12 September 2024

Harworth Group plc

("Harworth" or "the Group")

Results for the six months ended 30 June 2024

Strong NDV and Total Return growth; well positioned for increased development and investment activity in Industrial & Logistics sector

Highlights

Key financials

Lynda Shillaw, Chief Executive of Harworth, commented: "Harworth continues to consistently deliver strong progress against its strategic objectives and we remain on track to reach £1 billion EPRA NDV by the end of 2027. In June we announced that the Group would increase its focus on Industrial & Logistics direct development, with an intention to grow the Investment Portfolio, through direct development and selective acquisitions, to £0.9 billion by the end of 2029. This reflects the opportunity we see to deliver into a sector which is key to economic growth and where there is critical undersupply of high-quality space, in order to grow recurring income and underpin sustainable shareholder returns.

"The first half saw significant progress on planning approvals, adding further capacity to our near-term Industrial & Logistics pipeline and driving a strong revaluation performance. We are ahead of budget for land sales, with the standout transaction, as well as our largest sale to date, being the conditional £106.6 million serviced land sale to Microsoft at Skelton Grange, announced in June. The sale of serviced land provides a stable funding channel for the planned growth in our Industrial & Logistics development programme.

"Sustained demand for Harworth's serviced land and employment spaces, alongside management actions, has underpinned EPRA NDV growth of 3.5% and we expect further growth in the second half as we continue to develop out our existing sites.

"Our current Industrial & Logistics pipeline has the potential to deliver future Gross Development Value⁽⁵⁾ of £5 billion which contributes significantly to the £1 billion EPRA NDV target. The near term pipeline has the ability to deliver up to £0.8 billion of Gross Development Value by the end of 2027. Our recent transactions, both for Commercial and Residential use, are evidence of the underlying market demand for Harworth's high-quality land and property.

"We are cautiously optimistic that a combination of improving economic stability and supportive government policy will be beneficial for both the real estate sector and Harworth. In the near term we recognise market confidence could potentially be tempered by the extent of the steps taken by the Government to address the public funding deficit, but as a long-term investor Harworth is well versed in delivering performance through different policy environments.

"Ultimately, Harworth is a long-term through-the-cycle business and its extensive land pipeline, track record, specialist skillset and strong balance sheet sets us apart from our peers and enables us to maximise the value created from our sites for our shareholders."

Management actions drive enhanced value gains and profitability

Robust cash generation from residential land sales and strong balance sheet position

Growth targets underpinned by strong planning progress and extensive land pipeline

Increased strategic focus on Industrial & Logistics Major Developments programme

On track to achieve 100% Grade A core Investment Portfolio by the end of 2027; targeting £0.9 billion portfolio by the end of 2029

Committed to sustainable development

Strategy evolution

Evolution of strategy to increase the focus on Industrial & Logistics development and retain more prime Grade A properties in the Group's Investment Portfolio, which is now targeted to grow to £0.9 billion by the end of 2029, with growth accelerating from 2026 onwards as the next generation of Industrial & Logistics sites move through the cycle.

Analyst and investor presentation

Harworth will host a presentation for analysts and investors at 9:30AM today, 12 September 2024. A live webcast and playback can be accessed on the following link:

https://brrmedia.news/HWG_HY_24

Notes:

For further information

About Harworth

Listed on the equity shares (commercial companies) category of the Main Market of the London Stock Exchange, Harworth Group plc (LSE: HWG) is a leading sustainable regenerator of land and property for development and investment which owns, develops and manages a portfolio of over 14,000 acres of land on over 100 sites located throughout the North of England and Midlands. The Group specialises in the regeneration of large, complex sites, in particular former industrial sites, into new Industrial & Logistics and Residential developments to create sustainable places where people want to live and work, supporting new homes, jobs and communities across the regions and delivering long-term value for all stakeholders. Visit www.harworthgroup.com for further information. LEI: 213800R8JSSGK2KPFG21.

Chief Executive's Review

For the six months ended 30 June 2024

Harworth has delivered a strong first half reflecting the operational progress achieved across the business as we continue to unlock value from our land and property portfolio. We continue to deliver against the four strategic pillars we set out in 2021 and remain on track to deliver an EPRA NDV of £1 billion by the end of 2027. We are now half way through our strategic plan, and as such we recently reviewed our long term guidance and targets with a view to providing more detail on the evolution of the growth strategy.

The optimised strategy still sees us reach £1 billion EPRA NDV by the end of 2027 but with increased focus on Industrial & Logistics direct development and an intention to retain more of that space to build an Investment Portfolio of £0.9 billion by the end of 2029. Whilst we expect to continue to maintain high single to low double digit total returns in the medium term, this strategy will enable us to announce increased dividends as recurring income grows, which is expected to optimise shareholder returns.

Our markets

Harworth's focus markets are the Industrial & Logistics (land sales, direct development and investment) and Residential (land sales) sectors. Both remain fundamental to enabling growth in the UK economy, and the policy themes of the new Government reflect the need to drive investment across the UK to create new homes and jobs and decarbonise the economy. While it is early days, in general the mood feels more positive across both of our markets, as alongside political stability, we have seen inflation ease and the first rate cut take effect in August: all of which are key to driving an increase in investor interest in the UK. We do however remain watchful until more detail of the new Government's plans and its funding proposals are visible, and any impact on the industry can be assessed.

