Harworth Group plc (UK6A.SG) Earnings Call Transcript & Summary

Good morning, and welcome to the Harworth Group plc half year results investor presentation. [Operator Instructions]. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where appropriate to do so. Before we begin, I would like to submit the following poll. And I would now like to hand over to CEO, Lynda Shillaw. Good morning to you.

Good morning. Thank you, Alex, and good morning, everybody. Welcome to Harworth's Investor Meet Company presentation. And today's presentation relates to our half year results for the first 6 months of 2023, which were announced to the market a couple of weeks ago on the 12th of September. I'm Lynda Shillaw, Chief Executive Officer, and I'm delighted to be joined by Kitty Patmore, our Chief Financial Officer, and we are here. We hope you can see we're real, we're going to go off when we do and the rest of the presentation then come back on at the end during Q&A so that you've actually -- you've got a full and clear screen. It's great to be back on this platform and to have an opportunity to speak to our valued retail shareholders and those who are considering an investment in Harworth. So we'd like to start by thanking you all for your support and your interest in Harworth and that continued support going forward for the business. Thank you. So on to the agenda slide. So this slide shows the agenda for the morning. I'm going to begin with an overview of our performance during the first half. I am going to comment on the market backdrop and report on the progress that we're making in delivering the strategy. And then I'll hand over to Kitty to take you through the financials. We'll then have an operational update and an outlook for the remainder of 2023 and beyond, and we'll close the session with some Q&A. And just as a reminder, you can still submit questions as we run through the presentation, and we can see them, and we'll aim to answer as many of those as we can at the end. So before I talk about the first half and because I think it's important given the speed at which our markets have changed since the pandemic and through half 1 of 2023. I just want to spend a few moments talking about how much unique attributes of the business. And this should provide context of both our half 1 2023 performance and the long-term potential of the business. So the attributes as you can see on this slide are central to our strategy, and they underpin our resilient operational and strategic performance through the cycle. First, we have a unique skill set at Harworth that we're generating large, often dirty and complex sites. With decades of unrivaled in-house expertise in areas such as acquisitions, planning, remediation, infrastructure development and building delivery. And as a long term through-the-cycle business, we have the patience to do this where necessary over a longer period of time, which means we can unlock the potential of challenging sites where others have struggled or avoided them altogether. Secondly, we have an extensive land bank, which while we largely own or control and the land we've successfully grown this over the last few years through targeted acquisitions. And our consented residential and industrial and logistics pipeline alone has a GDV of GBP 2.4 billion and there is significantly more latent value across our long-term unconsented pipeline. Next, and as I'll come on to shortly, we focus on structurally in the supplied market. So almost 60% of our portfolio relates to the industrial and logistics sector where the drivers of demand remain largely intact, as supply, particularly in the regions remains low. We've got a strong financial position with like gearing, significant available liquidity and no refinancing requirements until 2027. And finally, we are a responsible business and guided by the Harworth Way and our net zero carbon commitments, we're leading the way in supporting new homes, jobs and investments across our regions. Together, these factors are what makes Harworth such a successful and sustainable business, they provide us with the platform for growth, and they enable us to deliver long-term value to our stakeholders and deliver large-scale regeneration in our region that has a lasting and positive impact. So now to turn to our results. Harworth has had a strong first half in which we progressed our strategic objectives, we've delivered a robust operational performance. And this was underpinned by this resilience of our through-the-cycle model and the sustained demand for our service residential land and industrial and logistics assets. I'd like to just pick out three key takeaways here. So firstly, our management actions and the sustained demand for our products has resulted in an uptick in valuations during the first half while our EPRA NDV remains broadly stable over the period. Secondly, our markets remain in generally good shape with resilient demand for industrial logistics products and the BTR sector continuing to grow particularly in the single family and regional markets. The headwinds faced in the traditional housing sector are well publicized, but we're still seeing a good level of demand for our differentiated and derisk service land products. And finally, as I've already touched on, we've got a strong financial position with low financial gearing and significant available liquidity. If you combine with this with the fact that we own most of our sites, we can therefore determine the timing and pace of development. This gives us a huge amount of flexibility and firepower. So if we delve a little deeper into our focus markets, I'm going to start with industrial and logistics. And as I've mentioned, the structural drivers of demand seen in