Annual bonus
Owen Michaelson’s bonus opportunity for 2020 was up to 125% of
salary. As set out in last year’s Directors’ Remuneration Report his
increase compared to 2019 (100% of salary) reflects the introduction of
measures based on specific personal objectives linked to a successful
transition to a new Chief Executive. The bonus was based on a
combination of financial performance (76% of the opportunity) and
personal objectives (24% of the opportunity).
Kitty Patmore’s bonus opportunity for 2020 was based on a
combination of financial performance (80% of the opportunity) and
personal objectives (20% of the opportunity).
Lynda Shillaw was not eligible to earn a bonus in respect of 2020.
The 2020 Group Financial Targets (GFTs) were set in February 2020,
prior to the start of the COVID-19 outbreak which fundamentally
changed the outlook for 2020. This notwithstanding, the Committee
carefully considered how the performance goals set at the start of 2020
should be assessed and determined that no changes should be made
to the stretching GFTs set in February 2020 for the Executive Directors.
109
Financial StatementsCorporate Governance Strategic Report
However, below Board level, and consistent with the commitment
made in our 2019 Directors’ Remuneration Report, the Committee has
monitored business conditions and exercised judgement in applying a
degree of positive discretion to 2020 bonus outcomes. In our
determination we have had regard to the following:
•
•
•
The EPRA NDV outturn for 2020 is 160p per share. This is a growth
of 3.0% over 2019’s outturn, a significant outperformance of the
expectations of the Company given the market backdrop.
The Total Return, whilst not meeting the GFTs, is expected to be an
outperformance of our peer group.
The Company paid a 2020 interim dividend per share of 0.334
pence per share (a 10% increase on 2019). Although the 2019 final
dividend was cancelled, an enhanced 2020 final dividend is
proposed to compensate fully for that cancellation.
•
There was no additional capital raised from investors.
• Over the course of 2020, Harworth did not utilise furlough, or any
of the other Government support schemes (with the exception of
the opportunity to defer VAT payments which are now paid).
• No employee was made redundant as a result of COVID-19.
• Decisions made by the Board during the first lockdown that had an
impact on the Company’s potential to meet its GFTs.
In light of all the above, we have exercised discretion below Board level
to recognise the outstanding performance of many of our people who
have responded with such positive results to the numerous challenges
created by COVID-19 for the business and themselves as individuals.
Full details of the GFTs and personal objectives and bonus out-turns for
2020 are set out on pages 121 to 124.
The Committee has approved a bonus of 64.17% of salary for the
previous Chief Executive, Owen Michaelson, and 50.88% of salary for
Kitty Patmore, the Chief Financial Officer, for the year ended
31 December 2020. The bonus outcome for Kitty Patmore reflects the
Committee’s decision to apply an increased bonus opportunity to
Ms Patmore’s base salary for the year ended 31 December 2020, the
rationale for which is explained on page 123.
Stepping back from the detail and looking at all of our decisions in the
round to make sure that the outcomes are fair and proportionate, the
Committee believes that the level of bonus outcome is reflective of the
overall performance of the Group in the year, and appropriate in the
context of the shareholder and wider workforce experience.
LTIP vesting
The award granted to Owen Michaelson in 2018 under the Harworth
Group plc Long-Term Incentive Plan (LTIP) vested at 5.05% of maximum
by reference to performance based on Total Shareholder Return and
Absolute Total Return measured over the three years ended 31
December 2020.
Vesting was also subject to the additional underpins that 30% of value
created came from disposal proceeds and that dividends were
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 to be appropriate.
Further details are set out on page 124.
110 Annual Report 2020
Talent development and review of reward
for the wider workforce
The Remuneration Committee oversees the Group-wide review of
salary and benefits as part of its work. We aim to create an inclusive and
fair environment where people can develop their skills and experience,
and contribute fully to the successful development of Harworth,
delivering shareholder returns in the right way by creating sustainable
places for people to live and work. In making decisions on Executive
reward, the Committee has regard to the remuneration and benefits of
the wider workforce.
Following the appointment of our new Chief Executive, Lynda Shillaw, our
Head of People has undertaken our annual review of talent. As a result of
this review a significant number of our below Board workforce have been
awarded career progression and promotional pay rises where:-
•
•
•
•
•
they have taken on significant additional responsibilities or work
beyond their current job description;
they have key skills and are considered a flight risk;
they are part of our talent pool/succession plans;
they achieved significant business improvements/contracts/
revenue; and/or
there is a need to bring them in line with market rates, to match the
competitive market we have identified.
These increases ranged from 2% to 30% (the average career
progression and promotional pay rise awards was 9% - excluding
Ms Patmore). The cost-of-living increase that has been awarded at
Harworth for 2021 is 1.5%.
All members of the Senior Management Team below Board level
participate in the Restricted Share Plan (RSP), aligning their interests
with those of shareholders and reflecting our ethos of applying a
consistent approach to reward. Over half of our employees currently
participate in the Group’s all-employee Save As You Earn scheme. In
2020, free shares under the Share Incentive Plan were awarded to 65
(2019: 56) employees, giving them a stake in the business.
The Board recognises the importance of engaging with, and
considering the interests of, the Group’s employees in its decisions. To
that end, a series of measures are in place to encourage and
continuously improve engagement, further details of which can be
found in the Strategic Report on pages 60 and 61.
Salary increases for 2021
On her appointment as Chief Financial Officer in October 2019, Kitty
Patmore’s salary was set at £200,000 with a maximum bonus
opportunity of 75% of salary. This was Kitty Patmore’s first role as a PLC
director and, in line with shareholder guidance and best practice, her
salary and bonus opportunity were positioned below the market
competitive range and below the £245,000 salary and bonus potential
(100%) awarded to her predecessor, Andrew Kirkman, in 2019. Given
that she joined the business on 1 October 2019, no salary increase was
awarded to her for 2020. The pension or cash in lieu of pension for
Executive Directors is 10% of salary (aligned with the rate available for
the wider workforce).
In the view of the Board, Kitty Patmore has performed exceptionally
strongly since her appointment. After consulting the Group’s major
shareholders, the Committee has, therefore, determined that a
discount to her predecessor’s reward is no longer appropriate and that
her salary should, therefore, be increased to £250,000 (25%) effective
from 1 January 2021 and that her bonus opportunity should be the same
as her predecessor at 100% of salary.
Given both her and the Company’s performance in 2020, we have
decided that it is appropriate that the increased bonus opportunity of
100% (which has received support from shareholders) should be
applied to Kitty Patmore’s 2020 base salary (£200,000) for the year
ended 31 December 2020. A bonus potential of 100% of salary is
consistent with our Remuneration Policy. This resulted in an increase of
£25,440 in her bonus award for 2020. Ms Patmore has applied the
majority of these additional funds (post tax) to purchase shares in the
Company.
In determining this increase the Committee has been mindful of the
ongoing challenging environment. It has not, therefore, at this stage
sought to address the fact that Ms Patmore’s base salary and total
compensation opportunity remains, after this change, positioned
towards the bottom end of the market competitive range when
compared to both other FTSE small cap listed companies of a similar
size and complexity and other real estate peer companies. The
Committee will, therefore, continue to keep Ms Patmore’s remuneration
under review over the next few years, taking into account both her
performance in role and the wider performance of the Group.
These changes are aligned with the principles of the Company’s talent
development programme and reflect Harworth’s broader commitment
to diversity, equality and fairness, ensuring that individuals are
appropriately rewarded on the basis of role, experience and
performance.
As was agreed with Lynda Shillaw when she joined the business on
1 November 2020, no salary increase has been awarded to her for
2021.
Bonus for 2021
The annual bonus opportunity for Lynda Shillaw and Kitty Patmore will
be 100% of salary.
75% of the maximum annual bonus will be based on financial measures
(total accounting return, sales volume, acquisitions, profit excluding
value gains, and group net loan to portfolio value), 5% based on ESG
measures, and the balance based on personal objectives. Details are
set out on page 129.
Restricted Share Plan for 2021
Restricted Share Plan awards will be granted to Executive Directors and
other members of the Senior Management Team in 2021. Awards of
50% of salary will be granted to the Executive Directors. The awards will
be subject to underpins which reflect performance over the vesting
periods. Details are set out on page 130.
Chair and Non-Executive Directors
The Chair’s and Non-Executive Directors’ fees will be increased by 1.5%
for 2021 in line with the general increase awarded for the wider
workforce. No increase in fees was awarded in 2020.
Shareholder engagement
The Committee maintains a regular dialogue with its major
shareholders. We undertook a consultation exercise with shareholders
on the changes to the Chief Financial Officer’s base salary and annual
bonus opportunity. We also consulted with shareholders representing
more than 70% of the shares in the Company in connection with the
treatment of Owen Michaelson’s unvested Restricted Stock Plan awards
on his retirement on 31 December 2020. Further details are set out on
page 128. I would like to thank shareholders for their engagement and
support in connection with both of these matters. Consultation will also
be undertaken ahead of any material amendments to the Policy to be
presented to shareholders at the 2022 AGM.
Conclusion
We remain committed to a responsible approach to executive pay, as I
trust this Directors’ Remuneration Report demonstrates. We believe
that the Policy operated as intended in 2020 and consider that the
remuneration received by the Executive Directors in respect of 2020
was appropriate, taking into account Group and personal performance,
and the experience of shareholders and employees. I am happy to meet
(subject to COVID-19 restrictions) or speak with shareholders if there are
any questions or feedback on our approach to executive remuneration.
Angela Bromfield
Chair of the Remuneration Committee
22 April 2021
111
Financial StatementsCorporate Governance Strategic Report
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 set out
below those parts of the Policy which we think shareholders will find most useful.
Executive Director remuneration
Policy table
Function
Operation
Opportunity
Performance metrics
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.
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.
Pension
To provide an
opportunity for the
Executive to build up
income for retirement.
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.
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.
None.
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.
Benefits vary by role and
individual circumstances.
Eligibility and cost are
reviewed periodically.
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).
Benefits
To provide benefits
which are competitive in
the market in which the
Executive is employed.
112 Annual Report 2020
Function
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.
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.
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.
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
pay-out under the financial
element.
Overall pay-out 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.
113
Financial StatementsCorporate Governance Strategic Report 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.
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.
Restricted
Share Plan
To encourage and
enable substantial
long-term share
ownership and to reflect
our ethos of long-term
stewardship.
114 Annual Report 2020
Function
Operation
Opportunity
Performance metrics
None.
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.
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.
These plans are reviewed annually and
if offered are offered to all eligible
employees in accordance with their
terms and applicable legislation.
Share Incentive
Plan and Save
As You Earn
plan
To motivate and to
facilitate share
ownership on an
all-employee basis.
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 build a
holding equivalent to 200% of base salary. Until the relevant
shareholding levels are achieved, 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 Remuneration Report on
page 130.
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 applied 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,
115
Financial StatementsCorporate Governance Strategic Report
Pay for performance scenarios
The charts below provide an illustration of the potential future reward opportunities for Lynda Shillaw and Kitty Patmore, and the potential split
between the different elements of remuneration under three different performance scenarios: ‘Minimum’, ‘On-target’ and ‘Maximum’, along with
an illustration assuming a 50% increase in the share price for the purposes of the RSP award.
£1,200,000
£1,000,000
£800,000
£600,000
£400,000
£858,967
23%
23%
£458,967
£1,158,967
£1,058,967
19%
26%
37%
35%
£200,000
100%
53%
43%
40%
£722,500
26%
£660,000
19%
38%
35%
£535,000
23%
23%
£285,000
100%
54%
43%
39%
£0
Minimum
On-target
Maximum
Maximum with
50% share
price increase
Minimum
On-target
Maximum
Maximum with
50% share
price increase
Chief Executive - L. Shillaw
Chief Financial Officer - K. Patmore
Fixed pay
Annual bonus
RSP
The “minimum” scenario reflects base salary, pension and benefits (i.e. fixed remuneration) which are the only elements of the Executive Directors’
remuneration package not linked to performance. Base salary and pension (10% of salary) are as at 1 January 2021 as set out on page 129, whilst
benefits are based on the value of such benefits in 2020. The “on-target” scenario reflects fixed remuneration as above, plus bonus payout of 50%
of maximum annual bonus opportunity and RSP vesting in full. The “maximum” scenario reflects fixed remuneration as above, plus full payout of all
incentives. The final scenario is based on the same assumptions as the “maximum” scenario, but also assumes, for the purposes of the RSP element
of the chart, that the share price increases by 50%.
Executive Directors’ service contracts
The current Executive Directors have a rolling service contract requiring nine months’ notice on termination on either side for Lynda Shillaw and six
months’ notice on termination on either side for Kitty Patmore. The service contracts for the 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.
L. Shillaw
K. Patmore
Date of service contract
29 July 2020
5 August 2019
116 Annual Report 2020
Non-Executive Directors’ letters of appointment and remuneration
Non-Executive Directors are appointed on a rolling 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. The letters of
appointment for 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.
A. Lyons
A. Bromfield
R. Cooke
L. Scenna
Appointment date
to the Board
7 March 2018
1 April 2019
19 March 2019
1 September 2020
P. O’Donnell Bourke
3 November 2020
S. Underwood
M. Bowes(1)
2 August 2010
24 March 2015
Date of latest letter
of appointment
23 November 2017
19 February 2019
27 February 2019
29 June 2020
2 November 2020
9 December 2019
1 March 2015
Latest letter of appointment
expiry date
7 March 2022
1 April 2022
19 March 2022
1 September 2021
3 November 2021
1 January 2022
1 March 2022
(1) Was previously a Non-Executive Director of Harworth Estates Property Group Limited from 19 March 2013.
Policy table
Function
Operation
Opportunity
Performance metrics
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.
Non-Executive Director fee
increases are applied in line with
the outcome of the annual fee
review.
None.
The fees of the Chair 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.
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.
The Non-Executive Directors are not eligible to participate in the Company’s performance related bonus plan, long-term incentive plans or pension
arrangements.
117
Financial StatementsCorporate Governance Strategic Report
ANNUAL REMUNERATION REPORT
Role of the Remuneration Committee
The role of the Committee is to determine and recommend to the Board the Remuneration Policy for the Executive Directors, and set the
remuneration for the Chair, Executive Directors and Investment Committee. The Policy is designed to support the Group’s strategy and help retain
and incentivise a Senior Management Team with the requisite skills, knowledge and experience to deliver strong, long-term, sustainable value
growth for shareholders. The table below describes how the Committee addressed the factors in Provision 40 of the 2018 UK Corporate
Governance Code when determining the Policy.
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 Senior Management Team 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 ESG measures and personal objectives enables us to incentivise and reward the behaviours that lay the foundations
for longer-term success.
The introduction and operation of our Restricted Share Plan reflects a core principle of rewarding long-term value
creation in a cyclical business. Recognising the extended timeframes of our business model and the long-term
consequences of our decision making, Restricted Share Plan 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 Restricted Share Plan. The structure is simple to understand for both participants and
shareholders and promotes long-term stewardship.
Risk
Annual bonus opportunities are set at levels which reward high performance and reflect the long-term nature of our
business, but do not encourage inappropriate business risk.
The Committee has discretion to amend vesting outcomes under the annual bonus and Restricted Share Plan 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 Restricted Share Plan awards are also subject to both malus and clawback
provisions.
Proportionality
and fairness
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 Restricted Share Plan 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 take ownership
of 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 and the Save As You Earn plan.
Predictability
The range of possible rewards to individual Executive Directors is set out in the scenario charts on page 116.
118 Annual Report 2020
Committee membership and attendance
Membership and attendance at meetings in 2020 are shown below:
Independent
Committee tenure at 31 December 2020 (or
earlier, if the Director has resigned)
Scheduled meetings
attended/ eligible to attend
Angela Bromfield(1)
Chair
Alastair Lyons
Lisa Scenna
Lisa Clement(2)
Member
Member
Chair
Yes
Yes
Yes
Yes
1 year 9 months
2 years 10 months
4 months
8 years 11 months
6/6
6/6
2/2
5/5
(1) Angela Bromfield succeeded Lisa Clement as Chair of the Remuneration Committee with effect from 1 November 2020.
(2) Lisa Clement retired from the Board on 31 October 2020.
During the year, the Committee held three scheduled meetings. Two additional meetings were convened in the weeks following the onset of
COVID-19, to consider the grant of awards and options under the Restricted Share Plan, the Share Incentive Plan and the Save As You Earn scheme.
Another additional meeting was convened in July to approve the remuneration package to be offered to Lynda Shillaw, the new Chief Executive.
The key activities of the Committee during 2020 are shown below:
The Committee’s key activities in 2020
COMMITTEE GOVERNANCE
EXECUTIVE REMUNERATION
ALL EMPLOYEES
February
Assessment of 2019 bonus outcomes
Assessment of 2017 LTIP outcomes
Setting 2020 bonus targets
Vesting of Owen Michaelson’s 2019 deferred share bonus award
In principle approval of 2020 Restricted Share Plan awards
In principle approval of SAYE awards and Share Incentive Plan awards
March
Review of decision to make Restricted Share Plan awards following onset of COVID-19
Review of decision to make SAYE and Share Incentive Plan awards following onset of COVID-19
May
Approval of 2020 Restricted Share Plan awards
Approval of 2020 SAYE awards and Share Incentive Plan awards
July
Remuneration package for Lynda Shillaw
October
Review market benchmarks
Update on market practice and corporate governance
December
Review of 2021 bonus targets
2021 Committee timetable
Committee terms of reference
*Note the annual salary review was deferred to February 2020 and, going forwards, will be undertaken in February each year but effective from 1 January of that year
*Note a decision on the treatment of Owen Michaelson’s 2020 bonus and outstanding 2018 LTIP and Restricted Share Plan awards was made in February 2021 alongside the
assessment of 2020 bonus outcomes and 2018 LTIP outcomes
119
Financial StatementsCorporate Governance Strategic Report
Advisors to the Committee
The Company Secretary is secretary to the Committee. The following individuals may be invited to attend Committee meetings on certain
occasions to support the Committee in making informed decisions:
• Chief Executive;
• Chief Financial Officer;
• Head of People; and
•
representatives of Deloitte LLP (see further below).
No individuals are involved in decisions relating to their own remuneration. The minutes of Committee meetings are circulated to all Directors,
where appropriate.
During the year under review, the Committee received advice on executive remuneration matters from Deloitte LLP (Deloitte). 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 2020.
Deloitte’s fees in relation to remuneration advice provided to the Committee during 2020 were £23,225 plus VAT, charged on a time and expenses
basis. Deloitte also provided advice to the Group during 2020 in relation to corporate tax, pensions and share plans. The Committee did not
consider that these engagements impaired Deloitte’s independence.
Single total figure of remuneration for Executive Directors (audited)
The table below sets out remuneration received by each Executive Director of the Company for the year ended 31 December 2020 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.