In the Industrial & Logistics sector, the structural drivers of demand seen in recent years remain intact, driven by the growth of e-commerce, on-shoring and near-shoring still present coupled with an increasing focus amongst occupiers on securing modern and sustainable spaces for manufacturing, with power connection and availability being a key factor. Recent research from Savills shows that prime yield indicators have remained broadly stable with a positive outlook for the industrial sub-sectors and are expected to remain stable at least until the October 2024 Budget, or until further rate cuts. The expectation of further rate cuts and stable pricing, combined with rising confidence in economic fundamentals that drive tenant demand, could create the environment for improvements in yields in this sector towards the end of the year, although this is by no means certain.

Our Industrial & Logistics serviced land remains in high demand, evidenced by the conditional sale of two land parcels to Microsoft for £106.6 million, our largest sale to date. We were able to bring forward this site by progressing it through planning, recognising its attributes including power availability, securing an occupier and collaborating with key stakeholders.

In the wider market, Industrial & Logistics supply has increased in the first half with a vacancy rate in our regions of between 6% and 9% as a result of speculative completions in H1 2024 alongside second hand space returning to the market. Despite this, the North West had the lowest vacancy rate in the UK in Q2⁽⁷⁾ and the Midlands region contributed over half of all Q2 take up in this sector⁽⁸⁾.

Demand for build-to-suit units has remained strong in our regions supported by increased take up for existing units with a focus from occupiers on high-quality Grade A space: in the North West, 91% of take up in 2024 so far has been Grade A space. There is evidence that new build high-quality speculative units showed significantly shorter void periods compared to second hand units.

With take-up improving, vacancy rates are expected to trend downwards into 2025. Throughout the period we continued to engage proactively with commercial occupiers to understand demand for pre-let commitments and to collaborate with occupiers and partners who engage us for build-to-suit development. This engagement has highlighted the resilient nature of occupier demand and the opportunity for future rental growth.

In the Residential sector, consumer demand remains subdued with mortgage approvals still slightly below pre-pandemic levels as a result of prevailing mortgage costs, challenging affordability, and lower consumer confidence, albeit we have seen mortgage rates fall in recent months. Nationwide data recently showed that house prices continue to increase, with annual growth reaching 2.1% in the year to July.

We have continued to see strong demand for our serviced Residential land from a wide range of housebuilders, both national and regional, at prices in line with December 2023 book values, highlighting the high-quality and de-risked nature of our land parcels. While the proposed planning reforms are welcomed, the current planning system continues to drive lower levels of applications for major schemes, and therefore the supply of consented land across the market remains increasingly constrained.

Operational performance

During the period we achieved planning permission for 1.8 million sq. ft. of Industrial & Logistics space along with 500 Residential plots, and a further 1.5 million sq. ft. of Industrial & Logistics space and 185 Residential plots post period end. These planning achievements are key to delivering the next phase of development across our sites. The demand for our serviced product remains strong and we continue to receive high levels of interest. At the time of reporting, land sales completed, exchanged, or in heads of terms, are at 145% of the full year budget and at prices in line with December 2023 book values. Land sales continue to provide a stable funding channel for our Industrial & Logistics direct development programme.

Our extensive land pipeline now has the potential to deliver 38.8 million sq. ft. of Industrial & Logistics space, the largest commercial pipeline we have held to date, and 26,639 plots for new homes. The pipeline has been de-risked, with 65% of the Industrial & Logistics sq. ft. and 48% of the Residential plots having either a planning consent, currently progressing through the planning system, or being allocated or holding a draft allocation. During this first half, we saw progression of local plans resulting in allocations or draft allocations of 5.7 million sq. ft. and 2,875 plots. This was alongside planning consents for 3.3 million sq. ft. and 685 plots received in the year to date. A further 6.4 million sq. ft. and 2,269 plots are currently progressing through the planning system awaiting determination. With a potential £5 billion of Gross Development Value expected from the Industrial & Logistics pipeline, this highlights the intrinsic value still to be unlocked from our land and property portfolio.

As at 30 June 2024, across our Industrial & Logistics development sites we had 0.6 million sq. ft. of Grade A Industrial & Logistics space in development, or expected to start in the next 12 months. 84% of that is expected to be retained for investment purposes, generating an additional £1.7 million of annualised rental income. Of this space, 0.1 million sq. ft. was pre-let and reached practical completion post period end, contributing £0.6 million of annualised rental income. We expect a further 0.1 million sq. ft. to complete in the next 12 months. In addition to this, enabling works are underway on a further 2.2 million sq. ft. of our next generation Industrial & Logistics sites, excluding the work ongoing at Skelton Grange in relation to the Microsoft land sale.

Letting activity remains strong, with an EPRA vacancy rate of 6.3% (31 December 2023: 9.9%), which reduces to 3.9% excluding units completed in the last 12 months (31 December 2023: 1.2%), and 98% of rent due in H1 2024 has been collected.