recent years remain with the -- and that in terms of the growth of e-commerce, onshoring, near-shoring and a focus amongst occupiers on securing modern and sustainable spaces. The chart on the left uses data from Savills, and it shows that all the take-up of industrial space in the first half of 2023 was lower than the record-breaking levels seen in recent years. It was broadly in line with the pre-pandemic average. And there also continues to be a diverse range of sectors driving demand with manufacturing accounting for a record proportion of take-up in the first half. The decline in demand during the first half saw a corresponding rise in supply, with Savills estimating that market-wide vacancy is 6.3% as of June 2023. Now this has increased from 3% a year ago, but it is broadly in line with the long-term pre-pandemic average. And this is expected to gradually fall a speculative development in the market is curtailed. So the chart on the right-hand side shows this correction is already taking place in the market with levels of spec building in the first half, much closer to the historical pre-pandemic levels. Finally, it's important to consider the regional dynamics in our markets. And across our focus regions of Yorkshire and Central and the Northwest and the Midlands, vacancy remains below the national average. The less than a year's supply based on current take-up underpinning particularly favorable supply and demand dynamics in our regional markets. In the residential markets, consumer demand remains subdued. And this is largely as a result of higher mortgage rates, challenging affordability and lower consumer confidence, albeit interest rates appear to be nearing their peak and reports from house builders suggest that reduced construction volumes over the coming year and a more selective approach to land acquisitions will continue to prevail. But despite this, we've seen good levels of demand from a wide range of house builders, both national and regional. And the chart on the left of this slide indicate one of the main reasons why. The U.K.'s challenging and complex planning system is constraining the supply of land for new homes. We're planning decisions taking longer than ever before to be decided and the lowest number of decisions for major residential side and being delivered in over a decade. Against this backdrop, you can see why our consented service land product is attractive to house builders as it's derisked from both the planning and a cost perspective, allowing housebuilders to quickly start on site. Return to build-to-rent market. This segment has continued to see growth, demonstrating the defensive nature of the product and the acute shortage of rental homes in the U.K. Savills report that investment volumes in the sector had a record-breaking second quarter in 2023, bringing total investments in the first half to GBP 2.1 billion. U.K. BTR stock now stands at over 88,000 homes which represents a growth of 12% in the last year with the regional markets growing faster than London, as you can see from the chart on the right here. And despite this, only 11% of built stock is single family and transactions remain focused on, on multifamily, which has accounted for over 60% of investments over the last year. Our build-to-rent single-family homes and our affordable home portfolios of sites are particularly well positioned to address the acute supply and balance as these markets mature. And just before I hand over to Kitty, I want to take a moment to review our strategic scorecard. It shows the progress that we've made against all four growth drivers of our strategy to reach GBP 1 billion of EPRA NDV. So we start with direct development at the top. Earlier this year, we completed 110,000 square feet at Gateway 36 and we're now on site with 166,000 square feet at the Advanced Manufacturing Park, which is already 44% pre-let. We're continuing to see good levels of occupied demand for these sites, which are in prime locations both have just become part of the U.K.'s first investment plan. In terms of accelerating sales and broadening the range of residential products is the second limb of our strategy, we continue also to see good progress here with 92% of our budgeted plot sales for the year now either completed, exchanged or in heads of terms. Our single-family build-to-rent portfolio is progressing towards exchange. And we've been securing all important planning consents across a number of sites. And our affordable housing product launched in April has received strong levels of interest, and we're working to select our preferred investors. In terms of scaling up land acquisitions and promotion, which is the first -- third limb of our strategy, we've acquired land representing 1.1 million square feet of industrial and logistics space and 700 plots, which is continuing to refill that hopper, maintain our limb supply and support our long-term growth strategy. And finally, the transition of the investment portfolio to 100% Grade A is well underway, with GBP 70 million of disposals so far this year of old assets where we've maximized value through asset management initiatives. Importantly, these were completed in line with December '22 book values, proving the ability of our team to secure sales in a changing market. Combined with the addition of new space through our direct development activity, this means our investment portfolio is now 29% Grade A. So as you can see across the bottom of this slide, over the last 2 years and despite the challenging macro backdrop, we've made a lot of progress operationally, but we're also making good progress towards our GBP 1 billion goal. And with that, I'd like to hand you over to Kitty to take you through the financials.

