Harworth Group
Annual Report 2021

Plain-text annual report

Harworth Group plc Annual Report and Financial Statements 2021 Creating sustainable places where people want to live and work Welcome to the Harworth Annual Report Harworth is one of the leading land and property regeneration companies in the UK, owning and managing approximately 14,000 acres across around 100 sites in the North of England and the Midlands. Our Purpose is to invest to transform land and property into sustainable places where people want to live and work, supporting new homes, jobs and communities, and delivering long-term value for all stakeholders. Harworth has a premium listing on the Main Market of the London Stock Exchange (LSE: HWG). Visit our website for the latest company news www.harworthgroup.com Follow us on social media Pictured: Bardon Hill Harworth Group plc2021 Highlights Total Return1 24.6% 2020: 3.0% EPRA NDV per share1 Operating profit 197.6p 2020: 160.0p £121.9m 2020: 27.8 6 . 4 2 6 . 7 9 1 6 . 5 5 1 0 . 0 6 1 2 . 5 4 1 9 . 8 2 1 2 . 3 1 3 . 3 1 8 . 7 0 . 3 9 . 1 2 1 3 . 4 2 8 . 7 2 1 . 0 4 0 . 3 3 17 18 19 20 21 17 18 19 20 21 17 18 19 20 21 Total dividend per share2 1.2p 2020: 1.8p Net debt1 Net loan to portfolio value1 £25.7m 3.4% 2020: £71.2m 2020: 11.5% 8 . 1 2 . 1 9 . 0 7 2 . 1 7 4 . 4 6 3 . 2 3 7 . 5 2 3 . 2 1 1 . 2 1 5 . 1 1 0 . 7 4 . 3 20 21 17 18 19 20 21 17 18 19 20 21 9 . 8 0 . 0 3 . 0 19 17 18 Industrial & logistics pipeline (sq. ft) 28.2m 2020: 27.3m Residential pipeline (plots) 30,804 2020: 30,668 3 . 7 2 2 . 8 2 4 . 4 3 2 . 1 2 6 . 1 2 8 6 6 , 0 3 4 0 8 , 0 3 6 9 5 , 9 2 0 9 4 , 0 2 6 3 8 , 7 1 17 18 19 20 21 17 18 19 20 21 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 2 Total dividend per share in 2020 comprised an interim dividend of 0.334p, a final dividend of 0.768p for 2020 and an additional payment of 0.698p representing the previously cancelled 2019 final dividend Contents Overview Who we are Our portfolio Strategic Report Our business model How we create value The Harworth Way Our key drivers of growth Our markets Key performance indicators Chair’s statement Chief Executive’s review Operational review Financial review Long-term viability statement Section 172 statement The Harworth Way – Our Focus Impact Areas The Harworth Way – Communities The Harworth Way – Planet The Harworth Way – People SECR disclosure Task Force on Climate-Related Financial Disclosures Effectively managing our risk Governance report Chair’s introduction Board of Directors and Company Secretary Statement of corporate governance Nomination Committee report Audit Committee report ESG Committee report Directors’ remuneration report Directors’ report Statement of Directors’ responsibilities Financial statements Independent auditor’s report to the members of Harworth Group plc Consolidated income statement Consolidated statement of comprehensive income Consolidated balance sheet Company balance sheet Consolidated statement of changes in equity Company statement of changes in equity Consolidated statement of cash flows Company statement of cash flows Notes to the financial statements 02 04 06 08 10 18 20 22 24 27 30 34 41 44 48 52 56 60 64 65 70 80 82 86 102 110 118 120 150 154 158 166 167 168 169 170 171 172 173 174 01 Annual Report and Financial Statements 2021Overview Who we are Our Purpose is to invest to transform land and property into sustainable places where people want to live and work With a focus on placemaking and long-term value creation, Harworth has an established track record of transforming sites into sustainable new communities. We are uniquely positioned as a specialist regenerator of large, complex sites, with an extensive pipeline focused on the high growth industrial & logistics and residential markets. T H W A Y R O THE H A R W Our strategy Our partners Our Purpose, culture and values Our business model 02 Harworth Group plcOur Purpose, culture and values Harworth’s ability to execute its strategy and deliver its Purpose is reliant on attracting, maintaining and developing great talent. We achieve this through our “One Harworth” culture, which encourages a collaborative approach to delivering and managing our sites, and succeeding as one team. Our culture is underpinned by the three Harworth values: taking pride in our people & partnerships; delivering creative solutions; and acting with integrity and trust. Our strategy This year we outlined our strategy to reach £1bn of EPRA NDV* over five to seven years, focused on four key drivers of growth. Read more about our strategy on pages 18 to 19 Our stakeholders We work closely with a wide range of stakeholders and build strong relationships to deliver our Purpose and strategic objectives. Read more about our stakeholders on pages 44 to 47 Our business model As a Master Developer, we create long-term value by acquiring and assembling large, complex, and often former industrial, sites and transforming them into sustainable residential and industrial & logistics developments. Read more about our business model on pages 6 to 7 The Harworth Way A commitment to sustainability and making a lasting positive impact is embedded across our culture, strategy and operations. Read more about The Harworth Way on pages 48 to 69 * 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. Overview 03 Annual Report and Financial Statements 2021Strategic Report Our Portfolio An extensive industrial & logistics and residential portfolio in the North of England and the Midlands Across Harworth’s three operating regions of Yorkshire & Central, the Midlands and the North West, our portfolio has the potential to deliver 28.2m sq. ft of industrial & logistics space and 30,804 residential plots. In addition, we have a £277m Investment Portfolio spread across all three operating regions. Our portfolio in numbers Industrial & logistics land | 28.2m sq. ft Planning status 14.8 7.3 6.1 Consented Awaiting determination 2022+ Read more about our portfolio on pages 30 to 32 Residential land | 30,804 plots Planning status 9,978 20,015 811 Consented Awaiting determination 2022+ Investment Portfolio Number of Sites Vacancy 18 Annualised rent roll 2.7% Weighted Average Unexpired Lease Term (“WAULT”) £18.0m 11.5 years 04 Harworth Group plcM8 M74 Strategic Report Major Developments Strategic Land A74(M) Investment Portfolio M6 M6 6 3 M61 5 2 M57 6 M56 M56 1 M62 6 5 2 M62 M18 A1(M) M180 3 1 1 3 4 M6 5 M54 M6 Toll M42 M5 M50 M1 2 M69 M6 M40 4 4 M1 A1(M) A1(M) M11 M40 M25 Selected key industrial & logistics developments Investment Portfolio (largest by valuation) Advanced Manufacturing Park 1 2 Gascoigne Wood 3 Gateway 36 4 Rothwell 5 Wingates 6 Skelton Grange M3 1 Nufarm, Bradford 2 M26 Saturn Business Park, Knowsley M25 3 M23 Four Oaks Business Park, Preston M2 M20 4 Melton Commercial Park, Melton Mowbray 5 Moor Lane Trading Estate, Sherburn-in-Elmet A3(M) 6 Flaxby Moor Ind. Estate, Knaresborough 05 M4 Selected key residential developments 1 Waverley 2 South East Coalville 3 4 5 Pheasant Hill Park Simpson Park Ironbridge 6 Moss Nook M5 Annual Report and Financial Statements 2021Our Business Model Inputs Our business model Our people The Harworth team comprises experts in transactions, planning, land remediation, engineering and development, supported by central functions and a highly experienced senior management team. We have three regional teams – Yorkshire & Central, North West, and the Midlands – which bring further local knowledge, expertise and relationships. Our key markets Our portfolio is focused on the industrial & logistics and residential sectors in the North of England and the Midlands, which benefit from favourable supply and demand dynamics, structural growth, and are central to local and central government objectives to ‘Level Up’ the economy and provide new homes, jobs and opportunities. Financing Our financing strategy remains to be prudently geared, with a target year-end net loan to portfolio value of less than 20%, and a maximum of 25%. Acquisitions and capital expenditure at our sites are funded through a combination of disposal proceeds, corporate-level debt and site-specific funding. The Harworth Way We aim to make a lasting positive impact on communities and the environment by applying the five pillars of the Harworth Way across our strategy and operations. This ensures we deliver our Purpose of creating sustainable places where people want to live and work. Read our Case Study on pages 12 to 13 d n a Strate gic L I n v M a j o r D e v e l o p m e n ts e st m e nt Portfolio Read our Case Study on pages 16 to 17 06 Strategic ReportHarworth Group plc Our business model d n a Strate gic L I n v e st m e nt Portfolio Outputs Our people An innovative and collaborative culture, with teams working on market-leading projects with pride and enjoyment Investors Strong returns, with a target to reach £1bn of EPRA NDV* over five to seven years, delivered responsibly Communities Sustainable places where people want to live and work, with connectivity, green space and amenities Suppliers Strong partnerships based on trust, fairness, and shared values and objectives Customers A high-quality product delivered on time, and a strong working relationship that drives repeat business Funders A regular and open dialogue, with updates on our operational and financial performance Government A trusted partner in delivering homes, jobs and opportunities across the regions Read our Case Study on pages 14 to 15 M a j o r l D e v e o p m e n ts 07 Strategic ReportAnnual Report and Financial Statements 2021 How we create value Strategic Land Major Developments N O I T A E R C E U L A V Acquisitions and land assembly Our acquisition teams work across our regions to identify new strategic land sites to add to our portfolio. Often larger sites are assembled over a number of years through the acquisition of smaller land parcels. Masterplanning Planning approval Working with local authorities and other stakeholders, we create a strategic vision for a site that addresses local needs for housing or employment space in an area. Our sites often complement or contribute to wider strategic aims. Once a strategic vision for a site has been determined, our planners work with local authority planning teams to progress this through the planning system. We have a very high success rate of securing planning permissions. Rothwell, Northamptonshire In October, we acquired this 107- acre site in the prime Midlands location known as the ‘Golden Triangle’. Harworth will work with local stakeholders to bring forward a planning application for 1.5m sq. ft of industrial & logistics space. Read more in the Operational Review on pages 30 to 32 08 Ironbridge, Shropshire In September, we secured planning permission for the regeneration of the former Ironbridge Power Station into a mixed use development comprising up to 1,000 new homes, alongside a range of commercial, leisure and community uses. Read more on the Case Study on pages 12 to 13 Plot sale or direct Placemaking Asset Land remediation and infrastructure development Once planning permission has been obtained, our in- house development teams undertake land remediation development At our residential developments, we largely sell serviced plots to housebuilders. In 2022, we will also be launching a Build to Rent portfolio. works, construct any necessary infrastructure such as roads, and create development platforms for the site’s proposed use. For our industrial & logistics developments we either directly develop sites using our in-house expertise, or sell land parcels for construction. We invest in our sites alongside plot sales and direct development, to provide additional infrastructure, amenities and green spaces. This creates a sense of community that improves the wellbeing of residents and those working there and enhances the attractiveness of our sites. management We largely retain industrial & logistics units that we directly develop and let these to a diverse range of occupiers. This generates a recurring income and allows us to crystallise further value from the high standards of placemaking and environmental specifications at our sites. Strategic ReportHarworth Group plc Major Developments Investment Portfolio Acquisitions and land assembly Our acquisition teams work across our regions to identify new strategic land sites to add to our portfolio. Often larger sites are assembled over a number of years through the acquisition of smaller land parcels. Masterplanning Planning approval Working with local authorities Once a strategic vision for a and other stakeholders, we site has been determined, create a strategic vision for a our planners work with local site that addresses local needs authority planning teams to for housing or employment progress this through the space in an area. Our sites often planning system. We have complement or contribute to a very high success rate of wider strategic aims. securing planning permissions. Land remediation and infrastructure development Once planning permission has been obtained, our in- house development teams undertake land remediation works, construct any necessary infrastructure such as roads, and create development platforms for the site’s proposed use. Plot sale or direct development At our residential developments, we largely sell serviced plots to housebuilders. In 2022, we will also be launching a Build to Rent portfolio. For our industrial & logistics developments we either directly develop sites using our in-house expertise, or sell land parcels for construction. Placemaking We invest in our sites alongside plot sales and direct development, to provide additional infrastructure, amenities and green spaces. This creates a sense of community that improves the wellbeing of residents and those working there and enhances the attractiveness of our sites. Asset management We largely retain industrial & logistics units that we directly develop and let these to a diverse range of occupiers. This generates a recurring income and allows us to crystallise further value from the high standards of placemaking and environmental specifications at our sites. Bardon Hill, Leicestershire In September, we began construction of 332,000 sq. ft of industrial & logistics space across six units, to be built to BREEAM “Very Good” standard and EPC rating A. Practical completion is expected in Summer 2022. Read more on the Operational Review on pages 30 to 32 Logistics North, Bolton Greater Manchester During the year, we completed 331,400 sq. ft of new lettings at Logistics North, concluding eight years of development at the site and triggering significant one-off promote fees. Read more on the Case Study on pages 16 to 17 09 Strategic ReportAnnual Report and Financial Statements 2021The Harworth Way Doing business the Harworth Way As a specialist regenerator of land and property, a commitment to sustainability is embedded across our culture, strategy and operations, and we view this as critical to making a lasting positive impact on our communities and the environment. This commitment is delivered through the five pillars of the Harworth Way. Read more about Communities on pages 52 to 55 Read more about the Planet on pages 56 to 59 Communities Planet G o v People e r n a n c e Partners Read more about our Partners on pages 44 to 47 Read more about People on pages 60 to 63 Read more about Governance on pages 78 to 155 10 Strategic ReportHarworth Group plc Impact Pillars Supporting Pillars Governance Ensuring the highest standards of corporate governance See Governance Report on pages 78 to 155 Partners Building strong relationships with all stakeholders to deliver long- term value See our Section 172 disclosure on pages 44 to 47 UN SDGs Harworth is a supporter of the UN Sustainable Development Goals (“SDGs”) and a signatory to the UN Global Compact. We have selected six primary UN SDGs which are closest aligned to our strategy and operations, and where we believe we can make the biggest impact as a business. Find out more on pages 48 to 51 Primary SDGs Communities Creating, strengthening and supporting our communities today and for the future • Our industrial & logistics pipeline has the potential to generate £4.1bn of Gross Value Added (“GVA”) per annum • Donated over £67,000 and volunteered 71 staff hours to support local causes • Funding secured for two innovative cycling infrastructure projects at Waverley and Thoresby Vale Planet Minimising our environmental impact, building climate resilience and promoting biodiversity • Competed LN50, our first building capable of being Net Zero Carbon in operation • • Installed solar panels at Advantage House, generating 80,000 kWh of renewable electricity per annum Introduced staff salary sacrifice car scheme exclusively for low or zero emission vehicles People Maintaining an inclusive, supportive and empowered culture in which people can fulfil their potential • Enhanced maternity & adoption, paternity and hybrid working policies • 97% of staff say they are proud to work for Harworth in our 2021 survey • Trained five members of staff to date as mental health first aiders 11 Strategic ReportAnnual Report and Financial Statements 2021CASE STUDY Strategic Land Ironbridge, Shropshire Transforming a former power station into a sustainable new community just minutes from a World Heritage Site. In September 2021, Harworth received planning approval for the regeneration of the former Ironbridge Power Station in Shropshire into a mixed-use development comprising 1,000 new homes, alongside a range of commercial, leisure and community uses. Harworth acquired the 350-acre site in June 2018, before which it had been used for electricity generation for over 80 years. Located less than a mile from the Ironbridge Gorge World Heritage Site, the site is bordered by the River Severn to the north and an extensive area of ancient woodland to the south, providing a dramatic backdrop for the development of a new community. Harworth held its first public consultation event at the site in October 2018 and used stakeholder feedback to create an illustrative masterplan for the site. In June 2019, Harworth commenced demolition works to remove the former power station buildings and associated infrastructure, which included the demolition of the power station’s four cooling towers later that year. The outline planning application for the development was submitted in December 2019, alongside a separate application to extract up to 1.9 million tonnes of sand and gravel as part of the site preparation works. The proposed development will deliver around 1,000 new homes, in addition to a retirement village, up to 200,000 sq. ft of employment space comprising offices and light industrial units, and a local centre offering convenience retail and other services. The plans will also provide a range of community amenities such as allotments, sports pitches, and a new primary school. In addition, the former power station’s 1930s pumphouse will be retained as part of the proposals and transformed into a flexible space for community and leisure uses. Protecting and enhancing local biodiversity The Ironbridge development will incorporate extensive green space, including 56 acres reserved exclusively for protecting biodiversity. As part of the site preparation works, Harworth installed six great crested newt ponds, a bat barn which is also used as a moth habitat, and a 21 metre-tall nesting tower for Peregrine falcons. Aerial view of the Ironbridge site 12 Strategic ReportHarworth Group plcStrategic Report CGI of the masterplan for Ironbridge site The provision of green infrastructure is central to Harworth’s masterplan. The development will include a comprehensive network of off-road walking and cycling routes to enable active travel choices and provide connectivity to the surrounding area, and Harworth is currently exploring opportunities to bring the old railway link to the site back into use. The plans will also provide extensive green space such as pocket parks, play areas and vegetation throughout the public realm, and several new attenuation ponds, which will offer enhanced protection for local wildlife. Extensive flood risk scenario planning has been incorporated into the development’s design, and recent flooding in February 2022 at Ironbridge did not impact the site. Site preparation works are ongoing, with demolition works complete. The development will now be delivered in phases over 10 to 15 years. Our masterplan for Ironbridge will transform this former industrial site into a sustainable new community, providing additional homes, jobs and infrastructure for local people. We have worked with stakeholders every step of the way to ensure this is a long- term development that the community can be proud of, and one that is well connected to the existing local network of roads, footpaths and open spaces that surround the site. DAVID COCKROFT Regional Director for the Midlands Working with partners on low emission public transport opportunities The Ironbridge site benefits from two rail links to the mainline from Shrewsbury to Wolverhampton, which were originally used to transport materials to the power station. Harworth is exploring opportunities to bring them back into use. During the year, we partnered with Revolution VLR, a consortium of advanced manufacturing companies aiming to develop the next generation of “very light rail” vehicles and technologies, to develop a test vehicle and track along a stretch of disused railway at the site. Combining technology from the automotive and rail sectors, Revolution VLR has produced a lightweight, energy-efficient vehicle that is straightforward to operate and geared to the needs of communities, providing a modern, attractive and cost-effective vehicle solution that it is hoped will facilitate the reopening of disused railway lines. 13 Annual Report and Financial Statements 2021CASE STUDY Major Development Gateway 36, Barnsley, South Yorkshire A major hub for logistics and manufacturing in Yorkshire, adjacent to Junction 36 of the M1 Gateway 36 is a 127-acre site which was formerly home to the Rockingham Colliery. It benefits from its adjacency to Junction 36 of the M1 and direct frontage on to the Dearne Valley Parkway in Barnsley, providing direct links to Leeds, Sheffield and Doncaster. The development has received £3.1 million of funding from Sheffield City Region, to support infrastructure works at the site. In 2015, Harworth received outline planning permission for Phase 1 of the development, comprising 145,300 sq. ft of space, with units let to occupiers including the Environment Agency, Esco and Car Supermarket and a number of small fast food outlets. In summer 2019, Harworth sold the commercial units on Phase 1 to Mayfair Capital to fund new acquisition opportunities across the business. In December 2021, Harworth sold a 24-acre plot at the site, representing Phase 3 of the development, to Firethorn for £11.6 million. Firethorn will develop a 340,000 sq. ft logistics facility, to BREEAM ‘Excellent’ standard. Shortly after the year-end, Harworth secured planning permission for 110,000 sq. ft of industrial & logistics space at the site, representing the initial stage of Phase 2. This will comprise the direct development of three buildings ranging from 23,000 sq ft to 49,500 sq ft, which will include up to 10% office space and will be marketed as “R-Evolution 36”. The smallest building will be split into four units of 5,750 sq ft each to ensure its suitability to a broad range of occupiers. A further stage of Phase 2 will see the development of two buildings, which will provide an additional 425,000 sq. ft of industrial & logistics space. Harworth has secured a site-specific debt facility to deliver the development, and is already well progressed with the creation of platforms and access roads at the site. We intend to begin construction of Phase 2 in early 2022. CGI of the masterplan for Gateway 36 14 Strategic ReportHarworth Group plcStrategic Report Aerial view of Gateway 36 Designing Net Zero Carbon-capable buildings Phase 2 of Gateway 36 will be built to Harworth’s latest environmental building specifications. Units will be built to BREEAM “Very Good” standard, with 11% of the roof area covered by solar PV panels, and an enhanced design to allow occupiers to increase this coverage to 100%. The scheme will also include 20 EV charging points, rainwater harvesting and a sustainable heating and cooling system, as well as a building envelope design that is sympathetic to the surrounding environment. The next phase of Gateway 36 will meet the growing demand for well-connected, high- specification industrial & logistics space in Yorkshire. In addition to supporting new jobs in the area, the development’s environmental impact will be minimised through the use of on-site energy generation and energy efficient design. CHRIS DAVIDSON Joint Regional Director for Yorkshire & Central 15 Annual Report and Financial Statements 2021CASE STUDY Investment Portfolio Logistics North, Bolton, Greater Manchester One of the most high-profile logistics and manufacturing schemes in the North West Harworth received outline planning consent for Logistics North, the largest live commercial development in the North West of England, at the end of December 2013. Over 5,500 people are now employed at the site, which was once home to the Cutacre deep surface mine, by occupiers including Aldi, Whistl, MBDA, Greene King, Costa and Komatsu. On completion of the development works and asset management activities by third parties, the scheme will deliver over 7,000 jobs and add around £300m p.a. in Gross Value Added to the Greater Manchester economy. The Logistics North scheme benefits from strong support from Bolton Metropolitan Borough Council, the Greater Manchester Combined Authority, and MIDAS – Greater Manchester’s Inward Investment Agency. In May 2021, Harworth completed the direct development of a 50,800 sq. ft unit, LN50. The unit was Harworth’s first to be designed to allow it to be Net Zero Carbon in operation, and has since been let to a manufacturing occupier. “Multiply” is the commercial development scheme at Logistics North and is being delivered through a joint venture established in May 2017 between Harworth and the LPPI Real Estate Fund. The scheme is let to a diverse mix of regional and national occupiers, with unit specifications that include a BREEAM rating of “Very Good”, office space comprising 5-10% of the overall internal area, and secure service yards with 38-50 metre depth. Later in the year, Harworth completed two lettings which concluded Multiply, triggering significant promote fees. This comprised a 149,300 sq ft Grade A warehouse, and an adjoining plot for a last mile parcel facility and electric vehicle charging car park. Aerial view of Logistics North and Cutacre Country Park 16 Strategic ReportHarworth Group plcStrategic Report Industrial unit at Logistics North Delivering a 550-acre country park at Logistics North One of the unique aspects of Logistics North is the 550- acre country park that surrounds the site. In addition to providing over 18km of footpaths, bridleways and cycle ways to connect the site to Bolton, Salford and Wigan, the site includes woodland areas, watercourses and panoramic viewing points. This provides a highly attractive landscape that workers and local residents can benefit from. The quality of the tenant mix and speed at which we have been able to complete lettings at Logistics North reflects the high specification of the individual units and accessibility of the scheme, and the shortage of suitable warehouse space in the North West, as well as Harworth’s market-leading ability to remediate and transform brownfield and unused land. STEVEN KNOWLES Regional Director for the North West 17 Annual Report and Financial Statements 2021Our key drivers of growth 1 Increasing direct development of industrial & logistics sites 2 Accelerating sales and broadening the range of our residential products Harworth is an experienced developer, having built 1.3 million sq. ft of industrial & logistics space since 2015. We have a significant committed industrial & logistics development pipeline ahead of us, with schemes spread across our regions, in strong locations that are attractive to both investors and occupiers. What we will do We aim to undertake the direct development of much of our consented pipeline, scaling up from an average of 200,000 sq. ft of direct development per annum between 2015 and 2021 to an average of 800,000 sq. ft per annum by 2026. From our current pipeline, we expect to deliver 3.2 million sq. ft of development by 2026, representing Gross Development Value (“GDV”) of £400 - £440 million. We intend to manage the market risk associated with such development by combining pre-letting and selective land sales with speculative development. This programme of development will be funded by a mixture of project debt, cash generated from wider portfolio sales, our core banking facilities, and site-specific selective use of joint ventures. Harworth’s residential land portfolio is significant and has the ability to deliver in excess of 30,000 housing units into the market. The UK housebuilding sector is in robust health, evidenced by the strong demand from housebuilders for our engineered land product. The sector is also evolving, with increased consumer and investor appetite for Build to Rent products. While initially concentrated in urban centres, this market is now expanding into suburban areas and beyond. What we will do Our portfolio is particularly well-suited to delivering institutional quality single-family rental homes in a volume that can deliver the required return on investment. As a result, we plan to develop an initial single-family rental portfolio, to be launched in 2022, which we intend to be delivered through a forward-funding agreement. Through a combination of increased plot sales using Harworth’s traditional “Build to Sell” markets and new residential products, our ambition is to double sales to around 2,000 plots per annum by 2026. Link to KPIs • Total Return Link to KPIs • Total Return • Net Asset Value and EPRA NDV • Net Asset Value and EPRA NDV • Industrial & logistics space developed • Number of plots sold to housebuilders • Total industrial & logistics pipeline Link to principal risks • Total residential pipeline Link to principal risks • Supply chain cost inflation and constraints • Supply chain cost inflation and constraints • Supply chain and delivery partner management • Supply chain and delivery partner management (counter-party risk) • Statutory costs of development • Residential and commercial markets • Resourcing • Availability of appropriate capital • Managing climate change transition (counter-party risk) • Statutory costs of development • Residential and commercial markets • Availability of appropriate capital • Managing climate change transition 18 Strategic ReportHarworth Group plc3 Growing our strategic land portfolio and land promotion activities 4 Repositioning our Investment Portfolio to modern Grade A Our existing landbank of approximately 14,000 acres underpins our ability to deliver our strategy with around a third in terms of plots and sq. ft already consented. Our Investment Portfolio, currently valued at £277m is integral to the way that we fund our business and will continue to be so for the foreseeable future. We take a long-term view ensuring we replenish our stock, focusing resources on securing a significant future pipeline which will deliver our continued future growth. Our regional and head office teams have dedicated acquisitions specialists and we leverage their expertise to acquire and assemble land through a blend of freeholds, options and planning promotion agreements (“PPAs”). What we will do We target maintaining a 12-15 year land supply at any time. As we step into the delivery of our strategy, organic growth of the business will be supplemented by developing key partnerships to assemble and deliver large scale regeneration schemes with the potential also for larger acquisition opportunities which may present themselves. Link to KPIs • Total Return • Net Asset Value and EPRA NDV • Total industrial & logistics pipeline • Total residential pipeline The portfolio benefits from robust operational metrics, and a diverse occupier base. We are also investing to improve the environmental efficiency of these buildings, to build climate resilience and extend their lifespans. What we will do We will largely retain the assets that we directly develop, while disposing of those assets from our existing portfolio where we have maximised value through the completion of asset management initiatives. This approach will progressively reposition our Investment Portfolio to modern, high-quality Grade A assets with good access to infrastructure and proximity to urban centres. Having controlled all aspects of the quality, design, sustainability and environmental impact of the end product, this portfolio shift will enable us to leverage further upside from our direct developments and allow us to stabilise assets where necessary. Link to KPIs • Total Return • Potential GVA that could be delivered from our portfolio • Net Asset Value and EPRA NDV Link to principal risks • Availability of and competition for strategic land sites • Residential and commercial markets • Resourcing • Availability of appropriate capital • Managing climate change transition • Proportion of our Investment Portfolio that is Grade A • Scope 1, Scope 2 and selected Scope 3 emissions Link to principal risks • Residential and commercial markets • Resourcing • Managing climate change transition 19 Strategic ReportAnnual Report and Financial Statements 2021Our markets We operate in the industrial & logistics and residential markets, which benefit from favourable supply and demand dynamics, structural growth, and strong support from local and central government. Industrial and logistics Residential Take-up of UK industrial & logistics units per year Strong demand from a wide range of occupiers 60 50 40 30 20 10 0 Take-up of UK industrial & logistics assets reached a record high in 2021, surpassing records set in the previous year. Demand was driven by several factors including the growth of online retailing, the onshoring of supply chains following the UK’s withdrawal from the EU, and the response to the supply chain disruption seen in the second half of the year. Data from Savills also suggests that the breadth of demand by occupier sector is widening, with a slight decline in demand from online retail companies and increased demand from third-party logistics, automotive, manufacturing and high street retail companies. 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Q1 Q2 Q3 Q4 Long-term average Source: Savills Source: Department for Levelling Up, Housing & Communities Supply of industrial & logistics units per quarter s n o i l l i m ) t f . q s ( y l p p u S 40 30 20 10 0 6 1 0 2 1 Q 6 1 0 2 2 Q 6 1 0 2 3 Q 6 1 0 2 4 Q 7 1 0 2 1 Q 7 1 0 2 2 Q 7 1 0 2 3 Q 7 1 0 2 4 Q 8 1 0 2 1 Q 8 1 0 2 2 Q 8 1 0 2 3 Q 8 1 0 2 4 Q 9 1 0 2 1 Q 9 1 0 2 2 Q 9 1 0 2 3 Q 9 1 0 2 4 Q 0 2 0 2 1 Q 0 2 0 2 2 Q 0 2 0 2 3 Q 0 2 0 2 4 Q 1 2 0 2 1 Q 1 2 0 2 2 Q 1 2 0 2 3 Q 1 2 0 2 4 Q Supply (LHS) Grade A proportion RHS Constrained supply resulting in record-low vacancy 60% 50% 40% 30% 20% 10% 0% k c o t s l a t o t f o n o i t r o p o r p a s a A e d a r G Given strong demand, supply of UK industrial space fell at its fastest pace recorded in the fourth quarter of 2021, to 17.4m sq. ft, reflecting a vacancy rate of 2.9%. Savills reports that Grade A supply has fallen to 7.2m sq. ft, almost a third of the levels seen at the beginning of 2020. The market has responded with increased levels of construction, but there are various headwinds that could delay the delivery of new space, including challenges in the planning system, supply chain disruption and the rising cost of construction materials. Source: Savills Source: Savills Investment volumes for industrial & logistics assets Active investment market The strength of occupational markets and low levels of vacancy have driven rental growth and continued positive investor sentiment towards industrial & logistics assets. Total investment volumes reached a new high in 2021, exceeding the previous record set in 2020 by almost 75%. As well as corporate deals, the market has seen a rise in both the number of single-unit deals and average lot sizes. The continued flow of capital into the market continues to put downward pressure on yields. ) s n o i l l i b ( £ 18 16 14 12 10 8 6 4 2 0 2011 2012 Source: PropertyData 20 2013 2014 Annual Investment 2015 2016 2017 2018 3 year rolling average 2019 2020 2021 Source: Historical data from Department for Levelling Up, Housing & Communities. Forecasts from Savills. Supply remains far below UK Government targets The UK Government has a long-standing target of 300,000 new homes per year. Net delivery of new homes has been in excess of 200,000 for the past five years but remains well below the Government target. Recently proposed reforms to the planning system and additional funding such as the Affordable Housing Funding Programme and Housing Infrastructure Funding have the potential to increase annual delivery. However, uncertainty caused by rising inflation, rising interest rates and shortages of labour and materials could provide short-term headwinds. Strong demand for housing continues, particularly in the North and Midlands Demand remains high across all areas of the housing market. As well as structural factors such as population growth and increased urbanisation, a number of short-term factors are impacting demand. These include competition in the mortgage market, which has seen an increase in the affordability and availability of mortgage finance, government interventions such as the stamp duty holiday, and the impact of Covid-19 on consumer preferences. Savills predicts double-digit house price rises across every region of Great Britain over the next five years, with two of Harworth’s focus regions – Yorkshire & Humber and the North West – expected to see the highest growth. Rising demand for built to rent The UK Private Rental Sector (“PRS”) continues to grow, driven by a shortage of social and affordable housing, the flexibility that PRS offers to an increasingly mobile workforce, and the quality and location of PRS homes. While the institutional market for multi-family PRS units in urban centres is well-established, the market for single-family PRS remains in its infancy, but is growing. In particular, families are demanding suburban locations on the periphery of employment hubs, with good access to local schools, outdoor spaces, retail and health services. Strategic ReportHarworth Group plc Industrial and logistics Residential Annual net additional dwellings in England Supply remains far below UK Government targets Strong demand from a wide range of occupiers Take-up of UK industrial & logistics assets reached a record high in 2021, surpassing records set in the previous year. Demand was driven by several factors including the growth of online retailing, the onshoring of supply chains following the UK’s withdrawal from the EU, and the response to the supply chain disruption seen in the second half of the year. Data from Savills also suggests that the breadth of demand by occupier sector is widening, with a slight decline in demand from online retail companies and increased demand from third-party logistics, automotive, manufacturing and high street retail companies. s g n i l l e w D 300,000 250,000 200,000 1500,000 1000,000 50,000 0 - 7 0 6 0 0 2 - 8 0 7 0 0 2 - 9 0 8 0 0 2 0 1 - 9 0 0 2 1 1 - 0 1 0 2 2 1 - 1 1 0 2 3 1 - 2 1 0 2 4 1 - 3 1 0 2 5 1 - 4 1 0 2 6 1 - 5 1 0 2 7 1 - 6 1 0 2 8 1 - 7 1 0 2 9 1 - 8 1 0 2 - 0 2 9 1 0 2 - 1 2 0 2 0 2 New build completions Other Source: Savills Source: Department for Levelling Up, Housing & Communities Source: Savills Source: Savills e s a e r c n i e g a t n e c r e P 20% 15% 10% 5% 0% House price forecasts for five years to 2026 D N A L G N E F O T S A E T S A E H T U O S N O D N O L S D N A L D M T S A E I I S A N L D M T S E W T S E W H T U O S T S A E H T R O N T S E W H T R O N R E B M U H & E R H S K R O Y I D N A L T O C S S E L A W Harworth Regions Other Regions UK Average Historical and forecast BTR completions in England 30,000 25,000 20,000 15,000 10,000 5,000 0 1 1 - 0 1 0 2 2 1 - 1 1 0 2 3 1 - 2 1 0 2 4 1 - 3 1 0 2 5 1 - 4 1 0 2 6 1 - 5 1 0 2 7 1 - 6 1 0 2 8 1 - 7 1 0 2 9 1 - 8 1 0 2 - 0 2 9 1 0 2 - 1 2 0 2 0 2 2 2 - 1 2 0 2 - 3 2 2 2 0 2 - 4 2 3 2 0 2 - 5 2 4 2 0 2 - 6 2 5 2 0 2 Constrained supply resulting in record-low vacancy Given strong demand, supply of UK industrial space fell at its fastest pace recorded in the fourth quarter of 2021, to 17.4m sq. ft, reflecting a vacancy rate of 2.9%. Savills reports that Grade A supply has fallen to 7.2m sq. ft, almost a third of the levels seen at the beginning of 2020. The market has responded with increased levels of construction, but there are various headwinds that could delay the delivery of new space, including challenges in the planning system, supply chain disruption and the rising cost of construction materials. Active investment market The strength of occupational markets and low levels of vacancy have driven rental growth and continued positive investor sentiment towards industrial & logistics assets. Total investment volumes reached a new high in 2021, exceeding the previous record set in 2020 by almost 75%. As well as corporate deals, the market has seen a rise in both the number of single-unit deals and average lot sizes. The continued flow of capital into the market continues to put downward pressure on yields. The UK Government has a long-standing target of 300,000 new homes per year. Net delivery of new homes has been in excess of 200,000 for the past five years but remains well below the Government target. Recently proposed reforms to the planning system and additional funding such as the Affordable Housing Funding Programme and Housing Infrastructure Funding have the potential to increase annual delivery. However, uncertainty caused by rising inflation, rising interest rates and shortages of labour and materials could provide short-term headwinds. Strong demand for housing continues, particularly in the North and Midlands Demand remains high across all areas of the housing market. As well as structural factors such as population growth and increased urbanisation, a number of short-term factors are impacting demand. These include competition in the mortgage market, which has seen an increase in the affordability and availability of mortgage finance, government interventions such as the stamp duty holiday, and the impact of Covid-19 on consumer preferences. Savills predicts double-digit house price rises across every region of Great Britain over the next five years, with two of Harworth’s focus regions – Yorkshire & Humber and the North West – expected to see the highest growth. Rising demand for built to rent The UK Private Rental Sector (“PRS”) continues to grow, driven by a shortage of social and affordable housing, the flexibility that PRS offers to an increasingly mobile workforce, and the quality and location of PRS homes. While the institutional market for multi-family PRS units in urban centres is well-established, the market for single-family PRS remains in its infancy, but is growing. In particular, families are demanding suburban locations on the periphery of employment hubs, with good access to local schools, outdoor spaces, retail and health services. Source: PropertyData Source: Historical data from Department for Levelling Up, Housing & Communities. Forecasts from Savills. 21 Strategic ReportAnnual Report and Financial Statements 2021 Key Performance Indicators Strategy link key 1 Increasing direct development of industrial & logistics stock 2 Accelerating sales and broadening the range of our residential products 3 Growing our strategic land portfolio and land promotion activities 4 Repositioning our Investment Portfolio to modern Grade A The Harworth Way Group Financial Targets * 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. 22 Financial Track Record Economic and Social Track Record Total Return What we measure Growth in EPRA NDV during the year in addition to dividends paid, as a proportion of EPRA NDV at the beginning of the year. 21 24.6% 20 19 18 17 3.0% 7.8% 13.3% 13.2% Link to strategy: 1, 2, 3, 4 EPRA NDV per share What we measure A European Public Real Estate Association (“EPRA”) metric that represents Net Asset Valuation where deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liability. 21 197.6 20 19 18 17 160.0 155.6 145.2 128.9 Link to strategy: 1, 2, 3, 4 Net asset value What we measure The value of our assets less the value of our liabilities, based on IFRS measures, which excludes the mark-to-market value of development properties. 21 578.0 20 19 18 17 488.7 463.8 441.9 409.3 Link to strategy: 1, 2, 3, 4 Net loan to portfolio value (“LTV”) What we measure Net debt as a proportion of the aggregate value of properties and investments. 21 3.4% 20 19 18 17 11.5% 12.1% 12.3% 7.0% Link to strategy: 1, 2, 3, 4 Number of plots sold to housebuilders What we measure Industrials & logistics space directly developed (sq. ft) What we measure The number of plots equivalent to land parcel sales to The total amount of space directly developed by Harworth that is housebuilders during the year. completed during the year. Link to strategy: 2, Link to strategy: 1, 4, Total residential pipeline (plots) Total industrial & logistics pipeline (sq. ft) What we measure What we measure The total number of residential plots that could be delivered The total amount of industrial & logistics space that could be from our pipeline, excluding any already sold but including delivered from our pipeline, excluding any already built or sold, options and PPAs. but including options and PPAs. Link to strategy: 2, 3 Link to strategy: 1, 3, 4 Proportion of Investment Portfolio that is Grade A What we measure Scope 1, Scope 2 and selected Scope 3 emissions (tonnes CO2e) What we measure The proportion of our Investment Portfolio that is classified as Emissions that we need to reduce to zero to achieve by our 2030 modern Grade A industrial & logistics space Net Zero Carbon target. Link to strategy: 4, Link to strategy: 4, Potential Gross Value Added (“GVA”) that could be delivered from our portfolio (£bn) Satisfaction of our employees What we measure What we measure Calculated by Ekosgen, an economic impact consultancy, the The proportion of employees who said they were “proud to work estimated potential GVA of our portfolio once fully built out. for Harworth” in our annual employee survey. Link to strategy: 3, Link to strategy: Strategic ReportHarworth Group plcFinancial Track Record Economic and Social Track Record Total Return What we measure Growth in EPRA NDV during the year in addition to dividends paid, as a proportion of EPRA NDV at the beginning of the year. Link to strategy: 1, 2, 3, 4 EPRA NDV per share What we measure A European Public Real Estate Association (“EPRA”) metric that represents Net Asset Valuation where deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liability. Link to strategy: 1, 2, 3, 4 Net asset value What we measure The value of our assets less the value of our liabilities, based on IFRS measures, which excludes the mark-to-market value of development properties. Net loan to portfolio value (“LTV”) What we measure and investments. Net debt as a proportion of the aggregate value of properties Number of plots sold to housebuilders What we measure The number of plots equivalent to land parcel sales to housebuilders during the year. 21 1,411 Industrials & logistics space directly developed (sq. ft) What we measure The total amount of space directly developed by Harworth that is completed during the year. 21 51,000 20 19 18 17 873 1,049 1,379 622 Link to strategy: 2, 27,000 20 19 18 17 402,000 279,000 Link to strategy: 1, 4, Total residential pipeline (plots) Total industrial & logistics pipeline (sq. ft) What we measure What we measure The total number of residential plots that could be delivered from our pipeline, excluding any already sold but including options and PPAs. 21 30,804 The total amount of industrial & logistics space that could be delivered from our pipeline, excluding any already built or sold, but including options and PPAs. 21 28.2m 20 19 18 17 30,668 29,596 20,490 17,836 Link to strategy: 2, 3 20 19 18 17 27.3m 24.4m 21.3m 21.6m Link to strategy: 1, 3, 4 Proportion of Investment Portfolio that is Grade A What we measure Scope 1, Scope 2 and selected Scope 3 emissions (tonnes CO2e) What we measure The proportion of our Investment Portfolio that is classified as modern Grade A industrial & logistics space 21 11% Emissions that we need to reduce to zero to achieve by our 2030 Net Zero Carbon target. 21 1,180 9% 20 19 18 17 n/a n/a n/a 882 20 19 18 17 2,353 2,734 4,016 Link to strategy: 1, 2, 3, 4 Link to strategy: 4, Link to strategy: 4, Potential Gross Value Added (“GVA”) that could be delivered from our portfolio (£bn) What we measure Calculated by Ekosgen, an economic impact consultancy, the estimated potential GVA of our portfolio once fully built out. 21 4.1 Satisfaction of our employees What we measure The proportion of employees who said they were “proud to work for Harworth” in our annual employee survey. 21 97% 20 19 18 17 3.9 3.5 3.5 2.9 20 19 18 17 93% 90% 88% 87% Link to strategy: 1, 2, 3, 4 Link to strategy: 3, Link to strategy: 23 Strategic ReportAnnual Report and Financial Statements 2021Chair’s Statement Defining a strategy is one thing: delivering on it another. At the core of our ability to deliver are our people and the financial resources we have at our disposal. Alastair Lyons Chair Introduction Last year, when writing on the subject of business value, I commented on the Harworth share price standing at a 20% discount to EPRA NDV*. In considering how to address this I wrote that “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 future investors. These are the key measures of success against which the Board will assess the achievement of our management”. I am, therefore, very pleased that at the end of 2021 our share price represented just a 2% discount to our last reported EPRA NDV*, testament to a very strong year’s trading and the recognised demonstration of progress already achieved against the clear and ambitious strategic objectives set out by Lynda Shillaw, our Chief Executive, at the time of the interim statement. She articulated her goal to double the EPRA NDV* of Harworth from £515.9m at the end of 2020 to in excess of £1bn over the following five to seven years. After 12 months, supported by strong market tailwinds, a quarter of that ambition has already been achieved. Our strategy and its delivery These revised strategic objectives do not fundamentally alter what Harworth is: rather they seek to realise greater value and pace from the core capabilities of our specialist and highly experienced team in acquiring, assembling, master-planning, and developing a strategic land bank of primarily large complex sites frequently requiring fundamental regeneration. We have no plans to alter materially our historic focus both on the regions of the North and the Midlands outside city centres and on the industrial & logistics and residential sectors. We see these as having strong underlying drivers of growth and, therefore, of demand for engineered land, whether these be the chronic failure of housing supply to match demand, the e-tailing revolution that has been turbo-charged by the pandemic, or the political aim of levelling up the country between the South and the North. The management team does, however, plan to take a larger share of the value chain that we create and to move faster through our landbank. Hence, we are increasing the direct development of industrial & logistics stock on our sites to create our own investment portfolio of modern Grade A buildings. This in turn will allow us to dispose of those assets from our existing portfolio where we have already maximised value through the completion of asset management initiatives. At the end of this year we have 432,000 sq. ft of such development underway and another 191,000 sq. ft planned to start in 2022. To move through sites faster we are broadening the range of our residential products in response to increasing consumer and investor appetite for Build to Rent (BTR) products. We plan to test this market in 2022 with our first such portfolio of BTR houses. Lynda and her team are also planning to increase the scale of what we do, growing our strategic land portfolio and land promotion activities. The corollary of a strong market for engineered land is strong competition for strategic sites capable of such transformation. That requires us to ensure that those who create and facilitate land supply know well what Harworth is looking for, recognise our distinctive capabilities to regenerate and master- plan sites that would deter others, and trust us to deliver on our commitments both as to what we say we will do and how quickly we will do it. We have, therefore, been very pleased to announce acquisitions such as that of a 107-acre strategic site at Rothwell, Northamptonshire, on which we plan to directly develop up to 1.5m sq. ft of Grade A industrial & logistics space in this prime Midlands industrial location. 24 Strategic ReportHarworth Group plcStrategic Report Thoresby Vale, Nottinghamshire Resourcing our strategy Defining a strategy is one thing: delivering on it another. At the core of our ability to deliver are our people and the financial resources we have at our disposal. We are hugely fortunate to have a team of very experienced and highly committed people who have achieved excellent results over the past years. That core team is in turn strongly supported by those external organisations that supplement our core master- planning, project management and development. If, however, we are to tackle more sites and work through them more quickly we need to grow both that core team and the external support we contract-in. Hence, from 75 people making up Harworth at the end of 2020 we entered 2022 with 91. Finding individuals with the skills, experience, and culture that we require is not easy. Alongside expanding our leadership team to add the necessary expertise in such areas as direct development and residential BTR, we are also committed to growing our own, providing opportunities for young people to join us and then helping them to develop their skills and experience to move into more senior roles. In terms of financial resources we were very pleased to reach agreement shortly after the year-end on a new five-year Revolving Credit Facility (RCF) with our existing lenders NatWest and Santander in which they have been joined by HSBC. The facility in place during 2021 was increased during the second half of the year, from its previous level of £130m to £150m, and the new RCF agreed in 2022 was increased to £200m, which in turn follows the growth in Harworth’s asset value. Whilst this increases the funding we have available to accelerate through our sites and undertake more direct development we intend to retain our principle of low financial gearing, planning only a modest increase in maximum year-end loan to value from 20% to 25%. We know from our discussions with our shareholders that our approach to low gearing has their support. Our Environmental, Social & Governance (“ESG”) credentials In early 2020 we established what we call the Harworth Way – the way in which we deliver on our purpose of investing to transform land and property into sustainable places where people want to live and work. We deliver through five principal themes to address major social, economic and environmental trends: Communities, Planet, People, Partners and Governance. In turn we map these elements of the Harworth Way onto the relevant UN Sustainable Development Goals. These elements, which are at the heart of how Harworth does business, are now recognised as the bedrock of a company’s ESG credentials and I am personally greatly heartened by the speed with which ESG considerations have moved up the corporate and financial sector agenda. Investors in both debt and equity now seek to understand companies’ positions against relevant measures of their ESG credentials and their plans to develop those credentials as they deliver against their strategic objectives, whether this be their environmental credentials in terms of their pathway to Net Zero Carbon or their social credentials in terms of the diversity of their boards and businesses. Such considerations are no longer statistics in the pages of the annual report but core elements by which businesses are judged. Last year we established an ESG Committee of the Board and I am very grateful to Angela Bromfield, our Senior Independent Director, for her willingness to chair this new committee. Harworth has a considerable impact on the environment as a developer and oft times regenerator of strategic land, and on communities through our bringing forward of substantial commercial and residential development, often creating whole new communities where people live and work. How we plan, and take input from our stakeholders on, that impact is fundamental to what our teams 25 Annual Report and Financial Statements 2021Chair’s Statement continued do every day. A strategic site will often be developed fully over 10 or more years: our teams have to consider now what the world will need in 10 years’ time as they masterplan the nature of our developments and their infrastructure. In considering our impact on the environment and on communities we must have regard to both what we cause and also the impact of our supply chain, the tenants in our commercial portfolio, and those who will live in the developments we make possible. Suffice it to say these considerations are complex and in many parts uncertain, whilst there are also sharply contrasting scenarios as to how the environment may itself be influenced by climate change. Hence there is a need to create a focal point in the Board process where these topics can be discussed and strategies agreed, at the same time establishing oversight over increasingly complex and varied reporting of these issues. We recognise that defining the pathway to achieve our Net Zero Carbon objectives and developing comprehensive TCFD reporting remains work-in-progress, as it does for many others, but we are committed to maintaining the achievement of these objectives at the forefront of Board decision-making. My thanks Covid-19 made 2021 another difficult year for our people and those in the organisations that support us. Working from home predominated and for some families that meant both parents seeking to fulfil their work commitments from home alongside home schooling their children – an almost impossible ask! That we achieved what we did despite this backdrop is testament to the commitment and capability of our teams and those who support them, to all of whom I express my gratitude. Having had considerable change in our Board last year I was delighted to have neither departures nor arrivals during 2021. Within our executive I would like to mark Ian Ball, our Chief Operating Officer, leaving the business at the end of January after more than seven years. Having started his career with Harworth managing our Investment Portfolio and then broadening his role to have oversight over all our regions’ operating activities, Ian’s deep commercial understanding of our sites and their potential has been a mainstay of Harworth: we could not have achieved what we have without his input and we wish him all the best for the future. However, as one door closes another opens and we were very pleased to welcome both Andrew Blackshaw, as our new Chief Operating Officer, and Jonathan Haigh, who has taken the new role of Chief Investment Officer. They both have considerable experience in our sector and are already making a marked contribution to our business. I would also thank Nigel Turner, our interim Chief Financial Officer, for stepping into the big gap left by Kitty Patmore’s maternity leave – not easy to take the helm of a ship moving at speed with the wind full in its sails! Our congratulations to Kitty on the birth of her son. Finally my thanks to Lynda Shillaw, our Chief Executive, for what she has achieved in her first year with us, redefining Harworth’s strategy and repositioning our medium-term objectives whilst at the same time putting in place the resources, human and financial, she needs to deliver against them, and leading the achievement of a very strong outturn for the year. ALASTAIR LYONS Non-Executive Chair 21 March 2022 * Harworth discloses alternative performance measures (APMs) which are reconciled in Note 2 to the financial statements. Bardon Hill, Leicestershire 26 Strategic ReportHarworth Group plcChief Executive’s Review I would like to thank the Harworth team for their hard work and dedication, for delivering an outstanding set of results in 2021, and for stepping up to help to develop and mobilise our new strategy. Lynda Shillaw Chief Executive Introduction The end of 2021 marked my first full year at Harworth, one which has been both exciting and challenging, as we navigated delivering business as usual, and developing and mobilising a new strategic plan, through another year which was impacted by Covid-19. Our results show that 2021 was a very strong year for Harworth both in terms of our performance - delivering significant growth in EPRA NDV* and a Total Return* during the period of 24.6%, our highest annual Total Return on record - and the launch and completion of my strategic review of the business. This outlined an ambitious growth strategy, building on the skills of our people and our asset base to drive growth, maximise returns to investors and grow the size of the business to £1bn of EPRA NDV* over five to seven years, starting from the end of 2020. Our strategy is evolution not revolution, and fundamentally we remain a business that is regionally focused in the industrial & logistics and residential sectors. We have a deep understanding of the regions that we operate in and continue to deploy our specialist skills to assemble complex sites and work them through the planning process and into production. Our strategy work has identified the potential of our landbank to do more, faster, and provides a roadmap to enable us to scale up the creation of sustainable places where people want to live and work. Our markets The industrial & logistics and residential markets remained buoyant throughout 2021 and both are still characterised by structural undersupply. We continued to see a depth of market demand from occupiers and investors for both built stock and, increasingly, strategic land within our industrial & logistics portfolio, as well as for our residential serviced land product. Investor, occupier and homeowner demand strengthened through 2021, despite cost and supply chain pressures also surfacing, and our sales during the year were either ahead of, or in line with, December 2020 valuations, as we continued both to drive value into our sites through our management activities as well as capture a strong market in underlying land values. We exchanged on the sales of our Kellingley development site in North Yorkshire for £54.0m and Ansty strategic land site in Warwickshire for £53.5m towards the end of the year. Whilst both conditional, these transactions highlight the quality and potential of our landbank, also providing future funds to reinvest to deliver our strategy. Government policy remains focussed on rebalancing the UK economy and in particular driving investment into, and the regeneration and growth of, the economies of the regions. With the pandemic diverting government resources and focus, the reality of this on the ground is a slower pace of change than the expectation set. The publication of the Integrated Rail Plan and more recently the Levelling Up White Paper have started to provide more colour and a framework for business to work within: however, there is much more to do to bring this to life. Harworth is extremely well placed to do this: regeneration in the regions is our core skillset, something that is at the heart of what we do as a business. We have a long track record of regenerating former brownfield sites successfully, and we understand better than most how to assemble and remediate strategic sites and create sustainable places where people want to live and work. These capabilities are central to our growth to date and our strategy going forward. 