Harworth Group Plc - UNAUDITED INTERIM RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2019

30 June 2019 

30 June 2018 

Change (%) 

31 December 2018 

Net Asset Value ("NAV") per share (p) (1) 

141.3 

128.6 

9.9% 

137.5 

EPRA NNNAV per share (p) (1) 

147.3 

130.8 

12.6% 

145.2 

EPRA NAV per share (p) (1) 

150.6 

133.4 

12.9% 

148.3 

 

 

 

 

 

Operating profit (£'m) 

13.3 

6.0 

120.7% 

33.0 

Operating profit before exceptional items plus joint ventures (£'m) 

19.7 

8.9 

120.9% 

37.4 

Value gains (£'m) (1) 

17.7 

7.7 

130.9% 

27.6 

Value gains (including development properties) (£'m) (1) 

11.1 

10.5 

5.5% 

51.3 

Profit excluding value gains (£'m) (1) 

2.0 

1.3 

58.6% 

9.8 

 

 

 

 

 

Earnings per share (p) 

4.67 

1.71 

173.1% 

10.61 

Dividend per share (p) 

0.304 

0.278 

9.4% 

0.911 

 

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 

·   

A positive six months resulting in total return (EPRA NNNAV growth plus dividends per share) on an annual basis of 13.3% (H1 2018: 11.5%)

·   

EPRA NNNAV growth per share over the last twelve months of 12.6% (H1 2018: 10.9%) and 1.4% (H1 2018: 1.5%) during the period

·   

Profit excluding value gains increased by 58.6% (H1 2018: 23.8%), reflecting the impact of additional income generated from acquisitions in 2018

·   

Operating profit of £13.3m (H1 2018: £6.0m)

·   

Interim dividend per share increased by 9.4% to 0.304p (H1 2018: 0.278p) in-line with our progressive policy  

·   

Policy of prudent gearing maintained.  Net loan to value of 10.1% (FY 2018: 12.3%) or 28.2% when calculated against the income portfolio (FY 2018: 34.3%), reflecting strong sales in the first half 

·   

As at 30 June 2019 cash and facility headroom of £53.4m, providing substantial firepower for further land and property acquisitions

 

REGIONAL MODEL UNDERPINNING OPERATIONAL PROGRESS

·   

PROPERTY SALES: As at today, over 70% of budgeted sales for the full year have already been completed, exchanged or agreed, reflecting the underlying strength of the "beds and sheds" markets in Harworth's core regions and its commitment to place-making 

 

o  76 acres of engineered residential land sold, with the total above book value, to national and regional housebuilders across four sites for a total consideration of £45.6m, projected to deliver 1,091 new homes

 

o  Commercial sales at Gateway 45 Leeds 50/50 joint venture with Evans Property Group that will generate £30.3m (£15.2m Harworth share):

§ 10 acres of fully serviced commercial land sold to Leeds University;

§ 2.5 acres sold to Leeds City Council for an extension to its existing park and ride facility; and

§ Contracts exchanged with PLP UK Logistics Venture (UKLV) for the sale of 43 acres at Gateway 45 to deliver 855k sq. ft of speculative distribution space

 

·   

ACQUISITIONS: Move to a regional operating model (within our capital growth segment) delivering increased range of opportunities

 

o  Six strategic land and income acquisitions made in the first half, of which four were in the North West and Midlands regions, for a total consideration including costs of £18.8m

 

o  These acquisitions have the potential to deliver a further 2,483 residential plots and 0.1m sq. ft of commercial space

 

·   

INCOME: New acquisitions and delivery of lease milestones supporting income portfolio growth 

 

o  A £6.5m acquisition delivering additional net rent roll of £0.7m per annum

 

o  18 new or renewed lettings achieved delivering annualised income of £0.9m

 

o  Four of the nine "Multiply" units built in joint venture with Lancashire County Pension Fund at Logistics North are now let on long-term leases and strong interest reported on the remaining five

 

·   

PLANNING: Live applications for 1,715 residential plots and c.3.2m sq. ft of commercial space awaiting determination at half-year end

 

o  In early July, outline permission granted at Bardon Hill in Leicestershire for 356k sq. ft of commercial space

 

o  Following the outcome of May's local elections, which led to a change of control in a number of our local authorities, delays are expected 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 timings of decisions are now more uncertain

 

o  Applications for a further 2,150 residential plots and 200k sq. ft of commercial space are being prepared, including for the former Ironbridge power station that was purchased in June 2018

 

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

·   

With a portfolio of consented sites representing 9,842 residential plots (H1 2018: 10,638) and 10.0m sq. ft of commercial space (H1 2018: 12.1m sq. ft), Harworth's strategic focus remains firmly positioned on the "beds and sheds" sectors in the North and the Midlands.  Its longer term pipeline of sites carries the potential for a further 12,140 residential plots and 11.0m sq. ft of commercial space

·   

In order to drive overall total returns, the Company will continue the stated policy of selling down remaining land in the North East and former surface mining sites with little development potential as well as selective sales of low-yielding agricultural land to enable management to focus on the strongest value-add opportunities in its core regions

·   

The new regional operating model is expected to facilitate further acquisition opportunities in H2, with Harworth in exclusive negotiations on sites within each of our core regions.  This is supported by cash and facility headroom of £53.4 million, providing substantial firepower for further acquisitions

·   

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 adjacent land to existing Harworth developments; and agreeing PPAs(2) 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