UNAUDITED INTERIM RESULTS

HARWORTH GROUP PLC

UNAUDITED INTERIM RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2019

 STRONG SALES PROGRESS AND BENEFITS OF REGIONAL OPERATING MODEL

UNDERPIN SOLID FIRST HALF

Harworth Group plc ("Harworth" or the "Group"), a leading regenerator of land and property for development and investment, announces its interim results for the half year ended 30 June 2019.

Harworth's Chief Executive, Owen Michaelson, said:

"Harworth has made good progress against its strategic priorities, benefiting from our focus on placemaking to capitalise on the continued strength of our regional markets.  Demand for consented land in our core markets remains strong, with land for 1,091 residential plots sold alongside the completion or exchange of a further 55 acres for commercial development.  Proceeds from these sales will be reinvested into the wider portfolio for ongoing site remediation and infrastructure works, alongside new strategic land and income-producing acquisitions.

"The appointment of Ian Ball as our first Chief Operating Officer, who has oversight of our new regional teams in the North West, Midlands and Yorkshire & Central, was the latest evolution of our business model that has already begun to deliver results.  Six sites were purchased in our core regions, comprising a mix of strategic land and income producing opportunities, for a total consideration including costs of £18.8m.  Alongside this we have continued to refine the portfolio, with the disposal of a further 1,400 acres of agricultural and former surface mining land with little development potential, allowing us to focus management time on the highest value-add opportunities.

"The May local elections, which resulted in the change of political control of some local authorities, is delaying the determination of a handful of our live outline planning applications and has prompted changes to the planning strategy for a small number of sites within our pipeline.  We are confident that these are short-term headwinds and I expect that our carefully considered applications, our track record and our expertise in delivering high-quality regeneration schemes will overcome these hurdles.

"As in previous years, our overall performance remains weighted towards the second half.  As things stand, we expect year-end performance to be broadly in line with the Board's expectations, but local political volatility now creates greater uncertainty surrounding the timing of certain value gains than existed previously.

"We remain confident in the Group's strategy both to replenish our strategic landbank and to grow the value of our underlying land and property portfolio, supported by low gearing, substantial financial headroom and the cultivation of new relationships by our regional teams in the North West, Midlands and Yorkshire & Central.  The resilient outlook of the residential and commercial markets in our core regions also supports our aim to maintain our above market average total return to shareholders across the cycle."

STRONG FINANCIAL METRICS REFLECTING GOOD OPERATIONAL PERFORMANCE 

REGIONAL MODEL UNDERPINNING OPERATIONAL PROGRESS

ROBUST STRATEGY & STRONG FINANCIAL POSITION TO SUPPORT LONG-TERM GROWTH

Footnotes:

(1) Harworth discloses both statutory (standard font) and alternative performance measures (italic font) with the most important measures in bold. A full description and reconciliation of the alternative performance measures is set out in Note 2 to the condensed consolidated interim financial statements 

(2) Planning Promotion Agreements ("PPAs") are contracts with landowners by which Harworth incurs the cost and risk of promoting land through planning.  If successful, Harworth shares some of the value gain, after first recovering its costs, when the land is sold 

-ENDS-

Enquiries: 

Results Presentation

Harworth will be holding a presentation for analysts and investors starting at 09.30am today at the offices of Peel Hunt LLP, Moor House, 120 London Wall, EC2Y 5ET. If you would like to attend, please contact FTI Consulting on 020 3727 1000, or email [email protected]. 

A live webcast will also be available which can be accessed via the following link:

https://webcasting.brrmedia.co.uk/broadcast/5d4c318ba98d141c9d04bcf5

There will also be a conference call facility available. The dial-in details are as follows:

ABOUT HARWORTH GROUP PLC

Listed on the premium segment of the main market, Harworth Group plc (LSE: HWG) is a leading regenerator of land and property for development and investment which owns, develops and manages a portfolio of approximately 20,000 acres of land on around 120 sites located throughout the North of England and Midlands. The Group specialises in the regeneration of large, complex sites, in particular former industrial sites, into new residential developments and employment areas (harworthgroup.com).