We are committed to our sustainability targets and our framework, The Harworth Way, integrates sustainability and social value into our business and the developments we create. A key element to our approach is placemaking. This is the work we do across our sites that makes them places where people want to live and work. It is at the heart of what we do, drives value for our communities and our shareholders, and is critical to the success of our schemes. All our schemes have placemaking initiatives; within the highlights of what has been delivered so far this year is the planting of over 108,000 trees with the help of the local community at Chevington North, Northumberland, in partnership with the Forestry Commission, and the opening of a new 350 acre country park at our Thoresby Vale development in Nottinghamshire. This benefits from a purpose-built forest style school alongside commercial and leisure spaces, as well as over 100 acres of restored heathland, now one of the UK's most threatened habitats.

Financial performance

During the period our land portfolio delivered £47.0 million of value gains (H1 2023: £7.5 million), with the increase being driven largely by management actions against a stable market backdrop. As a result, EPRA NDV per share⁽⁶⁾ increased 3.5% to 212.3p at 30 June 2024, up 8.5% compared to H1 2023. This translates to a total return of 4.0% for the half (H1 2023: 0.1%).

Sales of serviced land and property, in addition to development management revenues and income from rent, royalties and fees, resulted in Group revenue of £41.3 million (H1 2023: £18.2 million). The increase is largely driven by higher land sales and at the time of reporting we have completed, exchanged or are in heads of terms on 145% of budgeted sales.

The Board is proposing an interim dividend of 0.489p per share, representing 10% growth from 2023, in line with our existing dividend policy. We recently announced an evolution of our growth strategy and a target to grow our Investment Portfolio to £0.9 billion by the end of 2029. As we deliver against this goal we expect the growth in recurring income will allow increased dividends to be declared.

We continue to maintain a strong balance sheet and financial position, with significant available liquidity of £154.2 million as at 30 June 2024 (31 December 2023: £192.2 million) and no major refinancing events until 2027. Our LTV at period-end was 9.8% (31 December 2023: 4.7%) reflecting our typical profile of higher debt drawings in the middle of the year and this flexibility allows us to be dynamic and opportunistic in our approach to achieving our growth ambitions.

Strategy and Outlook

While there are still uncertainties in the economic outlook for the UK, there are some encouraging signs that inflationary pressures are easing and interest rates have started coming down. The new government's proposed reforms of planning policy and support for economic growth and increased housing delivery should be positive for the real estate sector, but we are yet to see the detail.

We continue to see strong demand for our serviced land as well as our energy efficient Grade A Industrial & Logistics units across our regions. Whilst affordability challenges continue to weigh on house buyer demand, our sites are located in more affordable regions and we have a strong track record for delivering high-quality serviced Residential land which is ready to build on once acquired.

Harworth is a long-term through-the-cycle business with a significant landbank, currently capable of delivering 38.8 million sq. ft. of Grade A Industrial & Logistics space with the potential to create £5 billion of GDV, as well as 26,639 Residential plots. Our market leading shareholder returns are driven by long term value creation through management actions across our developments, such as achieving planning permission, completing remediation and infrastructure works, or directly developing our own commercial units. It is our extensive landbank, combined with our specialist skillset, that enables us to deliver these successful schemes and unlock value from our land.

As flagged at the outset of my statement, the evolved strategy targets an Investment Portfolio of £0.9 billion by the end of 2029. This growth will come predominantly from our controlled near term pipeline of sites and will be funded from cash generated from our land and property sales supplemented by our corporate and site specific funding lines. A focus on development may result in more in-year cyclicality in debt drawings and a larger Investment Portfolio will provide the opportunity to operate a debt gearing level in line with the market for that part of the portfolio however we do not anticipate an overall material shift in our conservative gearing approach.

We will continue to optimise the value from our portfolio and expect to continue to maintain high single to low double digit total returns in the medium term. We expect this strategy will enable us to announce increased dividends as recurring income grows thereby optimising shareholder returns.

As the Investment Portfolio grows in scale, we would expect Strategic Land to make up a smaller proportion of our portfolio compared to its proportion today. We will continue to make acquisitions of land to contribute to our pipeline and enable us to continue to deliver high-quality development schemes and we anticipate that by 2029 Industrial & Logistics will be 85% of our total land and property portfolio.

Our extensive consented pipeline enables growth in direct development, accelerated in the outer years of the plan, and we are well positioned as we enter the second phase of our growth strategy to reach £1 billion EPRA NDV by the end of 2027.

Finally, and importantly, Harworth cannot consistently deliver the progress that we do without our people and I would like to thank all of my colleagues who work collaboratively across the business and with our external stakeholders, to ensure we continue to be successful. The progress that we have made so far this year is a testament to their dedication, determination, specialist skills, and teamwork, and it is those attributes that enable Harworth to achieve our long term strategic goals and create value for our shareholders.

Lynda Shillaw

Chief Executive

12 September 2024

Operational Review

For the six months ended 30 June 2024

Industrial & Logistics Land portfolio

At 30 June 2024, the Industrial & Logistics pipeline totalled 38.8 million sq. ft. (31 December 2023: 37.7 million sq. ft.), of which 8.1 million sq. ft. was consented (31 December 2023: 6.1 million sq. ft.), and 7.9 million sq. ft. was in the planning system awaiting determination (31 December 2023: 10.1 million sq. ft.). The pipeline was 58% owned freehold, 38% controlled via options, and 4% controlled via PPAs or other.