27 Strategic ReportAnnual Report and Financial Statements 2021Chief Executive’s Statement continued Progress against our strategy Our strategy, outlined in September 2021, set out a clear road map for our ambition to grow EPRA NDV* from£515.9m at the end of 2020 to £1bn over five to seven years, through: • increasing direct development of industrial & logistics stock; • accelerating sales and broadening the range of our residential products; • • scaling up land acquisitions and promotion activities; and repositioning our Investment Portfolio to modern Grade A. We have made a strong start on our strategic ambition. Our EPRA NDV* at 31 December 2021 was £637.5m, a 23.5% increase on 31 Dec 2020 (and a 7.9% increase on 30 June 2021). Net assets increased 18% from £488.7m as at 31 December 2020 to £578.0m as at 31 December 2021. Our plans are ramping up to increase direct development from c.200,000 sq. ft per annum over the past six years, to 800,000 sq. ft per annum by 2027. During 2021 we delivered and let a 50,800 sq. ft unit at Logistics North and started on site with 432,000 sq. ft in total at Bardon Hill, Leicestershire and the Advanced Manufacturing Park (AMP) in Waverley, South Yorkshire. In early 2022 we expect to begin a further 191,000 sq. ft of development at Gateway 36 in Barnsley, South Yorkshire and the AMP. Also during 2022, we will begin site preparation works for 2.0m sq. ft of development at Wingates in Bolton, Greater Manchester and Chatterley Valley in Staffordshire, and target planning determinations for 2.8m sq. ft at our Skelton Grange and Gascoigne Wood sites in Yorkshire. In 2021, we delivered a step change in residential plot sales, completing 1,411, a 64% increase on our average annual rate of 862 plots per annum over the past six years, as we start to move towards our strategic target of 2,000 plot sales per annum. Sales were achieved across all three of our regions to a range of different housebuilders, with the largest contributors of plots being our developments in Moss Nook, Merseyside; Simpson Park, Nottinghamshire; and South East Coalville, Leicestershire. In addition, we secured planning consent to deliver c.1,000 residential plots at our Ironbridge site, and for an additional 500 new homes across a number of smaller sites. Diversifying our product at residential sites is a key component of our strategy, and to that end we recruited James Crow as Head of Mixed Tenure to oversee the development and launch of our first BTR portfolio in 2022. We take a long-term view of replenishing our landbank, and our strategy targets maintaining a 12-15 year land supply throughout our five year plan period. During 2021, we have been active in acquiring new sites to replenish our portfolio, adding Rothwell in Northamptonshire, which has the potential to deliver up to 1.5m sq. ft of industrial & logistics space, and Staveley in Derbyshire, which is capable of delivering up to 600 new homes. Our Investment Portfolio continues to deliver robust operational metrics, with 99% of rents due in 2021 now collected, and, as at 31 December 2021, a vacancy rate of 2.7% (31 December 2020: 4.5%) and a WAULT of 11.5 years (31 December 2020: 12.5 years). During the year we completed 696,400 sq. ft of leasing deals, including 267,500 sq. ft of new lettings. The new lettings included: (i) a 149,300 sq. ft unit to complete Phase 2 of the Multiply scheme, triggering further one-off promote fees, amounting to £12m in total, and (ii) a 50,800 sq. ft unit at Logistics North. Harworth remains well-capitalised and continues to manage its cash flows sustainably. As at 31 December 2021, net debt* was £25.7m (31 December 2020: £71.2m), providing significant headroom and flexibility. To support our growth strategy, since the year-end we have completed on a new five-year £200m facility with a £40m uncommitted accordion. The new facility is provided by NatWest, Santander, and HSBC, a new lender for Harworth. ESG is a priority for Harworth, and is embedded into the way that we work and the developments we deliver. Harworth prides itself on being a responsible business, and we have continued our work embedding the Harworth Way through our strategy and operations during the year with particular focus on the design and carbon use in operation of the logistics assets that we build. Throughout the year we have been working with our Board ESG Committee to ensure that the ESG targets and metrics that we set and measure ourselves against going forward are right for Harworth. This has culminated in the identification of eight Focus Impact Areas, centred around the Communities, Planet and People pillars of The Harworth Way. These will inform our ESG approach in the coming years, and we intend to report our progress against them regularly. Through the work that we undertook in 2021, we have also recognised the need to increase ESG resources in the business, and are delighted that after a short sabbatical, Peter Henry will return to the business as Director of Sustainability, to lead our work in this important area. People In my first Chief Executive’s Review last year I highlighted the capabilities and resilience of Harworth people and that the culture of the business is apparent in everything that we do. I believe that these characteristics set us apart as a business, and while 2021 has been another challenging year as we have scaled up and have started to implement our strategy, these fundamentals have again shone through. However, I recognise that it is not just about our growth strategy: change is unsettling for people within any organisation and managing the development of a new strategy and change through video calls is difficult. We have made a great start, but there is still much to do to deliver on the opportunities that we have identified and show the world what we are capable of. Front and centre of this is ensuring that we have the right level of skills and resources in the business, the right culture, and that we are a great place to work. We have been successful in hiring 16 great people into our business during 2021 to support the delivery of our strategy and I would like to welcome to the senior leadership team: 28 Strategic ReportHarworth Group plcAndrew Blackshaw as Chief Operating Officer; Jonathan Haigh as Chief Investment Officer; and Haroon Akram as Director of Strategy, Investment and Business Development. It has not just been about new hires though: we have also focussed on the talent within the business, ensuring that there are opportunities for individuals to thrive and develop, and we have made a number of promotions and enabled departmental moves as a result. During the year, we have reviewed most of our policies, from Diversity and Inclusion through to Maternity, Adoption, Paternity and Shared Parental leave, to ensure that they are at the market leading end of the spectrum, as well as introducing a salary sacrifice car scheme for low or zero emission vehicles. One of the most significant policy changes during the year was the introduction of hybrid working, which enables our people to work more flexibly and underpins our focus on wellbeing and ensuring that they have more choice as to where they work and when they start and finish their day. Another significant change is focused on widening share ownership within the business and from 2022 we are proposing to extend the scale and application of our Restricted Share Plan and Share Incentive Plan, reaching all employees in our business. At Harworth, how we lead, our behaviours and the culture that we are part of are things that we are immensely proud of, and I am really pleased to highlight that in our recent engagement survey 97% of people said they were proud to work for Harworth, and 93% of people said they would recommend Harworth as a good place to work. Outlook Our 2021 results build on our strong performance in 2020 and highlight both the demand for our focus sectors and the resilience of our business model. Our new strategy builds on our existing strengths, capabilities and scale, and unlocks the potential within our strategic landbank, delivering growth and sustainable returns to investors. We have created a clear plan to reach £1bn of EPRA NDV* over five to seven years. Our focus is now fully on the execution of the strategy, but I am acutely aware that, for a strategic land business, it is a marathon, not a sprint, and the flying start presented by our 2021 results will moderate as we move through the cycle – some of our sites take in excess of a decade to assemble and deliver. My focus is on ensuring that, as we work through our plans, the team has the skills and resources to deliver consistently and successfully, sustainably growing the business and delivering returns through the cycle. The early months of 2022 have been extraordinary. Against the backdrop of continued strong demand for our products we are seeing rising inflation and interest rates in the UK, and a war in Europe, which has potentially wide-reaching implications in the near term for Western European economies, particular in our energy and some core commodity markets. Our core markets are currently performing well, but are not immune to global supply issues, or any downturn in the economy driven by a combination of global and UK economic factors. Government policy remains focused on driving up regional investment and growth and delivering a more equal balance of economic outcomes and opportunities for UK citizens. Looking forward, overall commercial property returns are expected to be lower in 2022. The industrial sector is still expected to continue to perform well, driven by a huge weight of capital seeking access occupiers chasing finite available stock, causing record low void rates. The shortage in supply of new homes seen in 2021 pushed prices higher and this has continued into 2022. Order books and demand for developable land from housebuilders, and rental product from investors, are robust, with prices rising ahead of inflation and cost increases, and the end of the stamp duty holiday having remarkably little impact on buyer demand. The sector does however face some headwinds as interest rates rise, the cladding repair crisis remains unresolved and the sector digests the changes to Building Regulations and the Future Homes Standards pathway. We remain a resilient, well capitalised, through-the-cycle business and we have made a great start as we step into the delivery of our strategy, doing what Harworth does best – creating sustainable places where people want to live and work. What Harworth does in the regions and how we do it matters. I believe that Harworth has both a track record of delivery and a deep understanding of what it takes to successfully deliver large scale regeneration and that we can, therefore, play a key role in helping local and central Government to deliver on their core agendas on housing, levelling up and the green economy. Conclusion I have had a very enjoyable first year as Chief Executive of Harworth, and this is because of the people in our business. I would like to thank the Harworth team for their hard work and dedication, for delivering an outstanding set of results in 2021, and for stepping up to help to develop and mobilise our new strategy. I would also like to thank Ian Ball, our former Chief Operating Officer who left the business in January, for the invaluable support that he has provided to me and his service to the business over the last seven years. I also extend a thank you to Nigel Turner, who joined us as Interim Chief Financial Officer to cover Kitty’s maternity leave, and to welcome Kitty back into the business. I am excited by our strategy and extremely proud to lead Harworth and to work with such a talented team. LYNDA SHILLAW Chief Executive 21 March 2022 * 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. 29 Strategic ReportAnnual Report and Financial Statements 2021 Operational Review Industrial & logistics land portfolio At 31 December 2021, the industrial & logistics pipeline totalled 28.2m sq. ft (31 December 2020: 27.3m), of which 7.3m sq. ft was consented (31 December 2020: 9.2m sq. ft), and 6.1m sq. ft was in the planning system awaiting determination (31 December 2020: 1.3m sq. ft). At the same date, the pipeline was 76% owned freehold, while 24% related to PPAs or Options. Acquisitions and land assembly Direct development During the year, completed industrial & logistics land acquisitions totalled £10.6m. A large proportion of this related to the freehold acquisition in November of a 107-acre site in Rothwell, Northamptonshire. Located at Junction 3 of the A14, connecting to the A6, the site has a strong strategic position within the prime Midlands industrial location known as the “Golden Triangle”. Harworth will work with local stakeholders, including the newly-formed North Northamptonshire unitary authority, to bring forward a planning application for 1.5m sq. ft of Grade A industrial & logistics space. The remainder related to land assembly works at Harworth’s Ansty strategic land site in Warwickshire. Contracts were exchanged for the conditional sale of the entire site in December 2021. Planning During the year, Harworth submitted planning applications for 6.1m sq. ft of industrial & logistics space, including: • Gascoigne Wood, North Yorkshire: This 185-acre former colliery site benefits from an existing rail connection and close proximity to the A1(M) and M62. Revised plans have been submitted for 2.0m sq. ft of rail-linked industrial & logistics space at the site. • Skelton Grange, Leeds, West Yorkshire: Formerly the location of Skelton Grange Power Station, this 50-acre site was acquired by Harworth in 2014 and is adjacent to Junction 45 of the M1, to the south-east of Leeds city centre. Plans have been submitted for 800,000 sq. ft of space across five units, in addition to infrastructure upgrades, new cycle ways and footpaths, and ecological enhancements. Planning was secured by Harworth during the year for 1.3m sq. ft of industrial & logistics space. The majority of this related to the Wingates development site in Bolton, Greater Manchester. In June, planning consent was granted for 1.1m sq. ft of space at the site, which is adjacent to Junction 6 of the M61, in close proximity to Harworth’s now-completed Logistics North development. In September, construction commenced at the Bardon Hill site in Leicestershire, which will see the direct development by Harworth of 332,000 sq. ft of logistics and manufacturing space across six units. The development is expected to reach practical completion in the second half of 2022, resulting in a total GDV of between £40m and £50m. Harworth is also currently underway with the delivery of a 100,000 sq. ft facility at the AMP in Waverley, South Yorkshire, on behalf of sportswear manufacturer SBD Apparel. In May, practical completion was reached on LN50, a 50,800 sq. ft unit at Logistics North, concluding Harworth’s eight-year build-out of the development site. LN50 was designed, built and future- proofed to allow it to be Net Zero Carbon in operation, and was let to a manufacturing occupier after the year-end. Land sales Harworth completed £18.1m of industrial & logistics land sales during the year, at prices above or in line with 31 December 2020 valuations. The largest disposal was of a 24-acre land parcel at Gateway 36 in Barnsley, South Yorkshire, to Firethorn for £11.6m. The land parcel represents Phase 3 of the development and will be used to develop a BREEAM “Excellent” rated 340,000 sq. ft logistics facility. At year-end there were two significant land sales on which Harworth had conditionally exchanged contracts: • Kellingley, North Yorkshire: The sale of the development site was agreed for £54.0m. The transaction will only complete if all sale conditions are satisfied prior to the transaction’s long-stop date of 31 August 2022. These conditions include, but are not limited to, the approval of a reserved matters planning application, which is submitted and currently awaiting determination. • Ansty, Warwickshire: The sale of this strategic land site was agreed for £53.5m. The completion of this transaction is conditional on the granting of a hybrid planning permission, which is to be submitted by Harworth and the purchaser. The planning application is expected to be submitted later this year, with a determination in 2023. 30 Strategic ReportHarworth Group plcStrategic Report Moss Nook, Merseyside Residential land portfolio As at 31 December 2021, the residential pipeline had the potential to deliver 30,804 housing plots (31 December 2020: 30,668), of which 9,978 were consented (31 December 2020: 9,355), and 811 were in the planning system awaiting determination (31 December 2020: 2,536). At the same date, the pipeline was 55% owned freehold, while 45% was subject to PPAs, Options or Overages. Acquisitions and land assembly During the year, completed residential land acquisitions totalled £3.8m. The largest purchase was the freehold acquisition in December of a 133-acre brownfield site in Staveley, Derbyshire. The site is located in the Staveley & Rother Valley Corridor, which is allocated to deliver up to 1,500 new dwelling and employment opportunities in Chesterfield Borough Council’s Local Plan. We intend to leverage our placemaking skills to deliver 600 homes, alongside new green spaces, a retail hub and other amenities. Planning In September, planning was secured for a 1,000-home mixed use development at Ironbridge, Shropshire. The 350-acre former power station site was acquired by Harworth in June 2018. Alongside new homes, the development will deliver up to 0.2m sq. ft of employment space, a retirement village, and a local centre offering convenience retail and other services. Demolition works to remove the power station structures were largely completed by year-end, and enabling works for the first phase of development at the site began in early 2022. Planning was also secured for up to 500 homes across a number of smaller sites in the portfolio. This included approvals for: up to 250 new homes at a 25-acre site in Awsworth, Nottinghamshire; up to 132 new homes in Little Lever, Bolton, on a former industrial site that was acquired by Harworth in 2020; and up to 118 homes on a site in Birdwell, South Yorkshire. Plot sales During the year, completed residential land sales grew significantly to 1,411 plots (2020: 873 plots). Sales were either in line with, or ahead of, 31 December 2020 valuations. Sales were made to a range of different housebuilders across eight sites, including: Moss Nook, Merseyside; Simpson Park, Nottinghamshire; and South East Coalville, Leicestershire. The headline sales prices ranged from £30k to £73k per serviced plot (2020: £37k to £70k). 31 Annual Report and Financial Statements 2021Operational Review continued Investment Portfolio The Investment Portfolio, previously referred to as the Business Space portfolio, mainly comprises industrial & logistics assets that have been directly developed and retained, and standing assets that have been acquired. This portfolio provides recurring rental income in addition to providing asset management opportunities and the potential for capital value growth. In September, Harworth completed the letting of a further plot at Multiply Logistics North, with planning permission for a 131,300 sq. ft industrial unit. The plot represented Phase 3 of Multiply and the completion of the development, triggering significant one-off promote fees. Across the Investment Portfolio, operational metrics remain strong, with 99% of rents falling due in the year collected, vacancy falling to 2.7% as at 31 December 2021 (31 December 2020: 4.5%), and a sustainable weighted average unexpired lease term (“WAULT”) of 11.5 years as at 31 December 2021 (31 December 2020: 12.5 years). From 2022, Harworth will adjust the calculation of its Investment Portfolio vacancy to align it with the EPRA best practice guidelines, which use the ERV of vacant space rather than sq. ft. Based on this calculation, Investment Portfolio vacancy as at 31 December 2021 was 4.1%. Sales Completed Investment Portfolio sales totalled £8.8m during the year, at prices in line with, or ahead of 31 December 2020 valuations, and representing a net initial yield of 5.1%. These disposals were mainly of mature assets where asset management or development initiatives had been completed. As at 31 December 2021, the Investment Portfolio comprised 18 sites covering 3.7m sq. ft. (31 December 2020: 19 sites covering 3.4m sq. ft). It generated £18.0m of annualised rent (31 December 2020: £15.7m), equating to a gross yield of 6.5% (31 December 2020: 6.8%) and a net initial yield of 5.6% (31 December 2020: 6.1%). Grade A space represented 11% of the portfolio (31 December 2020: 9%). Acquisitions In March, Harworth acquired Towngate Business Park, Widnes for £12.7m, reflecting a net initial yield of 7.1% and a reversionary yield of 9.4%. The asset comprises 262,000 sq. ft of fully-let industrial space across nine industrial units, with easy access to the M62. Harworth will leverage its asset management expertise to capture rental reversion at the site and explore infill development opportunities over the medium term. Asset management During the year we completed 696,400 sq. ft of leasing deals, including 267,500 sq. ft of new lettings. Lease renewals and regears were completed at terms which, on average, represented a 28% uplift to previous passing rents. New lettings were completed on terms in line with, or ahead of estimated rental values (ERVs). Most of this activity related to two transactions at Logistics North: the letting in June of a 149,300 sq. ft Grade A warehouse as part of Phase 2 of the Company’s Multiply Joint Venture (Multiply) with the LPPI Real Estate Fund; and the letting of LN50. Natural Resources portfolio The Natural Resources portfolio comprises sites used for a wide range of energy production and extraction purposes, including wind and solar energy schemes, battery storage and methane capture. Sales from this portfolio during the year totalled £13.9m, with sales prices ahead of 31 December 2020 valuations. These sites included the former Harworth Tip in Nottinghamshire, the former Alcan smelter at Lynefield Park, Northumberland and the former North Selby Mine. 32 Strategic ReportHarworth Group plcAnnual Report and Financial Statements 2021 33 Strategic ReportOur 2021 performance was the result of strong operational delivery, good progress towards our strategic objectives, a resilient residential market and buoyant demand for industrial & logistics land and properties. Kitty Patmore Chief Financial Officer Over the year, the net asset value grew to £578.0m (31 December 2020: £488.7m). With EPRA adjustments for development property valuations included, EPRA NDV* at 31 December 2021 was £637.5m (31 December 2020: £515.9m) representing a per share increase of 23.5% to 197.6p (31 December 2020: 160.0p). The Group has declared a final dividend of 0.845p per share, bringing the total dividend per share for 2021 to 1.212p, representing 10% underlying growth from 2020, in line with our dividend policy. During 2021, the Group’s RCF was increased from £130m to £150m and maturity extended to February 2024. In early 2022, a new five-year £200m RCF was agreed with a £40m uncommitted accordion facility. We welcome HSBC to our lender syndicate alongside existing lenders NatWest and Santander. This new facility provides more flexibility and the additional liquidity will support the delivery of our growth strategy. Financial Review Overview Our 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) for 2021 was 24.6% (2020: 3.0%), our highest annual Total Return to date and a significant increase on 2020, which was especially impacted by Covid-19. Our 2021 performance was the result of strong operational delivery, good progress towards our strategic objectives, a resilient residential market and buoyant demand for industrial & logistics land and properties. Sales of serviced land and property, in addition to income from rent, royalties and fees, resulted in Group revenue of £109.9m (2020: £70.0m). This increase derived from accelerated serviced land sales in line with our growth strategy as well as some rephasing of serviced land sales during the Covid-19 pandemic. Rent collection remained strong, driven by new acquisitions in 2020 and asset management initiatives. Included within the £109.9m, there were one-off promote fees totalling £12.0m at Multiply Logistics North. Looking forward, the sales profile is robust with 36% of 2022 budgeted sales by value already agreed or exchanged. BNP Paribas and Savills, our independent valuers, completed a full valuation of our portfolio as at 31 December 2021, resulting in valuation gains* during the year of £148.0m (2020: £15.6m), including the movement in the market value of development properties, in addition to profit on sales of £12.5m (2020: £6.7m). These external independent valuations demonstrate the strength of the industrial & logistics market for both investment properties and development land, as well as continued demand for residential serviced land. The fair value of investment properties increased by £84.0m (2020: £25.4m), which contributed to an operating profit of £121.9m (2020: £27.8m) and a profit after tax of £94.0m (2020: £25.9m). 34 Strategic ReportHarworth Group plcPresentation of financial information As our property portfolio includes development properties and joint venture arrangements, Alternative Performance Measures (APMs) can provide valuable insight into our business alongside statutory measures. In particular, revaluation gains on development properties are not recognised in the Consolidated Income Statement and Balance Sheet. The APMs outlined below measure movements in development property revaluations, overages and joint ventures. We believe that these APMs assist in providing stakeholders with additional useful disclosure on the underlying trends, performance and position of the Group. Our key APMs are: • Total Return: the movement in EPRA 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 aims to represent shareholder value under an orderly sale of the business, where deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liability net of any resulting tax. EPRA NDV per share is EPRA NDV divided by the number of shares in issue at the end of the period, less shares held by the Employee Benefit Trust or Yorkshire Building Society to satisfy Long Term Incentive Plan and Share Incentive Plan awards • Value gains: these are the realised profits from the sales of properties and unrealised profits from property valuation movements including joint ventures, and the mark-to-market movement on development properties and overages • Net loan to portfolio value: Group debt net of cash held expressed as a percentage of portfolio value *A full description of all non-statutory measures and reconciliations between all statutory and non-statutory measures are provided in Note 2 to the consolidated financial statements. Profit excluding value gains* (PEVG) is no longer included as a key APM from 2021 as it forms part of the EPRA NDV* per share and Total Return* key APMs but is a non-material component of these measures. PEVG is defined as property net rental, royalty and fee income, net of running costs of the business (adjusted operating profit): this represents the underlying profitability of the business excluding property value gains or profits from the sales of properties. Our financial reporting is aligned to our business units of Capital Growth and Income Generation with items which are not directly allocated to specific business activities, held centrally and presented separately. Income Statement 2021 Capital Growth £m 81.1 (53.1) 28.0 (3.4) 57.5 – 82.2 4.5 0.2 86.9 – 86.9 Income Generation £m 28.8 (8.1) 20.7 (2.1) 35.0 – 53.5 4.7 – 58.2 – 58.2 Central Overheads £m – – – (13.7) – (0.1) (13.8) – (4.1) (17.9) (33.2) (51.1) 2020 Capital Growth £m 49.6 (56.2) (6.6) (3.1) 12.6 – 2.9 8.0 0.4 11.3 – 11.3 Income Generation £m 20.4 (3.2) 17.2 (1.9) 19.1 – 34.4 0.7 – 35.1 – 35.1 Central Overheads £m – – – (9.6) – (0.1) (9.7) – (3.5) (13.2) (7.5) (20.7) Total £m 109.9 (61.2) 48.7 (19.2) 92.5 (0.1) 121.9 9.2 (3.9) 127.2 (33.2) 94.0 Total £m 70.0 (59.4) 10.6 (14.5) 31.7 (0.1) 27.8 8.7 (3.1) 33.4 (7.5) 25.9 Revenue Cost of sales Gross profit/(loss) Administrative expenses Other gains Other operating expense Operating profit/(loss) Share of profit of JVs Net interest expense Profit/(loss) before tax Tax charge Profit/(loss) after tax Note: There are minor differences on some totals due to roundings Revenue in the year was £109.9m (2020: £70.0m), of which Capital Growth contributed £81.1m (2020: £49.6m) and Income Generation contributed £28.8m (2020: £20.4m). Capital Growth revenue, which primarily relates to the sale of development properties, increased reflecting accelerated land sales under the new strategy as well as due to Covid-19, which had a subsequent impact on development programmes and resulted in a catch-up of sales in 2021. Capital Growth revenue also includes a £12.0m promote fee from our now completed Multiply joint venture at Logistics North. 35 Strategic ReportAnnual Report and Financial Statements 2021Financial Review continued Revenue from Income Generation (the Investment Portfolio, previously known as Business Space, and the Natural Resources portfolio) mainly comprises property rental and royalty income. Revenue of £28.8m (2020: £20.4m) was higher as a result of increased rental income from property acquisitions and asset management initiatives which drove rent increases. Rental income from the Investment Portfolio increased on an annualised basis from £15.7m to £18.0m in 2021 following new lettings, re-gears and the acquisition of Towngate Business Park, Widnes. Cost of sales comprises the inventory cost of development property sales and the direct costs of the Income Generation business. Cost of sales increased to £61.2m (2020: £59.4m) of which £55.1m related to the inventory cost of development property sales (2020: £43.9m). In the year, we saw a reduction in the net realisable value provision on development properties of £5.2m (2020: £10.4m increase) following the valuation process as at 31 December 2021. Administrative expenses increased in the year by £4.7m. This was due to higher salary expenses, resulting from increased employee numbers, and higher bonus costs for 2021, increased insurance costs following the 2021 insurance renewal driven by changes in the insurance market, and costs incurred as part of the strategy review of the business. Administrative expenses expressed as a percentage of revenue decreased from 21% in 2020 to 17% in 2021 reflecting the acceleration in activity relating to sales of development property as well as the promote fee from the Multiply joint venture at Logistics North. Other gains comprised an £85.0m (2020: £25.1m) net increase in the fair value of investment properties and assets held for sale (AHFS) plus the profit on sale of investment properties, AHFS and overages of £7.4m (2020: £6.6m). Joint venture profits of £9.2m (2020: £8.7m) were largely a result of an increase in the value of the Multiply Logistics North site (£4.7m) and Aire Valley Land (£4.5m). Value gains/(losses) on a non-statutory basis are outlined below. Non-statutory value gains/(losses) Value gains/(losses) are made up of profit on sale, revaluation gains/(losses) on investment properties (including joint ventures), and revaluation gains/(losses) on development properties, AHFS and overages. A reconciliation between statutory and non-statutory value gains can be found in Note 2 to the financial statements. £m Categorisation Profit on sale 2021 Revaluation gains/(losses) 2020 2021 2020 Total Profit on sale Revaluation gains/(losses) Total Total valuation Total valuation Capital Growth Major Developments Strategic Land Income Generation Investment Portfolio Natural Resources Agricultural Land Total Mixed Investment Investment Investment Investment 6.6 1.1 0.1 3.5 79.4 86.0 34.4 35.5 0.1 6.1 (10.4) (10.3) 308.2 248.1 6.5 12.6 144.0 96.2 36.2 36.3 (0.2) 14.8 14.6 277.5 227.6 (1.9) 1.6 1.2 12.5 (0.2) 148.0 1.1 160.5 0.0 0.7 6.7 5.1 5.1 30.6 38.3 (0.4) 15.6 0.3 22.3 5.4 765.7 8.0 618.2 Notes: A full description and reconciliation of the APMs is included in Note 2 to the consolidated financial statements. There are some minor differences on some totals due to roundings 36 Strategic ReportHarworth Group plc Profit on sale of £12.5m (2020: £6.7m) reflected the completion of sales above book value. Non-statutory revaluation gains* were £148.0m (2020: £15.6m) and are outlined in the table below. Increase in fair value of investment properties Increase/(decrease) in value of assets held for sale Movement in net realisable value provision on development properties Contribution to statutory operating profit Share of profit of joint ventures, net of impairment Unrealised gains/(losses) on development properties and overages Total non-statutory revaluation gains* 2021 £m 84.0 1.1 2.8 87.9 9.2 50.9 148.0 2020 £m 25.4 (0.3) (11.8) 13.3 8.7 (6.4) 15.6 The principal revaluation gains and losses across the divisions reflected the following: • Major Developments: the major contribution came from industrial & logistics development sites with planning permission including the conditional sale at our Kellingley development, alongside robust housebuilder demand for residential sites; • Strategic Land: increased market appetite, in particular for industrial & logistics sites including the conditional sale of Ansty, as well as planning permission received at our Wingates and Ironbridge sites; • Investment Portfolio: strong rent collection and good letting progress achieved across our portfolio reducing vacancy with increased demand for industrial & logistics properties; • Natural Resources: valuations remained broadly consistent with minor valuation decline in the waste and recycling portfolio; and • Agricultural Land: profits achieved on sales The net realisable value provision on development properties as at 31 December 2021 was £12.2m (31 December 2020: £17.3m). This provision is held to reduce the value of six development properties from their deemed cost (the fair value at which they were transferred from an investment to a development categorisation) to their net realisable value at 31 December 2021. The transfer from Investment to development property takes place once planning is secured and development with a view to sale has commenced. Cash and sales The Group made property sales in the year of £108.3m (2020: £75.8m), achieving a total profit on sale of £12.5m (2020: £6.7m). Sales comprised residential plot sales of £64.9m (2020: £44.4m), industrial & logistics land sales of £18.1m (2020: £15.4m) and sales of other, mainly mature, income-generating sites and agricultural land, of £25.3m (2020: £16.0m) Cash proceeds from sales in the period were £114.5m (2020: £83.8m) as shown in the table below: Total property sales1 Less deferred consideration on sales in the year Add receipt of deferred consideration from sales in prior years Total cash proceeds 2021 £m 108.3 (27.4) 33.6 114.5 2020 £m 75.8 (21.6) 29.6 83.8 1 A full description and reconciliation of APMs is included in Note 2 to the consolidated financial statements. Tax The income statement charge for taxation for the period was £33.2m (2020: £7.5m) which comprised a current year tax charge of £6.4m (2020: £0.4m credit) and a deferred tax charge of £26.8m (2020: £7.9m). The current tax charge resulted primarily from profits from the sale of development properties, investment property, AHFS and PEVG. The increase in deferred tax largely relates to unrealised gains on investment properties. In addition, the March 2021 Budget announced a further increase to the main rate of corporation tax to 25% effective from April 2023. This increase was substantively enacted on 24 May 2021. As such, the deferred tax balance has been calculated using either 19% or 25%, dependent on the rate expected to apply on the date the liability is reversed. The deferred tax movement resulting from the impact of the tax rate change was £10.7m. At 31 December 2021, the Group had deferred tax liabilities of £46.9m (31 December 2020: £23.1m) and deferred tax assets of £4.3m (31 December 2020: £7.3m). The net deferred tax liability was £42.6m (31 December2020: £15.8m). 37 Strategic ReportAnnual Report and Financial Statements 2021 Financial Review continued Basic earnings per share and dividends Basic earnings per share for the year increased to 29.1p (2020: 8.0p) reflecting the increase in the valuation of the land and property portfolio as at 31 December 2021. In addition to the interim dividend of 0.367p, the Board has determined that it is appropriate for a final dividend of 0.845p (2020: 1.466p) per share to be paid, bringing the total dividend for the year to 1.212p (2020: 1.800p) per share. The 2020 final dividend was increased to reflect the cancelled final 2019 dividend excluding which, the 2020 dividends totalled 1.102p per share. Given this, the recommended 2021 final dividend and 2021 total dividend represent a 10% increase in line with our dividend policy. There is no change to the current dividend policy to continue to grow dividends by 10% each year. Property categorisation Until sites receive planning permission and their 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 investment property. We categorise properties and land that have received planning permission, and where development with a view to sale has commenced, as development properties. As at 31 December 2021, the balance sheet value of all our development properties was £172.7m (2020: £177.7m) and their independent valuation by BNP Paribas was £245.2m, reflecting a £72.5m 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 how we state our investment properties, we use EPRA NDV*, which includes the market value of development properties and overages less notional deferred tax, as our primary net assets metric. Net asset value Properties1 Cash Trade and other receivables Other assets Total assets Gross borrowings Deferred tax liability Derivative financial instruments Other liabilities Statutory net assets Mark to market value adjustment on development properties and overages less notional deferred tax2 EPRA NDV2 Number of shares in issue less Employee Benefit Trust & YBS3 held shares EPRA NDV per share2 1 Properties include investment properties, development properties, AHFS, 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 consolidated financial statements 3 Yorkshire Building Society 31 Dec 2021 £m 689.8 12.0 55.1 5.3 762.2 37.8 42.6 0.2 103.6 578.0 59.5 637.5 31 Dec 2020 £m 584.5 12.7 56.4 5.4 659.0 83.9 15.8 0.8 69.8 488.7 27.2 515.9 322,539,284 322,410,320 160.0p 197.6p EPRA NDV* at 31 December 2021 was £637.5m (31 December 2020: £515.9m) which includes the mark to market adjustment on the value of the development properties and overages. The total portfolio value as at 31 December 2021 was £765.7m, an increase of £147.5m from 31 December 2020 (£618.2m). The Group’s share of profit from joint ventures resulted in investments in joint ventures increasing to £36.1m (31 December 2020: £25.3m). Trade and other receivables include deferred consideration on sales as set out above. At 31 December 2021, deferred consideration of £27.4m (31 December 2020: £33.5m) was outstanding, of which 84% is due within one year. 38 Strategic ReportHarworth Group plc Advanced Manufacturing Park, Rotherham The table below sets out our top ten sites by value, which represent 44% of our total portfolio, showing the total acres for each site and split according to their categorisation, including currently consented residential plots and commercial space: Site Site type Categorisation in balance sheet Region Progress to date South East Coalville Major Development Development Midlands Nufarm Investment Portfolio Investment Kellingley1 Major Development Development Waverley Major Development Development Waverley AMP Investment Portfolio Investment Yorkshire & Central Yorkshire & Central Yorkshire & Central Yorkshire & Central 2,016 residential units consented, land sold representing 679 units – 1.4m sq. ft of industrial & logistics space consented, less than 0.1m sq. ft sold 3,890 residential units consented, land sold representing 1,886 units 2.1m sq. ft of industrial & logistics space consented, 1.6m built or sold Knowsley Ansty1 Investment Portfolio Investment North West – Strategic Land Investment Midlands Ironbridge Major Development Investment Midlands Proposed industrial & logistics site, planning not yet submitted 1,000 residential units consented, enabling works commenced Four Oaks Business Park Investment Portfolio Investment North West – Pheasant Hill Park Major Development Development Yorkshire & Central 1,200 residential units consented, land sold representing 540 units (1) Contracts had been conditionally exchanged for the sale of the site at year-end Financing strategy Harworth’s financing strategy remains to be prudently geared. The Income Generation portfolio provides a recurring income source to service debt facilities and this is supplemented by proceeds from sales. The Group has an established sales track record that has been built up since re-listing in 2015. To deliver its strategic plan, the Group has adopted a target net loan to portfolio value* at year end of below 20%, with a maximum of 25%. As a principle, the Group will seek to maintain its cash flows in balance by funding the majority of infrastructure expenditure through disposal proceeds whilst allowing for growth in the portfolio. The Group intends to continue to enter into site-specific development and infrastructure loans alongside the main banking facilities to support its growth strategy. 39 Strategic ReportAnnual Report and Financial Statements 2021Financial Review continued Debt facilities An RCF (the Original RCF) with NatWest and Santander has been in place since 2015. During 2021, this Original RCF was increased from £130m to £150m in support of the strategy set out in the Group’s interim results in September 2021 and expiry date extended to February 2024. Since the 2021 year-end, we have entered into a new five year £200m RCF (the New RCF), with a £40m uncommitted accordion option, which replaces the Original RCF. NatWest and Santander continue to support us in the New RCF and we welcome HSBC to our banking group. The New RCF is aligned to the Group’s strategy and provides significant additional liquidity and flexibility to enable it to pursue its strategic objectives. The interest rate of the New RCF is on an LTV ratchet mechanism with a margin payable above SONIA in the range of 2.25% to 2.50%. As part of its funding structure, the Group also uses infrastructure financing provided by public bodies and site-specific direct development loans to promote the development of major sites and bring forwards the development of logistics units. Consistent with this, during the year the Group signed three new facilities totalling £37.6m to fund the development of logistics units at Bardon Hill, Leicestershire (£23.5m), Gateway 36 in Barnsley (£7.5m) and the AMP at Waverley, South Yorkshire (£6.6m). The Group had borrowings and loans of £37.8m at 31 December 2021 (2020: £83.9m), being the Original RCF drawn balance (net of capitalised loan fees) of £33.3m (2020: £79.7m) and infrastructure or direct development loans (net of capitalised loan fees) of £4.5m (2020: £4.2m). The Group’s cash balances at 31 December 2021 were £12.0m (2020: £12.7m). The resulting net debt was £25.7m (2020: £71.2m). Net debt* decreased with the completion of serviced land and property sales. The movements in net debt over the year are shown below: Opening net debt as at 1 January Cash inflow from operations Property expenditure and acquisitions Disposal of investment property, AHFS and overages Investments in and distributions from joint ventures Interest and loan arrangement fees Dividends paid Tax paid Other cash and non-cash movements Closing net debt as at 31 December 2021 £m 71.2 (57.0) 41.0 (44.5) 1.6 4.6 5.9 3.6 (0.7) 25.7 2020 £m 70.9 (25.8) 56.1 (27.7) (8.6) 3.4 1.1 2.1 (0.4) 71.2 The weighted average cost of debt, using an end of month average 2021 balance and 31 December 2021 rates, was 2.90% with a 0.9% non-utilisation fee on undrawn RCF amounts (2020: 2.70% with a 0.9% non-utilisation fee). From 2022, the Group’s hedging strategy to manage its exposure to interest rate risk will be to hedge the lower of around half its average debt during the year or its net debt balance at year end. At 31 December 2021 the Group had a £45m fixed rate interest swap (maturing in 2022) 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. With the completion of the New RCF in early 2022, the fixed rate interest swap was terminated concurrently. New hedging will be put in place over 2022. As at 31 December 2021, the Group’s gross loan to portfolio value was 4.9% (31 December 2020: 13.6%) and net loan to portfolio value was 3.4% (31 Dec 2020: 11.5%). If gearing is assessed against the value of the core income portfolio (the Investment Portfolio and Natural Resources portfolio) only, this equates to a gross loan to core income portfolio value of 13.0% (31 December 2020: 33.8%) and a net loan to core income portfolio value of 8.9% (31 December 2020: 28.7%). Under the New RCF, the Group could withstand a material fall in portfolio value, property sales or rental income before reaching covenant levels. At 31 December 2021, undrawn facilities under the Original RCF were £116.0m. Going forwards, the New RCF provides additional liquidity of £50m and headroom to execute our growth strategy. KITTY PATMORE Chief Financial Officer 21 March 2022 *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. 40 Strategic ReportHarworth Group plc Long-term Viability Statement This balance in the portfolio means that regular income from the income-producing portfolio with low vacancy rates will help to support cost coverage. 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, if required, to advance sites at an earlier stage (master-planning and planning promotion). The residential market has a fundamental insufficient supply of housing and has seen robust demand throughout 2021. Having teams in Yorkshire, the Midlands and the North West balances the exposure to any one region. Net debt at year end of £25.7m represented a 3.4% net loan to portfolio value. The Group entered into a new £200m five-year RCF in early 2022, adding HSBC to the Group’s main lenders in addition to NatWest and Santander; this new facility provides greater firepower and flexibility with which to execute on the Group’s strategy. 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. Over the last 12 months, the Board has identified a refreshed set of eleven principal risks and uncertainties, informed by the Group’s strategy. Of these, 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, Project Delivery, Finance, Climate Change and People sub-categories of risk identified in the Effectively managing our risks section of this Report on pages 71 to 77. Viability period and rationale The Directors have assessed the prospects of the Group and its principal risks over a longer period than the period required by the Going Concern Statement (see the Statement of Directors’ Responsibilities at pages 154 to 155. The Board conducted a review for a period of five years ending 31 December 2026. 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. Resilience of business model The Group’s strategy focusses on continued growth through increasing direct development of industrial & logistics buildings, accelerating land and property sales, broadening the range of residential products, growing our strategic land portfolio and repositioning our Investment Portfolio to modern Grade A. When repositioned, the Investment Portfolio will continue to provide a diversified portfolio of income producing assets for the Group to support coverage of operating and financing costs. This enables the Group to create value in modern industrial and logistics buildings while supporting the transition to Net Zero. 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. Projections have been prepared in the context of the Group’s strategy and its principal income streams, which are: • • sales of residential and commercial serviced land, for which there are plans reaching out to 2026; rental income from income-producing industrial properties which, at 31 December 2021, had a vacancy rate of 2.7%, a WAULT of 11.5 years and a rent collection of 99%; and • development and investment management, planning promotion and investment fees. 41 Strategic ReportAnnual Report and Financial Statements 2021 Long-term Viability Statement continued Assessment of long-term prospects and sensitivities applied The five-year strategic plan focuses on the expected growth of the business primarily in terms of EPRA NDV* and Total Return*. The strategic plan 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 forecasts 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 expects to continue to transform land and property into sustainable places where people want to live and work. We have considered a severe but plausible downside case under which the Group is still viable and over the five-year period. Consideration has also been given to the impact of the Russian invasion of Ukraine which, while not directly impacting the activities of the Group, has the potential to impact through changes in the wider macro-economic environment. Whilst under the sensitivity analysis, EPRA NDV* growth plus dividends could be impacted temporarily, the long- term business model is expected to continue to deliver the Group’s Purpose in a sustainable manner. *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 Risk Scenario Mitigation & Further Analysis • Downturn in industrial & logistics and/or • The portfolio provides a spread of sites across the three core Markets: Residential and Commercial Markets residential market conditions could lead to a fall in property values or reduced sales • Notwithstanding strong rent collection throughout the last two years, 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, expenditure on new land and property acquisitions could be restricted Finance: Availability of appropriate capital • A market downturn reducing sales volumes would lower income • Short term downward valuation movement and lower income receipts could be experienced which would reduce headroom under the financial covenants in the RCF • Higher interest rates would reduce headroom in interest cover covenants • Inability to access appropriate equity and/or debt funding to support the strategy 42 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 • Pursuant to our strategy we are working to take full advantage of current market conditions and mitigate a potential downturn by accelerating residential sales, introducing new products at our residential sites, repositioning our Investment Portfolio to modern Grade A and increasing the quantum and speed of direct development • The Group works closely with tenants in the Investment Portfolio on payment terms that support both parties to continue to actively manage rent collection • Development expenditure can be reduced and rephased to match more closely market demand and conserve cash • 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 on financial covenants is projected throughout the five-year period • We have entered into a new RCF with a resulting £50m increase to £200m. There are now no major refinancing deadlines ahead of when the RCF expires in 2027 • The RCF is supplemented by accessing project specific funding where relevant. We continue to pursue and unlock grant funding • The Group uses financial instruments to mitigate the risk of interest rate increases, typically hedging half the average drawn RCF balance throughout the year • Reduced activity on sites as set out above would reduce development expenditure and conserve cash resources Strategic ReportHarworth Group plcStrategic Report Risk Scenario Mitigation & Further Analysis • Failure to manage transitional risks associated • We have established an ESG Board Committee (see pages Climate change: Managing Climate change transition with climate change covering both operational activity and reporting • Impact of climate change on our sites, slowing development programmes and reducing sales Other risks including Project Delivery and People • Planning promotion risk including uncertainty around local and national changes to planning regime with potential for adverse effect on promotion activity, progress on sites and EPRA NDV growth • Supply chain pricing pressures and constraints resulting in development cost increases and delays and/or default by and/ or insolvency of counterparties • • Legislative reforms which have the effect of levying an additional cost on development Insufficient and/or inappropriate resources, resulting in increased staff costs 118 to 119) and ESG Steering Group • External consultants have been appointed to advise on ESG strategy formulation, implementation and reporting • We are making progress in capturing relevant environmental and social data and we have identified our Net Zero Carbon pathway • We have run initial analysis looking at the impact of climate change such as flooding, on our sites • Strong relationships with local planning authorities and key local stakeholders, supplemented by local political advisers where appropriate • The potential impact of planning reforms is modelled in project appraisals ahead of acquisition • We undertake rigorous tender processes and utilise market intelligence regarding contractors’ commitments and workload • Our central technical team monitors contractor “concentration risk” and promotes consistencies and knowledge-sharing across our portfolio • There are high levels of employee satisfaction within the business as reported on page 63 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. 43 Annual Report and Financial Statements 2021Section 172 Statement In this section, we identify our key stakeholders and explain how we have engaged with them and had regard to their interests when making strategic and significant operational decisions during 2021. Whilst the Board recognises its statutory obligation to do so under s.172(1) of the Companies Act 2006, its engagement and collaboration with stakeholders are not merely a matter of statutory compliance: doing so effectively is key to delivering against our Purpose and our commercial success. As we are constantly interacting with a wide range of stakeholders, the reporting of stakeholder impact has been embedded into Board project appraisals. Transaction templates presented to the Board focus discussion 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. The Board having regard to these matters in its discussions and decision making is fundamental to creating sustainable places where people want to live and work. Further detail on how the Board has had regard to the interests of stakeholders is in the Statement of Corporate Governance on pages 86 to 100. Our People Why we engage How we engage The people at Harworth are key to the success of the Company. It is their skills, experience and hard work that allow us to create high quality sustainable places where people want to live and work. The Board engages with staff directly through various formats, including employee lunches, site visits, regional team dinners, office visits and the Employee AGM. Due to restrictions imposed by Covid-19 during 2021, some of the above events were held virtually. See more on page 88. Their key interests How do we respond? Examples of actions taken To work on market-leading projects with pride and enjoyment. To work in, and contribute to, an innovative and collaborative culture. To be supported in their career and personal development, appropriately rewarded and recognised for their contribution. A sustainable work-life balance. To have their views heard and taken into account in decision making. We have developed a people strategy to support our business strategy, which promotes both the development and career progression of our existing employees and, where necessary, the recruitment of new and additional skills. We have introduced physical and mental wellbeing initiatives, such as a new hybrid working policy. We have made employment policy changes such as improvements to our maternity, adoption, and paternity leave and pay provision. 44 Strategic ReportHarworth Group plcInvestors Why we engage To explain our performance and strategy to, and understand the views of, existing and prospective shareholders. Without the long- term support of our shareholders, our business and the delivery of our Purpose are not sustainable. How we engage We provide business updates regularly via trading statements and regulatory releases on key transactions. Management meets regularly with existing and prospective investors. The Chair also meets regularly with our largest shareholders. Two of our Non-Executive Directors, Martyn Bowes and Steven Underwood, are conduits for engagement with two of our largest shareholders. Their key interests How do we respond? Examples of actions taken Long-term and sustainable returns and a business which delivers a positive environmental and societal impact. We commissioned an investor perception study to support the strategy review undertaken in 2021 and identified actions to respond to investor feedback. In response to feedback from existing and prospective investors, we have further enhanced our financial and operational disclosures and held a number of site visits, subject to the constraints imposed by Covid-19. We engaged with, and took account of the views of, our largest shareholders when formulating our revised Remuneration Policy. Communities Why we engage How we engage By creating places where people want to live and work, we create thriving communities and make a positive and sustainable contribution to local areas. Consultation and collaborative working with the local communities where we are transforming sites are fundamental components of a successful project. These include early and ongoing engagement with the public on all planning applications; liaison with key community groups as developments mature; and careful management of the shared public open space on our sites often in collaboration with local residents. Their key interests How do we respond? Examples of actions taken Sustainable places where people want to live and work. Each site is unique but will include housing with a high design specification; supporting infrastructure which has been carefully designed, delivered and “future proofed”; skilled employment; thoughtfully constructed blue and green spaces which have a positive ecological impact and promote wellbeing; education provision; and comprehensive local amenities. Consideration of the placemaking proposals for, and the impact on local communities of, each project are key components of our appraisals. By way of example, we hope that our acquisition of land at Staveley will deliver circa 600 homes, significant blue and green space and a retail hub. It is part of a wider scheme which should transform the site of a former steelworks and chemical facility to deliver housing, employment and leisure facilities. 45 Strategic ReportAnnual Report and Financial Statements 2021Section 172 Statement continued Suppliers Why we engage The successful delivery of our sites depends on strong relationships with suppliers who are professional, trusted and share our values. How we engage We apply a consistent “take-on” approval process for all suppliers. Whilst we operate a long list of approved suppliers, we usually engage small groups of trusted consultants and contractors on a repeat basis, fostering strong relationships. Their key interests How do we respond? Examples of actions taken A long-term partnership with Harworth in which they are treated fairly and receive timely payment. We commissioned a stakeholder perception study, which included feedback from suppliers. We have identified actions to respond to that feedback. During 2022, we are exploring how we improve our procurement processes, both at a corporate and project level. Funders Why we engage We need external capital to fund the Group’s activities, long-term projects and efficient growth. How we engage In 2021 we engaged extensively with existing and prospective funders ahead of the refinancing of our senior debt facility. We completed that refinancing in Q1 2022 and welcome HSBC to our group of senior lenders, alongside NatWest and Santander. In the ordinary course, we schedule relationship meetings with our senior lenders every six months but have a regular dialogue with them throughout the year. Their key interests How do we respond? Examples of actions taken An open dialogue with regular updates and assurances about our operational and financial performance together with delivery against all our contractual obligations. Our positive relationship with NatWest and Santander supported a successful increase to and extension of our senior debt facility in November 2021. We subsequently worked with both lenders and HSBC to agree and put in place a new £200m senior debt facility in Q1 2022. The Board having regard to stakeholder interests is fundamental to creating sustainable places where people want to live and work 46 Strategic ReportHarworth Group plcCustomers Why we engage As a master developer, we want to ensure there is long-term demand for our land. Our principal customers are housebuilders, commercial developers and occupiers. How we engage Engagement with housebuilders and commercial developers is predominantly transactional, although we maintain regular contact outside of deal cycles to understand their needs and appetite for more land and development opportunities. We engage proactively with commercial occupiers to identify pre-let demands. Typically, day-to-day engagement with our existing tenants is via our managing agents who help identify where direct involvement and engagement from our investment team is needed. Their key interests How do we respond? Examples of actions taken A collaborative and reciprocal relationship with Harworth in which they trust us to deliver a high-quality product on time and, for our tenants, a longer-term relationship in which they are treated fairly and their operational needs are understood. Following a challenging 2021 insurance renewal process, we engaged proactively with tenants to explain why pressure in the market had caused insurance premiums to increase markedly. Ahead of the 2022 insurance renewal process, we worked with tenants to improve our data on their operational activities and security measures, helping to contribute to a material reduction in premiums. The stakeholder perception study we commissioned to support the business strategy review included feedback from occupiers and housebuilders. We have identified actions to respond to that feedback. Government Why we engage How we engage Harworth has an important part to play in supporting some Government priorities over the coming years, both at a national and regional level, including in the areas of climate change, levelling up, and addressing the housing shortage. We participate in central Government consultation exercises on policy proposals both on our own account and through industry bodies such as the British Property Federation. We also engage informally on national initiatives such as the levelling up agenda, HS2 and site-specific matters. We engage with local Government and Local Enterprise Partnerships (LEP) 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. Their key interests How do we respond? Examples of actions taken Environmental and societal priorities, both national and local, the achievement of which we can help support. Housing shortages within local planning authorities and central and local Government priorities for infrastructure investment continue to be important factors which inform our project appraisals. The Government’s plans for high-speed rail to the North-East of Birmingham are a determinative factor in the delivery of our Gateway 45 and Lounge sites. 