Thank you, Lynda, and good morning, everybody. I'm pleased to report a resilient financial performance for Harworth during the first half. And now I'd like to take you through this in some more detail. So starting with our income statement. Sales of service land and property, in addition to income from rent, royalties and fees resulted in group revenue of GBP 18.2 million in the first half. This was a decrease from the GBP 62.6 million reported in the prior year period where we had accelerated development land sales into 2022, and which included a large sale of our Waverley site. This year is, therefore, a return to our normal development land sales profile with infrastructure works over Q2 and Q3 preparing for year-end sales underway at the moment. Combined with the investment portfolio sales, total property sales, as shown in the table on the bottom right, during the period were 44% higher than the same period last year. Revenue from the income generation portfolio reduced following sales of investment properties, the rents actually increased on a like-for-like basis. Looking forward, 98% of budgeted sales for the year are either completed, exchanged or in heads of terms, creating a strong revenue pipeline into the second half. Administrative expenses increased by GBP 3.4 million from the prior year period, and this is principally due to a provision for bad debt and impairment of lease incentives caused by the recent administration of one of our tenants in the investment portfolio and also due to higher salary costs resulting from increased employee numbers last year to support our growth strategy. Headcount growth has now slowed materially in 2023. Revaluation movements are an important components of our performance and are seen both in the income statement and the balance sheet. And in the income statement, we can see increases in the fair value of assets held for sale and investment properties. These consist predominantly of our investment portfolio, our strategic land and our natural resources portfolio, but do not include any changes to the fair value of our development properties. All these factors combined resulted in a profit after tax of GBP 2.8 million compared to GBP 79.1 million in the prior year, which was heavily influenced by valuation gains and as I previously flagged, the bringing forward of land sales for the first half of 2022 to take advantage of buoyant market conditions. Finally, the Board has decided on an interim dividend of 0.444p per share. This represents a 10% increase on last year's interim dividend, in line with our dividend policy. So turning to the balance sheet. Our EPRA NDV remained broadly stable year-on-year and was GBP 631.3 million as at 30th of June, equating to 195.7p per share. This is the result of a modest increase in valuations being offset by small increases in net operating costs, interest expenses and tax through an increase in net debt. Net debt was GBP 63.7 million, increased from its position at the end of 2022, largely due to spend on site, infrastructure and development works and expected to decrease with the completion of land sales and lettings in the second half. In fact, net debt as of the reporting date has already reduced to GBP 53.6 million with post-period sales proceeds. Combined with the dividend, our broadly flat EPRA NDV movement led to a positive total return of 0.1% during the period. I'll come on to talk more about our valuations in a second, but I thought it might be good to look at the EPRA NDV per share movement as a bridge from year-end 2022 to June 2023. There are three key points to take away. Firstly, EPRA NDV has remained broadly flat at 195.7p per share. Secondly, the main component of the growth is from our value gains, which have added 2.3p to EPRA NDV per share in this period. The biggest reduction is 1.3p from our losses excluding value gains, which is essentially our rental service charge and fee income less all of the operating costs of the business. These have increased recently due to higher overheads as well as lower one-off fees during this period and following sales from the investment portfolio and although this is negative, I do expect the rental income and fees will offset operating costs again as we execute the strategy, direct development projects complete and become rent-producing and as this is supported by an increase in development management and planning fee income. So now looking at our valuation movements in more detail. This slide shows the component parts of our GBP 7.5 million valuation gain for the first half of the year, which compares to gains of GBP 110 million in the first half of 2022. Starting with residential, the land market was stable during the first half. As Lynda has covered, supply of service lands remains constrained and house prices were maintained in our regions. Progress towards residential and sales continue on our major development sites and these demonstrate demand for our service land products and underpin valuations. However, cost of construction continued to increase over the period, although it's a lower level to last year, but this offset the gains from our management actions to result in a modest loss of GBP 2.2 million. In Industrial & Logistics, following significant investment yield increases in the second half of last year, the market remained stabilized over the first half of 2023, with small outlets yield movements and increases in market rents. Management actions progress sites towards development and supported valuations, although again, cost of construction increased, albeit at the lower rate less set compared to last year. Combined, this resulted again in a small revaluation loss of GBP 2.3 million on major developments. Across both portfolios, strategic land valuations increased and this is due to the progression of planning applications and site strategies. And lastly, investment property yields moved in line with the market and our management actions, securing sales, new leases, renewals and rent reviews resulted in a GBP 2.5 million valuation gain, reflecting a net initial yield moving to 5.9%. Although sales transacted at book value, we incurred some small losses on sales due to transaction costs and some minor adjustments to site-wide infrastructure costs allocated to prior period sales. So you can see from this slide that our overall property portfolio now stands at GBP 738 million as of June 30, 2023. Industrial & Logistics, Land & Properties shown here in shades in green now account for around 60% of our portfolio by value, with residential land and property shown here in shades of blue accounting for most of the remainder. The table on the right-hand side summarizes for each segment, a pound per square foot for Industrial & Logistics sites and a pound per block for residential sites, and it shows quite clearly the significant value that we generate by taking sites through the planning system, putting in place infrastructure and services for in the case of Industrial & Logistics sites, developing and letting them to occupiers. [indiscernible] it shows the huge potential value of our currently unconsented strategic land pipeline which has increased due to acquisitions in the first half and represents 33 million square feet of Industrial & Logistics space and around 21,000 residential plots. The chart on this slide bridges the increase in our net debt position from GBP 48.4 million at the end of 2022, GBP 63.7 million as of June 2023. The main driver was an increase in development spend and acquisitions as we continue to progress our growth strategy. This is largely offset by the sales proceeds realized during the period, and that should continue over the summer. This chart also shows the headroom afforded by our cash position and the revolving credit facility, which I'll provide some more detail on now. Our financing strategy remains to be prudently geared with a target net lines portfolio value at year-end of below 20% and a maximum of 25% during the year. At June, our net loan value was just 8.6%, slightly higher than at the end of 2022 in the prior year period, but well within our target levels. Post period-end sales proceeds have continued to reduce our net debt position and the loan-to-value now stands at around 7.5%. So in summary, the first half saw a robust financial performance of the group. We remain in a strong financial position with a low loan to value and cash and available facilities of GBP 163.5 million and no major refinancing requirements until 2027. And with that, I'd like to hand you back to Lynda to take you through the operational review.

