Harworth Group PLC Final Results (7613G)

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Harworth Group Plc	LSE:HWG	London	Ordinary Share	GB00BYZJ7G42	ORD 10P

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	-0.50	-0.39%	129.00	128.50	130.00	130.50	128.50	130.50	52,564	16:35:07

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
Offices-holdng Companies,nec	72.43M	37.96M	0.1172	10.96	416M

Harworth (LSE:HWG)
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From Apr 2019 to Apr 2024

TIDMHWG

RNS Number : 7613G

Harworth Group PLC

06 March 2018

HARWORTH GROUP PLC

UNAUDITED PRELIMINARY RESULTS FOR THE YEARED 31 DECEMBER 2017

STRONG DEVELOPMENT AND INVESTMENT ACTIVITY DRIVES DOUBLE DIGIT GROWTH

Harworth Group plc ("Harworth" or the "Group"), the brownfield land and property developer & investor, announces its preliminary results for the year ended 31 December 2017.

 
                                         31 December   31 December   Change 
                                                2017          2016      (%) 
-------------------------------------  -------------  ------------  ------- 
 Net Asset Value ("NAV") per 
  share (p) (1)                                127.4         114.6     11.2 
 EPRA NNNAV per share (p) (1)                  128.9         114.6     12.5 
 EPRA NAV per share (p) (1)                    131.0         119.8      9.3 
 
 Operating profit before exceptional 
  items (GBP'm)                                 39.7          45.2   (12.0) 
 Operating profit before exceptional 
  items plus joint ventures (GBP'm)             43.8          45.8    (4.4) 
 Value gains (GBP'm) (2)                        41.6          43.7    (4.8) 
 Value gains (including development 
  properties) (GBP'm) (3)                       47.4          43.7      8.6 
 Profit excluding value gains 
  (GBP'm) (4)                                    2.2           2.2      1.2 
 
 Earnings per share (p)                         15.8      13.7 (5)     15.4 
 Dividend per share (p)                        0.828         0.753     10.0 
-------------------------------------  -------------  ------------  -------

Harworth's Chief Executive, Owen Michaelson, said:

"These are another strong set of results where we have again delivered double digit EPRA NNNAV growth, reflecting our continued ability to maximise the value of our portfolio whilst simultaneously growing our strategic landbank and income base through acquisitions and new lettings.

"Our focus, on the "beds and sheds" sectors in the North of England and the Midlands, is firmly underpinned by strong economic and consumer trends in the regions, and reinforced by supportive Government policy. This favourable backdrop coupled with active management has been reflected in 2017's planning successes and the sales and lettings achieved at our major developments such as Waverley and Logistics North.

"Whilst our existing sites continue to perform well and have plenty of future potential, we are also pleased with the progress of the five new acquisitions to our strategic landbank, which were acquired with the cash proceeds from new equity raised last March. These acquisitions delivered significant revaluation gains in 2017 and provide a substantial pipeline for us to deliver further value gains through our market-leading planning and development expertise.

"2018 has started strongly, with over 50% of expected full year sales already agreed since the year-end and the completion of three new lettings generating additional recurring income, further demonstrating the success of our proven and robust strategy. This performance, together with the supportive market fundamentals in the areas in which we operate, means we look to the future with confidence."

GOOD OPERATIONAL PERFORMANCE REFLECTED IN ALL KEY FINANCIAL METRICS

 
 --   Another year delivering double-digit EPRA NNNAV growth, 
       up 12.5% (2016: 12.5%), with 80% of value gains(2) 
       generated through active management 
 --   Value gains (including development properties)(3) increased 
       by 8.6%, reflecting strong planning, lettings and sales 
       progress and uplifts on acquisitions made in 2017 
 --   Earnings per share up 15.4% to 15.8p (2016: 13.7p(5) 
       ) reflecting solid operating profit advances and positive 
       improvements in deferred tax 
 --   Dividend per share increased by 10% to 0.828p (2016: 
       0.753p) in-line with our progressive policy 
 --   Prudent gearing maintained with net loan to value 7.0% 
       (2016: 9.9%) or 20.8% when calculated against the income 
       portfolio (2016: 31.3%)

LAND BANK STRENGTH PROVIDING PLATFORM FOR CONTINUED TOTAL RETURN OUTPERFORMANCE

 
 --   March 2017 GBP27.1m equity proceeds fully invested 
       through the acquisition of five sites, providing over 
       410 acres of development opportunities. Over the last 
       three years, value gains on acquisitions of more than 
       15% p.a. 
 --   Planning secured in 2017 for the delivery of 825 residential 
       plots and over 3m sq. ft of commercial space bringing 
       our consented portfolio to 10,448 residential plots 
       and 12.13m sq. ft of commercial space 
 --   622 residential plots sold (2016: 619 residential plots), 
       across six parcels, at an average value of c.GBP37,000 
       per plot, achieving profit on sale of GBP3.8m. Over 
       850,000 sq. ft of commercial land sold (2016: c.500,000 
       sq. ft), across five parcels for GBP22.7m, delivering 
       a profit on sale of GBP4.3m 
 --   Over 360,000 sq. ft of long-term lettings completed 
       on five new commercial buildings, to logistics and 
       manufacturing occupiers, at new headline rents alongside 
       other portfolio rent improvements

ALL AREAS OF THE BUSINESS SUPPORTING GROWTH STRATEGY AND 2018 PROGRESS

 
 --   No shortage of acquisition opportunities: GBP0.6m spent 
       in February 2018 on an adjacent site with direct development 
       potential; six signed land option agreements in place; 
       preferred bidder on a further significant acquisition 
       opportunity; and Harworth has an option and planning 
       promotion position on a major Midlands opportunity 
       with the potential to deliver 3,000 residential plots 
       and 500,000 sq. ft of commercial space 
 --   Strongest ever start to a year with over 50% of expected 
       full year 2018 sales agreed above book value 
 --   All completed, wholly-owned, direct commercial developments 
       now let (c.120,000 sq. ft in 2018), with only three 
       co-interest units (c.170,000 sq. ft) remaining to be 
       let 
 --   Three-year planning targets of 4,500 residential plots 
       and 5.9m sq. ft of commercial space, including applications 
       currently in the planning system. Looking to achieve 
       planning on over 1,000 plots and over 300,000 sq. ft 
       during 2018 
 --   Process begun for moving from standard to premium listing 
       on the London Stock Exchange in 2018

Footnotes: (1) Following the March 2017 equity capital raise to accelerate the acquisition of strategic land for development and the further evolution of our strategy, GBP229.1m of property has been re-categorised from investment to development in the year. Balance sheet measures include NAV and EPRA NNNAV which, is now our primary metric and, includes the mark to market value of development properties (GBP5.8m) less notional deferred tax on development properties (GBP1.0m). EPRA NAV is EPRA NNNAV excluding deferred tax (GBP5.5m), notional deferred tax on development properties (GBP1.0m) and the mark to market movement on financial instruments (GBP0.1m)

(2) Value gains comprise profits on sale of: investment properties (GBP2.9m); development properties (GBP7.7m); and assets held for sale (GBP0.1m), plus the increase in the fair value of investment properties (GBP32.1m), joint ventures (GBP4.0m) and overages (GBP0.6m) less the impairment of development properties (GBP5.8m)

(3) Value gains (including development properties) comprises value gains (GBP41.6m) plus the increase in the fair market value of development properties (GBP5.8m)

(4) Profit excluding value gains is operating profit before exceptional items plus joint ventures (GBP43.8m) less value gains (GBP41.6m) and pension costs (GBPnil)

(5) The 2016 EPS has been restated following discussions with the Financial Reporting Council and their review of the 2016 Financial Statements, which did not correctly reflect the effect of the May 2016 1 for 10 share consolidation on EPS.