Planning progress

During the period, planning approval was secured for 1.8 million sq. ft. of Industrial & Logistics space across two sites, with a further 1.5 million sq. ft. achieving outline planning consent post period end. Sites continued to move through the planning system with allocations received for 3.5 million sq. ft. in the North West under the Places for Everyone Greater Manchester Spatial Framework and draft allocations for 2.3 million sq. ft. in the Midlands.

Two significant planning applications currently remain in the system awaiting determination, totalling 6.4 million sq. ft.

Direct development

As at 30 June 2024, 0.6 million sq. ft. of Grade A space was in development or expected to start in the next 12 months, post period end 0.1 million sq. ft. reached practical completion and a further 0.1 million sq. ft. is expected to complete in the next 12 months. The units will all be delivered to Harworth's sustainable commercial building specification, targeting EPC A and BREEAM Excellent certifications, with whole life carbon assessments and renewable energy provision incorporated into the design.

Enabling works are currently underway for 2.2 million sq. ft. of direct development on several Major Development sites, plus further enabling works underway at Skelton Grange in relation to the Microsoft serviced land sale.

Land sales

In June, 48 acres of Industrial & Logistics land was conditionally sold for £106.6 million, with pricing significantly ahead of book value.

Acquisitions

0.5 million sq. ft. of Industrial & Logistics Strategic Land was secured for £0.1 million, the land is controlled via an Option agreement. In addition, the freehold ownership at Cinderhill has increased with the acquisition of 25 acres of land, this enables the delivery of the wider scheme that includes Industrial & Logistics space.

Residential Land portfolio

At 30 June 2024, the Residential pipeline totalled 26,639 plots (31 December 2023: 27,190 plots), of which 5,445 plots were consented (31 December 2023: 5,296 plots), and 2,454 plots were in the planning system awaiting determination (31 December 2023: 1,774 plots). Development continues to progress on the first mixed tenure sites sold by way of forward funding agreements. The pipeline was 48% owned freehold, with the remainder controlled via options, PPAs or other.

Planning progress

During the period, planning approval was secured for 500 residential plots under a PPA agreement. An allocation was received for 600 homes in the North West and a draft allocation was secured for the mixed-use Diseworth site in the East Midlands for 2,275 homes.

Six significant planning applications currently remain in the system awaiting determination, totalling 2,269 plots.

Land sales

Completed 357 plot sales of serviced land for proceeds of £24.0 million, in line with December 2023 book values, and a further 132 plots post period end. At the reporting date, 114% of budgeted residential land sales for the year completed, exchanged or in heads of terms.

Acquisitions

During the period, the Group increased the freehold ownership at Cinderhill with the acquisition of 25 acres of land, which enables the delivery of the wider scheme that includes Residential serviced land.

Post period end, the Group acquired a former brickworks site in Bedfordshire for total consideration of £30.6 million payable over 2 years. This is a near term site which has outline planning permission for the delivery of 1,000 homes, offering the opportunity to create value and generate cash to fund the broader direct development programme.

Investment Portfolio

This portfolio comprises both Industrial & Logistics assets that have been acquired by Harworth and, increasingly, those that have been directly developed and retained. It provides recurring rental income in addition to asset management opportunities and the potential for capital value growth.

As at 30 June 2024, the Investment Portfolio comprised 11 sites covering 2.5 million sq. ft. (31 December 2023: 11 sites covering 2.5 million sq. ft.). It generated £14.4 million of annualised rent (31 December 2023: £14.1 million), equating to a gross yield of 6.2% (31 December 2023: 6.3%) and a net initial yield of 5.9% (31 December 2023: 5.7%). Annualised rent for the portfolio increased during the period as a result of recent lettings secured. Grade A space represented 37% of the Investment Portfolio (31 December 2023: 37%).

Completions and acquisitions

Of the 0.1 million sq. ft. of Industrial & Logistics Grade A space completed post-period end and the 0.1 million sq. ft. expected to complete in the 12 months, 84% is expected to be retained to the Group's Investment Portfolio and is anticipated to generate additional annualised rental income of £1.7 million.

Lettings

During the period, 47,000 sq. ft. of leasing deals were completed (H1 2023: 300,000 sq. ft.), adding a net £0.3 million of annualised rent. New lettings, renewals and reviews were completed at an average 0.7% premium to estimated rental values (ERV).

Across the Investment Portfolio, operational metrics remain robust. The portfolio weighted average rent is £6.20 per sq. ft. (31 December 2023: £5.75) and rent collection currently stands at 98% for the year to date (31 December 23: 98%). EPRA vacancy was 6.3% at 30 June 2024 (31 December 2023: 9.9%), reduced to 3.9% excluding space completed in the preceding 12 months (31 December 2023: 1.2%); while the weighted average unexpired lease term (WAULT) was 11.8 years (31 December 2023: 12.9 years).