47 Strategic ReportAnnual Report and Financial Statements 2021The Harworth Way Our Focus Impact Areas Our Focus Impact Areas are centred around the three impact pillars of the Harworth Way: Communities, Planet and People. They represent areas where we feel that Harworth can make the most societal and environmental impact as a business, and provide a framework for us to measure our progress against over the short, medium and long term. These objectives are also aligned to our principle UN SDGs. Communities Communities Delivering homes, supporting jobs and creating communities Promoting healthy lifestyles and wellbeing Through our regeneration and placemaking activities across the North and the Midlands, we revitalise areas which have historically been impacted by industrial and economic decline. Our residential developments deliver a mix of tenures and different levels of affordability. We recognise that communities need varied and high- quality infrastructure to thrive. Our masterplans consider the health and wellbeing of residents and those working at our sites, and provide facilities to promote healthier, greener lifestyles and wellbeing. Progress to date Progress to date Since 2011, Harworth’s pipeline has supported the delivery of over 3,500 housing plots and over 12,000 new jobs, including many that are high-skill, for example at the AMP. We have also delivered community infrastructure, including a primary school at Waverley. Our industrial & logistics landbank could support over 72,000 jobs, and our portfolio overall has the potential to deliver £4.1m of GVA into local economies. We have delivered over 900 acres of accessible green space across our developments. This includes footpaths, cycle ways and other infrastructure to encourage mental and physical wellbeing. During 2021 we submitted plans for innovative cycling infrastructure projects at Waverley and Thoresby Vale, including a regionally significant cycle hub. Plans for 2022 Plans for 2022 • Our Bardon Hill scheme to support approximately 530 • Cycling infrastructure at Waverley and Thoresby Vale to new jobs once completed be delivered • Olive Lane at Waverley to provide amenities including a supermarket, restaurants, a gym and working space • Plans to be submitted for new football pitches at Moss Nook • Planning to be submitted for two schools, at South East • Additional cycle and footpath infrastructure to be Coalville and Thoresby Vale provided across a number of sites By 2030 By 2040 By 2030 By 2040 Incremental progress reported annually Incremental progress reported annually Principle UN SDG link Principle UN SDG link 48 Strategic ReportHarworth Group plc Planet Planet Increasing biodiversity Reducing CO2 emissions Biodiversity brings significant benefits not just to wildlife and ecosystems, but also to communities through increased amenity value and climate resilience. Promoting and protecting biodiversity at our sites is therefore a key priority. Working with our partners, Harworth is committed to becoming a Net Zero Carbon business. We believe this will unlock new opportunities, minimise our environmental impact and build our climate resilience. Progress to date Progress to date Across our portfolio we have delivered hundreds of acres of green space, rewilded land, undertaken SSSI conservation work, and planted thousands of trees. In 2021, at our Ironbridge site alone we installed six great crested newt ponds, a bat barn and moth habitat, and a 21 metre-tall nesting tower for peregrine falcons. In recent years we have implemented several measures to reduce our energy usage, improve the energy efficiency of our assets and increase opportunities for on-site renewable energy generation. Further details can be found on pages 56 to 59. Plans for 2022 Plans for 2022 During 2022 we will identify a series of metrics that we will use to report on the biodiversity initiatives and actions we take. Between 2022 and 2023 we will undertake research and detailed planning to develop our Net Zero Carbon pathway, and report on our progress. By 2030 By 2040 By 2030 By 2040 Detailed targets to be informed by the work undertaken in 2022 Principle UN SDG link Net Zero Carbon for all emissions Net Zero Carbon for Scope 1 & Scope 2 emissions, and those Scope 3 emissions relating to business travel and employee commuting Principle UN SDG link 49 Strategic ReportAnnual Report and Financial Statements 2021 The Harworth Way continued Our Focus Impact Areas continued Planet Planet Building greener Developing responsibly The buildings that we develop today are capable of being Net Zero Carbon in operation and built to EPC rating A. We are committed to going much further than this and have the ambition that over time all of our industrial & logistics developments will be Net Zero Carbon. As a responsible developer, we take great care to ensure that in remediating sites we clean, reuse and decontaminate materials as well as incorporating low carbon infrastructure into existing and future sites. Progress to date Progress to date All buildings completed by Harworth in 2021 and 2020 were built to BREEAM “Very Good” standard and EPC rating A. In 2021 we completed our first building that is capable of being Net Zero Carbon in operation, LN50. At a site level, we have reused materials where possible, and taken steps to reduce energy consumption and waste. We have also continued our Investment Portfolio EPC upgrade programme and have recently installed solar panels on the roof of our head office, Advantage House. Plans for 2022 Plans for 2022 • All new industrial & logistics developments will be • All new masterplans will incorporate renewable energy EPC A rated and capable of being Net Zero Carbon in operation infrastructure. We will also explore retrofitting options where possible • All new occupiers to be offered green leases • Develop metrics for measuring and enabling us to report more fully the impacts of our activities By 2030 By 2040 By 2030 By 2040 All industrial & logistics developments will be Net Zero Carbon Reporting and targets to be informed by the work undertaken in 2022. Principle UN SDG link All new industrial & logistics developments to be Net Zero Carbon in construction and operation. All investment portfolio assets to have green leases (or equivalent), where contracts permit Principle UN SDG link 50 Strategic ReportHarworth Group plc People People Engaging our people Prioritising health & safety Harworth’s ambition is to be the employer of choice, providing an inspiring place to work and attracting and retaining the best talent. Critical to our success is the engagement, wellbeing and diversity of our people. The health and wellbeing of our people, our contractors, our communities is of paramount importance. We actively manage the risks on all our sites. This includes physical inspections, monitoring of accidents, incidents, near hits and good practice, claims and work-related absences. Progress to date Progress to date In 2021, 97% of respondents to our employee engagement survey said that they were proud to work Harworth. We revised our maternity, paternity, and adoption leave policies to ensure that they are market leading, and introduced a hybrid working policy. There were no accidents involving Harworth personnel during the year. There was one minor accident involving a contractor under Harworth supervision. There was one RIDDOR accident on an area of our site for which our contractor had responsibility for health & safety, but there were no other accidents on contractor-controlled areas. More details are provided on page 62. Plans for 2022 Plans for 2022 • We will continue to make Harworth a great place to work, through engagement, prioritising the physical and mental wellbeing of staff, our market-leading people policies, promoting diversity, and providing career opportunities • We will take steps to increase share ownership amongst employees, and introduce an ESG target that impacts group-wide bonuses • We will aim for zero RIDDOR-reportable accidents on Harworth sites By 2030 By 2040 By 2030 By 2040 Incremental progress reported annually Zero RIDDOR-reportable accidents on Harworth sites Principle UN SDG link Principle UN SDG link 51 Strategic ReportAnnual Report and Financial Statements 2021 The Harworth Way continued Communities As a long-term custodian of land, we create, strengthen and support our communities now and for future generations. Harworth delivers some of the largest industrial & logistics and residential sites in the North of England and the Midlands, creating sustainable places where people want to live and work. Harworth is investing and delivering development in some of the most deprived parts of the UK, where levels of economic growth and investment have typically been below average. The table below shows the proportion of new jobs being supported through Harworth’s existing developments and pipeline within the most deprived areas of England. It shows that almost three-quarters of the jobs to be supported are in the 50% most deprived areas of the UK, providing a significant economic boost to these communities. Harworth’s support for job creation in deprived areas (using indices of Multiple Deprivation (England 2019)) Area deprivation Decile 10% most deprived 20% most deprived 30% most deprived 40% most deprived 50% most deprived Remaining 50% of areas in England Total Cumulative % of jobs supported by Harworth pipeline 18% 19% 34% 44% 72% 28% 100% Delivering homes, supporting jobs, and growing economies Harworth has delivered significant economic and social benefits across its broad range of development sites in Yorkshire & Central, the Midlands, and the North West. The development of these sites has the potential to deliver significant economic benefits for these regions, contributing to local authority and LEP strategic objectives and delivering on the UK Government’s aim of levelling up the economy. As in previous years, we have commissioned Ekosgen, an independent economic research consultancy, to appraise what we have delivered, and what we could deliver in the future, from our developments. The data focuses on job creation, housing development, and the potential Gross Value Add (GVA) of each site. Some of the highlights of its findings were: • Harworth sites are spread across 15 LEP areas and 39 local authority areas, benefiting a large proportion of the Midlands and the North of England. • When fully built out, Harworth’s industrial & logistics portfolio has the potential to accommodate over 72,000 jobs, generating £4.1bn of GVA per annum, as well as significant levels of business rates income. • Harworth’s residential portfolio has the potential to generate up to £55 million per annum in council tax receipts. • Over half of the potential jobs supported by Harworth’s current pipeline are concentrated in three regions: Sheffield City Region, Leeds City Region, and Greater Manchester, with Harworth set to support over 12,000 jobs in each. 52 Strategic ReportHarworth Group plc 53 Strategic ReportAnnual Report and Financial Statements 2021The Harworth Way continued Communities continued Promoting healthier lifestyles Creating inclusive spaces Cycling has a number of benefits, including improving personal health and wellbeing, reducing congestion and pollution, and making our communities more attractive places to live in. Harworth developments have long provided cycling facilities for residents and workers. For example, our now completed Logistics North development includes 18km of footpaths and cycle paths on-site, connecting to local and national traffic-free cycling routes. During the year, Harworth worked with local groups and Places to Ride, a partnership between British Cycling, the Department for Digital, Culture Media & Sport and Sports England, to bring forward two innovative cycle infrastructure projects at its Thoresby Vale and Waverley developments. At Thoresby Vale, the funding will be used to deliver a multi- use cycling facility at the heart of the scheme, which will include a “Learn to Ride” area and a modular cycling hub, which will host a café and other amenities. The new facility will connect to the various multi-use paths proposed for the site’s country park, and enhance existing cycle path infrastructure in the area, providing direct links to the nearby communities of Edwinstowe, Ollerton and Broughton. As well as boosting the physical wellbeing of local residents, the facility will provide a new cycling destination for the approximately 500,000 people who visit Sherwood Forest every year. At Waverley, Harworth has been working with Sheffield Hallam University as part of an ‘active towns’ project to look at different ways to deliver green community spaces. As part of this project, a community group called the Waverley Buds was formed, which has worked on a number of small gardening projects over the last three years. Since the formation of the group, Harworth has created a new community garden space in the centre of Waverley. The space, which is located opposite the new Waverley Junior Academy, is to be managed by the Waverley Buds, and includes a collection of raised planters and seating areas. During the year, teams from Harworth spent several days with the group, helping to lay the foundations for a new path in the community garden, plant hedgerows and create new landscaping features. Our Waverley site is also to be used as a test location for a Healthy Ageing research study by Sheffield Hallam University, in association with the Economic and Social Research Council. The study will examine how the design and features of the built environment can be used to encourage activity and physical engagement across age groups. Proposed Thoresby Vale Cycle Hub Harworth staff at the Waverley community garden 54 Strategic ReportHarworth Group plcSupporting local and national causes Preserving cultural heritage Harworth introduced a new charitable giving policy in 2021, to enhance its level of financial donations and make it easier for staff to support charities that matter to them, or receive match funding for their own fundraising activities. Under the new policy, the Senior Executive approve a sum of money each year, which can then be bid for by individuals or teams across the business. The People Steering Group is responsible for approving all donation requests. During the year Harworth donated £67,700 to a number of local and national charities. Some of the causes that we supported are shown below: Harworth is committed to preserving the cultural and natural heritage of the sites it develops. We recognise that many of our former brownfield sites have proud industrial histories, and continue to form part of the fabric of the local community. As a result, plans to restore and repurpose former industrial buildings for new community uses are central to several of our developments. Examples include the workshop buildings of the former Thoresby Colliery at our Thoresby Vale development and the former power station pumphouse at Ironbridge, both of which will be repurposed for a range of local retail and/or leisure uses. We also incorporate architectural and landscaping features into our sites that reflect their history. During the year, we unveiled a memorial to former colliery workers at our Prince of Wales development in Pontefract, West Yorkshire, in a ceremony attended by local MP Yvette Cooper, local councillors, and former Prince of Wales miners. The memorial, which was funded by Harworth and designed by local artist and former miner Harry Malkin, stands over five metres tall at the entrance to the site, reminding residents and visitors of the area’s rich mining history. Memorial sculpture at Harworth’s Prince of Wales site 55 Strategic ReportAnnual Report and Financial Statements 2021The Harworth Way continued Planet We minimise our environmental impact through the use of renewable resources, energy efficiency, and sustainable construction practices. We also enhance biodiversity and climate resilience through the creation, protection and enhancement of green spaces across our sites. Harworth’s approach to Net Zero Carbon The climate emergency and imperative transition to a Net Zero Carbon economy have particular implications for property owners and developers – and for those invested in them – due to the very significant contribution that our sector makes to global carbon emissions: nearly 40% in total. As a business that specialises in transformation, Harworth is poised to embrace this challenge and to capture the opportunities that the transition to Net Zero presents. Harworth’s Transformation to Net Zero will set out our commitment to reaching Net Zero Carbon by 2030 for Scope 1 & Scope 2 emissions, and those Scope 3 emissions relating to business travel and employee commuting. We also commit to reaching Net Zero Carbon for all emissions by 2040. Achieving this goal will ensure that we develop and hold assets that are fit for the future, underpinning shareholder value in the long- term, whilst taking full responsibility for the climate-related impacts of our activities and those of our value chain. Whilst ambitious, this commitment builds upon some significant areas of progress that we have already achieved, including developing our first building capable of being Net Zero Carbon in operation and driving energy efficiencies throughout our business. Whilst our journey to Net Zero is already underway, we recognise that much work remains to achieve the full transformation needed. We have aligned our Net Zero goal and approach to the Better Buildings Partnership’s Climate Commitment and its supporting Net Zero Carbon Pathway Framework. This is widely viewed as the authoritative framework for the real estate sector and will ensure that we reflect and account for the true impact of our business across the whole lifecycle of our land and property assets. Further details on Harworth’s Transformation to Net Zero, including our CO2 emissions baseline (with Scope 3 emissions data across our supply chain), our investment boundary and delivery plan, including short- medium- and long-term goals, will be provided later in 2022. We disclose Scope 1, Scope 2 and some Scope 3 emissions data in our Streamlined Energy and Carbon Reporting disclosure on page 64. Over the coming months, Harworth will be investing in systems and resourcing to create a fuller picture of its carbon footprint. The chart below illustrates how we will transition our business and portfolio to Net Zero by 2040 Embodied carbon savings Energy efficiency (Lower 'Energy Use Intensity') Increase on-site renewables Increase off-site renewables Supply chain reductions Our 2040 BAU Emissions (accounting for portfolio growth) Supply chain Tenant operations Landlord operations Embodied carbon Today ) e 2 O C ( s n o i s s i m e s a g e s u o h n e e r G 56 Target 2040 emissions Supply chain Tenant operations Landlord operations Embodied carbon Offset residual emissions to Net Zero through high quality offsets 2040 Sequester emissions within portfolio Strategic ReportHarworth Group plc Integrating energy efficiency into direct development Improving energy efficiency in the Investment Portfolio Increasing our level of direct development and transitioning our Investment Portfolio to Grade A are two of the key components of our growth strategy. Central to achieving both of these aims is the delivery of energy efficient, resilient buildings that meet occupier demands today and in the future. During the year, Harworth commissioned consultants to develop a new, sustainable design brief which can be used in Harworth’s future direct development. The brief includes recommendations on the use of low and zero carbon technologies, off-site renewable energy supply, and carbon offsetting arrangements. The design brief led to the creation of Harworth’s first building capable of being Net Zero Carbon in operation, LN50 at Logistics North, which reached practical completion in May 2021. LN50 incorporates air source heat pumps to provide low carbon space heating and cooling to offices, and has a reinforced building structure to accommodate solar PV panels on up to 75% of the roof area. The design brief is currently being evaluated for use in the planning and construction phases of other direct developments in our pipeline, including at Gateway 36 in Barnsley and the Advanced Manufacturing Park in Rotherham. We also recognise that the carbon embodied in our developments and income-producing assets are a significant aspect of our impact which we need to reduce further and ultimately eliminate in collaboration with our supply chain partners. We therefore undertook a further detailed embodied carbon analysis of LN50 which identified design and procurement actions that would achieve a 25% reduction within future similar developments, with the prospect of achieving an embodied carbon intensity target of 357kg CO2e/m2. These actions will be incorporated into future direct development wherever possible to allow Harworth to achieve its decarbonisation targets. In addition to maximising energy efficiencies in the assets that we build, we are committed to improving the specification of assets we already own in our Investment Portfolio, thereby reducing environmental impact, extending asset lifespans, and meeting and exceeding changing regulatory requirements. A breakdown of Harworth’s Investment Portfolio by EPC rating is provided below. Our key priority is to raise all units above a C rating well in advance of it becoming a legal requirement from 2027 under the MEES regulations. We are improving energy efficiency primarily through electrical and lighting upgrades, including the fitting of LED lighting and opportunities to increase natural light, alongside insulation and re-cladding/ over-cladding upgrades. We are exploring opportunities to roll out solar PV panels to sites. Breakdown of EPC rating across Investment Portfolio1 % 2 3 % 2 3 % 8 1 % 5 % 9 % 2 % 2 A D 1 excludes 0.5m sq ft of Investment Portfolio space which is not required to G C B E F have an EPC In early 2022, Harworth installed over 400 sq. metres of solar PV panels on the roof of its head office, Advantage House. When fully operational, this will supply almost 80,000kWh of electricity per annum, and will save over 18,000kg of CO2 per annum. Further disclosures Task Force for Climate-Related Financial Disclosures recommendations. See pages 65 to 69 Streamlined Energy and Carbon Reporting disclosures. See page 64 57 Strategic ReportAnnual Report and Financial Statements 2021The Harworth Way continued Planet continued Exploring low emission public transport opportunities Encouraging the use of low and zero emission vehicles Across our development sites we aim to increase connectivity through the provision of public transport links, thereby reducing congestion and its associated emissions, and making developments a more inclusive place for all age groups. During the year we progressed an exciting opportunity to achieve this at our Ironbridge development. The Ironbridge site already benefits from two rail links to the mainline from Shrewsbury to Wolverhampton, which were originally used to transport materials to the site’s power station, and Harworth was keen to explore opportunities to bring them back into use. During the year, we partnered with Revolution VLR, a consortium of advanced manufacturing companies aiming to develop the next generation of “very light rail” vehicles and technologies, to develop a test vehicle and track on a stretch of disused railway. Combining technology from the automotive and rail sectors, Revolution VLR has produced a lightweight, energy-efficient vehicle that is straightforward to operate and geared to the needs of communities, providing a modern, attractive and cost-effective vehicle solution that it is hoped will facilitate the reopening of disused railway lines. Encouraging and facilitating the use of electric and low emission vehicles is one of the key ways in which we can reduce emissions associated with travel by car. Harworth owns one car, which is fully electric, and at the end of 2021 had four EV charging points at Advantage House, which are free to use for staff. A further six EV charging points were installed in early 2022 as part of the installation of solar PV panels at the site. During the year, we introduced a salary sacrifice scheme for staff, which is exclusively for fully-electric and low emissions vehicles. All future direct development by Harworth will include EV charging facilities, and we are exploring opportunities and partnerships to add them retrospectively to existing developments and Investment Portfolio sites. VLR test train at Ironbridge EV charging at Advantage House, Rotherham 58 Strategic ReportHarworth Group plcProtecting and promoting biodiversity Biodiversity brings significant benefits not just to wildlife and ecosystems, but also to communities through increased amenity value and climate resilience. Taking steps to promote and protect biodiversity across our sites is therefore a priority for Harworth. Some of the key areas of biodiversity gain we’ve been working on in 2021 are: • Ironbridge: Our Ironbridge development will incorporate extensive green space, including 56 acres reserved exclusively for protecting biodiversity. As part of the site preparation works, we installed six great crested newt ponds, a bat barn which is also used as a moth habitat, and a 21- metre tall nesting tower for Peregrine falcons. • South East Coalville: We entered the second phase of our South East Coalville residential development during the year. Work is ongoing to deliver 15 acres of parkland and amenity space at the site, in addition to a 23-acre riverside green corridor along the River Sence. Further design elements will include an innovative energy efficient specification for the new school, the translocation rather than removal of hedgerows, and the creation of an Open Mosaic Habitat to boost biodiversity. • Bardon Hill: Our 332,000 sq ft industrial & logistics development at Bardon Hill will be completed in 2022. Plans include the development of a 10-acre local wildlife centre and new great crested newt ponds at the site, which will boost local biodiversity and provide amenity space for the local community. We also partner with several wildlife and conservation organisations to achieve biodiversity goals. For many years we have worked in strategic partnership with Wildlife Trusts, a collection of independent regional trusts that collectively look after more than 2,300 nature reserves across the UK. In December 2021, we sold over 800 acres of land in West Chevinton, Northumberland to the Northumberland Wildlife Trust. The site will be used for one of the most ambitious lowland rewilding projects in the North of England, allowing conservators to test a number of rewilding methods with the aim of storing carbon, boosting biodiversity, and connecting wildlife habitat on an unprecedented scale locally. Aerial view of Ironbridge development 59 Strategic ReportAnnual Report and Financial Statements 2021The Harworth Way continued People We create an inclusive, supportive and empowered workplace culture in which people can develop and fulfil their potential. We prioritise the health and wellbeing of our people and ensure they remain inspired and engaged. Harworth’s ability to execute its strategy and deliver on its purpose of creating places where people want to live and work, is reliant on attracting, maintaining and developing great talent. At the end of 2021, we had 91 employees working at our head office in Rotherham and across our regional offices in Manchester, Birmingham and Leeds, representing a diverse mix of backgrounds, experiences, and expertise. Harworth recognises the importance and benefits of a diverse workforce. In 2018 we adopted a Diversity and Equal Opportunities policy, and all employees receive mandatory diversity and inclusion training. Our People Steering Group (PSG) has received further training on diversity and inclusion best practice, and plays a leading role in target setting and identifying areas for improvement across the organisation. We are committed to transparency and disclosure of diversity and inclusion data. We provide statistics on gender and ethnic diversity within our organisation on pages 107 to 108. Embedding the Harworth Culture We have embedded a “One Harworth” culture throughout our business. This underlines our collaborative approach to delivering and managing our sites, and succeeding as one team. Our culture is underpinned by the three Harworth values: • Taking Pride in our People & Partnerships • Delivering Creative Solutions • Acting with Integrity & Trust We support this culture through: • Integrating the Harworth values into appraisals and setting and scoring of remuneration objectives; • Quarterly all-staff communication events and newsletters, including peer-nominated awards for those employees who have exemplified the Harworth values; • Hosting staff events throughout the year, at a company- wide and regional level Staff away day 60 Strategic ReportHarworth Group plc Hybrid working During 2021, Covid-19 continued to highlight the importance of promoting and maintaining a good work life balance. In response to the long-term shift in working practices brought on by the pandemic, we introduced a formal hybrid working policy for all staff. The policy allows staff to split their work time between the workplace and home, with a maximum of two days a week working from home. All staff were given hybrid working training to help them navigate new ways of working while promoting their health and wellbeing. Harworth is committed to providing additional flexible working options, acknowledging the numerous benefits to both employee and employer. As part of this approach, we have adopted a “Core Business in Core Hours” policy. Regular meetings that colleagues need to attend should take place within core hours, with employees free to choose their remaining working hours to fit around other commitments such as childcare and external appointments. New maternity, adoption and paternity policies During the year we reviewed several people policies to ensure alignment with market best practice, promote the wellbeing and work life balance of our staff, and enable our business to attract the best talent. This included enhancements to our maternity, adoption and paternity leave policies. Our maternity and adoption policy has been increased from six weeks full pay, followed by 10 weeks at 50% pay and then 23 weeks of statutory pay, to 24 weeks at full pay, followed by 15 weeks at statutory maternity pay and then, on return to work, full pay whilst working 50% hours for the first two weeks. Our paternity policy has improved from two weeks full pay to eight weeks full pay, which can be taken in blocks alongside and/or after a partner’s maternity or adoption leave. It is hoped that these new policies will provide greater flexibility for new parents, help to address gender imbalance, and encourage greater sharing of childcare responsibilities. Advantage House, Rotherham 61 Strategic ReportAnnual Report and Financial Statements 2021The Harworth Way continued We now have five employees who hold a mental health first aid qualification. We have continued measures designed to promote mental and physical wellbeing for our staff, including: • monthly yoga sessions provided at our head office; • a series of six “Mind Gym” sessions, teaching mental wellness techniques; and • raising awareness through Mental Health Awareness week in May 2021. Harworth also runs an Employee Assistance Programme (EAP) for all staff. The EAP is designed to help employees deal with any personal problems that might impact their work performance, health and wellbeing. These interventions typically include assessment, short-term counselling and referral services for employees and their immediate family. Ongoing monitoring comprises: • Weekly meetings between our General Counsel & Company Secretary and the Head of Risk & Compliance • Monthly reporting by the Head of Risk & Compliance to the Group Leadership Committee and Board • Quarterly health, safety and environment meetings chaired by our Head of Risk & Compliance, 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 Head of Risk & Compliance reports to the Board in January each year on key issues encountered, actions taken, and priorities for the coming year People continued Health, safety and wellbeing The health, safety and wellbeing of our staff is our number one priority. Day-to-day review and management of health and safety issues rest with our Project Delivery and Estates Management teams. We have a newly established Risk & Compliance team, which reports to our General Counsel & Company Secretary, who undertake a rigorous assurance programme to ensure effective management of health & safety across all our projects and sites. 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 Risk & Compliance 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”. All our low and medium risk sites are inspected at least annually and any high risk-rated sites are inspected more regularly. There are currently no “high risk” sites in the site risk register. The overall risk profile of our sites is reported to both the Group Leadership Committee and the Board monthly. Our Risk & Compliance team ensures that health & safety is embedded into all our activities. In 2021 mandatory health and safety training was delivered to all employees in the form of half- day interactive training sessions, which for the first time also included training on mental and physical wellbeing. We have a panel of three health and safety consultants that advise across our portfolio. 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 no accidents involving Harworth personnel during the year. There was one minor accident involving a contractor under Harworth supervision. Where we have appointed a Principal Contractor under the Construction Design and Management (CDM) regulations, it and its sub-contractors take responsibility for health & safety whilst works are ongoing, but we continue to monitor health & safety via our consultants or via our Project Managers. There was one RIDDOR accident on an area of our site for which our contractor had responsibility for health & safety. There were no other accidents on contractor- controlled areas. 62 Strategic ReportHarworth Group plcStaff events Recognition and award A series of all-staff events were hosted throughout the year to share success stories and best practice, and embed the Harworth culture and values: • Staff away day in Harrogate: Our first in-person event since Covid-19 restrictions were relaxed, this away day allowed new members of the team to meet the whole business for the first time, and included teach-ins and team-building exercises. • Employee AGM: We held our second employee AGM in October 2021. The session was an in-person event and provided staff with an opportunity to learn about the role of the Board and the background of its members. The event included Q&A breakout sessions with Board members. • Strategy embedding day: Facilitated by an external consultancy, in which teams were encouraged to explore how they could contribute to the delivery of our growth strategy. Employee engagement Our annual employee engagement survey gauges employee views on a wide range of topics, including culture, values, working practices, career opportunities and communication. This information is key to measuring the success of our people policies and informs areas for focus and improvement. In 2021, we added questions on diversity and inclusion, and hybrid working. The response rate to our 2021 survey remained high at 77% (2020: 81%) Of the respondents: • 97% said they were proud to work for Harworth; • 93% would recommend Harworth as a good place to work; • 92% said that they had a clear understanding of the Company’s aims and targets; • 90% were satisfied with their line manager; and • 89% of respondents said they felt personally driven to go beyond what is expected of them to make Harworth successful. The survey identified some areas for improvement, such as communication, sharing of knowledge and best practice, career progression and hybrid working. These will be a focus for the Senior Leadership team in the coming year. 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. These benefits are applied consistently across the whole business. Bonuses for those employees who are contractually entitled are awarded, in part, for performance against Group Targets which are aligned to Harworth’s strategy and Purpose and are applied consistently across the company. In 2021, these included a Group-wide ESG measure for the first time. During 2021, we operated a Restricted Share Plan (RSP) which we first adopted in 2019. The operation of the RSP is simple and transparent and, in the past, has been applied to the Executive Directors and the Senior Leadership Team. The Directors’ Remuneration Report on pages 120 to 149 outlines how we plan to increase and extend the application of the RSP such that, in 2022, RSP awards will be made to approximately 50% of Harworth’s employees. 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 Harworth at a 20% discount to the market price of the shares at the outset of the scheme. To date, more than 70 employees have chosen to participate in the SAYE scheme. The SIP provides a tax efficient mechanism by which the Company can promote wider share ownership amongst its employees by awarding shares, 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, Harworth’s future success. The Directors Remuneration Report on pages 120 to 149 explains how we plan to maximise our use of the SIP in 2022 to promote share ownership across the entire Harworth team. 63 Strategic ReportAnnual Report and Financial Statements 2021Streamlined Energy & Carbon Reporting (SECR) disclosure Our performance in 2021 The company saw a 36% year-on-year increase in recorded GHG emissions but a 23% reduction in energy intensity during 2021. The increase in recorded emissions was largely because comparative data for 2020 was significantly impacted by Covid-19 restrictions, which reduced energy consumption across our sites. When compared with 2019, GHG emissions for 2021 reduced by 50%. By far the largest driver of this decrease was a reduction in fuel used for leased plant at Harworth sites, consequent on the discontinuance of the processing of coal fines operations. We implemented several measures to improve energy efficiency during the year: • • • Introduced a hybrid working policy whereby employees are entitled to work up to two days a work from home, reducing employee commuting Introduced a salary sacrifice car scheme exclusively for electric and hybrid vehicles, reducing emissions associated with employee transport Improved monitoring of energy usage data to identify opportunities for reduction • Continued our upgrade programme for Investment Portfolio assets, aimed at improving EPC ratings • Towards the end of the year, we installed over 400 sq. metres of solar PV panels on the roof of our head office, Advantage House Planned enhancements to data collection As is the case for most real estate companies, Scope 3 emissions will comprise the largest proportion of our carbon footprint. We have already started to engage suppliers and occupiers, and adapt our own invoice and expenses systems to enable us to accurately measure a larger proportion of this footprint, with a view to reporting this data in the near future. We report our greenhouse gas emissions (GHG) and energy consumption in compliance with the requirements of The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. Aligned with our financial reporting, the GHG emissions data below relates to our financial year ended 31 December 2021. Emissions data from the financial year ended 31 December 2020 has been provided for comparison. Harworth uses the operational control boundary method to calculate GHG emissions, whereby we report on all sources of environmental impact for areas over which we have control. This mainly comprises our office locations and the communal areas of our Investment Portfolio assets. Occupiers’ and contractors’ energy usage and emissions are not included in our Scope 1 and Scope 2 reporting boundary as this is not deemed to be within our operation control, but it is our intention to disclose them as Scope 3 emissions in the near-term. GHG emissions have been calculated using consumption data provided by our energy suppliers, the GHG Protocol Corporate Accounting and Reporting Standard (revised edition) and emissions factors from the UK Government’s GHG Conversion Factors for Company Reporting 2020. Harworth Group plc Scope 1 emissions1 (tCO2e) Scope 2 emissions2 (tCO2e) Total Scope 1 & Scope 2 emissions (tCO2e) Energy consumption used to calculate above emissions (kWh) Revenue intensity ratio for Scope 1 & Scope 2 emissions (tCO2e/£m) Scope 3 emissions: Business travel by car3 (tCO2e) Total Scope 1, Scope 2 & Scope 3 emissions (tCO2e) 2021 569 494 1,063 2020 381 403 784 2,327,093 1,776,198 9.7 104 1,180 12.6 98 882 1 2 Includes fuel used for leased plant on Harworth sites and gas used by company offices and communal areas of Investment Portfolio assets Includes electricity consumption at company offices and the communal areas of Investment Portfolio assets 3 Business travel in employee-owned vehicles where Harworth reimbursed the cost of fuel 64 Strategic ReportHarworth Group plcTask Force on Climate-Related Financial Disclosures Harworth is committed to implementing the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). The TCFD aims to provide investors and other stakeholders with useful information on climate- related risks and opportunities that are relevant to our business. Below we have provided more detail on how we align with these recommendations. In this context, we have considered our “comply or explain” obligation under the Financial Conduct Authority’s Listing Rules, and confirm that we have made disclosures consistent with the TCFD Recommendations and Recommended Disclosures in this Annual Report & Accounts 2021, save for certain items, which are summarised below: • Strategy: We have provided only a limited quantitative assessment of the impact on our financial planning and performance of the short-, medium- and long-term risks and opportunities that we have identified in our 2°C and 4°C scenarios. This is due to data limitations, which we expect to be addressed in the near-term as Harworth invests in systems and resourcing to capture more data. • Metrics & Targets: We currently disclose partial Scope 3 greenhouse gas emissions. This is due to data limitations, as many categories of Scope 3 emissions rely on the disclosure of data to us by suppliers and customers. Harworth is investing in systems and resourcing, and engaging with stakeholders, to ensure further categories of Scope 3 emissions can be captured in the near-term. Governance Board oversight of climate-related risks and opportunities The Chief Executive has overall responsibility for climate-related risks and opportunities. The Board is updated on our sustainability and climate-related performance and has overall responsibility for oversight of risk, undertaking a biannual assessment of the principal risks, which include climate-related risks. From 2022, these updates will be provided quarterly. The Board assesses the climate-related risks and opportunities inherent in material projects, as part of the Board approval process. From 2022, this will extend to understanding the embodied and operational carbon content of direct development projects. Ongoing oversight of climate-related issues is carried out by our Board ESG Committee, chaired by Angela Bromfield and comprising the Chair, Chief Executive, Chief Financial Officer and Non-Executive Director Martyn Bowes, and attended by an independent external ESG consultant. The Committee meets at least quarterly and is the senior forum for oversight of the development and implementation of the company’s sustainability strategy and commitments. The ESG Committee supports the Board in the assessment and management of climate risk and is responsible for reviewing the effectiveness of the relevant risk management and internal control processes. Climate-related issues were considered as part of the Board’s strategy review that took place during the year. In particular, our plans to transition the Investment Portfolio to modern Grade A, largely through direct development, was viewed as critical to improving the climate resilience of our standing assets, thereby reducing climate transition risk. The ESG Committee will be responsible for overseeing the setting of Harworth’s ESG targets and the company’s progress towards meeting them. It monitors external climate-related issues and emerging policy and best practice through regular updates from its retained ESG consultant, and this guides its decisions in formulating strategy and ongoing risk management. Management’s role in assessing and managing climate-related risks and opportunities The Board ESG Committee is supported by an ESG Steering Group, comprising members of the Senior Executive and representatives from teams across the business, including finance, HR, asset management, development and central services. The steering group meets at least quarterly, to share knowledge and consider how best to address climate-related issues in our operations, then reports progress to the Board ESG Committee. For our identified climate-related risks (outlined below) we have allocated a risk owner (the Chief Financial Officer) and risk champions (the Head of Investor & Stakeholder Relations, our Technical Director and our Head of Risk & Compliance) who monitor climate-related risks at portfolio level and brief the Senior Executive on material movements in risk profile. We consider stakeholder impact in our project appraisals, and all new business cases must factor in the environmental and societal impact of each project. Currently these are largely qualitative assessments, but it is our intention to increase our quantitative measurement of impact in our project appraisals, budgeting and forecasting from 2022. The management team engages with several external bodies, including the UK Green Building Council, the British Property Federation and the Construction Industry Research and Information Association to enhance its management of climate change risk and opportunities. The team monitors external climate-related issues and emerging policy and best practice through regular updates from a retained independent external ESG consultant. During the year, the group commissioned a report detailing how it could develop buildings to be Net Zero Carbon in construction and operation, prepared by an independent engineering and sustainability consultancy. The report was presented to the Investment Committee and is being adopted in the design of future direct developments, thereby supporting the Company’s Transformation to Net Zero and guarding against stranded asset risks. 65 Strategic ReportAnnual Report and Financial Statements 2021Task force on Climate-related financial disclosures continued Strategy Overview of climate-related risks and opportunities We consider our relevant time horizons to be short-term (to 2027), medium-term (2028-2040); and long-term (2040–2060). Our short- term time horizon is aligned to our strategy outlined in September 2021 to double the size of our business over five to seven years. Our medium-term time horizon corresponds to approximate development timelines for the majority of our current Major Development and Strategic Land sites. Our assessment of climate risks and opportunities in the short-, medium- and long-term assumes a scenario in which global temperature rise is limited to 2°C by 2100 (aligned to Representative Concentration Pathway (RCP) 2.6 as outlined by the Intergovernmental Panel on Climate Change (IPCC)), but we have also considered the impact of a 4°C (RCP 8.5) scenario on the risks and opportunities below. In identifying the risks and opportunities outlined in this section and their impact on our financial planning and performance, we have considered the likelihood of the risk based on current and forecast market data and trends, and the potential impact based on the type and condition of our portfolio assets and their location. We have also considered the mitigation measures that we currently and could potentially implement, which have informed our risk assessment outlined on page 77. Together, these factors determine the prioritisation of individual risks and opportunities in our asset- and group-level financial planning. Short-term risks (to 2027) 2°C scenario Risk Transition risks Impact on business, strategy and financial planning Policy & Legal: Minimum Energy Efficiency Standards and the introduction of “energy in-use” performance ratings could result in increased costs and a loss of rental income if our Investment Portfolio assets do not meet minimum standards. We plan to transition our Investment Portfolio to Grade A over five to seven years. These assets will have a minimum EPC rating of A and reflect the latest environmental building specifications, mitigating the costs of non-compliance. Policy & Legal: Increased one-off and operating costs across our Major Development sites arising from regulation in the areas of green energy procurement, EV charging point installation and biodiversity offsetting. Our developments already often exceed minimum building regulations and emphasize high quality placemaking. We believe this approach improves the sustainability of our assets, and this is reflected in their valuation and rental profile. Market: An increase in energy efficiency specifications expected by occupiers and home buyers would require additional expenditure on development and fit-out, which would depress land values. We work with our suppliers and housebuilder partners to deliver high quality products which already exceed market expectations. This should be reflected in the valuation, pricing and rental profile of our land and assets. Market: An increase in carbon prices on high emission materials, and premiums for and/or availability of lower carbon alternatives could impact the costs of raw materials in our supply chains. Our procurement approach is considered early in project planning, and we undertake rigorous tender processes. We conduct ongoing monitoring of material costs and use technical resource to mitigate any impact of rising prices. Reputation: Investor and other stakeholder requirements of sustainability performance increase, creating a risk of reputational damage where expectations are not met, and impacting our ability to raise capital or create new partnerships. This year Harworth has enhanced its environmental reporting, provided new metrics and targets and outlined a Net Zero pathway. We are engaging closely with investors and other stakeholders to ensure our environmental reporting continues to evolve and meets expectations. Physical risks Some increases in the incidence of acute physical risks, such as heatwaves, storms, and flooding, could result in increased costs to repair, replace and future-proof infrastructure across our Major Development sites and buildings in our Investment Portfolio. Resilience is already factored into our development design, for example through developing sustainable urban drainage systems (SUDS) and sustainable cooling and heating systems for industrial units. We maintain a flood risk register for all sites. Impact of a 4°C scenario Short-term transition and physical risks would be largely unchanged from the 2°C scenario. 66 Strategic ReportHarworth Group plcShort-term opportunities (to 2027) 2°C scenario Opportunities Impact on business, strategy and financial planning Products & services: Through increasing direct development and transitioning our Investment Portfolio to Grade A, we can provide market-leading industrial & logistics space with a high environmental specification. Grade A assets would be in higher demand from occupiers, and therefore generate higher rental income and valuations. Increasingly Harworth will design buildings to be Net Zero Carbon in operation and construction, as best practice continues to evolve. Resilience: Our environmental design code for new direct development will deliver future-proofed assets that require less maintenance and transition costs in the future. Across our sites we promote public transport use, create cycle paths and walkways, plant trees and use SUDs ponds to mitigate flood risk. Energy efficiency: Reducing energy consumption through low carbon transport, encouraging flexible working and energy- saving measures such as timed and LED lighting. Energy source: Our portfolio is well-placed to meet increased demand for land for renewable energy schemes and offsetting, particularly on parts of our sites where other types of development would not be viable. The scale of our sites means it is often easier and more cost effective to implement on-site renewable energy generation than in other settings e.g. urban developments. An environmental appraisal is integrated into all site decision- making, and we engage with stakeholders to ensure best practice and to identify new opportunities. This improves the desirability of our sites, driving land values higher. During 2021, we introduced several measures to improve energy efficiency, which will reduce costs and improve staff productivity. In 2022, the role of our Natural Resources team will evolve to support all areas of the business in identifying opportunities to introduce energy generation and storage into our schemes, providing additional revenue streams and an opportunity to offset emissions from within our portfolio. Impact of a 4°C scenario Short-term opportunities would be largely unchanged from the 2°C scenario. Medium-term risks (2028 - 2040) Additional physical risks may emerge, with slight rises in river peak flows and associated flood losses. We estimate that 4% of our sites by area are highly exposed to flooding. Summers will become warmer with an increased risk of heat stress, leading to minor increases in the cost of cooling buildings and adaption measures at our sites to protect those most vulnerable. Impact of a 4°C scenario Under this scenario, the physical risks outlined in the 2°C scenario will intensify further and become more frequent, increasing the speed of infrastructure obsolescence and the cost of adaption measures. Transition risks will continue and intensify, with stricter regulation on energy efficiency and planning, potentially with a greater focus on the retrofitting and future-proofing of older assets, which may increase the costs of direct development and those borne by our housebuilder customers. Occupier expectations of sustainability will also increase, particularly amongst smaller and medium-sized businesses which may not have previously had the resources, financial capacity, or regulatory requirement to focus on this issue. Infrastructure obsolescence due to changes in demand for climate- resilient technologies could result in shorter asset lifecycles and impose additional costs on the business. Harworth will mitigate the impact of these changes through the transition of our Investment Portfolio to modern Grade A. Investors will become less tolerant of environmental underperformance as they face pressure to decarbonise their own portfolios to achieve Net Zero Carbon goals. Harworth’s response to this risk is to ensure our environmental performance improves through our decarbonisation strategy, and that our disclosure evolves in line with best practice. 67 Strategic ReportAnnual Report and Financial Statements 2021Task force on Climate-related financial disclosures continued significant impacts on the economy in general, leading to lower levels of economic output and unemployment, impacting demand for our sites. Long-term opportunities (2040 – 2060) Access to secure and sustainable sources of energy and water, and reliable transport and communications infrastructure will become critical for ensuring the resilience of residential and industrial & logistics developments. Harworth’s expertise in future-proofing and resilience in the design of its developments will allow us to mitigate some of these risks. There is also the potential for technological advances to make future-proofing of buildings more cost effective, thereby reducing the costs of adaption. Impact of a 4°C scenario As physical risks could be significantly higher, the demand for future-proofing and resilience in the design of developments is likely to be greater, meaning we could realise land value increases sooner than in a 2°C scenario. Risk Management Identifying and assessing portfolio-level risk The Board reviews the Group’s principal and emerging risks formally at the half-year and year-end. Climate change transition is considered by the Board to be a principal risk for the Company. The physical risk of climate change is currently considered to be an operational risk, but both are monitored and managed through the Group Risk and Assurance Map (GRAM). The GRAM is our principal tool for monitoring the risk profile of the business, the measures in place at an operational level for mitigating and managing risk, the effectiveness of those measures via an assessment of key risk indicators, and the adequacy of the assurance given to the management team and Board about risk management. It is a dynamic document and remains subject to continuous review and evolution. The GRAM is also used to monitor emerging regulation. Further information on the GRAM can be found on pages 70 to 71. For our two climate-related risks we consider inherent risk (before factoring in the mitigation measures in place), to be high, but view residual risk (after factoring in our risk response) as medium. Identifying and assessing asset-level risk Since late 2020, all new business cases must factor in the environmental risks inherent in each project. Currently these are largely qualitative assessments, but it is our ambition to begin quantified measurement of their impact for acquisitions and direct development from 2022 onwards. Medium-term opportunities (2028 - 2040) Opportunities may arise from cheaper and more effective technologies to achieve energy efficiency, allowing Harworth to generate more of its operating energy from on-site renewables. There is also likely to be a greater promotion of public transport, for example bringing old railway lines back into use with new low carbon and automated transport technologies. This will benefit the connectivity and land value of Harworth sites, many of which have former railway sidings and lie adjacent to major road networks. There may also be greater demand for land used for offsetting, as buyers approach their own net zero carbon deadlines, which would provide additional opportunities for our significant landbank and natural resources portfolio. Impact of a 4°C scenario Under this scenario, demand for cheaper adaption measures, low carbon transport and land for offsetting are all likely to increase. This could lead to higher demand and therefore land values of Harworth sites. It could also mean that the cost of adaptation measures are cheaper, allowing Harworth to future-proof its portfolio earlier and at a lower cost than under a 2°C scenario. Long-term risks (2040 – 2060) The prevalence of physical risks is likely to be higher. These could include material increases in the frequency of acute risks such as flooding, particularly in low-lying areas of Yorkshire & the Humber, such as Doncaster. In addition to the 4% of our sites by area that we estimate to be highly exposed to flooding, the further 14% of our sites that we consider to be at medium exposure could also be at risk. This could lead to increased costs of repairs, mitigation measures and insurance premiums at these sites. Chronic risks such as hotter summers will also mean increased energy consumption in our buildings and maintenance costs, increased demand from occupiers for air cooling technologies, and adaptation measures to ensure adequate rainwater collection and storage at our sites. There is also the potential for fundamental changes in construction methods and materials, that could increase building costs and thereby depress land values. Transition risks will also intensify, with even higher environmental specifications for industrial & logistics assets and housing. The expectations of investors and other stakeholders with regards to environmental performance will increase further, particularly as 2050 decarbonisation targets expire. Impact of a 4°C scenario Physical risks could be significantly higher. The Met Office’s UK Climate Projections 2018 predict that UK sea levels could rise by up to 1.1m by 2100 in this scenario, which could significantly increase flooding risk in low lying parts of Yorkshire & the Humber, such as Doncaster. Average summer temperatures for the Yorkshire & Humber, North West and East Midlands regions are likely to rise on average by 5°C by 2100, which could lead to increased costs in cooling and repairing buildings, and those costs arising sooner than under a 2°C scenario. These increased physical risks could have 68 Strategic ReportHarworth Group plcManaging risks • We will maximise opportunities for on-site renewable energy Portfolio-level risk management is undertaken through the GRAM, informed by ongoing monitoring of portfolio-specific data, investor and other stakeholder expectations and market developments. The company engages closely with industry bodies such as the UK Green Building Council and receives periodic updates on sector activity from its ESG consultant. At an asset-level, risk management is undertaken through project appraisals and site reports. Steps taken to manage and mitigate our Climate transition risk: generation • We will continue to implement energy efficiency measures, including use of EV infrastructure and installation of automatic and energy saving lighting Steps taken to manage and mitigate our Climate physical risk include: • More efficient infrastructure delivery methods and adaptation measures such as SUDS installed across sites • Regular flood risk assessments and proactive responses to any • One of our key strategic objectives is to transition our Investment issues arising Portfolio to modern Grade A • We have developed a sustainable building code: new buildings to be at least BREEAM Very Good and EPC rating A • We will continue to develop disclosure of climate-related metrics to demonstrate progress and address stakeholder expectations An outline of our processes for mitigating, transferring, accepting, or controlling risks can be found on pages 70 to 77. Metrics & Targets Metrics used to assess climate-related risks and opportunities Current metrics used Additional metrics currently being explored from 2022 Transition risks • Data on Scope 1, Scope 2 and certain categories of Scope 3 emissions • Data on further categories of Scope 3 emissions • % energy generated from renewable resources • % Investment Portfolio that is EPC Grade C or above • % Investment Portfolio capable of being Net Zero Carbon in operation • % energy generated on-site • % sites with EV charging capabilities Physical risks • Proportion of land that is exposed to flood risk • Flood risk assessment under temperature rise scenarios • Spending on infrastructure projects that will reduce risks of physical climate impacts at sites Opportunities • % Investment Portfolio that is Grade A • Cost savings from improved energy efficiency and sourcing • Acreage of Harworth land used for offsetting • % of company shares held by ESG-focused funds Disclosure of metrics and Greenhouse gas (GHG) emissions data We disclose a range of metrics relating to our environmental performance in the Planet section on pages 56 to 59. GHG emissions data can be found in our Streamlined Energy and Carbon Reporting disclosure on page 64. Targets to measure climate-related risks and opportunities Harworth’s Transformation to Net Zero is our commitment to reaching Net Zero Carbon by 2030 for Scope 1, Scope 2, and those Scope 3 emissions relating to business travel and employee commuting, and to reaching Net Zero Carbon by 2040 for all emissions. More information can be found in the Planet section on pages 56 to 59. In addition to its Net Zero Carbon target, Harworth has three Focus Impact Areas that address climate risks, outlined on pages 49 to 50: Building greener, Developing responsibly and Reducing CO2 emissions. Performance in these Focus Impact Areas is considered in setting reward for all employees. 