-S-

Enquiries:

 
Harworth Group plc                                  Tel: +44 (0)114 349 3131 
Owen Michaelson, Chief Executive | Andrew Kirkman, 
 Finance Director 
 
 
FTI Consulting                                      Tel: +44 (0)20 3727 1000 
 Dido Laurimore | Richard Gotla | Tom Gough         Harworth@fticonsulting.com

ABOUT HARWORTH GROUP PLC

Listed on the main market, Harworth Group plc (LSE: HWG) is a leading brownfield land and property developer & investor which owns and manages a portfolio of c.21,000 acres of land on around 135 sites located throughout the Midlands and North of England. The Group specialises in the regeneration of former coalfield sites and other brownfield land into new residential developments and employment areas. (http://www.harworthgroup.com)

While the financial information included in this announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards as adopted by the EU ("EU IFRSs"), this announcement does not itself contain sufficient information to comply with EU IFRSs. The Group expects to publish full financial statements that comply with EU IFRSs by the end of April 2018.

This announcement contains certain forward-looking statements which, by their nature, involve risk, uncertainties and assumptions because they relate to future events and circumstances. Actual outcomes and results may differ materially from any outcomes or results expressed or implied by such forward looking statements. Any forward-looking statements made by or on behalf of the Group are made in good faith based on current expectations and beliefs and on the information available at the time the statement is made. No representation or warranty is given in relation to these forward-looking statements, including as to their completeness or accuracy or the basis on which they were prepared, and undue reliance should not be placed on them. The Group does not undertake to revise or update any forward-looking statement contained in this announcement to reflect any changes in its expectations with regard thereto or any new information or changes in events, conditions or circumstances on which any such statement is based, save as required by law and regulations. Nothing in this announcement should be construed as a profit forecast.

Chairman's Statement

I am pleased to present the Group's preliminary results for the financial year ended 31 December 2017, which reflect another strong year of growth for the business. EPRA NNNAV is now the Group's principal financial measure following the evolution of our business model and the re-categorisation of properties from investment to development. EPRA NNNAV grew by 12.5% per share (2016: 12.5% per share) to 128.9p (GBP414.2m (includes GBP27.1m equity capital raised during 2017 which has been fully deployed)) from 114.6p per share in 2016 (2016: GBP334.9m).

STRATEGY AND PERFORMANCE OVERVIEW

Following this year's review of the strategy the Board has reaffirmed our vision: to be the UK's leading developer and brownfield land regeneration partner of choice. Alongside this, we have refined the way we articulate our strategic priorities which are now identified under six headings (development, investment, sectors, regions, acquisitions and financing). We have also highlighted the direct links to the business model, key performance indicators and risks. This will be reflected in future communications with investors, including in the 2017 Annual Report and Financial Statements.

Development

The Group continues to meet its target to grow EPRA NNNAV by at least 10% per annum as a consistent average. Growth is driven principally by the development activities of our Capital Growth team, including planning promotion, land remediation, engineering and infrastructure development, and, finally, profitable sales.

The Group achieved a number of significant planning successes during the year for the future delivery of 825 residential plots and over 3m sq. ft of commercial space across four sites, with the most notable achievements at our sites at Thoresby and Kellingley. Residential and commercial sales have remained strong, both in terms of volumes and pricing, underpinning and realising value gains. We continued to sell to both new and repeat housebuilders. The first sale of land for commercial use at Wheatley Hall Road to Arnold Clark illustrates our increasing points of sale across the portfolio. The sale to Exeter/First Industrial at Logistics North, generating a healthy profit on sale, shows the continuing demand for space at our most mature sites.

Investment

Our ambition remains to cover the Group's operating costs, interest, tax and dividends from ongoing rental and other operating income. We have continued to make good progress towards meeting that commitment, led by the investment returns delivered by our Income Generation team. In 2017, those investment returns have contributed 27% of value gains and yields of 7.0%.

During the year we secured over 360,000 sq. ft of major new commercial lettings, including to McLaren Automotive at the Advanced Manufacturing Park ("the AMP") and to Whistl at Logistics North, the latter on behalf of M&G Real Estate, our forward funding partner. We undertook direct development at the AMP and at Logistics North, both in joint venture with Lancashire County Pension Fund ("LCPF") and on our own account. Following further progress on lettings at the start of 2018, all of the wholly owned direct developments in our Business Space portfolio are now let.

Sectors and regions

We continue to see strong demand for our "oven-ready" residential and commercial sites, and direct developments in our core markets in the North of England and the Midlands. This has been affirmed by the sales and lettings we have completed during the year alongside the volume of interest in our sites and units.

Acquisitions

We recognise the importance of sustained momentum in the business. By the end of 2017 we had successfully deployed the GBP27.1m of equity raised in March 2017 through the acquisition of five new sites with residential and commercial development potential. Those acquisitions have already produced significant revaluation gains during the year, cementing our record of growth from the sites we have acquired since 2014, when the business began to replenish its portfolio.

We have a healthy pipeline, with six options now in place on circa 417 acres of potential development land and a number of acquisition opportunities being explored, including a substantial brownfield site on which we are preferred bidder.

Financing

In February 2018, we extended the availability of our debt funding by agreeing a two-year extension to our GBP75.0m revolving credit facility with RBS to February 2023 with only a 10 bps increase in margin to 210 bps. In 2017 we also secured a GBP5.0m increase in our bonding facility to GBP15.0m. We have continued to use public infrastructure loans to accelerate development. Our net loan to value remains low at 7.0% (2016: 9.9%) or 20.8% when calculated against the income portfolio (2016: 31.3%). We believe our policy of prudent gearing is well suited for land-focussed development businesses such as ourselves.

DIVID

The Company's policy is to grow the dividend in line with the growth of the business, and pay it from recurring income and realised value gains from disposals. The Board will not distribute unrealised gains recognised on the revaluation of property and will retain a proportion of its recurring income and realised gains for reinvestment in acquisitions. We declared and paid an interim dividend of 0.253p per share in October 2017. The Board is recommending a final dividend of 0.575p per share (2016 final dividend: 0.523p). This gives a total dividend of 0.828p per share (2016: 0.753p) being a 10% growth in dividend per share for the year. Subject to shareholder approval at the 2018 Annual General Meeting, the final dividend will be paid on 1 June 2018 to shareholders on the register as at close of business on 4 May 2018. The ex-dividend date will be 3 May 2018.

SUCCESSION

I have now been Chairman for more than seven years, during which time I am pleased that Harworth has grown into the respected regeneration business it is today. In the five years since Harworth became a standalone business, following our solvent restructuring of UK Coal plc, the Group's NNNAV, including capital raised, has grown by an average of c.14% per annum to GBP414.2m.

