Source - RNS
RNS Number : 0119J
Harworth Group PLC
06 September 2016
 

HARWORTH GROUP PLC

UNAUDITED INTERIM RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2016

 

Harworth Group plc ("Harworth" or the "Group"), the property regeneration and investment specialist, announces its interim results for the half year ended 30 June 2016.

 

Financial Highlights(1) 

Full year financial forecasts are in line with the Board's expectations but, as usual, weighted towards the second half

 

Net asset value ("NAV") of £303.0m (£1.04 per share), a 10.4% increase from H1 2015 NAV £274.5m (93.9p) and 1.8% increase from 2015 full year NAV £297.7m (£1.02)

 

EPRA net asset value per share rose to £1.08 per share (H1 2015: 96.8p)

 

 

Earnings per share of 0.3p (H1 2015: 2.7p, adjusted 0.5p)

 

Planned financing extension completed reflecting confidence in the future and to accelerate strategy delivery

 

Existing RCF limit increased from £65m to £75m.  No need to refinance until February 2021 and infrastructure bonding secured with new surety provider

 

Portfolio remains prudently geared with gross loan to value 20.0% (net LTV 13.4%)

 

First interim dividend of 0.23p per share (£0.66m in total)

 

Strategic and Operating Highlights

Clear strategic focus on Northern regeneration market with balanced portfolio of geographies and sectors

 

Four acquisitions (£12.8m cost) made in the first half including 50% purchase of The Aire Valley Land LLP, which owns Temple Green, Leeds' largest live logistics development

 

Sold £13.3m of property as part of ongoing programme to increase our focus on sites with higher value-add potential.  The portfolio now comprises the ownership or management of 22,295 acres across 144 sites

 

To address current market caution, future infrastructure spend will be directly linked to anticipated sales

 

Good ongoing operational performance with selective moves to develop and hold sites to grow income and drive NAV growth

 

Three small, direct build commercial developments now being taken forward across three different sites, totalling c.180,000 sq. ft

 

Excellent progress with the construction and letting of 2 units, totalling 400,000 sq. ft, at Logistics North in Bolton forward funded by M&G.  These will reach practical completion before year end

 

On residential: 335 plot sales, including Harron Homes and Avant Homes at North Gawber; consent secured for 65 new units; applications submitted for c.400 units since the end of the period; and applications progressing for a further c.900 units for submission prior to the year end

 

Harworth's Chief Executive, Owen Michaelson, said:

"We have progressed well during the first half, seeing continued momentum in the business, which is reflective of the underlying strength of the Group. We selectively grew our direct commercial development capabilities, through schemes at Logistics North, the Advanced Manufacturing Park and Gateway 36, as well as making excellent progress with the forward funded M&G development.

"We have continued confidence in the economic potential of the regions in which we operate and the long term market fundamentals remains in place. Our strategy affords us flexibility to manage potential periods of uncertainty. Together with our strong balance sheet, we are robustly positioned to capitalise on new opportunities, both for development and income generation. Based on current market conditions, we expect our full-year performance to be in line with our expectations."

 

Notes: 1. 2015 NAV figures assume 2016's 1 for 10 share consolidation had occurred in 2015 and 2015 underlying figures assume that Harworth Estates Property Group Limited had been owned from the start of the year.

 

 

Enquiries: 

 

Harworth Group plc

Tel +44 (0) 114 349 3131

Owen Michaelson, Chief Executive

 

Andrew Kirkman, Finance Director

 

 

 

Cardew Group

Tel: +44 (0)20 7930 0777

Emma Crawshaw

Tel: + 44 (0)7971 468 308

 

Notes to Editors:

Harworth Group plc is a leading property and development company which owns and manages a portfolio of some 23,000 acres of land across approximately 150 sites located throughout the Midlands and North of England. The Company specialises in the regeneration of former coalfield sites and other brownfield land into employment areas, new residential properties and low carbon energy projects.

http://www.harworthgroup.com

 

Chairman's Statement

 

Overview
I am pleased to present our interim report for the half year ended 30 June 2016.  It demonstrates that the Group has maintained the momentum it established in 2015 and represents a firm platform for the second half of the year towards which development activity and sales will, as usual, be weighted.

 

Performance and Results

In the first half of 2016, the Group grew its net asset value to £303.0m, a 10.4% increase on last June's value of £274.5m.  We continue to meet our ambition of increasing the net asset value of the business throughout the property cycle.

 

This growth is partly attributable to the recycling of capital through the business.  In the first half we achieved sales of £13.3m.  This included both serviced plots and agricultural land with limited development potential.  The proceeds covered development spend of £10.1m elsewhere in the portfolio.  We expect significantly increased levels of disposals in the second half and that cash flow will more than cover the four acquisitions, totaling £12.8m, which were made in the first half to replenish the portfolio.

 

Operating profit was £8.3m compared to an underlying level of £14.8m in the first half of 2015.  This reflects a £2.9m reduction in the value of the portfolio during this first half on account of stamp duty changes.  We continue to seek to grow and improve the quality of our recurring income.

 

The Group's business model is evolving to include selective property development where this unlocks additional value from existing and new sites and builds income.  The Board believes its forecast full year expectations remain realistic, provided current supportive market conditions persist. 

 

Strategic Review

In June 2016, the Board carried out its annual, comprehensive review of the Group's strategy for the next three to five years.  That review re-affirmed the fundamentals of the Group's long-term strategy: promoting and developing our existing portfolio to extract maximum value and income, whilst replenishing our asset base with attractive investment opportunities to secure a development pipeline and further income growth.  The Group continues to achieve this by:

 

maintaining a diverse portfolio, operating across different sectors of the market: residential, commercial and energy;

building recurring income to cover operating costs, bank interest and dividends;

selectively undertaking direct commercial development where the balance of capital deployed and forecast return adds value to the portfolio; and

continuing to grow our presence in existing regions, while looking to expand our geographic reach through new acquisitions in adjacent regions of the UK where there is a strong and stable market.

 

The Group's strategy affords it flexibility to manage periods of uncertainty, including potential volatility following the EU referendum result.  The Group is robustly positioned to capitalise on new opportunities, both for development and to grow income, and address any challenges that may present themselves in the current environment.

 

Share Consolidation and Dividend

I am pleased to report that the consolidation of the Company's 1p shares into 10p shares and the capital reduction approved by shareholders at the Company's last AGM, in April 2016, have been implemented, the latter following court approval.  The capital reduction enables the Company to pay the 2015 year-end dividend, also approved at the AGM, in the aggregate sum of £1.5m (0.51p per share following the share consolidation).  The 2015 final dividend will be paid on 9 September 2016 to shareholders on the Company's register of members on 19 August 2016. 

 

I am also pleased to announce that the Company will pay its first interim dividend of 0.23p per share.  This dividend will be paid on 1 December 2016 to shareholders on the register at the close of business on 4 November 2016.  The ex-dividend date will be 3 November 2016. 

 

Board and Committee Membership

As announced in last year's results, Peter Hickson stepped down as senior independent director of the Company immediately following the AGM.  Lisa Clement succeeds Peter as senior independent director and, from 1 October 2016, as chair of the Remuneration Committee. 

 

Andrew Cunningham was appointed as a non-executive director of the Company with effect from 1 May 2016.  From 1 October 2016, he will also chair the Audit Committee, filling the position vacated by Lisa.

 

The Group's workforce has grown from 43 to 51 in the first half of the year, reflecting continued momentum in the business.  I welcome all new employees and would like to thank all the Group's staff for their support and commitment during the first half.  The Board looks forward to further growth in the business in the second half of 2016. 

 

Jonson Cox

Chairman

6 September 2016

 

Chief Executive's Statement

 

We have made good progress in the first half of 2016 in both the Capital Growth and Income Generation business segments, building on the underlying strength of our business and reflecting the long-term fundamentals of the markets in which we operate.  As in previous years, we anticipate performance to be second half weighted, as remedial work is most easily achieved over the summer months, resulting in a greater amount of sales in the second half of our financial year.

 

Operational Performance

As at 30 June 2016, the total number of consented residential plots in the portfolio was 10,029, alongside 10,482,221 sq. ft of consented employment space.  During the six-month period, outline planning consents were granted for 65 residential plots, together with 120,875 sq. ft. of commercial space.  We have submitted planning applications for 400 residential plots since the end of the period and are planning to submit further planning applications for 700 residential plots and in excess of 1.5m sq. ft of commercial space by the end of the current financial year.

 

We continue to plan carefully the disposal of properties to extract the maximum value from our land portfolio, with the aim of achieving gains against book value to realise cash for reinvestment.  In the first half we sold 335 residential plots across three development parcels to regional housebuilders.  At 30 June 2016, a number of additional sales to housebuilders were in negotiation, for completion during the second half of the year.