69 Strategic ReportAnnual Report and Financial Statements 2021Effectively managing our risk In this section we explain how the Board has reviewed the effectiveness of Harworth’s risk management and internal control system. We present our approach to risk, including the further improvements we have made to our risk management system, and set out the Board’s analysis of the Group’s principal risks and uncertainties informed by our growth strategy. At the beginning of the year, with oversight from the Audit Committee and the Board, management undertook a comprehensive review of the Group’s risk management and internal controls systems with the assistance of external consultants. Role of the Board and Audit Committee The Board has overall 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, with its focus being on principal and emerging risks. The Audit Committee supports the Board in the management of risk and is responsible for reviewing the effectiveness of risk management and internal control processes and assurance activity. Management of risks At an operational level, ownership of risks is assigned to members of the Senior Executive and managed on a day-to-day basis by risk champions from across the business. The Group Leadership Committee (GLC) has responsibility for identifying specific risks, implementing and monitoring risk responses and ensuring operating effectiveness of key controls. Every month, the profile of our principal and operational risks is reported to the GLC and a risk workshop is hosted to undertake a “deep dive” into one or more risks, led by the risk owners and champions. We recognise 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, we are prepared to accept. Our focus is to ensure there is an awareness of risk throughout the organisation with an effective framework in place to respond effectively to changes in risk profile. Our insurance programme also plays an important role where we are unable to eliminate certain risks. Group Risk and Assurance Map Central to monitoring the effectiveness of our risk management system is our new Group Risk and Assurance Map (GRAM), which has replaced the Group Risk Register. The GRAM is a register of the Group’s principal and operational risks grouped into ten risk categories each with a series of sub-risks (see page 116 of the Audit Committee Report for the full list of risk categories and sub-risks). The GRAM is a “living” tool and reviewed by risk owners and champions (continuously), the GLC (monthly), and the Audit Committee (biannually). Each sub-risk has its own risk and assurance map which details: • • the definition of and commentary on each risk; inherent risk, residual risk and risk appetite scores to evaluate the changing status of each risk; • mitigation measures that have either been implemented, are in progress or planned; • key risk indicators used to measure the profile of each risk; • established Board assurance activity; and • management’s proposals for further assurance activity, which is used by the Audit Committee to approve a 36-month rolling programme of further assurance (see page 115 of the Audit Committee report). The profile of our principal risks is reported to the Board monthly and the Board undertakes a detailed review of our principal risks and its risk appetite every six months. Following a detailed review undertaken by the Audit Committee ahead of publication of this report, the Board is confident that the Group’s risk management and internal controls systems, including all material financial, operational and compliance controls, are effective. The full risk management system pursuant to which risks are monitored and managed throughout the year is summarised below. Risk review framework: Annual cycle Audit Committee review of GRAM and assessment of the effectiveness of the Group’s internal controls (ahead of results announcements) Board assessment of the effectiveness of the Group’s risk management system (ahead of results announcements) Bi-annual Board review of principal and emerging risks and risk appetite Audit Committee review of whistleblowing policy and reporting Bi-annual Board review of principal and emerging risks and risk appetite Audit Committee review of 36-month rolling programme of further assurance activity Audit Committee assessment of need for internal audit function GLC risk workshops JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 70 Strategic ReportHarworth Group plcPrincipal risks and uncertainties The Board is responsible for identifying, setting the risk appetite for, and evaluating the Group’s principal risks, being those risks that could threaten the delivery of our strategy, our business model, future performance, solvency or liquidity and/or reputation. Over the last 12 months, the Board has identified through a series of workshops a refreshed set of principal risks and uncertainties, informed by the strategy. The risk heat map below illustrates the positioning of our principal risks before and after mitigating actions. A detailed analysis of each principal risk is set out thereafter, explaining our key risk mitigation actions, further measures planned for the upcoming year, change in residual risk status in the year and how each risk relates to our strategic pillars. The Senior Executive and Board are monitoring closely the conflict in Ukraine, its macro-economic implications and potential impacts on the business. The profile of our principal risks remains subject to very regular review at an operational level, both in the context of the Ukraine/ Russia conflict, and more widely. Principal risks Acquisitions 1. Availability of and competition for strategic sites Project Delivery 2. Planning 3. Supply chain cost inflation and constraints 4. Supply chain and delivery partner management (counter-party risk) 5. Statutory costs of development Markets 6. Residential and commercial markets People 7. Resourcing Finance 8. Availability of appropriate capital Safety and Compliance 9. Health and safety Climate Change 10. Managing climate change transition Systems and Information Resources 11. Cyber security Very high High Medium Low Very low y S e Info r m ate g n Clim a h C C S o a f m e 9 t p y l i a a n n d c e Inherent risk (before mitigating actions) Residual risk (after mitigating actions) s t e m s a n d a ti o n R e s o u r c es 11 Acquisitio ns 10 10 9 5 4 2 3 6 11 1 1 2 8 7 3 4 5 6 8 Finance 7 p l e P e o D P r e o l i j v e e c r t y s t e ark M See our principal risks tables on the following pages for how we report on and mitigate our current and emerging principal risks 71 Strategic ReportAnnual Report and Financial Statements 2021 Effectively managing our risk continued Strategic link key 1 Increasing direct development of industrial & logistics stock 2 Accelerating sales and broadening the range of our residential products 3 Growing our strategic land portfolio and land promotion activities 4 Repositioning our Investment Portfolio to modern Grade A The Harworth Way Group Financial Targets Risk 1 Availability of and competition for strategic sites Current risk Commentary In the current strong market for industrial & logistics and residential sites, competition for acquisitions remains a key risk as acquiring new sites is fundamental to maintaining target returns and driving growth consistent with our strategy. Having said that, we have a landbank of around 14,000 acres with a pipeline of 28.2m sq. ft (7.3m sq. ft consented) of industrial space and 30,804 plots (of which 9,978 were consented), which means we can be patient if hurdle return aspirations cannot be met in the current market. Description Mitigation Additional measures planned for 2022 Failure to acquire strategic land at appropriate prices due to constrained supply or competition • Extensive external stakeholder engagement to identify opportunities supported by internal co- ordination via regular internal acquisitions meetings • Further development of acquisition strategy • Refresh stakeholder maps • As part of the strategy review, we commissioned reports from external consultants to inform our acquisition strategy • We seek input from our valuers prior to acquisition to inform pricing • Via our portfolio strategy, we manage the timing of acquisitions • Development of Customer Relationship Management system • Additional acquisitions resource Change in residual risk in the year Link to strategy 3, Risk 2 Planning Current and emerging risk Commentary Changes to the planning regime have the potential to impact adversely on promotion activity and financial returns. There is greater uncertainty since the Government’s flagship planning reforms have been put on hold. Description Mitigation Additional measures planned for 2022 Planning promotion risk including uncertainty around local and national changes to planning regime with potential for adverse effect on promotion activity • We regularly review greenbelt exposure at a • Refresh stakeholder maps portfolio level • Through key stakeholder groups, we respond to emerging planning policy • Stakeholder mapping is undertaken at a project level • Local political advisers are appointed on individual sites, where appropriate • Strong relationships with local planning authorities and key local stakeholders • Develop a Customer Relationship Management (“CRM”) system Change in residual risk in the year Link to strategy 1,2,3, 72 Strategic ReportHarworth Group plcChange in residual risk in the year No change Increase Decrease Risk 3 Commentary Supply chain cost inflation and constraints Both we and our customers are experiencing supply chain challenges including shortages in raw materials and labour constraints. Current risk Description Supply chain pricing pressures and constraints (affecting both labour and raw materials) resulting in development cost increases and delays Mitigation Additional measures planned for 2022 • Our procurement approach is considered early in • Additional direct development and project planning technical resource • We undertake rigorous tender processes • We have established a suite of legal precedents to promote consistency in land remediation and direct development procurement • We utilise market intelligence regarding contractors’ commitments and workload Change in residual risk in the year Link to strategy 1,2, Risk 4 Commentary Supply chain and delivery partner management (counter-party risk) Current and emerging risk Our strategy to increase direct development activity and enter the Build to Rent market increases delivery and execution risk within the business, resulting in a growing need to select, monitor and manage counterparties effectively. Description Mitigation Additional measures planned for 2022 Increase in exposure to supply chain, delivery and investment partners leading to increased risk of disputes with and/or default by and/or insolvency of counterparties • Our procurement approach is considered early in • Upgrades to our supplier project planning • A consistent process is followed for “onboarding” suppliers • We have established a suite of legal precedents to promote consistency in land remediation and direct development procurement • Our central technical team monitors contractor onboarding process, extending to all counterparties, and implementation of improvements to ongoing monitoring regime • Explore viability of framework agreements with suppliers who undertake works at volume and/or scale “concentration risk” and promotes consistencies and knowledge-sharing across our portfolio Change in residual risk in the year Link to strategy 1,2, , , 73 Strategic ReportAnnual Report and Financial Statements 2021Effectively managing our risk continued Strategic link key 1 Increasing direct development of industrial & logistics stock 2 Accelerating sales and broadening the range of our residential products 3 Growing our strategic land portfolio and land promotion activities 4 Repositioning our Investment Portfolio to modern Grade A The Harworth Way Group Financial Targets Risk 5 Commentary Statutory costs of development Current and emerging risk Short-term higher risk areas are focused on biodiversity net gains, now mandated via the Environment Act 2021, changes to Part L of the Building Regulations and the recently implemented residential property developer tax. On the horizon are planning reforms and the future Homes Standard. Description Mitigation Additional measures planned for 2022 Legislative reforms which do or may impose a tax or levy on development, or have the effect of levying an additional cost on development • The known and potential impact of changes to the • Enhanced horizon scanning regime Building Regulations, implementation of biodiversity net gain requirements and planning reforms is modelled into project appraisals ahead of acquisition • Through key stakeholder groups, we respond to emerging policy • Ongoing work to determine how we can best address the challenges and capitalise on the opportunities arising from mandated biodiversity net gain requirements • Initial modelling suggests limited direct impact from the residential property developer tax at this stage Change in residual risk in the year Link to strategy 1,2,4, , , Risk 6 Commentary Residential and commercial markets We continue to focus on both residential and industrial & logistics markets. The Group is currently operating in a very buoyant commercial market reflecting strong demand in the industrial & logistics sector. Current risk The residential market also performed well through 2021, with strong house prices and housing sales volumes nationally including on our sites. Description Mitigation Additional measures planned for 2022 Downturn in industrial & logistics and/or residential market conditions leading to falls in property values • Regular feedback is received from advisers on • Roll-out of the first wave of our Build to the status of residential and industrial & logistics markets in our core regions to supplement generic market commentary • Pursuant to our strategy we are working to take full Rent product • Repositioning of Investment Portfolio including selective disposal of certain legacy assets. advantage of current market conditions and mitigate a potential downturn by accelerating residential sales, introducing new products at our residential sites, repositioning our Investment Portfolio and increasing the quantum and speed of direct development (but with controlled exposure to speculative development) • Appointed a Head of Mixed Tenure, a Development Director, a Director of Strategy, Investment & Business Development, and we are recruiting additional resource Change in residual risk in the year Link to strategy 1,2,4, , 74 Strategic ReportHarworth Group plcChange in residual risk in the year No change Increase Decrease Risk 7 Resourcing Current risk Commentary Resource stretch, in particular exacerbated by the work implications of Covid-19 and the current challenging labour market, is currently one of the biggest concerns amongst the Board and Senior Executive as the Group must be able to attract and retain the right people to deliver the strategy. Significant work has been, and continues to be, undertaken on recruitment, employee engagement and well-being initiatives. Description Mitigation Insufficient and/or inappropriate resources, including overworked staff and/or inability to retain and/or attract necessary talent • Development of a people strategy to complement our business strategy. External benchmarking of organisational design, recruitment and retention, competitiveness of reward, health and well-being • We continue to progress recruitment for replacement and new roles and succession planning • New maternity, paternity, adoption and shared parental leave policies • Introduced hybrid working • Widened share ownership through the Restricted Share Plan and Share Incentive Plan • Alignment of Group and personal objectives on delivery of strategy Additional measures planned for 2022 • Continued implementation of people strategy including expansion of talent development programme Change in residual risk in the year Link to strategy 1,2,3, Risk 8 Commentary Availability of appropriate capital Current risk There is a need to match capital to the operational and project specific needs of the business, accommodating the increase in pace and scale of activity, particularly development, under our strategy. In 2021 we engaged extensively with existing and prospective funders culminating in the entering into of a new senior debt facility in early 2022. Description Mitigation Additional measures planned for 2022 Inability to access appropriate equity and/or debt funding to support the strategy • Development of a financing strategy to complement • Continue to identify scheme our business strategy, supported by external consultants specific funding • The prospect of raising additional • Informed by that strategy, we have entered into a new senior debt facility with a resulting £50m increase to £200m. equity, if required to pursue specific development opportunities, is kept under consideration • This is supplemented by accessing project specific funding where relevant. • We continue to pursue and unlock grant funding Change in residual risk in the year Link to strategy 1,2,3,4 75 Strategic ReportAnnual Report and Financial Statements 2021Effectively managing our risk continued Strategic link key 1 Increasing direct development of industrial & logistics stock 2 Accelerating sales and broadening the range of our residential products 3 Growing our strategic land portfolio and land promotion activities 4 Repositioning our Investment Portfolio to modern Grade A The Harworth Way Group Financial Targets Risk 9 Health and safety Current risk Commentary The health, safety and welfare of people involved in or affected by Harworth’s activities are of prime importance. This risk ranges from the health and safety of visitors and workers on our sites, and trespassers (given the nature of our sites), through to the health and safety of employees and visitors in an office environment. Full compliance with all relevant legislation is the minimum acceptable standard but we and our partners aim to achieve the highest possible standards of good practice. Additional measures planned for 2022 • Transition to a cloud-based health, safety and environment management platform • Review the effectiveness of our health and safety consultant panel arrangements • Additional R&C departmental resource Change in residual risk in the year Link to strategy Description Mitigation Incident causing injury and/or death resulting in liability, penalties and/or reputational damage • Appropriate policies are in place, including a Safety, Health and Environmental Management System (SHEMS) Policy and an Employee Health and Safety Policy • A Risk and Compliance (R&C) function has been established with a focused remit on health and safety and environmental assurance • The R&C team undertakes a rigorous site inspection regime and maintains a sites risk register through which it monitors and reports the risk health and safety status of each of our sites. • We have a panel of health and safety consultants who support our project delivery • Health, safety and environment management meetings are held quarterly and attended by representatives from all operational divisions • We host compulsory health and safety training for all employees every two years, supplemented by an annual schedule of mandatory online learning • We have a programme of health and wellbeing initiatives for employees, including access to internal physical and mental health first aiders and an external Employee Assistance Programme 76 Strategic ReportHarworth Group plcChange in residual risk in the year No change Increase Decrease Risk 10 Commentary Managing climate change transition Current and emerging risk The climate change agenda has a wide-ranging impact on the Group, from our investment case to shareholders and reporting to the stock market through to operational activity, including the need to embed environmental sustainability into all our projects. Description Mitigation Additional measures planned for 2022 Failure to manage transitional risks associated with climate change covering both operational activity and reporting Risk 11 Cyber security Current risk Description Successful cyber-attack jeopardising business continuity • We have established an ESG Board Committee (see pages 118 to 119) to oversee formulation and delivery of our ESG strategy, target-setting and reporting • Embed fully environmental and social analysis into our project appraisals and approvals process • At an operational level, the Committee is supported by the ESG Steering Group, comprising members from every team across the business • External consultants are appointed to advise on ESG strategy formulation, implementation and reporting • Initial measures and short-term and long-term targets have been developed for all areas of the ESG strategy • We have identified a decarbonisation target and initial measures to achieve zero carbon in Scope 1, 2 and some Scope 3 emissions • We have joined the UK Green Building Council which facilitates sharing of knowledge and best practice. • Continue to improve capture and analysis of environmental and social data and to enhance and extend our climate change disclosures • Appointment of a Director of Sustainability, reporting to the CEO Change in residual risk in the year Link to strategy 1,2,4, , Commentary Cyber-attacks pose an evolving threat to all businesses and Harworth, like others, is at risk of regular attacks. Strategic and technical measures are in place to monitor and mitigate this risk. Mitigation Additional measures planned for 2022 • We have an established IT Disaster Recovery Plan • Roll out of a new information security which is subject to annual desktop testing policy set • We have an external provider for IT support which • Our IT Disaster Recovery Plan will be remains vigilant to the evolving cyber security backdrop and an outsourced Information Security manager incorporated into an updated Business Continuity Plan. • We take out cyber risk insurance • We undertake phishing simulations, IT system vulnerability scanning and annual penetration testing • We have a rolling cyber and information security awareness programme for all employees. Change in residual risk in the year Link to strategy 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 21 March 2022 77 Strategic ReportAnnual Report and Financial Statements 2021Harworth is transitioning into its next phase of growth with the benefit of an established and effective corporate governance structure. ALASTAIR LYONS Chair The Harworth Way Governance is a supporting pillar of the Harworth Way. 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. Read more about The Harworth Way on pages 48 to 69 78 Harworth Group plcGovernance Report Contents Chair’s introduction Board of Directors and Company Secretary Statement of corporate governance Nomination Committee report Audit Committee report ESG Committee report Directors’ remuneration report Directors’ report Statement of Directors’ responsibilities 80 82 86 102 110 118 120 150 154 79 Annual Report and Financial Statements 2021Chair’s Introduction We have made significant progress in key areas of governance, which have been the focus of the Board during the reporting period. Alastair Lyons Chair Dear Shareholder, On behalf of the Board, I am pleased to present this year’s Corporate Governance Report. Whilst 2020 was largely focused on responding to the pandemic, in 2021 we dealt with Covid-19 as business as usual and navigated to a “new normal”. We were very pleased to return to in-person Board and Committee meetings and undertake site visits from June, whilst keeping contingencies and Covid-19 secure precautions in place. This momentum has allowed us to make significant progress in key areas which, as outlined below, have been the focus of the Board during the reporting period. We are confident that Harworth is transitioning into its next phase of growth with the benefit of an established and effective corporate governance structure. The areas identified below are developed in more detail in the Strategic Report on pages 1 to 77 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 ESG Committee Report, the Directors’ Remuneration Report, the Directors’ Report, and the Statement of Directors’ Responsibilities. Our strategy Following Lynda Shillaw’s appointment as our Chief Executive in November 2020, the Board has spent much of its time interacting with the Senior Executive in reviewing and evolving the Company’s strategy, participating in a series of workshops culminating in approval of an updated strategy at our Strategy Day in July. Whilst the plan represents evolution not revolution, we are planning for there to be material shifts in the pace and scale of what we do with the aim of reaching £1bn of EPRA NDV over five to seven years. The Board is now focused on overseeing the implementation of our strategy, and excited by the prospect of scaling up the creation and delivery of sustainable places where people want to live and work. 80 Environmental, Social and Governance (ESG) ESG is hardwired into Harworth’s DNA and culture, and our ESG credentials were reflected in the feedback from stakeholders in support of the strategy review process. Our long-standing approach to ESG was articulated as the Harworth Way in 2019, and this has been embedded in all elements of our strategy. During the period, we took this forward by establishing our new ESG Board Committee, to provide oversight of and guidance on the Group’s ESG strategy, practices and reporting. The development of our ESG commitments includes setting a Net Zero Carbon pathway, identifying targets aligned with the pillars of the Harworth Way, and establishing a reporting regime which will not only satisfy our regulatory requirements but will also demonstrate to our investors and stakeholders the significant part we can and do play from an ESG perspective. Remuneration Policy During the second half of the year, the Remuneration Committee undertook the triennial Remuneration Policy (Policy) review with the assistance of our remuneration consultants, Deloitte. This review was informed by our strategy, and supported by benchmarking exercises and cost modelling. The Committee consulted with, and took onboard feedback from, the Company’s largest shareholders and several proxy advisers. The new Policy was recommended to and approved by the Board in February 2022 and will be tabled for approval at this year’s Annual General Meeting (AGM). The Policy is set out in full on pages 127 to 137, and an explanation of the rationale for the proposed changes to the Policy is at pages 121 to 124. Harworth Group plcGovernanceRisk and internal controls During the year we reviewed our risk management system, with the assistance of external consultants, itself another reflection of our appetite for continuous improvement when it comes to governance. Our previous Group Risk Register has been replaced by the Group Risk and Assurance Map, a register of our principal and operational risks incorporating risk scores, mitigation measures, key risk indicators and Board assurance activity. We also added more rigour to our assurance regime, introducing a three-year assurance programme which replaces the in-year assurance activities we have undertaken in the past. Finally, we felt it appropriate to undertake a detailed review of our principal risks, to take account of the updated strategy, and any change in our risk appetite. The implementation of this enhanced system is reflected in our risk report on pages 70 to 77 and, following Audit Committee recommendation, the Board’s assessment of the effectiveness of the Group’s risk management system can be found on page 70. Board composition Given the relatively short tenures of our Executive Directors and independent Board members, succession planning did not feature as prominently on the Board’s agenda as in previous years. In September however, the Board appointed Nigel Turner as interim Chief Financial Officer, following a recommendation by the Nomination Committee. Though not a statutory director, Nigel undertook Kitty Patmore’s responsibilities whilst she was on maternity leave. We are committed to diversity and inclusion in the boardroom as well as across the wider business. We are proud of our progressive position on gender diversity at Board level, but understand there is more work to do, particularly with respect to ethnic minority representation albeit we have no short-term need to appoint an additional director to the Board. External Board evaluation In the fourth quarter of 2021, an external Board evaluation was undertaken by Ian White, an experienced independent Board assessor who also undertook our previous external evaluation in 2018. Whilst it was pleasing to see the positive feedback from this evaluation and its conclusion that we have an effective Board, there is always room for improvement and action points have been agreed to implement the recommendations arising from the review. A summary of the evaluation process and the recommendations can be found on pages 98 to 99 of the Statement of Corporate Governance. Annual General Meeting Covid-19 restrictions permitting, our AGM will be held at 2:00pm on Tuesday 24 May 2022 at The Bessemer Conference Room, AMP Technology Centre, Advanced Manufacturing Park, Brunel Way, Waverley, Rotherham S60 5WG. Given we were required to hold closed AGMs in 2020 and 2021, I very much look forward to welcoming shareholders in person. ALASTAIR LYONS Chair 21 March 2022 The Board is focused on overseeing the implementation of our strategy, and excited by the prospect of scaling up the creation and delivery of sustainable places where people want to live and work. 81 Annual Report and Financial Statements 2021Governance Board of Directors and Company Secretary Alastair Lyons CHAIR Date of appointment 07/03/2018 Length of service 4 years 1 month Independent Yes Lynda Shillaw CHIEF EXECUTIVE Date of appointment 01/11/2020 Length of service 1 year 5 months Independent No Katerina (Kitty) Patmore CHIEF FINANCIAL OFFICER Date of appointment 01/10/2019 Length of service 2 years 6 months Independent No Committee Membership Committee Membership Committee Membership N (Chair) R E N E D E D (Chair) Skills and Experience Alastair is Chair of Welsh Water and Vitality UK. He was 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, and he was also a Non-Executive Director of the Department of Transport. External appointments Chair of Welsh Water (Dŵr Cymru) and Vitality UK. 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 the 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. Lynda is also a Non-Executive Director and Senior Independent Director of Vivid Housing Association, and until December 2021 she was a Non-Executive Director of The Crown Estate. At the start of 2022, she was appointed Chair of the BPF Regional Policy Committee. External appointments Non-Executive Director of Vivid Housing Association. 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 is also a Non-Executive Director and member of the Audit Committee of LondonMetric Property plc and Chair of the Investment Property Forum Finance Group. External appointments Non-Executive Director of LondonMetric Property plc. 82 Harworth Group plcGovernanceAngela Bromfield SENIOR INDEPENDENT DIRECTOR Patrick O’Donnell Bourke NON-EXECUTIVE DIRECTOR Date of appointment 01/04/2019 Length of service 3 years Independent Yes Date of appointment 03/11/2020 Length of service 1 year 5 months Independent Yes Committee Membership Committee Membership R (Chair) E (Chair) N A (Chair) Skills and Experience Angela is a Non-Executive Director at Marshalls plc, where she chairs the Remuneration Committee and is a member of the Nomination and Audit Committees. She is also a Non-Executive Director at Churchill China plc, where she chairs the Remuneration Committee and is a member of the Nomination and Audit Committees. 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. Skills and Experience Patrick was recently appointed as a Non- Executive Director and Chair of the Audit Committee of Pantheon Infrastructure plc and is also Chair of Ecofin US Renewables Infrastructure Trust plc. He was a Non- Executive Director of Calisen plc until March 2021, and a Non-Executive Director of Affinity Water Limited from 2013 to 2020. 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 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 and Non-Executive Director of Pantheon Infrastructure plc. Key N Nomination Committee R Remuneration Committee E ESG Committee D Disclosure Committee A Audit Committee 83 Annual Report and Financial Statements 2021GovernanceBoard of Directors and Company Secretary continued Martyn Bowes NON-EXECUTIVE DIRECTOR Representing the Pension Protection Fund Date of appointment 24/03/2015 (Previously Non-Executive Director of Harworth Estates Property Group Limited from 19 March 2013) Length of service 7 years 1 month (9 years 1 month including appointment to HEPGL) Independent No Committee Membership E 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. Ruth Cooke NON-EXECUTIVE DIRECTOR Lisa Scenna NON-EXECUTIVE DIRECTOR Date of appointment 19/03/2019 Length of service 3 years 1 month Independent Yes Date of appointment 01/09/2020 Length of service 1 year 7 months Independent Yes Committee Membership Committee Membership N A R 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. 84 Skills and Experience Lisa is a Non-Executive Director of Genuit Group plc, where she is a member of the Nomination, Audit and Remuneration Committees. She is also a Non-Executive Director of Cromwell Property Group, an Australian listed company, where she is a member of the Audit, Remuneration and Nomination Committees, and the Independent Board Committee. Lisa has over 30 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 is a member of the Australian Institute of Company Directors and the Institute of Chartered Accountants in Australia. External appointments Non-Executive Director of Genuit Group plc and of Cromwell Property Group, an Australian listed company. Harworth Group plcGovernanceKey N Nomination Committee R Remuneration Committee E ESG Committee D Disclosure Committee A Audit Committee Steven Underwood NON-EXECUTIVE DIRECTOR Date of appointment 02/08/2010 Length of service 11 years 8 months Independent No Committee Membership None 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. Chris Birch GENERAL COUNSEL & COMPANY SECRETARY Date of appointment 06/06/2016 Length of service 5 years 10 months Independent No Committee Membership D 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 General Counsel and Company Secretary in June 2016. External appointments None. 85 Annual Report and Financial Statements 2021GovernanceStatement of Corporate Governance The 2018 UK Corporate Governance Code (2018 Code) Governance is a supporting pillar of The Harworth Way. 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. We aim to evolve and improve our governance structures continually and align with industry best practice. Below we outline the primary areas the Board focused on during the year to ensure compliance with the main principles of the 2018 Code. A copy of the 2018 Code can be found on the Financial Reporting Council’s website at www.frc.org.uk. The Company complied with the principles and provisions of the 2018 Code throughout the year ended 31 December 2021. Code What did we focus on in 2021? How did it support our strategy? See further Board Leadership and Company Purpose Whilst 2020 was largely about responding to the pandemic, in 2021 the Board supported the Senior Executive in formulating an updated strategy which underpins an ambitious plan to double the size of the Company. The foundation for our strategy is Harworth’s continuing long-term focus on generating sustainable new places. The Board is overseeing the implementation of the strategy which involves scaling up and accelerating the creation and delivery of sustainable new places where people want to live and work. Statement of Corporate Governance, page 87 Division of Responsibilities Following a period of intense operational oversight through the early stages of the pandemic, revisions to our Delegated Authorities Policy allowed for the Board to focus more of its time on strategic discussions and debate. More time is afforded for the Board to review material strategic transactions and hold discussions which focus on purpose, stakeholder interests, alignment with the Harworth Way, and impact on the long- term success of the Group. Composition, Succession and Evaluation An external review of the Board’s effectiveness was undertaken in 2021, and the Board adopted a number of recommendations arising out of this review. Audit, Risk and Internal Control The Board oversaw the review of our risk management system, and undertook a detailed review of the Group’s principal risks. Remuneration The Remuneration Committee undertook a detailed review of the Remuneration Policy, which included consultation with shareholders and engagement with our employees. The revised Policy will be tabled for approval at the 2022 AGM. The review concluded that the Board was effective and had supported the Senior Executive effectively in the formulation of our ambitious growth strategy. The recommendations adopted by the Board will help enhance its performance in supporting the implementation of the strategy. The Board’s review of principal risks was informed by the strategy review such that our principal risks reflect the shifts in our strategy, including the increase in our direct development activity. The Board conducts a regular overview of our principal risks as we launch into the strategy. The Remuneration Policy review was informed by the strategy. Executive remuneration is aligned with strategic objectives and cascaded through the business to motivate our people to deliver the strategy and align the interests of employees and shareholders. Statement of Corporate Governance, pages 89 to 93 Statement of Corporate Governance, pages 98 to 99 Strategic Report: Effectively managing our risk, pages 70 to 77 Audit Committee Report, pages 115 to 116 Directors’ Remuneration Report, pages 121 to 137 86 Harworth Group plcGovernanceBoard leadership and company purpose 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”. Following her appointment as Chief Executive, Lynda Shillaw led an extensive review of strategy during the first half of 2021, working closely throughout with the Board and wider business. How the Board supported the development of the strategy is illustrated below: Our strategy is to reach £1bn of EPRA NDV over five to seven years starting from the end of 2020. It will require material shifts in the pace and scale of what we do, leveraging our specialist expertise to optimise the development of our significant consented landbank. The strategy is exciting and ambitious, building on the key attributes that have made Harworth successful to date, including its passionate, innovative and collaborative people, a landbank full of opportunities, and a commitment to creating sustainable communities, all of which contribute towards our aim to deliver long-term market-leading returns for investors. Strategy workshops (H1) In the first half of 2021, the Board participated in a series of workshops to analyse and review different elements of a potential updated strategy, which included contributions from external consultants. The performance of the business is assessed by the Board throughout the year against the approved budget and strategic plan, with the Board satisfying itself as to the adequacy of management’s response to variations in performance against the plan. Financial and operational reforecasts are presented to the Board quarterly and the Chief Executive, Chief Financial Officer, Chief Operating Officer and Chief Investment Officer give operational and financial updates at each Board meeting. Strategy Day (July) Culture An updated strategy was approved by the Board at its Strategy Day in July 2021 alongside a strategic plan for the following five years. The strategy was communicated to shareholders alongside the 2021 interim results. 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: Ongoing strategy updates In support of the strategy, the Board oversaw the formulation of a new people strategy, and reviewed the conclusions and recommendations from investor and stakeholder perception studies. Review of Principal Risks (H2) Informed by the strategy, the Board participated in several workshops to review the Group’s principal risks, the Directors’ appetite for each of those risks, and the adequacy of the measures in place to mitigate them. Approval of Budget (November) The Board reviewed and approved a draft budget for 2022, pending the outcome of 2021 results. The Harworth Values are embedded into the business through appraisals, the setting and scoring of bonus objectives, internal communications, and our programme of recognition. They were at the heart of our initial and ongoing response to Covid-19, by ensuring collaboration with each other and our external stakeholders, by remaining innovative during challenging times, and by continuing to “do the right thing” notwithstanding a long period of economic and social uncertainty. The Harworth values also underpin the delivery of our strategy. 87 Annual Report and Financial Statements 2021GovernanceStatement of Corporate Governance continued the Company’s full year and interim results. The Chair also meets periodically with our largest shareholders. During the period Harworth hosted four investor site visits, and later this year we will hold our Capital Markets Day which will include a tour of some of our sites in the Midlands region. In addition, at the end of 2021 our Senior Independent Director and Remuneration Committee Chair engaged directly with our largest shareholders and several proxy advisers for their views and feedback on the revised Remuneration Policy. During the year we recruited Tom Loughran as our new Head of Investor and Stakeholder Relations. Tom reports to each Board meeting on investor engagement and feedback from the Company’s brokers and both existing and prospective shareholders. He also reports on share price performance, trading volumes and material changes to the composition of the Company’s share register. Copies of all notes prepared by analysts are also shared with the Board. During the period, we were pleased 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 The London and Amsterdam Trust Company, the Company’s largest shareholder, continuing to increase its holding. 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 reports to the market on material operational milestones, 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 are looking forward to welcoming shareholders in person to the 2022 AGM, having been forced to hold a closed AGM in 2020 and 2021 due to the restrictions on movement imposed during the pandemic. Nevertheless, on those occasions, shareholders were given an opportunity to pose written questions to the Board. 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. It is essential to the Board that it understands, assesses and monitors the culture of the business. The Board undertakes this responsibility in the following ways: • Meeting and engaging with staff in various formats, including employee lunches, site visits, regional team dinners, office visits and the Employee AGM. Not only are these opportunities for the Board to gain an insight into the working lives of its employees, they also allow staff to ask questions of, and raise any concerns with, the Board. • Participation by Non-Executive Directors at the People Steering Group (PSG) meetings, who then report back to the whole Board. • An annual review of employee engagement presented by the Head of People. • A review of the annual employee survey results. • Access to the quarterly staff newsletter which reports on key operational activity from the perspectives of employees. • Feedback from the Chief Executive at each Board meeting on people and culture. • Where there are departures at a senior level, the Board seeks to understand from the Senior Executive the motivations for, and impact of, those departures. Stakeholders 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. During 2021 and to support the strategy review, independent investor and stakeholder perception studies were undertaken, the results of which were presented to and reviewed in detail by the Board. The results were overwhelmingly positive, but identified some action points, such as the need to increase resources available to the regional teams for engagement with local stakeholders. Our Strategic Report outlines how we engage with our key stakeholders and how the Board complies with its obligations in section 172 of the Companies Act (pages 44 to 47). When appraising projects and transactions, consideration of stakeholder interests is embedded into the Board’s decision-making process, guided by our approval templates which require commentary on the purpose of projects and their impact on our stakeholders. For example, prospective acquisition appraisals typically include a detailed planning promotion strategy which explains how our teams will engage with local community stakeholders to seek to secure support for scheme proposals. 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 88 Harworth Group plcGovernanceDivision of responsibilities There is a clear division of responsibilities between the Board, its Committees, and the Senior Leadership Team at an operational level. 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 review annually, led by the Company Secretary, to ensure that it keeps pace with Harworth’s evolving business. The Board has delegated certain responsibilities to the Remuneration, Audit, Nomination, ESG and Disclosure Committees. The terms of reference of those Committees are reviewed annually and appear on the website: https://harworthgroup. com/investors/governance/ The Chief Executive has responsibility for proposing and then implementing the Company’s strategy and leading the day-to-day management of the business, with the agreement of the Board on reserved matters. The Chief Executive appoints the Group Leadership Committee to support her in implementing the strategy. INVESTMENT COMMITTEE COO CIO GC CEO CFO GROUP LEADERSHIP COMMITTEE AUDIT COMMITTEE BOARD REMUNERATION COMMITTEE DISCLOSURE COMMITTEE NOMINATION COMMITTEE ESG COMMITTEE Senior Leadership Team Senior Executive The key responsibilities of the Board, Committees and individual roles are summarised over the following pages. The roles and membership of Committees are as at the date of publication of this Annual Report. Board of Directors Role of the Board See pages 82 to 85 for membership • Establishes Harworth’s purpose and helps to formulate a • Ensures an appropriate governance framework operates to support implementation of the strategy. • Oversight of health and safety management and reporting. strategy for achieving it. • Approval of interim and annual financial results. • Stewardship of resources to ensure long-term and • Dividend policy and payments. 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. • Identifies, determines risk appetite, and assesses the effectiveness of mitigation measures for, the Group’s principal risks. • Reviews and approves the Group’s policies. • Ensures the Company’s strategy and projects deliver against ESG objectives. • Promotes a culture that is aligned with the Company’s purpose and strategy. • Ensures appropriate engagement with employees, shareholders, 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. 89 Annual Report and Financial Statements 2021GovernanceStatement of Corporate Governance continued Board reserved matters Approval of corporate acquisitions and joint ventures New or material changes to senior debt facilities Oversight of ESG strategy and activities Approval of all projects and material changes in project business plans, determined by appropriate financial thresholds Remuneration Policy, remuneration of Directors and Senior Executive Approval of accounts, valuations, financial reporting and dividends Identification of, and review of mitigation measures for, the Group’s principal risks Setting strategy and approval of annual budget and strategic plan Oversight of the performance of the business Oversight of health and safety for all sites and projects Board appointments; external appointments of Directors Oversight of IT strategy including cyber and information security The Board is supported by: Audit Committee Patrick O’Donnell Bourke (chair) Ruth Cooke Lisa Scenna Board Committees Remuneration Committee Angela Bromfield (chair) Alastair Lyons Lisa Scenna • Reviews the integrity of the annual report, full year and interim results announcements and any other announcements relating to financial performance. • Determines and agrees with the Board the Company’s Remuneration Policy. • Determines the salaries, bonuses, long-term incentive • Reviews the Group’s operational risks, the effectiveness of internal controls and processes, and the programme of further assurance activity. arrangements, pension arrangements, other benefits and contract terms of the Executive Directors and members of the Senior Executive. • Reviews and approves placement and renewal of the insurance • Reviews the remuneration approach adopted for all employees. • Approves grant of options and awards 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. 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 and prevention of fraud, bribery and modern slavery. • Reviews ongoing compliance with the General Data Protection Regulation. • Reviews the effectiveness of the cyber and information security strategy and measures, and of business continuity plans and procedures. • Reviews the Group’s approach to all forms of tax. 90 Harworth Group plcGovernanceNomination Committee Alastair Lyons (chair) Angela Bromfield Ruth Cooke Lynda Shillaw • Reviews the size, composition and balance of the Board and its Committees. • Oversight of succession planning for the Board Committees ESG Committee Angela Bromfield (chair) Alastair Lyons Martyn Bowes Lynda Shillaw Kitty Patmore • Oversees the Group’s ESG strategy, including ESG targets and KPIs. Board and Senior Executive. • Reviews ESG policies, processes and • Leads the process for Board appointments. • Oversight of progress in improving diversity across the business. • Reviews proposals for external appointments of Directors. initiatives. • Reviews the measurement of progress towards ESG targets. • Oversees the effectiveness of internal and external communications and engagement on ESG matters. Management Committees Disclosure Committee Kitty Patmore (chair) Lynda Shillaw Chris Birch • Ensures compliance with disclosure obligations under the Market Abuse Regulation, as it now applies in the UK pursuant to the legislation implemented to effect the UK’s withdrawal from the EU, and the FCA’s Listing Rules and Disclosure Guidance and Transparency Rules. Investment Committee Lynda Shillaw (chair) Kitty Patmore Chris Birch Andrew Blackshaw (Chief Operating Officer) Jonathan Haigh (Chief Investment Officer) Chris Davidson (Joint Yorkshire and Central Regional Director) Ed Catchpole (Joint Yorkshire and Central Regional Director) Steven Knowles (North West Regional Director) David Cockroft (Midlands Regional Director) Tim Love (Central Services Director) Haroon Akram (Head of Strategy and Business Development) Peter Henry (Director of Sustainability) Dougie Maudsley (Group Financial Controller) • Supports the Chief Executive in the formulation and implementation of the strategy. • Responsible for decisions on 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 operational and financial key performance indicators. Group Leadership Committee Lynda Shillaw (chair) Kitty Patmore Chris Birch Andrew Blackshaw (Chief Operating Officer) Jonathan Haigh (Chief Investment Officer) Chris Davidson (Joint Yorkshire and Central Regional Director) Ed Catchpole (Joint Yorkshire and Central Regional Director) Steven Knowles (North West Regional Director) David Cockroft (Midlands Regional Director) Tim Love (Central Services Director) Haroon Akram (Head of Strategy and Business Development) Peter Henry (Director of Sustainability) Dougie Maudsley (Group Financial Controller) Tom Loughran (Head of Investor and Stakeholder Relations) John Hind (Head of Risk and Compliance) Catherine Macdonald (Head of People) Stefan Morgan (Technical Director) Andrea Morley (Asset Management Director) Chris Warren (Natural Resources Director) David Elliott (Building Delivery Director) James Crow (Head of Mixed Tenure) Qasim Mohammed (Head of Legal) Lucie Blunt (Head of Technology and Systems) Dan Needham (Development Director) • Provides leadership of each operating division and function. • Ensures effective communication and collaboration between all operating divisions and functions sharing knowledge and experience, including site and project information, market intelligence, innovation opportunities and contacts. • Discussion of strategic topics. • Monitors risk profile of the business. 91 Annual Report and Financial Statements 2021GovernanceStatement of Corporate Governance continued Responsibilities of the Board and Senior Executive • Leads the Board and is responsible for its overall effectiveness by facilitating a culture of openness and debate. • Ensures that Harworth has a defined purpose and clear strategy and objectives. • Ensures that a fixed schedule of matters is maintained for the Board’s review and approval. • Sets the annual programme and meeting agendas. • Facilitates a constructive relationship between the Non-Executive Directors and the Senior Executive. • Ensures that the Board receives regular reporting on performance. • Ensures that Directors receive accurate, timely and clear information, and that there is adequate time available for discussion of agenda items and an effective decision-making process in place. • Ensures there is ongoing and effective communication with shareholders. • Ensures that the Board identifies key stakeholders, that there is appropriate engagement with them, and their interests are considered when decisions are made. • Ensures that the effectiveness of the Board is subject to annual evaluation, including an external evaluation every three years. • Leads on the formulation of strategy which, once agreed by the Board, falls to the Chief Executive 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 Group Leadership Committee. • Oversight of operational risk management, including health and safety. • Ensures that the Board is appraised of all material matters and that Board decisions are implemented. • Responsible for Harworth’s relationships with shareholders and for effective engagement with key stakeholders. • Responsible for ensuring the Group’s strategy delivers against ESG principles and objectives, including leading on the formulation of ESG targets. • Leads on all financial matters, including tax and treasury. • Responsible for preparing the annual budget, strategic plan and reforecasting. • Responsible for all statutory financial reporting, including the preparation of the interim and year- end financial statements and Annual Report. • 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 the monitoring of performance against the Company’s ESG targets. • 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. ALASTAIR LYONS Chair LYNDA SHILLAW Chief Executive KITTY PATMORE Chief Financial Officer 92 Harworth Group plcGovernanceANDREW BLACKSHAW Chief Operating Officer JONATHAN HAIGH Chief Investment Officer ANGELA BROMFIELD Senior Independent Director CHRIS BIRCH General Counsel and Company Secretary • Responsible for operational delivery by Harworth’s regional teams. • Ensures there are appropriate resources across the regional teams to implement the strategy and • • deliver the business plan. Leads on the delivery of our build to rent product across the portfolio. Jointly responsible, with the Chief Financial Officer and Chief Investment Officer, for ensuring that the regional teams work effectively alongside our finance and central support teams respectively. • Jointly with the Chief Investment Officer, leads the half-year and year-end valuation process. • Responsible for the expertise, support and resources provided by our Technical, Natural Resources and Asset Management teams to the regional teams. • Responsible for management of our Investment Portfolio, including strategic disposals. • Leads on M&A, portfolio and strategic acquisitions and projects. • Oversight of the direct development programme across the portfolio. • Jointly responsible, with the Chief Operating Officer, for ensuring that the regional teams work effectively alongside our central support teams. • Jointly with the Chief Operating Officer, leads the half-year and year-end valuation process. • Provides a sounding board for the Chair. • Acts, where appropriate, as an interlocutor between the Chair and other Non-Executive Directors • Available to shareholders as an alternative point of contact. • • Leads the process for appointing a new Chair. Leads the annual appraisal of the Chair’s performance. • Secretary to the Board and its Committees. • Ensures that all Board reserved matters are referred to the Board for review and approval. • Advises on regulatory compliance and corporate governance. • Prepares Board and Committee agendas and collates and distributes papers. • Available to advise the Directors on all legal and compliance matters. • Leads on arranging 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. Leads on risk management. Leads our Risk and Compliance team which is responsible for health and safety assurance on all sites and projects, environmental compliance, renewal and administration of our insurance programme and business continuity planning. Leads the Technology and Systems team which is responsible for our IT strategy and the effectiveness of our technology and systems, including cyber and information security, and GDPR compliance. Leads the In-house Legal team which provides legal support on operational matters and manages the external legal panel. 93 Annual Report and Financial Statements 2021GovernanceStatement of Corporate Governance continued Board and Committee meetings1 Alastair Lyons Lynda Shillaw Kitty Patmore2 Angela Bromfield Ruth Cooke Lisa Scenna Patrick O’Donnell Bourke Steven Underwood Martyn Bowes Meetings attended Board RemCo AuditCo NomCo ESGCo 6/6 6/6 6/6 5/5 5/5 5/5 1/1 1/1 1/1 11/11 11/11 9/11 11/11 10/11 11/11 11/11 11/11 11/11 4/4 4/4 2/4 4/4 3/4 1 There were 11 scheduled Board meetings, including the Strategy Day, during 2021. There were also Board calls to sign off the trading statements, 2020 preliminary results and 2021 interim results, and to approve certain transactions, which are not reflected in the table above. 2 Kitty Patmore went on maternity leave at the start of October 2021. Nigel Turner attended Board meetings as Interim Chief Financial Officer but was not appointed a statutory director. 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, Company Secretary, Head of Investor and Stakeholder Relations and Head of Risk and Compliance; and quarterly reports from the Chief Operating Officer and Chief Investment Officer. 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. Key Board activities in 2021 Outcomes Our updated strategy to reach £1bn of EPRA NDV over five to seven years starting from December 2020 was announced alongside our interim results in September 2021. Future priorities The Board will monitor, and support the Senior Executive in, the delivery of the strategy. Stakeholders considered All stakeholders as set out in our s.172 statement (pages 44 to 47). The ESG Committee: • reviewed the alignment of the UN Sustainable Development Goals with The Harworth Way; • set targets to achieve Net Zero Carbon; and • approved the Company’s first disclosures under the TCFD requirements. • Ensure alignment between our ESG commitments and the Group strategy. • Develop Harworth’s pathway to transitioning our business and portfolio to Net Zero Carbon. • Oversee evolution of our ESG data collection and reporting. • Our people • Communities we deliver schemes to Key activities and discussions The Board, with the Senior Executive, participated in a series of workshops to review different elements of the strategy. The strategy was approved at the Board Strategy Day in July 2021. An ESG Committee was established to oversee the development of an ESG strategy. Our strategy ESG approach 94 Harworth Group plcGovernanceRisk management Key activities and discussions There was a detailed review and overhaul of the Group’s risk management system and review of the Company’s principal risks, informed by our strategy. Outcomes • The Board identified, set its risk appetite for, and reviewed the risk profiles of, our principal risks. • The Audit Committee oversaw the formation of the Group Risk and Assurance Map and approved the first iteration of the Further Assurance Programme. Stakeholders considered Our redefined risk categories take account of all stakeholders as set out in our s.172 statement (pages 44 to 47). Future priorities • The Board will review the status of the principal risks monthly and undertake a more detailed review biannually (or if there are significant movements in risk profile at any time). • The Audit Committee will monitor the effectiveness of the new risk management system and Further Assurance Programme. As the business grows it will also monitor whether an internal audit function is required. Remuneration Policy Employee engagement Review of the Remuneration Policy, including consultation with shareholders and engagement with our employees. The Board met and engaged with staff in various formats, including employee lunches, site visits, regional team dinners, office visits, attendance at PSG meetings and the Employee AGM. Revisions have been made to the Remuneration Policy informed by our strategy and feedback from shareholders. • We will seek shareholder approval of the revised Remuneration Policy at our 2022 AGM. • Our people • Investors • Subject to approval, the Board will oversee implementation of the Policy, including its application to the wider workforce. We will continue to explore ways of optimising Board engagement with employees. • Our people When Covid-19 restrictions permitted, the Board re-engaged with the business in person. This was particularly important following the appointment of two new Non-Executive Directors and the recruitment of new employees over the periods of lockdown. External Board effectiveness review (see pages 98 to 99) The Board participated in an independent review of its effectiveness. Harworth was found to have an effective Board, with suggested recommendations to enhance the Board’s performance. The Board held a dedicated session to review the recommendations. Implementation and tracking of the agreed recommendations to enhance the Board’s performance. The Board has agreed actions to enhance its performance and for better decision making to benefit all stakeholders as set out in our s.172 statement (pages 44 to 47). 