With strong foundations in place, now is the right time to hand the reins to my successor, for the next stage of Harworth's growth and development. As previously announced, I will not be standing for re-election at this year's Annual General Meeting and I welcome Alastair Lyons CBE as my successor. Alastair's appointment will take effect after the announcement of these results on 7 March 2018, at which time I will step down as Chairman, retiring from the Board at the end of March.

OUR PEOPLE AND PARTNERS

I feel privileged to have worked with a talented and hardworking team at Harworth, supported also by our advisors and partners. The team continues to grow and mature with the business. In the last year, we recruited six new roles and made a number of promotions. Half of our recruits were women, confirming that promoting diversity across the business remains a priority.

I would like to take this opportunity to thank all of the Harworth team and my Board colleagues for their hard work and contribution throughout the time I have been Chairman. I would also like to extend my thanks to our investors and wider stakeholders for their support through the transformation of Harworth over the last seven years.

OUTLOOK

Harworth is well positioned for the future. We have a robust strategy and business model, a proven track record and a pipeline of opportunities for replenishing our strategic land bank and property portfolio. Our core markets in the North of England and the Midlands continue to perform well. There continues to be a shortage of housing in the areas in which we operate and strong fundamentals underpinning growth in the logistics and advanced manufacturing sectors. Government policy remains supportive, with strong backing for brownfield development, prominent housing initiatives including the extension of Help to Buy, and a continued focus on regional investment and devolution.

Against this backdrop, the outlook for the business remains favourable. I wish the entire Harworth team the very best for the future.

Jonson Cox

Chairman

6 March 2018

Chief Executive's Statement

This is another excellent set of results reflecting a strong year of progress for the business. The Group once again delivered a year of double-digit NNNAV per share growth of 12.5% (2016: 12.5%), with a NNNAV of GBP414.2m at the year-end (2016: GBP334.9m). This includes value gains of GBP47.4m(3) (2016: GBP43.7m), ahead of our expectations, and profit excluding value gains rose marginally to GBP2.24m(4) (2016: GBP2.21m).

DELIVERing Our STRATEGY

Against the backdrop of our strategic priorities, our operational focus also remains unchanged: extracting maximum value from our predominantly brownfield land portfolio in the North of England and the Midlands to grow EPRA NNNAV; building our recurring income base to cover operating costs; and acquiring brownfield and urban extension land and property to underpin the sustainability of our long-term business model. We do this by continuing to use our masterplanning, technical, placemaking and asset management expertise to transform redundant land into places where people want to live and work, whilst applying the same skills in targeting future areas in which to invest our management time and capital.

Our core markets across the North of England and the Midlands are well suited to our strategy and business model. Demand for new homes in our markets remains steady, reflected by both the rate of sales achieved by our housebuilding partners on our sites and a continued deficit in the number of new homes built versus the official national target of 300,000 new homes per year. The rise of e-tailing and the increasing demands of consumers also continues to support demand for logistics and distribution space, with the industrial sector forecast to outperform both the office and retail markets over the next few years. This is further augmented by a supportive legislative framework and a number of recent Government announcements, including the publication of the Industrial Strategy White Paper and further financial support made available within the Chancellor's Autumn Statement to accelerate housebuilding across the UK.

CAPITAL GROWTH

Our Capital Growth team has continued to make good progress in maximising value from our portfolio through three principal management actions: securing planning consents on major schemes; preparing land for redevelopment; and delivering sales above book value for future residential and commercial development. All have underpinned value gains made during the year.

During the year we achieved planning successes on four sites for the delivery of 825 residential plots and over 3m sq. ft of commercial space. Two of these are worthy of particular highlight. In April, we secured consent for 1.45m sq. ft of new commercial space at Kellingley in Selby, North Yorkshire, less than eighteen months after the UK's last deep mine operations ended there. Further planning success was achieved in October, when we received consent at the former Thoresby Colliery site in Nottinghamshire for 800 new homes alongside 250,000 sq. ft of new commercial space, just over two years after mining ended there. Both sites now form part of our Major Developments segment. As at 31 December 2017, total consented residential plots under ownership stood at 10,448 plots and consented commercial space on our land at 12.13m sq. ft.

We also have live applications in the planning system for 1,308 new plots and 325,000 sq. ft of commercial space. These form part of a wider pipeline of planning applications for the next three years, comprising more than 4,500 residential plots (of which c.1,500 plots are for Planning Promotion Agreements ("PPAs") on third-party land) and 5.9m sq. ft of commercial space to underpin the Group's future disposals programme.

The team continues to plan carefully whether and when to dispose of sites to maximise the return from our portfolio. In 2017 we achieved receipts in excess of book value, realising cash which can be reinvested in bringing other sites and acquisitions forward. A total of 622 residential plots were sold across six parcels to national and regional housebuilders during the year. This included sales to longstanding partners including Taylor Wimpey and Avant Homes alongside new partners such as Keepmoat Homes and SkyHouse, demonstrating the popularity of our product.

We also sold land with planning consent for over 850,000 sq. ft of commercial space across five parcels, including three headline deals. In May, we entered into a joint venture with Lancashire County Pension Fund ("LCPF") to develop the next phase of Logistics North in Bolton. Land totalling 31.2 acres was conditionally sold to the Multiply Logistics North Limited Partnership, our joint venture, for the development of 564,000 sq. ft of commercial space over the next two years. Harworth retains a 20% stake in the joint venture and will also undertake development and asset management for separate management and promote fees. As at 31 December 2017, two of the three phases had been sold into the joint venture for the direct development of c. 435,000 sq. ft of new commercial space.

The final quarter of 2017 included two further key commercial land transactions. We executed a land sale of 18.3 acres at Logistics North to Exeter/First Industrial for GBP10.1m, representing their second major investment in the site over the past two years and setting a new benchmark price per acre for the site. In addition, we sold a 6-acre plot at Riverdale Park, Doncaster to Arnold Clark Ltd for GBP2.5m, representing the first land sale at the 112-acre site since its purchase for GBP8.5m in December 2015.

Income Generation

During the year, our Income Generation team has maintained its push to grow resilient, recurring income. This has included increased direct development space which we intend to hold for long-term rents, in response to a continued undersupply of good quality new units in the regions. The team continues to asset manage our existing Business Space portfolio to reduce voids and increase rental returns, whilst also deriving rental returns and royalties from energy generation, environmental technologies and the agricultural portfolio. As a by-product of our remediation, engineering and development activities, we also seek to generate income from recycled aggregates.

Lettings progress was strong during the year, including the long-term letting of over 360,000 sq. ft of directly developed industrial space with a number of new headline rents being set. The year began with Whistl taking a ten-year lease in January for a 225,000 sq. ft unit at Logistics North, just six weeks after we had overseen practical completion of the unit on behalf of M&G Real Estate, our forward funding partner. This was followed in May by the start of construction of five further commercial units at Logistics North: three as the first phase of the 'Multiply Logistics North' joint venture with LCPF totalling c. 164,000 sq. ft; and two units (C4 and C5) totalling c.52,800 sq. ft using internal funds. All five units practically completed in the fourth quarter of 2017. Within two weeks of practical completion of units C4 and C5 at Logistics North, we agreed a ten-year lease for C4 at a new headline rent for Logistics North.