 

We have begun to deliver on our stated aim of selling sites with limited development potential in order to concentrate on a smaller number of brownfield sites with greater potential for value enhancement.  We sold over £13.3m of property in the first half, with the portfolio now comprising the ownership or management of 22,295 acres across 144 sites.

 

We have made selected moves up the development curve during the period to generate increased value for our shareholders.  Good progress is being made on direct build, commercial developments totalling c.180,000 sq. ft on three of our sites: the Advanced Manufacturing Park in Rotherham, Logistics North in Bolton and Gateway 36 in Barnsley.  This responds to a continued undersupply of smaller commercial units in the North of England.  This supports our efforts to build income and drive net asset value growth.

 

Excellent progress has been made on the construction of two commercial units, totalling 400,000 sq. ft, which were forward funded by M&G.  We expect both units to be completed and ready for occupation before the year end. 

 

Going forwards, given current market caution, strategic infrastructure investment in our sites will continue to be monitored closely and expenditure will be directly linked to anticipated sales.

 

We have made further progress with income generation from our Business Parks.  We have signed 16 new commercial lettings or renewals in the six months to 30 June 2016, with an annualised rent roll of over £240,000.

 

Our income stream was also supplemented by the installation of 18.9MW of additional capacity from renewable energy schemes, bringing total capacity in our portfolio to 138.3MW.  Finally, although the market for coal fines has continued to reduce, owing to plant closures and the Government's decision to close all coal-fired power stations by 2025, we have continued to sell coal fines from former colliery sites to energy companies, albeit at a reduced level.

 

Acquisitions

Replenishing our strategic landbank with new sites is an important part of our strategy.  We remain confident in the economic potential of the regions in which we operate and our acquisitions in the first half of 2016 reflect this. 

 

We made four acquisitions during the period, totalling £12.8m.  The largest was our acquisition of a 50% stake in The Aire Valley Land LLP for £9.0 million.  It owns Temple Green, the largest live logistics development in the Leeds City Region.  It has an outline consent for 2.64m sq. ft of employment space adjacent to Junction 45 of the M1.  We believe we can use our experience from similar sites, including Logistics North in Bolton, to work with our new joint venture partner, Evans Property Group, to maximise the value enhancement potential in both this site and our adjacent, 162 acre, Skelton Grange site.

 

Our other key acquisition was that of Sanderson (Advantage) House in Rotherham for £2.3 million (with a net initial yield of 13.3%).  This multi-let 20,000 sq. ft office scheme, at the gateway to our flagship Waverley development, provides asset management opportunities to re-gear leases and drive yield compression.

 

Market Outlook

The European referendum vote on 23 June 2016 led to an initial hiatus by some housebuilders and investment funds.  Activity now seems to be back to previous levels however and long-term market fundamentals remain strong.  In particular, the UK still needs land for new housing to meet increasing demand and there remains an under-supply of good quality, employment space in the North of England and the Midlands.  We will continue to monitor market trends with our strategy and portfolio affording us flexibility to manage periods of uncertainty.


Overall, trading remains in line with our expectations, with a healthy pipeline of anticipated sales.

 

Owen Michaelson

Chief Executive Officer

6 September 2016

 

Financial Review


Overview

The Group achieved good results in the first half of 2016 with both segments of the business, Capital Growth and Income Generation, making progress.  Net asset value increased to £303.0m as at 30 June 2016, representing a 10.4% increase from 30 June 2015 (£274.5m) and a 1.8% increase since 31 December 2015 (£297.7m).

 

Revenue from operations rose to £17.4m (H1 2015: £4.2m), largely as a result of the recognition of pass-through construction costs and development fee income arising from the construction of two industrial units at Logistics North being forward funded by M&G.  Revenue also increased as a result of increased rent from business parks and low-carbon energy sites, albeit somewhat offset by a decline in coal fines revenues. 

 

Profit before tax was £7.4m (H1 2015: £51.3m) with revaluation gains impacted by £2.9m on account of the recent stamp duty changes.  The 2015 profit on disposal included a £3.3m one-off gain from the surrender of an option on the Chevington wind farm project.  Exceptional items in the first half netted to £nil (H1 2015: £(2.4m)) largely relating to the Group's legacy activities.

 

The comparative statutory results for H1 2015 are complicated by the acquisition and fundraising of March 2015 associated with the re-acquisition of 75.1% of the shares in Harworth Estates Property Group Limited ("HEPGL").  The 2015 results included a gain on bargain purchase of £44.2m.  In addition, a 1 for 10 share consolidation occurred in the first half of 2016.  Consequently, our results are set-out below on both a statutory and underlying basis. 

 

Operating results

The Group's operating profit, excluding exceptional items, was £8.3m (H1 2015: £9.2m).  This included valuation gains of £7.9m (H1 2015: £3.4m) and a loss from disposals of investment properties and options of £0.5m (H1 2015: profit of £5.4m).  The Group's comparative operating profit, before exceptional items, for the first half of 2015 is reconciled to the underlying operating performance for the half year 2015, and set against the first half of 2016.

 

Six months to June

2016 Harworth Group plc
£m

2015 Harworth Group plc Underlying

£m

2015 Harworth Group plc Underlying Pre-acquisition

£m

2015 Fair value adjustments

£m

2015 Harworth Group plc
£m

Revenue

17.4

7.7

(3.2)

(0.3)

4.2

Cost of sales

(11.9)

(3.4)

1.6

-

(1.8)

Overheads

(4.7)

(3.3)

1.4

-

(1.9)

Profit from operations

0.9

1.1

(0.3)

(0.3)

0.5

Valuation gain

7.9

8.2

(4.8)

-

3.4

Profit from disposals

(0.5)

5.5

(0.1)

-

5.4

Pension credit

0.1

0.1

-

-

0.1

Operating profit, before exceptionals

8.3

14.8

(5.3)

(0.3)

9.2

Note: There are minor differences on some totals due to rounding


Underlying performance

The underlying profit from operations was £0.9m (H1 2015: £1.1m).  The Group recorded revenues of £17.4m (H1 2015: £7.7m) comprising rental and royalty income together with sales of coal fines and salvage.  The significant increase in revenues and cost of sales reflected £9.5m in respect of contract work on the construction of units at Logistics North which have been forward funded by M&G.  Further amounts for revenue and cost of sales will be recognised over the remainder of 2016.  Only a small amount of pro-rata development fee profit on these construction works has been recognised to date, with potentially more significant amounts to be recognised in the future if certain milestones are achieved.

 

Capital
Growth
£m

Income Generation

£m

Central overheads
£m

H1 2016
Total

£m

H1 2015
Total
£m

Revenue

9.6

7.8

-

17.4

7.7

Cost of sales

(9.4)

(2.3)

-

(11.9)

(3.4)

Overheads

(0.8)

(0.7)

(3.2)

(4.7)

(3.3)

Profit from operations

(0.7)

4.8

(3.2)

0.9

1.0

Valuation gain

3.5

4.4

-

7.9

8.2

Profit from disposals

(0.1)

(0.4)

-

(0.5)

5.5

Pension credit

-

-

0.1

0.1

0.1

Operating profit, before exceptionals

2.7

8.8

(3.1)

8.3

14.8


Total overheads, which include the overhead costs of the Capital Growth and Income Generation segments and central costs, amounted to £4.7m (H1 2015: £3.3m).  The increase in costs reflected a number of one-off costs associated with the share consolidation, capital reduction and recruitment, as well as greater operational activity.

Valuation gains for the first half of 2015 and 2016 are set out below:

 

 

H1 2016

£m

 

Underlying

H1 2015

£m

 

Major developments

 

2.0

2.3

Strategic land

 

1.5

3.6

Business parks

 

1.0

1.9

Agricultural land

 

0.0

0.0

Natural resources

 

3.4

0.4

Total

 

7.9

8.2


The valuation gains in the first half of 2016 across the divisions were as follows:

 

Capital Growth segment

Major Developments - strong occupier interest at Logistic North, progress made in the regeneration proposal of Chatterley Valley and savings on the cost plan at Harworth; and

Strategic Land - the delivery risk has reduced at Coalville and there is also planning progress, good tenant interest and cost plan savings at Wheatley Hall Road, which was acquired in December 2015.

 

Income Generation segment 

Business Parks - direct development of the Helix industrial unit and the fast-food outlets advancing at Gateway 36 (Rockingham);

Natural Resources - improved lettings at Meriden, commissioning of the wind farm at Chevington and coal mine methane revenue has started at Kellingley; and

Agricultural Land - market valuations of agricultural land did not move during the period, therefore no movements were recorded.