O. Michaelson(1)
L. Shillaw(2)
K. Patmore(3)
2020
2019
2020
2019
2020
2019
Fixed pay
Salary
Taxable benefits(4)
Pension benefit(5)
Subtotal
Variable pay
£270,833
£16,281
£27,083
£314,197
Single-year variable
£208,552
Multi-year variable(6)
£13,923
Subtotal
Total
£222,475
£536,672
£316,250
£16,438
£31,625
£364,313
£139,783
£164,638
£304,421
£66,666
£2,686
£6,666
£76,018
-
-
-
£668,734
£76,018
-
-
-
-
-
-
-
-
£200,000
£50,000
£10,000
£20,000
£2,500
£5,000
£230,000
£57,500
£101,760
-
£101,760
-
-
-
£331,760
£57,500
(1) Retired from the Board on 31 October 2020 and remained with the business until 31 December 2020 to facilitate a smooth transition. The table above reflects his
remuneration from 1 January 2019 to 31 October 2020.
(2) Appointed as Chief Executive with effect from 1 November 2020.
(3) Appointed as Chief Financial Officer with effect from 1 October 2019.
(4) Taxable benefits consist primarily of car and fuel allowance. For 2020 these were £11,829 for Owen Michaelson (£14,268 for 2019), £2,083 for Lynda Shillaw (Nil for 2019),
and £10,000 for Kitty Patmore (£2,500 for 2019). Other benefits included life assurance and health insurance.
(5) Owen Michaelson and Kitty Patmore participated in the Company’s defined contribution scheme, in relation to which the Company contributed 10% of salary. Lynda Shillaw
received a pension allowance equivalent to 10% of salary.
(6) The 2018 LTIP awards (in which Owen Michaelson was a participant) will vest based on performance to 31 December 2020, as described below under the heading “LTIP
awards vesting in respect of the year ended 31 December 2020”. In the 2019 Directors’ Remuneration Report the values of the 2017 LTIP awards (which vested by reference
to performance to 31 December 2019) were calculated by reference to a share price of 120.03 pence, being the average share price over the three-month period ended
31 December 2019. In line with the applicable regulations, the values have been restated to reflect the share price on the date of vesting (103.00 pence and 5 April 2020
respectively). The share price increased from 97.00 pence at the date of award, being 5 April 2017, to 103.00 pence at the date of vesting, being 5 April 2020. Therefore
£9,591 is attributable to share price growth between award and vesting.
120 Annual Report 2020
Single total figure of remuneration for Non-Executive Directors (audited)
The table below sets out remuneration received by each Non-Executive Director of the Company for the year ended 31 December 2020 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.
Base fee
Committee Chair fees
SID fee
Total
2020
2019
2020
2019
2020
2019
2020
2019
A. Lyons
M. Bowes
£160,000
£160,000
£45,000
£45,000
A. Bromfield(1)
£45,000
£33,750
L. Clement(2)
R. Cooke(3)
£37,500
£45,000
£45,000
£35,308
-
-
-
£1,250
£6,250
-
-
-
£7,500
-
A. Cunningham(4)
£37,500
£45,000
£6,250
£7,500
S. Underwood(5)
£45,000
£45,000
L. Scenna(6)
£15,000
P. O’Donnell Bourke(7)
£7,500
-
-
-
-
£1,250
-
-
-
-
-
£1,250
£6,250
-
-
-
£160,000
£160,000
£45,000
£45,000
£47,500
£33,750
£7,500
£50,000
£60,000
-
-
-
-
-
-
-
-
-
-
£45,000
£35,308
£43,750
£52,500
£45,000
£45,000
£15,000
£8,750
-
-
(1) Appointed as Non-Executive Director with effect from 1 April 2019. Angela Bromfield succeeded Lisa Clement as Senior Independent Director and Chair of the Remuneration
Committee with effect from 1 November 2020.
(2) Retired from the Board on 31 October 2020.
(3) Appointed as Non-Executive Director with effect from 19 March 2019.
(4) Retired from the Board on 31 October 2020.
(5) 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.
(6) Appointed as Non-Executive Director with effect from 1 September 2020.
(7) Appointed as Non-Executive Director and Chair of the Audit Committee with effect from 3 November 2020.
Incentive outcomes for year ended 31 December 2020
Annual bonus
As set out in last year’s Directors’ Remuneration Report, Owen Michaelson’s bonus opportunity for 2020 was up to 125% of salary. This increase
compared to 2019 (100% of salary) reflects the introduction of measures based on specific personal objectives linked to the successful transition to
a new Chief Executive. The bonus was based on a combination of financial performance (as regards 76% of the opportunity) and personal
objectives (as regards 24% of the opportunity).
Kitty Patmore’s bonus opportunity for 2020 was based on a combination of financial performance (as regards 80% of the opportunity) and personal
objectives (as regards 20% of the opportunity).
As set out in the introduction from the Committee Chair, given both her and the Company’s performance during 2020, we decided it was
appropriate that the increased bonus opportunity of 100% should be applied to Kitty Patmore’s base salary (£200,000) for the year ended 31
December 2020. A bonus potential of 100% of salary is in line with our Remuneration Policy and with the bonus opportunity awarded to her
predecessor Mr Kirkman.
Lynda Shillaw was not eligible to earn a bonus in respect of 2020.
Performance against targets and subsequent vesting of 2020 annual bonuses are set out in the tables below.
121
Financial StatementsCorporate Governance Strategic Report Financial performance outcomes
Measure
NNNAV (now NDV)
gains plus
dividends (Total
Return)
Sales volume –
base sales(3)
Weighting
(% of financial
element)
Threshold(1)
Target(2)
Maximum
Actual performance
Vesting
outcome
40%
£20.1m
£25.7m
£37.5m
£16.49m
0%
12.5%
£90m
£100m
£105m
£65.86m(4)
0%
Non-core sites(5)
7.5%
£12.5m
£25m More than £25m
More than £25m
100%
Acquisitions
(strategic
development of
the business)
Profit excluding
value gains(6)
25%
Increase secure
annualised
recurring rent
£1.2m. Strategic
landbank
growth 7.5%
Increase secure
annualised
recurring rent
£1.4m. Strategic
landbank
growth 10%
Increase secure
annualised
recurring rent
£1.6m. Strategic
landbank
growth 15%
Increase secure annualised
recurring rent £3.386m.
Strategic landbank growth 11.2%
100%
15%
£4.0m
£4.48m
£5.15m
£4.366m
40.5%
Total vesting on financial performance element
O. Michaelson
K. Patmore
76% weighting of total bonus opportunity
80% weighting of total bonus opportunity
38.6%
38.6%
Straight-line vesting occurs between defined levels of performance
(1) 10% of maximum opportunity vests at threshold.
(2) 50% of maximum opportunity vests at target.
(3) Based on unconditional sales completed during the year and includes non-cash consideration which removes a cost plan liability, internal sales for direct development and
sales by joint ventures.
(4) Actual performance figure excludes a £3.05m sale of the Group’s Wardley site, which was completed in January 2020 but included in the 2019 GFT scoring for the reasons
outlined in the 2019 Directors’ Remuneration Report.
(5) For non-core sites consideration was given to the progress made in finding exit solutions for challenging sites.
(6) In line with the agreed parameters of the target, the Committee recommended adding back unbudgeted exceptional costs of £801k incurred as a result of corporate activity
or unplanned PLC initiatives which did not reflect poor business performance or an inappropriate management action. This included unbudgeted costs associated with Board
changes and associated legal costs; banking fee for amendment to facility and additional facilities; additional banking margin due to covenant amendments.
New research facility unit for the UK Atomic Energy Authority at the AMP
122 Annual Report 2020
Personal performance outcomes
Executive
Director
O. Michaelson
(24%
weighting)
K. Patmore
(20%
weighting)
Objectives during the year
Performance against objectives during the year
Vesting
Executive Leadership
Executive Leadership
91.67%
•
To complete the embedding of the role of
the Investment Committee in the Harworth
management structure as the principal
place of decision-making
•
To transition successfully to a new Chief
Executive including:
•
Investment Committee established: some ways of
working require further development
• Strong performance across the year, notably in the
second half with good value gains, all planned
major sales completed, and excellent rent
collection
- maintenance of clear direction and
progress during 2020, in particular
during the second half
- an effective review of the principal
strategic issues arising from the
pandemic and how best to respond
- a quality business plan for 2021 with the
groundwork set for its delivery
- an effective programme of induction and
relationship transfer to the new CEO
- enabling the new CEO to build effective
relationships with management and
employees
• Review initiated as planned with the output to be
taken forward by Lynda Shillaw as the new CEO
• Strong second half performance positioned the
business well to achieve its 2021 objectives
•
Lynda Shillaw underwent a comprehensive
induction programme and establishment of
principal commercial relationships
• Strong results from the Company’s annual
engagement survey with the Senior Executive
Team scoring 100% in terms of respect from our
people and organisation wide engagement levels
all continuing to improve amidst a difficult external
climate and challenging internal circumstances
Executive Leadership
Executive Leadership
100%
• Complete the transition of the finance
• Hired business partners and integrated them into
function so it is seen by the wider business
as a “business partner”
the business
• Quality of site-specific data was significantly
• Defining and implementing common
improved on prior years
management information to track business
performance and appraisal processes
•
•
Integration of the new accounting platform
(Dynamic 365)
The new accounting system was launched in H1
2020, followed by a purchase order system in
November 2020 and the invoice automation
system in January 2021
• Updating the key KPIs for the business to
allow tracking on the performance of the
business in real time
• Updated KPIs introduced and agreed with the
Chair and CEO supporting tracking on the
performance of the business in real time
•
Identify and implement across the business
an updated project appraisal system which
allows the Board to make considered and
informed judgements on all future capital
deployment decisions and track the
combined NAV growth profile of the
portfolio
Capital structure
• Review the existing capital structure to
secure additional sources of finance,
projects specific finance and flexibility on
interest cover covenants
• Understand Homes England project
funding strategy
• Securing new funding sources and/or
alternative funding structures to support
group wide initiatives
• Consistent approach for development of bespoke
appraisal models implemented for all new
transactions. This has enhanced the quality of
modelling and scenario testing
Capital structure
• During the early months of 2020 priorities with
regards to this objective shifted in light of the
impact of COVID- 19. Ensured business had
sufficient financial capacity to operate and took
steps with our banks to secure a relaxation of the
interest cover ratio covenant and a further £30m
of RCF capacity. This ensured that the business
was able to continue to execute its plans
throughout the year and enabled the Board to
approve the FYE’19 accounts on a going concern
basis. Against a backdrop of real uncertainty and
worsening market conditions in some real estate
asset classes the prompt timing of these measures
was critical
123
Financial StatementsCorporate Governance Strategic Report Overall bonus outcomes
Financial
Personal
Overall bonus outcome
Executive Director
Weighting
O. Michaelson(1)
K. Patmore
76%
80%
Vesting
38.6%
38.6%
Weighting
24%
20%
Vesting
91.67%
100%
% of bonus
% of salary
51.34%
50.88%
64.17%
50.88%
(1) O. Michaelson retired from the Board on 1 November 2020 and remained in the business until 31 December 2020 to facilitate a smooth transition. The Committee therefore
agreed that no time pro-rating should apply to the overall bonus outcome.
The decision to apply the increased bonus opportunity of 100% to Ms Patmore’s 2020 base salary for the year ended 31 December 2020 resulted
in an increase of £25,440 in her bonus award for 2020. Ms Patmore has applied the majority of these additional funds (post tax) to purchase shares
in the Company.
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 damaged the reputation or performance of the business and no covenant breach or financial irregularity.
The Committee reviewed performance against these underpins and were content.
LTIP awards vesting in respect of the year ended 31 December 2020
LTIP awards granted on 5 April 2018 were subject to the following performance conditions over the three-year period ended on 31 December 2020:
• 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
ATR
TSR vs peer group
TSR vs Index
Weighting
(% award)
Threshold(1)
Target(2)
Maximum
Actual
performance
Vesting (% of
maximum)
50%
35%
15%
8%
Median
Index
10%
n/a
n/a
12%
8.01%
Median + 9% growth p.a.
Below median
Index + 9% growth p.a.
Below median
10.1%
0%
0%
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 should come from disposal proceeds and that dividends were
sustainable. The Committee reviewed performance against these underpins, including that an enhanced FYE’20 final dividend is proposed to
compensate fully for the cancelled FYE’19 final dividend, considered the underlying performance of the Group during the performance period,
and concluded the proposed vesting outcome of 5.05% of maximum to be appropriate. Awards vested on 5 April 2021. 50% of vested shares (post
tax) will be subject to a two-year post-vesting holding period.
Executive Director
Number of shares granted
Overall vesting(1)
Number of shares vesting
Face value(2)(3)
O. Michaelson
280,477
5.05%
14,164
£13,923
(1) O. Michaelson retired from the Board on 31 October 2020 and remained in the business until 31 December 2020 to facilitate a smooth transition. The Committee therefore
agreed that no time pro-rating should apply to the overall vesting outcome.
(2) The number of shares expected to vest multiplied by the average share price over the three-month period ended 31 December 2020 (98.3 pence). The LTIP award did not
accrue dividend equivalents over the vesting period.
(3) The share price at the grant of the awards (110 pence based on the average share price on the three trading days immediately preceding the date of grant) is higher than the
98.3 pence share price used to estimate the face value of the awards at vesting. Therefore none of the face value is attributable to growth in share price between grant and
vesting.
All awards under the LTIP have now vested and no further awards will be made following implementation of the Restricted Share Plan.
124 Annual Report 2020
Restricted Share Plan awards
granted in 2020 (audited)
A Restricted Share Plan award was granted to
Owen Michaelson and Kitty Patmore at 50% of
salary in 2020. No award was granted to Lynda
Shillaw.
The Committee delayed the grant of the
awards from April to June 2020 given the
economic uncertainty and market volatility
caused by COVID-19. In line with shareholder
guidance, the Committee considered the
potential for windfall gains at the time of grant.
The Committee took into account a number of
factors including the Company’s share price
performance compared to the wider market
and the real estate and development sector
and the fact that the RSP awards are much less
leveraged than performance based share
awards. In light of this, and taking into account
that the share price used to determine the
2020 RSP awards was not materially lower than
the share price used to determine the 2019 RSP
awards, the Committee considered there to be
sufficient protection against windfall gains.
Executive Director
Type of award
Date of grant
Number of shares subject
to award
O. Michaelson
K. Patmore
Nil-Cost Option
Nil-Cost Option
25 June 2020
25 June 2020
156,250
96,154
Face value(1)
£162,500
£100,000
(1) Face value based on the share price on the trading day immediately preceding the date of grant on 25 June 2020 (104 pence).
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 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
Description
Detail(1)
Financial health
Financial stability of the business
A breach of financial covenants in the Group’s principal banking facilities
Underlying
performance
Sustainability of the Group’s
underlying performance in the
cyclical real estate sector
Corporate governance
Avoidance of governance and
health and safety failures
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 NDV
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 amend 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.
125
Financial StatementsCorporate Governance Strategic Report
Percentage change in remuneration of Directors and employees
The table below shows the annual percentage change in each of the Directors’ remuneration compared to the average employee remuneration.
% change between 2019 and 2020
Salary & fees
Benefits
Bonus
Executive Directors
O. Michaelson(1)
L. Shillaw(2)
K. Patmore(3)
Non-Executive Directors
A. Lyons CBE
A. Bromfield(4)
L. Clement(5)
R. Cooke(6)
A. Cunningham(5)
S. Underwood
M. Bowes
L. Scenna(7)
P. O’Donnell Bourke(8)
Average employee (Company)(9)
n/a
n/a
n/a
0%
n/a
n/a
n/a
n/a
0%
0%
n/a
n/a
7%
Average employee (Group)
3.3%
n/a
n/a
n/a
-
-
-
-
-
-
-
-
-
34%
5%
n/a
n/a
n/a
-
-
-
-
-
-
-
-
-
14%
(20%)
(1) Retired from the Board on 31 October 2020 and therefore the annual percentage change in remuneration is not applicable.
(2) Appointed as Chief Executive with effect from 1 November 2020 and therefore the annual percentage change in remuneration is not applicable.
(3) Appointed as Chief Financial Officer with effect from 1 October 2019 and therefore the annual percentage change in remuneration is not applicable.
(4) Appointed as Non-Executive Director with effect from 1 April 2019 and therefore the annual percentage change in remuneration is not applicable.
(5) Retired (Lisa Clement) and stepped down (Andrew Cunningham) from the Board on 31 October 2020 and therefore the annual percentage change in remuneration is
not applicable.
(6) Appointed as Non-Executive Director with effect from 19 March 2019 and therefore the annual percentage change in remuneration is not applicable.
(7) Appointed as Non-Executive Director with effect from 1 September 2020 and therefore the annual percentage change in remuneration is not applicable.
(8) Appointed as Non-Executive Director with effect from 3 November 2020 and therefore the annual percentage change in remuneration is not applicable.
(9) Calculated by reference to employees (excluding Directors) of the Company to satisfy the disclosure obligations under The Companies (Directors’ Remuneration Policy and
Directors’ Remuneration Report) Regulations 2019. However, given that the Company only employs a small proportion of the Group’s employees, the row below cites the
equivalent figures calculated by reference to employees (excluding Directors) of the Company and its subsidiaries.
Chief Executive pay ratio
The Group has fewer than 250 UK employees and is not, therefore, required to publish a pay ratio. However, in line with best practice, 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 also takes account of pay for the wider workforce. The Committee
considers that the pay ratio between the average Group employee and the Chief Executive is consistent with the Group’s policies on employee
pay, reward and progression.
Relative importance of spend on pay
Total employee pay expenditure
Distribution to shareholders
2020
£8.265m
2019
£7.523m
% change
10%
2020
£5.8m
2019
£1.0m
% change
580%
Total employee pay in the year was impacted by an increase in the average number of employees from 70 to 75, as well as awards for career
progression and promotion.
Total dividends for 2020 were 1.8p per share (2019: 0.304p per share), resulting in total dividends of £5.803m (2019: £0.977m). The percentage
increase is largely a result of:
1.
the Board’s decision not to recommend a final dividend for 2019 given the economic uncertainty at the time created by COVID-19; and
2. an enhanced final dividend being declared for 2020 to compensate for no final dividend in 2019, having regard to the financial position of the
Group at the time.
The percentage change is shown on a per share basis.
126 Annual Report 2020
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 re-listing on 24 March 2015
to 31 December 2020. 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 2020:
Source: Thomson Reuters
Harworth
FTSE Small Cap
£220
£200
£180
£160
£140
£120
£100
£80
)
0
0
1
£
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a
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S
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a
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o
T
Historical Chief Executive remuneration
Chief
Executive
Single figure remuneration
(£’000)
Short term incentive award as a % of
maximum opportunity
Long term incentive award as a
% of maximum opportunity
2020
2019
2018
2017
2016
2015
L. Shillaw
O. Michaelson
O. Michaelson
O. Michaelson
O. Michaelson
O. Michaelson
O. Michaelson
£76
£537
£669
£901
£1,392
£599
£480
n/a
51.34%
44.2%
85.6%
80.6%
90.0%
85.6%
(1) Excludes vesting of Harworth Estates LTIP as this was a one-off scheme put in place by HEPGL in 2013.
