INVESTOR TOUR 8 JUNE 2018
AN OVERVIEW OF THE DAY Investor Tour Timetable 10.15am Introduction to Harworth Group plc (Group splits into two) 11.00am Group 1 tour of AMRC Group 2 tour of Waverley 11.40am Groups swap over 12.15pm Lunch at AMRC 1.00pm Travel to and tour of Torne Park, Rossington 2.15pm Travel to and tour of Riverdale Park, Doncaster 3.15pm End of formal tour; travel via coach to Sheffield railway station - 2 -
AN OVERVIEW OF THE DAY Contents of presentation Presenting team 4-5 Strategy, business model and markets 6-8 Key financials 9-11 2018 and beyond 12-14 The sites you will see today 15-17 Appendix 18-20 - 3 -
1. PRESENTING TEAM TODAY Owen Michaelson Chief Executive Andrew Kirkman Finance Director Iain Thomson Head of Communications - 4 -
1. PRESENTING TEAM AT OUR SITES Ian Ball Executive Director, Income Generation Gary Owens Director, Acquisitions Peter Henry Development Director David Travis Business Space Director Duncan Armstrong-Payne Associate Director - 5 -
2. OUR MARKETS AND GOVERNMENT POLICY SUPPORT GROWTH BEDS: RESIDENTIAL Projected House Price Growth forecasts 2018-2022 National housing under-supply is driving consistently strong demand for land from housebuilders House price growth in our regions remains positive and is forecast to further grow Government stimulus measures in place to underpin affordability of new homes, including Help to Buy and new funding announced in Autumn Statement Source: Savills, January 2018 SHEDS: INDUSTRIAL & LOGISTICS Strong demand for well-located industrial space across the regions driven by growth of e-tailing Supply continues to be squeezed across all regions, driving yield compression Industrial sector is forecast to continue to outperform both the office and retail markets Local support for sustainable new commercial development remains strong Rolling average take-up of industrial space 2008-17 Source: Savills Big Shed Briefing, January 2018-6 -
2. CLEAR VISION AND ROBUST STRATEGY We aim to be the UK s leading developer of brownfield land and regeneration partner of choice, delivering a total return to shareholders of over 10% per annum through the property cycle STRATEGIC PRIORITIES Development Driving the capital growth of our portfolio through delivery of planning permissions, remediation and infrastructure, before crystallising sales value Investment Ensuring sustainable income generation through asset management of existing rental sites and direct development of new space Sectors Concentrating on those property markets with strong, through-thecycle returns (currently industrial & logistics and housebuilding) STRATEGIC PRIORITIES Regions Leveraging our strong relationships in our core areas across the North of England and the Midlands, whilst seeking to expand into adjacent areas Acquisitions Replenishing our landbank by utilising capital to buy new sites to maintain net asset value growth across the portfolio (including joint ventures) Financing Maintaining the Group s low balance sheet gearing to complement risk-appropriate high operational gearing Notes: Site numbers are for freehold, leasehold and joint ventures sites only. - 7 -
2. HOW WE DRIVE SECTOR-LEADING RETURNS Capital Realisation Capital Receipt Recurring Income Plot Sale / Build Out Asset Management Reinvestment of Capital Planning Approval Land Remediation & Preparation Infrastructure Development Indicative Value Add Acquisition & Land Assembly Masterplanning Competitive advantage comes from our ability to add value through active management rather than reliance on market movements Acquisitions Strategic Land Major Developments Income Generation Time - 8 -
3. TRACK RECORD OF MARKET LEADING NNNAV GROWTH Harworth s stated aim is to deliver a return of over 10% through the property cycle 140.0p 120.0p 14.6% CAGR 128.9p 114.6p 100.0p 101.9p 80.0p 85.6p 60.0p 40.0p 20.0p 0.0p 2014 2015 2016 2017 NNNAV per share Since 2016, we have split value gains between market movements and management actions. This analysis demonstrates that over 80% of value gains are as a result of active management delivery of milestones * On re-listing the business in March 2015, additional capital of c. 15m was raised. Given the complicated nature of the transaction, it is not feasible to derive an adjusted NNNAV per share for 2014. - 9 -
3. FURTHER FINANCING AND MARKET PROGRESS IN 2018 RCF EXTENSION On 30 April, Harworth extended its Revolving Credit Facility (RCF) from 75m to 100m by bringing Santander in alongside RBS The terms of the RCF remain unchanged with a margin of 210bps over LIBOR and an expiry in February 2023 The additional debt capacity was used to acquire the Nufarm site, which increased the quality of our income as well as providing potential development angles Our policy of low gearing remains unchanged with a target gearing of 10% to 15% LTV PREMIUM LISTING On 29 May, Harworth announced the start of a process to transfer its shares from standard to premium listing The transfer is expected to be completed on 1 August and we will then be eligible to be considered for index inclusion Whilst Harworth was already voluntarily complying with premium listing corporate governance standards, this adherence will now be compulsory We believe premium listing could increase liquidity, raise our profile and provide an appropriate platform for continued sustainable growth - 10 -