 

The valuation gain of £7.9m for the first half of 2016 is after the recognition of a £2.9m reduction in the value of the portfolio resulting from the recent changes to stamp duty albeit similar levels of cost savings have also been identified across our properties.

The Group made sales of £13.3m (H1 2015: £21.0m), including £3.4m of deferred consideration.  The proceeds were split between residential serviced plots (£9.6m) and other, essentially agricultural, land (£3.7m).  The Group made an aggregate loss of £0.5m (H1 2015: £5.5m profit) on those sales as a result of the remediation works at North Gawber proving more difficult than expected in advance of sales.  In the first half of 2015, £3.3m of the profit on disposal was attributable to the surrender of the option at Chevington wind farm.

 

The resulting underlying operating profit for the Group, before exceptional items, was £8.3m (H1 2015: £14.8m)

 

Exceptional items

Exceptional items comprise four separate items, all of which largely relate to the Group's legacy activities.  With regard to Harworth Insurance Company Limited, the administrator has confirmed that Harworth will be receiving £0.5m.  A further amount of £0.2m is expected from the administrator of Ocanti Opco Limited which relates to the reimbursement of management expenses incurred by Harworth (then known as Coalfield Resources plc).  In respect of coal fines activities, an exceptional charge of £0.7m has been taken to reflect the under recovery of amounts relating to the cessation of activities at Rugeley and a provision taken against the value of coal fines stocks to reflect reduced demand.


Net assets

As set out below, net assets increased to £303.0m as at 30 June 2016 from £297.7m as at 31 December 2015 (£274.5m as at 30 June 2015).  This increase was as a result of movements in the half year, being operating profit of £8.3m less interest costs of £1.0m, tax of £1.4m and other movements of £0.6m.

 

 

30 June
2016
£m

30 June
2015
£m

31 December
2015
£m

Investment properties
(including assets held for sale and investments in joint ventures)

363.9

308.2

344.5

Cash

23.7

30.1

27.6

Other assets

21.8

26.5

21.6

Total assets

409.4

364.8

393.7

Gross borrowings

72.6

60.0

64.5

Other liabilities

33.8

30.3

31.5

Net assets

303.0

274.5

297.7

Number of shares in issue

292,269,786

2,922,697,857

2,922,697,857

Net assets per share

103.6p

9.4p

10.2p

Underlying net assets per share

103.6p

93.9p

101.8p

 

Funding strategy

On 13 February 2015, HEPGL entered into a £65m, five year term, non-amortising, Revolving Credit Facility ("RCF") with The Royal Bank of Scotland ("RBS"), replacing amortising facilities with the Lloyds Banking Group and Barclays Bank.  On 19 August 2016, HEPGL completed a planned extension to its RCF with RBS, increasing the limit to £75m and extending the term by a further year such that it now expires in February 2021, on substantially the same terms (including pricing) as the existing facility.  This enhanced facility reflects confidence in the business and provides either additional headroom and/or additional funds to accelerate the strategic growth of the Group.

 

Infrastructure funding, provided by public bodies to promote the development of major sites for employment and housing needs, continues to feature in our funding strategy.  At 30 June 2016, the Group had four infrastructure facilities with all-in funding rates of between 2.5% and 4.0%.  Despite the EU referendum vote, we expect public infrastructure funding to continue and, since the vote, we have signed a facility agreement to fund a small direct build scheme at the AMP.

 

On 21 June 2016, HEPGL entered into a four-year swap to fix £30m of borrowings at an all-in rate of 2.955%, including fees.  The Group's hedging strategy is to have roughly half of its debt at a fixed rate and half of its debt exposed to floating rates.  The weighted average cost of debt, using 30 June 2016 balances and rates, and including fees, was 2.8%.

 

The Group is continuing to maintain positive momentum created by using disposal proceeds to fund investment spend on developments and further acquisitions to replenish the portfolio, with particular focus on brownfield sites with greater value enhancement potential.  At 30 June 2016, the Group is prudently geared at 20.0% gross loan to value (net loan to value 13.4%), which also gives flexibility to invest for the future.

 

Cash and net debt

The Group's cash and cash equivalents at 30 June 2016 were £23.7m (H1 2015: £30.1m).  The Group had borrowing and loans of £72.6m at 30 June 2016 (H1 2015: £60.0m), being the RBS RCF of £58.1m and infrastructure loans of £14.5m.  The resulting net debt was £48.9m (H1 2015: £29.9m).

 

The Group seeks to utilise disposal proceeds to provide the capital for infrastructure spend, to bring sites forward, and for acquisitions, to replenish the portfolio.  Disposals tend to be second half weighted and thus net debt is usually higher in the middle of the year than at the year end.

 

Taxation

The charge for taxation in the half year was £1.4m (H1 2015: £0.6m) comprising the deferred tax charge on forecast future capital gains arising on the investment property portfolio.

 

At 30 June 2016, the Group had deferred tax liabilities of £12.8m (2015 year end: £11.4m), related to unrealised gains on investment properties, and no deferred tax assets (2015: £nil).

 

Dividends

At the AGM on 26 April 2016, the full year proposed dividend of £1.5m (0.051p per share), the reduction of capital and the 1 for 10 share consolidation were approved.  The capital reduction was approved by the court and the share consolidation was effected on 3 May 2016.  As a result, the 2015 full year dividend of £1.5m (now 0.51p per share) will be paid on 9 September 2016 to those shareholders on the Company's register of members on 19 August 2016.

Reflecting confidence in the business and its prospects, a first interim dividend of £0.66m (0.23p per share) is proposed. 

 

Principal risks and uncertainties

In the first half, the Executive Team and the Audit Committee carried out separate reviews of the principal risks and uncertainties which could have a material impact on the Group's performance.  Those risks and uncertainties, together with corresponding controls, mitigation and actions remain as set out on pages 22 and 23 of the Annual Report for the year ended 31 December 2015, which is available at www.harworthgroup.com.  A further formal review, together with ongoing risk monitoring, will be carried out by the Executive Team and Audit Committee before the end of this financial year.

 

The principal risks and uncertainties comprise: fluctuations in the property market; potential volatility in the Group's recurring income stream from operations; the veracity of and potential impact of economic cycles on the Group's strategy; the size and availability of requisite resource in the Group's workforce; and the development of requisite and appropriate business processes. 

 

These risks and uncertainties are expected to continue to remain relevant for the second half of the financial year.  In some cases, there have been external developments and/or steps taken by the Group during the first six months of the financial year, which may affect the level of those risks in the second half of the financial year.  The most significant changes that occurred in the first half are set out below.

 

Potential volatility of income generation

Potential volatility in the Group's income stream has increased as a result of an increasing decline in the market for coal fines, as the country's coal-fired power stations begin to decommission.  The Group has addressed that decline by (i) monitoring the market closely and reducing costs in its operations division, (ii) securing new contracts for the sale of coal fines and (iii) giving income generation a high priority, following the Board's annual review of the Group's strategy, and focusing resources to increase the amount and quality of the Group's income.

 

Strategy

The Board carried out a comprehensive review of the Group's strategy in June and re-appraised the strategy following the EU Referendum result.  The review reconfirmed the business' focus and the appropriateness of current risks and mitigations.

 

EU Referendum result

The EU Referendum result and, specifically, its impact on the economic outlook for the United Kingdom, could increase the risks of fluctuations in the commercial and residential property markets for the price of land. 

 

Following the EU referendum result, the Group (i) has carried out a detailed review of forecast sales, development expenditure and cashflow for the second half of the financial year and the financial year ending 31 December 2017 and (ii) is monitoring closely sales and sentiment in the commercial and residential property markets in which the Group operates and the progress of the Group's pipeline sales. 

 

Whilst the Group is yet to reach any final conclusion as to the likely effect of the EU referendum result on the property markets in which the Company operates, indications in the period following the result suggest that (a) any effect on the Group should be mitigated by the diversity in the Group's property portfolio, (b) the effect on markets in London and the South East appears to have been more marked than on the regional markets in which the Group operates, (c) housebuilders are adopting a cautious approach to acquisitions of development land but the Group has continued to agree residential land sales since 23rd June 2016, and (d) the result has had little impact on the regional, commercial property market.  That said, the Group has revised its development expenditure plans to ensure future infrastructure spend is directly linked to anticipated land sales.

 

Human resources

A number of internal promotions and external appointments have been made in the first half of the financial year, thereby helping to mitigate the risks connected with human resources.