Payment to past directors (audited)
During the year, no payments were made to past Directors.
n/a
5.05%
51.5%
51.8%
n/a(1)
n/a
n/a
127
Financial StatementsCorporate Governance Strategic Report
Exit payments made in the year (audited)
Owen Michaelson retired from the Board as Chief Executive on
1 November 2020 but remained with the business as a director of the
Group’s principal trading subsidiaries until 31 December 2020 to
facilitate a smooth transition. The treatment of his remuneration in
respect of his leaving the business is set out below.
• He continued to receive his salary, pension allowance and
contractual benefits for the period 1 November 2020 to
31 December 2020 (as announced in the 2019 Directors’
Remuneration Report).
• He earned a bonus of 64.17% of salary for the year ended
31 December 2020 as set out on page 124.
• His 2018 LTIP award vested at 5.05% of maximum as set out on
page 124.
• His 2019 and 2020 free share awards under the Share Incentive
Plan (comprising 970 shares and 960 shares respectively) vested in
full and accordingly the shares were transferred to him following his
leaving the business.
• On his retirement on 31 December 2020, his 2019 and 2020
Restricted Share Plan awards (comprising 123,535 shares and
156,250 shares respectively) remained capable of vesting. Whilst
the default position would be to time apportion the vesting of
these grants according to his time in role, after consulting and
receiving support from the Group’s major shareholders, the
Committee has exercised the discretion it has under the Plan rules
to allow the 2019 grant to vest in full (the default position would be
a two-thirds vesting), and for two-thirds of the 2020 grant to vest
(the default position would be a one-third vesting). The awards will
vest and be released at the normal time following the respective
holding periods, subject to the satisfaction of the performance
underpins and the Committee’s assessment of underlying business
performance during the respective vesting periods. This decision
reflects the fact Owen Michaelson gave the Company a longer
notice than he was required to by his contract in order to facilitate a
smooth transition to a new Chief Executive. Until he retired on
31 December 2020 he continued to work in the business. Our
rationale also reflects the long-term nature of Harworth’s business
and the fact that decisions made in 2020 about sites make a
substantial contribution to the results that we declare in 2021 and
beyond. As examples of this, the business undertook a granular
site-by-site reforecast during 2020 on the basis of which
management took a view about the prospects of each site over the
next several years which in turn have driven and will continue to
drive decisions as to site progression and investment. The income
and capital growth acquisition opportunities assessed and, where
appropriate, executed under his leadership in 2020 will support
both our financial resilience in future years and the potential for
future value gains.
128 Annual Report 2020
Implementation of Executive Directors’ remuneration policy for 2021
Base salary
The Committee approved the following base salary increases for 2021:
Executive
Director
L. Shillaw
K. Patmore
Annual base salary at 1 January 2020 (or, if
later date of appointment to the Board)
Annual base salary at 1 January 2021
Percentage increase
£400,000
£200,000
£400,000
£250,000
n/a
25%
As set out in the introduction from the Committee Chair, in the view of the Board, Kitty Patmore has performed exceptionally strongly since her
appointment in October 2019. After consulting the Group’s major shareholders, the Committee has, therefore, determined that a discount to her
predecessor’s reward is no longer appropriate and that her salary should be increased to £250,000 effective from 1 January 2021.
In determining this increase the Committee has been mindful of the ongoing challenging environment. It has not, therefore, at this stage sought to
address the fact that Ms Patmore’s base salary and total compensation opportunity remains, after this change, positioned towards the bottom end
of the market competitive range when compared to both other FTSE small cap listed companies of a similar size and complexity and other real
estate peer companies. The Committee will continue to keep her remuneration under review over the next few years, taking into account both her
performance in role and the wider performance of the Group.
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 2021, the annual bonus opportunity for Lynda Shillaw and Kitty Patmore will be 100% of salary.
The performance measures have been rebalanced compared to 2020, with the introduction of: (1) Group net loan to portfolio value as an
additional financial measure (providing an assessment of balance sheet strength); and (2) ESG measures aligned with the five themes of the
“Harworth Way”: Communities, Planet, People, Partners, Governance. The Committee considers that the performance measures are appropriately
aligned with the Group’s priorities for 2021.
Measure
Total accounting return
Acquisitions
Sales volume
Profit excluding value gains
Group net loan to portfolio value (assessment of balance sheet strength)
Total on Group Financial Targets
ESG measures aligned with the five themes of the “Harworth Way” (Communities,
Planet, People, Partners, Governance)
Personal objectives
Weighting (% of bonus opportunity)
22.5%
15%
15%
15%
7.5%
75%
5%
20%
As regards the financial element, 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 on target performance, and 100% of bonus for achieving maximum performance.
Payment of the ESG and personal elements is subject to the Committee’s discretion in the event of material under-performance against the financial
element and, in any event, the ESG and personal elements will not pay out unless there is a threshold level of pay-out 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. The Committee will also consider the experience of shareholders and the wider workforce when determining the bonus
outcome.
Performance targets are considered to be commercially sensitive at this time but the Committee intends that they will be disclosed in the 2021
Annual Remuneration Report.
129
Financial StatementsCorporate Governance Strategic Report
Restricted Share Plan award
Restricted Share Plan awards will be granted to the Chief Executive and Chief Financial Officer at 50% of salary in 2021. 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 Plan 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. See page 125 for
further details.
Furthermore, the Committee has discretion to amend the vesting outcome if it is not deemed to reflect appropriately underlying business
performance over the vesting period.
The Committee will disclose how performance underpins and underlying business performance over the vesting period have been taken into
account at the time of vesting.
Implementation of Non-Executive Director remuneration policy for 2021
The Chair’s and Non-Executive Directors’ fees will be increased by 1.5% for 2021. Accordingly, the following fee levels will apply.
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
£162,400.00
£45,675.00
£7,612.50
£7,612.50
£7,612.50
The Committee considers that the fees paid to Non-Executive Directors appropriately reflect the work and responsibilities associated with each
role.
Directors’ interests (audited)
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 2020 (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 table below. Current shareholding as a percentage of salary is based on the
middle market closing price for the shares on 31 December 2020 of 98.3 pence.
Shares held
Options held
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O. Michaelson(3)
489,647
85,212
1,930
560,262
24,357
209,207
L. Shillaw(4)
K. Patmore
A. Lyons
M. Bowes
A. Bromfield
L. Clement(5)
R. Cooke
A. Cunningham(5)
S. Underwood
L. Scenna(6)
P. O’Donnell
Bourke(7)
74,168
11,212
239,000
-
22,192
-
-
17,333
38,385
-
40,000
-
-
-
-
-
-
-
-
-
-
-
-
960
-
-
96,154
24,357
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100%
200%
200%
173.9%
18.2%
5.5%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
(1) Free share awards under the Share Incentive Plan.
(2) Options granted under Save As You Earn scheme.
(3) Retired from the Board on 31 October 2020 and the holding cited is at this date.
(4) Appointed as Chief Executive with effect from 1 November 2020.
(5) Retired (Lisa Clement) and stepped down (Andrew Cunningham) from the Board on 31 October 2020 and the holding cited is at this date.
(6) Appointed as Non-Executive Director with effect from 1 September 2020.
(7) Appointed as Non-Executive Director with effect from 3 November 2020.
130 Annual Report 2020
?
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N
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n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Between 31 December 2020 and the date of signing of these financial statements, the following changes have occurred:
• On 18 March 2021, Lynda Shillaw purchased 40,029 shares.
• On 18 March 2021, Kitty Patmore purchased 8,054 shares.
• On 5 April 2021, the nil cost option granted to Owen Michaelson in 2018 under the Harworth Group plc Long Term Incentive Plan vested in
respect of 14,164 shares and lapsed in respect of 266,313 shares. At the time of going to print, Owen had not exercised his option.
• On 5 April 2021, nil cost options were granted to Lynda Shillaw under the Harworth Group plc Restricted Share Plan in respect of 156,739 shares.
• On 5 April 2021, nil cost options were granted to Kitty Patmore under the Harworth Group plc Restricted Share Plan in respect of 97,962 shares.
Summary of Shareholder voting
The table below shows the results of votes at the Harworth Group plc Annual General Meetings on: (1) 29 June 2020 on the resolution relating to
the approval of the Annual Remuneration Report; and (2) 21 May 2019 on the resolution relating to the approval of the Remuneration Policy.
For and
discretion
For and discretion as a
percentage of votes cast
Votes
Against
Against as a percentage
of votes cast
222,301,070
98.47
3,444,900
258,180,271
99.93
191,584
1.53
0.07
Withheld
48,207
5,733,952
Approval of Annual
Remuneration Report
Approval of
Remuneration Policy
Angela Bromfield
Chair of the Remuneration Committee
22 April 2021
550-Acre Country Park at Logistics North, Bolton
131
Financial StatementsCorporate Governance Strategic Report Directors’ Report
Introduction
The Directors present their report and the audited consolidated financial statements for the year ended 31 December 2020.
Some of the matters required to be included in this Directors’ Report can be found in the Strategic Report or elsewhere in the Governance Report
as indicated 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 schemes
Engagement with stakeholders
Future developments of the business
Going concern
Greenhouse gas emissions
Post-Balance sheet events
Reference
Statement of Corporate Governance, p89
Chair’s introduction, p77
Statement of Corporate Governance, p92
Audit Committee Report, p105
Statement of Corporate Governance, pp84-87
Directors’ Remuneration Report, p130
Directors’ Remuneration Report, pp120-121
Statement of Directors’ Responsibilities, p137
Nomination Committee Report, pp98-100
Strategic Report, p19
Strategic Report, pp60-61
Nomination Committee Report, p100
Strategic Report, p62
Directors’ Remuneration Report, pp114-115
Strategic Report, pp64-67
Strategic Report, pp6-15
Statement of Directors’ Responsibilities, pp136-137
Strategic Report, p52
Strategic Report: Chief Executive’s Statement, p23
Financial Statements, Note 32, p195
Risk management and internal controls (including in relation to financial reporting process)
Strategic Report, pp32-39
Significant related party transactions
Viability statement
UK Corporate Governance Code
Audit Committee Report, p106 and p104
Financial statements, Note 31, pp193-195
Strategic Report, pp40-41
Strategic Report, pp70-72
Statement of Corporate Governance, p82
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 15 to the Financial Statements.
Financial results and dividends
The Group’s profit before taxation for the financial year ended 31 December 2020 was £33.3m (2019: £30.3m). The net assets attributable to
shareholders of the Group increased to £488.7m (2019: £463.8m) over the financial year. The Group’s NAV per share and EPRA NDV per share
rose by 5.2% (2019: 4.8%) and 2.8% (2019: 7.2%) respectively during the year.
132 Annual Report 2020
The Board is recommending a final dividend of 1.466 pence per share which, together with the interim dividend of 0.334 pence per share paid in
November 2020, makes a combined dividend of 1.8 pence (2019: 0.304 pence) per share. Payment of the final dividend, if approved at the 2021
AGM, will be made on 28 May 2021 to shareholders on the register at the close of business on 7 May 2021. The ex-dividend date will be 6 May
2021.
The dividend paid in the year to 31 December 2020 was 0.334 pence (2019: 0.937 pence) per share, comprising the interim dividend of 0.334
pence per share for the financial year ended 31 December 2020 only, there having been no final dividend paid for the financial year ending 31
December 2019 due to the uncertainty arising from the COVID-19 pandemic.
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 192. 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
Company’s shares.
All shares carry equal rights to dividends, voting and return of capital on a 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 2021
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 2020 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 2021 AGM and a
resolution will be proposed for its renewal.
The Company’s issued share capital as at 31 December 2019 was 321,909,382 ordinary shares of 10 pence each. During 2020 the issued share
capital was increased as follows:
Date
6 April 2020
25 June 2020
2 July 2020
3 August 2020
17 August 2020
24 August 2020
7 September 2020
19 October 2020
2 November 2020
16 November 2020
30 November 2020
14 December 2020
Description
Number of shares issued
Price (discount if applicable)
Vesting of LTIP awards
266,050
Grant of SIP awards
Exercise of SAYE options
Exercise of SAYE options
Exercise of SAYE options
Exercise of SAYE options
Exercise of SAYE options
Exercise of SAYE options
Exercise of SAYE options
Exercise of SAYE options
Exercise of SAYE options
Exercise of SAYE options
61,440
21,712
87,539
3,796
8,933
22,332
80,395
6,699
13,399
15,632
33,498
Nil consideration
Nil consideration
80.6p (21.0%)
80.6p (19.4%)
80.6p (21.4%)
80.6p (19.2%)
80.6p (16.0%)
80.6p (14.1%)
80.6p (7.1%)
80.6p (20.6%)
80.6p (22.5%)
80.6p (19.1%)
As such, as at 31 December 2020, the Company’s issued share capital was 322,530,807 ordinary shares of 10 pence each.
Since 31 December 2020, the Company’s issued share capital has increased to 322,599,284 ordinary shares of 10p each, as follows:
Date
5 January 2021
30 March 2021
Description
Exercise of SAYE options
Vesting of LTIP awards
Number of shares issued
Price (discount if applicable)
19,014
49,463
80.6p (20.6%)
Nil consideration
Under Section 561 of the 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 2020 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 2020 AGM. The
Directors propose to renew this authority at the 2021 AGM.
133
Financial StatementsCorporate Governance Strategic Report
Purchase of the Company’s own shares
The Company has authority under a shareholders’ resolution passed at
the 2020 AGM to purchase up to 32,217,542 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
2021 AGM. No shares have been purchased by the Company under
that authority. A special resolution will be proposed at the 2021 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.
Directors
The Directors who held office during the year ended
31 December 2020 and up to the date of this Report are:
Chairman
Alastair Lyons
Chair
Executive Directors
Lynda Shillaw
Chief Executive, Appointed 1 November 2020
Katerina Patmore
Chief Financial Officer
Independent Non-Executive Directors
Angela Bromfield
Senior Independent Director
Ruth Cooke
Lisa Scenna
Appointed 1 September 2020
Patrick O’Donnell Bourke
Appointed 3 November 2020
Non-Executive Directors (not independent)
Steven Underwood
Martyn Bowes
Former Directors
Owen Michaelson
Chief Executive, Retired 31 October 2020
Lisa Clement
Senior Independent Director, Retired 31 October 2020
Andrew Cunningham
Independent Non-Executive Director, Resigned 31 October 2020
Biographical details of the current Directors are contained on pages 78
to 81.
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 116, 117 and 130. 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 2021 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. Lynda Shillaw, Lisa Scenna and Patrick O’Donnell
Bourke will, therefore, be standing for election at the 2021 AGM. In
accordance with the 2018 UK Corporate Governance Code, all other
Directors will offer themselves for election or re-election at the
2021 AGM.
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.
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; further detail, including the the Group’s use of a
financial instrument as part of managing the interest rate risk on external
borrowings, is set out in note 24 to the financial statements.
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 2020.
Charitable and political donations
The Group made charitable donations during 2020 in the aggregate
sum of £43,700 (2019: £34,433). The Group supported two principal
charities during the year: LandAid and The Wildlife Trusts.
No political donations were made during the year (2019: £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 2020 AGM for
certain political donations and expenditure, subject to financial limits,
and will seek to renew this authority at the 2021 AGM.
134 Annual Report 2020
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. Shares issued pursuant to Share Investment Plan awards are held by Yorkshire Building Society pending
maturity. At 31 December 2020, the EBT held 4,726 (2019: 77,695) ordinary shares of 10 pence each in the Company and Yorkshire Building
Society held 115,760 (2019: 54,320) ordinary shares of 10 pence each in the Company, being in aggregate 120,487 (2019: 132,015) shares which
represent 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 awards that have not vested.
The EBT 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. 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 typically 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
2020 AGM. The Directors are proposing to seek renewal of that authority at the 2021 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 Financial Conduct Authority’s Disclosure and
Transparency Rules, of the following notifiable voting rights:
Name of holder
Number of Ordinary Shares
Percentage of total voting rights
London and Amsterdam Trust Company
Pension Protection Fund
Goodweather Holdings Limited*
Invesco Perpetual
Citigroup Global Markets Limited
81,213,770
80,374,189
47,817,362
14,719,631
14,483,477
25.18%
24.91%
14.82%
4.56%
4.49%
* 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 an agreement pursuant to which, amongst other things, the PPF
is entitled to appoint a representative Director to the Board.
Change of control provisions
Under the terms of the RCF agreement entered into between Royal Bank of Scotland plc and Harworth Estates Property Group Limited (HEPGL) in
February 2015 and amended in August 2016, December 2016, August 2017, February 2018, April 2018, May 2020 and March 2021 (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.
Transactions with related parties
Transactions entered into with related parties during 2020 are disclosed in Note 31 to the financial statements on pages 193 to 195.
The Directors’ Report was approved by the Board of Directors and signed on its behalf by:
Chris Birch
Group General Counsel and Company Secretary
22 April 2021
135
Financial StatementsCorporate Governance Strategic Report 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) adopted pursuant to
Regulation (EC) No.1606/2002 as it applies in the European Union and in accordance with the Companies Act 2006.
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 adopted pursuant to Regulation (EC) No.1606/2002 as it applies in 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 Group and Company will continue in
business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’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 the Companies Act 2006.
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 2020 and up to the date of this Report (see the list of names and roles
on page 134) confirms that, to the best of his or her knowledge:
•
•
•
the Group and Company Financial Statements, which have been prepared in accordance with applicable IFRSs adopted pursuant to
Regulation (EC) No.1606/2002 as it applies in the European Union and in accordance with the Companies Act 2006, give a true and fair view
of the assets, liabilities, financial position and profit and loss of the Group and Company; and
the Strategic Report includes a fair review of the development and performance of the business and the position of the Group and the
Company, together with a description of the principal risks and uncertainties they face; and
the 2020 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
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
prepared cash flow forecasts based upon its assumptions with particular consideration to the key risks and uncertainties, as well as taking into
account available borrowing facilities. The going concern period assessed is until June 2022 which has been selected as it can be projected with a
reasonable degree of expected accuracy and covers a complete period of reporting under the RCF.
The Group continues to remain in a strong financial position to withstand further impact from COVID-19, with cash and bank headroom of £62.7m
(as at 31 December 2020). The spread of sites across its three core regions, and at all stages of their lifecycle, enables the close management of
non-committed expenditure to preserve liquidity. The Group benefits from diversification across its Capital Growth and Income Generation
divisions 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 December 2020 quarter being broadly in line
with previous quarters.
136 Annual Report 2020
The key risks considered in the context of COVID-19 are:
•
Finance – availability of capital, shortfalls in income and valuations;
• Markets – a severe but temporary downturn in the residential markets could reduce potential sales of serviced land and potentially impact on
valuations;
• Delivery – social distancing creating delays in project works on sites and planning approval processes, although many processes have now
already adapted to COVID-19 remote working practices; and
• People – impact on capacity and productivity.