Thank you, Kitty. Now we'll have a look at the progress that we've been making during the first half. So Slide 16 provides an overview of our 37 million square foot Industrial & Logistics portfolio, well over half of which is held in freehold or in joint ventures. And over 5 million square feet of this space has a planning consent and it includes mature sites such as Advanced Manufacturing Park and Gateway 36. Both of these have been huge and successful schemes. And as I said earlier, we've seen good levels of demand at these sites during the first half as we brought forward the next phases of development. Our planning consents also include sites such as Chatterley Valley, where site preparation work began towards the end of 2022, what will eventually be a 1.2 million square feet of employment space at the heart of the Ceramic Valley Enterprise zone in Staffordshire. Over 7 million square feet of development is progressing through the planning system, including Gascoigne Wood in North Yorkshire and Skelton Grange in Leeds, where we continue to make progress. And during the period, we acquired Parkside East, a site with the potential to deliver 0.8 million square feet of employment space at Junction 22 of the M6. The site was allocated in the recently adopted St Helens local plan, and it forms part of a wider regeneration area supported by the council. Harworth is now developing a master plan, which will be submitted for planning approval shortly. The table on the top right shows the potential gross development value to come from a selection of these sites, which could be as high as GBP 1.7 billion, demonstrating a significant pipeline of development over the medium term and signaling the potential value that we can unlock as we continue to assemble schemes and work them through the planning process. So we now look at our Residential portfolio. This has the potential to deliver over 28,000 housing products of which over 6,500 have a planning consent. Our Residential land sales typically heavily weighted towards the second half of the year. And therefore, our focus in the first half has been on progressing transactions and carrying out land preparation and infrastructure works across our development sites. Shortly after period end, we completed the sale of our David Wilson homes of a land parcel at [indiscernible] for the construction of 174 homes. And as we mentioned earlier, we continue to see a really good level of bid activity and pricing across several of [paths]. Acquisitions added 700 plots to the pipeline and planning was secured for just under 400 homes at our site in Killamarsh, Derbyshire, which is now being marketed for sale. As a master developer, we pride ourselves in investing in residential sites to provide great infrastructure, amenities and green spaces residents. One of the highlights of this during the period has been opening of a new 50-acre park at our Cadley Park development in Derbyshire, providing an extensive green space for residents and the local communities to enjoy. And finally, as we touched on earlier, our service residential land product is a key differentiator for us, and we continue to see good levels of demand with an average of seven house builder bids received for each land parcel that's been marketed so far this year. And this is in line with the average number of bids that we typically receive. Importantly, the average bid prices are ahead of book values. So staying with residential, One of our key strategic objectives is to broaden the range of our products. Offering these products alongside our traditional surface plot product has many benefits, which -- because by book -- by value, they only account for a small proportion of our portfolio. They provide us with an important diversification and they allow us to accelerate the delivery of our residential size, and they give us the opportunity to control build quality, innovation and sustainability. And all of this is critical for maintaining a sense of place, preserving land values and meeting our net zero carbon goals. So of our budgeted representive sales for the year related to our single-family build-to-rent portfolio. And here, we're now starting to see our reserve matters planning applications come through for several of the sites, enabling us to progress towards exchanging contracts with our preferred investment and construction partners. As a reminder, this is one of the first portfolios of scale in the U.K. And it actually has been a really complex process whereby all of the sites in the portfolio have had their master plans reformulated to change the housing typography to institutional quality built to run units that don't need to be retrofitted. Owing to the planning environment, time lines for the portfolio become protracted. However, this for us has never been about delivering any transaction, but -- by doing the right transaction and ensuring that we manage the risk as the market has shifted around us. It's also been critical throughout for us to identify partners with whom we can develop long-term relationships based on shared values and ambitions. Our affordable housing portfolio comprises of approximately 400 homes that meet the National Planning Policy Framework criteria for affordable housing. So this means things like social rents, affordable rents and there's a range of intermediate rented to sell products in between. We've had good levels of interest to refine this portfolio, which allow us to further accelerate the delivery and enhance the vibrancy of our residential sites. And a little bit further out, we're now preparing planning applications for our first small-scale pilot programs of our net zero carbon products at the Waverley and Prince of Wales sites. We're also looking at senior living opportunities across a number of sites, and we look forward to updating you further on these plans in due course. During the period, we accelerated our plans to reposition the investment portfolio with the proportion of grade A space and it rising from 18% at the beginning of the period to 29%. This was driven by significant sales program of assets where we had maximized value through asset management or development initiatives. And these sales totaled GBP 52.1 million in the first half with a further GBP 17.9 million of disposals completed after period end. And all at price is broadly in line with the December 2022 valuation. Sales were made to a broad range of buyers, including occupiers, highlighting the ability of our team to find investor pools in a challenging market. In addition, over 90% of the floor space sold was EPC C rated or below with over 40% growth rates or below, meaning that these sales have significantly improved the energy ratings of our remaining portfolio. Our investment portfolio has actually concluded now, and we're likely to explore further selected disposals as direct development works complete and grade A space enters our portfolio. So we now have a look at the GBP 240 million investment portfolio in a little bit more detail. The portfolio delivers an annualized rent of GBP 15.8 million. This reduced over the 6 months due to the previously mentioned sales and it continues to deliver robust financial metrics. You can see from the chart on the top right of this slide that the occupier base is diverse. It's focused on those factors that are currently driving demand such as third-party logistics and manufacturing. And as you can see from the bottom right of this slide, the operational metrics remained strong with a long weighted average with an expired lease term of 12.5 years. a low vacancy rate of just over 1% when excluding direct development work that's been completed in the prior 12 months and 98% rent collection. During the first half, we also completed 207,000 square feet of lettings, adding GBP 0.9 million per annum of annualized rent. And this transacted also a premium to passing rent and ERVs One of our occupiers, Ilke Homes, which represents 7% of the headline rent roll ended administration during the period but has remained in occupation to date. The related space is, therefore, classified as occupied for the purposes of vacancy calculation. The group is currently exploring options for the site, including reletting, refurbishment or redevelopment of the units. So if we turn to the outlook. How is it a long term through the cycle business? Most of our sites will be in development, planning or land assembly through the next few years and actually into the next decade. Our land bank is significant, and we have the ability to deliver over 37 million square foot of Industrial & Logistics space and 28,000 homes. And our new return sites that we refer to these major developments have a combined gross development value of around GBP 2.4 billion. Crucially, we have the team with the specialist skill set to look through the near-term market conditions and deliver these schemes and where we need to invest to create the future value and returns that we can unlock from our sites. The economic outlook for the U.K. is likely to remain challenging in the near term, although there are encouraging signs that inflationary pressures are easing and interest rates are approaching their peak. For the Industrial & Logistics market, the structural drivers of demand remain largely intact, while supply remains constrained, particularly for Grade A energy-efficient buildings across all our regions, where supplies still represent Western Europe demand. For Residential, while affordability challenges are weighing on house by demand, our sites are located in the more affordable regions and house builders remain attracted to our surface residential land product, which has planning approval and all the necessary infrastructure in place and it is derisked and ready to build on from day one. At the same time, our new residential products such as BTR and affordable housing will provide resilience and exposure to significant growth markets. So to conclude, our business is resilient. We continue to make progress against our strategy with our management actions driving and preserving value across our portfolio. And with that, I would like to open up to any questions. I'm going to hand over to our Head of Investor Relations, Tom Loughran, who will read it out -- read them out for us and keep us on track. So thank you very much.