 

Andrew Kirkman

Finance Director

6 September 2016

 

 

Statement of the Directors' responsibilities

The Directors confirm that to the best of their knowledge:

 

- the condensed consolidated interim financial information has been prepared in accordance with IAS 34 'Interim Management Reporting' as adopted by the European Union; and

 

- the condensed consolidated interim financial information includes a fair review of:

 

(a) the information required by DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

 

(b) the information required by DTR 4.2.8R of the Disclosure and Transparency Rules, being related parties transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the company during that period, and any changes in the related parties transactions described in the last annual report that could have a material effect on the financial position or performance of the company in the first six months of the current financial year.

               

The Directors of Harworth Group plc are as listed below:

 

Jonson Cox, Chairman

Owen Michaelson, Chief Executive

Andrew Kirkman, Finance Director

Lisa Clement, Senior Independent Non-Executive Director

Martyn Bowes, Non-Executive Director

Andrew Cunningham, Independent Non-Executive Director

Anthony Donnelly, Independent Non-Executive Director

Steven Underwood, Non-Executive Director

 

A list of current Directors is also maintained on the Harworth Group plc website: www.harworthgroup.com.

 

By order of the Board

 

Christopher Birch

Company Secretary

6 September 2016

 

Consolidated income statement

 

Note

Unaudited

6 months ended

30 June
2016
£000

Unaudited

6 months ended 30 June
2015
£000

Audited
year ended
31 December

2015
£000

Revenue

 

17,405

4,171

13,172

Cost of sales

 

(11,864)

(1,789)

(6,013)

Gross profit

 

5,541

2,382

7,159

Administrative expenses

 

(4,802)

(1,973)

(5,731)

Increase in fair value of investment properties

 

7,900

3,356

24,060

(Loss)/profit on sale of investment properties

 

(307)

2,200

8,180

Loss on sale of assets classified as held for resale

 

(192)

-

-

Other gains

 

56

3,265

3,208

Other operating income

 

137

-

176

Operating profit before exceptional items

 

8,333

9,230

37,052

Exceptional items

2

7

(2,394)

(2,859)

Operating profit

 

8,340

6,836

34,193

Finance income

5

242

27

62

Finance costs

5

(1,196)

(631)

(1,803)

Share of profit of associates

 

-

856

856

Gain on bargain purchase

3

-

44,244

44,244

Profit before tax

 

7,386

51,332

77,552

Tax

6

(1,422)

(571)

(3,508)

Profit for the period/year

 

5,964

50,761

74,044

 

 

 

 

 

Earnings per share from operations

 

pence

pence

pence

Basic and diluted

8

0.30

2.73

3.10

Adjusted

 

0.30

0.50

1.10

The notes below are an integral part of these condensed consolidated interim financial statements.

All activities in the current period are derived from continuing operations.

 

Consolidated statement of comprehensive income

 

Unaudited

6 months ended 30 June
2016
£000

Unaudited

6 months ended 30 June
2015
£000

Audited
year ended
31 December

2015
£000

Profit for the period/year

5,964

50,761

74,044

Other comprehensive income - items that will not be reclassified to profit or loss:

 

 

 

Re-measurements of Blenkinsopp Pension Scheme

(25)

(12)

(3)

Fair value of financial instruments                                                                              18

(658)

-

-

Total other comprehensive income

(683)    

(12)

(3)

Total other comprehensive income for the period/year

5,281

50,749

74,041

 

Consolidated balance sheet

 

Note

Unaudited

6 months ended 30 June
2016
£000

Unaudited

6 months ended 30 June
2015
£000

Audited
year ended
31 December

2015
£000

ASSETS

 

 

 

 

Non-current assets

 

 

 

 

Other receivables

 

650

650

650

Investment in associates

9

-

-

-

Investment properties

10

346,521

306,993

334,617

Investments in joint ventures

11

9,798

1,233

768

 

 

356,969

308,876

336,035

Current assets

 

 

 

 

Inventories

 

1,062

239

1,092

Trade and other receivables

 

20,057

20,809

19,906

Cash and cash equivalents

12

23,692

30,065

27,564

Assets classified as held for sale

13

7,606

4,822

9,128

 

 

52,417

55,935

57,690

Total assets

 

409,386

364,811

393,725

LIABILITIES

 

 

 

 

Current liabilities

 

 

 

 

Borrowings

14

(1,938)

(716)

(400)

Trade and other payables

 

(17,612)

(21,207)

(17,369)

Liabilities classified as held for sale

13

-

(172)

-

 

 

(19,550)

(22,095)

(17,769)

Net current assets

 

32,867

33,840

39,921

Non-current liabilities

 

 

 

 

Borrowings

14

(70,669)

(59,316)

(64,119)

Trade and other payables

 

(2,280)

-

(2,280)

Derivative financial instruments

 

(658)

-

-

Deferred income tax liabilities

 

(12,801)

(8,442)

(11,379)

Retirement benefit obligations

15

(404)

(507)

(435)

 

 

(86,812)

(68,265)

(78,213)

Total liabilities

 

(106,362)

(90,360)

(95,982)

Net assets

 

303,024

274,451

297,743

SHAREHOLDERS' EQUITY

 

 

 

 

Called up share capital

16

29,227

29,227

29,227

Share premium account

17

-

129,121

129,121

Fair value reserve

 

31,960

3,356

24,060

Capital redemption reserve

 

257

257

257

Merger reserve

 

45,667

45,667

45,667

Retained earnings

 

66,792

66,823

69,411

Other reserves

17

129,121

-

-

Total shareholders' equity

 

303,024

274,451

297,743

 

Consolidated statement of cash flows

 

Unaudited

6 months ended 30 June
2016
£000

Unaudited

6 months ended 30 June
2015
£000

Audited
year ended
31 December

2015
£000

Cash flows from operating activities

 

 

 

Profit for the period/year

5,964

50,761

77,552

Net interest payable

954

604

1,741

Share of post-tax profit from associates

-

(856)

(856)

Gain on bargain purchase

-

(44,244)

(44,244)

Net fair value increase in investment properties

(7,900)

(3,356)

(24,060)

Loss/(profit) on disposal of investment properties, assets held for sale and option

499

(5,408)

(11,388)

Pension contributions in excess of charge and other gains

(63)

(57)

(132)

Impairment of investment in joint venture

-

-

465

Operating cash outflow before movements in working capital

(546)

(2,556)

(922)

Decrease / (increase) in inventories

30

72

(781)

(Increase) / decrease in receivables

(151)

4,228

9,881

Increase / (decrease) in payables

3,428

(946)

(10,512)

Cash generated from/ (used in) operations

2,761

798

(2,334)

Loan arrangement fees paid

(47)

(96)

(170)

Interest paid

(742)

(364)

(1,101)

Cash from discontinued operations

-

328

228

Cash generated from/(used in) operating activities

1,972

666

(3,377)

Cash flows from investing activities

 

 

 

Interest received

242

28

62

Investment in joint venture

(9,030)

-

-

Acquisition of a subsidiary, net of cash acquired

-

(87,823)

(87,823)

Proceeds from disposal of investment properties and option

10,894

14,257

42,302

Expenditure on investment properties

(15,753)

(10,349)

(41,215)

Cash generated from discontinued operations

-

(1,068)

(1,068)

Cash used in investing activities

(13,647)

(84,955)

(87,742)

Cash flows from financing activities

 

 

 

Net proceeds from issue of ordinary shares

-

112,075

112,075

Proceeds/(repayment) from/(of) bank loan

9,000

(400)

(400)

Proceeds from other loans

2,905

3,528

13,455

Repayment of other loan

(4,102)

(3,078)

(8,776)

Cash generated from financing activities

7,803

112,125

116,354

(Decrease) / Increase in cash

(3,872)

27,836

25,235

At 1 January

 

 

 

Cash

27,564

1,489

1,489

Cash equivalents classified as held for sale

-

840

840

 

27,564

2,329

2,329

(Decrease) / increase in cash

(3,872)

27,836

26,075

Cash equivalents classified as held for sale

-

-

(840)

 

23,692

30,165

27,564

At period/year end

 

 

 

Cash

23,692

30,065

27,564

Cash equivalents classified as held for sale

-

100

-

Cash and cash equivalents

23,692

30,165

27,564

 

 

Consolidated statement of changes in shareholders' equity

 

 

 

Note

Ordinary

shares

£000

Share

premium account

£000

 

Merger reserve

£000

 

Fair

value reserve

£000

Other

reserves

£000

Retained earnings

£000

Total

equity

£000

Balance at January 2015 (audited)

 

6,055

32,911

-

-

257

19,430

58,653

Transactions with owners:

 

 

 

 

 

 

 

 

     Shares issued

      16

15,865

99,160

-

-

-

-

115,025

     Costs relating to share Issues

17

-

(2,950)

-

-

-

-

(2,950)