The Group traded well throughout 2020 despite the effects of COVID-19. Capital was prioritised on sites, sales of strategic and non-core land have
continued and new lettings have been secured on properties throughout. Discretionary overhead expenditure was reduced where possible. This
approach aligns with the Group’s existing strategy to manage cashflows to fund development spend and acquisition activity.
In May 2020, RBS and Santander agreed to increase the limit of the RCF to £130m and provided greater flexibility in covenants for the going
concern period.
Balance sheet and cashflow remain resilient throughout downside scenario analysis
In addition to the base forecast, a sensitised forecast was produced that reflected a number of severe but plausible downsides. This downside
included:
•
a severe reduction in sales to the housebuilding sector with some reduction in associated development spend;
• notwithstanding strong rent collection to date in line with previous quarters, a prudent material increase in bad debts across the portfolio over
the majority of the going concern assessment period;
a decline in residential land values; and
removal of some uncommitted acquisitions and development spend.
•
•
A scenario was also run which demonstrates that very severe loss of revenue and valuation reductions would be required to breach cashflow and
banking covenants.
Even under the downside scenario, for the going concern period from the signing of these financial statements, the Group continues to project
sufficient cash reserves, continues to operate with headroom on lending facilities and associated covenants and has additional mitigation measures
within management’s control, for example accelerating completion of income generation acquisitions to improve profit excluding value gains and
reducing operating costs, 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 the going concern basis of accounting in the preparation of the Group’s
and Company’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 he or she is 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 2006.
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
22 April 2021
137
Financial StatementsCorporate Governance Strategic Report 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
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New junior school at Waverley New Community
Independent Auditor’s Report to
The Members of Harworth Group Plc
Opinion
In our opinion:
• Harworth Group plc’s Group financial statements and Parent Company financial statements (the “financial statements”) give a true and fair view of the state of
the Group’s and of the Parent Company’s affairs as at 31 December 2020 and of the Group’s profit for the year then ended;
•
•
the Group financial statements have been properly prepared in accordance with International Accounting Standards in conformity with the requirements of
the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European
Union;
the Parent Company financial statements have been properly prepared in accordance with International Accounting Standards in conformity with the
requirements of the Companies Act 2006 as applied in accordance with section 408 of the Companies Act 2006; and
•
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of Harworth Group plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended
31 December 2020 which comprise:
Group
Parent Company
Consolidated income statement for the year ended 31 December 2020
Balance sheet as at 31 December 2020
Consolidated statement of comprehensive income for the year ended
31 December 2020
Company statement of changes in equity for the year ended 31 December
2020
Balance sheet as at 31 December 2020
Statement of cash flows for the year ended 31 December 2020
Consolidated statement of changes in equity for the year ended
31 December 2020
Related notes 1 to 32 to the financial statements including a summary of
significant accounting policies
Statement of cash flows for the year ended 31 December 2020
Related notes 1 to 32 to the financial statements, including a summary of
significant accounting policies
The financial reporting framework that has been applied in their preparation is applicable law and International Accounting Standards in conformity
with the requirements of the Companies Act 2006 and, as regards the Group financial statements, International Financial Reporting Standards
adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union, as regards the Parent Company financial statements, as
applied in accordance with section 408 of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are
independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including
the Financial Reporting Council’s (FRC’s) Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
140 Annual Report 2020
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the directors’ assessment of the Group and Parent Company’s ability to continue to adopt the
going concern basis of accounting included:
•
In conjunction with our walkthrough of the Group’s financial close process, we confirmed our understanding of management’s going concern assessment
process and also engaged with management early to ensure all key risk factors we identified were considered in their assessment;
• We obtained management’s going concern assessment, including the cash forecasts and covenant calculations for the going concern period which covers
the period to 30 June 2022. The Group has modelled a base scenario and then a severe but plausible downside scenario in its cash forecasts and covenant
calculations in order to incorporate unexpected changes to the forecasted liquidity of the Group.
• We have tested the factors and assumptions included in each modelled scenario for the cash forecasts and covenant calculations and we have
considered the impact of COVID-19. We considered the appropriateness of the methods used to calculate the cash forecasts and covenant
calculations and determined that they were appropriately sophisticated to be able to make an assessment on going concern.
• We considered the mitigating factors included in the cash forecasts and covenant calculations that are within control of the Group. This included review of the
Company’s non-operating cash outflows. We also verified the credit facilities available to the Group.
• We have performed reverse stress testing in order to identify what factors would lead to the Group utilising all liquidity or breaching the financial covenant
during the going concern period.
• We reviewed the Group’s going concern disclosures included in the annual report in order to assess that the disclosures were appropriate and in conformity
with the reporting standards.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group’s and Parent Company’s ability to continue as a going concern over a period of 15 months
(from when the financial statements are authorised for issue (to June 2022).
In relation to the Group’s and Parent Company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing
material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue as a
going concern.
Overview of our audit approach
Audit scope
• We performed an audit of the complete financial information of 6 components and audit procedures on specific balances for a
further 5 components.
•
The components where we performed full or specific audit procedures accounted for 100% of the Group’s Total assets, 99% of
the Group’s Profit before property revaluation movements, finance costs and tax and 98% of the Group’s Revenue.
Key audit matters
•
Valuation of investment properties
• Carrying value of development property
Materiality
• Overall Group Materiality: £7.5m which represents 1% of total assets.
•
Specific Group Materiality: £0.6m which represents 5% of profit before property revaluation movements, finance costs and tax.
First year audit transition
The year ended 31 December 2020 is our first as auditor of the Group. We commenced our transition subsequent to our
appointment on 13 July 2020. Our transition activities focused on evaluating key accounting judgements and the Group’s
accounting policies, undertaking a review of the predecessor auditor’s files to consider the nature, timing and extent of audit
procedures performed in forming the prior year opinion and understanding and walking through the key processes of the Group.
141
Financial StatementsCorporate Governance Strategic Report
Independent Auditor’s Report to
The Members of Harworth Group Plc
An overview of the scope of the Parent Company and Group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each company
within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size, risk profile,
the organisation of the Group and effectiveness of Group-wide controls, changes in the business environment and other factors when assessing the
level of work to be performed at each company.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of significant
accounts in the financial statements, of the 33 reporting components of the Group, we selected 11 components, which represent the principal
business units within the Group.
Of the 11 components selected, we performed an audit of the complete financial information of 6 components (“full scope components”) which
were selected based on their size or risk characteristics. For the remaining 5 components (“specific scope components”), we performed audit
procedures on specific accounts within that component that we considered had the potential for the greatest impact on the significant accounts in
the financial statements either because of the size of these accounts or their risk profile.
The reporting components where we performed audit procedures accounted for 100% of the Group’s Total assets, 99% of the Group’s Profit before
property revaluation movements, finance costs and tax and 98% of the Group’s Revenue. For the year ended 31 December 2020, the full scope
components contributed 80% of the Group’s Total assets, 98% of the Group’s Profit before property revaluation movements, finance costs and tax
and 70% of the Group’s Revenue. The specific scope component contributed 20% of the Group’s Total assets, 1% of the Group’s Profit before
property revaluation movements, finance costs and tax and 28% of the Group’s Revenue. The audit scope of these components may not have
included testing of all significant accounts of the component but will have contributed to the coverage of significant balances tested for the Group.
Of the remaining 22 components that together represent 1% of the Group’s Profit before property revaluation movements, finance costs and tax
and 2% of the Group’s Revenue, none are individually greater than 1% of the Group’s Profit before property revaluation movements, finance costs
and tax or the Group’s Revenue. For these components, we performed other procedures, including testing of consolidation journals and
intercompany eliminations to respond to any potential risks of material misstatement to the Group financial statements.
The charts below illustrate the coverage obtained from the work performed by our audit teams.
Total assets
Profit before property revaluation movements,
finance costs and tax
Revenue
80% Full scope components
98% Full scope components
70% Full scope components
20% Specific scope components
1% Specific scope components
28% Specific scope components
0% Other procedures
1% Other procedures
2% Other procedures
Involvement with component teams
All audit work performed for the purposes of the audit was undertaken by the Group audit team.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our 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) that we identified. These
matters included 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 were addressed in the context of our audit of the financial statements as a whole, and in our opinion
thereon, and we do not provide a separate opinion on these matters.
142 Annual Report 2020
Risk
Our response to the risk
Key observations communicated to the Audit Committee
Valuation of Investment Property (£373.1m,
2019: £293.8m)
Our testing approach to Investment properties
included:
Refer to the Audit Committee Report (pages
101 to 107); Accounting policies (page 159);
and Note 14 of the Consolidated Financial
Statements (pages 174 to 176)
Performing a walkthrough to understand the
key process and identify key controls. This
included the valuation, acquisition and disposal
processes.
At 31 December 2020 Investment property
held a value of £373.1m, with a valuation gain of
£37.9m reported in the year. Property valuations
are calculated by independent external valuers
with a number of key assumptions specific
to each individual property, including; actual
and estimated rental values, yields, costs to
complete and expected land values per acre.
There is a risk that the carrying value is misstated
given the inherent uncertainty and judgement
within these assumptions.
Carrying value of Development Property
(£177.7m, 2019: £202.1m)
Refer to the Audit Committee Report (pages
101 to 107); Accounting policies (page 158);
and Note 17 of the Consolidated Financial
Statements (pages 180 to 181)
Development property has a book value of
£177.7m at 31 December 2020.The Group’s
portfolio consists of a range of assets at varying
stages of development, across various sectors
and geographies. A risk exists that the carrying
value of development property is overstated
given the inherent judgements in determining
the net realisable value, such as value per acre/
plot or planning permission uncertainty, as well
as costs to complete.
EY Valuations and Audit team members
attending a sample of key sites, alongside the
external valuer to gain a detailed understanding
of the portfolio and the valuation process and to
observe the external valuer’s inspection.
Assessing the appropriateness of a sample
of valuations, with the assistance of our EY
Valuations specialists, through:
•
•
Reading the external valuer reports and
holding discussions directly with the
external valuer regarding their valuation
approach, and
Testing the underlying data used by the
external valuer in forming its valuation
including; benchmarking, validating key
assumptions to supporting third party
evidence or market activity and
considering contrary evidence
We performed the above audit procedures over
this risk area at a Group level covering 100% of
the risk amount.
Our approach to assessing the net realisable
value of development property included
performing the same procedures as for
investment property, as listed above.
This testing was supplemented by procedures
over the book value (cost) of the assets, which
included:
•
•
Testing a sample of costs incurred to third
party invoices to ensure they had been
accounted for correctly and coded to the
correct project
For a sample of acquisitions and disposals
made in the year, agreeing key contract
details to legal documentation to, confirm
the terms of sale have been appropriately
reflected in the accounting treatment
We performed the above audit procedures over
this risk area at a Group level covering 100% of
the risk amount.
Based on the work performed, we consider that the
external valuer’s methodologies used in developing the
estimate are consistent with valuation practice given the
characteristics of the assets being measured.
Our work did not identify evidence to contradict
the external valuer’s significant assumptions used in
developing the estimate as of the balance sheet date.
We consider that the valuation of investment properties
held as of the balance sheet date is appropriate and
that property held as investment property is classified
appropriately.
Based on the work performed, we consider that the
external valuer’s methodologies used in developing the
estimate are consistent with valuation practice given
the characteristics of the assets being measured. Our
work did not identify evidence to contradict the external
valuer’s significant assumptions used in developing the
estimate as of the balance sheet date.
We consider that the valuation of development
properties held as of the balance sheet date is
appropriate and have been appropriately considered in
assessing impairment of the assets held.
143
Financial StatementsCorporate Governance Strategic Report
Independent Auditor’s Report to
The Members of Harworth Group Plc
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in
forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic
decisions of the users of the Financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.
Overall materiality
When establishing our overall audit strategy, we determined a magnitude of uncorrected misstatements that we judged would be material for the
Financial statements as a whole. We determined that total assets would be the most appropriate basis for determining overall materiality given that
key users of the Group’s Financial statements are primarily focussed on the valuation of the Group’s assets; primarily the investment property
portfolio. We used 1% of total assets (£7.5m) which is consistent with the predecessor auditor’s materiality in the prior year.
We determined materiality for the Parent Company to be £2.2 million, which is 1% of total assets, being the primary focus of the users of the Financial
statements.
Specific materiality
We assessed that for account balances not related to the property portfolio and loans and borrowings, a misstatement of less than overall materiality
for the Financial statements could influence the economic decisions of users. We determined that specific materiality for these areas should be
based on profit before property revaluation movements, finance costs and tax. We believe that it is appropriate to use a profit-based measure for
specific materiality as profit is also a focus of users of the financial statements. The predecessor auditor calculated specific materiality using profit
before tax excluding investment property valuation gains.
During the course of our audit, we reassessed initial materiality and amended it for the year end results.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability
that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments and this being an initial audit, together with our assessment of the Group’s overall control environment, our
judgement was that overall performance materiality and specific performance materiality (i.e. our tolerance for misstatement in an individual
account or balance) for the Group should be 50% of the respective materiality, being £3.7m.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to the Committee any uncorrected audit differences on investment properties, loans
and borrowings in excess of £0.4m, as well as uncorrected audit differences in excess of £40k that relate to our specific testing of the other account
balances not related to investment properties, loans and borrowings. These are set at 5% of their respective planning materiality. We also agreed to
report differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.
144 Annual Report 2020
Other information
The other information comprises the information included in the annual report set out on pages 2 to 137, other than the financial statements and our
auditor’s report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we
do not express any form of assurance conclusion thereon.
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 course of the audit or otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial
statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are
required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act
2006.
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is
consistent with the financial statements and those reports have been prepared in accordance with applicable legal requirements;
the information about internal control and risk management systems in relation to financial reporting processes and about share capital
structures, given in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Rules and Transparency Rules sourcebook made by the Financial
Conduct Authority (the FCA Rules), is consistent with the financial statements and has been prepared in accordance with applicable legal
requirements; and
•
information about the Company’s Corporate Governance Code and practices and about its administrative, management and supervisory
bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we
have not identified material misstatements in:
•
•
the Strategic Report or the Directors’ Report; or
the information about internal control and risk management systems in relation to financial reporting processes and about share capital
structures, given in compliance with rules 7.2.5 and 7.2.6 of the FCA Rules
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our
opinion:
•
•
adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from
branches not visited by us; or
the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
•
certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit
•
a Corporate Governance Statement has not been prepared by the Company.
145
Financial StatementsCorporate Governance Strategic Report Independent Auditor’s Report to
The Members of Harworth Group Plc
Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate
Governance Statement relating to the Group and Company’s compliance with the provisions of the UK Corporate Governance Code specified for
our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement
is materially consistent with the financial statements or our knowledge obtained during the audit:
• Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties
identified set out on pages 136 to 137;
• Directors’ explanation as to their assessment of the Company’s prospects, the period this assessment covers and why the period is appropriate
set out on pages 40 to 41;
• Directors’ statement on fair, balanced and understandable set out on page 136;
• Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 40 to 41;
•
The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on pages 106
to 107; and;
•
The section describing the work of the Audit Committee set out on pages 101 to 107.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 136, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors 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 and Parent 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 Parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s 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 auditor’s 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.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect irregularities, including fraud. 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. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the Company and
management.
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most
significant frameworks which are directly relevant to specific assertions in the financial statements are those that relate to the reporting
framework (IFRS, the Companies Act 2006 and UK Corporate Governance Code).
• We understood how Harworth Group plc is complying with those frameworks by making enquiries of management, those responsible for legal
and compliance procedures and the Company Secretary. We corroborate our enquiries through our review of board minutes, papers provided
to the Audit Committee and discussions with the Audit Committee.
146 Annual Report 2020
• We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur by meeting with
management and those charged with governance to understand where it considered there was a susceptibility to fraud. We also considered
performance targets and the propensity to influence efforts made by management to manage earnings. Where the risk was considered to be
higher, we performed audit procedures to address each identified fraud risk. These procedures included testing manual journals and were
designed to provide reasonable assurance that the financial statements were free from fraud and error.
• Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures
involved journal entry testing, with a focus on manual consolidation journals and journals indicating large or unusual transactions based on our
understanding of the business; enquiries of Legal Counsel, Group management and focused testing, as referred to in the key audit matters
section above. In addition, we completed procedures to conclude on the compliance of the disclosures in the Annual Report and Accounts with
the requirements of the relevant accounting standards, UK legislation and the UK Corporate Governance Code 2016.
A further description of our responsibilities for the audit of the financial statements is located on the
FRC’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters we are required to address
•
Following the recommendation from the Audit Committee, we were appointed by the Company on 13 July 2020 to audit the financial
statements for the year ending 31 December 2020 and subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and reappointments is 1 year, covering the year ended
31 December 2020.
• Non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company and we remain
independent of the Group and the Parent Company in conducting the audit.
•
The audit opinion is consistent with the additional report to the Audit Committee.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and
the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Victoria Venning (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Leeds
22 April 2021
147
Financial StatementsCorporate Governance Strategic Report
Consolidated Income Statement
for the year ended 31 December 2020
Revenue
Cost of sales
Gross profit
Administrative expenses
Other gains
Other operating expense
Operating profit
Finance costs
Finance income
Share of profit of joint ventures
Profit before tax
Tax charge
Profit for the financial year
Note
3
3
3
3
3
3
3
6
6
15
8
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
70,001
(59,385)
10,616
(14,522)
31,734
(63)
27,765
(3,473)
377
8,655
33,324
(7,528)
25,796
85,455
(57,512)
27,943
(12,926)
9,313
(69)
24,261
(2,775)
368
8,449
30,303
(4,823)
25,480
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
Note
Basic earnings per share
Diluted
Diluted earnings per share
11
8.0
11
pence
8.0
8.0
pence
7.9
7.9
The Notes on pages 156 to 195 are an integral part of the consolidated financial statements.