Thank you. Thanks very much, Lynda, and thank you, everyone, who has submitted a question so far. I'm going to read them out, but just to remind you, you can continue to submit questions as we go, and we'll try and answer as many of those as we can. So first question we have, which I think is probably one for you Kitty. So my question is -- and apologies, it's a slightly long one, my question is whether Harworth has considered publishing a breakdown of its portfolio values along these lines and then the user list a few. So incomplete sites are principally agricultural land, completed sites without planning permission, completed sites with planning permission yet to be sold or developed, sites under construction broken down by resi and industrial and then completed sites held for sale and as investments. And the submitter says a breakdown along these lines would guide investors as to the values that carry no definite sale date akin to mill coupon undated bonds at one extreme and at the other more akin to dated bonds with a coupon because Harworth describes itself as a through-the-cycle developer, I wonder if too many actual and potential investors visualized too aggressive portion of its assets as falling into the site collecting phase, thus resulted in a 45% discount to NDV.

Okay. I mean it's a really great question. And probably, Tom, there's a couple of slides that I want to sort of dip into within the pact that might help. The first one is probably Slide 13. So I touched on this sort of talking about the value that's created, but what I didn't touched on was sort of the breakdown in the portfolio. So we've got this 60% Industrial & Logistics and then the 40% Residential. But the key is to take away here is that the light green and the light blue colors are the ones that are earlier stage. So there are strategic land sites. So those are the sites that don't have planning permission. Where we bought them, they might be agricultural and they might be brownfield land sites, but they don't have planning. And what we're doing there is we're master planning those sites. Sometimes we're putting the sites together. So sometimes we can need to sort of buy land over a number of years to make the right scale of site to deliver our master plan. And then we're working up towards planning. They don't have planning. And what you can see is that they're relatively small in terms of actuals valuations, so GBP 56 million for the residential and sort of GBP 105 million on the Industrial & Logistics, but they've got huge potential in them. So we've got 21,000 residential block 33 million square feet of Industrial & Logistics space, and that's what equates to that at GBP 5,000 of freehold plots of GBP 6 per square foot. So that is quite low in terms of value of the portfolio. So you're absolutely right, that probably the earlier risk stage is a relatively small portion, but that they are there. We then once they've got planning permission, and we're in the process of putting infrastructure in place, and we've got to slightly bigger buckets. So there's a major development site. So those we go again split into Residential and Industrial & Logistics, which is the dark blue and there's a middle color on the green side. And those sites are -- they got planning. We are putting in the components of what makes our service land product. So on the residential side, that's the infrastructure works that enable us then to sell the land to the housebuilders. Now you sort of raised a question about where we hold it so completed for sale. We actually, on the residential side, we don't do a lot of that because we work very closely to do and you'll notice when I talk about net debt positions, I'm often talking about balancing spend with sales. And that's something that we think about very carefully in particular on the residential side because these are really, really big sites. If we put all the infrastructure in and then we don't sell the site and we hold it, that has quite a big drag on the portfolio. So what we're always looking to do in any year is where do we think we can achieve sales on the site. So what's the market absorption like in those locations? Where is the house builder demand? How can we sort of tap into that -- and then how can we deliver a phase of the sites in order to achieve that? So we're generally entering into contracts that have a certain site into March, April time. And then we're spending over the course of summer, which is why you tend to see our debt tip up at the half year. And then a lot of the house builder sales come in at the end of the year in December. So that's why the year-end debt position comes down. So we're not entering into sort of multiyear contracts, which again very much helps manage our leverage and our cash flow position, but it also means that generally, those sites that are sitting within major developments of residential are all sorts of different phases of infrastructure, but we'll be sort of working towards that point of sale. And this build-to-rent product in metrics slide is slightly change that a little bit because we're looking at the portfolios, but it's a relatively small part of that overall size. On Industrial & Logistics and major development sites there, GBP 76 million, 4.2 million square feet, those are again in the process of readying those sites through to build on. And then there are a couple of sites where we are building on those at the moment. So and we reached practical completion on the size Lynda talked about, Gateway 36 and Barnsley at the beginning of the year, and we're on site at the Advanced Manufacturing Park. And then once those units are completed to the extent that we are holding them rather than selling them, then they go into the investment portfolio. And that darker-green is assets that are income producing, so -- or build for income producing. So that's also completed stock. So we have tried to sort of break it down. And I think the other bit I was going to touch on is that is really sort of an illustration of where the portfolio sits against Slide 26, which is the business model. And that's something that we're working on to probably try and give a little bit more sort of granular detail of translating that donut through into the business model side, which you can find in the appendix of our half year results and presentation. You will also be able to find site-by-site information and on some of the sites that I've talked about today as well.