Natural Resources Land portfolio

Harworth's Natural Resources portfolio comprises sites used by occupiers for a wide range of energy production and extraction purposes, including wind and solar energy schemes and battery storage as part of the Group's Energy & Natural Capital strategy. The aim is to grow this portfolio, alongside strategic partners where appropriate, through developing renewable energy generation solutions and other sustainability initiatives such as battery storage, solar, EV charging, multi-fuel hubs and reforestation/rewilding. The strategy has a wider focus on embedding these energy concepts and future-proofing principles across all of Harworth's sites to maximise energy availability and resilience, create economic value, and help fulfil the Group's Net Zero Carbon (NZC) ambitions.

As at 30 June 2024, the Natural Resources portfolio had an annualised rental income of £2.1 million (31 December 2023: £1.8 million).

Net Zero Carbon Pathway

In 2022, the Group committed to becoming NZC for Scope 1, Scope 2 and Scope 3 business travel emissions by 2030 and to being NZC for all emissions by 2040. To meet these objectives, the Group has developed a NZC pathway and embedded commitments into a range of workstreams and targets to guide the Group's growth strategy in the development of Industrial & Logistics and Residential sites.

Further information on The Harworth Way and the Group's NZC pathway can be found within the 2023 Annual Report and standalone 2023 NZC Pathway Progress Report, which were both published in April 2024.

Financial Review

For the six months ended 30 June 2024

Overview

Our first half financial performance delivered a Total Return (the movement in EPRA NDV⁽¹⁰⁾ plus dividends per share paid in the period expressed as a percentage of opening EPRA NDV per share) of 4.0% (H1 2023: 0.1%) demonstrating continued consistent value creation. Positive revaluation gains achieved across the portfolio, including the conditional sale at Skelton Grange to Microsoft announced in June 2024 and planning progress in the period, were partially offset by net operating costs, interest costs, tax and dividends, driving EPRA NDV growth to 212.3p per share (31 December 2023: 205.1p).

Sales of serviced land and property, in addition to development management revenues and income from rent, royalties and fees, resulted in Group revenue of £41.3 million during the period (H1 2023: £18.2 million). Looking forward, the sales profile is robust, with 145% of 2024 budgeted sales already completed, exchanged or in heads of terms at the time of reporting (H1 2023: 98%).

Successful asset management initiatives on the Investment Portfolio delivered a like-for-like increase in annualised rental income of 2.4%.

The fair value of investment properties increased by £26.7 million (H1 2023: £15.0 million increase), which contributed to an underlying operating profit of £21.1 million (H1 2023: £8.0 million) and profit after tax of £14.8 million (H1 2023: £2.8 million).

The Group has declared an interim dividend of 0.489p (H1 2023: 0.444p) per share, representing a 10% growth from H1 2023, in line with our existing dividend policy.

BNP Paribas and Savills, our independent valuers, completed a desktop valuation of our portfolio as at 30 June 2024, resulting in first half valuation gains⁽¹⁰⁾ of £46.6 million (H1 2023: £11.1 million gains), including the movement in the market value of development properties. These gains were the result of management actions including progress on development sites, obtaining planning permissions, progressing direct development schemes and asset management initiatives, against the backdrop of a relatively stable market. However, the revaluation gains were partially offset by continued increases in costs to deliver our sites, predominantly driven by services inflation. Beyond valuation movements, profits on sales, after adjusting for selling costs and an increase in the estimate of shared infrastructure costs attributable to prior period sales, were £0.4 million (H1 2023: loss of £3.5 million) demonstrating continued demand for sites in line with December 2023 book values. This gave total value gains of £47.0 million (H1 2023: £7.5 million) in the period.

Over the period, net asset value grew to £650.0 million (31 December 2023: £637.7 million). With EPRA adjustments for development property valuations included, EPRA NDV at 30 June 2024 increased to £687.0 million (31 December 2023: £662.9 million) representing a per share increase of 3.5% to 212.3p (31 December 2023: 205.1p).  

The Group remains well capitalised and as at 30 June 2024 had available liquidity of £154.2 million (31 December 2023: £192.2 million). Net debt was £80.5 million (31 December 2023: £36.4 million), reflecting the typical profile of higher drawdowns mid-year, resulting in a net loan to portfolio value at 30 June 2024 of 9.8% (31 December 2023: 4.7%), well below our maximum target of 20%. At period end, 25% of the Group's drawn debt was subject to fixed rates (31 December 2023: 35%). We currently do not have interest rate hedging in place against drawings under our Revolving Credit Facility (RCF), although this continues to remain under review.

Presentation of financial information

As our property portfolio includes development properties and joint venture arrangements, Alternative Performance Measures (APMs) can provide valuable insight into our business alongside statutory measures. In particular, revaluation gains on development properties are not recognised in the Consolidated Income Statement and the Balance Sheet. The APMs outlined below measure movements in development property revaluations, overages and joint ventures. We believe that these APMs assist in providing stakeholders with additional useful disclosure on the underlying trends, performance and position of the Group.

Our key APMs are:

A full description of all non-statutory measures and reconciliations between all statutory and non-statutory measures are provided in Note 2 to the condensed consolidated interim financial statements and the appendix.

Our financial reporting is aligned to our business units of Capital Growth and Income Generation, with items which are not directly allocated to specific business activities held centrally and presented separately.

Income statement

Note: There are minor differences on some totals due to roundings.