148 Annual Report 2020
Consolidated Statement of
Comprehensive Income
for the year ended 31 December 2020
Profit for the financial year
Other comprehensive (expense)/ income - items that will not be reclassified to profit or loss:
Net actuarial loss in Blenkinsopp Pension scheme
Revaluation of Group occupied property
Deferred tax on other comprehensive expense items
Other comprehensive income - items that may be reclassified to profit or loss:
Fair value of financial instruments
Total other comprehensive expense
Note
25
8
23
Year ended
31 December
2020
£’000
25,796
Year ended
31 December
2019
£’000
25,480
(339)
48
115
(267)
(443)
(430)
–
149
(449)
(730)
Total comprehensive income for the year
25,353
24,750
Total comprehensive income for the financial year
25,353
24,750
149
Financial StatementsCorporate Governance Strategic Report
Consolidated Balance Sheet
as at 31 December 2020
ASSETS
Non-current assets
Property, plant and equipment
Right of use assets
Trade and other receivables
Investment properties
Investment in joint ventures
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
Fair value reserve
Capital redemption reserve
Merger reserve
Investment in own shares
Retained earnings
Current year profit
Total shareholders’ equity
As at
31 December
2020
£’000
As at
31 December
2019
£’000
Note
12
13
18
14
15
17
18
19
20
21
22
13
8
192,325
21
22
13
23
8
25
27
28
1,007
170
–
373,079
25,316
399,572
182,666
56,441
7,594
12,710
259,411
658,983
–
(66,486)
(77)
(209)
(66,772)
213,207
192,639
(83,882)
(1,954)
(102)
(826)
(15,767)
(968)
(103,499)
(170,271)
488,712
32,253
24,567
132,833
257
45,667
(73)
227,412
25,796
488,712
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
116,121
257
45,667
(67)
219,771
25,480
463,779
The financial statements on pages 148 to 195 were approved by the Board of Directors on 22 April 2021 and were signed on its behalf by:
Lynda Shillaw
Chief Executive
Katerina Patmore
Chief Financial Officer
Company Registered Number 02649340
150 Annual Report 2020
Company Balance Sheet
as at 31 December 2020
As at
31 December
2020
£’000
As at
31 December
2019
£’000
Note
ASSETS
Non-current assets
Investments in subsidiaries
Retirement asset
Deferred income tax assets
Current assets
Trade and other receivables
Cash
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Net current assets
Non-current liabilities
Retirement benefit obligations
Total liabilities
Net assets
SHAREHOLDERS’ EQUITY
Called up share capital
Share premium account
Capital redemption reserve
Merger reserve
Investment in own shares
Retained earnings
Current year loss
Total shareholders’ equity
15
25
8
18
20
22
192,325
25
27
28
208,974
968
2,142
212,084
29,495
1,652
31,147
243,231
(14,800)
(14,800)
213,207
16,347
(968)
(968)
(15,768)
227,463
32,253
24,567
257
45,667
(73)
127,709
(2,917)
227,463
The financial statements on pages 148 to 195 were approved by the Board of Directors on 22 April 2021 and were signed on its behalf by:
Lynda Shillaw
Chief Executive
Katerina Patmore
Chief Financial Officer
Company Registered Number 02649340
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
257
45,667
(67)
130,468
(1,914)
230,961
151
Financial StatementsCorporate Governance Strategic Report
Consolidated Statement of
Changes in Equity
for the year ended 31 December 2020
Called up
share
capital
£’000
Note
Share
premium
£’000
Merger
reserve
£’000
Fair value
reserve
£’000
Capital
redemption
reserve
£’000
Investment
in own
shares
£’000
Retained
earnings
£’000
Total
equity
£’000
Balance at 1 January 2019
32,150
24,351
45,667 118,563
257
(194)
221,142 441,936
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 (expense)/income for the year
ended 31 December 2019
Transaction with owners:
Share-based payments
Dividends paid
Share issue
–
–
–
–
–
–
–
–
–
41
–
–
–
–
–
–
–
–
–
8
–
–
–
–
–
–
–
–
–
–
–
10,090
(12,532)
–
–
–
(2,442)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
25,480
(10,090)
12,532
25,480
–
–
(430)
(449)
149
(430)
(449)
149
27,192
24,750
127
–
–
(71)
(3,012)
–
56
(3,012)
49
25
23
8
26
10
27, 28
Balance at 31 December 2019
32,191
24,359
45,667
116,121
257
(67) 245,251 463,779
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
Revaluation of Group occupied property
Fair value of financial instruments
Deferred tax on other comprehensive
(expense)/income items
Total comprehensive income for year ended
31 December 2020
Transaction with owners:
Share-based payments
Dividends paid
Share issue
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
25
23
8
26
10
27, 28
–
–
62
–
–
208
–
–
–
–
–
–
–
–
–
–
–
–
35,658
(18,994)
–
48
–
–
16,712
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
25,796
(35,658)
18,994
25,796
–
–
(339)
–
(267)
115
(339)
48
(267)
115
8,641
25,353
(6)
–
–
393
(1,077)
–
387
(1,077)
270
Balance at 31 December 2020
32,253
24,567
45,667 132,833
257
(73) 253,208 488,712
152 Annual Report 2020
Company Statement of
Changes in Equity
for the year ended 31 December 2020
Balance at 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
Transaction with owners:
Share-based payments
Dividends paid
Share issue
Balance at 31 December 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 2020
Transactions with owners:
Share-based payments
Dividend paid
Share issue
Called up
share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Capital
redemption
reserve
£’000
Investment
in own
shares
£’000
Retained
earnings
£’000
Total
equity
£’000
32,150
24,351
45,667
257
(194)
133,928
236,159
–
–
–
–
–
–
41
–
–
–
–
–
–
8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,914)
(430)
73
(1,914)
(430)
73
(2,271)
(2,271)
127
–
–
(91)
(3,012)
–
36
(3,012)
49
32,191
24,359
45,667
257
(67)
128,554
230,961
–
–
–
–
–
–
62
–
–
–
–
–
–
208
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(6)
–
–
(2,917)
(339)
64
(2,917)
(339)
64
(3,192)
(3,192)
507
(1,077)
–
501
(1,077)
270
Note
25
10
27, 28
25
10
27, 28
Balance at 31 December 2020
32,253
24,567
45,667
257
(73)
124,792
227,463
153
Financial StatementsCorporate Governance Strategic Report
Consolidated Statement
of Cash Flows
for the year ended 31 December 2020
Cash flows from operating activities
Profit before tax for the financial year
Net finance costs
Other gains
Share of profit of joint ventures
Share-based transactions(1)
Depreciation of property, plant and equipment and right of use assets
Pension contributions in excess of charge
Operating cash (outflow)/inflow before movements in working capital
Decrease in inventories
Decrease in receivables
Increase in payables
Cash generated from operations
Interest paid
Corporation tax paid
Cash generated from operating activities
Cash flows from investing activities
Interest received
Investment in joint ventures
Distributions from joint ventures
Acquisition of group of assets
Net proceeds from disposal of investment properties, assets held for sale and overages
Expenditure on investment properties and assets held for sale
Expenditure on property, plant and equipment
Expenditure on property, plant and equipment
Cash used in investing activities
Cash flows from financing activities
Net proceeds from issue of ordinary shares
Repayment of bank loans
Proceeds from bank loans
Repayment of other loans
Loan arrangement fees
Payment in respect of leases
Dividends paid
Cash (used in)/generated from financing activities
Increase in cash
At 1 January
Cash
Increase in cash
At 31 December
Cash
Note
6
3
15
26
12, 13
25
16
(115)
10
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
33,324
3,096
(31,734)
(8,655)
618
285
(140)
(3,206)
19,385
2,768
6,830
25,777
(2,924)
(2,127)
20,726
377
(289)
8,930
(4,092)
27,651
(51,987)
(115)
(352)
(19,525)
237
(78,000)
82,000
(2,932)
(479)
(73)
(1,077)
(324)
877
11,833
877
12,710
30,303
2,407
(9,313)
(8,449)
(19)
139
(120)
14,948
2,161
7,490
4,953
29,552
(2,337)
(1)
27,214
368
(2,592)
3,799
–
18,108
(49,574)
(352)
(30,243)
49
(15,000)
32,000
(7,669)
(62)
(39)
(3,012)
6,267
3,238
8,595
3,238
11,833
(1) Share-based transactions reflect the non-cash expenses relating to share-based payments included within the income statement.
154 Annual Report 2020
Company Statement
of Cash Flows
for the year ended 31 December 2020
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
Note
Cash flows from operating activities
Loss before tax for the financial year
Net interest receivable
Share-based transactions(1)
Pension contributions in excess of charge
Operating cash outflows before movements in working capital
(Increase)/decrease in receivables
Increase in payables
Cash used in operations
Interest paid
Cash generated from operating activities
Cash flows from investing activities
Interest received
Cash generated from investing activities
Cash flows from financing activities
Net proceeds from issue of ordinary shares
Dividends paid
Cash used in financing activities
Increase in cash
At 1 January
Cash
Increase in cash
At 31 December
Cash
(3,110)
(300)
118
(339)
(3,631)
(328)
4,645
686
(281)
405
581
581
237
(1,077)
(840)
146
1,506
146
1,652
10
(1) Share-based transactions reflect the non-cash expenses relating to share-based payments included within the income statement.
(1,859)
(452)
(64)
(120)
(2,495)
1,052
4,344
2,901
(196)
2,705
648
648
49
(3,012)
(2,963)
390
1,116
390
1,506
155
Financial StatementsCorporate Governance Strategic Report
Notes to the financial statements
for the year ended 31 December 2020
1. Accounting policies
The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have
been consistently applied to all of the years presented, unless otherwise stated.
General information
Harworth Group plc, company number 02649340, (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 public company listed on the London Stock Exchange.
Basis of preparation
The Group and Company financial statements of Harworth Group plc have been prepared on the going concern basis and in accordance with
applicable IFRSs adopted pursuant to Regulation (EC) No.1606/2002 as it applies in the European Union. 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 forecasts based upon its assumptions with particular consideration to the key risks and uncertainties as summarised in the ‘Effectively
managing our risks’ section, as well as taking into account available borrowing facilities. The going concern period assessed is until June 2022
which has been selected as it can be projected with a good degree of expected accuracy and covers a complete period of reporting under the
Revolving Credit Facility.
The Group continues to remain in a strong financial position to withstand further impact from COVID-19, with cash and bank headroom of £62.7m
(as at 31 December 2020). The spread of sites across its three core regions, and at all stages of their lifecycle, enables the close management of
non-committed expenditure to preserve liquidity. The Group benefits from diversification across its Capital Growth and Income Generation
divisions 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 December 2020 quarter being broadly in line with
previous quarters.
The key risks considered in the context of COVID-19 are:
•
Finance – availability of capital, shortfalls in income and valuations
• Markets – a severe but temporary downturn in the residential markets could reduce potential sales of serviced land and potentially impact on
valuations
• Delivery – social distancing creating delays in project works on sites and planning approval processes, although many processes have now
already adapted to COVID-19 remote working practices
• People – impact on capacity and productivity
The Group traded well throughout 2020 and COVID-19. Capital was prioritised on sites with sales during the year, sales of strategic and non-core
land have continued and new lettings have been secured on properties. Discretionary overhead expenditure was reduced where possible. This
aligns with our existing strategy to manage cashflows to fund our development spend and acquisition activity.
In May 2020, RBS and Santander agreed to increase the limit of the Revolving Credit Facility to £130m and provided greater flexibility in covenants
for part of the going concern period.
Balance sheet and cashflow remain resilient throughout downside scenario analysis.
156 Annual Report 2020
1. Accounting policies: continued
In addition to the base forecast, a sensitised forecast was produced that reflected a number of severe but plausible downsides. This downside
included:
• A severe reduction in sales to the housebuilding sector with some reduction in associated development spend;
• Notwithstanding strong rent collection to date in line with previous quarters, a prudent material increase in bad debts across the portfolio over
the majority of the going concern assessment period;
• A decline in residential land values; and
• Removal of some uncommitted acquisitions and development spend
A scenario was also run which demonstrates that very severe loss of revenue and valuation reductions would be required to breach cashflow and
banking covenants.
Even under the downside scenario, for the going concern period from the signing of these financial statements, the Group continues to project
sufficient cash reserves, continues to operate with headroom on lending facilities and associated covenants, and has additional mitigation
measures within management’s control, for example accelerating completion of income generation acquisitions to improve PEVG and reducing
operating costs, 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.
Accounting policies
Changes in accounting policy and disclosures
(a) New standards, amendments and interpretations
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 have a significant effect on the financial statements of the Group.
(b) New standards, amendments and interpretations not yet adopted
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning on or after 1 January 2021
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, planning
promotion agreements, promote fees and overages, 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 passes 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. Revenue 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.
157
Financial StatementsCorporate Governance Strategic Report 1. Accounting policies: continued
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 when the contract is, or has become, onerous in accordance with IAS 37.
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.
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 where development with a view
to sale has commenced.
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 landowners whereby the Group has the option to purchase their
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 into the option, are capitalised. At each reporting date, recoverability of the costs is 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 landowners whereby the Group acts as an agent in exchange
for a fee of a set percentage of the proceeds or profit of the eventual sale of the land that is the subject of the agreement. The Group promotes the
land through the planning process at its own expense. If the land is sold, the Group receives a fee for its services.
The Group incurs various costs in promoting land held under promotion planning agreements, in some instances the agreements allow for the
Group to be reimbursed certain expenditure following the conclusion of a successful sale. These costs are held in inventory at the lower of cost and
net realisable value. Upon reimbursement, inventory is reduced by the value of the reimbursed cost.
Coal fines that have been processed and are ready for sale are stated at the lower of cost and estimated net realisable value. Inventories comprise
all of the direct costs incurred in bringing the coal fines to their present state.
Investments in subsidiaries
Investments 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.
158 Annual Report 2020
Notes to the financial statements for the year ended 31 December 2020: continued 1. Accounting policies: continued
Impairments 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.
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 properties also include 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 where development
with a view to sale has commenced.
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 is passed to a customer, typically at the point of legal completion and when
title passes. 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.
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.
159
Financial StatementsCorporate Governance Strategic Report 1. Accounting policies: continued
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 in respect of the Blenkinsopp Section of the Industry-Wide
Mineworkers Pension Scheme.
During the years to 31 December 2020 and 31 December 2019 all contributions have been paid to the pension fund by the Company.
In the Company balance sheet, a net liability equal to the IAS 19 (revised) liability is recognised, offset by 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. Harworth Estates Mines
Property Limited is a wholly owned subsidiary of the Group.
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 charge 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 generating income 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 acquisition.
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.
160 Annual Report 2020
Notes to the financial statements for the year ended 31 December 2020: continued 1. Accounting policies: continued
Costs related to acquisitions, other than those associated with the issue of debt or equity securities, are expensed as incurred.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree
is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also
eliminated.
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.
The merger reserve reflects the premium on the shares issued to the Pension Protection Fund as part of the consideration for the purchase of 75.1%
of the issued share capital of Harworth Estates Property Group Limited in 2016.
The fair value reserve reflects the accumulation of fair value adjustments as detailed in the investment property accounting policy.
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. 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 through other comprehensive income, 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 of the hedged item 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.
161
Financial StatementsCorporate Governance Strategic Report 1. Accounting policies: continued
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 other comprehensive income or equity in which case the deferred tax is also dealt with in other comprehensive
income or equity.
The carrying value of the Group’s investment properties is assumed to be realised by sale at the end of use. The capital gains tax rate applied is that
which would apply on a direct sale of the property recorded in the Balance Sheet regardless of whether the Group would structure the sale via the
disposal of the subsidiary holding the asset, to which a different tax rate may apply. The deferred tax is then calculated based on the respective
temporary differences and tax consequences arising from recovery through sale.
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 properties
The fair value of investment property reflects, amongst other things, rental income from 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 14.
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. The 2020
review did not result in the recognition of any previously unrecognised tax losses (2019: £1.9m).
162 Annual Report 2020
Notes to the financial statements for the year ended 31 December 2020: continued 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 and assets held for sale 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 valuers), are included within our APMs;
Recategorising income statement amounts – Under IFRS, the grouping of amounts, particularly within gross profit and other gains, does 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. 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.
New EPRA APMs
In October 2019, EPRA published new best practice recommendations (BPR) for financial disclosures by public real estate companies. The BPR
introduced three new measures of net asset value; EPRA net tangible assets (NTA), EPRA net reinvestment value (NRV) and EPRA net disposal value
(NDV). The Group has adopted these new guidelines from 1 January 2020 and considers EPRA NDV to be the most relevant of these new measures
and therefore this now acts as our primary measure of net asset value replacing EPRA NNNAV. Total return, another of our key APMs, is now
calculated based upon EPRA NDV rather than EPRA NNNAV.
Our key APMs
The key APMs that the Group focuses on are as follows:
•
Total return – The movement in EPRA NDV plus dividends per share paid in the year expressed as a percentage of opening EPRA NDV per share
• EPRA NDV per share –EPRA NDV divided by the number of shares in issue less shares held by the Employee Benefit Trust
• Value gains – These are 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 (PEVG) – 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 and investment properties
• Net loan to portfolio value (Net LTV) – Group debt net of cash held expressed as a percentage of portfolio value
163
Financial StatementsCorporate Governance Strategic Report 2. Alternative Performance Measures (“APMs”): continued
Changes to APMs
The APMs have been changed for the inclusion of the new EPRA net asset value measures described above and the EPRA NDV per share growth
metric has been replaced with EPRA NDV per share. Other than these changes, the Group’s APMs have been defined, calculated and used on a
consistent basis. The previously reported EPRA measures of net assets are also included below for comparative purposes.
31 December 2020
Net assets attributable to shareholders
Cumulative unrealised gains on development properties
Cumulative unrealised gains on assets held for sale
Cumulative unrealised gains on overages
Deferred tax liabilities (IFRS)
Notional deferred tax on unrealised gains
Deferred tax liabilities @50%
Mark to market valuation of financial instruments
Purchaser costs
Net assets used in per share calculation
31 December 2019
Net assets attributable to shareholders
Cumulative unrealised gains on development properties
Cumulative unrealised gains on assets held for sale
Cumulative unrealised gains on overages
Deferred tax liabilities (IFRS)
Notional deferred tax on unrealised gains
Deferred tax liabilities @50%
Mark to market valuation of financial instruments
Purchaser costs
Net assets used in per share calculation
EPRA NDV
£’000
488,712
29,848
775
3,000
–
(6,388)
–
–
–
515,947
EPRA NDV
£’000
463,779
40,135
584
3,566
–
(7,529)
–
–
–
500,535
EPRA NTA
£’000
488,712
29,848
775
3,000
15,767
–
(11,078)
826
–
527,850
EPRA NTA
£’000
463,779
40,135
584
3,566
7,765
–
(7,647)
558
–
508,740
EPRA NRV
£’000
488,712
29,848
775
3,000
15,767
–
–
826
42,973
581,901
EPRA NRV
£’000
463,779
40,135
584
3,566
7,765
–
–
558
40,691
557,078
EPRA NNNAV
£’000
488,712
29,848
775
3,000
–
(6,388)
–
–
–
515,947
EPRA NNNAV
£’000
463,779
40,135
584
3,566
–
(7,529)
–
–
–
500,535
EPRA NAV
£’000
488,712
29,848
775
3,000
15,767
–
–
826
–
538,928
EPRA NAV
£’000
463,779
40,135
584
3,566
7,765
–
–
558
–
516,387
Set out below is a reconciliation of the APMs used in these results to the statutory measures.