Operational Review

OVERVIEW

I am pleased to report on another strong set of interim results, demonstrating our robust strategy and business model, the expertise of our team and the continued strength of our core property markets in the North of England and the Midlands.  EPRA NNNAV per share as at 30 June 2019 was 147.3p (H1 2018: 130.8p), delivering a total return (EPRA NNNAV growth plus dividends per share) over the last twelve months of 13.3% (H1 2018: 11.5%).

Our growing track record for placemaking has been central to our sales success in the first half of the year.  1,091 residential plots across four of our major developments were sold to a range of mainly repeat housebuilding customers, reflecting the popularity of our de-risked land parcels and our major development sites.  This was supplemented by the completion or exchange of a further 55 acres for commercial development at our Gateway 45 Leeds joint venture.

The move to a regional operating model, with a Regional Director being responsible for the acquisition, promotion and development of sites in our three core regions has begun to deliver results by opening up new acquisition opportunities.   Six sites were purchased in the first half, comprising a mix of strategic land and income producing opportunities, for a total consideration including costs of £18.8m.  With all teams now reporting into Ian Ball as our first Chief Operating Officer, I anticipate even greater collaboration between them, to keep driving market-leading returns.

This confidence has to be tempered however by heightened political risk at a local authority level, which saw the febrile political environment contributing to a change of political control of a number of local authorities in May.  This in turn is leading some administrations to delay the determination of some live planning applications or to put a pause on the production of their local plans.  The knock-on effect for Harworth is a delay in the determination of a handful of our live outline planning applications and changes to the planning strategy for a small number of sites within our pipeline.  We are confident that these are short-term headwinds and that our carefully considered masterplans, alongside the recognition of our experience as a trusted master developer, will help us overcome them.

We anticipate full-year results to be broadly in line with the Board's expectations, whilst accepting greater uncertainty surrounding the timing of certain value gains than existed previously.  As in prior years, we expect performance to be second half weighted, as agreed sales complete and both infrastructure and development works are accelerated over the summer months, driving value gains prior to the year-end. 

DEVELOPMENT PORTFOLIO

We continue to extract optimum value from our underlying land portfolio in the North of England and the Midlands through three principal management actions: preparing and securing planning consents on major schemes; preparing land for redevelopment; and delivering sales above book value for future residential and commercial development.  Good progress has been made in each area in the first half.

Sales

Careful planning of the disposal of consented land remains a central part of our strategy.  We aim to achieve sales  above book value and to reinvest the proceeds to accelerate the development of our sites, using our well-developed technical skills to de-risk sites as much as possible and to use our placemaking skills to enhance the attraction of our development sites. 

During the first half of the year, we sold 76 acres of land to accommodate 1,091 residential plots at four major development sites to national and regional housebuilders for a total consideration of £45.6m, in total, above book value. At our flagship development at Waverley, we made two disposals in June: 10.7 acres of land to Taylor Wimpey for the construction of 175 new homes, alongside the sale of 11.7 acres to Barratt to build 177 homes. Both housebuilders are repeat buyers and the success of our extensive masterplanning and placemaking at Waverley is demonstrated by the fact that, since 2012, a total of 110 acres across 16 separate phases have been sold that will deliver a combined total of 1,570 new homes, delivering around one sixth of all new homes built in Rotherham each year during that period.

Three other deals were completed in the first half.  At our Cadley Park, Swadlincote development, 26 acres of engineered land were sold to Avant Homes, where it plans to deliver 400 homes, our single largest plot sale to date.  Avant also purchased a further 8.0 acres at our Prince of Wales development in Pontefract for the construction of 89 new homes.  Finally, at our nearby Flass Lane development in Castleford, we sold 19.5 acres of land to regional housebuilder, Strata Homes, its first purchase from us, for the delivery of 250 new homes.

Solid demand for prepared commercial land also remains, evidenced by The Aire Valley Land LLP, our 50/50 joint venture with Evans Property Group, agreeing three separate sales at Gateway 45 Leeds that will eventually generate a total consideration of £30.3m (£15.2m to Harworth). The first involved the sale of 10 acres of fully serviced commercial land to the University of Leeds to build out their Institute for High Speed Rail, earmarked as the UK's advanced rail education facility.  This completed in March. In February, 2.5 acres were also sold to Leeds City Council for an extension to its existing park and ride facility. Contracts were also exchanged with PLP UK Logistics Venture (UKLV) for the sale of 43 acres to deliver 855k sq. ft of speculative distribution space. We expect this deal to complete in the second half of the year.