Capital Growth revenue, which primarily relates to the sale of development properties, increased during the period as a result of the serviced land sales at Ironbridge, Simpson Park and Waverley. Where consideration relating to development property sales is deferred, a reduction to revenue is made to reflect the imputed interest element, with revenue recognised as interest income in future periods; this resulted in a £2.0 million downward adjustment to revenue during this period (H1 2023: £nil). H1 2024 also saw revenues generated from build-to-suit development of £6.9 million (H1 2023: £nil).

Revenue from the Income Generation portfolio (the Investment Portfolio, Natural Resources and Agriculture) mainly comprises property rental and royalty income. At £10.3 million it was lower than the same period in the prior year (H1 2023: £13.9 million), reflecting the full period impact of successful Investment Portfolio sales during 2023. Revenue from the Income Generation portfolio for the first half included the impact of new lettings related to direct development and asset management initiatives, as well as royalties from energy assets. Rental income from the Investment Portfolio increased on an annualised basis from £14.1 million at 31 December 2023 to £14.4 million, reflecting asset management initiatives across the portfolio. On a like for like basis, rent grew by 2.4%.

Cost of sales comprises the inventory cost of development property sales and both the direct and recoverable service charge costs of the Income Generation business. Cost of sales increased to £34.1 million (H1 2023: £9.6 million), of which £24.8 million related to the inventory cost of development property sales (H1 2023: £5.3 million). H1 2024 also included additional costs related to build-to-suit development. In the period, we saw a small decrease in the net realisable value provision on development properties of £0.7 million (H1 2023: £0.3 million increase) following the valuation process as at 30 June 2024 which reflected the impact of management actions across development sites.

Administrative expenses increased in the period by £2.4 million (H1 2023: £3.4 million increase). This included the impact of increased employee numbers as well as the impact of inflationary cost increases and costs incurred in relation to strategic workstreams. Administrative expenses expressed as a percentage of underlying revenue over the 12 months to 30 June 2024 was 21%, increasing from 14% for the 12 months to 30 June 2023, reflecting the increases in costs as well as the timing of revenue generating activity.

Other gains comprised a £26.5 million combined net increase (H1 2023: £14.8 million) in the fair value of investment properties and assets held for sale (AHFS) and profit on sale of overages of £4.2 million (H1 2023: £nil) in addition to the profit on sale of investment properties and AHFS of £0.1 million including transaction fees (H1 2023: loss on sale of £1.1 million).

Non-statutory value gains/(losses)

Value gains/(losses) are made up of profit/(loss) on sale, revaluation gains/(losses) on investment properties (including joint ventures), and revaluation gains/(losses) on development properties, AHFS and overages. A reconciliation between statutory and non-statutory value gains can be found in the appendix to the condensed consolidated interim financial statements.

Profit on sale of £0.4 million (H1 2023: £3.5 million loss), after adjusting for selling costs and an increase in the estimate of shared infrastructure costs attributable to prior period sales, reflected the completion of sales in line with December 2023 book values. Revaluation gains were £46.6 million (H1 2023: £11.1 million) and are outlined in the table below.  

Industrial & Logistics

Against a relatively stable Industrial & Logistics market during the first half of 2024, revaluation gains were driven by management actions to progress strategies across sites. This included progress on serviced land sales, most notably exchanging contracts for the conditional sale at Skelton Grange to Microsoft, as well as significant planning progress in the period with permission achieved for 1.8 million sq. ft. alongside new draft allocations or allocations in local plans for 5.7 million sq. ft. Occupier demand remained resilient and market rents across our sites were up. Costs of construction increases over the period continued to impact gains, but at a lower rate compared to 2023 with the highest increases predominantly relating to professional service costs. Combined, this resulted in revaluation gains of £25.3 million across Industrial & Logistics Major Developments and Strategic Land (H1 2023: £7.6 million).

Investment Portfolio gains of £8.2 million (H1 2023: £2.5 million) reflected the impact of our management actions such as new leases on recently completed direct development alongside the impact of market rental growth. Overall, these impacts resulted in the net initial yield increasing 20 bps to 5.9% from 5.7% as at 31 December 2023. The equivalent yield decreased from 7.1% to 7.0%.

Residential

Residential land sales continued to demonstrate demand for our serviced land product and underpinned valuations with our Residential Major Developments realising gains of £9.2 million (H1 2023: losses of £2.2 million). The Residential market has seen some mild improvement with Nationwide reporting UK annualised price increases of 1.5% for the 12 months to June with the Northern England markets in which Harworth operates showing higher growth supported by higher affordability. Supply of high-quality serviced land remains constrained with demand growing from a range of housebuilders. As we saw with Industrial & Logistics development sites, costs of construction increased over the period, predominantly related to professional services costs, partly offsetting the impact of positive house price movements and demand for land.

Residential strategic land gains of £3.3 million (H1 2023: £3.3 million) reflected planning progress on sites with new draft allocations or allocations in local plans for 2,875 plots achieved during the period.

Natural Resources

Valuations remained broadly consistent during the period.

Agricultural

We experienced a small valuation increase on retained properties as a result of improving agricultural land prices. The reduction in the portfolio value from 31 December 2023 reflects a £13.3 million sale, in line with book value.  

