Harworth Group plc Annual Report and Financial Statements 2017 www.harworthgroup.com Harworth Group plc Annual Report and Financial Statements 2017 at a glance Harworth is a leading land and property developer and investor which owns and manages a portfolio of c.21,000 acres of land on 136 sites located throughout the North of England and the Midlands. It specialises in the regeneration of former coalfield sites and other brownfield land into new residential developments and employment areas. 10,448 12.1m sq. ft 159.7MW housing plots with of consented land for commercial space low carbon capacity planning consent (2016: c.10m sq. ft) (2016: 144.5MW) (2016: 9,529 plots) Once completed our developments could make a huge difference to the North of England and the Midlands. They have the potential to deliver: 300MW Up to £2.9bn in of potential capacity to the Gross Value Added to UK plc National Grid (2016: £2.8bn) (2016: 300MW) 18,000+ potential homes (2016: 17,000+) 21.6m sq. ft potential employment space (2016: 18.19m sq. ft) Harworth works safely and responsibly in making this difference 0 Riddor reports filed by Harworth in 2017 57 employees* (2016: nil) (2016: 52) *As at date of report Harworth Group plc Annual Report and Financial Statements 2017 1 Contents REPORT STRATEGIC Strategic report Our Strategy How we add value Read more on page 2 Read more on page 4 2 Our strategy 4 How we add value 6 The markets we operate in 7 Performance vs Key Financial Measures 8 Our year GOVERNANCE CORPORATE 10 Former Chairman’s statement 12 Chief Executive’s statement 16 Capital Growth in 2017 18 Case study: Thoresby 20 Income Generation in 2017 Former Chairman’s Statement Chief Executive’s Statement 22 Case study: Logistics North Read more on page 10 Read more on page 12 24 Acquisitions in 2017 26 Case study: Coalville 28 inancial Review F 36 Managing Risk FINANCIAL STATEMENTS 44 Business continuity assessments 46 Harworth and its stakeholders 48 Operating responsibly 48 Our communities 52 Our environment Business Segments Financial Review 53 Our responsibilities Read more on page 16 Read more on page 28 55 Our People Corporate Governance 60 Board of Directors and Company Secretary 62 Former Chairman’s introduction 64 Statement of Corporate Governance 72 Directors’ remuneration report 86 Audit Committee report 90 Nomination Committee report 92 Directors’ report Corporate Governance Financial Statements 97 Statement of Directors’ responsibilities Read more on page 58 Read more on page 98 Financial statements 98 Independent auditors’ report 104 Consolidated income statement 105 Consolidated statement of comprehensive income 106 Balance sheets 107 Consolidated statement of changes in equity 108 Company statement of changes in equity 109 Statements of cash flows 110 Notes to the financial statements Company information More information can be found by going to our website: 142 Company information and investor timetable www.harworthgroup.com 143 Definitions and abbreviations used 2 Harworth Group plc Annual Report and Financial Statements 2017 Our strategy Vision and strategy remain clear and robust Our vision is to be the UK’s leading developer of brownfield land and regeneration partner of choice, delivering a total return to shareholders of over 10% per annum through the property cycle. We have six strategic priorities in place to deliver this vision. Strategic priority KPIs (see page 7 for 2017 performance) Where we are Where we want to be Key risks Development EPRA NNNAV growth 12.5% p.a. EPRA NNNAV per share We continue to aim to grow NNNAV by at Driving the capital growth of our portfolio through and total return Value Gains growth and total return of 13.2% in 2016 least 10% per annum as a consistent delivery of planning permissions, remediation and per share and 2017 average through the property cycle infrastructure, before crystallising sales value. Our ambition remains to cover the Investment We are covering our overheads and Profit excluding overheads, interest, tax and dividends Ensuring sustainable income generation through asset Interest cover interest costs and have been increasing Value Gains from ongoing rental and other management of existing rental sites and direct the resilience of our income streams operating income development of new space. Our sectoral focus will remain on Sectors Our current focus is on the “beds and Consented residential Consented residential and commercial in the Concentrating on those property markets with strong, sheds” sectors which have strong plots commercial space medium-term as these suit our urban through-the-cycle returns (currently housebuilding and fundamentals in the regions we operate in edge-of-settlement and regional locations industrial & logistics). Regions Our portfolio remains focused on the We want to expand the portfolio into North of England with an increasing other stable growth areas to diversify Leveraging our strong relationships in our core areas in Number of sites Number of acres the North of England and Midlands, whilst seeking to emphasis on the Midlands and the the portfolio, with adjacent areas expand into adjacent areas. North West targeted first We have been investing c.