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

Okay. Good morning, everyone, and welcome to Harworth's 2025 Half Year Results Presentation. We're delighted you could join us today, and I'm delighted that Kitty is back from maternity leave and here with me. So between us, we're going to present the results over the next 25 minutes or so, and then we'll open the floor to questions. We're going to take questions from everybody in the room here first. But for those joining online, please submit your questions, and we'll do our best to answer as many as possible. So turning to the highlights. I'm pleased with the progress that the business has made during the first half of the year. There's a lot going on across our portfolio, and we are continuing to make good solid progress against our strategic objectives. The market backdrop remains tricky as businesses navigate through the impact of last October's budget and the market view on the economy with any expected early improvement not quite there yet. That said, for Harworth, we're a through-the-cycle business with a clear strategy, strong execution and our core sectors of Industrial & Logistics and Residential remain in structural undersupply, and we have a strong land bank to deliver into these markets. Through the year, we've been utilizing our balance sheet and investing across our sites to support both sales and future development. Strong operational momentum underpins progress against our strategy and has delivered solid growth at our gross asset level. Our Industrial & Logistics assets have performed well and are the main drivers of value at a portfolio level, delivering an 8% property return and are a key driver of future growth. Residential assets were stable at a headline level. There was some mixed valuation outcomes in this period. And this has impacted our total accounting return, which remains positive and moving us forward towards our GBP 1 billion of EPRA NDV target. Kitty will cover this in more detail as we move through the presentation. All of this is reflected in the strong organic growth that we've driven at a gross asset level, up 53% to just shy of GBP 945 million since the end of 2020. In the same period, we sold GBP 607 million of land and property assets, reinvesting the capital whilst managing our leverage at one of the lowest levels in the sector. Our EPRA NDV is up by 41% to GBP 725 million in the same period, consistently growing year-on-year through the volatile markets of, in particular, the last 3 years. For half 1 2025, we've delivered a total accounting return of 1.1%. In the first half of 2025, we've invested just under GBP 55 million in our Industrial & Logistics sites. GBP 32.3 million was spent on development largely infrastructure works across a range of sites from moving the ASICs and starting enabling works at Wingates, which some of you will remember from the site during the summer, to completing the development platforms at Chatterley and building at Droitwich. And of course, we're making good progress enabling the Skelton site for Microsoft. In the period, we've completed an 80,000 square foot development at the Advanced Manufacturing Park, which was pre-let to Technicut, and this asset has now transferred into our investment portfolio. And post period end, we reached practical completion on a 169,000 square foot building at Droitwich. At Waverley, we also completed one of the final pieces of community infrastructure, opening our Olive Lane development, which provides a high street and community and health centers for the residents, students and businesses across the site. At the end of quarter 1, we invested GBP 22.5 million in land assembly, including buying our JV partner share of Gateway 45 for GBP 20 million. Gateway 45 is adjacent to our Skelton Grange site on the edge of Leeds and probably one of the best sites in West Yorkshire. It has outlined planning consent for 800,000 square feet and excellent off-site infrastructure already in place. And a major win after 4 years of engagement with local and central government was the lifting of the High Speed 2 safeguarding in the summer, which now releases this site fully for development. We continue to progress a substantial volume of Industrial & Logistics product through the planning process. And in half 1 2025, we submitted applications for 4.9 million square feet with our Northern Gateway joint venture and Junction 15 sites making up the bulk of this volume. 71% of our 34.6 million square foot pipeline now has planning consent or is in the planning process. And since period end, we've submitted further planning applications at Diseworth in the Midlands and Gonerby Moor on the A1, which will unlock volume in our medium-term pipeline. At the half year, GBP 8.7 million of our Industrial & Logistics pipeline had a planning consent, and we were active across 66% of this part of the pipeline. As in 2024, we've continued to invest in enabling works to derisk the site through delivery through half 1 '25 and to make our sites as liquid as possible. These are crucial years in the delivery of our strategy as we create capacity from our consented land to deliver at scale into our regional markets. And we're focused on putting the business in the best possible position to capitalize on opportunities as we continue to derisk sites through planning and investment. At the period end, we progressed a sizable pipeline with 2.4 million square feet of enabling works completed at sites such as Chatterley Valley near Stoke, Gateway 36 at Barnsley and the Advanced Manufacturing Park in Rotherham. And we're currently on site with a further 3.3 million square feet at sites such as Gascoigne Wood, Wingates and Skelton Grange in Leeds, where we're delivering the second phase of service land to enable the remaining payment from Microsoft of GBP 53.5 million, which is targeted for the end of 2026, but also the remaining 300,000 square foot of pipeline from the Harworth land. We remain on track to transform our investment portfolio to 100% Grade A by the end of 2027. And at half 1, 66% of assets by value are Grade A, up from 18% at the end of 2020. In the period, we transferred over one 80,000 square foot Grade A asset at the AMP into the portfolio with a further 169,000 square foot from the Droitwich development reaching complete post period end. We continue to recycle capital by selling secondary assets, having sold 434,000 square foot in the year-to-date across 2 assets. So taking the post-period end activity into account, this will give us a pro forma of 71% of assets by value being Grade A and 58% by area. And the eagle eye of you amongst you in the room will have noticed that the pro forma value number in the pack is different to that, that's on the screen, but the percentages are correct. So with that, I'll now hand over to Kitty.