Net realisable value provision

The net realisable value provision on development properties as at 30 June 2024 was £13.4 million (31 December 2023: £14.1 million). This provision is held to reduce the value of seven development properties from their deemed cost (the fair value at which they were transferred from an investment to a development categorisation) to their net realisable value at 30 June 2024. The transfer from investment to development property takes place once planning is secured and development with a view to sale has commenced.  

Cash and sales

The Group made property sales⁽¹²⁾ in the period of £41.7 million (H1 2023: £56.2 million), realising a total profit on sale of £0.4 million (H1 2023: loss of £3.5 million). Sales comprised residential development sales of £24.0 million (H1 2023: £4.0 million) and receipts through overages of £4.2 million (H1 2023: £nil). Disposals of income-generating sites where value has already been maximised through asset management initiatives were £13.3 million (H1 2023: £52.2 million).

Cash proceeds from sales in the period were £30.0 million (H1 2023: £58.2 million) as shown in the table below:

Tax

The income statement charge for taxation for the period was £3.9 million (H1 2023: £1.6 million), which comprised a current year tax charge of £nil (H1 2023: £0.3 million) and a deferred tax charge of £3.9 million (H1 2023: £1.3 million).

The current tax charge reflects the timing of sales activity, coupled with administrative costs and interest offsetting trading profits during the period. The increase in deferred tax largely relates to unrealised gains on investment properties. The deferred tax balance has been calculated based on the rate expected to apply on the date the liability is reversed.  

At 30 June 2024, the Group had deferred tax liabilities of £37.0 million (31 December 2023: £30.6 million) and deferred tax assets of £3.3 million (31 December 2023: £0.5 million). The net deferred tax liability was £33.7 million (31 December 2023: £30.1 million).

Basic earnings per share and dividends

Basic earnings per share for the period increased to 4.6p (H1 2023: 0.9p) reflecting valuation gains on the land and property portfolio in H1 2024, as well as increased revenue from land sales compared to H1 2023.

The Board has determined to pay an interim dividend of 0.489p (H1 2023: 0.444p) per share, an increase of 10% in line with the Group's policy.

Property categorisation

Until sites receive planning permission and their future use has been determined, our view is that the land is held for a currently undetermined future use and should, therefore, be held as investment property. We categorise properties and land that have received planning permission, and where development with a view to sale has commenced, as development properties.

As at 30 June 2024, the balance sheet value of all our development properties was £250.5 million (31 December 2023: £250.0 million) and their independent valuation by BNP Paribas was £294.5 million, reflecting a £44.0 million cumulative uplift in value since they were classified as development properties. In order to highlight the market value of development properties, and overages, and to be consistent with how we state our investment properties, we use EPRA NDV⁽¹³⁾, which includes the market value of development properties and overages less notional deferred tax, as our primary net assets metric. 

Net asset value

EPRA NDV⁽¹⁵⁾ at 30 June 2024 was £687.0 million (31 December 2023: £662.9 million), which includes the mark-to-market adjustment on the value of the development properties and overages. The total portfolio value as at 30 June 2024 was £821.9 million, an increase of £53.7 million from 31 December 2023. The Group's share of profits from joint ventures of £0.4 million (H1 2023: £0.8 million loss) resulted in investments in joint ventures increasing to £32.3 million (31 December 2023: £30.7 million). Trade and other receivables include deferred consideration on sales as set out previously. At 30 June 2024, deferred consideration of £41.7 million was outstanding (31 December 2023: £28.1 million), of which 39% is due within one year.  

The table below sets out ten of our key sites:

Financing strategy

To deliver its strategic plan, the Group has adopted a target net loan to portfolio value⁽¹⁶⁾ at year-end of below 20%, with a maximum of 25% in-year. As a principle, the Group will seek to maintain its cash flows in balance by funding the majority of infrastructure expenditure through disposal proceeds, while allowing for growth in the portfolio.

The Group intends to continue to use development and infrastructure loans alongside its RCF to support its growth strategy.

Debt facilities

The Group has a £200 million RCF, together with a £40 million uncommitted accordion option, which was entered into in 2022. The RCF is provided by NatWest, Santander and HSBC and is aligned to the Group's strategy, providing significant liquidity and flexibility to enable us to pursue our strategic ambitions. The interest rate on the RCF is based on a loan-to-value ratchet mechanism with a margin payable above SONIA in the range of 2.25% to 2.50%. The Group has no major refinancing requirements until 2027.

As part of its funding structure, the Group also uses infrastructure financing provided by public bodies and site-specific direct development loans to promote the development of major sites and bring forward the development of Industrial & Logistics units.

The Group had borrowings and loans of £89.7 million at 30 June 2024 (31 December 2023: £63.6 million; 30 June 2023: £72.1 million), being the RCF drawn balance (net of capitalised loan fees) of £54.0 million (31 December 2023: £33.8 million; 30 June 2023: £43.7 million) and infrastructure or direct development loans (net of capitalised loan fees) of £35.7 million (31 December 2023: £29.7 million; 30 June 2023: £28.4 million). The Group's cash balances at 30 June 2024 were £9.2 million (31 December 2023: £27.2 million; 30 June 2023: £8.5 million). The resulting net debt was £80.5 million (31 December 2023: £36.4 million; 30 June 2023: £63.7 million). 