     Shares issued in lieu of consideration

16

7,307

-

45,667

-

-

-

52,974

Profit for the six months to 30 June 2015

 

-

-

-

-

-

50,761

50,761

Fair value gain on revaluation of investment properties

 

-

-

-

3,356

-

(3,356)

-

Other comprehensive income:

 

 

 

 

 

 

 

 

      Re-measurements of post-retirement benefits

 

-

-

-

-

-

(12)

(12)

Balance at 30 June 2015 (unaudited)

 

29,227

129,121

45,667

3,356

257

66,823

274,451

Profit for the six months to 31 December 2015

 

-

-

-

-

-

26,639

26,639

Fair value gain on revaluation of investment properties

 

-

-

-

20,704

-

(24,060)

(3,356)

Other comprehensive income:

 

 

 

 

 

 

 

 

Re-measurements of post-retirement benefits

 

-

-

-

-

-

9

9

Balance at 31 December 2015 (audited)

 

29,227

129,121

45,667

24,060

257

69,411

297,743

Transactions with owners:

 

 

 

 

 

 

 

 

Profit for the six months to 30 June 2016

 

-

-

-

-

-

5,964

5,964

Fair value gain on revaluation of investment properties

 

-

-

-

7,900

-

(7,900)

-

Transfer of share premium to other distributable reserves  

 

17

-

(129,121)

-

-

129,121

-

-

Other comprehensive income:

 

 

 

 

 

 

 

 

Re-measurements of post-retirement benefits

 

-

-

-

-

-

(25)

(25)

Fair value of financial instruments                                                        

18

-

-

-

-

-

(658)

(658)

Balance at 30 June 2016 (unaudited)

 

29,227

-

45,667

31,960

129,378

66,792

303,024

 

Notes to the condensed consolidated interim financial statements

for the six months ended 30 June 2016
 

1. Basis of preparation of the condensed consolidated interim financial statements


General information

Harworth Group plc (formerly Coalfield Resources plc) (the "Company") is a public limited company incorporated and domiciled in the UK. The address of its registered office is Advantage House, Popular Way, Rotherham, South Yorkshire, S60 5TR. Coalfield Resources plc changed its name to Harworth Group plc on 24 March 2015.

 

The Company is listed on the London Stock Exchange.

 

The condensed consolidated interim financial statements for the six months ended 30 June 2016 comprise the Company and its subsidiaries (together referred to as the "Group").

 

These condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The Group financial statements for the year ended 31 December 2015 were approved by the Board of Directors on 31 March 2016 and delivered to the Registrar of Companies. The report of the auditor on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

 

The condensed consolidated interim financial statements have neither been reviewed nor audited.

 

The condensed consolidated interim financial statements for the period ended 30 June 2016 were approved by the Board on 6 September 2016.

 

Basis of preparation

These condensed consolidated interim financial statements for the six months ended 30 June 2016 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority (previously the Financial Services Authority) and with IAS 34 'Interim financial reporting' as adopted by the European Union ('EU'). The condensed consolidated interim financial statements should be read in conjunction with the Group financial statements for the year ended 31 December 2015 which have been prepared in accordance with IFRSs as adopted by the EU.

 

Going-concern basis

These financial statements are prepared on the basis that the Group is a going concern. In forming its opinion as to going concern, the Board prepares cash flow forecasts based upon its assumptions with particular consideration to the key risks and uncertainties as summarised in 'Key risks and uncertainties' section of our 2015 Annual Report, as well as taking into account the funding strategy and available borrowing facilities disclosed on page 11.

 

The key factor that has been considered in this regard is:

 

Following the acquisition of Harworth Estates Property Group Limited (Harworth Estates), the Group has a £65m revolving credit facility with The Royal Bank of Scotland, for a term of five years, on a non-amortising basis. The facility is in the form of a debenture security whereby there is no charge on the individual assets of the Group. The facility is subject to financial and other covenants.

 

The covenants are based upon gearing, tangible net worth, loan to property values and interest cover. Property valuations affect the loan to value covenants. Breach of covenants could result in the need to pay down in part some of these loans, additional costs, or a renegotiation of terms or, in extremis, a reduction or withdrawal of facilities by the banks concerned.

 

Subsequent to the period end, the revolving credit facility with The Royal Bank of Scotland has been increased by £10m to £75m and the term has been extended by one year to 2021.

 

The Directors confirm their belief that it is appropriate to use the going concern basis of preparation for these financial statements.

 

Accounting policies

Except as described below, the accounting policies applied are consistent with those of the Group financial statements for the year ended 31 December 2015, as described in those annual financial statements.

 

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected annual earnings.

 

New standards and interpretations not yet adopted

A number of new standards and amendments to standards and interpretations are effective for annual years beginning after 1 January 2016, and have not been applied in preparing these consolidated financial statements. These have been set out below:

 

Amendment to IFRS 11, 'Joint arrangements' on acquisition of an interest in a joint operation.

 

This amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. The amendments specify the appropriate accounting treatment for such acquisitions. The amendment was published in May 2014 and is effective for annual periods on or after 1 January 2016.

 

Amendments to IAS 27, 'Separate financial statements' on the equity method. These amendments allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. The amendment was published in August 2014 and is effective for annual periods on or after 1 January 2016.

 

Annual improvements 2014. These set of amendments impacts 4 standards:

·    IFRS 5, 'Non-current assets held for sale and discontinued operations' regarding methods of disposal.

·    IFRS 7, 'Financial instruments: Disclosures', (with consequential amendments to IFRS 1) regarding servicing   contracts.

·    IAS 19, 'Employee benefits' regarding discount rates.

·    IAS 34, 'Interim financial reporting' regarding disclosure of information.

 

The amendment was published in September 2014 and is effective for annual periods on or after 1 January 2016.

 

Amendment to IAS 1, 'Presentation of financial statements' on the disclosure initiative. These amendments are as part of the IASB initiative to improve presentation and disclosure in financial reports. Effective for annual periods beginning on or after 1 January 2016, subject to EU endorsement.

 

Amendment to IFRS 10 and IAS 28 on investment entities applying the consolidation exception. These amendments clarify the application of the consolidation exception for investment entities and their subsidiaries. The amendment was published in December 2014 and is effective for annual periods on or after 1 January 2016.

 

IAS Amendments to IAS 7, Statement of cash flows on disclosure initiative. These amendments to IAS 7 introduce an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendment is part of the IASB's Disclosure Initiative, which continues to explore how financial statement disclosure can be improved. The amendment was published in February 2016 and is effective for annual periods on or after 1 January 2017.

 

Amendments to IAS 12, 'Income taxes' on Recognition of deferred tax assets for unrealised losses (effective 1 January 2017). These amendments on the recognition of deferred tax assets for unrealised losses clarify how to account for deferred tax assets related to debt instruments measured at fair value. The amendment was published in February 2016 and is effective for annual periods on or after 1 January 2017.

 

Amendments to IFRS 2, 'Share based payments', on clarifying how to account for certain types of share-based payment transactions. This amendment clarifies the measurement basis for cash-settled, share-based payments and the accounting for modifications that change an award from cash-settled to equity-settled. It also introduces an exception to the principles in IFRS 2 that will require an award to be treated as if it was wholly equity-settled, where an employer is obliged to withhold an amount for the employee's tax obligation associated with a share-based payment and pay that amount to the tax authority. The amendment was published in June 2016 and is effective for annual periods on or after 1 January 2018.

 

IFRS 9 'Financial instruments'. This standard replaces the guidance in IAS 39. It includes requirements on the classification and measurement of financial assets and liabilities; it also includes an expected credit losses model that replaces the current incurred loss impairment model. The amendment was published in July 2014 and is effective for annual periods on or after 1 January 2018.

 

IFRS 15 'Revenue from contracts with customers'. IFRS 15, 'Revenue from contracts with customers' is a converged standard from the IASB and FASB on revenue recognition. The standard will improve the financial reporting of revenue and improve comparability of the top line in financial statements globally. The amendment was published in May 2014 and is effective for annual periods on or after 1 January 2018.

 

Estimates and judgements

The preparation of the condensed consolidated interim 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 condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2015, with the exception of changes in estimates that are required in determining the provision for income taxes.
 