1) Reconciliation to statutory measures
a. Revaluation gains
Increase in fair value of investment properties
Decrease in fair value of assets classified as held for sale
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 (losses)/gains on development properties
Unrealised gains on assets held for sale
Unrealised (losses)/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
Profit on sales of overages
Amounts derived from statutory reporting
Unrealised gains on development properties released on sale in the year
Profit on sale
164 Annual Report 2020
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
Note
3
3
3
3
3
3
3
3
3
3
25,405
(295)
8,655
(16,208)
4,408
21,965
(5,992)
191
(566)
15,598
5,030
554
2,999
1,359
1,040
10,982
(4,295)
6,687
5,841
(229)
8,449
(3,574)
3,061
13,548
21,385
584
25
35,542
545
3,156
10,882
1,168
–
15,751
(7,247)
8,504
Notes to the financial statements for the year ended 31 December 2020: continued
2. Alternative Performance Measures (“APMs”): continued
c. Value gains
Revaluation gains
Profit on sale
Value gains
d. Profit excluding value gains (PEVG)
Operating profit
Add pension charge
Less other gains
Add/(less) gross profit/(loss) from development properties
PEVG
e. Total property sales
Revenue
Less revenue from other property activities
Less revenue from income generation activities
Add proceeds from sales of investment properties, assets held for sale and overages
Total property sales
f. Operating profit contributing to growth in EPRA NDV
Operating profit
Shares of profit of joint ventures
Unrealised (losses)/gains on development properties
Unrealised gains on assets classified as assets held for sale
Unrealised (losses)/gains on overages
Less previously unrealised gains on development properties released on sale
Operating profit contributing to growth in EPRA NDV
g. Portfolio value
Land and buildings (included within Property, plant and equipment)
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 (%)
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
Note
15,598
6,687
22,285
27,765
63
(31,734)
7,442
3,536
70,001
(2,676)
(20,396)
28,858
75,787
27,765
8,655
(5,992)
191
(566)
(4,295)
25,758
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
3
3
3
3
15
As at
31 December
2020
£’000
As at
31 December
2019
£’000
Note
17
21
(71,172)
835
373,079
25,316
7,594
177,712
584,536
29,848
775
3,000
618,159
787
293,840
33,072
11,252
202,092
541,043
40,135
584
3,566
585,328
(83,882)
12,710
(70,911)
(71,172)
(82,744)
11,833
(70,911)
(71,172)
618,159
11.5%
(70,911)
585,328
12.1%
165
Financial StatementsCorporate Governance Strategic Report
2. Alternative Performance Measures (“APMs”): continued
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 (business space and natural resources)
Gross loan to core income portfolio value (%)
m. Number of shares used for per share calculations
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. Net Asset Value (NAV) per share
NAV £’000
Number of shares used for per share calculations
NAV per share (p)
2) Reconciliation to EPRA measures
a. EPRA NDV
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 NDV
b. EPRA NDV per share (p)
EPRA NDV £’000
Number of shares used at 31 December for per share calculations
EPRA NDV per share (p)
c. EPRA NDV growth and total return
Opening EPRA NDV/share (p)
Closing EPRA NDV/share (p)
Movement in the year
EPRA NDV growth
Dividends paid per share (p)
Total return per share
Total return as a percentage of opening EPRA NDV
d. Net loan to EPRA NDV
Net debt
EPRA NDV
Net loan to EPRA NDV
166 Annual Report 2020
As at
31 December
2020
£’000
As at
31 December
2019
£’000
(71,172)
248,004
28.7%
(83,882)
618,159
13.6%
(83,882)
248,004
33.8%
(70,911)
200,984
35.3%
(82,744)
585,328
14.1%
(82,744)
200,984
41.2%
14
21
21
14
27 322,530,807
(120,487)
27
321,909,382
(132,015)
27 322,410,320
321,777,367
488,712
322,410,320
463,779
321,777,367
151.6
144.1
As at
31 December
2020
£’000
As at
31 December
2019
£’000
Note
488,712
29,848
775
3,000
(6,388)
515,947
463,779
40,135
584
3,566
(7,529)
500,535
515,947
27 322,410,320
500,535
321,777,367
160.0
155.6
155.6
160.0
4.4
2.8%
0.3
4.7
3.0%
145.2
155.6
10.4
7.2%
0.9
11.3
7.8%
(71,172)
515,947
13.8%
(70,911)
500,535
14.2%
Notes to the financial statements for the year ended 31 December 2020: continued
3. Segmental Information
Segmental Income Statement
31 December 2020
Revenue
Cost of sales
Gross profit(1)
Administrative expenses
Other gains(2)
Other operating expense
Operating profit/(loss)
Net finance income/(costs)
Share of profit of joint ventures
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:
Increase in fair value of investment properties
Decrease in the fair value of assets classified as held for sale
Profit/(loss) on sale of investment properties
Profit on sale of assets classified as held for sale
Profit on sale of overages
Segmental Balance Sheet
Non-current assets
Property, plant and equipment
Right of use assets
Investment properties
Investments in joint ventures
Current assets
Inventories
Trade and other receivables
Assets classified as held for sale
Cash and cash equivalents
Total assets
(13,097)
33,324
Capital Growth
Sale of
Development
Properties
£’000
Other
Property
Activities
£’000
Income
Generation
£’000
Central
overheads
£’000
46,929
(54,371)
(7,442)
–
–
–
(7,442)
–
–
(7,442)
–
2,999
(16,208)
4,408
1,359
2,676
(1,834)
842
(3,080)
12,598
–
10,360
367
7,953
18,680
842
–
–
–
–
20,396
(3,180)
17,216
(1,872)
19,136
–
34,480
1
702
35,183
17,216
–
–
–
–
(7,442)
842
17,216
–
–
–
–
–
–
6,459
–
5,099
72
968
12,598
18,946
(295)
(69)
482
72
19,136
–
–
–
(9,570)
–
(63)
(9,633)
(3,464)
–
–
–
–
–
–
–
–
–
–
–
–
–
Capital
Growth
£’000
Income
Generation
£’000
Central
overheads
£’000
–
–
118,940
13,434
–
–
254,139
11,882
132,374
266,021
182,017
39,736
1,384
–
223,137
355,511
649
12,574
6,210
–
19,433
285,454
1,007
170
–
–
1,177
–
4,131
–
12,710
16,841
18,018
Total
£’000
70,001
(59,385)
10,616
(14,522)
31,734
(63)
27,765
(3,096)
8,655
18,058
2,999
(16,208)
4,408
1,359
10,616
25,405
(295)
5,030
554
1,040
31,734
Total
£’000
1,007
170
373,079
25,316
399,572
182,666
56,441
7,594
12,710
259,411
658,983
Financial liabilities and derivative financial instruments are not allocated to the reporting segments as they are managed and measured on a Group
basis.
167
Financial StatementsCorporate Governance Strategic Report
3. Segmental Information: continued
Segmental Income Statement
31 December 2019
Revenue
Cost of sales
Gross profit(1)
Administrative expenses
Other gains(2)
Other operating expense
Operating profit/(loss)
Net finance income/(costs)
Share of profit of joint ventures
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
Segmental Balance Sheet
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
Capital Growth
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
–
–
–
–
–
Other
Property
Activities
£’000
964
(960)
4
(2,650)
24
–
(2,622)
317
7,026
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)
(2,724)
–
–
–
–
–
–
–
–
–
–
–
–
(10,821)
30,303
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
(2,407)
8,449
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.
168 Annual Report 2020
Notes to the financial statements for the year ended 31 December 2020: continued
4. Operating profit
Operating profit before tax is stated after charging/(crediting):
Net movement in realisable value provision on development properties
Staff costs
Depreciation of property, plant and equipment and right of use assets
5. Employee information
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
10,441
8,265
285
(655)
7,523
139
Note
17
5
12, 13
The monthly average number of persons (excluding Non Executive Directors) employed by the Group during the year was:
Administration
Remuneration details of these persons were as follows:
Wages and salaries
Social security costs
Other pension costs
Key management remuneration relates to the members of the Investment Committee:
Short term employee benefits
Post employment benefits
Share-based payments
Group
Company
Year ended
31 December
2020
Number
Year ended
31 December
2019
Number
Year ended
31 December
2020
Number
Year ended
31 December
2019
Number
75
70
3
3
Group
Company
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
7,052
702
511
8,265
6,469
603
451
7,523
1,309
135
84
1,528
1,192
89
55
1,336
Group
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
2,749
166
247
3,162
2,567
138
121
2,826
Detailed information relating to Directors’ remuneration is disclosed in the Directors’ remuneration report on pages 108 to 131 and forms part of
these financial statements.
169
Financial StatementsCorporate Governance Strategic Report
6. Finance costs and finance income
Total finance income
Finance costs
– Bank interest
– Amortisation of RCF and other fees
– Other interest
Total finance costs
Net finance costs
During the year no interest has been capitalised in investment or development properties (2019: £nil).
7. Auditors’ remuneration
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’s 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
8. Tax
Analysis of tax credit/(charge) in the year
Current tax
Current year
Adjustment in respect of prior periods
Total current tax credit/(charge)
Deferred tax
Current year
Adjustment in respect of prior periods
Difference between current tax rate and rate of deferred tax
Total deferred tax charge
Tax charge
Other comprehensive income items
Deferred tax - current year
Total
170 Annual Report 2020
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
377
368
(2,654)
(622)
(197)
(3,473)
(3,096)
(2,026)
(455)
(294)
(2,775)
(2,407)
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
334
125
100
-
-
434
120
25
10
280
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
(449)
838
(1,797)
389
(7,139)
136
(914)
(3,026)
(7,917)
(4,823)
(7,528)
(2,346)
549
(1,797)
(4,331)
849
456
(3,026)
(4,823)
115
(3,026)
115
(3,026)
149
149
389
(7,917)
(7,528)
(7,917)
(7,917)
Notes to the financial statements for the year ended 31 December 2020: continued
8. Tax: continued
The tax charge for the year is higher (2019: lower) than the standard rate of corporation tax in the UK of 19% (2019: 19%). The differences are explained
below:
Profit before tax
Profit before tax multiplied by rate of corporation tax in the UK of 19% (2019: 19%)
Effects of:
Adjustments in respect of prior periods - deferred taxation
Adjustments in respect of prior periods - current taxation
Non-taxable income
Expenses not deducted for tax purposes
Revaluation losses
Share of profit of joint ventures
Land remediation relief
Difference between current tax rate and rate of deferred tax
Losses not previously recognised
Share options
Total tax charge
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
33,324
(6,332)
30,303
(5,758)
136
838
-
(109)
(2,848)
1,644
-
(914)
-
57
(7,528)
849
549
6
(526)
(4,287)
1,605
341
456
1,921
21
(4,823)
The revaluation losses in the tax reconciliation of £2.8m (2019: £4.3m) relate to movements in inherent chargeable gains and losses of
investment property.
In 2019, the tax losses, not previously recognised of £1.9m, were recognised during the year, as a result of increased certainty regarding their
availability to the Group.
The submission of the prior year tax computations and returns to reflect the land remediation relief and capital allowances claims following a
review, as well as revised utilisation of losses, resulted in an adjustment in respect of prior years of a £0.8m current tax credit (2019: £0.5m) and a
deferred tax credit of £0.1m (2019: £0.8m) compared to the original tax provision prepared for inclusion within the prior year financial statements.
At 31 December 2020, the Group had a current tax liability of £0.2m (2019: £2.7m)
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 tax account is as follows:
At 1 January 2019
Recognised in the consolidated income statement
Recognised in the consolidated statement of comprehensive income
Recognised in the consolidated statement of equity
At 31 December 2019 and 1 January 2020
Recognised in the consolidated income statement
Recognised in the consolidated statement of comprehensive income
Recognised in the consolidated statement of equity
At 31 December 2020
As at
31 December
2020
£’000
As at
31 December
2019
£’000
(23,159)
7,392
(15,767)
(15,637)
7,872
(7,765)
Investment
properties
£’000
(11,791)
(3,846)
–
–
(15,637)
(7,522)
–
–
(23,159)
Tax
losses
£’000
5,957
231
–
–
6,188
(414)
–
–
5,774
Other
temporary
differences
£’000
870
589
149
76
1,684
19
115
(200)
1,618
Total
£’000
(4,964)
(3,026)
149
76
(7,765)
(7,917)
115
(200)
(15,767)
171
Financial StatementsCorporate Governance Strategic Report
8. Tax: continued
There is deferred tax on UK corporation tax losses carried forward of £5.8m (2019: £6.2m); these may be carried forward indefinitely as there is no
time limit in respect of using these deferred tax assets.
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 19% (2019: 17%).
Finance Act 2016 had previously enacted provisions to reduce the main rate of UK corporation tax to 17% from 1 April 2020 and accordingly the
deferred tax at 31 December 2019 had been calculated at this rate. However, in the March 2020 Budget it was announced that the reduction will
not occur and the Corporation Tax Rate will be held at 19%. The Provisional Collection of Taxes Act was used to substantively enact the revised 19%
tax rate on 17 March 2020 and accordingly the deferred tax balances have been re-calculated to 19% at the year end.
The March 2021 Budget announced a further increase to the main rate of corporation tax to 25% from April 2023. This rate was announced post
year-end and therefore was not substantively enacted at the balance sheet date, as a result deferred tax balances as at 31 December 2020 continue
to be measured at 19%. If all of the deferred tax was to reverse at the amended 25% rate the impact on the closing deferred tax position would be
to increase the deferred tax liability by £5.0m.
Deferred tax assets and liabilities are offset when there is a legally enforced right to offset current tax assets against current tax liabilities and when
the deferred taxes relate to the same fiscal authority.
Deferred tax assets of £5.6m at 31 December 2020 have not been recognised owing to the uncertainty as to their recoverability. Deferred tax
assets of £3.7m were not recognised at 31 December 2019.
The Company has recognised a deferred tax asset in 2020 of £2.1m (2019: £2.0m).
9. Result of 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 £2.9m (2019: £1.9m) and the total comprehensive
expense for the financial year was £3.2m (2019: £2.3m).
10. Dividends
Interim dividend of 0.334p per share for the six months ended 30 June 2020
Full year dividend of 0.633p per share for the year ended 31 December 2018
Interim dividend of 0.304p per share for the six months ended 30 June 2019
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
1,077
-
-
1,077
-
2,035
977
3,012
The Board remained committed throughout 2020 to considering, at the time of the final 2020 dividend, an increased payment for 2020 to reflect
the cancellation of the 2019 full-year dividend following the onset of COVID-19. Given the full-year 2020 performance, the Board has approved the
recommendation of a 2020 final dividend of 1.466p. This comprises the cancelled 0.698p per share final 2019 dividend and a 0.768p per share
final 2020 dividend. The 2020 final dividend excluding the cancelled final 2019 dividend and 2020 interim dividend together total of 1.102p per
share, an underlying increase of 10%.
11. 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.
Profit from continuing operations attributable to owners of the parent (£’000)
Weighted average number of shares used for basic earnings per share calculation
Basic earnings per share (pence)
Weighted average number of shares used for diluted earnings per share calculation
Diluted earnings per share (pence)
Year ended
31 December
2020
25,796
321,502,838
Year ended
31 December
2019
25,480
322,104,415
321,502,838
8.0
7.9
323,840,504
322,943,178
8.0
7.9
322,104,415
323,840,504
8.0
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.
172 Annual Report 2020
Notes to the financial statements for the year ended 31 December 2020: continued
12. Property, plant and equipment
Group
Cost or fair value
As at 1 January 2020
Additions
Increase in fair value
As at 31 December 2020
Depreciation
As at 1 January 2020
Depreciation charge
As at 31 December 2020
Net book value
Net book value at 31 December 2020
Net book value at 31 December 2019
835
835
Land and
Buildings
£’000
Office
equipment
£’000
787
-
48
172
835
-
-
172
-
835
787
378
115
-
1,007
493
(115)
(206)
1,007
(321)
172
263
Total
£’000
1,165
115
48
1,328
(115)
(206)
(321)
1,007
1,050
At 31 December 2020, the Group had entered into no contractual commitments for the acquisitions of property, plant and equipment (2019: £nil).
13. Right of use assets
Group
Right of use assets
Buildings
Vehicles
Lease liabilities
Current
Non-current
Additions to right of use assets during 2020 was £0.1m (2019: £0.1m)
Group
Depreciation charge of right of use assets
Buildings
Vehicles
As at
31 December
2020
£’000
As at
31 December
2019
£’000
117
53
170
77
102
179
53
69
122
58
70
128
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
44
35
79
12
31
43
The total cash outflow for leases in 2020 was £0.1m (2019: £0.0m)
The Group leases a number of offices and vehicles. Rental contracts are typically made for fixed periods of three 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. Lease assets may not be used as security for borrowing purposes.
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 payments 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.
173
Financial StatementsCorporate Governance Strategic Report
14. Investment properties
Investment property at 31 December 2020 and 31 December 2019 has been measured at fair value. The Group holds five categories of investment
property being agricultural land, natural resources, business space, major developments and strategic land in the UK, which sit within the operating
segments of Income Generation and Capital Growth.
Income Generation
Capital Growth
Agricultural
land
£’000
Natural
resources
£’000
At 1 January 2019
Direct acquisitions
Direct acquisitions
Subsequent expenditure
Disposals
(Decrease)/increase in fair value
Transfers between divisions
Re-categorisation as development properties
Net transfer to assets classified as held for sale
At 31 December 2019 and 1 January 2020
Direct acquisitions
Direct acquisitions
Subsequent expenditure
Disposals
(Decrease)/increase in fair value
Transfers between divisions
Re-categorisation from development properties
Net transfer (to)/from assets classified as held for sale
At 31 December 2020
At 31 December 2020
(2,581)
11,742
–
56
–
(584)
(514)
–
(2,581)
(10,718)
8,119
-
46
(9)
(339)
400
–
(2,082)
6,135
45,479
454
946
(463)
3,306
1,183
–
(10,718)
–
40,187
1,825
157
(1,012)
5,218
(9,500)
–
(3,777)
Business
space
£’000
142,169
20,507
811
(120)
3,430
(6,000)
–
–
–
Major
developments
£’000
9,889
5,337
498
–
(835)
–
–
–
(669)
Strategic
land
£’000
45,130
11,973
8,651
(40)
524
5,331
(1,052)
(669)
Total
£’000
254,409
38,271
10,962
(623)
5,841
–
(1,052)
(13,968)
160,797
14,889
69,848
293,840
38,168
864
–
14,067
4,150
1,025
(4,165)
27
2,446
–
4,514
2,850
2,824
–
18,300
5,796
(6,552)
1,945
2,100
–
(47)
91,390
58,320
9,309
(7,573)
25,405
–
3,849
(10,071)
373,079
33,098
214,906
27,550
Included within investment properties (agricultural land) is a provision of £1.0m (2019: £1.2m) 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 £3.8m (2019: £nil) of development property was re-categorised as investment property to reflect a change in use. During the year
no investment property was re-categorised to development properties (2019: £1.1m). Properties that have obtained planning permission and
where development with a view to sale has commenced are now held as development properties in inventories. Until sites receive planning
permission and the future use has been determined, our view is that the land is held for a currently undetermined future use and should thus be
held as investment property. Where there is a subsequent change in use, typically in properties and land that have received planning permission
and where development with a view to sale has commenced, these are re-categorised as development properties in inventories.
Investment property is transferred between divisions to reflect a change in the activity arising from the asset.