Net debt⁽¹⁷⁾ increased with property expenditure, acquisitions and operating costs partly offset by the completion of serviced land and property sales. The movements in net debt over the period are shown below:

The weighted average cost of the Group's debt, using the average debt balance in the preceding 12 months and the average rates as at 30 June 2024, was 6.94% with a 0.9% non-utilisation fee on undrawn RCF amounts (31 December 2023: 6.88% with a 0.9% non-utilisation fee; 30 June 2023: 6.19% with a 0.9% non-utilisation fee). The weighted average term of drawn debt is now 2.4 years (31 December 2023: 2.9 years; 30 June 2023: 2.9 years).

The Group's hedging strategy to manage its exposure to interest rate risk is to hedge the lower of around half its average debt during the year or its net debt⁽¹⁷⁾ balance at year-end. At 30 June 2024, 25% (31 December 2023: 35%) of the Group's drawn debt, reflecting 27% of net debt (31 December 2023: 62%), was subject to fixed rate interest rates with no hedging instruments in place on the remaining floating rate debt. Projected drawn debt and hedging requirements remain under active review with any new hedging to be aligned to future net debt requirements.

As at 30 June 2024, the Group's gross loan to portfolio value⁽¹⁷⁾ was 10.9% (31 December 2023: 8.3%; 30 June 2023: 9.8%) and its net loan to portfolio value was 9.8% (31 December 2023: 4.7%; 30 June 2023: 8.6%). If gearing is assessed against the value of the core Income Generation Portfolio (the Investment Portfolio and Natural Resources portfolio) only, this equates to a gross loan to core Income Generation portfolio value of 38.3% (31 December 2023: 27.9%; 30 June 2023: 31.7%) and a net loan to core Income Generation portfolio value of 34.4% (31 December 2023: 15.9%; 30 June 2023: 28.0%). Under the RCF, the Group could withstand a material fall in portfolio value, property sales or rental income before reaching covenant levels.

At 30 June 2024, undrawn capacity under the RCF was £145.0 million (31 December 2023: £165.0 million; 30 June 2023: £155.0 million). Going forwards, the RCF, alongside selected use of infrastructure loans where appropriate, will continue to provide the Group with sufficient liquidity to execute our growth strategy.

Kitty Patmore

Chief Financial Officer

12 September 2024

Appendix 1: Supplementary operational information

1.1  Top Industrial & Logistics sites (as at 30 June 2024)

1.2  Top Residential sites (as at 30 June 2024)

Appendix 2: Key performance indicators

2.1  Financial track record

Principal risks and uncertainties

A detailed explanation of the Group's risk management framework, the principal risks and uncertainties affecting the Group and the steps it takes to mitigate these risks, can be found on pages 48 to 60 of the Annual Report and Financial Statements for the year ended 31 December 2023 (the "2023 Annual Report"), available at harworthgroup.com/investors/.

The Board has assessed the principal and emerging risks facing the Group and considers that there have been no material changes to the risks set out in the 2023 Annual Report.

In light of the recent change in the UK Government and political landscape, though changes are not expected in the short term, the Board is closely monitoring the following principal risks: Planning, Statutory costs of development, Residential and Commercial markets, and Availability of and competition for strategic sites. A detailed update on all principal risks will be provided in the Annual Report and Financial Statements for the year ending 31 December 2024.

Directors' Responsibilities statement

For the six months ended 30 June 2024

The Directors who held office at the date of approval of these Financial Statements confirm that to the best of their knowledge:

The Directors who served during the six months ended 30 June 2024 were as follows:

By order of the Board

Kitty Patmore

Chief Financial Officer

12 September 2024

Cautionary statement

This report for the six months ended 30 June 2024 contains certain forward-looking statements with respect to the Company's financial condition, results, operations and business. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this report should be construed as a profit forecast.

Directors' liability

Neither the Company nor the Directors accept any liability to any person in relation to this report for the six months ended 30 June 2024 except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with section 90A of the Financial Services and Markets Act 2000.

Shareholder information

Financial calendar

Registrars

All administrative enquiries relating to shareholdings should, in the first instance, be directed to Equiniti, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA (telephone: 0371 384 2301) and should state clearly the registered shareholder's name and address.

Dividend mandate

Any shareholder wishing dividends to be paid directly into a bank or building society should contact the Registrars for a dividend mandate form. Dividends paid in this way will be paid through the Bankers' Automated Clearing System ("BACS").

Shareview service

The Shareview service from Equiniti allows shareholders to manage their shareholding online. It gives shareholders direct access to their data held on the share register, including recent share movements and dividend details and the ability to change their address or dividend payment instructions online.

To visit the Shareview website, go to shareview.co.uk. There is no charge to register but the 'shareholder reference' printed on proxy forms or dividend stationery will be required.

Website

Harworth's website (harworthgroup.com) gives further information on the Group. Detailed information for shareholders can be found at harworthgroup.com/investors/.

Consolidated income statement

Notes 1 to 16 are an integral part of these condensed consolidated interim financial statements.

All activities are derived from continuing operations.

Consolidated statement of comprehensive income

Consolidated balance sheet

Condensed consolidated statement of changes in shareholders' equity