2. Exceptional items

 

 

Unaudited

6 months ended 30 June
2016
£000

Unaudited

6 months ended 30 June
2015
£000

Audited
year ended
31 December

2015
£000

Settlement relating to Harworth Insurance Company Limited

500

-

-

Settlement relating to Ocanti Opco Limited

189

-

-

Coal fines stock provision

 

(339)

-

-

Under recovery relating to the cessation of coal fine activities at Rugeley

 

(343)

-

-

Transaction costs (note 3)

 

-

(2,394)

(2,859)

Total exceptional items

 

7

(2,394)

(2,859)

 

Exceptional items for 2016 comprise four separate items, all of which largely relate to Harworth's legacy activities.  £0.5m relates to a settlement from the administrators of Harworth Insurance Company Limited and £0.2m is expected from the administrator of Ocanti Opco Limited which relates to the reimbursement of management expenses incurred by Coalfield Resources plc (the former name of Harworth Group plc).  In respect of coal fines activity, an exceptional charge has been taken to reflect the under recovery of amounts relating to the cessation of activities at Rugeley of £0.3m and a provision of £0.3m has been taken against the value of coal fines stocks reflecting reduced demand.

The exceptional items in 2015 relate to the transaction costs incurred on the acquisition of Harworth Estates of £2.4m and the write down of a joint venture investment held by the Group of £0.5m.

 

3. Business combinations

 

Acquisition of Harworth Estates

On 24 March 2015, the Group acquired 75.1% of the issued share capital of Harworth Estates, a company incorporated in United Kingdom who headed up a group which was engaged in the regeneration of former coalfield sites and other brownfield land into employment areas, new residential development and low carbon energy projects.

 

The following table summarises the consideration paid for the Harworth Estates group, the fair value of assets acquired, liabilities assumed and the non-controlling interest held at the acquisition date.

 

Consideration at 24 March 2015

 

£000

Cash

97,026

Equity instruments (730m ordinary shares)

52,974

Total consideration transferred

150,000

Fair value of associate interest

57,746

Total consideration

207,746

Recognised amounts of identifiable assets acquired and liabilities assumed:

 

Attributed
Fair Value

£000

Investment property (Note 10)

299,355

Investments and other non-current receivables

1,883

Cash and cash equivalents

9,203

Inventory

311

Trade and other current receivables

23,054

Financial asset

1,200

Borrowings

(60,407)

Deferred tax liability

(7,871)

Trade and other payables

(14,738)

Fair value of acquired interest in net assets of subsidiary

251,990

Gain on bargain purchase

(44,244)

Total consideration

207,746

 

The purchase consideration disclosed above comprises cash and cash equivalents paid to acquire the previous majority shareholder of £150.0m which was satisfied by the payment of £97m and the allotment and issue of 730,674,465 ordinary shares of £0.01 each in the capital of Harworth Group plc. The share premium arising from the shares issued to the PPF is held within the merger reserve shown in the consolidated balance sheet.

 

Acquisition related costs of £2.4m have been recognised in the consolidated income statement for the period ended 30 June 2015 and £2.9m for the year ended 31 December 2015. The fair value of the 730m ordinary shares issued as part of the consideration paid for Harworth Estates (£53.0m) was based upon the price the shares were placed at 7.25 pence. Issuance costs of £2.9m have been netted against the deemed proceeds.

 

During the period ended 31 December 2015, the revenue included in the consolidated income statement since 24 March 2015 contributed by Harworth Estates was £12.9m (H1 2015: £3.9m) and profit before tax was £40.7m (H1 2015: £8.5m). Had the Harworth Estates group been consolidated from 1 January 2015, the consolidated income statement would show pro-forma revenue of £16.7m (H1 2015: £7.7m) and profit before tax of £39.2m (H1 2015: £10.6m).

 

The net cash outflow associated with the acquisition was as follows:

 

£000

Fair value of acquired interest in net assets of subsidiary

251,990

Fair value of associate interest already held

 (57,746)

Gain on bargain purchase

(44,244)

Total purchase consideration

150,000

Less: cash and cash equivalents of subsidiary acquired

(9,203)

Less: equity instruments issued

(52,974)

Net outflow of cash and cash equivalents on acquisition

87,823


4.  Segment information

30 June 2016

 

Group

Capital

growth

£000

Income

generation

£000

Unallocated

costs

£000

Total

£000

Revenue

9,580

7,825

-

17,405

Operating (loss)/profit before other income and expenses and
 exceptional items

(690)

4,626

(3,197)

739

Increase in fair value of investment properties

3,500

4,400

-

7,900

Loss on sale of investment properties and assets held for sale

(137)

(362)

-

(499)

Other gains and operating income

-

137

56

193

Exceptional items

-

(682)

(689)

7

Operating profit/(loss) after exceptional items

2,673

8,119

(2,452)

8,340

 

 

 

 

 

Finance income

 

 

 

242

Finance costs

 

 

 

(1,196)

Profit before tax

 

 

 

7,386

 

Other information

 

 

 

 

Investment property additions:

 

 

 

 

- Direct acquisitions

903

2,822

-

3,725

- Subsequent expenditure

5,002

5,059

-

10,061

 

Segmental Assets

 

 

 

Total

£000

Capital growth

 

 

 

211,546

Income generation

 

 

 

134,975

Total investment properties

 

 

 

346,521

 

 

 

 

 

Unallocated assets

 

 

 

 

Inventories

 

 

 

1,062

Other receivables

 

 

 

650

Investments in joint ventures

 

 

 

9,798

Trade and other receivables

 

 

 

20,057

Cash and cash equivalents

 

 

 

23,692

Current assets held for resale

 

 

 

7,606

Total assets

 

 

 

409,386

 

Financial liabilities are not allocated to the reporting segments as they are managed and measured on a group basis.

 

30 June 2015

 

Group

Capital

growth

£000

Income

generation

£000

Unallocated

costs

£000

Total

£000

Revenue

18

3,833

320*

4,171

Operating (loss)/profit before other income and expenses and
 exceptional items

(454)

2,260

(1,397)

409

Transaction costs

-

-

(2,394)

(2,394)

Increase in fair value of investment properties

2,000

1,356

-

3,356

Profit on sale of investment properties

2,144

56

-

2,200

Other gains

-

3,208

57

3,265

Operating profit/(loss)

3,690

6,880

(3,734)

6,836

Finance income

 

 

 

27

Finance costs

 

 

 

(631)

Share of profit of associates

 

 

 

856

Gain on bargain purchase

 

 

 

44,244

Profit before tax

 

 

 

51,332


*Unallocated revenues relate to recharges to Harworth Estates prior to its acquisition by the Group.

Other information

 

 

 

 

Investment property additions:

 

 

 

 

- Direct acquisitions

173

978

-

1,151

- Subsequent expenditure

9,962

2,378

-

12,340

 

Segmental Assets

 

 

 

Total

£000

Capital growth

 

 

 

190,900

Income generation

 

 

 

116,093

Total investment properties

 

 

 

306,993

 

 

 

 

 

Unallocated assets

 

 

 

 

Inventories

 

 

 

239

Other receivables

 

 

 

650

Investments in joint ventures

 

 

 

1,233

Trade and other receivables

 

 

 

20,809

Cash and cash equivalents

 

 

 

30,065

Non-current assets held for resale

 

 

 

4,822

Total assets

 

 

 

364,811

 

 

31 December 2015

 

Group

 

 

 

Capital

Growth

£000

Income

Generation

£000

Unallocated

Costs

£000

Total

£000

Revenue

 

 

1,319

11,533

320*

13,172

Operating (loss)/profit before other income and expenses and exceptional items

 

 

(1,471)

6,579

(3,680)

1,428

Transaction costs

 

 

-

-

(2,394)

(2,394)

Impairment of investment

 

 

(465)

-

-

(465)

Increase in fair value of investment properties

 

 

14,503

9,557

-

24,060

Profit on sale of investment properties

 

 

7,111

1,069

-

8,180

Other gains

 

 

-

3,208

-

3,208

Other operating income

 

 

-

47

129

176

Operating Profit/(Loss)

 

 

19,678

20,460

(5,945)

34,193

Finance income

 

 

 

 

 

62

Finance costs

 

 

 

 

 

(1,803)

Share of profit of associates

 

 

 

 

 

856

Gain on bargain purchase

 

 

 

 

 

44,244

Profit before tax

 

 

 

 

 

77,552

* Unallocated revenues relate to recharges to HEPGL prior to its acquisition by the Group.