We have also undertaken direct development at the AMP to meet growing occupier interest. In April, we achieved practical completion on six new units totalling 51,750 sq. ft, with a leading advanced manufacturer becoming our first tenant for a c.11,000 sq. ft unit at a headline rent of GBP7.25psf on a 15-year lease. This was followed in December by Spendor Audio taking a 15-year lease on a c. 26,000 sq. ft unit as part of their UK expansion. The strength of the AMP as a business location was further demonstrated in July, with McLaren Automotive taking a 20-year lease on a new 75,000 sq. ft unit that we will be constructing on its behalf. McLaren will take occupation in the spring following practical completion. The space will be used to house McLaren's new Composites Technology Centre, which will be used to build carbon-fibre chassis for sports cars from 2019.

During the year, our team also increased income from other underlying assets within our c.1.9m sq. ft Business Space portfolio, with a total of over 50 new, renewed and reviewed commercial lettings being completed in the year. This was further bolstered by the purchase in November of a DHL distribution unit in Droitwich, Worcestershire with an annualised rent roll of GBP450,000. Asset management opportunities have already been identified to grow the underlying value of this site in future, alongside longer-term development plans. All of this activity led to Business Space revenue in 2017 of GBP8.4m (2016: GBP6.2m). The weighted average unexpired lease term ("WAULT") across the portfolio stands at 7.5 years (2016: 7.5 years).

Our revenues for the period were also bolstered by the work of our Natural Resources and Operations teams. A total of 159.7MW of energy capacity is now installed on our land, providing a long-term income stream from a combination of ground rents and royalties. The team's focus remains on growing future income from alternative technologies with better short-term prospects and from maintaining income from our tipping operations, which has the added benefit of supporting site remediation.

Acquisitions

The successful completion of our GBP27.1m equity raise in March to accelerate the continued expansion of our strategic landbank was a key milestone for funding our future growth prospects. Our Acquisitions team deployed the proceeds in 2017 through the acquisition of five sites which have supplemented our strategic landbank and will improve the quality of our recurring income base. These five transactions plus acquisition costs, allied with initial planning and infrastructure costs, account for the full GBP27.1m of new equity raised. All are forecast to support our ongoing delivery of a double digit internal rate of return, with the December 2017 valuation already reflecting significant value growth from these acquisitions during the year.

The two most notable acquisitions were identified at the time of the placing and were adjacent to our existing landholdings, thus realising significant marriage value as part of our year-end valuation process. The first, Coalville in Leicestershire, is a 145-acre site purchased for GBP11.8m plus costs. It neighbours our existing Coalville development and already benefits from an existing planning permission for 914 new homes. This acquisition has created a combined site with planning permission for the delivery of over 2,000 new residential plots and associated community facilities over a likely 15-year development pipeline.

The second, Chatterley Valley in Staffordshire, is an 88-acre site purchased for GBP2.6m plus costs that borders our existing 24-acre freehold site. The entire site benefits from Government Enterprise Zone status and an extant planning permission to deliver up to 1.2m sq. ft of new commercial development.

Replenishing and growing our strategic landbank is essential to maintain delivery of our target of double-digit EPRA NNNAV growth through the property cycle. With this in mind, we have entered into six option agreements to acquire strategic land sites that extend to approximately 250 acres, comprising a mixture of potential residential and commercial sites located in, and adjacent to, our core regions. These sites have the potential to deliver a further 1,500 residential plots and 1.3m sq. ft of new commercial space should these options be taken up.

STRONG BUSINESS momentum

The continuing strong performance of the business, coupled with the robust nature of the markets we operate in, means that we already have significant momentum in 2018. We have agreed over 50% of the year's expected sales, underpinning the Group's performance for the year ahead, although we still expect performance to be second half weighted.

In the first two months of 2018, we have secured a number of long-term lettings which will bolster our income portfolio, at headline rents for each development, clearly reflecting industrial rental growth and supporting ongoing valuation uplifts. At Logistics North, a ten-year lease was agreed in January with Vaclensa Ltd for unit C5, achieving a new headline rent of GBP7psf. This was followed in February by two further lettings across the portfolio. The first was to British Steel Ltd who completed a 15-year lease on the remaining Phase 2 R-evolution unit, totalling c. 15,000 sq. ft, at the AMP at a new headline rate of GBP7.50psf. The second letting in February saw leading motor retailer Motor Depot Ltd taking a 15-year lease on our Helix unit at Gateway 36 at a new headline rent at the development of GBP5psf.

This lettings progress has underpinned our decision to proceed on two further direct developments which will grow our recurring income base. Construction of Phase 3 of R-evolution at the AMP, c. 56,000 sq. ft of new commercial space, has now begun alongside the second phase of the 'Multiply Logistics North' development that will deliver a further c. 270,000 sq. ft of commercial space at Logistics North. Interest in our future commercial pipeline is already strong, driven by both the maturity of our developments such as Logistics North and the AMP, and a continued lack of supply of high-quality units in the regions in which we operate.

Our reputation for being straightforward and acting swiftly in making new acquisitions also stands us in good stead in identifying an acquisitions pipeline, with no shortage of opportunities currently. Prior to the end of February, we signed a Planning Promotion Agreement ("PPA") for a key site in Derbyshire that unifies eight separate landowners in attempting to secure a major new residential consent. The Cinderhill site totals 421 acres and benefits from a draft housing allocation within the emerging Amber Valley Local Plan for up to 3,000 new homes, alongside 500,000 sq. ft of commercial space. This draft plan has now been submitted to the Government for further examination in the Spring.

With clear momentum in place across all aspects of the business, alongside favourable market conditions and positive Government sentiment towards residential and commercial development on brownfield land, we remain confident in our ability to grow NNNAV across our portfolio and to increase our recurring income base to cover the operating costs of the business.

PEOPLE

Our continued strong performance has necessitated growing our team in line with the increasing workload of the business. Our people remain as committed, diligent and steadfast as ever in maximising the value of our portfolio and creating great new places for people to live and work. My thanks goes out to the team, our trusted delivery partners and professional teams for their hard work in making the Group what it is today.

Finally, on behalf of the Board and the Harworth team, I would like to express my thanks to Jonson Cox who has served as our Chairman since November 2010 and helped us navigate through many challenges in creating the business we have today. Successful businesses do not just happen. They require a combination of skill, leadership and good market judgements. I would like to express my sincere thanks for Jonson's leadership and guidance over the past seven years. I would also like to welcome Alastair Lyons as our incoming Chairman.

Owen Michaelson

Chief Executive

6 March 2018

Financial Review

OVERVIEW

Further significant progress was made across the business in 2017, which resulted in another year of double digit growth in EPRA NNNAV. This growth was after including the impact of the March 2017 equity capital raise which had the impact of a c.2.0% dilution in net assets per share. EPRA NNNAV rose by 12.5% to 128.9p per share (GBP414.2m) compared to 114.6p per share as at 31 December 2016 (GBP334.9m). NAV per share increased to 127.4p (GBP409.3m) as at 31 December 2017, which is an 11.2% increase on the NAV per share as at 31 December 2016 of 114.6p (GBP334.9m).