£25-£30m p.a. We want to keep replenishing the Acquisitions Investment in Disposals less over the last three years to replenish and portfolio and delivering EPRA NNNAV Replenishing our landbank by utilising capital to buy new acquisitions in development spend grow the portfolio in order to sustain growth which will require the same, or sites to maintain net asset value growth across the the year future growth higher, levels of acquisitions portfolio (including joint ventures). 2017 year-end gearing (7.0%) was lower Financing Ideal target range gearing is of the order Maintaining the Group’s low Balance sheet gearing to Net loan to value Net debt than target given better than expected of 10%-15% net loan to value complement risk-appropriate high operational gearing. sales and a delayed acquisition Turn to page 36 to read about our Key Risks Harworth Group plc Annual Report and Financial Statements 2017 3 STRATEGIC REPORT STRATEGIC Capital Growth Income Generation Acquisitions CORPORATE GOVERNANCE CORPORATE Strategic priority KPIs (see page 7 for 2017 performance) Where we are Where we want to be Key risks Development EPRA NNNAV growth 12.5% p.a. EPRA NNNAV per share We continue to aim to grow NNNAV by at Driving the capital growth of our portfolio through and total return Value Gains growth and total return of 13.2% in 2016 least 10% per annum as a consistent delivery of planning permissions, remediation and per share and 2017 average through the property cycle infrastructure, before crystallising sales value. Our ambition remains to cover the Investment We are covering our overheads and Ensuring sustainable income generation through asset Profit excluding overheads, interest, tax and dividends Interest cover interest costs and have been increasing FINANCIAL STATEMENTS Value Gains from ongoing rental and other management of existing rental sites and direct the resilience of our income streams operating income development of new space. Our sectoral focus will remain on Sectors Our current focus is on the “beds and Consented residential Consented residential and commercial in the Concentrating on those property markets with strong, sheds” sectors which have strong plots commercial space medium-term as these suit our urban through-the-cycle returns (currently housebuilding and fundamentals in the regions we operate in edge-of-settlement and regional locations industrial & logistics). Regions Our portfolio remains focused on the We want to expand the portfolio into North of England with an increasing other stable growth areas to diversify Leveraging our strong relationships in our core areas in Number of sites Number of acres the North of England and Midlands, whilst seeking to emphasis on the Midlands and the the portfolio, with adjacent areas expand into adjacent areas. North West targeted first We have been investing c.£25-£30m p.a. We want to keep replenishing the Acquisitions Investment in Disposals less over the last three years to replenish and portfolio and delivering EPRA NNNAV Replenishing our landbank by utilising capital to buy new acquisitions in development spend grow the portfolio in order to sustain growth which will require the same, or sites to maintain net asset value growth across the the year future growth higher, levels of acquisitions portfolio (including joint ventures). 2017 year-end gearing (7.0%) was lower Financing Ideal target range gearing is of the order Maintaining the Group’s low Balance sheet gearing to Net loan to value Net debt than target given better than expected of 10%-15% net loan to value complement risk-appropriate high operational gearing. sales and a delayed acquisition Risk icon key Communications Legal & Governance & Markets Delivery Politics Finance People & stakeholder Regulatory internal controls management How we add value The Harworth effect 4 Harworth Group plc Annual Report and Financial Statements 2017 How we add value The Harworth effect Harworth operates its business through two segments (Capital Growth and Income Generation) which are replenished through Acquisitions. CAPITAL GROWTH focuses on maximising value by developing the property portfolio and includes taking sites through the development cycle from masterplanning inception through to plot sale and build out. INCOME GENERATION focuses on retaining and effectively managing selected land and property assets to generate a long-term recurring income stream. ACQUISITIONS focuses on replenishing our land and property portfolio with new sites in order to assure the sustainable growth of the business. Capital Realisation Planning approval – Our Strategic Land team has secured planning consents for close to 11,000 residential plots and 12 million sq. ft of commercial space since 2008. A large proportion of these consents Masterplanning – Our core skill as are taken forward as Harworth’s Major a business is to create a strategic Developments – often seen as showcase vision and plan for all our sites which, projects for regeneration.