These disposals mean that as of today, over 70% of budgeted sales for the year were completed, exchanged or agreed, reflecting the underlying strength of the "beds and sheds" markets in our core regions.

Planning

A large part of our planning promotion work in the first half of this year has been the preparation of new commercial applications and engagement with local authorities to facilitate the determination of live applications. We had applications in respect of 1,715 residential plots and c.3.2m sq. ft of commercial space awaiting determination at half-year end.  Further applications for an additional 2,150 residential plots and 200k sq. ft of commercial space are also being prepared, including for the former Ironbridge power station in Shropshire and we expect to submit these in the second half of the year.

In July we achieved planning success in Leicestershire with outline permission being granted at our 53-acre Bardon Hill development for 356k sq. ft of new commercial space.  The site, within two miles of Junction 22 of the M1, now has a consent for an indicative layout of five industrial units and is already in an established commercial location, with nearby occupiers including Barratt Homes and Eddie Stobart.

As I commented in my introduction, May's local elections led to a change of control in many local authorities. As a consequence, we have seen some delays in the determination of certain live applications as new administrations get up to speed. The quantum of anticipated value gains from these projects remains unchanged but there is a greater uncertainty as to their timing.  Whilst I am clearly disappointed by factors outside of our control holding up our ability to deliver badly needed new land for residential and commercial purposes in our regions, I believe that our reputation, track record and the thought that has been put into each of our planning applications will ultimately stand the business in good stead to realise our plans for these sites.

Acquiring land and property

Our new regional operating model enables us to identify an increased range of acquisition opportunities. We made six strategic land and income acquisitions in the first half for a total consideration, including costs, of £18.8m.  These acquisitions have the potential to deliver a further 2,483 residential plots and 0.1m sq. ft of commercial space, whilst also adding £0.7m of rental income per annum.

•     We made three purchases in the North West, two for residential development and the other as an income-producing asset.  We purchased a 169-acre scheme in Chester in March for long-term strategic land promotion, whilst also acquiring a further 13 acres at our Moss Nook development in St Helens to support the build-out of up to 900 homes across the wider site, in line with its outline planning consent.

In addition, we purchased the 10.4-acre Etherow Industrial Estate in June for £6.5m plus acquisition costs reflecting a net initial yield of 9.8%.  More information on Etherow is provided within the 'Investment Portfolio' section below.

•    In the Midlands, we acquired a 128-acre site in Leicestershire that is now being promoted as a major urban-edge extension close to East Midlands Airport.

•   Finally, in Yorkshire & Central, two sites totalling 63 acres were acquired to bolster our existing landholdings at Cinderhill and Swadlincote for promotion as future residential sites, leveraging our existing relationships with Amber Valley and South Derbyshire District Councils respectively.

The development portfolio at half-year end

As at 30 June 2019, the total number of consented residential plots in the portfolio was 9,842 (H1 2018: 10,638 plots) alongside 10.0m sq. ft of consented employment space (H1 2018: 12.1m sq. ft).  When combined with land within our identified planning pipeline, Harworth could potentially deliver a total of 21,982 residential plots (H1 2018: 20,416 plots) alongside 21.0m sq. ft of new commercial space (H1 2018: 22.4m sq. ft), forming a key land supply to support the ongoing economic development and regeneration of the areas in which we operate.

INVESTMENT PORTFOLIO

Our investment portfolio, through the efforts of our Income Generation team, continues to make a vital contribution to the business, providing the recurring income required to cover our overhead costs as we grow as a business and a source of EPRA NNNAV growth through proven asset management techniques.

Business Space

Our Business Space team has continued to improve the resilience of Harworth's recurring income in the first half of the year.  18 new and renewed lettings have been agreed across our existing Business Space portfolio in H1 2019, generating approximately £0.9 million per annum.

This was supplemented in June by the acquisition of the 10.4-acre Etherow Industrial Estate for £6.5 million plus acquisition costs on a net initial yield of 9.8%, utilising headroom within our existing £100m Revolving Credit Facility (RCF).  Situated two miles east of Junction 4 of the M67, with excellent access to Greater Manchester, Lancashire, Cheshire and Derbyshire, the site comprises 202k sq. ft of built space comprising a mixture of manufacturing, warehouse, trade counter and office units.  The fifteen tenants already on-site currently generate a passing rent of over £682k per annum.  We are now using our asset management capabilities to generate additional income and EPRA NNNAV growth, including the letting of vacant space and refurbishment to improve its underlying value.  The site's relatively low site coverage of 44.5% also provides an opportunity for the build-out of new commercial space in the future.