95 Annual Report and Financial Statements 2021GovernanceStatement of Corporate Governance continued How the Board spent its time this year Key: Strategy 15% 25% 20% 10% 20% 10% During 2021, the Board participated in several strategy review workshops leading up to the Strategy Day in July. This was followed by ongoing strategy updates. People and culture Includes the Board’s review of talent management and people development, as well as Board/employee engagement activities. Stakeholder engagement (excluding people) The Board reviewed trading statement updates throughout the year, feedback from investor and stakeholder perception studies, feedback from the results roadshows and an investor relations plan for the following year. Risk management The Board oversaw the review of the Group’s risk management system and engaged in several risk workshops to review the Group’s principal risks. Financial The Board monitored performance against the budget, reviewed and approved a budget for 2021 as well as the results announcements. Operations and governance As per the Delegated Authorities Policy, the Board appraised all new project business cases and significant transactions. Key areas of Board focus in 2022 Oversight of implementation of our strategy Oversight of development of ESG strategy and setting of ESG targets Implementation of new Remuneration Policy Our people: oversight of implementation of people strategy to support delivery of the business strategy, including: recruitment, engagement, welfare, talent development and diversity External appointments Implementation of outcomes of external Board evaluation Oversight of implementation of new risk management and internal controls systems 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. During the year, the Board approved Patrick O’Donnell Bourke’s appointment as a Non-Executive Director of Pantheon Infrastructure plc. 96 Harworth Group plcGovernance Conflicts of interest Each Director can disclose actual or potential conflicts of interests, either by way of general notice or at the beginning of each Board or Committee meeting. The Articles of Association provide that the Board can authorise actual and potential conflicts of interest of Directors. Where actual or potential conflicts of interest arise, the relevant Director does not receive Board papers and is excluded from discussions and voting on the relevant subject matter. Martyn Bowes is a Board representative of the Pension Protection Fund. The Board has approved any actual or potential conflicts of interest that arise as a result. No conflicts of interest arose in 2021. 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 and/ or may pursue certain acquisition opportunities in competition with Harworth. Steven has previously declared by way of general notice, and the Board has approved, a potential conflict of interest in that regard. During 2021, Harworth sold non-core land to a company of which Steven was a director and entered a bidding process to acquire a strategic land site which the Peel Group also targeted. These represented an actual conflict of interest for Steven and, as such, he did not have sight of any Board papers, and was not party to any Board discussions or decision-making, on these matters. INDUCTION AND ONGOING SUPPORT 97 InductionsThe Company Secretary oversees the delivery of a comprehensive and tailored induction programme for all new Directors, which includes:• provision of a detailed induction pack ahead of appointments taking effect;• briefings from the Chair, the Chief Executive, Chief Financial Officer, Chief Operating Officer, Chief Investment Officer and Company Secretary;• a series of one-to one meetings with members of the Group Leadership Committee; • site visits; and• meetings with external advisers where appropriate, such as the external auditors, remuneration consultants and the Company’s valuers. Knowledge of business and marketsTo give constructive challenge and support to the Senior Executive, 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. We were very pleased to resume site visits from June 2021.• annual health and safety updates from the head of our Risk and Compliance 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. Ongoing support and CPDAll 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:• external CPD briefings are made available to 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;• Directors are made aware of, and have the opportunity to attend, external CPD updates.Annual Report and Financial Statements 2021GovernanceStatement of Corporate Governance continued Composition, succession and evaluation Board evaluation The Board undertakes annual evaluations of its effectiveness and of 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. The Chair conducted internal evaluations in 2019 and 2020, and the outcomes of some of the agreed actions from the 2020 review are listed below: Theme Actions agreed Outcomes 2020 internal evaluation Stakeholder engagement More use should be made of existing relationships held by Non-Executive Directors with key stakeholders. Where there are issues which would benefit from external input or support, the Non-Executive Directors are asked if they have relevant relationships. By way of example, our Chair’s relationships with senior individuals in the insurance sector have facilitated our engagement with certain insurers during a period of hard insurance market conditions. Board reserved matters Board meetings External reporting Internal controls 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. Actioned in early 2021 with an overhaul of the Delegated Authorities Policy. This has provided more time for strategic discussions by the Board, whilst giving it visibility on, and the opportunity to ask questions about, operational decisions by the Investment Committee. The frequency of Board meetings should remain subject to review, and consideration should be given to whether meetings could be occasionally restructured 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 restructured schedule of meetings has been implemented from 2022 and is organised to coincide with regional site visits. During 2021, smaller Board workshops were held to discuss the 2020 Board effectiveness evaluation, the strategy review, and principal risks. The Board will keep under review other topics that would benefit from a smaller group discussion. The design and content of investor presentations should be reviewed, with a focus on improving the explanation of the strategic direction of the business. Full year and interim results investor presentations have been shortened to focus on key messages, particularly with respect to the updated strategy, and to improve financial disclosures. 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 this to the Board. During 2021, our risk management system was overhauled with the development of a new Group Risk and Assurance Map: a register of our principal and operational risks incorporating risk scores, mitigation measures, key risk indicators and Board assurance activity. The Map is reviewed by the Audit Committee ahead of the full year and interim results announcements, and informs the Committee’s assessment of the effectiveness of the Group’s internal control framework. 2021 external Board effectiveness review In 2021, an external evaluation process was led by an independent assessor, Ian White. Whilst Ian also undertook the Company’s previous external evaluation in 2018, other than supporting Harworth on the update to its risk management system referred to above, he has no other connection with the Group. The objectives of the evaluation were to: • focus on the dynamics of the Board and Committees to provide an assessment, from an independent perspective, of their effectiveness; • make practical suggestions for enhancements; and • establish a clear set of actions and objectives for the Board to prioritise and focus on in 2022 and beyond. 98 Harworth Group plcGovernanceExternal evaluation process and outcomes In carrying out his review, Ian White undertook the following: September – November 2021 Online questionnaire sent to all Directors and regular Board attendees, focusing on: • Board and Management composition • Board role, expertise and understanding of the business • Executive Team • Strategy • Board dynamics and culture • Management of Board and Committee meetings • Board papers, presentations and support Leadership of the Board • Risk management • • Succession planning • Board priorities Interviews with each respondent to the questionnaire, and meetings with selected employees who interact frequently with the Board Review of Board and Committee papers and other relevant information, e.g. Delegated Authorities Policy and Terms of Reference Observation of Board and Committee meetings Assessment of progress since previous Board reviews December 2021 – January 2022 Written report, including an assessment of Board effectiveness and a list of recommendations for enhancement. The review found that the Company has an effective Board and one which is continuously improving. The report highlighted the following characteristics of the Harworth Board: • Collegiate with trust and respect between its members, and an appropriate balance of challenge and support and little evidence of groupthink. • A good range of skills covering many of the areas the Company requires for its current operation and future direction. Board members are engaged and work well both together and with the Senior Executive. • Effective decision maker which prioritises well and takes the interests of its major stakeholders into account. • Whilst detailed on occasion, the Board has transitioned well in a time of change and was well positioned to do so in the future to meet the Company’s change agenda. Facilitated session at a Board meeting to review the report, discuss the recommendations and agree an action plan. The following recommendations were, among others, identified as areas on which the Board might focus in 2022 and beyond to enhance its effectiveness. Alongside each recommendation are actions identified to implement the same: January 2022 Theme Diversity Board papers and debate 2021 external evaluation Actions agreed When succession planning, the Board should keep diversity, defined in its widest sense, as an area of focus and be open to recruiting a Non-Executive Director with different skills and experience. • The executive summary in Board approval papers should identify clearly the main factors for Board consideration and the action required. • Time should be scheduled at the end of each Board meeting for a short discussion about the quality of debate on the agenda items as well as the quality and effectiveness of the Board papers supporting these items. Material decisions To track the effectiveness of its decisions, the Board should determine, at the end of each meeting, which material decisions should be revisited in the future. Board meetings The frequency and format of meetings and structure of the annual Board timetable to be reviewed regularly by the Chair, Chief Executive and Company Secretary to identify areas for Board and Committee efficiency. Engagement with stakeholders As part of the stakeholder mapping exercise, there should be engagement with the Non-Executive Directors to understand how their relationships could support and strengthen further engagement with some external stakeholders. Financial reporting and forecasting Continuous improvement in financial reporting including enhancements to corporate modelling and longer-term financial forecasting. 99 Annual Report and Financial Statements 2021GovernanceStatement of Corporate Governance continued An evaluation of the Chair’s performance is led annually by the Senior Independent Director. For the reporting period, in addition to the feedback given on the Chair’s leadership during the external Board evaluation, the Senior Independent Director met with our other Non-Executive Directors and the Senior Executive earlier in the year (February 2021) to review the Chair’s performance. Following that review, the Senior Independent Director considered and discussed with the Chair the comments and feedback 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 Senior Executive twice a year. Similar appraisals are undertaken by Senior Executive members of the performance of their direct reports on the Investment Committee. Annual General Meeting The Annual Report and Financial Statements and Notice of AGM are sent to shareholders at least 20 working days before the meeting. Covid-19 restrictions permitting, the Board encourages shareholders to attend, participate and exercise their right to vote at the 2022 AGM on 24 May 2022, particularly given the Company was forced to hold closed AGMs in 2020 and 2021 due to the Covid-19 restrictions then in place. The resolutions to be proposed at the AGM, together with the explanatory notes, appear in the separate Notice of AGM accompanying this Annual Report. The Notice is also available on our website. Separate resolutions are proposed on each substantially separate issue. All Directors attend the AGM and are available to answer questions, both formally during the meeting and informally both before and after the meeting. The Board encourages questions from shareholders. For each resolution the proxy appointment forms provide shareholders with the option to direct their proxy vote either for or against the resolution or to withhold their vote. All valid proxy appointments are properly recorded and counted. Information on the number of shares represented by proxy, the proxy votes for and against each resolution, and the number of shares in respect of which the vote was withheld for each resolution, together with the voting result, are given at the meeting and made available on the Company’s website. A vote withheld will not be counted in the calculation of the proportion of the votes for and against a resolution. This Statement of Corporate Governance was approved on behalf of the Board by: ALASTAIR LYONS Chair 21 March 2022 100 Harworth Group plcGovernance Annual Report and Financial Statements 2021 101 GovernanceNomination Committee Report Committee members Alastair Lyons (Chair) Angela Bromfield Ruth Cooke Lynda Shillaw The terms of reference of the Nomination Committee are on the Company’s website: https://harworthgroup.com/investors/ governance/ Dear Shareholder, I am pleased to report to shareholders on the work of the Nomination Committee during the year ended 31 December 2021. The report sets out the Committee’s activities during 2021 and its priorities for 2022, which focus on reviewing Board and Committee composition and succession planning, and the Committee’s oversight of diversity and inclusion across the business. The Committee’s terms of reference were reviewed and re- approved during the period and are available on the Company’s website. Throughout 2021 the Committee acted in accordance with the principles of, and fulfilled its obligations under, the 2018 Code. Membership and meetings There were no changes to Committee membership during the period: I continued to chair the Committee, and its other members were Angela Bromfield and Lynda Shillaw. At its meeting in October 2021, the Committee reviewed its membership and resolved to recommend that an additional independent Director be appointed to the Committee. The appointment of Ruth Cooke was subsequently recommended to, and approved by, the Board. Her appointment took effect, and was announced, on 25 January 2022. The Committee held one scheduled meeting during the period to review succession and development planning for the Board and Senior Executive and to review the effectiveness of the initiatives in place to improve diversity throughout the business. The Committee, alongside the Audit Committee Chair, also had oversight of the appointment of Nigel Turner as interim Chief Financial Officer for the period of Kitty Patmore’s maternity leave. Membership and attendance at meetings in 2021 are shown below: Independent Committee tenure at 31 December 2021 Scheduled meetings attended/eligible to attend Alastair Lyons Angela Bromfield Lynda Shillaw Ruth Cooke (joined the Committee in January 2022) Chair Member Member Member Yes Yes No Yes 3 years 10 months 2 years 1 year 2 months – 1/1 1/1 1/1 – 102 Harworth Group plcGovernanceThe Committee’s key activities in 2021 The key activities of the Committee during 2021 are shown below: Recruitment Board composition and succession Diversity External appointments Review of Board and Committee composition Review of proposed external appointment for Patrick O’Donnell Bourke Review of succession plans for the Board and Senior Executive Review of progress to improve diversity across the business Oversight of the recruitment process for interim Chief Financial Officer to cover Kitty Patmore’s maternity leave The Committee’s priorities for 2022 • Ongoing review of Board composition and of succession planning for the Board and Senior Executive • Ongoing review of effectiveness of initiatives to promote diversity across the business Board and Committee composition and succession planning 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. Angela Bromfield continued in the role of Senior Independent Director during the period. In September 2021, the Committee and Audit Committee Chair oversaw the appointment of Nigel Turner as interim Chief Financial Officer. Nigel undertook Kitty Patmore’s responsibilities whilst she was on maternity leave, but was not appointed as a statutory director, so is not included in the analysis of Board composition on the following page. The composition of the Board and its Committees is reviewed regularly by the Committee to ensure that, in each case, its membership comprises appropriate diversity and balance of skills, knowledge, and experience and includes the right number of independent Directors. That review takes account of output from the annual Board evaluation. Having regard to all these considerations, the Committee considers that the composition of the Board is appropriately balanced, and we are proud of the gender balance we have achieved. However, the Committee is mindful of the benefits afforded by diversity, in its widest sense, both in the boardroom and across the business. It recognises there is more work to do with respect to ethnic minority representation on the Board albeit the Committee has assessed there is no short-term need to appoint an additional director to the Board, given the short tenures of existing independent Non-Executive Directors. Analysis of diversity on the Board, and across the workforce, is detailed later in this report. Membership of our Committees complies 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 page 149. Analysis of the composition of the Board (at the date of this report) is shown below. The Directors’ biographies appear on pages 82 to 85. 103 Annual Report and Financial Statements 2021GovernanceNomination Committee Report continued Board Chair Composition Male Female Exec Directors Independent NEDs Non independent NEDs1 One Director One Director Age Female Male 30-40 years 41-50 years 51-60 years 61-70 years Tenure Female Male 1-3 years 3-6 years 6-10 years Over 10 years 1 Martyn Bowes is the representative of the Pension Protection Fund, and he is not, therefore, independent. Steven Underwood is employed by the Peel Group, which also has a material shareholding, and he is not, therefore, considered independent. Board Succession Board tenures Patrick O’Donnell Bourke - Nov 2020 Lynda Shillaw - Nov 2020 Lisa Scenna - Sept 2020 Kitty Patmore - Dec 2019 Angela Bromfield - April 2019 Ruth Cooke - March 2019 Alastair Lyons - March 2018 Martyn Bowes - March 2013 Steven Underwood - August 2010 2010 2015 2016 2017 2018 2019 2020 2021 During the period, the Committee undertook a review of the succession plans for Executive and Non-Executive Directors. Given that the Committee had focused on refreshing the Board significantly over the previous two years this was a relatively light review. Board members appointed in 2020 had joined Harworth in a remote working environment and the Board was therefore very pleased to resume in-person meetings and site visits in the second half of the year to support collaboration and engagement with each other and the business as a whole. 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 their role at Harworth, together with the prospect of conflicts of interest arising. The Board makes a final decision on all new external appointments. During 2021 the Committee reviewed the proposed appointment of Patrick O’Donnell Bourke as a Non-Executive Director and Audit Committee Chair of Pantheon Infrastructure plc. This appointment was recommended to, and approved by, the Board. 104 Harworth Group plcGovernance Senior Executive Gender pay gap analysis Succession plans are in place for each member of the Senior Executive and those plans are reviewed regularly (typically annually) by the Committee. Talent management and succession planning for the whole business is considered annually by the Investment Committee and then by the Board. Analysis of the composition of the Senior Executive (at the date of this report) is shown below. Age Tenure 2 2 1 30-40 years 41-50 years 51-60 years 1 2 2 Less than one year 1-3 years 3-6 years Diversity, inclusion 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. In common with much of the real estate and construction sectors, achieving that objective remains 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 our not being obliged to, as the Board feels it is important to have a transparent benchmark against which to measure our progress. We publish the same analysis again in respect of 2021 here, alongside the comparative results for 2020. In each case the reference point is 31 December. Proportion of men & women in each quartile band Males Females Lower quartile Lower middle Upper middle Upper quartile 2021 2020 2021 2020 2021 2020 2021 2020 Gender Pay Gap Reporting Mean gender pay gap Median gender pay gap Mean bonus gender pay gap Median bonus gender pay gap 43% 53% 61% 53% 65% 72% 87% 88% 2021 16% 34% -4% 67% 57% 47% 39% 47% 35% 28% 13% 12% 2020 9% 30% 43% 68% 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, or the Board’s commitment to, reducing it as quickly and effectively as we can. During 2021, there was an increase in the number of female employees across the lower, upper middle and upper quartile bands as we increased recruitment to support our growth strategy. The most substantial increase in numbers of female employees was in the lower quartile band, which has driven the increase in our mean and median gender pay gap measures. Notwithstanding the progress made across the business, we recognise we have more to do to improve female representation at senior management levels. The significant reduction in our mean bonus gender pay gap measure is due to this being the first year in which the bonuses paid to both Lynda Shillaw and Kitty Patmore have been reflected. Our commitment to gender representation at the most senior level is championed through our two female Executive Directors. However, as the organisation continues to grow, we are aware of the need to accelerate gender rebalancing across the workforce. 105 Annual Report and Financial Statements 2021GovernanceNomination Committee Report continued Promoting a diverse workforce The Committee reviews and oversees the implementation of initiatives to promote diversity and inclusion across the business. 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: Measures previously established Measures established in 2021 • Adoption of 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 Senior Executive: 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 where possible. • We have an established Talent Development Programme which, amongst other things, is designed to create strong internal succession wherever appropriate. • Given the nature of our business, measures were already in place ahead of the Covid-19 outbreak to facilitate remote working. This was codified into a new Hybrid Working policy and a Core Business in Core Hours policy, which recognise the benefits of different working patterns and practices to accommodate the different personal commitments of our employees. These policies open up roles to a wider range of internal and external candidates regardless of their personal circumstances. They are accompanied by hybrid working training for all employees, as well as a risk assessment to ensure our staff are fully supported in working remotely. • We have substantially enhanced our maternity, adoption and paternity leave and pay policies. We are proud of our progressive stance in this area. • We launched an Employee Assistance Scheme to improve our employee wellbeing offer, which was particularly important during the pandemic lockdowns and continues to offer support. • We introduced diversity and inclusion training for • Five of our employees (5.1%) work part-time, whether that be a all employees. reduced number of days or reduced hours every day. 106 Harworth Group plcGovernanceAssessing the diversity of our workforce For consistency, where comparisons are given between 2021 and 2020, in each case the position reflected is at 31 December. Board Gender balance GB 2020 2020 GB 2021 2021 Senior Executive Team Gender balance GB 2020 2020 GB 2021 2021 4 5 4 5 2 2 3 2 Female Male Female Male Ethnic diversity balance Ethnic diversity balance 2021EDB 2021 0 2021EDB 2021 0 9 5 White Ethnic minority White Ethnic minority Investment Committee Gender balance GB 2020 2020 GB 2021 2021 Ethnic diversity balance 2 2 7 7 2021 EDB 2021 0* 9 Female Male White Ethnic minority *In January 2022 our new Head of Strategy, Investment and Business Development, who is from an ethnic minority group, joined the Investment Committee 107 Annual Report and Financial Statements 2021GovernanceNomination Committee Report continued Group Leadership Committee* Gender balance GB 2020 2020 2021 GB 2021 Wider workforce† Gender balance GB 2020 2020 2021 GB 2021 4 5 13 13 19 37 28 42 Ethnic diversity balance 2020 Female Male Female Male Ethnic diversity balance 2021EDB 2021 0** 18 2021EDB 2021 3 67 White Ethnic minority White Ethnic minority *The 2020 comparison is with the previous Management Board which was replaced by the Group Leadership Committee ** In January 2022 our new Head of Strategy, Investment and Business Development and Head of Legal, who are both from ethnic minority groups, joined the Group Leadership Committee †Excludes the Group Leadership Committee. Recruitment into new roles 6 White 14 10 Ethnic minority 2 Female Male Promotions Female Male 6 7 White Ethnic minority 0 Recruitment into replacement roles Female 4 White Male 2 Ethnic minority 0 108 13 6 Harworth Group plcGovernanceGovernance Gender diversity Equal opportunities for all We are pleased to have achieved gender balance on the Board and, whilst the addition of a male Chief Investment Officer has impacted our previous gender balance across the Senior Executive, we are proud that our business is led by female Executive Directors, demonstrating our commitment to gender representation at the most senior level. Nevertheless, we recognise that more work is needed to accelerate gender rebalancing across the wider Group Leadership Committee and workforce. We are hopeful that the examples set by our Chief Executive and Chief Financial Officer 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. Since Harworth’s formation in 2012 we have been committed to creating a working environment that is free from discrimination, harassment and victimisation, where everyone feels valued and respected. This includes: • promoting equality and fairness for all in our employment; • making reasonable adjustments for disabled employees and giving full and fair consideration to disabled applicants for roles in our business; and • providing equal opportunities for continuing professional development and promotion within our business to any disabled employees. Ethnic diversity Annual General Meeting We are also mindful that, whilst we have made a start with regard to ethnic diversity in the business, including on the Group Leadership Committee, we have much further to go in this regard. This is our first year reporting on the ethnic diversity split in the business, and with a new people strategy to support the business strategy and the Committee’s continued oversight of diversity and inclusion, we hope to improve the figures year on year. 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. All Directors are subject to annual re-election by shareholders. The Directors’ biographies appear on pages 82 to 85. The Committee has concluded that all Directors seeking re-election continue to be effective and to demonstrate commitment to their role. They have the requisite skills, knowledge and experience to continue to discharge their duties effectively. The Board considers that each Director provides valuable input to the operation of the Board and that their contribution is important to the Company’s long-term sustainable success, bringing a diverse range of skills from different sectors and experience. As such, on the recommendation of the Committee, the Board considers it appropriate to propose the re-election of all Directors at the AGM to be held on 24 May 2022. I will be available at the meeting to respond to any questions or discuss matters relating to the Committee’s activities. ALASTAIR LYONS Chair of the Nomination Committee 21 March 2022 109 Annual Report and Financial Statements 2021 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/ Dear Shareholder, I am pleased to report to shareholders on the work of the Audit Committee during the year ended 31 December 2021. The report sets out the Committee’s responsibilities and highlights its activities during 2021 and its priorities for 2022. The Committee’s terms of reference, which were reviewed and updated during the period, are available on the Company’s website. Throughout 2021 the Committee acted in accordance with the principles of, and fulfilled its obligations under, the 2018 Code and had regard to the FRC’s Guidance on Audit Committees. Membership and meetings There were no changes to Committee membership, which continued to comprise three Non-Executive Directors: I chaired the Committee, and its other members were Ruth Cooke and Lisa Scenna. The experience of each member of the Committee is summarised on pages 83 to 84. The Board is satisfied that I have recent and relevant financial experience. In November 2021, I was appointed Chair of the Audit Committee of Pantheon Infrastructure PLC, an investment trust focused on international infrastructure assets. I was previously Chair of the Audit and Risk Committee of Calisen plc, which was then a constituent of the FTSE 250, as well as 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 Officer of a business operating in the real estate sector. The Chief Executive, Chief Financial Officer and external auditors normally attend Committee meetings. The Chair of the Board and other members of senior management are also invited to attend, as appropriate. In September 2021, Kitty Patmore, Chief Financial Officer, took maternity leave. As Chair of the Audit Committee, I worked with the Nomination Committee on the recruitment and appointment of Nigel Turner as Interim Chief Financial Officer. In performing its duties, the Committee has access to the services of the General Counsel & Company Secretary and, if required, external professional advisers. During 2021, there were five scheduled meetings of the Committee. Membership and attendance at meetings in 2021 are shown below: Independent Committee tenure at 31 December 2021 Meetings attended/ eligible to attend Patrick O’Donnell Bourke Ruth Cooke Lisa Scenna Chair Member Member Yes Yes Yes 1 year 2 months 2 years 10 months 1 year 2 months 5/5 5/5 5/5 110 Harworth Group plcGovernance The key activities of the Committee during 2021 and its priorities for 2022 are shown below: The Committee’s key activities in 2021 February Initial review of going concern analysis Review of valuations Review of movements in provisions Draft of 2020 preliminary results Forward-looking Committee timetable June 2020 audit de-brief and review of auditor’s appointment (without auditor present) Areas of focus for 2021 interim results Annual review of appointments of valuers and appointment of valuer for half-year opinion on Directors’ valuation Update on risk management system changes Briefing on BEIS consultation proposals for UK audit reform Bi-annual review of cyber and information security activities and workstreams for remainder of year Approval of new auditor of subsidiary management company accounts Forward-looking Committee timetable November Planning for 2021 external audit Risk and assurance map and further assurance programme 2022 insurance programme renewal Update on preparation of Treasury Policy Bi-annual review of cyber and information security activities and workstreams for H1 2022 Report on annual test of IT Disaster Recovery Plan Annual review of GDPR compliance Annual review of Committee’s terms of reference Forward-looking Committee timetable Committee CPD seminar March Updated going concern analysis 2020 preliminary results and recommendation to the Board 2020 Annual Report and Financial Statements External audit of 2020 accounts Proposals to update risk management system Review of whistleblowing reports Forward-looking Committee timetable September Feedback from external auditor (without management present) Going concern analysis Review of valuations Review of movements in provisions at the half-year External auditor’s report on 2021 interim results 2021 interim results and recommendation to the Board Forward-looking Committee timetable Key Committee Governance Financial Reporting External Audit Risk and Internal Controls 111 Annual Report and Financial Statements 2021Governance Audit Committee Report continued As part of the Committee’s review of the Annual Report, it reviews disclosures relating to climate change, including for SECR and TCFD reporting. The Committee reviews the controls in place to ensure the completeness and accuracy of the Company’s financial records. As part of this, as in previous years, for the 2021 results the Committee noted (i) the reviews undertaken during preparation of the Annual Report and Financial Statements by various internal and external 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 annually independently of management, 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. As part of the Committee’s review of the Group’s material internal controls (see page 115), it has considered, concluded, and recommended to the Board that the disclosures, and the process and controls underlying the production of the 2021 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 154. The Committee’s priorities for 2022 • Review reporting of 2021 results and 2022 interim results including going concern and viability analysis and significant financial judgements by management • Oversee and appraise external audit undertaken by Ernst & Young LLP (EY) • Oversee implementation and progression of the Group Risk and Assurance Map and rolling programme of further assurance to inform the Committee’s assessment of the effectiveness of the Group’s internal controls framework • Oversee the 2023 insurance programme renewal • Monitor the maturity of the Group’s cyber and information security systems, including GDPR compliance • Review the appointment of the Group’s valuers and consider tender process for valuation of all or part of portfolio • Review Treasury Policy for recommendation to the Board • Review and approve updates to tax strategy and policies • Oversee review of and implementation of changes to Business Continuity Plan Financial reporting In June each year, the Committee reviews the plan and timetable for the procedures the external auditor will undertake in respect of the interim results. This includes acceleration of some year-end audit work. In September and/or November each year, the Committee examines the full year-end external audit plan and timetable before detailed audit work commences. Ahead of the interim and full-year 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 fair and balanced and provides an understandable assessment of the Company’s position and prospects. Reports from management include a detailed explanation of valuation assumptions and movements, commentary on provisions, and analysis of movements in the balance sheet and cash position. The Committee Chair also attends the year-end valuations review meeting in conjunction with the Company’s valuers, external auditors and management team. The valuers attend Committee meetings ahead of publication of the interim and full-year results to explain valuation methodology and processes, comment on market conditions, and take questions from Committee members. The Committee reviews the long-term viability and going concern assessments prepared by management and the Directors’ responsibilities statements (including the assumptions underpinning them) and recommends to the Board their adoption. 112 Harworth Group plcGovernanceGoing Concern and Viability These are addressed in the Long-Term Viability Statement (pages 41 to 43) and the Statement of Directors’ Responsibilities (pages 154 to 155), and also in the Notes to the Financial Statements (page 174). Management prepared forecasts on several bases: a base case; a sensitised forecast that reflected a number of severe but plausible downsides; and for the first time a specific climate change scenario case was included. 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 disclosed and concurs with their use but has encouraged the management team to keep reviewing the way in which APMs are set out in the Company’s financial reporting versus statutory measures. Significant reporting issues considered by the Committee for the 2021 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. Whilst 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 and availability of comparable sales evidence; f. anticipated risk of delivery of a site’s masterplan; and g. costs to bring sites forward. The valuation of the Group’s property portfolio lies at the core of its financial reporting and the Committee has a particular duty to ensure it is reported in a fair, balanced and understandable manner. At both the half-year and the year-end, 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. 113 Annual Report and Financial Statements 2021GovernanceAudit Committee Report continued Whilst EY audits the accounts of the main subsidiary entities in addition to those of the Company and the Group consolidation, in June 2021 the Committee approved the appointment of BHP, a regional chartered accountancy firm, to audit the accounts of certain Group management companies. The management team has experience of BHP as it already undertakes the audit of several of the Group’s joint venture companies. EY was consulted and supported BHP’s appointment. During 2021 an exercise was undertaken to simplify the Group’s corporate structure pursuant to which five subsidiaries entered members’ voluntary liquidation and two further subsidiaries commenced strike-off proceedings at Companies House. These were long-standing dormant subsidiaries which had not traded since before Harworth separated from UK Coal in 2012. EY was consulted prior to this exercise starting. Analysis of Audit and Non-Audit Fees Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 PwC EY Audit fees Fees payable to the external auditor and its associates for the audit of: • The Company and the consolidated financial statements • The Company’s subsidiaries pursuant to legislation Non-audit fees Fees payable to the external auditor and its associates for other services 315 289 30 60 – – – 345 – 85 434 External audit The Committee is responsible for making recommendations to the Board on the appointment, reappointment and removal of the external auditor. Following a tender process undertaken by the Committee in 2019, details of which were included in the 2019 Annual Report, EY was appointed as the Company’s external auditor by shareholders at the 2020 AGM. The external auditor’s appointment is subject to annual review by the Committee, the last of which took place in June 2021 at the same time as the Committee reviewed the effectiveness of the 2020 year-end audit. Having reviewed: • • • • • • the independence and objectivity of the external auditor, including consideration of potential conflicts of interest and of the non-audit work undertaken for the Company (for 2021 see analysis below); the effectiveness of the last external audit; the quality control processes that the external auditor has in place, including any regulator’s public comments on the same; the quality of the audit team, including the experience of the audit partner and team and its capacity; the proposed scope of the audit; and the quantum of fees payable for the audit (see further analysis below), the Committee is recommending the re-appointment of EY at the forthcoming AGM for the external audit of the Company’s financial statements for the year ending 31 December 2022. The Board recognises the importance of safeguarding auditor objectivity and takes the following steps to ensure that auditor independence is not compromised: • • • • the Committee reviews the audit appointment annually; the Company has a policy that, save for audit-related services (such as regulatory and statutory reporting, and work relating to circulars) and exceptional circumstances (but only with the Committee’s prior approval), the external auditor will not provide non-audit services to the Group; the Group retains Deloitte to provide advice and assistance on most tax matters and pension accounting. KPMG is retained to advise on tax matters relating to some of the Group’s joint venture agreements; the Committee reviews on a regular basis all fees paid for both audit and non-audit activity, with a view to assessing the reasonableness of fees, value of delivery, and any independence issues that may have arisen or may potentially arise in the future. An analysis of all audit and non-audit fees paid in 2021 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. 114 Harworth Group plcGovernanceRisk management and internal controls Risk and internal controls framework At the beginning of the year management undertook a comprehensive review of the Group’s risk management and internal controls systems with the assistance of external consultants, Board Alchemy. With oversight from the Committee and the Board, significant work was carried out to further improve the Group’s risk management system. This is explained in detail in the risk report on pages 70 to 77, including the work undertaken by the Board to review the Group’s principal risks, the Directors’ appetite for each of those risks, and the adequacy of the measures in place to mitigate them, all informed by the Group’s growth strategy. As the risk report outlines, the Group Risk Register has been replaced by a Group Risk and Assurance Map (GRAM): a register of the Group’s principal and operational risks grouped into 10 risk categories each with a series of sub-risks. Each sub-risk has its own risk and assurance map which identifies internal risk owners and “champions” and incorporates commentary on the risk, risk scores, mitigation measures, key risk indicators, established Board assurance activity and management’s proposals for further assurance activity. Those proposals form the basis for a 36-month rolling programme of further assurance (Further Assurance Programme). The Audit Committee has overseen the formation of the GRAM and approved the first iteration of the Further Assurance Programme. At an operational level, the GRAM is monitored by the Group Leadership Committee. The overall risk profile of the business is reviewed monthly and risk owners lead risk workshops on individual risk categories throughout the year. The Committee reviews the GRAM biannually as part of its assessment of the effectiveness of the Group’s internal control framework. When reviewing the GRAM, the Committee focuses on the measures management have implemented and/or are planning to mitigate each risk and the adequacy of the assurance afforded to the Board to determine the effectiveness of those measures. For each risk, there is a residual risk score, reflecting the status of each risk after mitigation, and an assurance score. The Committee tests the veracity of those scores at each review and may require management to implement additional controls and/or offer more assurance to the Board for certain risks. The residual risk and assurance scores from the Committee’s latest review, in February 2022, are shown in dashboard format on the following page. The GRAM informs the Further Assurance Programme, which replaces the in-year assurance activities management have undertaken in the past and affords a more structured approach to further assurance. Going forward, the Committee will review the Further Assurance Programme in November each year and approve further assurance activity for the following 12 months. However, the programme will remain flexible to changing assurance needs during the year. Outputs from further assurance activity will be reported to the Committee throughout the year. Whilst the Further Assurance Programme was not established until early 2022, some further assurance activity was undertaken in 2021, largely to support the strategy update exercise described in the CEO’s review. For example, investor and stakeholder perception studies were undertaken, and there was an external assessment of organisational design, recruitment, retention and reward. During 2022, further assurance activity will focus on the acquisitions process, planning strategies, supplier procurement and monitoring and data access. Implementation of the Further Assurance Programme would ordinarily be led by an internal audit function. The Company does not currently have an internal audit function, but this is reviewed annually by the Committee. The Committee undertook its last review in February 2022 and, going forward, this will be scheduled to coincide with, and be informed by, the Committee’s review of the forward-looking Further Assurance Programme in November each year. Previously, the Committee had taken the view that the structure of, and processes within, the business were neither sufficiently large, nor complex, to merit a separate internal audit function. At its last review, the Committee acknowledged that the increase in pace and scale of activity needed to deliver the strategy accelerated the need for such a function and management will undertake a review to determine the most effective means of resourcing an internal audit function. Ahead of publication of the year-end results and Annual Report, management presents a detailed assessment of the effectiveness of the Group’s principal financial, operational and compliance controls, which is supported by data on key risk indicators and a wider review of the latest iteration of the GRAM. The Committee is satisfied that the risk management and internal controls systems in place, and the assurance regime for the same, are effective to support delivery of the Group’s strategy. Informed by the Committee’s recommendation, the Board’s assessment of the effectiveness of those systems can be found on page 70. 115 Annual Report and Financial Statements 2021GovernanceAudit Committee Report continued Key Principal risk identified by the Board Residual risk Very low Low Medium High Very high Risk and Assurance Map Dashboard Assurance level Sufficient Board assurance activity Room for improvement in level of Board assurance activity but not of concern Insufficient Board assurance activity and should be reviewed as a matter of priority Residual risk Board assurance level Acquisitions a. Availability of and competition for strategic sites b. Acquisitions due diligence Project Delivery a. Planning b. Supply chain cost inflation and constraint c. Supply chain and delivery partner management (counter-party risk) d. Asset management (Investment Portfolio) Statutory costs of development e. Markets a. Residential and commercial markets b. Emerging markets People a. Resourcing b. c. d. Culture and diversity Succession Employee communication and engagement Finance a. Availability of appropriate capital b. Liquidity Safety and compliance a. Health and safety b. c. d. e. Environmental management Estates management Insurance Regulatory compliance (excluding health and safety and environmental) Climate change a. Physical impact of climate change b. Managing climate change transition Systems and information resources a. Cyber security b. Data management and information security c. IT systems Governance Board and Committee governance Financial reporting governance a. b. c. Operational governance d. Business continuity Stakeholders Investor relations Stakeholder engagement and management a. b. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 116 H M H M M M M M M M M L M L L L L M M L L M L M L M M M M M M Harworth Group plcGovernanceBusiness continuity 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 2021 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. I will be available at the AGM to respond to any questions or discuss matters relating to the Committee’s activities. PATRICK O’DONNELL BOURKE Chair of the Audit Committee 21 March 2022 The Group’s Business Continuity Plan (BCP) proved to be fit for purpose in the Group’s immediate response in early 2020 to the Covid-19 restrictions. The BCP was reviewed in 2021 and will be reviewed again during the first half of 2022. A test of the Group’s IT Disaster Recovery Plan was undertaken successfully, and the results presented to the Committee, in the second half of 2021. Insurance Last year involved a very challenging 2021 insurance renewal, largely attributable to insurance market conditions, which led to markedly higher pricing, increases in excesses on certain sites and some deterioration in the scope of certain aspects of cover. During the year, Willis Towers Watson were appointed to replace Lockton Group as the Group’s insurance brokers and undertook a comprehensive exercise to remarket the property insurance programme to insurers. Despite insurance marketing conditions remaining broadly unchanged, if not tightening, this exercise has resulted in some improvements in the Group’s pricing and cover for the 2022 renewal. The Committee monitored this process and challenged management both on the overall programme and on individual aspects of the renewal. Whistleblowing 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 2021. The Committee undertook its annual review of the policy and procedures in March and approved the introduction of an external “Speak Up” platform to supplement the Group’s existing internal reporting mechanisms. This new platform is already live and offers employees and external stakeholders another means of reporting concerns (on a confidential basis if preferred). 117 Annual Report and Financial Statements 2021GovernanceESG Committee Report Committee members Angela Bromfield (Chair) Alastair Lyons Martyn Bowes Lynda Shillaw Kitty Patmore The terms of reference of the Environmental, Social and Governance (ESG) Committee are on the Company’s website: https://harworthgroup. com/investors/governance/ Dear Shareholder, I am pleased to report to shareholders on the work of the Environmental, Social and Governance (ESG) Committee during the year ended 31 December 2021. This report sets out the Committee’s activities since it was established in April 2021 and its priorities for 2022. The ESG Committee was established to provide oversight of and guidance on the Group’s ESG strategy, practices and reporting. Given its underlying purpose to transform land and property into sustainable places where people want to live and work, Harworth has a long-standing approach to ESG and an ongoing commitment to sustainability which is embedded in all elements of the Group’s activities. This is articulated in the five pillars of the Harworth Way; see further on pages 10 to 11. During 2021, the Committee oversaw the evolution of several elements of the Harworth’s ESG framework, including the development of targets and Harworth’s outline approach to Net Zero Carbon. The Committee will continue to focus on these areas in 2022. Membership and meetings I chair the Committee, and its other members are Alastair Lyons, Lynda Shillaw, Kitty Patmore and Martyn Bowes. The Committee meets at least quarterly and meetings are also attended by an independent external ESG consultant. There were four Committee meetings held during the year and membership and attendance at those meetings is shown below: Independent Committee tenure at 31 December 2021 Scheduled meetings attended/eligible to attend Angela Bromfield Alastair Lyons Martyn Bowes Lynda Shillaw Kitty Patmore1 Chair Member Member Member Member Yes Yes No No No 9 months 9 months 9 months 9 months 9 months 4/4 4/4 3/4 4/4 2/4 1 Kitty Patmore went on maternity leave at the start of October 2021. Nigel Turner attended Committee meetings as Interim Chief Financial Officer but was not formally appointed to the Committee. 118 Harworth Group plcGovernance2021 Key Activities During the year, the Committee: • Established its terms of reference, which also received Board 2022 Priorities The Committee’s priorities for 2022 include working with the Senior Executive, Director of Sustainability and wider business to: approval. • Ensure alignment between our ESG commitments and the • Reviewed key external ESG frameworks and principles and Group strategy. Harworth’s alignment with them. For example, we considered the UN Sustainable Development Goals (SDGs) and resolved to use six principal SDGs in our reporting as they were most closely aligned to our strategy and operations, and relate to areas where we believe we can make the biggest impact as a business; see page 11. • Reviewed investor feedback and comments on ESG following the interim results announcement. • Reviewed Harworth’s approach, in terms of both challenges and opportunities, to Net Zero Carbon. We have made a commitment to reaching Net Zero Carbon on Scope 1, Scope 2 and some Scope 3 emissions by 2030, and on the balance of Scope 3 emissions by 2040, as well as detailing some of the work that is already underway, on page 56. • Reviewed Harworth’s core ESG impact areas. Our progress to date in these areas and plans for 2022 and beyond are set out on pages 48 to 51. • Reviewed and approved the Group’s first Task force on Climate- related Financial Disclosures (TCFD), set out on pages 65 to 69. • Continue to determine measurable targets across the three impact pillars of the Harworth Way, with a focus on addressing Harworth’s medium and longer term ESG impact. • Implement the measures identified to make further progress on our core impact areas. The Committee will oversee the assessment and monitoring of these measures. • Develop Harworth’s Transformation to Net Zero which will detail our pathway to transitioning our business and portfolio to Net Zero Carbon. • Develop further our TCFD disclosures through enhancing the breadth and depth of our environmental data collection, enabling us to provide a more comprehensive and quantitative assessment of our climate-related risks and opportunities. I will be available at the AGM to respond to any questions or discuss matters relating to the Committee’s activities. ANGELA BROMFIELD Chair of the ESG Committee 21 March 2022 119 Annual Report and Financial Statements 2021Governance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/ Dear Shareholder, On behalf of the Board, I am pleased to present the Directors’ Remuneration Report for the year ended 31 December 2021. The report includes: • my Annual Statement as Chair of the Remuneration Committee; • • the new Directors’ Remuneration Policy (the Policy). This sets out the policy intended to apply for the three years from 2022 and is subject to a binding shareholder vote at the 2022 AGM; and the Annual Report on Remuneration. This outlines how we implemented our current policy in 2021 and how we intend to apply the new Policy in 2022. This is subject to an advisory vote by shareholders. Performance outcomes for 2021 Harworth has delivered a year of exceptional financial and operational performance against a backdrop of continued economic uncertainty. This is testament to the proactive management and leadership of the Senior Executive Team and the commitment of all our people. Highlights of the Company’s financial and operational performance in 2021 are set out on page 1 of the Strategic Report. The Group has made strong progress against the ambitious growth strategy that was announced during the year by Lynda Shillaw, our Chief Executive, following a rigorous strategic review by the Senior Executive Team, with support from the Board. Our ambition is to double the size of the business, from an EPRA NDV of £516m at the end of 2020 to in excess of £1 billion over five to seven years by continuing to deliver places where people want to live and work. Over the last 12 months our performance, combined with underlying market growth, has translated into a substantial year-on- year increase in EPRA NDV (+23.5%) and a Total Return of +24.6%. 120 Priorities for 2022: • Consult with major shareholders on the 2022 Remuneration Policy and, if approved, ensure the Policy is effectively implemented. • Ensure our ESG goals continue to be appropriately reflected in our reward framework. • Operation of 2022 annual bonus, including setting targets. • Grant of 2022 Restricted Share Plan awards. • Approve grant of options for SAYE plan and Share Incentive Plan awards. Lynda Shillaw’s and Kitty Patmore’s bonus opportunity for 2021 was 100% of salary based on a combination of financial measures (75% of the opportunity), an ESG measure (5% of the opportunity) and personal objectives (20% of the opportunity). Taking into account performance against these measures, the Committee approved a bonus outcome equal to 90.5% of salary for each of Lynda Shillaw and Kitty Patmore (in each case equivalent to 90.5% of the maximum opportunity). Full details are set out on pages 141 to 143. 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 employee experience. The Committee had regard to the following in particular: • The Company’s Total Return was 24.6% and Total Shareholder Return was up by 73% between the start and end of 2021. Harworth Group plcGovernance• Over the course of 2020 and 2021, the Company did not utilise furlough, or any other Government support schemes (with the exception of the opportunity to defer VAT payments which was repaid in 2020). No employees were furloughed or made redundant as a result of Covid-19 during 2020 or 2021. turn, the quality of our executive leadership is key to our people being successful. To achieve our strategic ambitions, and deliver the operational performance that creates our desired returns, we need to attract and retain the appropriate calibre of staff and ensure their strong alignment with the interests of our shareholders. • The average bonus outcome for eligible employees was 88% of their maximum entitlement. The first tranche of the 2019 Restricted Share Plan (RSP) award vested in full in March 2022. The current Executive Directors did not participate in the 2019 RSP award, given that the award was granted prior to their joining the business. Policy review Our current Directors’ Remuneration Policy was approved at the 2019 AGM (with over 99% votes cast in favour) and is approaching the end of its three-year term. The Committee has, therefore, undertaken a review of the remuneration framework for the Executive Directors, senior leadership team and wider workforce to ensure that it supports the Group’s long-term strategic ambitions and is competitively positioned. In undertaking this review, the Committee has kept in mind the Group’s core reward principles detailed on page 127 as well as the factors in Provision 40 of the 2018 UK Corporate Governance Code (see page 138). The current incentive structure (annual bonus and RSP) has been successful in incentivising the Executive Directors and senior leadership team to create value by delivering strong and sustainable returns and growth in the scale of the business. The Committee, therefore, considers it appropriate to continue with a broadly similar approach to the current framework. It is proposed to retain the RSP, which received very strong support from shareholders at the 2019 AGM, and reflects our core principle of rewarding long-term value creation in a cyclical business. Our people are at the heart and centre of everything we achieve. It is they who identify our strategic development opportunities, create master plans, negotiate with relevant stakeholders, project manage delivery, and then determine optimal exit strategies. In As disclosed in last year’s Directors’ Remuneration Report, following a comprehensive talent review a significant number of our below Board workforce received career progression and promotional pay rises at the start of 2021, in some cases to align their pay with market rates. The competition for talent across the real estate sector has strengthened over the last 12 months, resulting in further upwards movement in market rates. In response, we have undertaken another review of the salaries we pay, resulting in some further rises to reflect that movement. Those increases took effect at the start of 2022, alongside a pay increase applied for all employees to mitigate the impact of steep inflation. As part of the Policy review, the Committee carried out a benchmarking exercise to assess the market competitive positioning of the Executive Directors’ remuneration against both FTSE SmallCap companies of a similar size and complexity and real estate peers. The pan-sector comparator group was made up of FTSE SmallCap companies (excluding financial services companies) which operate predominantly in the UK. The real estate comparator group consisted of real estate peers with a market capitalisation of less than £1bn (Palace Capital; U & I; Empiric Student Property, Inland Homes, McKay Securities, Capital & Regional, Urban & Civic, Henry Boot, New River, Helical Bar). The key findings were as follows: • Chief Executive: Lynda Shillaw’s salary is currently positioned between the lower end and mid-point of the market competitive range and her total target compensation is positioned towards the lower end of the market competitive range. • Chief Financial Officer: Kitty Patmore’s salary and total target compensation is positioned at the lower end of the market competitive range. 