ACQUISITIONS...•Building on our strong stakeholder base, we are also considering opportunities to...

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ACQUISITIONS

CAPITAL MARKETS MORNING – 25 JANUARY 2017


ACQUISITIONS: A TIMELINE

2015 2016

Refilling the hopper gathers

momentum

Strengthened team and

continued deal flow

• Acquisitions Team successfully invests

£22.74m in new acquisitions.

• A good balance between development

land and income producing assets

secured.

• Assets acquired include Sinfin Business

Park for £6.95m and Wheatley Hall Road

for £8.5m, both acquired out of

Receivership within 8 weeks.

• Appointment of Andy Roberts as

Acquisitions Manager Midlands and Iain

Griffin, Acquisitions Manager North

• Investment in acquisitions totalled

£29.95m for the year, bringing overall total

to £55m.

• Notable acquisitions include 50% of Aire

Valley Land LLP for £8.5m and Four Oaks

Business park for £13.425m.

September – December 2014

Acquisitions Team established

• Gary Owens tasked with leading on new

acquisitions having gained company-wide

experience in various roles

• Harworth’s Board approved the business’s

first Acquisitions Strategy in September

2014

• Harworth completes its first land

acquisition, the Former Skelton Grange

Power Station from RWE Generation for

£2.75m.

- 2 -


ACQUISITIONS IN CONTEXT OF STRATEGY

An important part of our strategy is to replenish our land and property portfolio in

order to assure the sustainable growth of the business.

• Whilst we own a total of over 22,000 acres, not all of this has development potential or

is in readily deliverable plots.

• To sustain the future of the business, we need to grow and expand our strategic

land portfolio, whilst also securing new recurring income streams to improve the

resilience of our income base.

• Significant brownfield development sites without planning or multi-let business parks

with asset management opportunities will form the backbone of our acquisitions

strategy. However, edge of settlement and assembling new communities like Waverley

will also be pursued.

• We have a dedicated Acquisitions Team in place to source and secure new acquisitions

in line with the expectations of the market, levering the company’s strong track record

for delivery and its management of key stakeholders to set ourselves apart from our

competitors.

Advantage House, Rotherham – February 2016

Gateway45, Leeds – March 2016

Four Oaks, Lancashire – December 2016

- 3 -


HOW WE CREATE AND ADD VALUE

Competitive advantage comes from our ability to add value through management actions rather than reliance on market movements

Acquisition &

Land Assembly

Masterplanning

Planning Approval

Value Engineering &

Land Remediation

Infrastructure Development

Plot Sale / Build Out

Ind

ica

tive

Va

lue

Ad

d

Asset Management

Acquisitions Strategic Land Major Projects Income

Time

- 4 -


KEY ACQUISITION OBJECTIVES

Our aim is to deliver new acquisitions every year for both land

and income generating assets, replenishing plots sold and

growing the overall portfolio.

• We have an annual target of acquiring land with the ability to

deliver over 1,000 residential units and over 1m sq. ft of

employment land, translating to around 200+ acres of net

developable land.

• Land opportunities for residential, commercial or mixed-use will

all be targeted, whether a greenfield ‘edge of settlement’ site or

traditional brownfield land. A variety of deal structures will be

used to allow deal flexibility and to optimize equity investment.

• We are also committed to acquiring income generating assets,

which offer attractive yields and value growth opportunities, to

grow the company’s recurring income base. This will help secure

income resilience and will provide opportunities to churn income

assets. Sinfin Commercial Park, Derby – August 2015

- 5 -


KEY PERFORMANCE METRICS TO DATE

2.7

22.7

29.9

0

10

20

30

40

2014 2015 2016

Acquisition Investment*

0

£540,000

£2,000,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2014 2015 2016

Income Secured

162

656

244

0

200

400

600

800

2014 2015 2016

Freehold Acres Acquired

1. £55m Invested in Freehold Acquisitions targeting double digit returns

2. 1,062 Acres Acquired

3. £2.5m Recurring Income Secured

4. 1,250 freehold Housing Plots Secured & 5+m sq. ft of Commercial Land

5. 6 Planning Promotion Agreements potentially delivering 1,394 housing

plots

*’Acquisition Investment’ figures are the aggregate of purchase prices paid within the year only

- 6 -


OUR REPUTATION IS A STRONG ONE

• Our reputation for acquisitions is built on efficient, no-nonsense delivery.

• We have a proven track record for acting swiftly, transacting often within

8 weeks.

• We have the ability to create & deliver an appropriate early masterplan

vision for the sites we buy.

• Our team has both a depth and breadth of knowledge that allows due

diligence to be completed thoroughly and efficiently.

• Through our work promoting sites in coal field communities, consultation

is a key part to our planning strategy.

• Our track record in delivering planning consents has been key in securing

Planning Promotion Agreements (PPAs) and assessing opportunities.