Thanks very much, Kitty. Apologies the appendices aren't in the version of the presentation. Perfect. So the next question is -- the share price continues to be extremely disappointing. And despite the optimistic statements from the Board, the shares trade at a huge discount to the NDV. The company has the authority to buy in their shares. And I cannot of understand why you're not buying in some shares at these levels. Please can you explain?

There's probably some of the -- there were a few questions around share buybacks maybe we try and address...

So I'll start and then sort of Kitty can add sort of her thoughts as well. So it's a great question. It's a question that sort of a lot of investors have asked us when we were doing the investor road show. And there's a couple of sort of really key points on this, is, firstly, we review this really regularly. So like you, so we're acutely aware of the share price. I must sort of say that this is a U.K. sort of appeal, it's U.K. issue. And it's the real estate sector issues. It's not just Harworth issue. So we do review it and we review it regularly. And our view is that as a long term through the cycle business, our strategy. And the fact that we're continuing to make operational progress against our strategy, that this is the way to deliver value ultimately to shareholders. And actually, we're a relatively a liquid stock as well. So actually reducing that liquidity at this point in time, sort of actually which has potentially make matters worse. The other side of it for us is we also consider what capital we need to preserve to support that growth. So it's not a ,it's not buying, we actually -- we're considering multiple factors around capital allocation as well. But to reassure investors, we do actually review this very regularly, and we'll continue to keep an eye on it as we go through the coming months.

No, I think that's fair. It's all about -- we can understand that when you look at the level of discount thinking that would generate a really attractive return on the capital and they absolutely work but we're always assessing that versus actually what return can we drive of the capital that we invested in back into the business model.

Great. Thank you very much. The next question is how is the regulatory and ESG, environmental, social and governance environment impacting the strategy?

That's another really great question. I think apart from what feels likely to be a bit of a sort of moving playing field at the moment in terms of the roaming back on implementation of things in terms of timing, and I'm sure that will change again at a point that we have a different government. From our perspective, we've always baked this into our strategy. So we have -- within our business, we have something called the Harworth Way. We've talked about the sort of quite a lot in past presentations. That's the way we do things. It's what we deliver, and it's actually how we bring ESG side of play being a developer to life. So we've always felt that as a business we're living and breathing it. We spent a lot of the last 2 years actually developing in net zero carbon pathway, which were sort of a regeneration and development business is actually quite a challenging thing to do. It's easier in the vertical build, but actually when you're clearing and remediating huge sites, we think quite carefully about how we do that. And we were really delighted that we published our net zero carbon pathway documents in April. So people can sort of see the journey that we're on. So really, I'd say, in a nutshell, it impacts us because it impacts every sort of plc sort of a business in the country to some extent. We don't see it as being separate from our strategy. We've actually integrated it into our strategy. It's the way the business has always fundamentally operated and the big sort of challenge for us, like for many businesses, is making sure that we're collecting the data against the targets and the KPIs that we set, and we're able to sort of monitor and actually demonstrate the progress that we're making.