121 Annual Report and Financial Statements 2021GovernanceDirectors’ Remuneration Report continued In the context of needing to attract, retain, and incentivise talented and experienced individuals in a highly specialised and very active sector, and taking into account the outcome of the benchmarking exercise, the Committee proposed a number of changes which are summarised below. The Committee consulted with 13 major shareholders (representing at that time approximately 87% of the Company’s issued share capital) and three proxy voting agencies. I am pleased to report that a substantial majority of shareholders consulted were supportive of the proposed changes. Responding to the feedback received, the Committee has at the same time strengthened the post- employment shareholding guidelines that apply to Executive Directors as set out below. Current Policy Proposed approach under new Policy Annual bonus Maximum opportunity Normal maximum opportunity of 100% of salary, with discretion to award up to 150% of salary in exceptional circumstances. No deferral. Mandatory bonus deferral into Harworth shares Performance measures At least 75% of the bonus is based on financial measures, with the remainder based on strategic and/or personal measures. Increase normal maximum opportunity to 150% of salary. It is intended that the increase will be implemented in stages as set out below subject to the performance of both the Executive Directors and the Group. 2022 2023 2024 Lynda Shillaw 125% of salary 150% of salary 150% of salary Kitty Patmore 100% of salary 125% of salary 125% of salary Rationale: To deliver greater reward for more stretching performance aligned with the Group’s strategic growth ambition, and having regard to the market competitiveness of the current approach. Deferral will be introduced in line with any increase in bonus opportunity as illustrated below. 2022 20% of amount earned deferred Lynda Shillaw Kitty Patmore No deferral 2023 33% of amount earned deferred 20% of amount earned deferred 2024 33% of amount earned deferred 20% of amount earned deferred Bonus deferral will be into Harworth shares with a two-year deferral period. Rationale: Supports good governance and further aligns Executive Directors with shareholders. At least 50% of the bonus will be based on financial measures. The remainder will be subject to specific strategic and personal measures, with no more than 20% of the bonus based on personal measures. Rationale: To ensure there is sufficient flexibility over the Policy’s three-year term to select performance measures which align with the Group’s financial and strategic priorities and ESG commitments. 122 Harworth Group plcGovernanceCurrent Policy Proposed approach under new Policy RSP Maximum opportunity Normal maximum opportunity of 50% of salary, with discretion to award up to 100% of salary in exceptional circumstances. The maximum number of shares that may be granted is based on the market value of a share on the date of grant. Increase the normal RSP opportunity from 50% to 75% of salary with effect from 2022. For the current Executive Directors, the maximum number of shares that may be granted in respect of 2022, 2023 and 2024 will be based on the market value of a share following the announcement of the Company’s results for 2021 (the “2022 Price”). The intention is that the 2022 Price will be determined on the same basis as if the award for 2022 had been granted in the normal course in the 42-day window following the announcement of the Company’s results (rather than following the AGM). A cap and collar will apply in respect of the 2023 and 2024 awards. The cap and collar will apply if the market value of a share at the time of grant is greater than 1.5 times the 2022 Price or less than 0.5 times the 2022 Price. In other words, the face value of the 2023 and 2024 awards (when calculated by reference to the market value of a share at the time of grant) may not exceed 112.5% of salary (1.5x 75% of salary) or be less than 37.5% of salary (0.5x 75% of salary). This is in order to mitigate exceptional movements in the share price having a disproportionate impact on the overall incentive opportunity. Rationale: To increase the weighting of the Executive Directors’ total reward package towards long-term value creation, and to have regard to the market competitiveness of the current approach. Granting awards based on a fixed share price further aligns Executive Directors and below Board participants with shareholders and the Group’s growth aspirations, rewarding share price appreciation whilst depreciation is penalised. Continue with the current approach. Rationale: The current approach appropriately supports long- term stewardship, aligns the Executive Directors and below Board participants with the long-term interests of shareholders, and is aligned with the Investment Association’s published guidance. Continue with the current approach. Rationale: Supports good governance and is aligned with best practice principles. 123 Time horizons The total time horizon between grant and the end of the holding period is five years. Specific performance underpins Awards vest in three equal tranches after three, four and five years. Holding periods apply to each tranche such that no shares can be sold until after five years post grant. Vesting of each tranche is subject to specific 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. Annual Report and Financial Statements 2021GovernanceDirectors’ Remuneration Report continued Current Policy Proposed approach under new Policy Governance In-employment shareholding guidelines Shareholding guidelines are in place that require Executive Directors to acquire a holding equivalent to 200% of base salary Post- employment shareholding guidelines For the first 12 months following cessation, an Executive Director must retain shares with a value (as at cessation) of 100% of base salary with that requirement tapering down to 0% over the following 12 months; or in either case and if fewer, all of the shares held as at cessation. Continue with the current approach. Rationale: Aligns Executive Directors’ interests with shareholders through building up a significant shareholding in the Company Strengthen the post-employment shareholding guidelines such that for the first 12 months following cessation, an Executive Director must retain shares with a value (as at cessation) of 200% of base salary with that requirement tapering down to 0% over the following 12 months; or in either case and if fewer, all of the shares held as at cessation. Rationale: Further promotes long-term stewardship. • We anticipate the business continuing to grow in scale, as well as complexity, over the next five to seven years based on the Group’s growth ambitions. The Committee strongly believes that these changes are in the best interests of shareholders, noting the following points in particular: • We take pride in our exceptional executive leadership team – it is the key to our success and it is, therefore, essential that we retain the team over the next three years as the business itself develops in both scale and complexity. • Pay differentials between Executive Directors and below Board levels are a key consideration when setting salaries and incentive opportunities for senior leadership roles. It is, therefore, important that remuneration is appropriately positioned at Executive Director level, so that we can attract, retain and motivate high calibre individuals at senior leadership level. 124 Harworth Group plcGovernanceSalary increase for the Chief Financial Officer for 2022 When Kitty Patmore was appointed in 2019 her salary reflected that she was new to the role of Chief Financial Officer in a premium listed business, but the Committee resolved to increase it over time if she performed well in the role. further increases above those granted to the wider workforce for the duration of the Policy period. The Committee strongly believes that this change is in line with the principles of the Group’s talent development programme and reflects Harworth’s broader commitment to diversity, equality and fairness, ensuring that individuals are appropriately rewarded on the basis of role, experience and performance. As disclosed in last year’s Directors’ Remuneration Report, the Committee increased Kitty Patmore’s salary from £200,000 to £250,000 with effect from 1 January 2021. This followed an incredibly strong first year in role and signalled the Committee’s intention to align Kitty Patmore’s reward package with the market. At the time, I explained in my letter to shareholders that the Committee had been very mindful of the ongoing challenging environment and had not, therefore, sought to address that Kitty Patmore’s salary and total compensation opportunity were still, after the salary increase, positioned towards the bottom end of the market competitive range when compared to both other FTSE SmallCap listed companies of a similar size and complexity and other real estate peer companies. I reported that the Committee would therefore continue to keep Kitty Patmore’s remuneration under review over the following few years, taking into account her performance in role and the wider performance of the Group. Kitty has continued to perform exceptionally well. She has transformed the quality of the Group’s financial forecasting and reporting and her input into the strategy work was invaluable. She has worked very closely with our new Chief Executive, Lynda Shillaw, to reposition the business with current and prospective investors. During the pandemic she negotiated significant headroom into our senior debt facility before, at the start of this year, refinancing it into a new £200m revolving credit facility on improved terms. Kitty has also led the evolution and communication of Harworth’s ESG strategy and data collection. She has a great reputation across the industry and her skillset and experience make her an attractive executive prospect in an active and buoyant market. After careful reflection and consulting with the Group’s major shareholders, the Committee determined that Kitty Patmore’s salary should be increased from £250,000 to £310,000 (24%). The increase will formally take effect following the 2022 AGM and will be backdated to 1 January 2022. We are pleased that those shareholders who were consulted are generally supportive of the proposed increase. Some shareholders asked whether the Committee had considered awarding the increase over two years. As noted above, absent the ongoing challenging environment, the Committee would have fully addressed the market competitiveness of Kitty Patmore’s salary and total compensation positioning last year. Implemented over a two-year period, the base salary increase last year, together with the base salary and RSP award increases for 2022, have resulted in her salary and total compensation opportunity now being aligned with the market. The Committee does not anticipate making Impact of changes on total compensation The Committee is very mindful of the impact of the proposed salary and incentive opportunity increases on the value of the Executive Directors’ total reward package. It considers these to be appropriate, and in the best interests of shareholders, as the proposed increases in annual bonus and RSP opportunity align Lynda Shillaw’s total compensation opportunity with the current market, whilst the 2022 salary increase aligns Kitty Patmore’s salary and total compensation opportunity (taking into account the proposed phased increases in annual bonus and RSP opportunity) with the market. Review of reward for the wider workforce All of our people contribute to the achievement of the Group’s long-term success. It is, therefore, the Committee’s policy that when making remuneration decisions in respect of the Executive Directors, the reward arrangements for the wider workforce should also be considered. Taking into account the proposed changes to the Executive Directors’ remuneration, and to extend share ownership throughout the Group to further foster stewardship, and alignment with shareholders, the Committee has agreed the following: • RSP participation has been extended – around 50% of our employees will be granted an RSP award in 2022. • RSP opportunity has been increased for all participants, to provide alignment with the proposed increase for the Executive Directors. The increases in RSP awards applied to below Board participants are, in percentage terms, higher than those proposed for the Executive Directors. • The annual value of Free Shares awarded under the all- employee Share Incentive Plan will be increased and the Group also intends to offer Partnership Shares and Matching Shares to employees. This accompanies career progression and promotion pay rises which were awarded to a significant number of colleagues in 2021 and 2022. To further enable and encourage share ownership across the workforce, we operate an all-employee SAYE plan in which over half of our employees participate. 125 Annual Report and Financial Statements 2021GovernanceDirectors’ Remuneration Report continued Implementation of the Policy for 2022 Base salary Lynda Shillaw’s salary was increased from £400,000 to £421,600 (5.4%) with effect from 1 January 2022. This is in line with the average increase for the wider workforce. As set out above, Kitty Patmore’s salary will increase from £250,000 to £310,000 (24%). This increase will formally take effect following the 2022 AGM and will be backdated to 1 January 2022. Performance-related annual bonus The annual bonus opportunity for Lynda Shillaw and Kitty Patmore will be 125% and 100% of salary respectively. The performance measures have been rebalanced compared to 2021, to provide alignment with the key 2022 financial and strategic priorities under the Group’s redefined strategy. 50% of the bonus opportunity will be based on financial measures (Total Accounting Return and acquisitions), 30% of the bonus opportunity will be based on strategic measures (launch of the Build to Rent portfolio and an increase in scale of direct development), 5% of the bonus opportunity will be based on an ESG measure and 15% of the bonus opportunity will be based on personal objectives. See page 147 for further details. Performance targets are considered to be commercially sensitive at this time but the Committee intends that they will be disclosed in the 2022 Annual Remuneration Report. Restricted Share Plan award RSP awards will be granted to Lynda Shillaw and Kitty Patmore at 75% of salary. Vesting will be phased over a five-year period, with one third vesting after three years, one third after four years and one third after five years. All vested shares must be held to the end of year five, resulting in a total time horizon of five years for all three tranches. The RSP awards will be subject to performance specific 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 148 for further details. Chair and Non-Executive Directors The Chair’s and Non-Executive Directors’ base fees will be increased by 5.4% for 2022. This is in line with the average increase for the wider workforce. The fees payable to the Senior Independent Director and Chairs of our Audit and Remuneration Committees have also been reviewed and will increase as set out below. We will also pay a fee to the Chair of our newly formed ESG Committee, also indicated below. These fees reflect the increasing time commitment required in these roles, which is commensurate with the growth in scale and complexity of the business, and the need to attract and retain high quality Non-Executive Directors to support the Senior Executive Team in the delivery of our ambitious strategy. Senior Independent Director Chair of Audit Committee Chair of Remuneration Committee Chair of ESG Committee Fee payable in 2021 Fee payable in 2022 £7,612.50 £8,500.00 £7,612.50 £8,500.00 £7,612.50 £8,500.00 N/A £6,000.00 See page 148 for further details. Conclusion We greatly appreciate the feedback and the level of support we have received from our shareholders regarding our approach to remuneration and the changes outlined above. We are firmly of the view they are in the best interests of the business and its shareholders. 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 respect of the 2021 financial year and consider that the remuneration received by the Executive Directors was appropriate, taking into account the Group’s performance during 2021, their personal performance, and the experience of shareholders and employees. On behalf of the Board, I would like to thank you, our shareholders, for your engagement, and I hope that we will continue to receive your support at the AGM later this year. ANGELA BROMFIELD Chair of the ESG Committee 21 March 2022 126 Harworth Group plcGovernanceDirectors’ remuneration policy Changes to the remuneration policy and summary of decision-making process During 2021, the Committee carried out a comprehensive review of the current remuneration policy. The outcome of the review and changes to the policy are outlined on page pages 121 to 124. In determining the Policy, the Committee followed a robust process which included extended discussion on the content of the Policy at four Committee meetings. The Committee considered input from the Executive Directors and its independent advisers and consulted with major shareholders (representing at that time approximately 87% of the Company’s issued share capital). In undertaking the review, the Committee kept in mind the Group’s core reward principles (set out below) as well as the factors in Provision 40 of the 2018 UK Corporate Governance Code (see page 138). Core reward principles Rewarding long-term value creation in a cyclical business To support the delivery of the Group’s strategic ambition to deliver strong, long-term sustainable growth recognising the extended timeframes of our business model. Fairness and equity Base salaries should be set to be market competitive, reflecting the size and complexity of the business and the calibre and experience of individuals in each role. Retention and motivation To help retain and incentivise a management team with the requisite skills, knowledge and experience to deliver strong, long-term, sustainable growth for shareholders. Supporting stewardship and alignment with shareholders A significant element of the total package should be delivered through the Restricted Share Plan, to reflect our ethos of long-term stewardship and encourage long-term share ownership amongst the Executive Directors and Senior Leadership Team. Simplification and transparency A simple and transparent framework which can be readily cascaded to the wider workforce. This section of the report sets out the Policy for Directors which will be put to a binding shareholder vote at the 2022 AGM. Subject to shareholder approval, the Policy will come into effect from the close of the 2022 AGM. 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 determined in the first quarter of the year and take effect retrospectively from 1 January in that year. 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 executives to build up income on retirement. All Executives are either members of the Group pension scheme or receive a cash pension allowance. Aligned with the contribution rate available to the majority of the wider workforce (currently 10% of salary). None Salary is the only element of remuneration that is pensionable. 127 Annual Report and Financial Statements 2021GovernanceDirectors’ Remuneration Report continued Operation Opportunity Performance metrics Executives receive benefits which consist primarily of the provision of a car allowance, private medial cover and life insurance 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 The monetary value of benefits vary by role and individual circumstances: eligibility and cost are reviewed periodically. The Committee retains the discretion to approve a higher cost in appropriate circumstances (e.g. relocation) or in circumstances where factors outside the Company’s control have changed materially (e.g. increases in insurance premiums). Performance measures, targets and weightings are set at the start of the year. Maximum opportunity of up to 150% of base salary in respect of a financial year. The scheme is based on a combination of financial performance and personal and/or strategic performance objectives. At the end of the year, the Committee determines the extent to which targets have been achieved. If the maximum bonus opportunity exceeds 100% of salary, up to one third of any amount earned (not only the proportion earned above 100% of salary) will be deferred into shares in the Company for two years. For example, if the bonus opportunity is equal to 125% of salary, 20% of any amount earned will be deferred for two years. If the bonus opportunity is equal to 150% of salary, 33% of any amount earned will be deferred for two years. Dividend equivalents may be paid on vested shares based on dividends paid during the deferral period. Such amounts will normally be paid in shares. For 2022, the maximum annual bonus opportunity will be 125% of salary and 100% of salary for the CEO and CFO respectively. For financial metrics, up to 10% of maximum may be earned for threshold performance and up to 50% of maximum may be earned for target performance with 100% of maximum earned for meeting or exceeding the maximum performance level. For performance between threshold and target and between target and maximum the vesting profile will be determined by the Committee taking into account the stretch in the targets. Vesting of the bonus in respect of strategic performance or personal objectives will be between 0% and 100% based on the Committee’s assessment of the extent to which the relevant metric or objective has been met. Performance is assessed on an annual basis, as measured against specific objectives usually set at the start of each year. The measures will include financial measures and may also include personal and/or strategic performance objectives. At least 50% of the bonus opportunity is based on financial measures which may include, but are not limited to, total accounting return and acquisitions. Specific 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 20% of the annual bonus will be based on personal objectives. Overall payout under the annual bonus may be subject to additional underpins, determined by the Committee at the start of the financial year. The Committee has discretion to amend the pay-out should any formulaic output not reflect the Committee’s assessment of overall business performance or if the Committee considers the formulaic outturn is not appropriate in the context of other factors considered by the Committee to be relevant. Any such adjustments would be fully explained in future Remuneration Reports. Function Benefits To provide benefits which are competitive in the market in which the executive is employed. 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. 128 Harworth Group plcGovernanceFunction Operation Opportunity Performance metrics 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 Company over the relevant period. For Executive Directors in office at the date of approval of this Policy the maximum RSP award: • • in respect of 2022 will be 75% of salary, converted into a number of shares by reference to the market value of a share on such date or dates following the announcement of the Company’s results for 2021 as the Committee determines (the “2022 Price”); in respect of future years, will be 75% of salary converted into a number of shares by reference to the 2022 Price, provided that the grant in respect of any future year may not exceed 112.5% of salary or be less than 37.5% of salary calculated by reference to the market value of a share at the date the relevant award is granted. For any Executive Director appointed after the date of approval of this Policy, the maximum RSP award in respect of any financial year is an award over shares with a market value determined by the Committee at the time the award is granted of up to 112.5% of salary. Restricted Share Plan (RSP) To encourage and enable substantial long-term share ownership and to reflect our ethos of long-term stewardship. Annual 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 may be paid on vested shares based on dividends paid during the holding period. Such amounts will normally be paid in shares. 129 Annual Report and Financial Statements 2021GovernanceDirectors’ Remuneration Report continued Function Operation Opportunity Performance metrics 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 (SIP) and Save-As- You-Earn plan (SAYE) To motivate and to facilitate share ownership on an all- employee basis. N/A An Executive Director may contribute up to £500 per month (or such other limit as may be permitted under the relevant legislation) (SAYE) and £1,800 per annum (or such other limit as may be permitted under the relevant legislation) (SIP) into these tax advantaged all-employee schemes. Under the SAYE, the per share option exercise price is set at a discount of up to 20% (or such other amount as may be permitted under the relevant legislation) to the share price when participation is offered. Under the SIP, the Company may match the shares up to a 2 for 1 basis (or on such other basis as may be permitted under the relevant legislation). Under the SIP, the Company may also make an award to an Executive Director of up to £3,600 of free shares in any year (or such other limit as may be permitted under the relevant legislation). 130 Harworth Group plcGovernanceNotes to the policy table Performance measure selection and approach to target setting Annual bonus The measures used under the annual bonus plan are selected annually to reflect the Group’s main objectives for the year and reflect both financial and personal contribution to the strategic plan, developed in line with shareholder expectations. Additional underpins may be set, for example to ensure appropriate consideration of all relevant aspects of health and safety. RSP The terms of the underpins will be determined on an annual basis taking into account the Committee’s assessment of the metrics which will best reflect overall business health over the applicable vesting periods. Underpins will ordinarily be qualitative, and the Committee will use its judgement to assess “in the round” whether the level of vesting is appropriate having regard to the underpins and business performance. The underpins applying for the RSP awards to be granted in respect of the Company’s FY2022 are set out on page 144. Recovery provisions The annual bonus and RSP awards are subject to malus and clawback provisions as follows: • any bonus paid in cash may be recovered for up to two years following payment; • a deferred bonus award may be reduced or cancelled during the two-year deferral period; and • 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. Malus or clawback may be applied in the event of misconduct, material financial misstatement, error in calculation of outcomes, material failure of risk management and internal controls, a significant health and safety event or environmental incident, conduct leading to financial loss or reputational damage, unreasonable failure to protect the interests of employees and customers, material corporate failure, material breach of banking covenants or an unauthorised breach of the Group’s internal gearing policy, or in any other circumstance that the Committee considers appropriate. SAYE and SIP SAYE options and awards under the SIP are not subject to performance conditions in line with the treatment of such awards for all employees and in accordance with the applicable tax legislation. Variations The Committee may vary or substitute any performance measure or RSP underpin if an event occurs which causes it to determine that it would be appropriate to do so, provided that any such variation is fair and reasonable and (in the opinion of the Committee) the change would not make the measure or underpin less demanding. If the Committee were to make such a variation, an explanation would be given in the next Remuneration Report. 131 Annual Report and Financial Statements 2021GovernanceDirectors’ Remuneration Report continued Operation of share plans The Committee will operate the Company’s share plans in accordance with their rules. Share awards may be made in the form of conditional share awards, options (including nil cost options) or forfeitable share awards. Awards granted over shares may be settled in cash. In the event of a variation of the Company’s share capital or a demerger, special dividend or other event which, in the Committee’s opinion may affect the price of shares, the Committee may alter the terms of awards under the Company’s share plans and the number of shares subject to those awards in accordance with the terms of the relevant plan. Remuneration policy for other employees Harworth’s approach to annual salary reviews is consistent across the Group, with consideration given to the level of experience, responsibility, individual performance and salary levels in comparable companies. The majority of employees are eligible to participate in an annual bonus scheme with similar metrics to those used for the Executive Directors. Opportunities and specific performance conditions vary by organisational level with business area-specific metrics incorporated where appropriate. Senior managers participate in the RSP on similar terms to which Executive Directors participate. Award sizes vary by organisational level. To encourage Group-wide share ownership, the Company operates a SAYE plan under which awards are granted annually. Over half of the Group’s employees currently participate in the SAYE plan. The Company also operates a SIP and free share awards are made to all eligible employees annually. Shareholding guidelines The Committee continues to recognise the importance of aligning Executive Directors’ interests with shareholders through building up a significant shareholding in the Company. Shareholding guidelines are in place that require Executive Directors to acquire a holding equivalent to 200% of base salary. Until the relevant shareholding levels are acquired, 50% of any RSP awards vesting and 50% of any deferred bonus awards vesting (post-payment of tax) are required to be held. Shares subject to RSP awards which have vested but which remain subject to a holding period and shares subject to deferred bonus awards count towards the guidelines on a net of assumed tax basis. Details of the Executive Directors’ current personal shareholdings are provided in the Annual Report on Remuneration. A post-cessation shareholding requirement is in place such that, for the first 12 months following cessation, an Executive Director must retain such number of his or her “relevant shares” as have a value (as at cessation) equal to the shareholding guideline that applies during service (200% of base 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 are not “relevant shares” for these purposes. Shares subject to RSP awards which have vested but not been released, shares subject to released RSP awards which have not been exercised, and shares subject to deferred bonus awards count towards the post-cessation guideline on a net of assumed tax basis. Unless the Committee determines otherwise, when considering the extent to which this requirement is satisfied, an Executive Director or former Executive Director shall be deemed to have disposed of shares which are not “relevant shares” before any ”relevant shares” that person holds. 132 Harworth Group plcGovernanceNon-Executive Director remuneration Non-Executive Directors are appointed on a rolling annual basis. All Non-Executive Directors offer themselves for re-election at each AGM. The appointment and re-appointment and the remuneration of Non-Executive Directors are matters reserved for the full Board. A. Lyons A. Bromfield R. Cooke L. Scenna P. O’Donnell Bourke S. Underwood2 M. Bowes3 Date of letter of appointment 23 November 2017 19 February 2019 27 February 2019 29 June 2020 2 November 2020 9 December 2019 1 March 2015 Appointment date to the Board Current appointment expiry date1 7 March 2018 1 April 2019 19 March 2019 1 September 2020 3 November 2020 2 August 2010 24 March 2015 7 March 2023 1 April 2023 19 March 2023 1 September 2022 3 November 2022 1 January 2023 1 March 2023 1 All Non-Executive Directors are subject to annual rolling appointments by reference to the date of their original appointment to the Board. 2 A new letter of appointment was entered into when Steven Underwood ceased to be a representative director of Peel Group. 3 Martyn Bowes was previously a Non-Executive Director of Harworth Estates Property Group Limited from 19 March 2013. The Non-Executive Directors are not eligible to participate in the Company’s performance-related bonus plan, long-term incentive plans or pension arrangements. Full terms and conditions for each of the Non-Executive Directors are available at the Company’s registered office during normal business hours and will be available at the AGM for 15 minutes prior to the meeting and during the meeting. 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. None. Fee levels are ordinarily reviewed annually, with any adjustments typically effective 1 January in the year following review. The fees of the Non-Executive Chair and other Non-Executive Directors are determined by the Board. Additional fees are payable for additional Board duties, including but not limited to, acting as Senior Independent Director and as Chair of any of the Board’s Committees. Additional fees may be paid in the event that Non-Executive Directors are required to commit substantial additional time above that normally expected of their role. 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. There is no overall maximum, but fees are set taking into account the responsibilities of the role and expected time commitment. 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. Overall fees paid to the Chair and Non- Executive Directors will remain within the limits set by the Company’s Articles of Association. 133 Annual Report and Financial Statements 2021GovernanceDirectors’ Remuneration Report continued Pay for performance scenarios The charts below provide an illustration of the potential future reward opportunities for the Executive Directors, 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 awards. Potential reward opportunities are based on the Policy, applied to base salaries effective 1 January 2022. The annual bonus and RSP are based on the level of maximum opportunities applied in 2022. RSP values are based on the face value at award rather than vesting (other than as regards that element of the charts assuming a 50% increase in the share price for the purposes of the RSP awards). £1,500,000 £1,250,000 £1,000,000 £750,000 £1,481,181 32% £1,323,081 24% 40% 36% £1,059,581 30% 25% £500,000 £479,881 £250,000 100% 45% 36% 32% Base salary, benefits Annual Bonus RSP £893,500 £1,009,750 35% £738,500 26% 31% 21% £351,000 35% 30% 100% 48% 39% 35% £0 Minimum performance Performance in line with expectations Maximum performance Maximum performance with 50% share increase Minimum performance Performance in line with expectations Maximum performance Maximum performance with 50% share increase Lynda Shillaw Kitty Patmore The “minimum” scenario reflects base salary, pension and benefits (i.e., fixed remuneration) which are the only elements of the Executive Directors’ remuneration packages not linked to performance. Base salaries and pensions (10% of salary) as at 1 January 2022 are set out on page 147, benefits are based on the value of such benefits in 2021 which are taken from the single total figure remuneration table on page 140. The “on-target” scenario reflects fixed remuneration as above, plus bonus payout of 50% of maximum annual bonus opportunity (for 2022, 125% of salary for the CEO and 100% of salary for the CFO) and RSP vesting in full (for 2022, 75% of salary). The “maximum” scenario reflects fixed remuneration as above, plus full payout of all incentives (for 2022, annual bonus of 125% of salary for the CEO and 100% of salary for the CFO and RSP of 75% of salary). 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%. 134 Harworth Group plcGovernanceApproach to recruitment remuneration External appointment In the cases of hiring or appointing a new Executive Director from outside the Company, the Remuneration Committee may make use of all the existing components of remuneration, as follows: Component Approach Maximum annual grant value Base salary Pension Benefits The base salaries of new appointees will be determined by reference to relevant market data, experience and skills of the individual, internal relativities and current base salary. Where new appointees have initial base salaries set below market, any shortfall may be managed with phased increases subject to the individual’s development in the role. New appointees will receive pension contributions or an equivalent cash supplement in line with the existing policy. New appointees will be eligible to receive benefits which may include (but are not limited to) the provision of a company car or cash alternative, private medical cover, life insurance and any necessary relocation expenses. Annual bonus The structure described in the policy table will usually apply to new appointees with the relevant maximum usually being prorated to reflect the proportion of employment over the year. Targets for the personal element will be tailored to each Executive. Up to 150% of salary. RSP New appointees will be eligible to participate in the RSP, as described in the policy table. The maximum in respect of any financial year is an award over shares with a market value determined by the Committee at the time the award is granted of up to 112.5% of salary. In determining appropriate remuneration, the Committee will take into consideration all relevant factors (including quantum and nature of remuneration for the appointee’s previous employment, and the jurisdiction from which the candidate was recruited) to ensure that arrangements are in the best interests of both Harworth and its shareholders. The Committee may make an award in respect of a new appointment to “buy out” remuneration arrangements forfeited on leaving a previous employer, which may be awarded in addition to the remuneration structure outlined in the table above. The Committee will generally seek to structure “buy out” awards on a comparable basis to the remuneration arrangements forfeited and will consider relevant factors including time to vesting, any performance conditions attached to these awards and the likelihood of those conditions being met. Any such “buy out” awards will typically be made under the annual bonus or RSP, although in exceptional circumstances the Committee may exercise the discretion available under Listing Rule 9.4.2 R to make awards using a different structure. Any “buy out” awards would have a fair value no higher than the awards forfeited (as determined by the Committee). Other elements of remuneration may be included in appropriate circumstances, such as: • an interim appointment being made to fill an Executive Director role on a short-term basis (including if exceptional circumstances require that the Chair or other Non-Executive Director takes on an executive function); or • if an Executive Director is recruited at a time in the year when it would be inappropriate to provide an annual bonus or long-term incentive award for that year. Subject to the limit on variable remuneration set out below, the quantum in respect of the months employed during the year may be transferred to the subsequent year so that reward is provided on a fair and appropriate basis. However, this discretion will not be used to offer non-performance related incentive payments (for example a “guaranteed sign-on bonus”) and the maximum level of variable remuneration which may be granted (excluding any “buy-out” award) is up to 262.5% of salary. Internal promotion In cases of appointing a new Executive Director by way of internal promotion, the Committee and Board will be consistent with the Policy for external appointees detailed above. Where an individual has contractual commitments made prior to his or her promotion to Executive Director level, the Company will continue to honour these arrangements. The remuneration policy for other employees is set out on page 132. Incentive opportunities for below Board employees are typically no higher than Executive Directors, but measures may vary. Non-Executive Directors In recruiting a new Non-Executive Director, the Committee will utilise the Policy as set out in the table on page 133. 135 Annual Report and Financial Statements 2021GovernanceDirectors’ Remuneration Report continued Service contracts and treatment for leavers and change of control Executive Director service contracts, including arrangements for early termination, are carefully considered by the Committee. The CEO has a rolling service contract requiring nine months’ notice of termination on either side. The CFO has a rolling service contract requiring six months’ notice of termination on either side. Such contracts contain no specific provision for compensation for loss of office, other than an obligation to pay for any notice period waived by the Company, where pay is defined as salary plus benefits only. Executive Director service contracts are available to view at the Company’s registered office. The Remuneration Committee may offer a notice period of up to 12 months (on either side) for any incumbent Executive Director or any Executive Director appointed after the date on which this Policy becomes effective. When considering exit payments, the Committee reviews all potential incentive outcomes to ensure they are fair to both shareholders and participants. The table below summarises how the awards under the annual bonus and RSP are typically treated in specific circumstances, with the final treatment remaining subject to the Committee’s discretion: Reason for leaving Calculation of vesting/payment Annual Bonus Leaving other than as a “Good Leaver”1 “Good Leaver”1 Change of Control RSP Bonus for year of departure: No annual bonus payable Deferred bonuses: Lapse Bonus for year of departure: Cash bonuses will typically be paid to the extent that financial, strategic and individual objectives set at the beginning of the plan year have been met. Any resulting bonus will typically be prorated for time served during the year and paid at the usual time (although the Committee retains discretion to pay the bonus earlier in appropriate circumstances). The Committee has discretion to pay the whole of any bonus earned for the year of departure and preceding year in cash in appropriate circumstances. Deferred bonuses: Typically vest in full on the normal vesting date. The Committee has discretion for the awards to vest earlier in appropriate circumstances. Bonus for year of relevant event: Cash bonuses will typically be paid to the extent that financial, strategic and individual objectives set at the beginning of the plan year have been met. Any resulting bonus will typically be prorated for time to the relevant event. The Committee retains discretion to waive time prorating in appropriate circumstances. Deferred bonuses: Vest in full on occurrence of the relevant event. Leaving before vesting other than as a “Good Leaver” If a participant holding an unvested tranche of an RSP award resigns or leaves for another reason which is not a “good leaver” reason, that tranche will ordinarily lapse. “Good Leaver”1 before vesting Cessation after vesting If a participant ceases employment as a “good leaver” whilst holding an unvested tranche of an RSP award, that tranche will continue and vest following the end of the ordinary vesting period, subject to the application of the underpin in the ordinary way and, unless the Committee determines otherwise, a reduction to reflect the proportion of the first three years of the underpin assessment period that has elapsed at the date of cessation. The unvested tranche will ordinarily be released following the end of the holding period. The Committee has discretion to vest and release any unvested tranche at cessation or to release any unvested tranche as soon as it vests. If a participant ceases employment whilst holding a tranche of an RSP award which is subject to a holding period, it will ordinarily continue and be released following the end of the holding period. The Committee has discretion to release the tranche at cessation. However, if a participant ceases employment due to dismissal for misconduct during the holding period applying to a tranche, that tranche will lapse. 136 Harworth Group plcGovernanceChange of control In the event of a change of control of the Company or other relevant corporate event, unvested share awards under the RSP will usually vest. In the case of any unvested tranche of an RSP award, the number of shares in respect of which the tranche vests shall be determined by the Committee taking into account: • whether it is appropriate to reduce vesting to reflect the extent to which the underpin is not satisfied at the date of the relevant event, or the extent to which the Committee determines it would have been satisfied at the end of the ordinary assessment period; and • unless the Committee determines otherwise, the proportion of the first three years of the underpin assessment period that has elapsed at the date of the relevant event. Any tranche of an RSP award which has vested but which remains subject to a holding period will be released in full. 1 “Good Leaver” is defined as a participant ceasing to be employed by the Group by reason of death, disability, ill health, redundancy, retirement or any other reason that the Committee determines in its absolute discretion Options under the SAYE plan and awards under the SIP may vest and, where relevant, be exercised in the event of a cessation of employment or change of control in accordance with the rules of the relevant plan. The plans do not permit the exercise of discretion and, accordingly, the treatment for Executive Directors will be the same as for all other participants. The terms applying to any “buy-out” award on cessation of employment would be determined when the award was granted. The Committee reserves the right to make any other payments in connection with a Director’s cessation of office or employment where the payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement of any claim arising in connection with the cessation of a Director’s office or employment. Any such payments may include but are not limited to paying any fees for outplacement assistance and/or the Director’s legal and/ or professional advice fees in connection with his/her cessation of office or employment. External appointments The Board will consider any request by an Executive Director to take potential non-executive appointments on a case-by-case basis, taking account of the overriding requirements of the Group and the extent to which the Non-Executive Director opportunity supports the agreed personal development objectives of the Executive. Legacy arrangements The Committee reserves the right to make remuneration payments and payments for loss of office, and to exercise any discretion available in relation to any such payment, notwithstanding that they are not in line with the Policy set out above: • where the terms of the payment were agreed before the Policy came into effect; and • where the terms of the payment were agreed at a time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment was not in consideration of the individual becoming a Director of the Company. For these purposes, “payments” include the satisfaction of variable remuneration and, in relation to an award over shares, the terms of the payment are “agreed” no later than the time the award is granted. Consideration of conditions elsewhere in the Company The 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 Harworth’s success. The Company holds an Employee AGM which, together with additional employee forum sessions facilitated by the Non-Executive Directors, provides a platform for employees to discuss a range of topics with the Board, including executive remuneration. Ahead of publication of this Policy, the Executive Directors and Chair of the Remuneration Committee hosted a (virtual) briefing and Q&A session on the Policy for all employees. When making decisions on Executive Director remuneration, the Committee considers pay and conditions across the Group as well as any feedback from employees via the Employee Engagement Survey and Employee AGM. Consideration of shareholder views The Remuneration Committee maintains a regular dialogue with its major shareholders. In late 2021 and early 2022, we conducted a shareholder consultation regarding this Policy. A substantial majority of shareholders consulted were supportive of the proposed changes. Responding to the feedback received, the Committee has strengthened the post-employment shareholding guidelines that apply to Executive Directors. The Committee will continue to monitor trends and developments in corporate governance, market practice and shareholder views to ensure the structure of the executive remuneration remains appropriate. 137 Annual Report and Financial Statements 2021GovernanceDirectors’ Remuneration Report continued 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 Executive Directors and Senior Executive Team. The Policy is designed to support the Group’s strategy and help attract, retain and incentivise a Senior Executive 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 Executive Team set the standards for behaviour and conduct across the Group. Bonus awards are focused on Group performance to foster collective accountability and deliver a consistent reward structure across all levels of management. The Group financial and non-financial performance measures 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. Our RSP reflects a core principle of rewarding long-term value creation in a cyclical business and supports retention through the market cycle. Clarity and simplicity A core reward principle of our Policy is to operate a simple and transparent framework which can be readily cascaded. The remuneration framework is made up of three key elements: fixed pay (including base salary, pension and benefits); annual bonus; and the RSP. The structure is simple to understand for both participants and shareholders and promotes long-term stewardship. Risk Annual bonus opportunities are set so as to reflect the long-term nature of our business and at levels which reward high performance, but which do not encourage inappropriate business risk. The Committee has discretion to reduce vesting outcomes under the annual bonus and RSP where it considers that they would not otherwise be representative of the underlying business performance over the vesting period. Annual bonus and RSP awards are also subject to 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 against the selected measures 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 with the Group’s strategic priorities, and targets are calibrated to reward Executive Directors for strong performance. Vesting under the RSP is phased over a five-year period, with one-third vesting after three years, one-third after four years and one-third after five years. The holding period means that participants cannot acquire shares until the end of a five-year period, aligning their interests with those of shareholders for the longer term. Executive Directors are also required to build material shareholdings in the Group (200% of base salary). A post- cessation shareholding requirement applies which ensures that their interests are aligned with those of the Group for two years post-cessation of employment. Through the Share Incentive Plan and Save As You Earn scheme we encourage and enable material long-term share ownership for all employees, supporting the long-term nature of our business and its returns. Predictability The range of possible rewards for individual Executive Directors is set out in the scenario charts on page 134. 138 Harworth Group plcGovernanceCommittee membership and attendance Membership and attendance at meetings in 2021 are shown below: Independent Committee tenure at 31 December 2021 Scheduled meetings attended/eligible to attend Angela Bromfield Alastair Lyons Lisa Scenna Chair Member Member Yes Yes Yes 2 years 9 months 3 years 10 months 1 year 4 months 6/6 6/6 6/6 During the year, the Committee held six scheduled meetings. The key activities of the Committee during 2021 are shown below: February July September October December Assessment of 2021 bonus outcomes Assessment of 2018 LTIP outcomes Approval of 2021 salary increases Approval of 2021 bonus measures and targets Approval of 2021 RSP awards Approval of 2021 SAYE awards and Share Incentive Plan awards Review of Remuneration Policy Review of Group-wide maternity, paternity and shared parental leave and pay policies Review of Remuneration Policy Review of remuneration benchmarking for Executive Directors Review of Remuneration Policy Review of employee benefits Review of 2021 bonus targets following approval of the Group’s revised strategy In-principle approval of changes to the Remuneration Policy Review 2022 bonus measures and targets Advisers 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 provide advice and to help the Committee to make 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 2021. Deloitte’s fees in relation to remuneration advice provided to the Committee during 2021 were £49,350 plus VAT, charged on a time and expenses basis. Deloitte also provided advice to the Group during 2021 in relation to corporate tax, pensions and share plans. The Committee did not consider that these engagements impaired Deloitte’s independence. 139 Annual Report and Financial Statements 2021GovernanceDirectors’ Remuneration Report continued Single total figure of remuneration for Executive Directors (audited) The table below sets out the remuneration received by each Executive Director of the Company for the year ended 31 December 2021 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. Fixed pay Salary Taxable benefits2 Pension benefit3 Subtotal Variable pay Single-year variable Multi-year variable Other4 Subtotal Total L. Shillaw1 2021 2020 K. Patmore 2021 2020 £400,000 £16,121 £40,000 £456,121 £362,000 – £5,722 £367,772 £823,893 £66,666 £2,686 £6,666 £76,018 – – – – £76,018 £250,000 £10,000 £25,000 £285,000 £226,250 – £1,250 £227,500 £512,500 £200,000 £10,000 £20,000 £230,000 £101,760 – £9,062 £110,822 £340,822 1 Appointed as Chief Executive with effect from 1 November 2020. 2 Taxable benefits consist of car allowance and private medical insurance. Other benefits include life assurance. 3 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. 4 Other includes Free Shares awarded during the year under the all-employee Share Incentive Plan and options granted during the year under the all-employee Save-As-You-Earn plan. The value of Free Shares is determined based on the face value of the shares at the award date. The value of SAYE options is determined based on the intrinsic value of the award at the grant date. 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 2021 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 2021 £162,400 £45,675 £45,675 £45,675 £45,675 £45,675 2020 £160,000 £45,000 £45,000 £45,000 £45,000 £15,000 2021 – – £7,613 – – – 2020 – – £1,250 – – – 2021 – – £7,613 – – – 2020 – – £1,250 – – – 2021 £162,400 £45,675 £60,901 £45,675 £45,675 £45,675 2020 £160,000 £45,000 £47,500 £45,000 £45,000 £15,000 £45,675 £7,500 £7,613 £1,250 – – £53,288 £8,750 A. Lyons M. Bowes A. Bromfield1 R. Cooke S. Underwood L. Scenna2 P. O’Donnell Bourke3 1 Angela Bromfield succeeded Lisa Clement as Senior Independent Director and Chair of the Remuneration Committee with effect from 1 November 2020. 2 Appointed as Non-Executive Director with effect from 1 September 2020. 3 Appointed as Non-Executive Director and Chair of the Audit Committee with effect from 3 November 2020. 140 Harworth Group plcGovernanceIncentive outcomes for year ended 31 December 2021 (audited) Annual bonus Lynda Shillaw’s and Kitty Patmore’s bonus opportunity for 2021 was equal to 100% of salary subject to a combination of financial performance (as regards 75% of the opportunity), ESG performance (as regards 5% of the opportunity) and personal objectives (as regards 20% of the opportunity). Performance against targets and subsequent vesting of 2021 annual bonuses are set out in the tables below. Group financial performance outcome (75% of total bonus opportunity) The Group undertook a strategic review during 2021 and a redefined strategy was approved by the Board in July – to reach £1bn of EPRA NDV over the following five to seven years. In particular, the strategic review: 1. identified the need to accelerate sales on residential sites to optimise financial returns as sites reach maturity and fund investments in acquisitions and direct development; and 2. shifted the Group’s focus away from acquiring income properties to directly developing and retaining more industrial & logistics investment assets, whilst in so doing repositioning the Group’s Investment Portfolio to modern Grade A. The Committee recognised that these changes impacted the Group’s priorities as regards acquisitions and sales for the second half of 2022. To avoid management having incentives that conflicted with the revised strategy, the Committee agreed in October to amend the acquisitions and sales targets. Details are provided in footnotes 3 and 4 below. The Committee considered that the revised targets were no less challenging. Weighting (% of financial element) Threshold1 Target2 Maximum Actual performance Vesting outcome Financial measure Total Accounting Return (growth in EPRA NDV plus dividends paid) Acquisitions3, 4 Sales Volume – base sales4,5 Sales Volume – non-core sites4,5 Profit Excluding Value Gains Group Net Loan to Portfolio Value Total vesting on financial performance element 12.5% 7.5% 20% 10% 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. 30% 20% £16.63m Secure annualised rent growth of £0.6m Strategic landbank growth of 7.5% £57m £8.1m £4.73m 23.0% £23.78m Secure annualised rent growth of £0.8m Strategic landbank growth of 10% £68.7m £9.5m £5.98m 20.6% £127.4m £30.40m Secured Secure annualised annualised rent growth rent growth of £0.958m of £0.9m Strategic Strategic landbank landbank growth of growth of 5.5% 15% £92.5m £83.7m £14.4m £13.0m £13.1m £6.98m 3.4% 18.0% 75% weighting of total bonus opportunity 100% 50% 100% 100% 100% 100% 90% 3 As a result of the strategic review, the Group’s focus shifted mid-year from acquiring income properties, to directly developing and retaining industrial & logistics assets. The Committee therefore agreed that the “secure annualised rent growth” targets should be measured over six months to 30 June 2021 only and, therefore, reduced by 50%. 4 As a result of the strategic review, the Group identified the need to accelerate sales on residential sites (“Additional Residential Sales”). As the Strategic Landbank Growth and Sales Volume targets set at the start of 2021 did not anticipate the Additional Residential Sales, the Committee agreed to exclude them when determining performance against those targets. 5 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. 141 Annual Report and Financial Statements 2021GovernanceDirectors’ Remuneration Report continued ESG performance outcome (5% of total bonus opportunity) Threshold1 Target2 Maximum Actual performance Vesting outcome Complete an updated ESG Strategy as part of the Group’s strategic review. Develop a roadmap to achieve the decarbonisation target. Collect initial base data for key measures. Development of initial measures and short- and long-term targets for all key areas of the ESG Strategy. To include the identification of an achievable decarbonisation target. 60% Initial measures and short-term and long-term targets developed for all areas of ESG strategy. Decarbonisation target identified. Initial measures identified to achieve zero carbon on scope 1, 2 and some scope 3 emissions. Data collection has improved but further work needed. 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. Personal performance outcomes (20% of total bonus opportunity) Executive Director L. Shillaw Objectives during the year Performance against objectives during the year Executive Leadership • Inspire and motivate Harworth’s people to embrace the new senior leadership team, strategy and ways of working A number of events have been run to engage staff in delivery of the new strategy and significant progress was made in delivery of the strategy in 2021. Vesting 100% Stakeholders • Cement Harworth as a key regional partner by developing key relationships with Government and other national stakeholders • Develop effective relationships with local government and other local stakeholders such as Local Enterprise Partnerships and Universities • Elevate Harworth’s brand profile: ensure that Harworth is perceived as a key regional business by the property sector Strategy review • Evaluate the Company’s current strategy and present analysis of this and options available to the Board in July 2021. Identify steps to implement the approved strategy during H2 2021 Following approval of the strategy the CEO developed and implemented a programme of meetings, presentations and panel interviews designed to raise the profile of Harworth and engage with and influence key stakeholders. A revised strategy was developed and approved by the Board in July 2021. The strategy has been well received by shareholders. Delivery of the strategy is underway. 142 Harworth Group plcGovernanceK. Patmore Strategy • Alongside the CEO, evaluate existing portfolio performance and market sector opportunities A complete portfolio evaluation was undertaken and used as a key input into the development of the revised strategy. 