Operating profit before exceptional items in 2017 was GBP39.7m (2016: GBP45.2m). However, the statutory measure does not now capture the growth and profitability of the business fully as we are conducting some of our activities through joint ventures (2017: GBP4.0m, 2016: GBP0.6m) and, as set out below, the revaluation gains on development properties post re-categorisation (2017: GBP5.8m, 2016: GBPnil) fall outside of this measure. Taking account of both of these additional sources of value creation, operating profits which contributed to EPRA NNNAV rose by 8.1% to GBP49.6m (2016: GBP45.8m) reflecting active management across our portfolio.

We consider that the operating profits which contributed to EPRA NNNAV growth of GBP49.6m (2016: GBP45.8m) can best be understood as being composed of two elements:

 
 --   Value gains (GBP47.4m; 2016: GBP43.7m) - profits 
       on disposals of investment, development and available 
       for sale properties GBP10.7m (2016: GBP8.8m) and 
       revaluation gains on our property portfolio of 
       GBP36.7m (2016: GBP34.9m). Revaluation gains comprise: 
       revaluation movements on investment property of 
       GBP32.1m (2016: GBP33.6m), profits from joint ventures 
       of GBP4.0m (2016: GBP0.6m), gains on overages of 
       GBP0.6m (2016: GBP0.7m) and revaluation movements 
       on development properties of GBP5.8m (2016: GBPnil) 
       less impairments of development properties of GBP5.8m 
       (2016: GBPnil). As development properties are held 
       as inventory, the revaluation gain is not included 
       in the balance sheet. Instead the revaluation amount 
       is verified by BNP Paribas and Savills, our external 
       property surveyors. Profit from joint ventures 
       are included within this measure as our joint ventures 
       conduct similar operations to Harworth, albeit 
       in different ownership structures, and the principal 
       profits in the joint ventures to date have been 
       from revaluation gains; and 
 --   Profit excluding value gains (GBP2.2m; 2016: GBP2.2m) 
       - this shows the ongoing profitability of the business 
       which is not reliant on property value gains or 
       profits from the sales of properties and is therefore 
       less susceptible to movements in the property cycle. 
       Profit excluding value gains rose by 1.2% in 2017.

Earnings per share rose by 15.4% to 15.8p (2016: 13.7p (5) ) reflecting the progress in profits as well as the recognition of previously unrecognised deferred tax assets following greater certainty of their recoverability. The total dividend per share for 2017 rose by 10% to 0.828p (2016: 0.753p) reflecting the long-run ambition to deliver through the cycle double-digit growth in NNNAV.

Net debt at GBP32.3m or 7.0% net loan to value (2016: GBP39.5m and 9.9%) reflects Harworth's continuing prudent gearing policy. In February 2018, the Group extended the term of its GBP75.0m revolving credit facility with RBS, such that it now ends in February 2023.

BUSINESS MODEL AND PROPERTY CATEGORISATION

Harworth has become more firmly established in recent years, particularly as a result of the effective re-listing in March 2015 and the development of a successful track record. At the same time, our business model has matured and evolved, notably with moves into adjacent activities such as direct development and forward funding deals. As a consequence, following the capital raise in March 2017, which was to accelerate the acquisition of strategic land for development, we reviewed our most advanced and active sites and re-categorised certain properties to reflect the intentions for the sites. The majority of Waverley, Logistics North and Prince of Wales were re-categorised as development sites and as such are now disclosed within inventory. Development sites are held on the balance sheet at cost rather than fair/market value, albeit at the point of re-categorisation the property is transferred at fair value. The balance sheet value of these three development sites at the point of re-categorisation was GBP77.7m.

Following further evolution of Harworth's business model during 2017, we have refined our thinking in the light of site and market opportunities, and concluded that it is appropriate, on the whole, to re-categorise all properties which have received planning permission as development properties. For until sites receive planning permission, our view is that the land is held for a currently undetermined future use and should thus be held as investment property. The only site within Major Developments that has not been re-categorised as a development property is Lounge in Leicestershire for which its future use is undetermined as a result of the proposed HS2 Phase 2b route.

Property categorisation is reviewed as at 30 June and 31 December each year. Following the 2017 year-end review, a further GBP151.4m has been re-categorised from investment property. The balance sheet value of all development sites as at 31 December 2017 was GBP210.5m (reflecting sales and development expenditure at the three sites re-categorised in the first half). The market value of all development sites as at 31 December 2017 was GBP216.3m reflecting the GBP5.8m uplift in value of these sites, which is appropriately not reflected in the balance sheet. In order to highlight the market value of development sites and be consistent with our investment properties, we are using EPRA NNNAV, which includes the market value of development properties, less notional deferred tax, as our primary metric. We will continue to report EPRA NAV which is EPRA NNNAV excluding deferred tax and the mark to market movement on financial instruments.

The table below sets out our top ten sites by value, split by their categorisation and showing the total acres, residential plots and commercial space:

 
                                            Housing plots             Commercial 
                                                                         space 
 Site          Type           Acres   Consented   Sold    Built   Consented    Built 
------------  -------------  ------  ----------  ------  ------  ----------  -------- 
 Waverley      Development     454      3,890     1,218    800        -          - 
 Coalville     Development     346      2,016       0       0         -          - 
                                                                    0.1m       0 sq. 
 Rossington    Development     334      1,200      170     100      sq. ft       ft 
 Lounge        Investment      103        -         -       -       0.8m       0 sq. 
                                                                    sq. ft       ft 
 Waverley      Investment      115        -         -       -       2.1m       1.2m 
  (AMP)                                                             sq. ft     sq. ft 
 Asfordby      Investment      141        -         -       -       0.3m       0.3m 
                                                                    sq. ft     sq. ft 
 Gateway       Investment      430        -         -       -       0.2m       0.2m 
  36                                                                sq. ft     sq. ft 
                                                                    0.8m       0 sq. 
 Harworth      Development     440       996       118     118      sq. ft       ft 
 Walton        Investment      19         -         -       -       0.3m       0.3m 
  Summit                                                            sq. ft     sq. ft 
                                                                    0.3m       0 sq. 
 Thoresby      Development     460       800        0       0       sq. ft       ft 
------------  -------------  ------  ----------  ------  ------  ----------  -------- 
                                                                    4.9m       2.0m 
  TOTAL                       2,842     8,902     1,506   1,018     sq. ft     sq. ft 
 --------------------------  ------  ----------  ------  ------  ----------  --------

MARCH 2017 EQUITY PLACING

Following the publication of our preliminary results on 6 March 2017, we successfully undertook an equity placing that raised GBP27.1m (net of expenses). This involved placing 29,226,974 Ordinary Shares (representing 9.9% of Harworth's share capital prior to the placing) at a price of 95.0 pence per share (representing a discount of approximately 1.6% to the closing mid-market price of Harworth's shares on the day before the announcement of the placing) to accelerate the continued expansion of our strategic land bank.

During 2017, we have invested all of the proceeds from the equity placing in five acquisitions at: Chatterley Valley near Stoke; Coalville in Leicestershire; Wingates near Bolton; a strategic site near Doncaster; and a DHL depot in Droitwich. The first three sites were all adjacent to existing Harworth properties. The total consideration including costs was GBP26.0m with additional spend expected on these sites during 2018 for planning and initial development expenditure.