I think it's a really interesting story tied into the strategy. And if you think of those sort of four limbs that we talked about, Tom, on Slide 7 and the way as it feeds through. And then also that yes, there is a cost per meeting or of these requirements, but there's also a value, opportunity as well. So the first one around increasing the proportion of direct development of Industrial & Logistics space, we put together a new spec building last year, didn't we? So now everything that we build is meeting that spec, which is energy-efficient, got the ability to put more than a standard provision of solar on the roof with its insides, we are always looking at how we can sort of improve that. And the commercial reason for that is that actually, that is what occupiers are looking for now. And that part of the market is where there is no supply where you're seeing shorter time to let up on where you can attract the highest rents. So there is no additional cost to do with it. It fits in with our net zero carbon pathway, but there's also a value created. Onto the Residential side, we've been very focused on that alternative product space, and we made the decision within our build-to-rent schemes within new schemes that we're working on, not to put fossil fuels into those sites. So we're again already getting ahead of that, and we're setting the expectations for housebuilders and the contractors working on our site that they'll fit in with that too. And again, we think of that, that sort of fits very, very closely with where sort of future demand is coming through as well. And then some of the sales that you've seen coming through in the first half of the year of the investment portfolio, one of the reasons for that is that we've completed the asset management plans on those buildings. But also, we're recycling the capital from older stock into where we think we can deliver this higher specification stock. So we will upgrade assets where we can do, and we believe in sort of refurbishing and then bringing on, but actually, we're very focused on making sure that we've got an investment portfolio that does meet those energy and requirements that have got of [BPCs] and are ahead of time. And again, it's relevant and can support occupiers as well as meeting their targets too. So it's quite -- I think you hear a lot of companies talk about it, and we do publish a separate report. But what I think is really exciting about Harworth is totally integrated into what we're doing on the strategy as well.

Yes. And I think -- and it's really important because when we put the strategies together, there's probably a couple of other sort of things to maybe embellish a little further by increasing the mix of tenure at sites that flows massively into the ESG because it actually makes our sites more accessible for renters as well as homeowners at all different stages of the people's affordability spectrum or need, which drives the place making, which means we can bring schools, parts of things that we talk about forward earlier and you can actually create really integrated communities. And it's one of the reasons some of the alternative products such as senior living actually sort of next on the list because actually bringing that type of product into the places that we create, actually enhances place. And I think sort of that come as quite a natural evolution of work that we probably have done for decades as Harworth Way in actually doing the strategy work to identify how we took sites forward, what we've put into site. So it's all come together. And on the investment portfolio side, I mean, other considerations that we took into -- things we took into consideration with things like making sure that these assets in the longer term were fundable and more liquid because actually, banks and investors are focused on sort of assets that meet the highest sort of standards from an environmental perspective, so the cost of funding or the availability of funding actually sort of as we work forward, sort of is going to change quite dramatically depending on the sorts of assets that you hold. So pulling all of that together, and wrapping it up sort of and integrating it into the strategy was pretty fundamental to the work that we did back in 2021 actually.

That's great. Then the final question. And just to remind you, this is your kind of final opportunity if you wanted to submit one. The final question, you've touched on already in your answer to the buybacks question, but I wondered if you had anything further to add, it is why do you think the market is not recognizing the intrinsic value of Harworth given the discount to NDV?