Tenants continue to be sought for the c.28k sq. ft direct development unit we own at the Advanced Manufacturing Park in Rotherham. This is alongside five "Multiply Logistics North" units totalling 270k sq. ft that have been built in joint venture with the Lancashire County Pension Fund at Logistics North. Reported interest at both sites from manufacturers and distributors is high and we anticipate announcing further lettings progress in the second half.    

Business Space revenue in H1 2019 was £6.3m (H1 2018: £5.3m). The weighted average unexpired lease term ("WAULT") across the portfolio now stands at 13.0 years (H1 2018: 12.3 years), whilst the vacancy rate is now 15% (H1 2018: 11%).

Natural Resources & Operations

Our revenues for the period were also bolstered by the work of our Natural Resources and Operations teams. A total of 154.2MW (H1 2018: 159.7MW) of low carbon energy capacity remains installed on our land, providing a long-term income stream from a combination of ground rents and royalties. The team's focus continues to be growing future income from alternative technologies and maintaining income from our tipping and recycling operations, which has the added benefit of supporting site remediation at major developments including Waverley, and Pheasant Hill Park in Doncaster.

Our Operations team also continues to undertake demolitions across the portfolio to support the ongoing clean-up and remediation of former industrial sites, including the final buildings at the former Kellingley Colliery.  It has also commenced managing the demolition of the former Ironbridge Power Station, a necessary pre-condition to support the site's wider redevelopment. Our capability continues to be a unique selling point for Harworth when engaging with vendors of complex, former industrial sites.

Portfolio Refinement  

We are continuing to dispose of assets which offer limited potential for further value gains and non-core assets with 1,400 acres of such land sold in the first half.  This programme of disposals of agricultural sites and of a number of sites in the North East frees up management time and capital to focus on those sites with the highest value enhancement potential.

PEOPLE

In addition to the appointment of Ian Ball as Chief Operating Officer on 1 May, we are very pleased to have announced the appointment of Kitty Patmore as our new Chief Financial Officer.  Kitty, who takes up her new role on 1st October, has a strong capital markets background, with 14 years of finance, banking and real estate lending experience drawn from roles at Harwood Real Estate, DRC Capital and Barclays Bank PLC.

Our regional operating model has now been rolled out across our three core regions, with final staffing appointments to be made in the second half. 

MARKET OUTLOOK

The outlook for our target markets is healthy. The stability of the regional markets in which we operate is secured by comparatively low prices, a continuing lack of consented and engineered land for housing, and the need for new commercial space where good quality stock is scarce, particularly for units under 100k sq. ft.  As a result, growth forecasts for the "beds and sheds" markets in our regions remain solid. The Midlands and the North West are forecast to have stronger house price growth than most other regions over the next five years and the industrial sector is projected to continue to outperform both the retail and office market in the short and medium-term.  Our portfolio of approximately 20,000 acres of land, therefore, remains a source of significant latent value.

Local political risk is undoubtedly higher for the reasons highlighted which creates greater uncertainty about the timing of some of the projected returns on a small number of sites. However this does not detract from the continued strong Central Government support for both residential and commercial development.  Incentives to support home ownership, such as Help-to-Buy, have been extended (albeit in more limited form) to 2023, whilst the Government's continued commitment to regional devolution in the form of new powers and monies to regional mayors has been actively supported by the new Prime Minister. Once further monies have been devolved, this should help unlock major new residential and commercial development through new infrastructure investment, without having to resort to Central Government assistance.

Our half-year cash and RCF facility headroom of £53.4 million provides substantial firepower for further land and property acquisitions to take advantage of any downturn and our regional operating model increases our confidence in deploying this capital effectively to maintain our market-leading returns.  Our acquisition focus is resolute: purchasing major brownfield and potential urban extension sites from corporate vendors, administrators and the public sector; securing options on medium to long-term development opportunities or on land adjacent to existing Harworth developments; and agreeing PPAs of scale in our core regions.  Selective income-led purchases with active asset management opportunities and long-term strategic land potential will also be actively considered.