• Our environmental and safety management experience has given

corporates the comfort to make a responsible exit from a site.

Reputation

Experienced Team &

Professional Approach

Deal Flexibility

Delivering Projects

Financial Position

Planning Track Record

Consultation & Client Care

- 7 -


THE GEOGRAPHICAL REGIONS WE ARE TARGETING

Target Region Rationale:

1. Synergy with existing portfolio

2. Sufficient size to generate new opportunities

3. Existing network of industry and Governmental contacts

4. Planning policy opportunities

5. Established markets and economic growth areas

6. Transport infrastructure

7. Proximity to areas of commerce

8. Housing demand for good value family homes

9. Access to a skilled workforce

10. Access to amenities & leisure spaces

- 8 -


SOURCING AND SELECTING NEW OPPORTUNITIES

Sourcing Methods: Variety of methods, leveraging existing contact base and portfolio.

• Off-Market direct approaches to landowners through existing network of consultants, agents and public

partners: 48% of total spend to date (£26.8m)

• Soft-Market approaches by agents: 43% of total spend to date (£23.9m)

• Open Market Advertising: 8% of total spend to date (£4.7m)

Selection Criteria: Emphasis is on flexibility within certain key parameters:

• Fits with approved strategy for the business and doesn’t conflict with existing Harworth sites

• Sites above 10 acres are considered across all sectors, with no upper size limit

• Four key regions: East Midlands, West Midlands, Yorkshire and the North West

• Brownfield or edge of settlement greenfield sites considered, preferably without planning permission

• Flexible in deal structuring, with freehold purchases, PPAs, option agreements and portfolio

opportunities all considered

• Building on our strong stakeholder base, we are also considering opportunities to partner the public

sector in redeveloping surplus land assets

- 9 -


DEAL STRUCTURES

In line with our flexible approach, we pursue four separate deal types, including freehold conditional and unconditional purchase, option

agreements, planning promotion agreements and corporate acquisitions.

PPA

DevelopmentAgreements &

Options

Conditional or Unconditional Freehold Acquisitions

Corporate Acquisitions

Low equity investment, strong IRR but low financial quantum. Factor in

abortive spend.

Provides deal visibility and optimises equity investment, providing

cash flow flexibility.

Most utilised deal structure to date, providing greater

certainty to the landowner.

Transacting quickly with commitment, improves success

rate and financial returns.

Deal structure utilised by Harworth to provide clean

exit for vendors.

- 10 -


EFFECTIVE CONVERSION OF OPPORTUNITIES TO DEALS – 2015 / 2016

Rationalised Opportunities

c.200 Opportunities

Land / Income / PPA

Existing Contacts

Adjacent Land

Yorkshire Centric

Priorities Opportunities

c.100 Opportunities

Site Profile

Returns Hurdle

Cash Flow

Deal Structure

Sale Method

Vendor Profile

Timing

Submit Offer

c.40 Opportunities

Unconditional & PPAs

Upfront DD

Tight Timescales

Clear Approvals

Track Record

Expertise

Deliverability

Bid Successful & Deal Closed

21 Opportunities

Four Oaks / Moorland

Wheatley Hall Road

Sinfin Business Park

POW Parkside Hotel

Temple Green

Wingates

6 PPAsB

id U

nsu

ccessful

Ab

orted

Op

po

rtun

ities

Ab

orted

Op

po

rtun

ities

Application of pricing discipline

- 11 -


STRONG PROGRESS MADE IN 2016

6 NEW ACQUISITIONS of £29.6m, covering

• 244 acres

• *3.54m Commercial sq.ft

• £2m of new income secured

5 NEW PPAs signed

• 59 acres

• 994 potential residential plots

• Brings total plots under PPAs to 1,394

MARCH JUNE DECEMBER

Purchase of 50% of Gateway 45, Leeds

for £8.5m

Planning application submitted for Market

Warsop, Mansfield – our first PPA

Purchase of two multi-let Business Parks

in Lancashire for £17.9m

*freehold commercial sq ft purchased in 2016 includes 50% of Gateway 45’s 2.644m sq ft scheme, due to 50% ownership

- 12 -


CASE STUDY 1: PURCHASE OF WHEATLEY HALL ROAD FOR £8.5M

- 13 -


CASE STUDY 2: PURCHASE OF 50% OF AIRE VALLEY LAND LLP, LEEDS FOR £8.5M

- 14 -


CASE STUDY 3: PURCHASE OF TWO LANCASHIRE BUSINESS PARKS FOR £17.9M

Moorland Gate Business Park Four Oaks Business Park

- 15 -


FUTURE OPPORTUNITIES

Our strengthened Acquisitions Team has increased the number of potential opportunities open to the company.

Of particular relevance:

• The team is targeting a blend of short, medium and long term opportunities, including tracking a number of major brownfield site

disposals with latent planning and engineering value.