OPERATING PROFIT

Revenues in 2017 were GBP53.7m (2016: GBP33.7m) split between revenue from operations GBP23.9m (2016: GBP33.7m) and revenue from the disposal of development properties GBP29.8m (2016: GBPnil). Revenue from operations is split between: Income Generation GBP18.2m (2016: GBP17.4m), where revenue mainly comprises rental and royalty income together with some sales of coal fines and salvage; and Capital Growth GBP5.7m (2016: GBP16.3m). The increase in revenue from Income Generation reflected improved lettings and business space acquisitions made in late 2016 and in 2017. The reduction in revenue from Capital Growth reflected the completion in December 2016 of the two units at Logistics North which were forward funded by M&G Real Estate. The revenue in 2017 reflected amounts received on completion of the work including a promote fee on the letting of the larger 225,000 sq. ft unit to Whistl in January 2017. The smaller 175,000 sq. ft unit continues to be actively marketed on behalf of M&G Real Estate.

Revenue and cost of sales include amounts for the M&G forward funding contract at Logistics North as Harworth acted as principal in this transaction. This principal relationship was as a result of Harworth having exposure to potential construction and credit risks as well as the potential rewards of managing the construction on time and to budget, and letting the buildings favourably and early.

Cost of sales now comprises three elements being: sales of development properties; operating costs for business space, natural resources, agricultural land and coal fines activities; and costs in relation to the M&G contract for the construction and letting of units. Cost of sales increased to GBP37.7m (2016: GBP20.9m) including some large movements being the first-time recognition of sales of development property of GBP27.9m (2016: GBPnil) and a reduction in costs associated with the M&G contract to GBP3.7m (2016: GBP15.6m).

Total overheads, which include the overhead costs of the Capital Growth and Income Generation segments and central costs, amounted to GBP12.0m (2016: GBP10.6m). The increase in costs reflected an increased accrual for the 2012 Harworth Estates Long Term Incentive Plan, which concluded at the end of 2017, as a result of NNNAV outperformance, as well as increased staffing and business costs reflecting greater, and more productive, operational activity. The table below shows the results of the business split between Capital Growth, Income Generation and Central Overheads:

 
                                            2017                                        2016 
                         -------------------------------------------  ----------------------------------------- 
                                                     Central 
                         Capital                       Over-          Capital       Income      Central 
                          Growth  Income Generation    heads   Total   Growth   Generation   Over-heads   Total 
                            GBPm               GBPm     GBPm    GBPm     GBPm         GBPm         GBPm    GBPm 
-----------------------  -------  -----------------  -------  ------  -------  -----------  -----------  ------ 
Revenue                     35.4               18.3        -    53.7     16.3         17.4            -    33.7 
Cost of sales             (32.3)              (5.4)        -  (37.7)   (16.0)        (4.9)            -  (20.9) 
Overheads                  (1.9)              (1.8)    (8.3)  (12.0)    (1.8)        (1.5)        (7.3)  (10.6) 
Notional development 
 property costs 
 (1)                       (1.9)                  -        -   (1.9)        -            -            -       - 
Other operating 
 income/(expense)              -                  -      0.1     0.1        -        (0.1)            -   (0.1) 
Profit excluding 
 value gains (2)           (0.7)               11.1    (8.2)     2.2    (1.5)         10.9        (7.3)     2.2

Revaluation gains           20.6                6.3        -    26.9     24.2         10.0            -    34.2 
Profit on disposals 
 (2)                         8.0                2.7        -    10.7      7.6          1.3            -     8.9 
Pension charge                 -                  -        -       -        -            -        (0.1)   (0.1) 
Operating profit 
 before exceptional 
 items                      27.9               20.0    (8.2)    39.7     30.2         22.1        (7.2)    45.2 
-----------------------  -------  -----------------  -------  ------  -------  -----------  -----------  ------ 
Net exceptional 
 items                         -                  -      0.3     0.3        -            -            -       - 
-----------------------  -------  -----------------  -------  ------  -------  -----------  -----------  ------ 
Operating profit 
 / (loss)                   27.9               20.0    (7.9)    40.1     30.2         22.1        (7.2)    45.2 
-----------------------  -------  -----------------  -------  ------  -------  -----------  -----------  ------ 
Joint ventures                 -                4.0        -     4.0        -          0.6            -     0.6 
=======================  =======  =================  =======  ======  =======  ===========  ===========  ====== 
Operating profit 
 before exceptional 
 items plus JVs             27.9               24.0    (8.2)    43.8     30.2         22.7        (7.2)    45.8 
-----------------------  -------  -----------------  -------  ------  -------  -----------  -----------  ------ 
Revaluation gains 
 on development 
 properties (3)              5.8                  -        -     5.8        -            -            -       - 
-----------------------  -------  -----------------  -------  ------  -------  -----------  -----------  ------ 
Value gains (including 
 JVs and development 
 properties)                21.0               26.4        -    47.4     31.7         12.0            -    43.7 
-----------------------  -------  -----------------  -------  ------  -------  -----------  -----------  ------

Notes: (1) The income statement has been re-presented to show development property sales (GBP7.7m) within profit on disposals and development property impairment (GBP5.8m) within revaluation gains. This notional cost is the net amount

(2) Profit excluding value gains comprises operating profit before exceptional items of GBP39.7m (2016: GBP45.2m) less pension costs of GBPnil (2016: GBP0.1m) and value gains of GBP37.6m (2016: GBP43.0m). Value gains comprise profit/(loss) on disposals (being profits on sale of investment properties of GBP2.9m (2016: GBP9.2m), assets held for sale of GBP0.1m (2016: loss of GBP0.4m) and development properties of GBP7.7m (2016: GBPnil) plus increase in fair value of investment properties of GBP26.9m (2016: GBP34.2m)

(3) This is the unrecognised mark to market gain since the properties were re-categorised into development properties

(4) There are minor differences on some totals due to rounding

Set out below are value gains for 2016 and 2017, which comprise profit on disposals, revaluation gains on investment properties (including joint ventures) and revaluation gains on development properties:

 
                                       2017                                      2016 
                     ----------------------------------------  ---------------------------------------- 
       GBPm                            Revaluation                               Revaluation 
                                           gains                                     gains 
                                    ------------------                        ------------------ 
                        Profit      Management  Market  Total     Profit      Management  Market  Total 
                      on disposals                              on disposals 
-------------------  -------------  ----------  ------  -----  -------------  ----------  ------  ----- 
Development/Capital 
 Growth 
Major Developments        8.0          8.7       4.3    21.0        6.8          8.7       3.4    18.9 
Strategic 
 Land                     0.0          12.2      1.2    13.4        0.7          10.8      1.3    12.8 
Investment/Income 
 Generation 
Business Space            0.5          4.4       0.8     5.7        0.1          5.7       0.9     6.7 
Natural Resources         2.2          1.4       0.1     3.7        0.0          4.0       1.2     5.2 
Agricultural 
 Land                     0.0          2.6       1.0     3.6        1.2          0.0      (1.1)    0.1 
Total                    10.7          29.2      7.5    47.4        8.8          29.2      5.7    43.7 
-------------------  -------------  ----------  ------  -----  -------------  ----------  ------  -----

The Group made sales of properties of GBP54.8m in 2017 (2016: GBP58.9m). The sales were split between residential serviced plots of GBP23.0m (2016: GBP20.5m), commercial development of GBP22.7m (2016: GBP26.8m) and other, essentially agricultural land of GBP9.1m (2016: GBP11.6m). Harworth made profit on disposals of GBP10.7m (2016: GBP8.8m), with all segments of the business achieving a profit on disposals with the two largest profits being from sales of land for residential and commercial occupiers at our flagship sites of Waverley and Logistics North respectively. In addition, Harworth undertook direct development on its sites with a land value of GBP2.1m and its share of property sales in its joint ventures was GBP0.9m.