As in previous years, value gains are expected to be weighted towards the second half of the current financial year. Overall, trading remains broadly in line with our expectations, whilst acknowledging that some local political headwinds mean there is now greater uncertainty surrounding the timing of certain value gains than existed previously.

Owen Michaelson

Chief Executive Officer

10 September 2019

Financial Review

OVERVIEW
 

Harworth has continued to make progress across the business in the first half of 2019.  Total return (EPRA NNNAV growth plus dividends) per share over the last twelve months was 13.3% (H1 2018: 11.5%). 

We continue to use a number of consistent Alternative Performance Measures ("APMs") alongside statutory measures. We believe that these provide stakeholders with additional useful information on the underlying trends, performance and position of the Group. Note 2 to these condensed consolidated interim financial statements gives a full description of our APMs and a reconciliation to statutory measures. Further details about our APMs can also be found in note 2 to the 2018 Financial Statements.

In H1, operating profit before exceptional items contributing to growth in EPRA NNNAV was £13.1m (H1 2018: £11.8m). This comprised the following items:

The operating profit before exceptional items which contributed to growth in EPRA NNNAV growth for the first half of 2019 is best understood as being composed of two elements:

Earnings per share, which increased by 173.1% to 4.67p (H1 2018: 1.71p), reflect the strong first half sales performance.  The 2019 interim dividend per share has been increased by 9.4% to 0.304p (H1 2018: 0.278p) creating a total return (EPRA NNNAV growth plus dividends) per share over the last twelve months of 13.3% (H1 2018: 11.5%).

The Group has a £100.0m Revolving Credit Facility ("RCF") with RBS and Santander expiring in February 2023. Cash and undrawn facilities as at 30 June 2019 were £53.4m.  Net debt at £53.1m or 10.1% net loan to value (FY 2018: £64.4m and 12.3%) reflects our prudent gearing approach and is in line with our stated 10% - 15% target range.

H1 RESULTS

The table below shows the results of the business, on an alternative performance measure basis to tie to EPRA NNNAV, split between Capital Growth, Income Generation and Central Overheads:

Notes: (1) A full description and reconciliation of the alternative performance measures in the above table is included in Note 2 to these condensed interim financial statements

(2) The income statement has been re-presented to show the profit on development property sales (£10.1m; H1 2018 £0.1m loss) within profit on disposals and development property impairment (£0.0m; H1 2018 £1.5m) within revaluation gains.  The notional gross (profit)/loss is the reversal of these amounts

(3) There are minor differences on some totals due to rounding
 

STATUTORY OPERATING PROFIT

Revenues in the first half of 2019 were £58.6m (H1 2018: £21.9m), split between revenue from operations £12.8m (H1 2018: £10.9m) and revenue from the disposal of development properties £45.8m (H1 2018: £11.0m). Revenue from operations is split between: Income Generation £11.9m (H1 2018: £10.8m), where revenue mainly comprises rental and royalty income together with some sales of coal fines and salvage; and Capital Growth £0.9m (H1 2018: £0.1m). The increase in revenue from Income Generation reflected business space acquisitions made in 2018 including Nufarm and Flaxby. The increase in revenue from Capital Growth reflected the amounts received from the Group`s first planning promotion agreement.

Cost of sales comprises the inventory cost of development property sales and the operating costs for business space, natural resources, agricultural land and coal fines activities. Cost of sales increased to £40.0m (H1 2018: £16.3m) of which £35.7m related to the inventory cost of development property sales (H1 2018: £12.6m).

Total overheads, which include the overhead costs of the Capital Growth and Income Generation segments and central costs, amounted to £6.3m (H1 2018: £5.9m) and were in line with expectations, reflecting increased costs due to expansion of the business in the regions. 

VALUE GAINS

Set out below are value gains, on an alternative performance measure basis, for the first six months of 2019 and 2018, which comprise profits on disposals and revaluation gains:
 

In the first half of 2019, the Group had revaluation gains of £6.4m (H1 2018: £10.4m) comprising:

In the first half of 2019, the revaluation gains reflected the progress made with sales at Gateway 45, a Major Developments site operated by The Aire Valley Land LLP, our 50/50 joint venture with Evans Property Group.  The revaluation gain cited in the table above reflects Harworth's share of profits from this joint venture.