Market value as estimated by the external valuer
Capital incentives and rent free periods included within prepayments and accrued income
Contingent interest in adjoining land included within external valuations
Other adjustments
Fair value for financial reporting purposes
Valuation process
As at
31 December
2020
£’000
380,659
(3,420)
(2,407)
(1,753)
As at
31 December
2019
£’000
297,601
(1,229)
–
(2,532)
373,079
293,840
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.
174 Annual Report 2020
Notes to the financial statements for the year ended 31 December 2020: continued
14. Investment properties: continued
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 significant 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 2020 (2019: none).
Valuation techniques underlying management’s estimation of fair value are as follows:
Agricultural land
Most of the agricultural land is valued using the market comparison basis, with an adjustment made for the length of the remaining term on any
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 with regard to the residual land
value.
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 current rent and estimated rental value (ERV), 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. The Group’s portfolio has a spread of yields. New income acquisitions are
generally acquired at high yields where value can be added. Properties that are built by Harworth new typically have lower yields. As assets are
enhanced and improved, these are also valued at lower yields.
ERV and reversionary rental yields are considered to be significant unobservable inputs. Details of the aggregate ERV and weighted average
reversionary rental yields used for the Business Space properties are provided in the following table:
Market value (£’000)
Aggregate ERV (£’000)
Equivalent rental yield %
As at
31 December
2020
As at
31 December
2019
218,327
14,832
7.1
162,026
10,807
6.9
All other factors being equal, a higher equivalent yield would lead to a decrease in the valuation of an asset and an increase in the current or
estimated future rental stream, or market demand for the asset, would have the effect of increasing the capital value, and vice versa. However, there
are inter-relationships between the significant unobservable inputs which are partially determined by market conditions, which would impact on
these changes.
The table below sets out a sensitivity analysis for the key sources of estimation uncertainty with the resulting increase/(decrease) in the fair value of
Business Space assets at 31 December 2020:
Change in ERV by 5%
Change in equivalent rental yield of 5%
yield of 1%
2020
2019
Increase in
Sensitivity
Value
£’000
10,742
(16,831)
Decrease in
Sensitivity
Value
£’000
(10,742)
18,726
Increase in
Sensitivity
Value
£’000
7,857
(9,416)
Decrease in
Sensitivity
Value
£’000
(7,857)
16,638
The property rental income earned by the Group from its occupied investment property, all of which is leased out under operating leases
amounted to £14.8m (2019: £13.6m). Direct operating expenses arising on investment property generating rental income in the year amounted to
£3.5m (2019: £5.1m).
The bank and other loans are secured by way of fixed equitable charges over investment and development properties.
175
Financial StatementsCorporate Governance Strategic Report
14. Investment properties: continued
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 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.
The discounted cash flows utilise gross development value, which takes account of the future expectations of sales over time, less costs, as at
today’s value, to complete remediation and provide the necessary site infrastructure to bring the site forward. Sales prices, build costs and profit
margins are considered to be significant unobservable inputs and details of these are provided below:
Major developments
27,550 £93-£122
£46-£58 15%-17.5%
14,889
£100
£46
As at 31 December 2020
As at 31 December 2019
Market value
(£’000)
Sales price
per sq. ft
Build cost
per sq. ft
Profit
margin
%
Market value
(£’000)
Sales price
per sq. ft
Build cost
per sq. ft
Profit
margin
%
15%
All other factors being equal, a higher land value reflecting future expectations on sales would lead to an increase in the valuation of an asset, an
increase in costs would lead to a decrease in the valuation of an asset. However, there are inter-relationships between the significant unobservable
inputs which are partially determined by market conditions, which would impact on these changes.
The table below sets out a sensitivity analysis for the key sources of estimation uncertainty with the resulting increase/(decrease) in the fair value of
Major Development investment properties at 31 December 2020:
Change in sales price of 5%
Change in build cost of 5%
Strategic land
2020
2019
Increase in
Sensitivity
Value
£’000
6,100
(3,910)
Decrease in
Sensitivity
Value
£’000
(5,935)
4,070
Increase in
Sensitivity
Value
£’000
1,410
(790)
Decrease in
Sensitivity
Value
£’000
(1,345)
850
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 land value per acre is considered
to be a significant unobservable input and details of the ranges used is provided below.
Market value £’000
Weighted Average Land value per acre £’000
As at 31 December 2020
As at 31 December 2019
Agricultural
Land
7,088
2
Natural
Resources
34,258
18
Strategic
Land
93,436
56
Agricultural
Land
9,323
3
Natural
Resources
41,515
25
Strategic
Land
69,848
55
All things being equal, a higher value per acre would lead to an increase in the valuation of an asset and vice versa. The table below sets out a
sensitivity analysis for the key source of estimation uncertainty with the resulting increase/(decrease) in the fair value at 31 December 2020:
2020
2019
Increase in
Sensitivity
Value
£’000
Decrease in
Sensitivity
Value
£’000
354
1,713
4,639
(354)
(1,713)
(4,639)
Increase in
Sensitivity
Value
£’000
466
2,076
3,493
Decrease in
Sensitivity
Value
£’000
(466)
(2,076)
(3,493)
Change in land value per acre by 5%
Agricultural Land
Natural Resources
Strategic Land
176 Annual Report 2020
Notes to the financial statements for the year ended 31 December 2020: continued
15. 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
2020
£’000
Year ended
31 December
2019
£’000
208,473
501
208,974
208,400
73
208,473
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.
The Group holds investments in the following subsidiaries as at 31 December 2020:
Company name
Activity Description of shares held
Proportion of
nominal value of
issued share capital
held by the
Company %
Held directly or
indirectly by the
Company
Coalfield Estates Limited
Harworth Estates Property Group Limited
Harworth Guarantee Co. Limited
Harworth Secretariat Services Limited
Harworth Trustees Limited
Harworth Estates Group Limited
Harworth No.3 Limited
Harworth Services Limited
Harworth Regeneration Limited
Harworth Estates Limited
Logistics North MC Limited
POW Management Company Limited
Rossington Community Management Company Limited
Harworth Estates Investments Limited
EOS Inc. Limited
Harworth Estates Curtilage Limited
Harworth Estates Overage Limited
Harworth Estates No 2 Limited
Harworth Estates (Agricultural Land) Limited
Harworth TRR Limited
Harworth Estates (Waverley Prince) Limited
Harworth Estates Warwickshire Limited
Harworth Estates Mines Property Limited
Harworth Surface Water Management (North West) Limited
Cadley Park Management Company Limited
Cutacre Country Park Management Company Limited
Riverdale Park Management Company Limited
Flass Lane Management Company Limited
Simpson Park Management Company Limited
South East Coalville Management Company Limited
Thoresby Vale Management Company Limited
Mapplewell Management Company Limited
Waverley Community Management Company Limited
Waverley Square Limited
Konect Management Company Limited
Ansty Development Vehicle LLP
Non-trading
Trading
Dormant
Dormant
Dormant
Non-trading
Non-trading
Non-trading
Non-trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Non-trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Non-trading
Trading
Trading
Trading
Non-trading
Non-trading
Trading
Ordinary
Ordinary
Limited by guarantee
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Limited by guarantee
Limited by guarantee
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Limited by guarantee
Limited by guarantee
Limited by guarantee
Limited by guarantee
Ordinary
Limited by guarantee
Limited by guarantee
Ordinary
Ordinary
Partnership
100
100
100
100
100
100
100
100
100
100
10.86
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
7.14
100
Direct
Direct
Direct
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
All of the above companies are incorporated in England and Wales and unless stated otherwise, have a registered address of Advantage House,
Poplar Way, Rotherham, South Yorkshire, S60 5TR.
177
Financial StatementsCorporate Governance Strategic Report
15. Investments: continued
Control of Logistics North MC Limited and Konect Management Company Limited is via ownership of voting rights equal to 75% or more and the
right to appoint and remove directors.
South East Coalville Management Company Limited was incorporated during the year, on 24 January 2020.
Konect Management Company Limited was incorporated during the year, on 22 July 2020.
The Group took full ownership of Waverley Square Limited, which was a joint venture in the prior year, on 26 June 2020.
The Group took full ownership of Ansty Development Vehicle LLP, which was a joint venture in the prior year, on 12 November 2020.
Investment in joint ventures
At 1 January
Investment in joint ventures
Distributions from joint ventures
De-recognition on acquisition(1)
Share of profits of joint ventures
At 31 December
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
33,072
289
(8,930)
(7,770)
8,655
25,316
25,830
2,592
(3,799)
-
8,449
33,072
(1)
On 12 November 2020, the Group acquired the remaining interest of Ansty Development Vehicle LLP for £7.8m. The net assets and performance have been fully
consolidated from the date of acquisition as set out in note 16.
The Group holds investments in the following joint ventures as at 31 December 2020:
Company name
Bates Regeneration Limited(1)
Gateway 45 No.1 Limited
The Aire Valley Land LLP
Multiply Logistics North Holdings Limited
Multiply Logistics North LP
Crimea Land Mansfield LLP
Northern Gateway Development Vehicle LLP
Activity Description of shares held
Non-trading
Dormant
Trading
Trading
Trading
Trading
Trading
Ordinary
Ordinary
Partnership
Ordinary
Partnership
Partnership
Partnership
Proportion of
nominal value of
issued share capital
held by the
Company %
50
50
50
20
20
50
50
(1) Registered office at Inkerman House, St. Johns Road, Meadowfield, Durham, County Durham, DH7 8XL
All of the above companies are incorporated in England and Wales and unless stated otherwise, have a registered address of Advantage House,
Poplar Way, Rotherham, South Yorkshire, S60 5TR.
Multiply Logistics North Holdings Limited and Multiply Logistics North LP are joint ventures as a consequence of equal voting rights.
Gateway 45 No.1 Limited was dissolved post year end, on 12 January 2021.
The Group took full ownership of Waverley Square Limited, which was a joint venture in the prior year, on 26 June 2020.
The Group took full ownership of Ansty Development Vehicle LLP, which was a joint venture in the prior year, on 12 November 2020.
178 Annual Report 2020
Notes to the financial statements for the year ended 31 December 2020: continued
15. Investments: continued
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 profit/(loss)
Administrative expenses
Other gains
Finance costs
Share of profits
The Aire Valley Land LLP
Multiply Logistics North LP
As at
31 December
2020
£’000
As at
31 December
2019
£’000
As at
31 December
2020
£’000
As at
31 December
2019
£’000
13,000
272
13,272
(273)
–
(10,718)
10,009
11,511
21,520
(1,372)
–
12,999
20,148
The Aire Valley Land LLP
As at
31 December
2020
£’000
As at
31 December
2019
£’000
225
(40)
185
(5)
1,601
–
(10,718)
1,781
–
(39)
(39)
(15)
8,416
(23)
8,339
-
-
(2,581)
(2,581)
11,662
270
11,932
(50)
–
(669)
11,882
11,028
304
11,332
(153)
–
11,179
Multiply Logistics North LP
As at
31 December
2020
£’000
As at
31 December
2019
£’000
407
(89)
318
(33)
417
–
(669)
702
251
(87)
164
(24)
578
–
718
Ansty Development Vehicle LLP became a fully controlled subsidiary of the Group on 12 November 2020. Prior to this acquisition, a share of profits
of the joint venture of £6.3m was recognised.
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
2020
£’000
As at
31 December
2019
£’000
376
64
440
(5)
435
(173)
1,875
122
1,997
(252)
1,745
(608)
179
Financial StatementsCorporate Governance Strategic Report
16. Group of assets acquisition
Summary of acquisition
On 12 November 2020, Harworth Group acquired the remaining 50% interest in Ansty Development Vehicle LLP (“ADV LLP”) for total consideration
of £7.8m. The Group had previously acquired a 50% interest in ADV LLP on 28 October 2019, when the Group entered into a joint venture
agreement with Hallam Land Management Limited to establish ADV LLP. As at 31 December 2019 and 30 June 2020, the Group’s interest in ADV
LLP was recognised as an investment in joint venture asset following the equity method of accounting under IAS 28.
The acquisition was not treated as an acquisition of a business as ADV LLP held only assets and liabilities and there were no activities or operational
processes acquired as part of the acquisition of ADV LLP. Accordingly, no goodwill or deferred taxation arises. The identifiable assets and liabilities
acquired were recorded at acquisition cost which were equal to their fair values on the acquisition date.
Investment properties
Current assets
Current liabilities
Net Assets acquired
The fair value of investment property was determined in line with the Group’s policy and processes for the valuation of investment property.
As an acquisition of assets achieved in stages, the total consideration includes the derecognition of the Group’s previous interest in ADV LLP.
Carrying value of previously held interest in ADV LLP at acquisition date
Initial cash consideration and fees
Deferred Consideration
Total consideration of acquisition achieved in stages
£’000
15,861
407
(604)
15,664
£’000
7,770
4,092
3,802
15,664
Fees of £46,000 were incurred as part of the acquisition. Due to minimal activity within Ansty Development Vehicle LLP during the period from
acquisition on 12 November 2020 to 31 December 2020, the impact on the Group’s consolidated results was negligible.
There were no group of asset acquisitions in the year ending 31 December 2019.
Acquisition related cash outflows
Cash consideration paid
Cash outflow - acquisition related costs
Cash outflow of acquisitions
17. Inventories
Development properties
Planning promotion agreements
Option agreements
Finished goods
Total inventories
Year ended
31 December
2020
£’000
4,046
46
4,092
As at
31 December
2020
£’000
As at
31 December
2019
£’000
177,712
2,961
1,344
649
182,666
202,092
2,051
1,074
683
205,900
The total cost of inventory recognised as an expense within cost of sales in the year is £54.7m (2019: £50.3m) and comprised of: £43.9m (2019:
£50.1m) relating to the sale of development properties; a charge of £10.5m (2019: £0.6m credit) net realisable value provision against development
properties; a charge of £0.3m (2019: £1.1m) in relation to planning promotion agreements; and a charge of £0.0m (2019: £0.3m credit) relating to
finished goods stocks. Finished goods are stated after a provision of £0.2m (2019: £0.3m).
180 Annual Report 2020
Notes to the financial statements for the year ended 31 December 2020: continued
17. Inventories: continued
The movement in the development properties is as follows:
At 1 January
Acquisitions
Subsequent expenditure
Disposals
Movement in net realisable value provision
Re-categorisation (to)/from investment properties
At 31 December
The movement in net realisable value provision on development properties was as follows:
At 1 January
Net realisable value provision for the year
Released on disposals
Reversal of previous net realisable value provision
At 31 December
The bank and other loans are secured by fixed equitable charges over development and investment properties.
18. Trade and other receivables
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
202,092
–
27,860
(37,950)
(10,441)
(3,849)
204,157
3,158
23,235
(30,165)
655
1,052
177,712
202,092
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
6,899
16,208
(1,359)
(4,408)
17,340
7,554
3,574
(1,168)
(3,061)
6,899
Current
Trade receivables
Less: provision for impairment of trade receivables
Net trade receivables
Other receivables
Prepayments
Accrued income
Amounts owed by subsidiary undertakings (note 31)
Non-current
Trade receivables
Group
Company
As at
31 December
2020
£’000
As at
31 December
2019
£’000
As at
31 December
2020
£’000
As at
31 December
2019
£’000
35,742
(308)
35,434
18,785
957
1,265
–
56,441
29,008
(109)
28,899
14,682
1,139
1,735
–
46,455
–
–
–
59
46
-
29,390
29,495
–
–
–
–
191
-
28,976
29,167
–
12,754
–
–
The carrying amount of trade and other receivables approximates 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 current trade receivables are £33.4m (2019: £27.9m) of deferred consideration from the sale of investment and development
property.
181
Financial StatementsCorporate Governance Strategic Report
18. Trade and other receivables: continued
In 2019, the non-current trade receivable of £12.8m related to deferred consideration on the sale of development properties due in more than
one year.
Included within other receivables are £3.5m (2019: £5.4m) 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 +2.0%.
Group
Movements on provisions for impairment of trade receivables are as follows:
As at
31 December
2020
£’000
As at
31 December
2019
£’000
(109)
(199)
(308)
(142)
33
(109)
As at
31 December
2020
£’000
As at
31 December
2019
£’000
33,666
1,768
308
(308)
35,434
41,453
200
109
(109)
41,653
As at
31 December
2020
£’000
As at
31 December
2019
£’000
1,389
7
372
-
1,768
58
84
15
43
200
As at
31 December
2020
£’000
As at
31 December
2019
£’000
-
-
308
308
-
-
109
109
At the beginning of the year
Released/(provided) for 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
Ageing of impaired trade receivables:
31 – 60 days
61 – 90 days
91 – 120 days
182 Annual Report 2020
Notes to the financial statements for the year ended 31 December 2020: continued
19. Assets Held For Sale
Assets classified as held for sale relate to investment properties expected to be sold within twelve months.
At 1 January
Net transfer from investment properties
Subsequent expenditure
Decrease in fair value
Disposals
At 31 December
20. Cash
Cash
21. Borrowings
Current:
Secured – infrastructure loans
Non-current:
Secured – bank loans
Secured – infrastructure loans
Total borrowings
Loans are stated after deduction of unamortised fees of £0.4m (2019: £0.3m).
Infrastructure loans
Sheffield City Region JESSICA Fund
Homes and Communities Agency
Total infrastructure loans
Bank loan
Total borrowings
Advanced Manufacturing Park, Waverley
Simpson Park
As at
31 December
2020
£’000
As at
31 December
2019
£’000
11,252
10,071
24
(295)
(13,458)
7,594
10,956
13,968
341
(229)
(13,784)
11,252
Group
Company
As at
31 December
2020
£’000
As at
31 December
2019
£’000
As at
31 December
2020
£’000
As at
31 December
2019
£’000
12,710
11,833
1,652
1,506
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
-
-
(79,740)
(4,142)
(83,882)
(83,882)
(2,842)
(2,842)
(75,785)
(4,117)
(79,902)
(82,744)
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
-
(4,142)
(4,142)
(79,740)
(83,882)
(2,842)
(4,117)
(6,959)
(75,785)
(82,744)
The bank borrowings are part of a £130m (2019: £100m) revolving credit facility (“RCF”) provided by the Royal Bank of Scotland and Santander. The
RCF is repayable on 13 February 2023 (five year term) on a non-amortising basis and is subject to financial and other covenants. In May 2020, the
Royal Bank of Scotland and Santander agreed to increase the limit of the RCF by £30m to £130m. The RCF limit decreases to £100m in June 2022.
The bank borrowings are secured by fixed equitable charges over development and investment properties. Proceeds from and repayments of
bank loans are reflected gross in the cashflow and reflect timing of utilisation of the RCF facility.
The infrastructure loans are provided by public bodies in order to promote the development of major sites. The loans are drawn as work on the
respective sites is progressed and are repayable on agreed dates or when disposals are made from the sites.