Cash proceeds from sales were GBP46.6m (2016: GBP53.4m) reflecting the sales in the year of GBP54.8m (2016: GBP58.9m) less deferred consideration on sales in the year of GBP14.3m (2016: GBP10.9m) plus deferred consideration received from sales in prior year of GBP6.1m (2016: GBP5.4m).

In 2017, the Group achieved revaluation gains of GBP36.7m (2016: GBP34.9m) comprising: revaluation gains from investment properties, including overages of GBP32.7m (2016: GBP34.3m), revaluation gains from joint ventures of GBP4.0m (2016: GBP0.6m), revaluation gains from development properties of GBP5.8m (2016: GBPnil) less impairment of development properties of GBP5.8m (2016: GBPnil). All of the revaluation gains for development properties relate to Major Developments sites.

We have split the revaluation gains of GBP36.7m (2016: GBP34.9m) to reflect the contribution from active management of GBP29.2m (2016: GBP29.2m) and market movements of GBP7.5m (2016: GBP5.7m). Whilst there is a degree of subjectivity in this split, it highlights that the majority of the value gains continue to come from active management. The principal 2017 revaluation gains across the divisions were as follows:

 
 --   Major Developments - Capture of marriage value from 
       2017 acquisitions which adjoined existing sites (Chatterley 
       Valley and Coalville) together with movements at maturing 
       developments; 
 --   Strategic Land - Outline planning consent granted at 
       Thoresby (800 residential plots) and Kellingley (1.45m 
       sq. ft of commercial space); 
 --   Business Space - Increases from direct development 
       lettings and progress at recent acquisitions offset 
       by some ageing assets; 
 --   Natural Resources - Profitable sales for future energy 
       schemes and gains from asset management offset by declines 
       in fixed life assets; and 
 --   Agricultural Land - Aftercare and restoration advances 
       at former surface mines.

EXCEPTIONAL ITEMS

Exceptional items in 2017 comprised three separate items which, as before, relate to sundry receipts and costs from the Group's legacy activities. The total amounts in 2017 were a credit of GBP0.3m (2016: GBPnil).

TAXATION

The income statement credit for taxation in the year was GBP7.8m (2016: GBP3.6m charge) which comprised a deferred tax credit of GBP9.3m (2016: GBP3.6m charge) and a current year tax charge of GBP1.5m (2016: GBPnil). The movement in deferred tax comprised the following:

 
 --   a GBP5.9m credit due to the execution of a contract 
       which resulted in increased certainty that the 
       losses would not be lost; 
 --   a number of chargeable gains and losses have crystallised 
       in the period as a result of a number of disposals 
       of investment property and the categorisation of 
       properties from investment property to development 
       property. These gains have been offset against 
       tax losses that were previously not recognised 
       from a deferred tax perspective. The losses crystallised 
       have been recognised whereas inherent capital losses 
       have not. As such, there has been a credit to deferred 
       tax of GBP13.2m; 
 --   the increase in valuation of the investment properties 
       in the period together with the impact of indexation 
       on the inherent gains in the investment property 
       portfolio for the period, along with some other 
       smaller movements in deferred tax items, have given 
       rise to a GBP5.9m deferred tax charge in the period; 
       and 
 --   following the submission of the tax computations 
       and returns for prior periods, the Group utilised 
       tax attributes resulting in a deferred tax charge 
       of GBP3.9m.

The current tax charge comprised the following:

 
 --   a current year tax charge of GBP1.9m (2016: GBPnil) 
       resulting from profits on sales of development 
       properties; and 
 --   a land remediation relief tax credit of GBP0.3m 
       (2016: GBPnil).

The Group is still utilising brought forward tax losses but as a result of categorising sites from investment to development, Harworth has started to pay tax on development property sales. In the current period, in terms of cash tax paid or received, Harworth received cash in respect of the land remediation relief claim and recovery of VAT on deal fees of GBP0.3m (2016: GBPnil).

At 31 December 2017, the Group had deferred tax liabilities of GBP13.0m (2016: GBP23.4m), related to unrealised gains on investment properties and had recognised deferred tax assets of GBP7.5m (2016: GBP8.5m). The net deferred tax liability was GBP5.5m (2016: GBP14.9m). Full details of the movements in tax are set out in note 6.

Due to recent changes in tax legislation, there is much greater flexibility in the utilisation of tax losses arising after 1 April 2017. However, these losses, and those losses accrued historically are subject to a 50% restriction. Whilst the Group has a significant level of accrued tax losses, these are in the form of capital losses which fall outside of these rules. As such, these rules are likely to have a limited impact on the group's tax profile going forward.

Recent legislation has aligned the computation of capital gains on disposals of properties between individuals and corporates by removing the benefit to corporates of indexation. This will have the impact of increasing the tax liabilities in future periods.

EARNINGS PER SHARE AND DIVIDS

Earnings per share increased to 15.76p (2016: 13.65p(5) ) and underlying earnings per share, excluding exceptional items, increased to 15.65p (2016: 13.65p). These increases reflect the positive progress made in the year with respect to profits and tax. The 2016 EPS has been restated following discussions with the Financial Reporting Council and their review of the 2016 Financial Statements, which did not correctly reflect the effect of the May 1 for 10 share consolidation on EPS.

An interim dividend of 0.253p per share (2016 interim: 0.230p) equivalent to GBP813k (2016 interim: GBP672k) for the 2017 financial year was paid on 13 October 2017. A final dividend for the 2017 financial year of 0.575p per share (2016 final: 0.523p) is proposed. The total dividend for the year of 0.828p per share (2016: 0.753p) is in line with our progressive dividend policy and represents a 10% increase over the prior year, reflecting ongoing growth and confidence in the business. The total dividend of GBP2.7m (2016: GBP2.2m) is due to the 10% growth in the dividend and the c.10% increase in the number of shares following the March 2017 equity capital raise. The final dividend will be paid on 1 June 2018 to shareholders on the register at the close of business on 4 May 2018. The ex-dividend date will be 3 May 2018.

NET ASSETS

As set out below, NAV increased to GBP409.3m as at 31 December 2017 from GBP334.9m as at 31 December 2016. This increase was as a result of movements in the year, being operating profit before exceptionals plus joint ventures of GBP43.8m, the March 2017 equity capital raise of GBP27.1m, a tax credit of GBP7.8m, less interest costs of GBP2.3m and dividends of GBP2.7m plus other movements of GBP0.7m.