 

Other information

 

 

 

 

 

 

Investment property additions:

 

 

 

 

 

 

Direct acquisitions

 

 

14,578

8,255

-

22,833

Subsequent expenditure

 

 

17,603

6,360

-

23,963

 

 

 

 

 

 

 

Segmental Assets

 

Capital

Growth

£000

Income

Generation

£000

Unallocated

Assets

£000

Total

£000

Total Investment Properties

 

 

210,004

124,613

-

334,617

Assets held for sale

 

 

30

9,098

-

9,128

Inventories

 

 

-

1,092

-

1,092

Other receivables

 

 

650

-

-

650

Investments in joint ventures

 

 

768

-

-

768

 

 

 

211,452

134,803

-

346,255

 

 

 

 

 

 

 

Unallocated Assets

 

 

 

 

 

 

Trade & other receivables

 

 

-

-

19,906

19,902

Cash & cash equivalents

 

 

-

-

27,564

27,564

Total assets

 

 

211,452

134,803

47,470

393,725

 

5.  Finance income/(cost)

 

Unaudited

6 months ended 30 June
2016
£000

Unaudited

6 months ended 30 June
2015
£000

Audited
year ended
31 December

2015
£000

Interest expense

 

 

 

- Bank interest

(742)

(347)

(977)

- Facility fees

(249)

(190)

(485)

- Other interest

(205)

(94)

(341)

 

(1,196)

(631)

(1,803)

Interest received

242

27

62

Net finance costs

(954)

(604)

(1,741)


6.  Tax

The current tax in the period is £nil (H1 2015: £nil; FY 2015: £nil).

 

The Group recognised deferred tax liabilities of £1.4m using the liability method and a tax rate of 18% (H1 2015: 20%; FY 2015 18%) at the period end covered by this condensed consolidated interim statement.

 

The Group recognised a deferred tax liability of £12.8m in respect of property revaluation gains where tax is expected to arise when the property is sold (H1 2015: £8.4m; FY 2015: £11.4m). The Group did not recognise any deferred tax assets at the period end covered by this interim statement (H1 2015: £nil; FY 2015: £nil).

 

7.  Dividends

An interim dividend of £0.66m is proposed for the six months ended 30 June 2016 and will be paid on 1 December 2016. The Board recommended and shareholders approved a full year dividend for 2015 of £1.5m which will be paid on 9th September 2016.

 

8.  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 period. The weighted average number of shares for 30 June 2015 includes the adjustments necessary to reflect the new shares issued on 24 March 2015 and for 30 June 2016 the share consolidation which took place on 3 May 2016. See note 16.

 

 

Unaudited

6 months ended 30 June
2016
£000

Unaudited

6 months ended 30 June
2015
£000

Audited
year ended
31 December

2015
£000

Profit for the period/year

5,964

50,761

74,044

Weighted average number of shares used

 for basic and diluted profit per share calculations

1,983,259,260

1,860,095,458

2,395,763,516

Basic and diluted earnings per share (pence)

0.30

2.73

3.10

Adjusted earnings per share (pence)

0.30

0.50

1.10

 

Adjusted, basic and diluted earnings per share for the six months to 30 June 2016 was 0.3 pence. For the period to 30 June 2015 adjusted earnings per share was 0.5 pence, being based on profit before tax adjusted for the exceptional gain on bargain purchase of £44.2m and acquisition fees of £2.4m. For the year ended 31 December 2015 the adjusted basic and diluted earnings per share were 1.1 pence, being based on profit before tax adjusted for the exceptional gain on bargain purchase of £44.2m, acquisition fees of £2.4m and write down of investments of £0.5m.

 

9.  Investment in associates

Cost

Unaudited

6 months ended 30 June
2016
£000

Unaudited

6 months ended 30 June
2015
£000

Audited
year ended
31 December

2015
£000

At start of period/year

-

56,890

-

Share of profit

-

856

-

Purchase of share capital not held

-

(57,746)

-

At end of period/year

-

-

-

 

The Group accounted for its investment in Harworth Estates, a private company incorporated in England and Wales, as an associate up to and including 24 March 2015 because it considered that it had significant influence over that entity due to its 24.9% shareholding and representation on the Harworth Estates board.

 

On 24 March 2015 Harworth Group PLC acquired the remaining 75.1% of Harworth Estates that it did not own from the Pension Protection Fund ("PPF"). Harworth Estates therefore ceased to be accounted for as an associate at that date and has been fully consolidated in these accounts.

 

10.  Investment properties

Investment property at 30 June 2016 has been measured at fair value based upon a management estimate. The Group holds five categories of investment property being agricultural land, natural resources, business parks, major developments and strategic land, all situated in the UK, which sit within the operating segments of income generation and capital growth.

 

 

Agricultural Land
Income Generation

£000

 

Natural

Resources
Income Generation

£000

 

Business Parks
Income Generation

£000

Major

Developments
Capital Growth

£000

Strategic Land
Capital Growth

£000

 

Total
 £000

At 31 December 2014

-

-

-

-

-

-

Acquisition of subsidiaries

22,070

18,574

72,724

139,842

46,145

299,355

Direct acquisitions

-

978

-

120

53

1,151

Subsequent expenditure

202

309

1,867

9,308

654

12,340

Increase in fair value

-

386

970

2,000

-

3,356

Disposals

(787)

(1,200)

-

(6,222)

(1,000)

(9,209)

At 30 June 2015

21,485

19,047

75,561

145,048

45,852

306,993

Direct acquisitions

-

-

7,277

1,246

13,159

21,682

Subsequent expenditure

402

3

3,577

6,254

1,387

11,623

Increase/(decrease) in fair value

2,477

989

4,735

13,075

(572)

20,704

Transfer to assets held for sale

(6,013)

(3,085) 

-

-

(30)

(9,128)

Disposals

(1,588)

-

(254)

(8,034)

(7,381)

(17,257)

At 31 December 2015

16,763

16,954

90,896

157,589

52,415

334,617

Direct acquisitions

493

-

2,329

-

903

3,725

Subsequent expenditure

141

389

4,529

3,649

1,353

10,061

Increase in fair value

-

3,400

1,000

2,000

1,500

7,900

Transfer to assets held for sale

(1,531)

-

-

-

-

(1,531)

Disposals

(388)

-

-

(7,500)

(363)

(8,251)

At 30 June 2016

15,478

20,743

98,754

155,738

55,808

346,521

 

Valuation process

The properties have been valued by the management who have exercised their experience and judgement in arriving at the increase in fair value at June 2016 and June 2015. At 31 December 2015 these properties were valued in accordance with the Royal Institute of Charted Surveyors (RICS) Valuation - Professional Standards (the 'Red Book'), by BNP Paribas Real Estates and Savills, both independent firms acting in capacity of external valuers with relevant experience of valuations of this nature.

 

11.  Investments in joint ventures

 

£000

At June 2015

1,233

Impairment of investment in joint venture

(465)

At 31 December 2015

768

Acquisition

9,030

At 30 June 2016

9,798

 

As a result of the acquisition of Harworth Estates the Group holds 50% of the issued ordinary shares of Bates Regeneration Limited, a joint venture with Banks Property Limited for the development of an investment property at Blyth, Northumberland. In addition the Group purchased a 50% share of Aire Valley Land LLP from Keyland Developments Limited for a consideration of £8.5m plus costs on 14 March 2016. Aire Valley Land LLP is a joint venture company. It controls 165 acres of land in Leeds that abuts existing landholding of the Group on the former Skelton Grange power station site.

 

The Group's share of the assets and liabilities are:

June 2016

Country of incorporation

Assets
£000

Liabilities
£000

Interest held
%

Bates Regeneration Limited

England and Wales

1,213

(445)

50

The Aire Valley Land LLP

England and Wales

7,798

(3,900)

50

 

June 2015

Country of incorporation

Assets
£000

Liabilities
£000

Interest held
%

Bates Regeneration Limited

England and Wales

2,050

(827)

50

 

December 2015

Country of incorporation

Assets
£000

Liabilities
£000

Interest held
%

Bates Regeneration Limited

England and Wales

1,213

(445)

50

 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

·   Decline in market conditions and values.

 

The Group also owns a number of other joint ventures whose value is minimal. A full list of joint ventures can be obtained from the Company's registered office.

 

12.  Cash and cash equivalents

 

Unaudited

6 months ended 30 June
2016
£000

Unaudited

6 months ended 30 June
2015
£000

Audited
year ended
31 December

2015
£000

Cash held and other cash balances

23,692

30,065

27,564

 

13.  Assets and liabilities classified as held for sale

The assets classified for sale at 30 June 2016 and 31 December 2015 relate to investment properties expected to be sold within twelve months.

 

The assets and liabilities of the disposal group held for sale at 30 June 2015 related to Harworth Insurance Company Limited (HICL). Agreement was reached with the administrators of the former UK Coal Mine Holdings Limited (Ocanti No 1 Limited) over the exercise of their option to acquire the shares of Harworth Insurance Company Limited. The agreement was to reflect the efforts of the Company securing the restructure of the former insurance company to permit the transfer of the shareholding to a company in administration. The value to the Company reflects the value realised by the administrators in the liquidation of the assets of HICL after the cost of the liquidation. This is capped at £0.5m based on the value of the balance sheet of HICL at 30 September 2015. The share transfer completed on 8 December 2015 and the Group has now recognised the value in the Consolidated Income Statement in other gains.

