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Harworth Group Plc - Year-End Results

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Harworth Group plc

("Harworth" or the "Group"),

The leading regenerator of land and property for development and investment, announces its preliminary results for the year ended 31 December 2019.

SOLID PERFORMANCE, COMPELLING STRATEGY AND STRONG MARKET FUNDAMENTALS PROVIDES BASIS FOR SUSTAINED LONG-TERM GROWTH

Key Non-Statutory Measures (1)

2019

2018

Key Statutory Measures

2019

2018

Total return (%)

7.8

13.3

Operating profit (£'m)

24.3

33.0

EPRA NNNAV per share growth (%)

7.2

12.6

Net asset value (£'m)

463.8

441.9

Value gains (£'m)

44.0

51.3

Basic earnings per share (p)

7.9

10.6

Profit excluding value gains (£'m)

3.5

9.8

Total dividend per share (p)

1.0

0.9

Net loan to portfolio value (%)

12.1

12.3

Net debt (£'m)

70.9

64.4


Harworth's Chief Executive, Owen Michaelson, said:

"We have delivered a total return of 7.8% in 2019, demonstrating the ability of our team to create value growth from the active asset management of our underlying land and property portfolio alongside profits from rental income and sales. This includes the results from the regeneration of sites through the sale of engineered land to housebuilders and commercial occupiers, and the continued expansion and resilience of our income portfolio. 

"Five years on from Harworth's listing on the Main Market, the Group has continued to apply its role as master developer successfully on a range of complex sites across the Midlands and North to create places where people want to live and work. It has remained true to the underlying principles of sustainable development whilst also delivering strong long-term financial returns.

"Our move to a regional operating model(2) has begun to yield firm results in 2019, with good progress made across all of our core regions in extending our future land pipeline through a mixture of freehold acquisitions, options and planning promotion agreements.  Our overall pipeline now stands at 29,596 residential plots (9,554 plots already consented) and 24.4m sq. ft of commercial space (9.1m sq. ft already consented), its highest point since re-listing, providing the foundations for the continued long-term growth of the business.

"Notwithstanding this progress, the returns from large-scale sites like ours are not linear and this has been seen in the lower total return in 2019, primarily as a result of the planning headwinds at a local authority level that we reported through our interim results. Also as previously indicated, whilst we continue to target long-term market-leading returns, our current trading plans suggest that our historic site portfolio will deliver lower returns in the near term whilst our new sites move through the development cycle, exacerbated by the continued local political headwinds which will take some time to unwind. 

"The residential and industrial property markets in the North of England and Midlands remain solid and should benefit from the delivery of government policy and spending commitments made within the Chancellor's recent budget announcement. These strong underlying market fundamentals complement our ability to create sustainable communities where people want to live and work which remains central to our core focus. We will continue to accelerate the delivery of our major sites alongside the ongoing growth of the portfolio through sustainable acquisition opportunities. This will drive returns whilst supporting the regeneration of our regions through the delivery of new homes and jobs, helping to support the economic rebalancing of the UK."

Continuing to deliver long-term market-leading returns

 

  • Total return (EPRA NNNAV growth plus dividends per share) of 7.8% (2018: 13.3%), in line with expectations and contributing to our long-term market leading returns
  • EPRA NNNAV per share growth of 7.2% (2018: 12.6%) reflecting progress across all business areas, but held back by previously reported planning headwinds affecting the timing of potential gains
  • Operating profit of £24.3m (2018: £33.0m) and profit excluding value gains of £3.5m (2018: £9.8m, reflecting significant one-off fee income in 2018)
  • Basic earnings per share consequently reduced to 7.9p (2018: 10.6p)
  • Dividend per share increased by 10.0% to 1.0p (2018: 0.9p) in-line with our progressive policy and demonstrating our confidence in the long-term potential of the business
  • Net loan to portfolio value of 12.1% (2018: 12.3%) or 35.3% (2018: 34.3%) when calculated against the core income-producing portfolio, maintaining a prudent gearing level at the lower end of our stated target range

Solid operational delivery and strategic execution across the business

 