 
                                          31 December   31 December 
                                                 2017          2016 
                                                 GBPm          GBPm 
---------------------------------------   -----------  ------------ 
Investment and development properties 
 (including investments in joint 
 ventures, assets held for sale, 
 overages and occupied properties)              457.1         400.3 
Cash                                              8.4          13.0 
Other assets                                     31.5          25.2 
----------------------------------------  -----------  ------------ 
Total assets                                    497.0         438.5 
Gross borrowings                                 40.6          52.5 
Deferred tax liability                            5.5          14.9 
Derivative financial instruments                  0.1           0.4 
Other liabilities                                41.5          35.8 
----------------------------------------  -----------  ------------ 
Net assets                                      409.3         334.9 
----------------------------------------  -----------  ------------ 
Number of shares in issue                 321,250,750   292,269,786 
----------------------------------------  -----------  ------------ 
NAV per share                                  127.4p        114.6p 
----------------------------------------  -----------  ------------ 
EPRA NNNAV per share (1)                       128.9p        114.6p 
----------------------------------------  -----------  ------------ 
EPRA NAV per share (2)                         131.0p        119.8p 
----------------------------------------  -----------  ------------ 
Notes: 
 (1) NAV (GBP409.3m; 2016: GBP334.9m) plus market value 
 of development properties (GBP5.8m; 2016: GBPnil) less 
 notional deferred tax (GBP1.0m; 2016: GBPnil) divided 
 by number of shares in issue 
 (2) EPRA NNNAV (GBP414.2m; 2016: GBP350.1m) excluding 
 deferred tax liability (GBP5.5m; 2016: GBP14.9m), notional 
 deferred tax on development properties (GBP1.0m; 2016: 
 GBPnil) and mark to market movement on financial instruments 
 (GBP0.1m; 2016: GBP0.4m) divided by number of shares 
 in issue

FINANCING STRATEGY AND FUNDING

Harworth's financing strategy is to be prudently geared as we believe that this gives the Group a number of advantages:

 
 --   allows working capital swings to be managed appropriately 
       given that infrastructure spend is usually in advance 
       of sales and thus net debt can increase by over 
       GBP30m during the year; 
 --   gives the Group the ability to complete acquisitions 
       quickly, which is often a differentiating factor 
       in a competitive situation; 
 --   ensures that we do not combine financial gearing 
       with Harworth's existing operational gearing. Such 
       operational gearing is the appropriate levels of 
       exposure we take in terms of planning, remediation/engineering, 
       letting and sales risks; and 
 --   higher gearing levels are not easily supported 
       by Harworth's existing activities - we do not gear 
       our Capital Growth properties being our Strategic 
       Land and Major Developments' sites.

Harworth's financing strategy also involves the Group trying to balance its cash flows by funding infrastructure spend and investment in acquisitions through disposal proceeds. In 2017, Harworth achieved sales which were slightly ahead of Group expectations and the expected partial acquisition of a site was delayed from before the year-end until 2018 resulting in a slight decrease in net debt.

As at 31 December 2017 Harworth's gross Loan To Value ("LTV") was 8.8% (2016: 13.1%) and net LTV was 7.0% (FY 2016: 9.9%). However, as set out above Capital Growth sites are deliberately not geared, so if gearing is just assessed against the value of Business Space and Natural Resources properties this equates to a gross LTV of 26.3% (2016: 41.6%) and a net LTV of 20.8% (2016: 31.3%).

On 13 February 2018, Harworth extended the term of its existing GBP75m Revolving Credit Facility ("RCF") with RBS by two years such that it now expires in February 2023. The extension was on substantially the same terms with the only notable change being a slight increase in margin to 210bps over LIBOR (from 200bps). 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. As a consequence, Harworth has a GBP30m fixed rate swap at an all-in rate of 2.955% (including fees) until June 2020. The interest rate swap is hedge accounted with any unrealised movements going through reserves.

The Group also uses infrastructure funding, provided by public bodies to promote the development of major sites for employment and housing needs, as part of our funding. At 31 December 2017 the Group had six infrastructure facilities with all-in funding rates of between 2.5% and 4.7%. During the year, to assist with funding requirements associated with greater activities and continued growth, we secured an increase in our bonding line from GBP10.0m to GBP15.0m.

The Group had borrowings and loans of GBP40.6m at 31 December 2017 (2016: GBP52.5m), being the RBS RCF of GBP23.3m (2016: GBP37.0m) and infrastructure loans of GBP17.3m (FY 2016: GBP15.5m). The Group's cash and cash equivalents at 31 December 2017 were GBP8.4m (2016: GBP13.0m). The resulting net debt was GBP32.3m (2016: GBP39.5m). The weighted average cost of debt, using 31 December 2017 balances and rates, was 3.0% with a 0.8% non-utilisation fee on undrawn RCF amounts (2016: 2.9% with a 0.8% non-utilisation fee on undrawn RCF amounts). For the twelve months to 31 December 2017 Harworth's interest cover, as calculated by the RBS RCF covenant calculation, was 3.41x against a covenant test of 1.5x.

PREMIUM LISTING

Reflecting Harworth's continuing development since its relisting in 2015, the Board has engaged advisers on the workstreams to be completed to move the Company's shares from the Standard segment to the Premium segment of the Official List. This work is expected to be completed over the coming months with the move taking place in the second half of the year, subject to the approval of the UK Listing Authority. The Board believes that this will position the Company for potential future admission to the UK FTSE indices.

Andrew Kirkman

Finance Director

6 March 2018

Principal risks and uncertainties

During 2017, as part of its ongoing continual improvement programme, the Group undertook another detailed review of its principal risks and uncertainties. These are the risks identified by the Board which could have a material impact on the Group's strategic priorities, business model, future performance, solvency and/or liquidity. This review was led by our Company Secretary in conjunction with the Board, the Audit Committee, the Executive Committee and the senior management team which reports directly to the Executive Committee.

The Group's current risk profile was mapped, with individual risks grouped into eight categories, being: (1) markets; (2) delivery; (3) politics; (4) finance; (5) people; (6) legal and regulatory; (7) governance and internal controls; and (8) communications and stakeholder management. Risks were scored on a "heat map", from "very low" to "very high", according to residual risk status (after accounting for mitigation measures already in place), materiality and anticipated movement in risk over the next 12 months. This has led to further refinement of the Group's Risk Register. This detailed review has confirmed that there has been no material change in the Group's overall risk profile since publication of the 2016 Annual Report and Financial Statements and the profile remains in line with the Board's risk appetite, with all categories scored as either medium or low risk at the date of this preliminary results announcement.

The Group is subject to both external and internal risk factors which could have a material effect, both positive and negative, on the operation and performance of the business. External factors, which are largely outside of the Group's control, include macro-economic and political factors. As negotiations continue for the UK's withdrawal from the EU, the Board expects that the Group will continue to operate in an uncertain economic and political climate in the short to medium term. Whilst the Group is not immune to that uncertainty, it is mitigated by the positive economic and consumer trends in our core markets, with the residential, logistics and manufacturing sectors in the North of England and the Midlands continuing to have solid fundamentals and favourable performance.

The 2017 Annual Report and Financial Statements will include a detailed analysis of the Group's principal risks and uncertainties, reflecting the detailed review and evolution of the Group Risk Register referred to above. This analysis will (A) record the current status of each risk category, after mitigation; (B) list the mitigation measures already in place and those identified for implementation over the next 12 months; and (C) indicate how each risk category could impact our strategic priorities.

Unaudited Consolidated Income Statement