3. PORTFOLIO IS MANAGED TO DIVERSIFY RISK PORTFOLIO CONCENTRATION PORTFOLIO SECTOR SPLIT 1 1 Notes: (1) Total value of all property Investment ( 216.6m), Development ( 210.5m), Joint ventures ( 18.8m), Available for sale ( 7.7m), Overages ( 2.7m) and Owner Occupied Assets ( 0.8m) plus mark to market value of development properties ( 5.8m) - 11 -
4. LAND PIPELINE PROVIDES SIGNIFICANT LATENT VALUE Significant future planning pipeline in place to augment existing consented landbank, providing a healthy 10+ year land supply to underpin future sales and direct development programme RESIDENTIAL PIPELINE: PLOT NUMBERS COMMERCIAL PIPELINE: SQ. FT 20,000 25,000,000 15,000 2021 onwards 2,836 20,000,000 2021 onwards 3.57m 10,000 2018-2020 2018 consents minus sales 4,022 398 15,000,000 2018-2020 5.93m 5,000 Consented as at 31 December 2017 10,448 10,000,000 5,000,000 Consented as at 31 December 2017 12.13m 0 0 As shown at Logistics North and the AMP, we pursue a mixture of land and property deals to unlock maximum value. Residential deals are for serviced plot sales, whilst commercial deals encompass plot sales, pre-lets, forward funding deals and direct development We possess the flexibility to respond to market conditions and ensure deals satisfy three key tests: customer requirements; funding/covenants; and risks and returns Note: Planning pipeline numbers include sites where we have signed Planning Promotion Agreements (PPAs), Joint Venture agreements and taken overages. PPAs are agreements with landowners by which Harworth incurs the cost and risk of promoting land through planning. If successful, Harworth shares some of the value gain, after first recovering its costs, when the land is sold. - 12 -
4. FUTURE ACQUISITIONS ARE KEY TO ONGOING GROWTH HEADLINE NUMBERS EXAMPLES OF SITES ACQUIRED Harworth effectively re-started its acquisitions in Q4 2014. Between then and the end of 2017: Total number 17 Total cost Current value 1 79.8m 121.3m ( 32.7m value gains) Acres acquired 1,472 Residential plots Commercial space 2 Development property sales 2,074 currently consented 20 further potential 6.2m sq. ft consented 5.0m sq. ft further potential To date 6.3m Future sales of over 100m Harworth has achieved returns on acquisitions of over 15% p.a. Acquired sites now account for over 25% of the portfolio Notes: (1) Current value ( 121.3m) is acquisition cost ( 79.8m) plus value gains ( 32.7m), existing land owned at sites ( 7.2m) and infrastructure expenditure ( 7.9m) less sales ( 6.3m). (2) Includes 100% of Gateway 45 Leeds joint venture - 13 -
4. CONTINUING MOMENTUM VIA ACQUISITIONS MADE IN 2018 Site Location Acreage Consideration Existing Development Nufarm Flaxby Cinderhill Bardon Hill West Yorkshire North Yorkshire East Midlands East Midlands 112 32.45m 32-acre agrochemical works, generating passing rent of 2.1m per annum 22 8.75m 0.276m sq. ft commercial unit occupied by Ilke Homes, generating stabilised rent of 1m per annum 112 3.88m No current use; both sites will be promoted through planning system in areas where we already have relationships with local authorities via other landholdings Proposed Development 80-acres for commercial development; quantum to be determined c. 15-acres for commercial development; quantum to be determined Part of wider land assembly programme for c. 421 acres that could deliver 3,000 new homes and 0.45m sq. ft of commercial space 53 Site to be promoted for 0.35m sq. ft of commercial space adjacent to major residential development - 14 -
5. THE SITES YOU WILL SEE TODAY: WAVERLEY Waverley in 1990 Waverley today - 15 -
5. THE SITES YOU WILL SEE TODAY: ROSSINGTON Rossington in 2010 Rossington today - 16 -
5. THE SITES YOU WILL SEE TODAY: WHEATLEY HALL ROAD Wheatley Hall Rd in 2000 Wheatley Hall Rd today - 17 -
APPENDICES 8 JUNE 2018-18 -
A BRIEF HISTORY 2004-2012 2012-2014 2015 onwards Property division within UK Coal plc In 1994, RJB Mining (founded in 1974) bought British Coal s core activities Having changed its name in 2001, UK Coal established a property division in 2004, which was to become Harworth Estates In 2010, Owen Michaelson joined UK Coal to head up Harworth Estates Current management team formed from core of property division, supplemented by sector specialists recruited in the next 7 years Property sales used to fund mining activities Harworth Estates was 24.9% owned by CfR plc In December 2012, after a complex restructuring, UK Coal changed its name to Coalfield Resources plc (CfR) owning 24.9% of Harworth Estates Remaining 75.1% was owned by the pension trustees but in July 2013, the holding was transferred to the Pension Protection Fund (PPF) In November 2014, CfR agreed to buy the PPF s 75.1% holding in Harworth Estates Property sales used to pay down bank debt Re-launched as Harworth Group plc In February 2015, Harworth Estates agreed a new 5 year 65m RCF with RBS On 24 March 2015, CfR: Raised 116m through a share placing. This cash and issued shares were used to acquire the PPF s shareholding in Harworth Estates. PPF became a 25% shareholder Renames itself as Harworth Group plc Andrew Kirkman appointed as Finance Director in January 2016 Acquisitions central to replenishing portfolio - 19 -
NOTES - 20 -