Growing and refining our land portfolio

  • Completed eleven strategic land purchases totalling 587 acres for a combined consideration of £22.6m, providing the potential for the development of c2,900homes and over 1.25 m sq. ft of commercial space
  • Purchased four Income Generation properties for a combined consideration of £20.9m (blended net initial yield of 8.4%)
  • Entered into seven Planning Promotion Agreements (PPAs) across all three core regions, supplementing the Group's long-term land pipeline
  • Sold a further 1,918 acres of non-core land, delivering on our stated ambition to reduce our agricultural landholding and our planned exit from the North East for a total consideration of £10.4m

Preparing land as master-developer to create new communities

  • Submitted planning applications for 1.3m sq. ft of commercial space and 1,918 residential plots, including on the former Ironbridge power station in Shropshire.  As at 31 December 2019, a total of over 4.1m sq. ft of employment space and over 3,000 residential plots were in the planning system awaiting determination
  • Secured planning consent for 0.9m sq. ft of commercial space across our sites
  • Completed initial site works and enabling contracts at Hugglescote Grange (Coalville) in Leicestershire and Moss Nook in St Helens to unlock the delivery of nearly 3,000 consented residential plots over the lifecycle of these projects, whilst also successfully completing the demolition of Ironbridge power station's four former cooling towers as part of its 27-month demolition programme

Delivering places for people to live and work

  • 102 acres of serviced residential land (1,379 plots) sold for a total consideration of £61.0m
  • 56 acres of serviced commercial land sold at our joint venture Gateway 45 Leeds site in three separate deals for a combined consideration of £30.3m (£15.2m share to Harworth)
  • Completed the freehold land sale of our solar portfolio comprising seven former colliery sites in Yorkshire, Nottinghamshire and Derbyshire for £5.0m representing a net initial yield of 4.6%

Actively managing the Group's income portfolio with new lettings and providing quality accommodation for businesses

  • Increased annualised income by over £1.9m (2018: £3.7m) from new Business Space purchases, subsequent asset management initiatives and 21 completed new lettings and re-gears
  • A new 20-year pre-let agreed with the UK Atomic Energy Authority for a 22,300 sq. ft bespoke fusion technology research facility at the Advanced Manufacturing Park ("AMP") in Rotherham, with rent commencing on practical completion in September 2020 in line with existing headline rents at AMP
  • Following all this activity, the gross rental income yield of our core income portfolio is 6.8% (2018: 6.3%)
  • The weighted average unexpired lease term ("WAULT") on our built space portfolio (including joint ventures) at year end stood at 13.5 years (2018: 14.1 years), with a vacancy rate of 6.2% (2018: 14.4%)

BUSINESS REMAINS WELL-POSITIONED TO MAINTAIN LONG-TERM MARKET LEADING RETURNS

  • Harworth remains well-capitalised, providing resilience in the face of medium-term economic and political uncertainty as well as the ability to make selective opportunistic purchases
  • Significant latent value across our portfolio of sites with planning consent standing at 9,554residential plots (2018: 11,077) and 9.1m sq. ft of commercial space (2018: 10.7m sq. ft).  Total unconsented pipeline of 20,042 (2018: 9,413) identified residential plots and 15.3msq. ft of commercial space (2018: 10.5m sq. ft) underpins long-term growth prospects
  • Planning headwinds on a handful of sites reported at half year remain in place and will continue to be managed on a site-by-site basis, whilst emphasising the potential of Harworth's placemaking credentials
  • Management will continue the sales programme of agricultural and North East sites alongside the churn of more mature land and property during the years ahead
  • Capital for acquisitions will be deployed through our regional operating model(2) and will continue to focus on: purchasing major brownfield sites, potential urban extensions or former industrial land from corporates, private landowners, administrators and the public sector; securing options on development opportunities or on adjacent land; agreeing PPAs of scale in our core regions; and acquiring new income generating properties with active asset management potential
  • Already well advanced with 2020 sales, with 39% of budgeted 2020 sales either with agreed heads of terms, in legals, or exchanged at an aggregate consideration in excess of their 31 December 2019 book value