100% • Develop a non-financial KPI framework and data collection system to be adopted by the business in regular management reporting • Position the Finance team ready for growth under the new strategy Stakeholders • Develop a comprehensive shareholder engagement plan. This will include evolving investor messaging to convey better the Harworth story (including the new strategy) Capital structure • Establish a Group funding strategy which identifies the capital structure required to deliver the updated strategy and potential funding partners for core debt, project-specific debt and equity partnerships • Complete a refinance of the existing banking facilities ahead of sign-off of the 2021 results • Complete requisite project-specific financing or funding at commercial direct development sites A new KPI framework has been developed and implemented. The structure and skills of the Finance team have been developed to support the new strategy. A shareholder engagement plan has been successfully implemented. Feedback from an investor survey and brokers confirm that investors understand and support the new strategy. The funding strategy work has been completed with a number of options explored. The appropriate structure was identified and the business has been refinanced to support the delivery of the strategy. Project-specific financing has been completed as required. Overall bonus outcomes Executive Director Weighting Vesting Weighting Vesting Weighting Vesting % of bonus % of salary Financial ESG Personal Overall bonus outcome L. Shillaw K. Patmore 75% 75% 90% 90% 5% 5% 60% 60% 20% 20% 100% 100% 90.5% 90.5% 90.5% 90.5% The overall bonus payments were also subject to additional underpins based on, amongst other things, the Company’s health and safety record, there being no deficiencies or material adverse issues which materially damage the reputation or performance of the business, and no covenant breach or financial irregularity. The Committee reviewed performance against these underpins and found no cause to reduce the bonus outcomes. Restricted Share Plan awards granted in 2021 (audited) RSP awards were granted to Lynda Shillaw and Kitty Patmore on 6 April 2021 at 50% of salary. Taking into account that the share price used to determine the 2021 RSP awards was higher than the share price used to determine the 2020 RSP awards and that RSP awards are much less leveraged than performance-based share 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 Face value1 L. Shillaw K. Patmore 2021 RSP Award Nil-Cost Option 2021 RSP Award Nil-Cost Option 6 April 2021 6 April 2021 156,739 £200,000 97,962 £125,000 1 Face value based on the average mid-market closing share price for the five trading days immediately preceding the date of grant (£1.276). Vesting will be phased over a five-year period, with one third vesting after three years, one third after four years and one third after five years, although all vested shares must be held to the end of year five. 143 Annual Report and Financial Statements 2021GovernanceDirectors’ Remuneration Report continued The RSP award is subject to specific 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 Detail1 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 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. Corporate governance Avoidance of governance and health and safety failures A material failure in governance or an act resulting in significant reputational damage and/or material financial loss to the Group. This includes giving consideration to any successful prosecutions in relation to health and safety. 1 The Committee has discretion to make a downward adjustment to awards if any of these events occur during the vesting periods. Furthermore, the Committee has discretion to reduce vesting outcomes where it considers that they would not otherwise be representative of the underlying business performance over the vesting period. The Committee will disclose at the time of vesting how performance underpins and underlying business performance over the vesting period have been taken into account. 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 2020 and 2021 % change between 2019 and 2020 Salary & fees Benefits Bonus Salary & fees Benefits Bonus Executive Directors L. Shillaw1 K. Patmore2 Non-Executive Directors A. Lyons A. Bromfield3 R. Cooke4 S. Underwood M. Bowes L. Scenna5 P. O’Donnell Bourke6 Average employee (Company)7 Average employee (Group) n/a 25% 1.5% 28% 1.5% 1.5% 1.5% n/a n/a 13.3% 9.4% n/a 0% n/a 122.3% – – – – – – – – – – – – – – n/a n/a 0% n/a n/a 0% 0% n/a n/a n/a n/a – – – – – – – n/a n/a – – – – – – – 6.5% 3.88 157.4% 45.7% 7% 3.3% 34% 5% 14% (20%) 1 Appointed as Chief Executive with effect from 1 November 2020 and therefore the annual percentage change in remuneration is not applicable. 2 Appointed as Chief Financial Officer with effect from 1 October 2019 and therefore the annual percentage change in remuneration between 2019 and 2020 is not applicable. 3 Appointed as Non-Executive Director with effect from 1 April 2019 and therefore the annual percentage change in remuneration between 2019 and 2020 is not applicable. Succeeded Lisa Clement as Senior Independent Director and Chair of the Remuneration Committee with effect from 1 November 2020. 4 Appointed as Non-Executive Director with effect from 19 March 2019 and therefore the annual percentage change in remuneration between 2019 and 2020 is not applicable. 5 Appointed as Non-Executive Director with effect from 1 September 2020 and therefore the annual percentage change in remuneration is not applicable. 6 Appointed as Non-Executive Director with effect from 3 November 2020 and therefore the annual percentage change in remuneration is not applicable. 7 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 sets out the equivalent figures calculated by reference to employees (excluding Directors) of the Company and its subsidiaries. 8 There have been no changes to the benefits available to our employees. Car allowances are determined by internal gradings and applied consistently. Private medical insurance is available to all employees, their spouses/partners and dependants on the same terms. The increase in average benefits was driven by a change in the overall profile of our workforce, with employees receiving higher car allowances and/or tending to have more dependants resulting in higher private medical insurance costs. 144 Harworth Group plcGovernanceChief Executive officer pay ratio The Group has fewer than 250 UK employees and is not therefore required to disclose a Chief Executive pay ratio. However, in line with best practice, the Committee considers it appropriate to disclose the pay ratio voluntarily. The table below sets out the Chief Executive’s total remuneration as a ratio against the full-time equivalent remuneration of employees for the year ended 31 December 2021. Method Option A 25th percentile pay ratio Median pay ratio 75th percentile pay ratio 18:1 12:1 8:1 Option A methodology was selected on the basis that it is a robust approach and is preferred by shareholders and proxy voting agencies. The calculations for the representative employees were performed as at the final day of the relevant financial year. A substantial proportion of the Chief Executive’s total remuneration is performance related and delivered in shares. The ratios will therefore depend significantly on the Chief Executive’s annual bonus and RSP outcomes and may fluctuate year-on-year. The Board believes that the median pay ratio is consistent with the pay, reward and progression policies for the wider workforce. The table below sets out the pay and benefits figures used to calculate the ratios and the salary component. Method Chief Executive 25th percentile pay ratio Median pay ratio 75th percentile pay ratio Total pay and benefits Salary £823,8931 £400,000 £46,200 £42,000 £67,839 £48,000 £107,348 £72,500 1 The Chief Executive’s total pay and benefits is the total single figure as disclosed on page 140. 2 The employee percentile total pay and benefits has been calculated on the same basis as required for the Chief Executive’s remuneration for single figure purposes. However, the vesting of awards under the Long-Term Incentive and Deferred Share Bonus Schemes during the year have been omitted from the employee calculations. Relative importance of spend on pay 2021 £11.626m Total employee pay expenditure 2020 £8.265m % change 40.7% 2021 £3.9m Distribution to shareholders 2020 £5.8m % change -32.76% Total employee pay in the year reflected an increase in the average number of employees from 75 to 89, as well as awards for career progression and promotion. Total dividends for 2021 were 1.212p per share (2020: 1.8p per share), resulting in total dividends of £3.9m (2020: £5.803m). The percentage change is shown on a per share basis. The reduction in dividend is attributable exclusively to the fact that the 2020 final dividend was increased to reflect the cancelled 2019 dividend. Excluding that element, the 2021 dividend represents a 10% increase on the 2020 dividend, in line with our progressive dividend policy. 145 Annual Report and Financial Statements 2021Governance Directors’ Remuneration Report continued Review of past performance The following chart shows the Total Shareholder Return (TSR) of the Company and the FTSE Small Cap Index over the period from the Company’s relisting on 24 March 2015 to 31 December 2021. 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 relisting on 24 March 2015 to 31 December 2021: Source: Thomson Reuters DataStream Harworth FTSE Small Cap £220 £200 £180 £160 £140 £120 £100 ) 0 0 1 £ o t d e s a b e r ( n r u t e R l r e d o h e r a h S l a t o T £80 M ar-15 Jun-15 Sep-15 D ec-15 M ar-16 Jun-16 Sep-16 D ec-16 M ar-17 Jun-17 Sep-17 D ec-17 M ar-18 Jun-18 Sep-18 D ec-18 M ar-19 Jun-19 Sep-19 D ec-19 M ar-20 Jun-20 Sep-20 D ec-20 M ar-21 Jun-21 Sep-21 D ec-21 Historical Chief Executive remuneration Chief Executive L. Shillaw L. Shillaw O. Michaelson O. Michaelson O. Michaelson O. Michaelson O. Michaelson O. Michaelson Single figure remuneration (£’000) Short-term incentive award as a % of maximum opportunity Long-term incentive award as a % of maximum opportunity £824 £76 £559 £669 £901 £1,392 £599 £480 90.5% n/a 51.3% 44.2% 85.6% 80.6% 90.0% 85.6% n/a n/a 5.05% 51.5% 51.8% n/a1 n/a n/a 2021 2020 2019 2018 2017 2016 2015 3 Excludes vesting of Harworth Estates LTIP as this was a one-off scheme put in place by HEPGL in 2013. 146 Harworth Group plcGovernance Loss of office payments and payment to former Directors (audited) There were no loss of office payments made to past Directors during the year ended 31 December 2021. As disclosed in the 2020 Directors’ Remuneration Report, on Owen Michaelson’s retirement on 31 December 2020, his 2019 RSP and two thirds of his 2020 RSP awards remained capable of vesting subject to the satisfaction of the performance underpins and the Committee’s assessment of underlying business performance during the respective vesting periods. The first tranche of the 2019 RSP award over 41,178 shares vested in full in March 2022. The vested shares will be subject to a holding period until March 2024. Implementation of Executive Directors’ remuneration policy for 2022 Base salary The Committee approved the following base salary increases for 2022: Executive Director L. Shillaw K. Patmore Annual base salary at 1 January 2021 Annual base salary at 1 January 2022 £400,000 £250,000 £421,600 £310,000 Lynda Shillaw’s salary was increased by 5.4%, in line with the average increase for the wider workforce. As detailed in the Annual Statement from the Remuneration Committee Chair on page 125, the base salary increase for Kitty Patmore in 2021 and the base salary increase for 2022, which were based on her performance and increased responsibilities, have the effect of aligning her salary with the market over a two-year period. The Committee strongly believes that this change is in line with the principles of the Group’s talent development programme and reflects Harworth’s broader commitment to diversity, equality and fairness, ensuring that individuals are appropriately rewarded on the basis of role, experience and performance. 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 2022, the annual bonus opportunity for Lynda Shillaw and Kitty Patmore will be 125% and 100% of salary respectively. The performance measures have been rebalanced compared to 2021, to provide alignment with the key 2022 financial and strategic priorities under the Group’s redefined strategy. Measure Weighting (% of bonus opportunity) Core financial measures Total Accounting Return Acquisitions Sub-total Strategic measures Launch of Build to Rent portfolio Increase scale of direct developments Sub-total ESG measures based on progress against ESG short-term and long-term targets Personal objectives Total 35% 15% 50% 10% 20% 30% 5% 15% 100% The overall payment of the bonus will be subject to additional underpins based on, amongst other things, 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 have discretion to reduce the bonus outcome if it is not supported by underlying financial and operational performance, or reflective of the experience of shareholders or employees. Performance targets are considered to be commercially sensitive at this time but the Committee intends that they will be disclosed in the 2022 Annual Remuneration Report. 147 Annual Report and Financial Statements 2021GovernanceDirectors’ Remuneration Report continued Restricted Share Plan (RSP) award RSP awards will be granted to Lynda Shillaw and Kitty Patmore at 75% of salary. Vesting will be phased over a five-year period, with one third vesting after three years, one third after four years and one third after five years. All vested shares must be held to the end of year five, resulting in a total time horizon of five years for all three tranches. The RSP awards will be subject to specific 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 144 for further details. Furthermore, the Committee has discretion to reduce the vesting outcome if it is not deemed to reflect appropriately underlying business performance over the vesting period. The Committee will disclose how performance underpins and underlying business performance over the vesting period have been taken into account at the time of vesting. Implementation of Non-Executive Director remuneration policy for 2022 The Chair’s and Non-Executive Directors’ base fees will be increased by 5.4% for 2022. This is in line with the average increase for the wider workforce. Following a review, the fees payable to the Senior Independent Director and Chairs of our Audit and Remuneration Committees will increase by 11.7%, reflecting the scale and complexity inherent in the discharge of the responsibilities of these roles. We will also pay a fee to the Chair of our newly formed ESG Committee. 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 Additional Fee for Chairing the ESG Committee £171,169.60 £48,141.45 £8,500.00 £8,500.00 £8,500.00 £6,000.00 The Committee considers that the fees paid to Non-Executive Directors appropriately reflect the work and responsibilities associated with each role. 148 Harworth Group plcGovernance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 2021. 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 2021 of £1.80. Shares held Options held y l l a i c i f e n e B d e n w o 132,480 28,842 269,460 – 22,192 – 38,385 – o t j t c e b u s t o n 1 e c n a m r o f r e p & d e t s e v n U 939 1,900 – – – – – – 2 e c n a m r o f r e p & d e t s e v n U o t j t c e b u s 156,739 194,116 – – – – – – o t j t c e b u s t o n 3 e c n a m r o f r e p & d e t s e v n U 17,595 24,357 – – – – – – 40,000 – – – 1 2 0 2 g n i r u d & d e t s e V d e s i c r e x e – – – – – – – – – L. Shillaw K. Patmore A. Lyons M. Bowes A. Bromfield R. Cooke S. Underwood L. Scenna P. O’Donnell Bourke 1 Free share awards under the SIP. 2 Nil-cost options granted under the RSP. 3 Options granted under the SAYE scheme. i l g n d o h e r a h S t n e m e r i u q e r y r a l a s % t n e r r u C i l g n d o h e r a h s y r a l a s % 200% 200% n/a n/a n/a n/a n/a n/a 96.5% 94.5% n/a n/a n/a n/a n/a n/a n/a n/a t n e m e r i u q e R ? t e m N N n/a n/a n/a n/a n/a n/a n/a There have been no changes to the holdings listed above between 31 December 2021 and the date of signing of these financial statements. Summary of Shareholder voting The table below shows the results of votes at the Harworth Group plc AGMs on: (1) 25 May 2021 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. Votes For and discretion as a percentage of votes cast For and discretion Against as a percentage of votes cast Against Approval of Annual Remuneration Report Approval of Remuneration Policy 203,170,802 94.02 12,913,342 258,180,271 99.93 191,584 5.98 0.07 ANGELA BROMFIELD Chair of the ESG Committee 21 March 2022 Withheld 39,676 5,733,952 149 Annual Report and Financial Statements 2021Governance Directors’ Report Introduction The Directors present their report and the audited consolidated financial statements for the year ended 31 December 2021. 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: 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 Future developments of the business Going concern Greenhouse gas emissions Post-Balance sheet events Risk management and internal controls Significant related party transactions Viability statement UK Corporate Governance Code Reference Chair’s Introduction, p81 Statement of Corporate Governance, p100 Audit Committee Report, p114 Statement of Corporate Governance,pp89-91 Directors’ Remuneration Report, p149 Directors’ Remuneration Report, p144 Statement of Directors’ Responsibilities, p155 Nominee Committee Report, pp105-109 Strategic Report, p25 Strategic Report, p63 Nominee Committee Report, p109 Strategic Report, p63 Directors’ Remuneration Report, p132 Strategic Report, p29 Statement of Directors’ Responsibilities, pp154-155 Strategic Report, p64 Financial Statements, Note 31, p222 Strategic Report, pp70-77 Audit Committee Report, pp115-116 Financial statements, Note 30, pp219-221 Strategic Report, pp41-43 Statement of Corporate Governance, p86 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 2021 was £127.2m (2020: £33.3m). The net assets attributable to shareholders of the Group increased to £578.0m (2020: £488.7m) over the financial year. The Group’s NAV per share and EPRA NDV per share rose by 18.2% (2020: 5.2%) and 23.5% (2020: 2.8%) respectively during the year. The Board is recommending a final dividend of 0.845 pence per share which, together with the interim dividend of 0.367 pence per share paid in October 2021, makes a combined dividend of 1.212 pence (2020: 1.8 pence) per share. Payment of the final dividend, if approved at the 2021 AGM, will be made on 27 May 2022 to shareholders on the register at the close of business on 6 May 2022. The ex-dividend date will be 5 May 2022. The dividend paid in the year to 31 December 2021 was 1.833 pence (2020: 0.334 pence) per share, comprising the 2020 final dividend of 1.466 pence per share and the interim dividend of 0.367 pence per share for 2021. 150 Harworth Group plcGovernanceShare capital and allotment of shares Details of the Company’s issued share capital are shown in Note 26 to the Financial Statements on page pages 217 to 218. There is only one class of share in issue: ordinary shares of 10 pence each. There are no restrictions on the transfer of shares in the Company, save for the power of the Board to refuse to transfer shares in certain circumstances prescribed by the Articles of Association, and those specified by law or regulation (for example, insider trading laws) and pursuant to the Listing Rules of the Financial Conduct Authority whereby certain employees of the Group require the approval of the Company to deal in the shares. All shares carry equal rights to dividends, voting and return of capital on the winding up of the Company, as set out in the Company’s Articles of Association, and are fully paid. On a show of hands at a general meeting of the Company, every holder of shares present in person and entitled to vote shall have one vote and on a poll every member present in person or by proxy and entitled to vote shall have one vote for every ordinary share held. The notice of the 2022 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 2021 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 2022 AGM and a resolution will be proposed for its renewal. The Company’s issued share capital as at 31 December 2020 was 322,530,807 ordinary shares of 10 pence each. During 2021 the issued share capital was increased as follows: Date Description Number of shares issued Price (discount if applicable) 5 January 2021 30 March 2021 13 May 2021 4 June 2021 11 June 2021 18 June 2021 25 June 2021 9 July 2021 30 September 2021 27 October 2021 Exercise of SAYE options Vesting of LTIP awards 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 19,014 49,463 63,852 31,845 7,762 2,054 7,442 5,136 3,082 4,109 80.6p (20.6%) Nil consideration Nil consideration 87.6p (39%) 87.6p (37.9%) 87.6p (37.9%) 73.9p (50.7%) 87.6p (37.7%) 87.6p (50%) 87.6p (48.5%) As such, as at 31 December 2021, the Company’s issued share capital was 322,724,566 ordinary shares of 10 pence each. There have been no changes to the issued share capital of the Company since 31 December 2021. 151 Annual Report and Financial Statements 2021GovernanceDirectors’ Report continued Under Section 561 of the Companies Act 2006 (Companies Act), if the Directors wish to allot unissued shares for cash (subject to certain exceptions, including allotments pursuant to an approved employee share scheme) they must first offer them to existing shareholders in proportion to their holdings (a pre-emptive offer). By a special resolution at the 2021 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 2021 AGM. The Directors propose to renew this authority at the 2022 AGM. Purchase of the Company’s own shares The Company has authority under a shareholders’ resolution passed at the 2021 AGM to purchase up to 32,259,928 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 2022 AGM. No shares have been purchased by the Company under that authority. A special resolution will be proposed at the 2022 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 financial year ended 31 December 2021 and up to the date of this Report are: Chairman Alastair Lyons (Chair) Executive Directors Lynda Shillaw (Chief Executive) Katerina Patmore (Chief Financial Officer) Independent Non-Executive Directors Angela Bromfield (Senior Independent Director) Ruth Cooke Lisa Scenna Patrick O’Donnell Bourke Non-Executive Directors (not independent) Steven Underwood Martyn Bowes Biographical details of the Directors are contained on pages 82 to 85. 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 133 and 149 respectively. 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 2022 AGM. 152 In accordance with the UK Corporate Governance Code, all Directors will offer themselves for re-election at the 2022 AGM. Save as set out on page 97 of the Corporate Governance Statement 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 includes a focus on credit and liquidity risks to minimise potential adverse effects of the Group’s financial performance; further detail, including the Group’s use of a financial instrument as part of managing the interest rate risk on external borrowings, is set out in Note 23 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 2021. Charitable and political donations The Group made charitable donations during 2021 in the aggregate sum of £61,642 (2020: £43,700). Some of the local and national charities we supported are displayed on page 55. No political donations were made during the year (2020: £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 2021 AGM for certain political donations and expenditure, subject to financial limits, and will seek to renew this authority at the 2022 AGM. Harworth Group plcGovernance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. During 2021, shares issued pursuant to Share Incentive Plan awards were held by Yorkshire Building Society pending maturity. In January 2022, these shares were transferred to Equiniti Limited. At 31 December 2021, the EBT held 5,669 (2020: 4,726) ordinary shares of 10 pence each in the Company and Yorkshire Building Society held 170,918 (2020: 115,760) ordinary shares of 10 pence each in the Company, being in aggregate 176,587 (2020: 120,847) shares which represent 0.05% 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 2021 AGM. The Directors are proposing to seek renewal of that authority at the 2022 AGM. Substantial shareholdings and agreements with shareholders As at the date of this Report the Company had been notified, pursuant to paragraph 5 of the FCA’s Disclosure and Transparency Rules, of the following notifiable voting rights: Name of holder London and Amsterdam Trust Company Pension Protection Fund Goodweather Holdings Limited1 Schroder Investment Management Number of ordinary shares Percentage of total voting rights 84,391,475 73,966,672 45,500,000 16,194,993 26.15% 22.92% 14.10% 5.02% 1 Goodweather Holdings Limited is a member of the Peel Holdings Group Limited. The Company’s relationship with the Pension Protection Fund (PPF) is governed by a relationship agreement pursuant to which, amongst other things, the PPF is entitled to appoint a representative Director to the Board. Change of control provisions Under the terms of the revolving credit facility agreement entered into between National Westminster Bank plc, Santander UK plc, HSBC UK Bank plc and Harworth Estates Property Group Limited (HEPGL) in March 2022, 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 2021 are disclosed in Note 30 to the Financial Statements and referenced in the Corporate Governance Statement at page 97. The Directors’ Report was approved by the Board of Directors and signed on its behalf by: CHRIS BIRCH General Counsel and Company Secretary 21 March 2022 153 Annual Report and Financial Statements 2021GovernanceStatement of Directors’ Responsibilities The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable United Kingdom law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group and Parent Company financial statements in accordance with UK-adopted international accounting standards (IFRSs). 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 the Company and of the profit or loss of the Group and the Company for that period. Under applicable law and regulations, the Directors are also responsible for preparing a strategic report, directors’ report, directors’ remuneration report and corporate governance statement that comply with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Responsibility statements The Directors (see the list of names and roles on pages 82 to 85) confirm, to the best of their knowledge: In preparing these Financial Statements the Directors are required to: • select suitable accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group and Company financial position and financial performance; • • in respect of the Group financial statements, state whether UK-adopted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; in respect of the Parent Company financial statements, state whether UK-adopted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and/or the Group will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s and Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the Company and the Group financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and Parent Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 154 • • • that the consolidated Financial Statements, prepared in accordance with UK-adopted international accounting standards give a true and fair view of the assets, liabilities, financial position and profit of the Parent Company and undertakings included in the consolidation taken as a whole; that the Annual Report, including the strategic report, includes a fair review of the development and performance of the business and the position of the Company and undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and that they consider the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position, performance, business model and strategy. 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 Company prepares cash flow and banking covenant 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 2023 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 Group’s RCF. The Group remains in a strong financial position, with cash and bank headroom of £128m (as at 31 December 2021). 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 businesses including an industrial property portfolio. The Income Generation portfolio has continued to generate income that supports coverage of the overheads of the business and interest from loan facilities, with rent collections for 2021 at 99%. Harworth Group plcGovernance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 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 auditor is unaware; and • each Director has taken all the steps that he or she ought to have taken as a Director to make himself or herself aware of any relevant information and to establish that the Group’s and Company’s auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of section 418 Companies Act. This Statement of Directors’ Responsibilities was approved by the Board and signed by order of the Board: CHRIS BIRCH General Counsel and Company Secretary 21 March 2022 The key risks considered are: • Finance – availability of capital, interest costs, shortfalls in income and valuations; • Markets – a severe but temporary downturn in residential or industrial & logistics markets could reduce potential sales of serviced land and potentially impact on valuations; • Climate Change – the potential impacts of managing climate change transition; • Project Delivery – delays in project works on sites and planning approval processes, and • People – impact on capacity and productivity or increased costs. Following the 2021 strategic review, work was undertaken obtaining financing that supports the requirements and ambitions of the updated strategy. In early 2022 a new £200m Revolving Credit Facility was agreed with HSBC joining as a new lender in addition to current lenders NatWest and Santander. The new five-year agreement significantly increases the level of the facility from £150m to £200m. 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 as well as lower investment property sales; • 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 material decline in the value of land and investment property values; and • a significant increase in interest rates, impacting the cost of the Group’s RCF. A scenario has also been run which demonstrates that very severe loss of revenue, valuation reductions and interest cost increases would be required to breach cash flow and banking covenants. A scenario with initial consideration of potential climate change impacts was also examined for the first time as part of the Group’s increasing focus on climate-related risks and opportunities. Consideration has been given to the impact of the Russian invasion of Ukraine which, whilst not directly impacting the activities of the Group, has the potential to impact through changes in the wider macro-economic environment. Even in the downside scenarios, for the going concern period from the signing of these financial statements, the Group expects to continue to have sufficient cash reserves to continue to operate with headroom on lending facilities and associated covenants and has additional mitigation measures within management’s control, for example reducing development and acquisition expenditure and reducing operating costs, that could be deployed to create further cash and covenant headroom. 155 Annual Report and Financial Statements 2021Governance156 Harworth Group plcFinancial Statements Contents Independent auditor’s report to the members of Harworth Group Plc Consolidated income statement Consolidated statement of comprehensive income Consolidated balance sheet Company balance sheet Consolidated statement of changes in equity Company statement of changes in equity Consolidated statement of cash flows Company statement of cash flows Notes to the financial statements 158 166 167 168 169 170 171 172 173 174 157 Annual Report and Financial Statements 2021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 2021 and of the Group’s profit for the year then ended; • • the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards; the Parent Company financial statements have been properly prepared in accordance with UK adopted international accounting standards 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 2021 which comprise: Group Consolidated income statement for the year ended 31 December 2021 Parent Company Balance sheet as at 31 December 2021 Consolidated statement of comprehensive income for the year ended 31 December 2021 Statement of changes in equity for the year ended 31 December 2021 Consolidated balance sheet as at 31 December 2021 Statement of cash flows for the year ended 31 December 2021 Consolidated statement of changes in equity for the year ended 31 December 2021 Related notes 1-31 to the financial statements including a summary of significant accounting policies Consolidated statement of cash flows for the year ended 31 December 2021 Related notes 1-31 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 UK adopted international accounting standards and, 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group and Parent in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The 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. 158 Harworth Group plcFinancial Statements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: • confirming our understanding of management’s going concern assessment process, through our walkthrough of the Group’s financial close process and also engaging with management early to ensure all factors we identified were considered in their assessment; • obtaining management’s going concern assessment, including the cash forecasts and covenant calculations for the going concern period which covers the period to 30 June 2023. The Group has modelled a base scenario and a severe downside scenario in its cash forecasts and covenant calculations in order to incorporate unexpected changes to the forecasted liquidity of the Group. The downside scenario considered a severe but plausible reduction in development property sales, a material increase in bad debts, a material decline in land and investment property values and a significant increase in interest rates. In this scenario the Group continues to have sufficient cash reserves and headroom on lending facilities and associated covenants. In addition, a scenario has been run which demonstrates that a very severe loss of revenue, valuation reductions and interest cost increases would be required to breach cash flow and banking covenants. • testing the assumptions included in each modelled scenario for the cash forecasts and covenant calculations and considering the impact of Covid-19. We also considered the appropriateness of the models used to calculate the cash forecasts and covenant calculations to determine if they were appropriately sophisticated to be able to make an assessment on going concern; • considering the mitigating factors that could be applied to the cash forecasts and covenant calculations that are within control of the Group, for example, reducing uncommitted development and acquisition expenditure. This included review of the Company’s non- operating cash outflows; • verifying the credit facilities available to the Group including the new March 2022 agreed, five-year, £200m revolving credit facility; • performing reverse stress testing in order to identify what factors would lead to the Group utilising all liquidity or breaching the financial covenants during the going concern period; • reviewing 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 and Parent Company’s ability to continue as a going concern for a period of 16 months to June 2023. In relation to the Group 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 99% of the Group’s Revenue. Key audit matters • Valuation of investment properties • Carrying value of development property Materiality • Overall Group Materiality: £7.6m which represents 1% of total assets. • Specific Group Materiality: £2.3m which represents 5% of Profit before property revaluation movements, finance costs and tax. 159 Annual Report and Financial Statements 2021Financial StatementsIndependent auditor’s report to the members of Harworth Group Plc continued 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 36 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 99% of the Group’s Revenue. For the current year, the full scope components contributed 79% (2020: 80%) of the Group’s Total assets, 74% (2020: 98%) of the Group’s Profit before property revaluation movements, finance costs and tax and 78% (2020: 70%) of the Group’s Revenue. The specific scope component contributed 21% (2020: 20%) of the Group’s Total assets, 25% (2020: 1%) of the Group’s Profit before property revaluation movements, finance costs and tax and 21% (2020: 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 accounts tested for the Group. Of the remaining 25 components that together represent 1% of the Group’s Profit before property revaluation movements, finance costs and tax and 1% 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 the audit team. Total assets Profit before tax (or adjusted PBT measure used) Revenue 79% Full scope components 74% Full scope components 78% Full scope components 21% Specific scope components 25% Specific scope components 21% Specific scope components 0% Other procedures 1% Other procedures 1% Other procedures Changes from the prior year The current year scope is consistent with our approach to the prior year audit. Involvement with component teams All audit work performed for the purposes of the audit was undertaken by the Group audit team. Climate change There has been increasing interest from stakeholders as to how climate change will impact Harworth Group plc. The Group has determined that the most significant future impacts from climate change on their operations will be from embedding environmental sustainability into its Investment and Development property assets. These are explained on pages 65 to 69 in the required Task Force for Climate related 160 Harworth Group plcFinancial StatementsFinancial Disclosures and on pages 71 to 77 in the principal risks and uncertainties, which form part of the “Other information,” rather than the audited financial statements. Our procedures on these disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated. As explained in the Basis of Preparation note governmental and societal responses to climate change risks are still developing, and are interdependent upon each other, and consequently financial statements cannot capture all possible future outcomes as these are not yet known. Our audit effort in considering climate change was focused on ensuring that the effects of climate risks disclosed on pages 65 to 69 have been appropriately reflected in asset values and associated disclosures, being Investment property and Development property. Details of our procedures and findings on Investment property and Development property are included in our key audit matters below. We also challenged the Directors’ considerations of climate change in their assessment of going concern and viability and associated disclosures. Whilst the Group have stated their commitment to the aspirations of the Paris Agreement to achieve net zero emissions by 2050, the Group are currently unable to determine the full future economic impact on their business model, operational plans and customers to achieve this and therefore as set out above the potential impacts are not fully incorporated in these financial statements. Key audit matters Key audit matters are those matters that, in our professional judgement, 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. Risk Our response to the risk Valuation of Investment Property (£478.4m, 2020: £373.1m) Refer to the Audit Committee Report (pages 110 to 117); Accounting policies (page 177); and Note 14 of the Consolidated Financial Statements (pages 198 to 201) At 31 December 2021 Investment property held a value of £478.4m, with a valuation gain of £84.0m 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. Our testing approach to Investment properties included: Performing a walkthrough to understand the key process and identify key controls. This included the valuation, acquisition and disposal processes. Assessing the appropriateness of the valuations, with the assistance of our EY Valuations specialists, through: • Testing the underlying data provided to the external valuer by management, by checking a sample to source documents (e.g. rental contracts, third party costs to complete assessments); • Attending a sample of sites, alongside the external valuer to gain a detailed understanding of the portfolio and the valuation process and to observe the specialist’s inspection; • Reading the external valuer reports for all sites and holding discussions directly with the external valuer regarding its valuation approach, including its consideration of climate risk; and • Validating, for a sample of assets, the appropriateness of the key assumptions applied by the external valuer in forming its valuation by comparing to third party evidence of market activity (e.g. yields, price per acre) and considering contrary evidence. Considering the location of a sample of assets within the UK and assessing whether there was any impairment risk due to potential flooding. We performed the above audit procedures over this risk area at a Group level covering 100% of the risk amount. Key observations communicated to the Audit Committee Based on the work performed, we consider that the external valuers’ 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 valuers’ significant assumptions used in developing the estimate as at the balance sheet date. We consider that the valuation of investment properties held as at the balance sheet date is appropriate. 161 Annual Report and Financial Statements 2021Financial StatementsIndependent auditor’s report to the members of Harworth Group Plc continued Risk Our response to the risk Carrying value of Development Property (£172.7m, 2020: £177.7m) Refer to the Audit Committee Report (page 110-117); Accounting policies (page 176); and Note 16 of the Consolidated Financial Statements (page 205) Development property has a book value of £172.7m at 31 December 2021.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 as well as costs to complete. Our approach to assessing the net realisable value of development property included performing the same procedures as for investment property, as listed above, with additional consideration of the appropriateness of the cost to complete assumptions. For a sample of development properties, we validated cost to complete assumptions to third party surveyor reports and also held a discussion with management to assess the appropriateness of climate-related costs included and corroborated their inclusion to the surveyor reports obtained. 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 • Agreeing a sample of acquisitions and disposals made in the year to the signed contract • Confirming the classification of properties is appropriate based on the nature of the site. We performed the above audit procedures over this risk area at a Group level covering 100% of the risk amount. Key observations communicated to the Audit Committee Based on the work performed, we consider that the external valuer’s methodologies used in developing the estimate of net realisable value 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 carrying value of development properties held as of the balance sheet date is appropriate. 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 materiality for the Group to be £7.6 million (2020: £7.5 million), which is 1% (2020: 1%) of total assets. 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 focused on the valuation of the Group’s assets, primarily the investment property portfolio. We determined materiality for the Parent Company to be £2.1 million (2020: £2.2 million), which is 1% (2020: 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. During the course of our audit, we reassessed initial materiality and amended it for the year end results. 162 Harworth Group plcFinancial Statements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, together with our assessment of the Group’s overall control environment, our judgement was that overall and specific performance materiality was 75% (2020: 50%) of our planning materiality, being £5.7m (2020: £3.7m). For balances where we consider specific materiality to be appropriate, our performance materiality was £1.7m (2020 - £0.4m). We have set performance materiality at this percentage due to this being our second year of engagement and, from our prior year experience, an expectation of a low level of audit differences. 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 them all uncorrected audit differences in excess of £0.4m (2020: £0.4m), which is set at 5% of planning materiality, as well as 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. Other information The other information comprises the information included in the Annual Report set out on pages 2 to 155, 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 this gives rise to 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 statement 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 163 Annual Report and Financial Statements 2021Financial StatementsIndependent auditor’s report to the members of Harworth Group Plc continued 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 Corporate Governance Statement We have reviewed 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 by the Listing Rules. 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 154 to 155; • Directors’ explanation as to its assessment of the Company’s prospects, the period this assessment covers and why the period is appropriate set out on pages 41 to 43; • Director’s statement on whether it has a reasonable expectation that the Group will be able to continue in operation and meets its liabilities set out on page 43; • Directors’ statement on fair, balanced and understandable set out on page 154; • Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 70 to 77; • The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems set out on pages 115 to 117; and; • The section describing the work of the Audit Committee set out on pages 110 to 117 Responsibilities of Directors As explained more fully in the Directors’ responsibilities statement set out on page 154, 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. 164 Harworth Group plcFinancial Statements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 (UK adopted International Accounting Standards, the Companies Act 2006, and the 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 corroborated our enquiries through our review of board minutes, papers provided to the audit committee and discussions with the audit committee. • 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 Financial Reporting Council’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 ended 31 December 2020 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments is two years, covering the years ended 31 December 2020 to 31 December 2021. • 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 21 March 2022 165 Annual Report and Financial Statements 2021Financial StatementsConsolidated Income Statement for the year ended 31 December 2021 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 Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 Note 3 3 3 3 3 3 3 6 6 15 8 109,884 (61,185) 48,699 (19,202) 92,488 (58) 121,927 (4,100) 182 9,225 127,234 (33,244) 93,990 70,001 (59,385) 10,616 (14,522) 31,734 (63) 27,765 (3,473) 377 8,655 33,324 (7,528) 25,796 All activities in the year are derived from continuing operations. Earnings per share from continuing operations attributable to the owners of the Group during the year Basic earnings per share Diluted earnings per share The Notes on pages 174 to 222 are an integral part of the consolidated financial statements. Note 11 11 Pence 29.1 28.9 Pence 8.0 8.0 166 Harworth Group plcFinancial StatementsConsolidated Statement of Comprehensive Income for the year ended 31 December 2021 Profit for the financial year Other comprehensive income/(expense) - items that will not be reclassified to profit or loss: Net actuarial gain/(loss) in Blenkinsopp Pension scheme Revaluation of Group occupied property Deferred tax on other comprehensive (expense)/income items Other comprehensive income/(expense) - items that may be reclassified to profit or loss: Fair value of financial instruments Total other comprehensive income/(expense) Total comprehensive income for the financial year Note 24 8 22 Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 93,990 25,796 262 (200) (137) 670 595 94,585 (339) 48 115 (267) (443) 25,353 167 Annual Report and Financial Statements 2021Financial StatementsConsolidated Balance Sheet as at 31 December 2021 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 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 2021 £’000 As at 31 December 2020 £’000 Note 12 13 17 14 15 16 17 18 19 21 13 8 20 21 13 22 8 24 26 27 681 94 5,369 478,355 36,131 520,630 177,822 49,755 1,925 12,037 241,539 762,169 (94,316) (42) (2,947) (97,305) 144,234 (37,781) (5,686) (52) (156) (42,647) (558) (86,880) (184,185) 577,984 32,272 24,627 199,629 257 45,667 (24) 181,566 93,990 577,984 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) 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 The financial statements on pages 166 to 222 were approved by the Board of Directors on 21 March 2022 and were signed on its behalf by: LYNDA SHILLAW Chief Executive Company Registered Number 02649340 168 KATERINA PATMORE Chief Financial Officer Harworth Group plcFinancial StatementsCompany Balance Sheet as at 31 December 2021 ASSETS Non-current assets Investments in subsidiaries Retirement reimbursement 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 As at 31 December 2021 £’000 As at 31 December 2020 £’000 Note 15 24 8 17 19 21 24 26 27 9 209,300 558 229 210,087 27,751 2,909 30,660 240,747 (26,287) (26,287) 4,373 (558) (558) (26,845) 213,902 32,272 24,627 257 45,667 (24) 119,481 (8,378) 213,902 208,974 968 2,142 212,084 29,495 1,652 31,147 243,231 (14,800) (14,800) 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 166 to 222 were approved by the Board of Directors on 21 March 2022 and were signed on its behalf by: LYNDA SHILLAW Chief Executive Company Registered Number 02649340 KATERINA PATMORE Chief Financial Officer 169 Annual Report and Financial Statements 2021Financial StatementsConsolidated Statement of Changes in Equity for the year ended 31 December 2021 Note Called up share capital £’000 32,191 – – Share premium £’000 24,359 – – Merger reserve £’000 Fair value reserve £’000 45,667 – – 116,121 – 35,658 Capital redemption reserve £’000 Investment in own shares £’000 Retained earnings £’000 Total equity £’000 257 – – (67) 245,251 463,779 25,796 25,796 – (35,658) – – – – – – – – – – – – – – – (18,994) – – – – – – 48 – – 16,712 24 22 8 25 10 26,27 – – 62 32,253 – – – – 208 24,567 – – – – – – – – 45,667 132,833 – 88,586 – – – – – – – – – – – – – – – (21,590) – – – – – – (200) – – 66,796 24 22 8 – – – – – – – – – 257 – – – – – – – – – 18,994 – – – – – – (339) (339) – (267) 48 (267) 115 8,641 115 25,353 (6) – – 393 (1,077) – 387 (1,077) 270 (73) 253,208 488,712 93,990 93,990 – (88,586) – – – 21,590 – – – – 262 262 – 670 (200) 670 (137) – – 27,789 (137) 94,585 25 10 26,27 – – – 19 32,272 – – – 60 24,627 – – – – – – – – 45,667 199,629 – – – – 257 (21) 76 – (6) – 472 (5,913) – (21) 548 (5,913) 73 (24) 275,556 577,984 Balance at 1 January 2020 Profit for the financial year Fair value gains Transfer of unrealised gains on disposal of investment property 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 payment Dividends paid Share issue Balance at 31 December 2020 Profit for the financial year Fair value gains Transfer of unrealised gains on disposal of investment property Other comprehensive (expense)/income: Actuarial gain 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 2021 Transaction with owners: Purchase of own shares Share-based payment Dividends paid Share issue Balance at 31 December 2021 170 Harworth Group plcFinancial StatementsCalled up share capital £’000 32,191 – Share premium £’000 24,359 – Merger reserve £’000 45,667 – Capital redemption reserve £’000 257 – Investment in own shares £’000 (67) – Retained earnings £’000 128,554 (2,917) Total equity £’000 230,961 (2,917) Company Statement of Changes in Equity for the year ended 31 December 2021 Note 24 25 10 26,27 24 Balance at 1 January 2020 Loss for the financial year Actuarial loss in Blenkinsopp pension scheme Deferred tax on actuarial loss on pension scheme Total comprehensive income for year ended 31 December 2020 Transaction with owners: Share-based payment Dividends paid Share issue Balance at 31 December 2020 Loss for the financial year Actuarial gain in Blenkinsopp pension scheme Deferred tax on other comprehensive (expense)/ income items Total comprehensive income for year ended 31 December 2021 Transaction with owners: Purchase of own shares Share-based payment Dividends paid Share issue Balance at 31 December 2021 – – – – – – – – – – – 62 32,253 – – – 208 24,567 – – – – 45,667 – – – – – – – – – – 25 10 26,27 – – – 19 32,272 – – – 60 24,627 – – – – 45,667 – – – – – – 257 – – – – – – – – 257 – – – (339) (339) 64 (3,192) 64 (3,192) (6) – – (73) – 507 (1,077) – 124,792 (8,378) 501 (1,077) 270 227,463 (8,378) – – – 262 262 (34) (8,150) (34) (8,150) (21) 76 – (6) (24) – 374 (5,913) – 111,103 (21) 450 (5,913) 73 213,902 171 Annual Report and Financial Statements 2021Financial StatementsConsolidated Statement of Cash Flows for the year ended 31 December 2021 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 inflow/(outflow) before movements in working capital Decrease in inventories (Increase)/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 Property acquisitions Expenditure on investment properties and assets held for sale Expenditure on property, plant and equipment Cash generated from/(used in) investing activities Cash flows from financing activities Net proceeds from issue of ordinary shares Purchase of own shares Proceeds from other loans Repayment of other loans Proceeds from bank loans Repayment of bank loans Loan arrangement fees Payment in respect of leases Dividends paid Cash used in financing activities (Decrease)/Increase in cash Cash at 1 January (Decrease)/Increase in cash Cash at 31 December Note 6 3 15 25 12, 13 24 10 Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 127,234 3,918 (92,488) (9,225) 426 234 (148) 29,951 4,133 (3,715) 26,669 57,038 (3,531) (3,646) 49,861 182 (1,624) 34 – 44,472 (18,105) (22,851) (32) 2,076 68 (21) 4,900 (4,425) 45,000 (91,000) (1,134) (85) (5,913) (52,610) (673) 12,710 (673) 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 (9,340) (42,647) (115) (19,525) 237 – – (2,932) 82,000 (78,000) (479) (73) (1,077) (324) 877 11,833 877 12,037 12,710 (1) Share-based transactions reflect the non-cash expenses relating to share-based payments included within the income statement. 172 Harworth Group plcFinancial StatementsCompany Statement of Cash Flows for the year ended 31 December 2021 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 Decrease/(increase) in receivables Increase in payables Cash generated from 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 Purchase of own shares Dividends paid Cash used in financing activities Increase in cash Cash at 1 January Increase in cash Cash at 31 December (1) Share-based transactions reflect the non-cash expenses relating to share-based payments included within the income statement. Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 (6,479) (80) 109 262 (6,188) 1,744 11,487 7,043 – 7,043 80 80 68 (21) (5,913) (5,866) 1,257 1,652 1,257 (3,110) (300) 118 (339) (3,631) (328) 4,645 686 (281) 405 581 581 237 – (1,077) (840) 146 1,506 146 2,909 1,652 173 Annual Report and Financial Statements 2021Financial Statements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. The consolidated financial statements for the year ended 31 December 2021 consolidate the results of the Company and its subsidiaries (together referred to as the ‘Group’). 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 international accounting standards in conformity with the requirements of the Companies Act 2006 and UK adopted International Accounting Standards (‘IFRS’). 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. The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report in the Annual Report and the financial statements and notes. The Directors believe that the Group is well placed to manage its business risks successfully. The principal risks that may impact the Group’s performance and their mitigation are outlined in the Principal Risks & Uncertainties statement starting on page 71. After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to fund its operations for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the annual financial statements. 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 Company prepares cash flow and banking covenant 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 2023 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 Group’s RCF. The Group remains in a strong financial position, with cash and bank headroom of £128m (as at 31 December 2021). 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 businesses including an industrial property portfolio. The Income Generation portfolio has continued to generate income that supports coverage of the overheads of the business and interest from loan facilities, with rent collections for 2021 at 99%. The key risks considered are: 1) Finance – availability of capital, interest costs, shortfalls in income and valuations; 2) Markets – a severe but temporary downturn in residential or industrial & logistics markets could reduce potential sales of serviced land and potentially impact on valuations; 3) Climate Change – the potential impacts of managing climate change transition; 4) Project Delivery – delays in project works on sites and planning approval processes, and 5) People – impact on capacity and productivity or increased costs. Following the 2021 strategic review, work was undertaken obtaining financing that supports the requirements and ambitions of the updated strategy. In early 2022 a new £200m Revolving Credit Facility was agreed with HSBC joining as a new lender in addition to current lenders NatWest and Santander. The new five-year agreement significantly increases the level of the facility from £150m to £200m. In addition to the base forecast, a sensitised forecast was produced that reflected a number of severe but plausible downsides. This downside included: 1) a severe reduction in sales to the housebuilding sector as well as lower investment property sales; 2) 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; 3) a material decline in the value of land and investment property values; and 4) a significant increase in interest rates, impacting the cost of the Group’s RCF. A scenario has also been run which demonstrates that very severe loss of revenue, valuation reductions and interest cost increases would be required to breach cash flow and banking covenants. A scenario with initial consideration of potential climate change impacts was also examined for the first time as part of the Group’s increasing focus on climate-related risks and opportunities. Consideration has been given to the impact of the Russian invasion of Ukraine which, while not directly impacting the activities of the Group, has the potential to impact 174 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements1. Accounting policies continued through changes in the wider macro-economic environment. Even in the downside scenarios, for the going concern period from the signing of these financial statements, the Group expects to continue to have sufficient cash reserves to continue to operate with headroom on lending facilities and associated covenants and has additional mitigation measures within management’s control, for example reducing development and acquisition expenditure 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 Group’s and Company’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 2021 and have not been applied in preparing these financial statements. None of these would 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 2022 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 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. 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. Rental income Under IFRS 16 ‘Leases’, 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. Revenue from contracts with customers Under IFRS 15 ‘Revenue from Contracts with Customers’, revenue is measured based on the consideration specified in a contract with a customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for transferring promised goods or services to 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. 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 is 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. 175 Annual Report and Financial Statements 2021Financial Statements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 over time, as the performance obligations are satisfied. Revenue is recognised over time if the Group’s performance creates or enhances an asset that the customer controls as the asset is created. Otherwise, the revenue is recognised at a point in time. The revenue is reported in Other Property Activities within Note 3. 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 fines that have been processed and are 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. Where individual parcels of land held for development are disposed of out of a larger overall development site, costs are apportioned based on an acreage, or other specific allocation where appropriate, after taking into account the cost or net realisable value of any remaining residual land which may not form part of the overall development site or which may not be available for development. Where the Group retains obligations attached to the development site as a whole, accruals are made relating to these disposals on the same allocation basis. 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 fixed fee and/or 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. 176 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements1. Accounting policies continued 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. 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 12 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. 177 Annual Report and Financial Statements 2021Financial Statements1. Accounting policies continued Government grants Government grants are recognised when there is reasonable assurance that the conditions associated with the grants have been complied with and the grants will be received. Grants related to the development of Investment Property and Development Property are deducted from the cost of the related asset. Grants for the reimbursement of operating expenditure are deducted from the related category of costs in the income statement. Once a government grant is recognised, any related deferred income is treated in accordance with IAS 20 ‘Accounting for Government Grants and Disclosure of Government Assistance’. 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 de-recognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Gains or losses arising from changes in the fair value of financial assets are presented in the income statement within ‘other gains’ in the year in which they arise. Interest income is recognised on financial assets by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Financial liabilities Liabilities within the scope of IFRS 9 are classified as financial liabilities at fair value through profit or loss or as 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 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 2021 and 31 December 2020 all contributions have been paid to this scheme by the Company. In the Company balance sheet, a net liability equal to the IAS 19 (revised) liability is recognised, and an equal amount within non-current assets, due to its ability to call upon an indemnity from Harworth Estates Mines Property Limited for this liability if required. 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 the 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. 178 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements1. Accounting policies continued 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 investment portfolio (previously referred to as 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 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. 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 and property, plant and equipment accounting policies. 