 

(a) Assets classified as held for sale

 

Unaudited

6 months ended 30 June
2016
£000

Unaudited

6 months ended 30 June
2015
£000

Audited
year ended
31 December

2015
£000

Investment properties

7,606

-

9,128

Trade and other receivables

-

28

-

Available for sale financial assets

-

4,694

-

Cash and cash equivalents

-

100

-

Assets classified as held for sale

7,606

4,822

9,128

(b) Liabilities classified as held for sale

 

Unaudited

6 months ended 30 June
2016
£000

Unaudited

6 months ended 30 June
2015
£000

Audited
year ended
31 December

2015
£000

Trade and other payables

-

53

-

Provisions

 

 

 

Re-measurement loss on carrying value of Harworth Insurance Company Limited

-

119

-

Liabilities classified as held for sale

-

172

-

The assets and liabilities held for sale excluding investment properties relate to Harworth Insurance Company Limited.

14.  Borrowings and loans

 

Unaudited

6 months ended 30 June
2016
£000

Unaudited

6 months ended 30 June
2015
£000

Audited
year ended
31 December

2015
£000

Bank loans

 

 

 

Current:

 

 

 

Secured - bank loans and overdrafts

-

-

-

Secured - other loans

(1,938)

(716)

(400)

 

(1,938)

(716)

(400)

Non-current:

 

 

 

Secured - bank loans

(58,100)

(48,850)

(48,968)

Secured - other loans

(12,569)

(10,466)

(15,151)

 

(70,669)

(59,316)

(64,119)

 

Details of the borrowings acquired as part of the acquisition of Harworth Estates on 24 March 2015 are provided in Note 3.

 

At 30 June 2016, the Group had bank borrowings of £58.1m (H1 2015: £48.9m) and a further £14.4m (H1 2015: £11.2m) of infrastructure loans, which resulted in total borrowings of £72.6m (H1 2015: £60.0m). The bank borrowings are part of a £65.0m revolving credit facility from The Royal Bank of Scotland. The facility is repayable on 13 February 2020 (five year term) on a non-amortising basis and is subject to financial and other covenants. Subsequent to the period end this facility has been increased to £75m and the term has been extended by one year.

 

The infrastructure loans of £14.5m are provided by public bodies in order to promote the development of major sites. They comprise a £1.0m loan from Leeds City Region Enterprise Partnership (H1 2015: £1.4m) in respect of the Prince of Wales site, £11.4m from the Homes and Community Agency in respect of Waverley (H1 2015: £8.5m), £0.6m from Sheffield City Region Joint European Support for Sustainable Investment In City Areas (JESSICA) Fund for Rockingham (H1 2015: £1.0m) and £1.5m from Greater Manchester Investment Fund in respect of Logistics North (H1 2015: £0.3m). The loans are drawn as work on the respective sites is progressed and they are repaid on agreed dates or when disposals are made from the sites.

 

Current loans are stated after deduction of unamortised borrowing cost of £nil (H1 2015: £0.09m). Non-current bank and other loans are stated after deduction of unamortised borrowing costs of £1.1m (H1 2015: £1.3m). The bank loans and overdrafts are secured by way of fixed charges over certain assets of the Group.

 

15.  Retirement benefit obligations

The Group's only defined benefit pension liability was for the Blenkinsopp Section of the Industry-Wide Mineworkers Pension Scheme. The liability of the Group to make contributions was indemnified by UK Coal Production Limited. During the six months to 30 June 2015 and the year to 31 December 2015 all contributions were paid to the pension fund by UK Coal Production Limited. From 1 January 2016 to 30 June 2016 all contributions have been made by Harworth Group plc.

 

The pension scheme has been valued by a qualified independent actuary for the purposes of IAS19 (revised) and the preparation of these financial statements. The assumptions used are consistent with those derived at 31 December 2015, but updated for current market conditions. The main assumptions underlying the valuation of the Blenkinsopp scheme are:

 

As at
30 June
2016

As at
30 June

2015

As at
31 December
2015

Discount rate

3.00%

3.75%

3.80%

Rate of pension increases

2.00%

2.30%

2.2%

Rate of price inflation (RPI)

2.95%

3.30%

3.2%

Rate of cost inflation (CPI)

1.95%

2.30%

2.2%

Rate of cash commutation

20.0%

20.0%

20.0%

 

The amounts recognised in the consolidated balance sheet are as follows:

 

As at
30 June
2016

As at
30 June

2015

As at
31 December
2015

Fair value of plan assets

2,023

1,705

1,727

Present value of funding obligations

(2,427)

(2,212)

(2,162)

Net liability recognised in the balance sheet

(404)

(507)

(435)

 

The amounts recognised in the consolidated income statement are:

 

6 months ended
30 June
2016
£000

6 months ended
30 June

2015
£000

Year ended
31 December
2015
£000

Expenses

(33)

(18)

(36)

Interest costs

(6)

(9)

(21)

 

(39)

(27)

(57)

 

The net effect of re-measurements on the Blenkinsopp scheme charged to the statement of comprehensive income is a loss of £0.03m (H1 2015: loss of £12,000, FY 2015: loss of £3,000).

 

The fair value of plan assets have increased by £0.1m through contributions paid in to the scheme in 1H 2016.

 

16.  Called up share capital

On 24 March 2015 the Company issued 2,317,241,377 ordinary shares at 7.25 pence each as part of a placing and open offer of which 730,674,465 ordinary shares were issued to the PPF as part of the purchase consideration for the acquisition of 75.1% of the issued share capital of Harworth Estates. On 26 April 2016 3 ordinary shares were issued at 1 pence each and all shares in issue were consolidated from 1 pence shares into 10 pence shares.

 

Issued and fully paid - £000

6 months ended
30 June
2016
£000

6 months ended
30 June

2015
£000

Year ended
31 December
2015
£000

At start of period/year

29,227

6,055

6,055

Shares issued

-

23,172

23,172

At end of period/year

29,227

29,227

29,227

 

Issued and fully paid - Number of shares

6 months ended
30 June
2016
 

6 months ended
30 June

2015
 

Year ended
31 December
2015
 

At start of period/year

2,922,697,857

605,456,480

605,456,480

Shares issued

3

2,317,241,377

2,317,241,377

Share consolidation (10 for 1)

(2,630,428,074)

-

-

At end of period/year

292,269,786

2,922,697,857

2,922,697,857

 

17.  Share premium account

Issued and fully paid

6 months ended
30 June
2016
£000

6 months ended
30 June

2015
£000

Year ended
31 December
2015
£000

At start of period/year

129,121

32,911

32,911

Premium on shares issued

-

99,160

99,160

Costs relating to issue

-

(2,950)

(2,950)

Transfer to other distributable reserve

(129,121)

-

-

At end of period/year

-

129,121

129,121

 

On 18 May 2016 approval was granted from the high court to cancel the £129m share premium account of the Company and for it to be re-designated as distributable reserves.

 

18.  Derivative financial instruments

On 21 June 2016, HEPGL entered into a four-year swap to fix £30m of borrowings at an all-in rate of 2.955%, including fees.  The interest rate swap has been measured at fair value which is determined using forward interest rates extracted from observable yield curves. The fair value of the interest rate swap at 30 June 2016 was a loss of £0.7m (H1 2015: £nil, FY 2015: £nil).

 

During the period the following loss was recognised in the other comprehensive income statement in relation to the interest rate swap:

 

6 months ended
30 June
2016
£000

6 months ended
30 June

2015
£000

Year ended
31 December
2015
£000

Losses on Interest rate swap - cash flow hedge

658

-

-

 

19.  Related party transactions

 

Peel Group

The Peel Group charged £21,250 (H1 2015: £20,625; FY 2015: £41,875) in respect of fees for Steven Underwood and £nil (H1 2015: £8,128; FY 2015: £8,202) for the rental of office space.

 

During H1 of 2015 the Group relinquished an option to purchase 50% of the share capital of Peel Wind Farms (Blue Sky Forest) Limited in return for £4.4m from Peel Holdings Wind Farms (IOM) Limited. This resulted in a gain of £3.2m shown in the consolidated income statement as other gains.

 

Harworth Estates

Revenue includes £0.3m for the period up to 24 March 2015 in respect of recharges to Harworth Estates for on-going costs of the Company.

 

Scratching Cat

Geoff Mason, our former Company Secretary, supplied his services through Scratching Cat Limited, a company of which he is a director.  During the period charges were made in relation to company secretarial duties of £0.07m (H1 2015: £0.07m; FY 2015: £0.1m).


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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