PROPERTY SALES

The Group made sales of properties of £53.3m in the first six months of 2019 (H1 2018: £16.1m) achieving profits on disposals of £4.7m (H1 2018: £0.1m).  The sales were split between; residential serviced plots of £45.6m (H1 2018: £11.8m); commercial development of £2.9m (H1 2018: £3.8m); and other, essentially agricultural land, of £4.8m (H1 2018: £0.5m). 

Cash proceeds from the sale of development and investment properties were £29.0m (H1 2018: £15.4m) reflecting the sales of £53.3m (H1 2018: £16.1m), less deferred consideration on sales in the period of £40.5m (H1 2018: £6.9m), plus deferred consideration received from sales in prior years of £16.2m (H1 2018: £6.2m).

EXCEPTIONAL ITEMS

There are no exceptional items in the first half of 2019. Exceptional items in 2018 reflected a charge of £0.6m for the step-up from the Stock Exchange standard to premium listing.

TAXATION
 

The income statement charge for taxation in the period was £3.5m (H1 2018: £1.1m) which comprised a deferred tax charge of £1.3m (H1 2018: £1.2m) and a current period tax charge of £2.2m (H1 2018: £0.1m credit).  The deferred tax charge mainly relates to the increase in valuation of the investment properties and the gains on joint ventures.  The current tax charge primarily relates to the profits on disposal of development properties and assets held for sale.

At 30 June 2019, the Group had deferred tax liabilities of £13.5m (H1 2018: £14.3m), which largely related to unrealised gains on investment properties, and had recognised deferred tax assets of £7.2m (H1 2018: £7.6m).  The net deferred tax liability was £6.3m (H1 2018: £6.7m).

EARNINGS PER SHARE AND DIVIDENDS
 

Earnings per share increased to 4.67p (H1 2018: 1.71p) primarily due to the increase in sales of development properties during the first half of 2019.

An interim dividend of 0.304p per share (H1 2018: 0.278p) equivalent to £977k (H1 2018: £894k). The 9.4% rise in the 2019 interim dividend creates a total return (EPRA NNNAV growth plus dividends) per share over the last twelve months of 13.3% (H1 2018: 11.5%).  This dividend will be paid on 18 October 2019 to shareholders on the register at the close of business on 20 September 2019. 

PROPERTY CATEGORISATION

Until sites receive planning permission, our view is that the land is held for a currently undetermined future use and should thus be held as investment property. We categorise all properties/land that have received planning permission, and not being held for long term appreciation, as development properties.  Property categorisation is reviewed at 30 June and 31 December each year. There were no sites which received first-time planning permission in the first half of 2019 and hence no sites were re-categorised.  As at 30 June 2019, the balance sheet value of all development sites was £191.6m.  The market value of those sites was £211.0m if the £19.4m revaluation gains on development properties is included. In order to highlight the market value of development sites, and overages, and to be consistent with our investment properties, we use EPRA NNNAV, which includes the market value of development properties and overages less notional deferred tax, as our primary net assets metric.  We continue to report EPRA NAV which is EPRA NNNAV excluding deferred tax and the mark to market movement on financial instruments.

NET ASSETS

As set out below, EPRA NNNAV increased to £473.3m as at 30 June 2019 from £466.5m as at 31 December 2018 (£420.4m as at 30 June 2018).  This increase was as a result of movements in the period, being operating profit before exceptional items contributing to growth in EPRA NNNAV of £13.1m, interest costs of £1.2m, tax charges (including development properties notional deferred tax) of £2.3m, movement in the fair value of financial instruments of £0.5m and dividends of £2.0m plus other movements of £0.3m.

The table below sets out our top ten sites by market value, which represent 47% of the total value of all our properties, split by their categorisation and showing the total acres, currently consented residential plots and commercial space:

FINANCING STRATEGY AND FUNDING

As has been consistently stated, Harworth's financing strategy is to be prudently geared, in particular not applying gearing against our Capital Growth properties being those which constitute Strategic Land and Major Developments sites. We believe that this gives the Group a number of advantages:

Harworth's financing strategy also seeks to balance the Group`s cash flows by funding development spend and investment in acquisitions largely from disposal proceeds.