179 Annual Report and Financial Statements 2021Financial Statements1. Accounting policies continued 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 recorded in other comprehensive income and credited to the revaluation fair value reserve. However, to the extent that it reverses a revaluation deficit of the same asset previously recognised in profit or loss, the increase is recognised in profit or loss. Deficits on revaluations are charged against the fair value reserve to the extent that there are available surpluses relating to the same asset and are otherwise charged to profit or loss. 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 three to four 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 12 months after the end of the reporting period, the derivative is classified as non-current (or separated into current and non-current portions) consistent with the classification of the underlying item. A derivative instrument that is a designated and effective hedging instrument is classified consistent with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and non-current portion only if: 1) a reliable allocation can be made; and 2) it is applied to all designated and effective hedging instruments. Tax Current tax The charge or credit for current tax is based on the results for the year adjusted for items that are either not subject to taxation or for expenditure which cannot be deducted in computing the tax charge or credit. The tax charge or credit is calculated using taxation rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax Deferred tax is recognised using the balance sheet liability method on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. Deferred tax is recognised in respect of all taxable temporary timing differences, with certain limited exceptions: • Deferred tax is not provided on the initial recognition of an asset or liability in a transaction that does not affect accounting profit or taxable profit and is not a business combination; and 180 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements1. Accounting policies continued • 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. In determining fair value measurement, the impact of potential climate-related matters, including legislation, which may affect the fair value measurement of investment property has been considered. 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. 181 Annual Report and Financial Statements 2021Financial Statements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. 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; 2. 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. 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 and Yorkshire Building Society to satisfy Long Term Incentive Plan and Share Incentive Plan awards • 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 • Net loan to portfolio value (Net LTV) – Group debt net of cash held expressed as a percentage of portfolio value Profit excluding value gains (PEVG) has not been included as a key APM from 2021 as it forms part of the EPRA NDV per share and Total Return key APMs but is a non-material component of these measures. PEVG is defined as property net rental, royalty and fee income, net of running costs of the business (adjusted operating profit). It represents the underlying profitability of the business not reliant on property value gains or profits from the sales of properties. 182 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements2. Alternative Performance Measures (“APMs”) continued 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 Increase/(decrease) in fair value of assets classified as held for sale Share of profit of joint ventures Net realisable value provision on development properties Reversal of previous net realisable value provision on development properties Amounts derived from statutory reporting Unrealised gains/(losses) on development properties Unrealised (losses)/gains on assets held for sale Unrealised gains/(losses) 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 Less previously unrealised gains on assets held for sale released on sale Profit on sale Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 Note 3 3 3 3 3 3 3 3 3 3 83,961 1,078 9,225 (1,574) 4,393 97,083 50,437 (15) 500 148,005 1,824 5,625 11,223 2,367 – 21,039 (7,833) (760) 12,446 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) – 6,687 183 Annual Report and Financial Statements 2021Financial Statements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 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 Share of profit of joint ventures Unrealised gains/(losses) on development properties Unrealised (losses)/gains on assets held for sale Unrealised gains/(losses) on overages Less previously unrealised gains on development properties released on sale Less previously unrealised gains on assets held for sale released on sale Operating profit contributing to growth in EPRA NDV Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 Note 148,005 12,446 160,451 121,927 58 (92,488) (16,409) 13,088 109,884 (14,799) (28,773) 41,956 108,268 121,927 9,225 50,437 (15) 500 (7,833) (760) 173,481 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 3 3 3 3 15 184 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements2. Alternative Performance Measures (“APMs”) continued 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 (included within inventories) 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 Note 14 15 18 16 635 478,355 36,131 1,925 172,701 689,747 72,452 – 3,500 765,699 As at 31 December 2021 £’000 As at 31 December 2020 £’000 h. Net debt Gross borrowings Cash Net debt i. Net loan to portfolio value % Net debt Portfolio value Net loan to portfolio value (%) 20 (37,781) 12,037 (25,744) (25,744) 765,699 3.4% 835 373,079 25,316 7,594 177,712 584,536 29,848 775 3,000 618,159 (83,882) 12,710 (71,172) (71,172) 618,159 11.5% 185 Annual Report and Financial Statements 2021Financial Statements2. Alternative Performance Measures (“APMs”) continued j. Net loan to core income generation portfolio value (%) Net debt Core income generation portfolio value (investment portfolio and natural resources) Net loan to core income generation portfolio value (%) k. Gross loan to portfolio value (%) Gross borrowings Portfolio value Gross loan to portfolio value (%) l. Gross loan to core income generation portfolio value (%) Gross borrowings Core income generation portfolio value (investment portfolio and natural resources) Gross loan to core income generation portfolio value (%) m. Number of shares used for per share calculations (number) Number of shares in issue at 31 December Employee Benefit Trust and Yorkshire Building Society held 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) As at 31 December 2021 £’000 As at 31 December 2020 £’000 (25,744) 290,277 8.9% (71,172) 248,004 28.7% (37,781) 765,699 4.9% (83,882) 618,159 13.6% (37,781) 290,277 13.0% (83,882) 248,004 33.8% 14 20 20 14 26 322,724,566 322,530,807 26 26 (185,282) 322,539,284 (120,487) 322,410,320 26 577,984 322,539,284 179.2 488,712 322,410,320 151.6 186 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements2. Alternative Performance Measures (“APMs”) continued 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 (p) EPRA NDV growth Dividends paid per share (p) Total return per share (p) Total return as a percentage of opening EPRA NDV d. Net loan to EPRA NDV Net debt EPRA NDV Net loan to EPRA NDV As at 31 December 2021 £’000 As at 31 December 2020 £’000 Note 577,984 72,452 – 3,500 (16,483) 637,453 488,712 29,848 775 3,000 (6,388) 515,947 26 637,453 322,539,284 197.6 515,947 322,410,320 160.0 160.0 197.6 37.6 23.5% 1.8 39.4 24.6% 155.6 160.0 4.4 2.8% 0.3 4.7 3.0% (25,744) 637,453 4.0% (71,172) 515,947 13.8% 187 Annual Report and Financial Statements 2021Financial Statements3. Segmental Information Segmental Income Statement 31 December 2021 Capital Growth Sale of Development properties £’000 66,312 (49,903) 16,409 – – – 16,409 – – – 16,409 – 11,223 (1,574) 4,393 Other Property Activities £’000 14,799 (3,169) 11,630 (3,365) 57,483 – 65,748 – 172 4,524 70,444 Income Generation £’000 Central overheads £’000 28,773 (8,113) 20,660 (2,130) 35,005 – 53,535 – – 4,701 58,236 – – – (13,707) – (58) (13,765) (4,100) 10 – (17,855) 11,630 – 20,660 – – – – – 2,367 16,409 – 11,630 – 20,660 – – – – – 55,220 364 1,871 28 57,483 28,741 714 (47) 5,597 35,005 – – – – – – – – – – – Total £’000 109,884 (61,185) 48,699 (19,202) 92,488 (58) 121,927 (4,100) 182 9,225 127,234 32,290 11,223 (1,574) 4,393 2,367 48,699 83,961 1,078 1,824 5,625 92,488 Revenue Cost of sales Gross profit (1) Administrative expenses Other gains (2) Other operating expense Operating profit/(loss) Finance costs Finance income 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 Increase in the fair value of assets held for sale Profit/(loss) on sale of investment properties Profit on sale of assets held for sale 188 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements3. Segmental Information continued Segmental Balance Sheet 31 December 2021 Non-current assets Property, plant and equipment Right of use assets Trade and other receivables Investment properties Investments in joint ventures Current assets Inventories Trade and other receivables Assets held for sale Cash Total assets Capital Growth £’000 Income Generation £’000 Central overheads £’000 – – 4,285 182,666 18,929 205,880 177,720 35,737 1,925 – 215,382 421,262 – – 1,084 295,689 17,202 313,975 102 13,665 – – 13,767 327,742 681 94 – – – 775 – 353 – 12,037 12,390 13,165 Total £’000 681 94 5,369 478,355 36,131 520,630 177,822 49,755 1,925 12,037 241,539 762,169 Financial liabilities and derivative financial instruments are not allocated to the reporting segments as they are managed and measured at a Group level. 189 Annual Report and Financial Statements 2021Financial Statements3. Segmental Information continued Segmental Income Statement 31 December 2020 Revenue Cost of sales Gross profit (1) Administrative expenses Other gains (2) Other operating expense Operating profit/(loss) Finance costs Finance income 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 held for sale Profit/(loss) on sale of investment properties Profit on sale of assets held for sale Profit on sale of overages Capital Growth Sale of Development properties £’000 46,929 (54,371) (7,442) – – – (7,442) – – – (7,442) Other Property Activities £’000 2,676 (1,834) 842 (3,080) 12,598 – 10,360 – 367 7,953 18,680 Income Generation £’000 20,396 (3,180) 17,216 (1,872) 19,136 – 34,480 – 1 702 35,183 Central overheads £’000 – – – (9,570) – (63) (9,633) (3,473) 9 – (13,097) – 2,999 (16,208) 4,408 1,359 (7,442) 842 – – – – 842 – – – – – – 6,459 – 5,099 72 968 12,598 17,216 – – – – 17,216 18,946 (295) (69) 482 72 19,136 – – – – – – – – – – – – Total £’000 70,001 (59,385) 10,616 (14,522) 31,734 (63) 27,765 (3,473) 377 8,655 33,324 18,058 2,999 (16,208) 4,408 1,359 10,616 25,405 (295) 5,030 554 1,040 31,734 190 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements3. Segmental Information continued Segmental Balance Sheet 31 December 2020 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 held for sale Cash Total assets Capital Growth £’000 Income Generation £’000 Central overheads £’000 – – 118,940 13,434 132,374 182,017 39,736 1,384 – 223,137 355,511 – – 254,139 11,882 266,021 649 12,574 6,210 – 19,433 285,454 1,007 170 – – 1,177 – 4,131 – 12,710 16,841 18,018 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 at a Group level. 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 Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 (5,186) 11,626 234 10,441 8,265 285 Note 16 5 12, 13 191 Annual Report and Financial Statements 2021Financial Statements5. Employee information The monthly average number of persons (excluding Non-Executive Directors) employed by the Group during the year was: Management and administration Remuneration details of these persons were as follows: Wages and salaries Share-based payment expense Social security costs Other pension costs Group Company Year ended 31 December 2021 Number Year ended 31 December 2020 Number Year ended 31 December 2021 Number Year ended 31 December 2020 Number 85 75 3 3 Group Company Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 9,741 546 800 539 11,626 6,419 633 702 511 8,265 2,357 116 95 41 2,609 1,200 109 135 84 1,528 Key management remuneration relates to the members of the Investment Committee: Short-term employee benefits Post-employment benefits Share-based payments Group Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 4,278 153 463 4,894  2,749  166  247  3,162 Detailed information relating to Directors’ remuneration is disclosed in the Directors’ remuneration report on pages 120 to 149 and forms part of these financial statements. 192 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements6. Finance costs and finance income Total finance income Finance costs – Bank interest – Amortisation of RCF up-front fees and other fees – Other interest Total finance costs Net finance costs During the year no interest has been capitalised in investment or development properties (2020: £nil). 7. Auditors’ remuneration Fees payable to the Company’s 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 8. Tax Analysis of tax (charge)/credit in the year Current tax Current year Adjustment in respect of prior periods Total current tax (charge)/credit Deferred tax Current year Adjustment in respect of prior periods Difference between current tax rate and rate of deferred tax Total deferred tax charge Tax charge Other comprehensive income items Deferred tax - current year Total Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 182 377 (2,795) (1,107) (198) (4,100) (3,918) (2,654) (622) (197) (3,473) (3,096) Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 315 30 345 334 100 434 Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 (6,747) 372 (6,375) (15,974) (162) (10,733) (26,869) (33,244) (137) (137) (449) 838 389 (7,139) 136 (914) (7,917) (7,528) 115 115 193 Annual Report and Financial Statements 2021Financial Statements8. Tax continued The tax charge for the year is higher (2020: higher) than the standard rate of corporation tax in the UK of 19% (2020: 19%). The differences are explained below: Profit before tax Profit before tax multiplied by rate of corporation tax in the UK of 19% (2020: 19%) Effects of: Adjustments in respect of prior periods - deferred taxation Adjustments in respect of prior periods - current taxation Expenses not deducted for tax purposes Revaluation gains/(losses) Share of profit of joint ventures Difference between current tax rate and rate of deferred tax Share options Total tax charge Year ended 31 December 2021 £’000 127,234 (24,174) Year ended 31 December 2020 £’000 33,324 (6,332) (162) 372 (291) 68 1,753 (10,733) (77) (33,244) 136 838 (109) (2,848) 1,644 (914) 57 (7,528) The difference between current tax rate and rate of deferred tax of £10.7m (2020: £0.9m) relates to the increase in deferred tax as a result of new corporation tax rates being substantively enacted. The 2021 reconciling item of £10.7m is reflective of the enacted rate change from 19% to 25% whilst the 2020 reconciling item of £0.9m is reflective of the enacted rate change from 17% to 19%. At 31 December 2021, the Group had a current tax liability of £2.9m (2020: £0.2m) Deferred tax The following is the analysis of deferred tax liabilities presented in the consolidated balance sheet: Deferred tax liabilities Deferred tax assets The movements on the deferred tax account were as follows: At 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 and 1 January 2021 Recognised in the consolidated income statement Recognised in the consolidated statement of comprehensive income Recognised in the consolidated statement of equity At 31 December 2021 As at 31 December 2021 £’000 As at 31 December 2020 £’000 (46,988) 4,341 (42,647) (23,159) 7,392 (15,767) Investment Properties £’000 (15,637) (7,522) – – (23,159) (23,829) – – (46,988) Tax Losses £’000 6,188 (414) – – 5,774 (3,216) – – 2,558 Other Temporary Differences £’000 1,684 19 115 (200) 1,618 176 (137) 126 1,783 Total £’000 (7,765) (7,917) 115 (200) (15,767) (26,869) (137) 126 (42,647) 194 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements8. Tax continued There is deferred tax on UK corporation tax losses carried forward of £2.6m (2020: £5.8m); this balance may be carried forward indefinitely as there is no time limit in respect of using these deferred tax assets. In the March 2020 Budget it was announced that the main rate of UK corporation tax will not reduce to 17% from 1 April 2020 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 deferred tax balances at 31 December 2020 were calculated at 19%. In the Spring Budget 2021, the Government announced an increase in the corporation tax rate from 19% to 25% from 1 April 2023. The rate was substantively enacted on 24 May 2021 and as such the deferred tax balances have been calculated in full on temporary differences under the liability method using the rate expected to apply at the time of the reversal of the balance. As such, the deferred tax assets and liabilities have been calculated using a 19%, a 25% or a blended rate (2020: 19%) as appropriate. 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 £5.3m at 31 December 2021 have not been recognised owing to the uncertainty as to their recoverability. Deferred tax assets of £5.6m were not recognised at 31 December 2020. The Company has recognised a deferred tax asset on its Balance Sheet in 2021 of £0.2m (2020: £2.1m). 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 £8.4m (2020: £2.9m) and the total comprehensive expense for the financial year was £8.2m (2020: £3.2m). The distributable reserves of the Company are £111.1m (2020: £124.8m). 10. Dividends Interim dividend of 0.367p per share for the six months ended 30 June 2021 Full year dividend of 1.466p per share for the year ended 31 December 2020 Interim dividend of 0.334p per share for the six months ended 30 June 2020 Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 1,184 4,729 – 5,913 – – 1,077 1,077 In addition to the interim dividend of 0.367p, the Board has determined that it is appropriate for a final dividend of 0.845p (2020: 1.466p) to be paid per share, bringing the total dividend for the year to 1.212p (2020: 1.800p). The 2020 final dividend was increased to reflect the cancelled final 2019 dividend, excluding which the 2020 dividends totalled 1.102p per share. Given this, the recommended 2021 final dividend and 2021 total dividend represent a 10% increase in line with our dividend policy. There is no change to the current dividend policy to continue to grow dividends by 10% each year. 195 Annual Report and Financial Statements 2021Financial Statements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 2021 £’000 93,990 322,493,443 29.1 325,059,137 28.9 Year ended 31 December 2020 £’000 25,796 322,104,415 8.0 323,840,504 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 and own shares. 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 and 1 January 2021 Additions Decrease in fair value As at 31 December 2021 Depreciation As at 1 January 2020 Depreciation charge As at 31 December 2020 and 1 January 2021 Depreciation charge As at 31 December 2021 Net book value Net book value at 31 December 2021 Net book value at 31 December 2020 Land and Buildings £’000 Office Equipment £’000 787 – 48 835 – (200) 635 – – – – – 378 115 – 493 32 – 525 (115) (206) (321) (158) (479) Total £’000 1,165 115 48 1,328 32 (200) 1,160 (115) (206) (321) (158) (479) 635 835 46 172 681 1,007 At 31 December 2021, the Group had not entered into any contractual commitments for the acquisitions of property, plant and equipment (2020: £nil). 196 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements13. Right of use assets Group Right of use assets Buildings Vehicles Lease liabilities Current Non-current Additions to right of use assets during 2021 were £nil (2020: £0.1m). Group Depreciation charge of right of use assets Buildings Vehicles As at 31 December 2021 £’000 As at 31 December 2020 £’000 74 20 94 42 52 94 117 53 170 77 102 179 Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 44 32 76 44 35 79 The total cash outflow for leases in 2021 was £0.1m (2020: £0.1m). 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 payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. 197 Annual Report and Financial Statements 2021Financial Statements14. Investment properties Investment properties at 31 December 2021 and 31 December 2020 have been measured at fair value. The Group holds five categories of investment property, being Agricultural Land, Natural Resources, the Investment Portfolio (previously called 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 At 1 January 2020 Direct acquisitions Subsequent expenditure Disposals (Decrease)/Increase in fair value Transfers between divisions Transfers from development properties Net transfer to assets held for sale At 31 December 2020 Direct acquisitions Subsequent expenditure Disposals (Decrease)/increase in fair value Transfers between divisions Net transfers from development properties Net transfer to assets held for sale At 31 December 2021 Agricultural Land £’000 Natural Resources £’000 Investment Portfolio £’000 Major Developments £’000 8,119 – 46 (9) (339) 400 – (2,082) 6,135 – 12 – (151) 115 – (699) 5,412 40,187 1,825 157 (1,012) 5,218 (9,500) – (3,777) 33,098 – 239 – (1,912) – – (874) 30,551 160,797 38,168 864 – 14,067 4,150 1,025 (4,165) 214,906 13,502 1,988 (2,497) 30,804 6,101 – (5,078) 259,726 14,889 27 2,446 – 4,514 2,850 2,824 – 27,550 – 8,956 (11,207) 21,609 (6,626) 5,711 (509) 45,483 Strategic Land £’000 69,848 18,300 5,796 (6,552) 1,945 2,100 – (47) 91,390 14,274 6,877 (986) 33,611 410 (5,000) (3,394) 137,183 Total £’000 293,840 58,320 9,309 (7,573) 25,405 – 3,849 (10,071) 373,079 27,776 18,072 (14,690) 83,961 – 711 (10,554) 478,355 Included within investment properties (agricultural land) is a provision of £0.3m (2020: £1.0m) relating to the restoration liability on sites formerly rented to mining tenants. This provision is treated as a reduction of the individual property valuations. During the year, £5.7m (2020: £3.8m) of development property was re-categorised as investment property to reflect a change in use. During the year, £5.0m of investment property was re-categorised to development properties (2020: £nil). 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 As at 31 December 2021 £’000 As at 31 December 2020 £’000 486,433 (4,820) (2,687) (571) 478,355 380,659 (3,420) (2,407) (1,753) 373,079 198 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements  14. Investment properties continued Valuation Process The properties were valued in accordance with the Royal Institution of Chartered Surveyors (RICS) Valuation – Professional Standards (the ‘Red Book’) by BNP Paribas Real Estate and Savills. Both are independent firms acting in the capacity of external valuers with relevant experience of valuations of this nature. The valuations are on the basis of Market Value as defined by the Red Book, which RICS considers meets the criteria for assessing Fair Value under IFRS. The valuations are based on what is determined to be the highest and best use. When considering the highest and best use a valuer will consider, on a property by property basis, its actual and potential uses which are physically, legally and financially viable. Where the highest and best use differs from the existing use, the valuer will consider the cost and the likelihood of achieving and implementing this change in arriving at its valuation. Most of the Group’s properties have been valued on the basis of their development potential which differs from their existing use. At each financial year end, management: • verifies all major inputs to the independent valuation report; • assesses property valuation movements when compared to the prior year valuation report; and • holds discussions with the independent valuer. The different valuation levels are defined as: Level 1: valuation based on quoted market prices traded in active markets. Level 2: valuation based on inputs other than quoted prices included within Level 1 that maximise the use of observable data either directly or from market prices or indirectly derived from market prices. Level 3: where one or more inputs to valuation are not based on observable market data. The Directors determine the applicable hierarchy that each investment property falls into by assessing the level of 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 2021 (2020: 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 discounted cash flows for the operating life of the asset with regard to the residual land value. Investment portfolio 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. Subject to market backdrop, properties that are newly built by Harworth typically have lower yields. As assets are enhanced and improved, these would also be expected to be valued at lower yields. 199 Annual Report and Financial Statements 2021Financial Statements14. Investment properties continued 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 Investment Portfolio properties are provided in the following table: Market value Aggregate ERV Equivalent rental yield % As at 31 December 2021 £’000 As at 31 December 2020 £’000 264,547 16,794 6.8 218,327 14,832 7.1 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 Investment Portfolio assets at 31 December 2021: Change in net income by 5% Change in portfolio net initial yield by 50 basis points 2021 2020 Increase in Sensitivity Value £’000 13,260 (23,206) Decrease in Sensitivity Value £’000 (13,260) 25,880 Increase in Sensitivity Value £’000 10,742 (16,831) Decrease in Sensitivity Value £’000 (10,742) 18,726 The property rental income earned by the Group from its occupied investment property, all of which is leased out under operating leases amounted to £19.5m (2020: £14.8m). Direct operating expenses arising on investment property generating rental income in the year amounted to £6.6m (2020: £3.5m). The bank and other loans are secured by way of fixed equitable charges over investment and development properties. 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 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 for sites valued using residual development appraisals and details of these are provided below: As at 31 December 2021 As at 31 December 2020 Market value (£’000) Sales price per sq. ft Build cost per sq. ft Major developments 44,590 £122-£127 £58-£72 Profit margin % 15% Market value (£’000) Sales price per sq. ft Build cost per sq. ft Profit margin % 27,500 £93–£122 £46–£58 15%–17.5% 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. 200 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements 14. Investment properties continued 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 2021: Change in sales price of 5% Change in build cost of 5% Strategic land 2021 2020 Increase in Sensitivity Value £’000 5,967 (4,550) Decrease in Sensitivity Value £’000 (5,967) 4,611 Increase in Sensitivity Value £’000 6,100 (3,910) Decrease in Sensitivity Value £’000 (5,935) 4,070 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. 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 are provided below: Market value Weighted Average Land value per acre As at 31 December 2021 As at 31 December 2020 Agricultural Land £’000 5,560 Natural Resources £’000 31,705 Strategic Land £’000 140,031 Agricultural Land £’000 7,088 Natural Resources £’000 34,258 Strategic Land £’000 93,436 3 20 81 2 18 56 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 2021: Change in land value per acre by 5% Agricultural Land Natural Resources Strategic Land 15. Investments Investment in subsidiaries (Company balance sheet) Cost and net book amount: At 1 January Grant of equity instruments to employees of subsidiaries At 31 December 2021 2020 Increase in Sensitivity Value £’000 278 1,585 7,002 Decrease in Sensitivity Value £’000 (278) (1,585) (7,002) Increase in Sensitivity Value £’000 354 1,713 4,639 Decrease in Sensitivity Value £’000 (354) (1,713) (4,639) As at 31 December 2021 £’000 As at 31 December 2020 £’000 208,974 326 209,300 208,473 501 208,974 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. 201 Annual Report and Financial Statements 2021Financial Statements15. Investments continued The Company holds investments in the following subsidiaries as at 31 December 2021: Company name Harworth Estates Property Group Limited Cadley Park Management Company Limited Cutacre Country Park Management Company Limited EOS Inc Limited Harworth Estates (Agricultural Land) Limited Harworth Estates (Waverley Prince) Limited Harworth Estates Curtilage Limited Harworth Estates Investments Limited Harworth Estates Limited Harworth Estates Mines Property Limited Harworth Estates Overage Limited Harworth Estates Warwickshire Limited Harworth Surface Water Management (North West) Limited Harworth TRR Limited Logistics North MC Limited Thoresby Vale Management Company Limited Flass Lane Management Company Limited Mapplewell Management Company Limited POW Management Company Limited Riverdale Park Management Company Limited Rossington Community Management Company Limited Simpson Park Management Company Limited South East Coalville Management Company Limited Waverley Community Management Company Limited Ansty Development Vehicle LLP Harworth PV Limited Harworth Regeneration Limited Harworth Services Limited Harworth Estates No 2 Limited Konect Management Company Limited Moss Nook (St Helens) Management Company Limited Coalfield Estates Limited Harworth Estates Group Limited Harworth No.3 Limited Waverley Square Limited Harworth Guarantee Co. Limited Activity Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Non–trading Non–trading Non–trading Dormant Dormant Dormant Liquidation Liquidation Liquidation Liquidation Liquidation Description of shares held Ordinary Ordinary Ordinary 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 Limited by guarantee Limited by guarantee Limited by guarantee Limited by guarantee Partnership Ordinary Ordinary Ordinary Ordinary Ordinary Limited by guarantee Ordinary Ordinary Ordinary Ordinary Limited by guarantee Proportion of nominal value of issued share capital held by the Company % Held directly or indirectly by the Company 100 100 100 100 100 100 100 100 100 100 100 100 100 100 10.86 100 100 100 100 100 100 100 100 100 100 100 100 100 100 7.14 100 100 100 100 100 100 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 Direct Indirect Indirect Indirect Direct Except for those in liquidation, all of the above companies are incorporated in England and Wales and have a registered address of Advantage House, Poplar Way, Rotherham, South Yorkshire, S60 5TR. 202 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements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. Harworth PV Limited was incorporated during the year, on 21 July 2021. Moss Nook (St Helens) Management Company Limited was incorporated during the year, on 1 December 2021. Harworth Trustees Limited and Harworth Secretariat Services Limited were dissolved post year end, on 11 January 2022. The following entities are in the process of liquidation, to complete within 12 months of the year end: Coalfield Estates Limited Harworth Guarantee Co. Limited Harworth Estates Group Limited Harworth No.3 Limited Waverley Square Limited Investment in joint ventures At 1 January Investment in joint ventures Distributions from joint ventures De-recognition on acquisition Share of profits of joint ventures Impairment At 31 December As at 31 December 2021 £’000 As at 31 December 2020 £’000 25,316 1,624 (34) – 9,853 (628) 36,131 33,072 289 (8,930) (7,770) 8,655 – 25,316 The Group holds investments in the following joint ventures as at 31 December 2021: Company name Multiply Logistics North Holdings Limited Multiply Logistics North LP The Aire Valley Land LLP Crimea Land Mansfield LLP Northern Gateway Development Vehicle LLP Activity Trading Trading Trading Trading Trading Description of shares held Ordinary Partnership Partnership Partnership Partnership Proportion of nominal value of issued share capital held by the Company % All of the above companies are incorporated in England and Wales and 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 during the year, on 12 January 2021. Bates Regeneration Limited was dissolved during the year, on 12 October 2021. 20 20 50 50 50 203 Annual Report and Financial Statements 2021Financial Statements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 Net investment Revenue Cost of sales Gross (loss)/profit Administrative expenses Other gains Finance costs Share of profits The Aire Valley Land LLP Multiply Logistics North LP As at 31 December 2021 £’000 As at 31 December 2020 £’000 As at 31 December 2021 £’000 As at 31 December 2020 £’000 17,500 124 17,624 (82) 17,542 13,000 272 13,272 (273) 12,999 16,791 720 17,511 (309) 17,202 11,662 270 11,932 (50) 11,882 The Aire Valley Land LLP Multiply Logistics North LP Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 – (29) (29) (16) 4,592 (1) 4,546 225 (40) 185 (5) 1,601 – 1,781 481 (34) 447 (152) 5,031 – 5,326 407 (89) 318 (33) 417 – 702 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 As at 31 December 2021 £’000 As at 31 December 2020 £’000 375 1,071 1,446 (59) 1,387 (19) 376 64 440 (5) 435 (173) 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. 204 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements16. Inventories Development properties Planning promotion agreements Option agreements Finished goods Total inventories As at 31 December 2021 £’000 As at 31 December 2020 £’000 172,701 3,865 1,154 102 177,822 177,712 2,961 1,344 649 182,666 The total cost of inventory recognised as an expense within cost of sales in the year is £50.3m (2020: £54.7m) and comprises: £54.9m (2020: £43.9m) relating to the sale of development properties; a credit of £5.2m (2020: £10.5m charge) in relation to the net realisable value provision against development properties; a charge of £0.1m (2020: £0.3m) in relation to planning promotion agreements; and a charge of £0.5m (2020: £0.0m) relating to finished goods stocks. Finished goods are stated after a provision of £0.5m (2020: £0.2m). The movement in development properties is as follows: At 1 January Acquisitions Subsequent expenditure Disposals Net realisable value provision release/(charge) Net transfer to investment properties At 31 December The movement in net realisable value provision on development properties was as follows: At 1 January Charge for the year Released on disposals Reversal of previous net realisable value provision At 31 December As at 31 December 2021 £’000 As at 31 December 2020 £’000 177,712 40 29,482 (39,008) 5,186 (711) 172,701 202,092 – 27,860 (37,950) (10,441) (3,849) 177,712 As at 31 December 2021 £’000 As at 31 December 2020 £’000 17,340 1,574 (2,367) (4,393) 12,154 6,899 16,208 (1,359) (4,408) 17,340 The reversal of previous net realisable value provision occurs where development properties have an increase in net realisable value which offsets a previous net realisable value charge. The bank and other loans are secured by fixed equitable charges over development and investment properties. 205 Annual Report and Financial Statements 2021Financial Statements17. Trade and other receivables Current Trade receivables Less: provision for impairment of trade receivables Net trade receivables Other receivables Prepayments Accrued Income Amounts owed by subsidiary undertakings (note 30) Non-current Trade receivables Other receivables Group Company As at 31 December 2021 £’000 As at 31 December 2020 £’000 As at 31 December 2021 £’000 As at 31 December 2020 £’000 24,078 (27) 24,051 23,672 1,012 1,020 – 49,755 4,285 1,084 5,369 35,742 (308) 35,434 18,785 957 1,265 – 56,441 – – – – – – 9 7 – 27,735 27,751 – – – – – – 59 46 – 29,390 29,495 – – – 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 is £22.9m (2020: £33.4m) of deferred consideration on the sale of investment and development property. The non-current trade receivable of £4.3m (2020: £nil) relates to deferred consideration on the sale of development properties due in more than one year. Included within other receivables are £0.0m (2020: £3.5m) of cash held in accounts over which third party infrastructure loan providers have a charge and £2.5m (2020: £nil) of restricted cash as part of an agreement with a third party. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables as disclosed in Note 23. The Group and Company do not hold any collateral as security. The amounts owed to the Company by subsidiary undertakings are repayable on demand. Interest is payable at SONIA + 2% (2020: LIBOR +2%). Group Movements on provisions for impairment of trade receivables are as follows: As at 31 December 2021 £’000 As at 31 December 2020 £’000 (308) 281 (27) (109) (199) (308) At the beginning of the year Released/(provided) for in the year At the end of the year 206 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements17. Trade and other receivables continued 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 Ageing of impaired trade receivables: 91 – 120 days 120+ Days As at 31 December 2021 £’000 As at 31 December 2020 £’000 21,914 2,137 27 (27) 24,051 33,666 1,768 308 (308) 35,434 As at 31 December 2021 £’000 As at 31 December 2020 £’000 – 2,054 83 2,137 1,389 7 372 1,768 As at 31 December 2021 £’000 As at 31 December 2020 £’000 16 11 27 308 – 308 18. Assets Held For Sale Assets classified as held for sale relate to investment properties identified as being for sale within 12 months, where a sale is considered highly probable and the property is immediately available for sale. At 1 January Net transfer from investment properties Subsequent expenditure Increase/(decrease) in fair value Disposals At 31 December As at 31 December 2021 £’000 As at 31 December 2020 £’000 7,594 10,554 1 1,078 (17,302) 1,925 11,252 10,071 24 (295) (13,458) 7,594 207 Annual Report and Financial Statements 2021Financial Statements19. Cash Cash 20. Borrowings Group Company As at 31 December 2021 £’000 As at 31 December 2020 £’000 As at 31 December 2021 £’000 As at 31 December 2020 £’000 12,037 12,710 2,909 1,652 Non-current: Secured – bank loans Secured – infrastructure loans and direct development loans Total borrowings Loans are stated after deduction of unamortised borrowing costs of £1.2m (2020: £0.4m). Infrastructure loans Homes and Communities Agency Merseyside Pension Fund North West Evergreen Limited Partnership Simpson Park Bardon Hill Plot H Logistics North, Bolton Total infrastructure loans Bank loan Total borrowings As at 31 December 2021 £’000 As at 31 December 2020 £’000 (33,318) (4,463) (37,781) (37,781) (79,740) (4,142) (83,882) (83,882) As at 31 December 2021 £’000 As at 31 December 2020 £’000 – (1,572) (2,891) (4,463) (33,318) (37,781) (4,142) – – (4,142) (79,740) (83,882) The bank borrowings are part of a £150.0m (2020: £130.0m) Revolving Credit Facility (‘RCF’) provided by NatWest and Santander in place at 31 December 2021. The term of the facility was extended for two years on 13 February 2018 and was repayable on 13 February 2023 (five-year term) on a non-amortising basis and subject to financial and other covenants. In November 2021 NatWest and Santander agreed to increase the RCF by £20.0m to £150.0m and extend the repayment date to February 2024. Following the year end, a new RCF has been put in place with NatWest, Santander and HSBC. The new RCF has a limit of £200.0m with an uncommitted accordion facility of £40.0m and is repayable in 2027. The bank borrowings are secured by fixed equitable charges over investment properties. The facility is non- amortising and subject to financial and other covenants. 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 repaid on agreed dates or when disposals are made from the sites. 208 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements21. Trade and other payables Current liabilities Trade payables Amounts owed to subsidiary undertakings Taxation and social security Other creditors Accruals Deferred income Group Company As at 31 December 2021 £’000 As at 31 December 2020 £’000 As at 31 December 2021 £’000 As at 31 December 2020 £’000 2,104 – 14,394 4,102 63,166 10,550 94,316 1,658 – 4,968 9,528 43,308 7,024 66,486 54 24,205 190 26 1,812 – 26,287 22 13,926 78 16 758 – 14,800 The amounts owed by the Company to subsidiary undertakings are repayable on demand. Interest is payable at SONIA + 2% (2020: LIBOR + 2%). Amounts in accruals and deferred income 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 2021 £’000 As at 31 December 2020 £’000 As at 31 December 2021 £’000 As at 31 December 2020 £’000 48,781 33,361 – – Group Company As at 31 December 2021 £’000 As at 31 December 2020 £’000 As at 31 December 2021 £’000 As at 31 December 2020 £’000 4,540 1,146 5,686 720 1,234 1,954 – – – – – – 22. 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 2.35% margin under the RCF. The all-in cost changed to 1.184% from 31 December 2021 as part of the transition from LIBOR to SONIA. 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 2021 was a liability of £0.2m (2020: £0.8m) . During the year the following gain/(loss) was recognised in the other comprehensive income statement in relation to the interest rate swap: Gain/(loss) on interest rate swap - cash flow hedge As at 31 December 2021 £’000 As at 31 December 2020 £’000 670 (267) The Group’s principal financial instruments include trade and other receivables, cash, interest bearing borrowings and trade and other payables. 209 Annual Report and Financial Statements 2021Financial Statements22. Financial instruments and derivatives continued Other financial assets and liabilities Group Financial assets held at amortised cost Cash Trade and other receivables Financial liabilities held at amortised cost Bank and other borrowings Trade and other payables Company Financial assets held at amortised cost Cash Trade and other receivables Financial liabilities held at amortised cost Trade and other payables As at 31 December 2021 As at 31 December 2020 Book value £’000 Fair value £’000 Book value £’000 Fair value £’000 12,037 53,092 37,781 85,608 12,037 53,092 37,781 85,608 12,710 54,219 83,882 63,472 12,710 54,219 83,882 63,472 As at 31 December 2021 As at 31 December 2020 Book value £’000 Fair value £’000 Book value £’000 2,909 27,744 2,909 27,744 1,652 29,392 Fair value £’000 1,652 29,392 26,097 26,097 14,722 14,722 In accordance with IFRS 9, the Group classifies the assets and liabilities in the analysis above as ‘loans and receivables’ and ‘other financial liabilities’, respectively. 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. 23. Financial risk management The Group’s overall risk management programme focuses on credit and liquidity risks to minimise potential adverse effects on the Group’s financial performance. Risk management is carried out centrally under policies approved by the Board of Directors. The Board discusses and agrees courses of action to cover material risk management areas, including credit risk and investment of excess liquidity. Credit risk The Group is subject to credit risk arising from outstanding receivables and committed cash and cash equivalents and deposits with banks and financial institutions. The Group’s policy is to manage credit exposure to trading counterparties by trading within defined 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, the details of which are set out in Note 22. The Group also has two (2020: one) infrastructure loans with an all-in funding rate of between 3.0% and 5.9% (2020: 4.0%). Liquidity risk The Group is subject to the risk that it will not have sufficient liquid resources to fund its ongoing business. The Group manages its liquidity requirements with the use of operating cash flows, cash balances and drawdowns under its RCF. The Group had net debt at 31 December 2021 of £25.7m (2020: £71.2m). The Group generated cash from operating activities and investing activities for the year of £51.9m (2020: cash generated of £1.2m). 210 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements 23. 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 2021 Trade and other payables Lease liability Bank and other borrowings including interest payable At 31 December 2020 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 83,766 42 – 66,486 77 – 3,456 28 – 872 50 4,142 1,084 24 37,781 457 52 79,740 – – – 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 the cost of capital. The Group manages and monitors its cash balances and bank borrowings to ensure it has sufficient capital to manage and maintain its business activities. Cash balances are disclosed in Note 19. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group monitors capital on the basis of net debt to equity. Net debt is total debt less cash and at 31 December 2021 this was £25.7m (2020: £71.2m) The Group had in place at 31 December 2021 a £150.0m (2020: £130.0m) RCF from NatWest and Santander as discussed in Note 20. The facility is subject to financial covenants, including loan to market value of investment properties, minimum interest cover, gearing, and minimum consolidated net worth. The Group operated within these requirements throughout the year. Following the balance sheet date, the Group entered into a new five year £200m RCF (the “New RCF”), with a £40m accordion. The facility is provided by NatWest, Santander and HSBC, bringing a new bank into the Group’s syndicate. The New RCF is aligned to the Group’s strategy and provides significant additional liquidity and flexibility to enable it to pursue its strategic objectives. The new facility is subject to financial covenants, including minimum interest cover, maximum infrastructure debt as a percentage of property value and gearing. 211 Annual Report and Financial Statements 2021Financial Statements24. 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 (2020: £0.5m) . 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 have 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 liability in respect of retirement benefit obligations is: Relating to continuing activities Blenkinsopp Group Company As at 31 December 2021 £’000 As at 31 December 2020 £’000 As at 31 December 2021 £’000 As at 31 December 2020 £’000 558 968 558 968 Contributions to the Blenkinsopp scheme of £0.2m were made by the Group during 2021 (2020: £0.2m). It is expected that contributions of a similar amount will be paid in 2022. At December 2021, no contributions remained unpaid (2020: £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, and the rates of increase in pensions. There are no active members of this scheme. The main assumptions underlying the valuation of the Blenkinsopp scheme were: Discount rate Rate of pension increases Rate of price inflation (RPI) Rate of price inflation (CPI) Rate of cash commutation Life expectancy at age 65 for current pensioners (years) Male Female Life expectancy at age 65 for future pensioners currently aged 45 (years) Male Female As at 31 December 2021 £’000 1.90% p.a. 2.70% p.a. 3.35% p.a. 2.75% p.a. 25.00% of pension at a rate of £9:£1 As at 31 December 2020 £’000 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 2021 As at 31 December 2020 19.3 22.6 20.7 24.2 19.3 22.6 20.7 24.1 The assumed pension increases depend on the period of service accrual (before April 1997: no increases, after 1997: in line with statutory minimum increases based on consumer price inflation). 212 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements24. Retirement benefit obligations continued Defined benefit obligations The amounts recognised in the Balance Sheet are: Fair value of plan assets Present value of funding obligations Net liability recognised in the Balance Sheet 2021 £’000 2,747 (3,305) (558) 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) The Blenkinsopp scheme does not own any shares in the Company. The amounts recognised in the Consolidated Income Statement are: Analysis of the amounts recognised in the Income Statement Expenses Interest cost Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 (48) (12) (60) (49) (14) (63) A further credit of £0.3m (2020: cost £0.3m) has been reflected in the Statement of Comprehensive Income in the year. This represents the net effect of experience, and actuarial gains and losses on the scheme in the year. Change in assets Fair value of plan assets at the start of the year Interest income Actual return on scheme assets excluding interest income Employer contributions Expenses Benefits paid Fair value of plan assets at the end of the year Plan assets, which are all quoted investments, are comprised as follows: Analysis of plan assets (which are all quoted investments) Gilts Diversified and multi-asset growth funds Delegated solutions Sterling liquidity fund Other Total As at 31 December 2021 £’000 As at 31 December 2020 £’000 2,537 33 126 208 (48) (109) 2,747 2,313 48 104 205 (49) (84) 2,537 As at 31 December 2021 £’000 As at 31 December 2020 £’000 1,781 – 926 15 25 2,747 1,626 268 – – 643 2,537 213 Annual Report and Financial Statements 2021Financial Statements24. Retirement benefit obligations continued 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 – (Loss)/gain arising from changes in experience – Gain/(loss) arising from changes in financial assumptions Benefits paid Present value of defined benefit obligation at the end of the year Analysis of the movement of the Balance Sheet liability At the start of the year Total amounts recognised in the Income Statement Employer contributions Net actuarial gain/(loss) recognised in the year At the end of the year The duration of the defined benefit obligation is c.17 years (2020: c.18 years). Cumulative actuarial gains and losses recognised in equity At the start of the year Net actuarial gain/(loss) recognised 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 As at 31 December 2021 £’000 As at 31 December 2020 £’000 (3,505) (45) 10 (12) 138 109 (3,305) (3,084) (62) (14) 68 (497) 84 (3,505) As at 31 December 2021 £’000 As at 31 December 2020 £’000 (968) (60) 208 262 (558) (771) (63) 205 (339) (968) As at 31 December 2021 £’000 As at 31 December 2020 £’000 (949) 262 (687) (610) (339) (949) Year ended 31 December 2021 £’000 Year ended 31 December 2020 £’000 126 (12) 138 10 262 104 68 (498) (13) (339) 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. 214 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements24. Retirement benefit obligations continued 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 As at 31 December 2021 £’000 As at 31 December 2020 £’000 56 49 150 62 54 163 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 delegated solutions as detailed earlier in the note. 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 retirement. An increase in the life expectancy of the participants will increase the Scheme’s liability. 25. 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. • 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 as detailed on page 144 of the Directors’ Remuneration Report. • Save As You Earn (SAYE). Under this scheme eligible employees enter into a savings contract for a period of three years. Share options are granted on commencement of the savings contract and are exercisable using the amount saved under the contract at the time it terminates. Share options are granted at a discount of up to 20% of the market value of the shares at the time of invitation. The exercise of the share options is subject to continued employment only. • Share 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. 215 Annual Report and Financial Statements 2021Financial Statements25. Share-based payments continued The movements in the number of share options outstanding and their weighted average exercise prices are as follows: Number of shares Weighted average exercise price 2021 151,800 – (136,469) (14,264) 1,067 1,067 6.26 years 2020 169,799 – (17,999) – 151,800 – 7.27 years Number of shares 2021 2020 456,101 – (406,638) (49,463) – – – 972,507 – (250,355) (266,050) 456,101 – 7.27 years 2021 £0.00 n/a £0.00 £0.00 £0.00 £0.00 2020 £0.00 n/a £0.00 n/a £0.00 n/a Weighted average exercise price 2021 £0.00 n/a £0.00 £0.00 n/a n/a 2020 £0.00 n/a £0.00 £0.00 £0.00 n/a Number of shares Weighted average exercise price 2021 921,769 664,339 (83,225) – 1,502,883 – 8.66 years 2020 379,230 593,801 (51,262) – 921,769 – 9.19 years Number of shares 2021 2020 865,055 175,063 (109,377) (53,211) 877,530 – 2.03 years 571,976 787,692 (149,088) (345,525) 865,055 1,339 2.76 years 2021 £0.00 n/a £0.00 £0.00 n/a n/a 2020 £0.00 £0.00 £0.00 n/a £0.00 n/a Weighted average exercise price 2021 £0.81 £1.02 £0.79 £0.86 £0.82 n/a 2020 £0.88 £0.74 £0.94 £0.80 £0.78 £0.81 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 Weighted average remaining contractual life 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 Weighted average remaining contractual life 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 216 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements    25. Share-based payments continued 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 2021 101,310 63,852 (14,425) (2,892) 147,845 2020 54,320 62,465 (9,673) (5,802) 101,310 2021 £0.00 £0.00 £0.00 £0.00 £0.00 2020 £0.00 £0.00 £0.00 £0.00 £0.00 The fair values of the share options granted under the RSP and SAYE during the year were determined using Black–Scholes valuation methodology. The significant inputs to the valuation models were as follows: Share price at date of grant Exercise price Dividend yield Expected volatility Risk free interest rate Expected term Weighted average fair value RSP SAYE £1.28 £0.00 0.01% 0.33% n/a 4.90 years £1.06 £1.28 £1.02 0.01% 0.32% – 3.33 years £0.35 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 2018 DSBP Scheme were exercised in the year with a weighted average share price on exercise of £1.50. Awards under the 2018 LTIP Scheme were exercised in the year with a weighted average share price on exercise of £1.26. Awards under the 2018 SAYE Scheme and 2020 SAYE Scheme were exercised in the year with a weighted average share price on exercise of £1.47. The total charge for the year relating to employee share-based payment plans was £0.5m (2020: £0.6m), all of which related to equity- settled share-based payment transactions. 26.Share capital Issued, authorised and fully paid Group and Company At 1 January Shares issued At 31 December As at 31 December 2021 £’000 As at 31 December 2020 £’000 32,253 19 32,272 32,191 62 32,253 217 Annual Report and Financial Statements 2021Financial Statements26.Share capital continued 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 As at 31 December 2021 As at 31 December 2020 322,530,807 193,759 322,724,566 (185,282) 322,539,284 321,909,382 621,425 322,530,807 (120,487) 322,410,320 There is only one class of share in issue: ordinary shares of 10 pence each. 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. The own shares held represent the number of shares held by the Employee Benefit Trust and Yorkshire Building Society to satisfy Long Term Incentive Plan awards for Executive Directors and Senior Executives and Share Investment Plan awards for employees. 27. Share premium account Group and Company At 1 January Premium on shares issued At 31 December As at 31 December 2021 £’000 As at 31 December 2020 £’000 24,567 60 24,627 24,359 208 24,567 28. Commitments At 31 December 2021 the Group had contractual commitments due under construction contracts of £5.6m (2020: £nil). 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 Developments as set out in Note 14. 29. Operating leases Future minimum lease receipts At 31 December 2021 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 As set out in Note 14, property rental income earned during the year was £19.5m (2020: £14.8m). Group As at 31 December 2021 £’000 As at 31 December 2020 £’000 17,220 14,689 13,100 11,033 10,200 122,303 188,545 15,991 13,353 12,003 11,150 10,469 118,267 181,233 218 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements30. Related party transactions Group The Group carried out the following transactions with related parties during 2021. 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 overages Disposal proceeds at Logistics North Purchases Reimbursement of technical due diligence Receivables Deferred consideration for land at Logistics North MULTIPLY LOGISTICS NORTH HOLDINGS LIMITED & MULTIPLY LOGISTICS NORTH LP Revenue Recharges of costs Asset management fee Water charges Purchases Diversion of surface water drain Receivables Trade receivables Other receivables POLYPIPE Revenue Rent Receivables Trade receivables WAVERLEY SQUARE LIMITED Shareholder loan made during the year* Year ended/as at 31 December 2021 £’000 Year ended/as at 31 December 2020 £’000 – 2,019 91 200 987 – – – Year ended/as at 31 December 2021 £’000 Year ended/as at 31 December 2020 £’000 136 271 107 – 66 – – 107 100 97 153 285 Year ended/as at 31 December 2021 £’000 Year ended/as at 31 December 2020 £’000 25 6 5 – Year ended/as at 31 December 2021 £’000 Year ended/as at 31 December 2020 £’000 – 169 * Waverley Square Limited became a fully owned subsidiary of the Group on 26 June 2020 and has been placed into liquidation, to complete within 12 months of the year end. 219 Annual Report and Financial Statements 2021Financial Statements30. Related party transactions continued THE AIRE VALLEY LAND LLP Partner loan repayment Profit share received during the year Receivable CRIMEA LAND MANSFIELD LLP Partner loan repayment 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 BATES REGENERATION LIMITED Shareholder loan repayment* *Bates Regeneration Limited was dissolved during the year, on 12 October 2021. BANKS GROUP Revenue Annual option sums Provision of certificate regarding title Payables Trade payables Deferred payment in respect of the acquisition of land at Moss Nook 220 Year ended/as at 31 December 2021 £’000 Year ended/as at 31 December 2020 £’000 – – 26 (7,951) (979) 2 Year ended/as at 31 December 2021 £’000 Year ended/as at 31 December 2020 £’000 (30) – – 2 Year ended/as at 31 December 2021 £’000 Year ended/as at 31 December 2020 £’000 1,003 25 – 528 Year ended/as at 31 December 2021 £’000 Year ended/as at 31 December 2020 £’000 – – 7,848 (3,803) Year ended/as at 31 December 2021 £’000 Year ended/as at 31 December 2020 £’000 (4) – Year ended/as at 31 December 2021 £’000 Year ended/as at 31 December 2020 £’000 5 – – – 5 1 (5) (1,000) Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial Statements30. Related party transactions continued Company The Company carried out the following transactions with subsidiary undertakings. Details of the Company’s intercompany balances and interest receivable/(payable) 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 Overages 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 Harworth Estates Warwickshire Limited Harworth TRR Ltd Logistics North MC Limited POW Management Company Limited Rossington Community Management Company Limited Flass Lane Management Company Limited Mapplewell Management Company Limited Cadley Park Management Company Limited Simpson Park Management Company Limited Ansty Development Vehicle LLP Year ended/as at 31 December 2021 Year ended/as at 31 December 2020 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) £’000 411 (64) (33) (166) – – – 45 (6) (108) (10) – – – – – – – – – – – 69 19,238 (4,655) (1,824) (10,283) – 2 6,256 2,216 (265) (6,662) (510) – 2 13 2 (1) (1) (1) (1) (1) (1) 6 3,530 526 (51) (39) (92) – – – 54 (7) (90) (2) – – – – – – – – – – – 299 20,970 (2,881) (1,551) (4,605) (49) – 6,250 2,170 (274) (4,035) (502) (29) – – – – – – – – – – 15,464 Dividends received During the year the Company received dividends of £nil (2020: £nil) from subsidiary undertakings. 221 Annual Report and Financial Statements 2021Financial Statements31. Post balance sheet events Following the balance sheet date Harworth has agreed a new senior debt package comprising a five-year £200 million RCF together with a £40 million uncommitted accordion option, provided by NatWest, Santander and HSBC. The facility replaces Harworth’s previous RCF with NatWest and Santander, which was increased from £130 million to £150 million in 2021, and had an expiry date of February 2024. The new RCF is aligned to Harworth’s strategy to reach £1bn of EPRA NDV over five to seven years and provides significant additional liquidity and flexibility. The interest rate of the facility is on a ratchet mechanism with a margin payable above SONIA in the range of 2.25% to 2.50%. Harworth’s financing strategy remains to be prudently geared. The Income Generation portfolio provides a recurring income source to service debt facilities and this is supplemented by proceeds from an established sales track record that has been built up since re-listing in 2015. To deliver the strategic plan, Harworth has adopted a target net loan to portfolio value at year end of below 20%, with a maximum year end net loan to portfolio value of 25%. The Group will continue to use site-specific development and infrastructure loans alongside the main banking facilities to support the revised strategy. There are no other post balance sheet events to disclose that have not been disclosed publicly by a regulatory news announcement. 222 Notes to the financial statementsfor the year ended 31 December 2021Harworth Group plcFinancial StatementsGlossary of frequently used terms and abbreviations 2018 Code AGM AMP APM BCP BREEAM CDM CEO CFO CIO COO CPD DSBP EA EAP EBT EPRA ERV ESG EY GDPR GLC GRAM GVA KPI KWh LEP LTIP LTV NAV NDV PEVG PPA PSG PV RCF RICS RIDDOR RSP SAYE Senior Executive Senior Leadership Team SIP SSSI TCFD TSR WAULT 2018 UK Corporate Governance Code Annual General Meeting Advanced Manufacturing Park Alternative Performance Measure Business Continuity Plan Building Research Establishment Environmental Assessment Method Construction Design and Management Chief Executive Chief Financial Officer Chief Investment Officer Chief Operating Officer Continuous Professional Development Deferred Share Bonus Plan Environment Agency Employee Assistance Programme Employee Benefit Trust European Public Real Estate Association Estimated Rental Value Environmental, Social and Governance Ernst & Young LLP General Data Protection Regulation Group Leadership Committee Group Risk and Assurance Map Gross Value Added Key Performance Indicator Kilowatt hours Local Enterprise Partnership Long-Term Incentive Plan Loan to portfolio value Net Asset Value Net Disposal Value Profit Excluding Value Gains Planning Promotion Agreement People Steering Group Photo-Voltaic Revolving Credit Facility Royal Institution of Chartered Surveyors Reporting of Injuries, Diseases and Dangerous Occurrences Regulations Restricted Share Plan Save As You Earn Comprises the CEO, CFO, COO, CIO and General Counsel Comprises the Investment Committee and Group Leadership Committee, see page 89 Share Incentive Plan Site of Special Scientific Interest Task Force on Climate-Related Financial Disclosures Total Shareholder Return Weighted average unexpired lease-term 223 Annual Report and Financial Statements 2021Financial Statements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 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 HSBC UK Bank plc 1 Centenary Square Birmingham, B1 1HQ 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 The Bessemer Conference Room, AMP Technology Centre, Advanced Manufacturing Park, Brunel Way, Catcliffe, Rotherham, S60 5WG. Interim Results Announcement 2022 Interim Results to be published at www.harworthgroup.com/investors 24 May 2022 September 2022 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. 224 Harworth Group plcFinancial Statements Harworth Group plc Head Office Advantage House Poplar Way Rotherham S60 5TR @harworthgroup @HarworthGroup harworthgroup harworthgroup.com 

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