• New PPAs are gathering momentum, with the signing of land for another 250 plots in December 2016.

• Current opportunities balance well with the existing portfolio, utilising existing network of contacts and expertise within the wider team.

• An abundance of exciting land opportunities are available, especially brownfield land disposals across the Midlands and North.

• Further progress is expected in early 2017 with the potential signing of three option agreements, which are in legals, including part of a

future garden village in Derbyshire.

• The team are also exploring joint venture opportunities with corporate landowners, in addition to taking forward discussions regarding

planned government land / portfolio disposals.

- 16 -


STRATEGIC INITIATIVES IN DETAIL

Former Power Station Sites

• Clear Government commitment to reduce

reliance on coal fired power stations

• Currently in discussions with three power

station operators regarding four sites

• Single ownership brownfield sites, with

similarities to colliery sites

• Harworth in a strong position given track record,

expertise and ability to offer a clean exit.

Corporate Joint Ventures

• Opportunities with corporate landowners to

promote and develop their landholdings

• Provide planning and engineering expertise

and funding

• Currently in discussions with a utility company

regarding its surplus estate.

Government Estate Disposals

• Commitment from Government to rationalise

property estate

• Opportunities anticipated from Ministry of

Defence, Ministry of Justice and Network Rail

• Currently in discussions regarding a portfolio of

sites to be sold in Summer 2017.

Landed Estates

• Typically asset rich and cash poor, often with

strategic land opportunities

• Green Belt roll back required to help deliver 5

year housing land supply in some areas

• Currently in discussions with several estates

about promoting and developing their

landholdings.

- 17 -


SUMMARY

• We have made good progress in the past two years in securing new sites to

refill our strategic landbank and in improving the quality of our income base.

• We also have a clear rationale in place for the purchase of future sites in line with

market expectations, backed by the strong fundamentals of the housing and

commercial property markets we operate in.

• Securing planning promotion agreements with other landowners is a growing

workstream as both a source of strategic land and to provide further income to the

business.

• We have a good reputation for being ‘straightforward to deal with’ in negotiating and

completing transactions; when considered alongside our strong reputation with

stakeholders, we are confident this will provide further land and property opportunities

to sustain our growth.

- 18 -


DISCLAIMER

• For the purpose of the following disclaimer, reference to this ‘presentation’ shall be deemed to

include reference to the presentation slides, the presenters’ speeches, the question and

answer session and any other related verbal or written communication.

• References in these slides to financial information for the full financial year ending 31

December 2016 are to an average of forecasts from Canaccord Genuity Limited (11/01/2017)

and Investec Bank plc (11/01/2017), following the Company’s trading update on 10/01/2017.

• This presentation, which has been issued by Harworth Group plc (‘Harworth’), comprises

slides for a presentation for a Capital Markets Morning hosted on 25 January 2017 and is

solely for use at such presentation. This presentation is confidential and may not be

reproduced, redistributed or passed directly or indirectly to any person or published in whole

or in part for any purpose.

• This presentation includes forward-looking statements with respect to the business,

performance and financial condition of Harworth. By their nature, these statements may

involve uncertainty given future events and circumstances can cause results and

developments to differ materially from those anticipated. Any forward-looking statements

reflect knowledge and information available at the date of preparation of these slides. Nothing

in this presentation should be construed as a profit forecast. Harworth gives no undertaking

to update these forward-looking statements.

• Actual results may differ materially from those expressed in forward-looking statements. As

such, you are cautioned not to put undue reliance on any forward-looking statements. No

investment advice is being given in this presentation. No representation, warranty or

undertaking is given by, or on behalf of, Harworth or any of its directors, officers, employees

and advisers that Harworth will achieve any results set out in such statement or as to the

accuracy, completeness or reasonableness of any projections, targets, estimates, forecast

statements, beliefs, opinions or information contained in or given during this presentation and

no liability is accepted or incurred by any of them for or in respect of the same, provided that

nothing in this paragraph shall exclude liability for any representations or warranty made

fraudulently.

• In making this presentation available, Harworth makes no recommendation to buy, sell or

otherwise deal in shares in Harworth or in any other securities or investments whatsoever,

and you should neither rely nor act upon, directly or indirectly, any of the information

contained in this presentation in respect of any such investment activity. Past performance is

no guide to future performance. If you are considering engaging in investment activity, you

should seek appropriate independent financial advice and make your own assessment.

• By accepting these presentation slides, you agree to be bound by the above conditions and

limitations.

• This presentation does not constitute or form part of any offer or invitation to sell, or any

solicitation of any offer to purchase, any shares in Harworth or any other securities, nor shall it

or any part of it, nor the fact of its distribution form the basis of, or be relied upon in connection

with, any contract or investment decision related thereof.

- 19 -

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