183
Financial StatementsCorporate Governance Strategic Report
22. Trade and other payables
Current liabilities
Trade payables
Amounts owed to subsidiary undertakings
Taxation and social security
Other creditors
Accruals
Deferred income
Amounts in accruals relating to parcels of land that have been sold but where infrastructure
costs are yet to be incurred
Non-current liabilities
Other creditors
Deferred income
Group
Company
As at
31 December
2020
£’000
As at
31 December
2019
£’000
As at
31 December
2020
£’000
As at
31 December
2019
£’000
1,658
-
4,968
9,528
43,308
7,024
66,486
11,670
-
267
3,670
35,258
5,743
56,608
22
13,926
78
16
758
-
14,800
222
9,272
75
4
582
-
10,155
Group
Company
As at
31 December
2020
£’000
As at
31 December
2019
£’000
As at
31 December
2020
£’000
As at
31 December
2019
£’000
33,361
28,286
–
–
Group
Company
As at
31 December
2020
£’000
As at
31 December
2019
£’000
As at
31 December
2020
£’000
As at
31 December
2019
£’000
720
1,234
1,954
1,200
–
1,200
–
–
–
–
–
–
23. Financial instruments and derivatives
On 20 July 2018, Harworth cancelled its £30m fixed rate interest swap which was due to expire on 30 June 2020 (incurring total break costs of
£18.5k) and in its place entered into a four-year, £45m fixed rate interest swap at an all-in cost of 1.235% (including fees) on top of the existing
2.25% margin paid under the RCF. The interest rate swap is hedge accounted with any unrealised movements going through reserves.
The fair value of the interest rate swap at 31 December 2020 was a liability of £0.8m (2019: £0.6m) .
During the year the following (loss)/gain was recognised in the other comprehensive income statement in relation to the interest rate swap:
(Loss)/gain on interest rate swap - cash flow hedge
As at
31 December
2020
£’000
As at
31 December
2019
£’000
(267)
(449)
The Group’s principal financial instruments include trade and other receivables, cash, interest bearing borrowings and trade and other payables.
184 Annual Report 2020
Notes to the financial statements for the year ended 31 December 2020: continued
23. Financial instruments and derivatives: continued
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
As at 31 December 2020
As at 31 December 2019
Book value
£’000
Fair value
£’000
Book value
£’000
Fair value
£’000
12,710
54,219
12,710
54,219
11,833
54,451
11,833
54,451
83,882
63,472
83,882
63,472
82,744
57,541
82,744
57,541
31 December 2020
31 December 2019
Book value
£’000
Fair value
£’000
Book value
£’000
Fair value
£’000
1,652
29,392
1,652
29,392
1,506
28,976
1,506
28,976
14,722
14,722
10,080
10,080
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, interest rate 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, committed cash and cash equivalents and deposits with banks and
financial institutions. The Group and Company’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 LIBOR plus 2.25%. From May 2020 the rate increased from 2.1%
to 2.25%, following the increase in the facility limit. On 20 July 2018 the Group entered into a four-year swap with Santander to fix £45m of
borrowings at an all in rate of 1.235% on top of the existing 2.25% margin paid under the RCF, including fees. The swap is hedge accounted with
any unrealised movements going through reserves.
The Group also has one (2019: two) infrastructure loan with an all in funding rate of 4.0% (2019: between 3.2% and 4.0%).
Liquidity risk
The Group is subject to the risk that it will not have sufficient liquid resources to fund its on-going business. The Group manages its liquidity
requirements with the use of both short and long-term cash flow forecasts.
The Group had net debt at 31 December 2020 of £71.2m (2019: £70.9m). The Group generated cash from operating activities and investing
activities for the year of £1.2m (2019: cash utilised of £3.0m).
185
Financial StatementsCorporate Governance Strategic Report
24. Financial risk management: continued
The table below analyses the Group’s financial liabilities which will be settled on a net basis into relevant maturity groupings based on the
remaining period at the Balance sheet date to the contractual maturity date. The amounts disclosed in the table are the gross contractual
undiscounted cash flows.
At 31 December 2020
Trade and other payables
Lease liability
Bank and other borrowings including interest payable
At 31 December 2019
Trade and other payables
Lease liability
Bank and other borrowings including interest payable
Capital risk management
Less than
1 year
£’000
Between
1 and 2 years
£’000
Between
2 and 5 years
£’000
Over
5 years
£’000
66,486
77
-
56,608
58
2,842
872
50
4,142
1,100
51
-
457
52
79,740
100
19
79,902
625
-
-
-
-
-
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 its 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 equalled £71.2m at 31 December 2020 (2019:
£70.9m).
The Group has in place a £130.0m (2019: £100.0m) RCF from the Royal Bank of Scotland and Santander as discussed in note 21.
The facility is subject to covenants over loan to market value of investment properties and development properties, gearing, and minimum
consolidated net worth.
The Group comfortably operated within these requirements throughout the year.
186 Annual Report 2020
Notes to the financial statements for the year ended 31 December 2020: continued
25. Retirement benefit obligations
Defined contribution pension schemes
The Group pays defined contribution payments to pension insurance plans. Contributions to defined contribution schemes in the year amounted to
£0.5m (2019: £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
2020
£’000
As at
31 December
2019
£’000
As at
31 December
2020
£’000
As at
31 December
2019
£’000
968
771
968
771
Contributions to the Blenkinsopp scheme of £0.2m were made by the Group during 2020 (2019: £0.2m). It is expected that contributions of a
similar amount will be paid in 2021. At December 2020, no contributions remained unpaid (2019: £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
corporate bond yields, the rates of increase in pensions and life expectancy. 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
2020
1.30% p.a.
2.35% p.a.
2.95% p.a.
2.35% p.a.
25.00% of
pension at a
rate of
£9:£1
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
Year ended
31 December
2020
Year ended
31 December
2019
19.3
22.6
20.7
24.1
19.2
22.4
20.6
23.9
The assumed pension increases depend on the period of service accrual (before April 1997: no increases, after 1997: in line with statutory minimum
increases based on CPI).
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.
2020
£’000
2,537
(3,505)
(968)
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)
187
Financial StatementsCorporate Governance Strategic Report
25. Retirement benefit obligations: continued
Analysis of the amounts recognised in the Income Statement
Expenses
Interest cost
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
(49)
(14)
(63)
(57)
(11)
(68)
A further cost of £0.3m (2019: £0.4m) 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
Analysis of plan assets (which are all quoted investments)
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
Interest cost
Remeasurements:
– Gain / (loss) arising from changes in demographic assumptions
– Gain / (loss) arising from changes in experience
– Gain/(loss) arising from changes in financial assumptions
Benefits paid
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
2,313
48
104
205
(49)
(84)
2,537
2,249
62
79
189
(57)
(209)
2,313
As at
31 December
2020
£’000
As at
31 December
2019
£’000
1,626
268
-
643
2,537
1,141
177
382
613
2,313
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
(3,084)
(62)
(14)
68
(497)
84
209
(2,711)
(73)
57
(248)
(318)
209
Present value of defined benefit obligation at the end of the year
(3,505)
(3,084)
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
(771)
(63)
205
(339)
(968)
(462)
(68)
189
(430)
(771)
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
188 Annual Report 2020
Notes to the financial statements for the year ended 31 December 2020: continued
25. Retirement benefit obligations: continued
The maturity of the defined benefit obligation is c.18 years (2019: 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 arising from changes in financial assumptions
– Loss arising from changes in demographic assumptions
Net actuarial loss
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
(610)
(339)
(949)
(180)
(430)
(610)
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
104
68
(498)
(13)
(339)
79
(248)
(318)
57
(430)
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
2020
£’000
Year ended
31 December
2019
£’000
62
54
163
49
44
128
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice some of the
assumptions may be correlated. No changes have been made to the method and types of assumptions from those in the previous year.
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.
189
Financial StatementsCorporate Governance Strategic Report
26. Share-based payments
During the year, there were five 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 Incentive Plan (SIP). Under this scheme eligible employees are granted free shares which vest after three years 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
2020
169,799
–
(17,999)
–
151,800
–
2019
362,327
–
(15,484)
(177,044)
169,799
–
2020
£0.00
n/a
£0.00
n/a
£0.00
n/a
2019
£0.00
n/a
£0.00
£1.30
£0.00
n/a
Weighted average remaining contractual life
7.27 years
8.26 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
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
2020
972,507
–
(250,355)
(266,050)
456,101
–
7.27 years
2019
2,066,015
–
(424,940)
(668,568)
972,507
–
7.73 years
2020
£0.00
n/a
£0.00
£0.00
£0.00
n/a
2019
£0.00
n/a
£0.00
£1.29
£0.00
n/a
Number of shares
Weighted average exercise price
2020
379,230
593,801
(51,262)
–
921,769
–
2019
–
379,230
–
–
379,230
–
2020
£0.00
£0.00
£0.00
n/a
£0.00
n/a
2019
n/a
£0.00
n/a
n/a
£0.00
n/a
Weighted average remaining contractual life
9.19 years
9.71 years
190 Annual Report 2020
Notes to the financial statements for the year ended 31 December 2020: continued
26. Share-based payments: continued
SAYE
Outstanding at beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding at end of the year
Exercisable at end of the year
Weighted average remaining contractual life
SIP
Outstanding at beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding at end of the year
Number of shares
Weighted average exercise price
2020
571,976
787,692
(149,088)
(345,525)
865,055
1,339
2.76 years
2019
452,708
163,931
(44,663)
–
571,976
–
1.71 years
2020
£0.88
£0.74
£0.94
£0.80
£0.78
£0.81
2019
£0.82
£1.04
£0.81
n/a
£0.88
n/a
Number of shares
Weighted average exercise price
2020
54,320
62,465
(9,673)
(5,802)
101,310
2019
–
54,320
–
–
54,320
2020
£0.00
£0.00
£0.00
£0.00
£0.00
2019
n/a
£0.00
n/a
n/a
£0.00
The fair values of the share options granted under the RSP and SAYE during the year were determined using the 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
£1.07
£0.00
0.28%
30%
n/a
4.72 years
£0.96
£1.07
£0.74
0.28%
25%
0%
3.38 years
£0.36
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 LTIP Scheme were exercised in the year with a weighted average share price on exercise of £0.92.
Awards under the 2017 SAYE Scheme were exercised in the year with a weighted average share price on exercise of £0.99.
The total Income Statement charge for the year relating to employee share-based payment plans was £0.6m, all of which related to equity-settled
share-based payment transactions.
191
Financial StatementsCorporate Governance Strategic Report
27. Share capital
Issued, authorised and fully paid
Group and Company
At 1 January
Shares issued
At 31 December
Issued, authorised and fully paid – number of shares
Group and Company
At 1 January
Shares issued
At 31 December
Own shares held
At 31 December
Year ended
31 December
2020
£’000
32,191
62
32,253
Year ended
31 December
2019
£’000
32,150
41
32,191
Year ended
31 December
2020
321,909,382
621,425
322,530,807
(120,487)
Year ended
31 December
2019
321,496,760
412,622
321,909,382
(132,015)
322,410,320
321,777,367
Ordinary shares have a nominal value of 10 pence each.
The own shares held represent the number of shares 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 for employees.
28. Share premium account
Group and Company
At 1 January
Premium on shares issued
At 31 December
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
24,359
208
24,567
24,351
8
24,359
29. Capital and other financial commitments
At 31 December 2020 the Group had capital commitments due under construction contracts of £nil (2019: £0.4m). Capital commitments for the
acquisition of property, plant and equipment are disclosed in note 12. Future expenditure required to bring our investment and development
properties to their highest and best use are not considered to be capital commitments, however such build costs for our investment properties are
disclosed as a significant unobservable input in the valuation of Major Development properties as set out in note 14.
30. Operating leases
Future minimum lease receipts
At 31 December 2020 the Group had contracted with tenants for the following future minimum lease payments:
Less than one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
More than five years
Group
Company
As at
31 December
2020
£’000
As at
31 December
2019
£’000
As at
31 December
2020
£’000
As at
31 December
2019
£’000
15,991
13,353
12,003
11,150
10,469
118,267
181,233
12,820
10,906
9,130
7,249
6,357
96,677
143,139
-
-
-
-
-
-
–
-
-
-
-
-
-
–
As set out in note 14 property rental income earned during the year was £14.8m (2019: £13.6m).
192 Annual Report 2020
Notes to the financial statements for the year ended 31 December 2020: continued
31. Related party transactions
GROUP
The Group carried out the following transactions with related parties. The following entities are related parties as a consequence of shareholdings,
joint venture arrangements and partners of such and/or common Directorships. 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.
PEEL GROUP
Revenue
Profit on sale from of overages
Cost of sales/administrative expenses
Recharges in respect of fees for Steven Underwood, a non-executive director
MULTIPLY LOGISTICS NORTH HOLDINGS LIMITED & MULTIPLY LOGISTICS NORTH LP
Revenue
Sale of land
Recharges of costs
Asset management fee
Water charges
Purchases
Diversion of surface water drain
Receivables
Trade receivables
Other receivables
Partner loan made during the year
BANKS GROUP
Revenue
Annual option sums
Provision of certificate regarding title
Acquisition of land
Acquisition of land at Cinderhill
Payables
Deferred payment in respect of the acquisition of land at Moss Nook
Trade payables
POLYPIPE
Revenue
Rent
WAVERLEY SQUARE LIMITED
Shareholder loan made during the year*
* Waverley Square Limited became a fully owned subsidiary of the Group on 26 June 2020.
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
987
–
–
(45)
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
–
–
107
100
97
153
285
–
2,175
2
121
92
–
10
-
407
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
5
1
–
(1,000)
(5)
15
–
2,412
(1,200)
-
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
5
-
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
169
25
193
Financial StatementsCorporate Governance Strategic Report
31. Related party transactions: continued
THE AIRE VALLEY LAND LLP
Partner loan made during the year
Partner loan repayment
Profit share received during the year
Receivable
BATES REGENERATION LIMITED
Shareholder loan repayment
ANSTY DEVELOPMENT VEHICLE LLP
Partner loan made during the year*
* Ansty Development Vehicle LLP became a fully owned subsidiary of the Group on 12 November 2020.
CRIMEA LAND MANSFIELD LLP
Partner loan made during the year
Receivable
NORTHERN GATEWAY DEVELOPMENT VEHICLE LLP
Partner loan made during the year
Receivable
HALLAM LAND MANAGEMENT LIMITED
Purchases
Purchase of share of interest of Ansty Development Vehicle LLP
Payables
Deferred payment in respect of the acquisition of Ansty Development Vehicle LLP
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
–
(7,951)
(979)
2
250
(3,000)
–
–
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
–
(799)
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
–
1,496
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
-
2
495
-
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
–
528
22
–
Year ended
31 December
2020
£’000
Year ended
31 December
2019
£’000
7,848
(3,803)
–
–
194 Annual Report 2020
Notes to the financial statements for the year ended 31 December 2020: continued
31. Related party transactions: continued
COMPANY
The Company carried out the following transactions with subsidiary undertakings.
Details of the Company’s intercompany balances and interest at 31 December 2020 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
Coalfield Estates Limited
As at 31 December 2020
As at 31 December 2019
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
526
(51)
(39)
(92)
–
–
54
(7)
(90)
(2)
–
(29)
299
20,970
(2,881)
(1,551)
(4,605)
(49)
6,250
2,170
(274)
(4,035)
(502)
(29)
–
15,464
586
(41)
(12)
(53)
–
–
59
(7)
(83)
–
–
(29)
449
20,611
(1,659)
(1,512)
(2,313)
(49)
6,250
2,115
(261)
(3,399)
(50)
(29)
19,704
–
Dividends received
During the year the Company received dividends of £nil (2019: £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.
195
Financial StatementsCorporate Governance Strategic Report
Glossary of frequently
used abbreviations
2018 Code 2018 UK Corporate Governance Code
AGM
Annual General Meeting
LTIP
LTV
Long-term Incentive Plan
Loan to portfolio value
AMP
Advanced Manufacturing Park
MHFA
Mental Health First Aider
AMRC
Advanced Manufacturing Research Centre, University of
Sheffield
NAV
Net Asset Value
APM
Alternative Performance Measure
AR
ATR
BCP
Augmented Reality
Absolute Total Return
Business Continuity Plan
BREEAM
Building Research Establishment Environmental
Assessment Method
CDM
Construction Design and Management
CEO
Chief Executive
CFO
Chief Financial Officer
CO2e
Carbon Dioxide equivalent
NCC
Nottinghamshire County Council
NDV
Net Disposal Value
NIY
Net Initial Yield
NWT
Nottinghamshire Wildlife Trust
PEVG
Profit Excluding Value Gains
PFA
PPA
Pulverised Fuel Ash
Planning Promotion Agreement
PSG
People Steering Group
PV
Photo-Voltaic
PwC
PricewaterhouseCoopers LLP
CPD
Continuous Professional Development
RCF
Revolving Credit Facility
DEFRA
Department for Environment, Food and Rural Affairs
RICS
Royal Institution of Chartered Surveyors
RIDDOR
Reporting of Injuries, Diseases and Dangerous Occurrences
Regulations
RCF
RSP
Revolving Credit Facility
Restricted Share Plan
SAYE
Save As You Earn
SIP
Share Incentive Plan
SMEs
Small and Medium-sized Enterprises
SSSI
Site of Special Scientific Interest
STEAM
Science, Technology, Engineering, Arts and Maths
STOR
Short-term Operating Reserve
TSR
Total Shareholder Return
UKAEA
UK Atomic Energy Authority
VR
Virtual Reality
WAULT Weighted average unexpired lease-term
DUKES
Digest of UK Energy Statistics
EA
EAP
EES
Environment Agency
Employee Assistance Programme
Estates, Environment and Safety
EPRA
European Public Real Estate Association
ERV
ESG
EV
EY
FTE
GFT
GRR
Estimated Rental Value
Environmental Social, and Governance
Electric Vehicle
Ernst & Young LLP
Full-time equivalent
Group Financial Target
Group Risk Register
GVA
Gross Value Added
GWh
Gigawatt hours
IR
KPI
Investor Relations
Key Performance Indicator
KWh
Kilowatt hours
LEP
LPA
Local Enterprise Partnership
Local Planning Authority
196 Annual Report 2020
Company information and
investor timetable
Chair
Alastair Lyons
Chief Executive
Lynda Shillaw
Chief Financial Officer
Kitty Patmore
Non-Executive Directors
Angela Bromfield
Ruth Cooke
Lisa Scenna
Patrick O’Donnell Bourke
Steven Underwood
Martyn Bowes
Company Secretary and
Registered Office
Christopher Birch
Advantage House
Poplar Way
Rotherham, S60 5TR
External Auditors
Ernst & Young LLP
1 Bridgewater Place
Water Lane
Leeds, LS11 5QR
Solicitors
DLA Piper UK LLP
1 St Paul’s Place
Sheffield, S1 2JX
Brokers
Peel Hunt LLP
7th Floor
100 Liverpool Street
London, EC2M 2AT
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
Financial Calendar
Annual General Meeting
Mercure Sheffield St. Paul’s Hotel and Spa, City Suite,
119 Norfolk Street, Sheffield, S1 2JE.
Proposed date for Interim Results Announcement 2021
Interim Results to be published at www.harworthgroup.com/investors
25 May 2021
14 September 2021
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.
197
Financial StatementsCorporate Governance Strategic Report
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