There were no changes in the period to the terms of the Group's £100m Revolving Credit Facility (RCF) with RBS and Santander.  The RCF is available until February 2023 at a cost of 2.1% over ICE LIBOR.  The Group continues to use infrastructure funding, provided by public bodies to promote the development of major sites for employment and housing needs.  During the period the Group repaid two infrastructure facilities and, at 30 June 2019, had two remaining infrastructure facilities in place with all-in funding rates of 3.3%.

The Group's hedging strategy is to have roughly half its debt at a fixed rate and half its debt exposed to floating rates.  The Group has a £45m fixed rate interest swap at an all-in cost of 1.235% (including fees) on top of the existing 210bps margin paid under the RCF. The interest rate swap expires in July 2022 and is hedge accounted with any unrealised movements going through reserves. 

At 30 June 2019 Harworth's gross Loan To Value ("LTV") was 12.3% (FY 2018: 13.9%) and net LTV was 10.1% (FY 2018: 12.3%).  However, as set out above, Capital Growth sites are deliberately not geared, so if gearing is just assessed against the value of Business Space and Natural Resources properties this equates to a gross LTV of 34.3% (FY 2018: 38.9%) and a net LTV of 28.2% (FY 2018: 34.3%).

The Group had borrowings and loans of £64.6m at 30 June 2019 (FY 2018: £73.0m), being the RCF of £57.7m (FY 2018: £58.7m) and infrastructure facilities of £6.8m (FY 2018: £14.3m).  The Group's cash at 30 June 2019 was £11.4m (FY 2018: £8.6m).  The resulting net debt was £53.1m (FY 2018: £64.4m).  The weighted average cost of debt, using 30 June 2019 balances and rates, was 3.2% with a 0.84% non-utilisation fee on undrawn RCF amounts (FY 2018: 3.3% with a 0.84% non-utilisation fee on undrawn RCF amounts).  For the twelve months to 30 June 2019 Harworth's interest cover, as calculated by the RCF covenant calculation, was 4.76x against a covenant test of 1.5x (FY 2018: 4.65x).

RESTATEMENT OF FAIR VALUE AND RETAINED EARNINGS RESERVES

The fair value and retained earnings reserves have been restated at 1 January 2018, 30 June 2018 and 31 December 2018 to reallocate correctly fair value gains and losses between these reserves. This restatement has reallocated negative fair values from the fair value reserve to retained earnings and transferred fair value gains on properties disposed of from the fair value reserve to retained earnings. There has been no impact on the net assets of the Group or on the profit for the period to 30 June 2018 and year to 31 December 2018. Further details of this restatement are given in note 15 of these condensed consolidated interim financial statements.

Jenny Cutler

Interim Finance Director

10 September 2019

Principal risks and uncertainties

A detailed explanation of the principal risks and uncertainties affecting the Group, and the steps it takes to mitigate these risks, can be found on pages 36 to 44 of the Annual Report and Financial Statements for the year ended 31 December 2018, available at harworthgroup.com/investors.

The Group's principal risks and uncertainties are grouped into eight categories: markets, delivery, politics, finance, people, legal and regulatory, governance and internal controls, and communications and stakeholder management.  These risks and uncertainties are expected to remain relevant for the Group for the remaining six months of the financial year.

Council elections in May led to changes in political control of some local authorities within which our sites are located.  This has caused a delay in the determination of a handful of our live planning applications and has prompted a change in our planning promotion strategy for a small number of sites.  As such, there is now greater uncertainty surrounding the timing of certain value gains connected to planning promotion milestones.  This is reflected in a temporary increase in the risk status of our delivery and politics risk categories.

The overall status of all other risk categories remains unchanged.

As negotiations continue for the United Kingdom's withdrawal from the European Union, the Board expects that the Group will continue to operate in an uncertain economic and political climate in the short to medium term.  Whilst the Group is not immune to that uncertainty, it is mitigated by the continuing positive economic and consumer trends in our core markets, with the residential and industrial sectors in the North of England and the Midlands continuing to have solid fundamentals and favourable performance.

Chris Birch

Group General Counsel and Company Secretary

10 September 2019

Consolidated income statement

The notes on pages 21 to 41 are an integral part of these condensed consolidated interim financial statements.

All activities in the current period/year are derived from continuing operations