I mean I think there's a number of things going on, and most of them are outside of the control of management. As I sort of said, I think in part of my answer to that earlier question, this is a U.K. issue. And it's an issue that's probably sort of started from about 2016 onwards in terms of investors into U.K. markets. At this point in time, it is a particular real estate sector issue. So rising interest rates have a significant impact on sort of yields in real estate. And then you've got, as we've just been talking about, this sort of rapid change in terms of like regulation, whether it is like sort of in the places that we built and try to secure planning for, you know, or actually in standing stock, all of which are actually sort of having an impact on our markets. And I think when you look at the last 3 years, we've probably seen like 2 decades of change in some ways, from consumer behaviors in terms of shopping from sort of work or behaviors in terms of like either working in office or the remaining working from home and actually what does all of that look like. So we've got some really fundamental structural shifts going on in our sector. I think all of those despite what sector you're in, in real estate or what sectors you're in, actually, in this will be weighing on the set at the moment. So a couple of things that will start to change it. I think sort of the -- as interest rates start to come in, you will actually sort of start to see yields move. And it won't happen everywhere. There are still some sectors where you might actually sort of still see sort of an ongoing correction and secondary office and some secondary retail, I think, actually to fall into that bucket. We look at our markets and when we review our strategy every year with our board, the questions we're asking, is it the right strategy? Are we in the right markets? And our markets are in structural undersupply, and that's not going to change anytime soon because of the availability of land that has a consent, but actually sort of more to the point regardless of which governments in power, these are the sectors that actually drive growth in the U.K. as well. They're quite key to driving growth and the very significant sectors in their own right. So the reality of it is when you take all of that into the mix, these macro things that we can't control, but the fact that actually the sectors are structurally supported. What can we do as management and what do we do? We keep executing our plans really, really well through what is a current downturn in the cycle and investor sentiment to be in a really great place when we actually sort of come out the other side of it into really strong markets. That's the bit we can control as management. And that's the bit that we really are focused on actually. And then I've got -- there's another question. Tom, do you want to read that for everybody.

Yes. So final question has just come in. Thank you for that response Lynda. Do you talk with your main shareholders? And are they happy with your position on no share buybacks?

So yes, Yes, we do -- sorry, -- was there another one, sorry, is that?

There is another question that's come in, but it's unrelated to that. So please go ahead.

Okay. So we do talk to our main shareholders as part of -- and we think this is really important. So every results announced, such a result announcements, half year and full year, we actually sort of go on an investor road show, and we see our main investors largely this time, we saw less of them in person actually. We do talk about share buybacks with them, and they raise it with us. Largely, we're very supportive of the position that we're in as we went sort of -- as we went through the investor road show this time. So an understanding of the long-term nature through the cycle nature of the business and understanding of this macro craziness that we're in that we can't control as management and supportive of the performance and our ability to continue to execute. Because this is a business that when you stand back, regardless of all the latent value that's locked up in that land bank that we own in control, which I think is genuinely one of our superpowers. The reality of it is, is over the last 18 months in a market that has been really challenging. We've held our EPRA NDV broadly flat, and that is a hell of an achievement in terms of preserving sort of underlying value. So they are all interested in this. I've got no doubt that when we present our full year results, if the market -- if it hasn't started moving, we'll be having the conversations again. But as of the road show we've just been through are very supportive of what we're doing and actually how the business is performing.

And then the final question that's come in. What are your management incentive/targets?

Do you want to go on?

Yes, absolutely. So there a couple of layers. I suppose year-on-year, we have a set of agreed financial targets, and then we have some personal ones with agreed financial targets to make up the bulk there. And those are a combination of key financial measures, the main one being our total accounting return. So how much we are growing the overall sort of balance sheet really plus the dividend. Within them, there are strategic targets, too. So they're progressing forward along some of our strategic initiatives and very much focused on driving the operational side of the business. We also have some longer-term targets and incentives and those are related around total shareholder return as well. So we're very much aligned with the shareholders in wanting to see that share price respond. We both own shares, and we also sort of targeted in the sense that there's a target level of shares that we're building up out of our own funds as well. So we very much feel the challenge of that discount to NAV. We don't believe it's right, and we are very focused on doing everything that we can do both to execute operationally within the business and show you that long-term sort of track record, but also talks to the market to help them to understand why that is the case.

And actually, we have within the company, we have a restricted share plan, which award shares to about 50% of the business. And that, again, it existed before the strategy, but we look to see when we were doing the strategy work to try to expand share ownership and a focus from everybody in the business on the long-term performance of the company itself. That's in place as well.

Perfect. Lynda, Kitty, Tom, that's great. And thank you for being so generous with your time and for addressing all the questions that came in from investors today. And of course, the company can review your questions submitted today and will publish those responses on the Investor Meet company platform. But before we direct to investors to provide you with their feedback, which is particularly important to the company, Lynda may I please ask you for a few closing comments.

Yes. So in closing, look, thank you ever so much for listening to us and for your questions. It's really important that we feel that you have the opportunity to talk to the management of the company in any way, and this way seems to sort of work well for lots of you. I'd just like to sort of say from a company perspective, this company has a really strong balance sheet. We own and control our land bank. We are long term through the cycle and at this point in the cycle is not particularly pretty for a lot of businesses, actually. But we are continuing to perform, and we're continuing to progress against the -- in executing our strategy. So for me, the underlying markets that we operate in are the right markets and the business is in good shape. But once again, thank you for listening to us and any further questions that sort of come to us offline, we'll try to respond to those as well.

Perfect Lynda, Kitty, Tom. Thank you once again for updating investors today. Can you please ask investors not to close the session as you will now be automatically redirected to provide your feedback in order that the Board can better understand your views and expectations. This will only take a few moments to complete and I'm sure will be greatly valued by the company. On behalf of the management team of Harworth Group plc, we'd like to thank you for attending today's presentation, and good morning to you all.

Thanks very much.

Thank you.