Thank you, Lynda, and good morning, everyone. It's great to be back in the room and to see you all again. I seem to have been gifted some bugs from the back-to-school crew at home. So bear with me if I sneeze or cough or need a tissue or a drink. But let's get looking at the portfolio. Our overall portfolio was valued at GBP 944 million as of 30th of June and is 2/3 weighted to Industrial & Logistics, including strategic land, major developments and the investment portfolio. The Industrial & Logistics land bank, mostly through freehold land and options has the potential to deliver 34.6 million square feet and the Residential land bank through freehold land and Planning Promotion Agreements has the potential for over 31,000 plots. Both plot numbers and square footage have increased since year-end as we aim to maintain our land bank duration and all parts of the portfolio increased in value in the first half. These gains in value and scale reflect our active asset management and targeted acquisitions, resulting in a substantial portfolio with significant latent value. The investment portfolio was valued at GBP 319 million and has performed well in the first half. Annualized headline rental income grew by 4.6% over the period. Leasing activity was 2% higher on a like-for-like basis with renewals and rent reviews achieving on average a 16% uplift to previous passing rents. The investment portfolio is overall reversionary with headline rental income 15% below year-end ERVs. As the proportion of Grade A assets increases, the rental tone has strengthened further with rent per square foot rising 6.3%. Vacancy levels have reduced through successful lettings and changes in portfolio mix. And I'm delighted to say that since period end, we have let the final unit at Gateway 36. Including this and taking out secondary assets sold since June, this would reduce vacancy further to 3.1%. In transfers on the graph, we completed the building for Technicut at the AMP, which included the incorporation of renewable energy through an innovative green lease structure, and this transferred into the investment portfolio during the period. This portfolio continues to provide a steady rental stream, supporting our overheads and offering opportunities to add value, and it remains a vital cornerstone of our funding strategy. Now looking ahead, we will maintain disciplined asset management, developing new Grade A properties to hold while selectively selling assets, ensuring a high-quality and liquid portfolio. Turning now to Residential. We submitted planning applications for 1,200 plots during the period. This included 900 plots at Cefn Park near Wrexham, and we submitted 300 plots at our Coalville site, leveraging our prior infrastructure investment to increase available plots. Combined with applications made in 2024, we now have over 3,000 residential plots progressing through the planning system. The portfolio comprises over 31,000 plots and alongside our freehold ownership, we continue to add different structures such as delivery partnerships and capital-light structures. And most recently, we've conditionally exchanged on a new strategic partnership with the Church Commissioners for England, where the joint venture will deliver a significant mixed-use development of 1.2 million square feet of employment space and around 1,500 residential blocks. Importantly, 44% of the Residential pipeline is either consented or actively moving through planning, an essential step in value creation and building a strong service land pipeline. Following planning consent, residential land is serviced in phases to meet demand from housebuilders and mixed tenure developers. Currently, 69% of land with planning consent has enabling works underway on site as part of our phase delivery. We've seen solid demand for land in the first half of the year. We sold 649 plots in half 1, a mixture of Planning Promotion Agreements and freehold land sales. And since period end, a further 146 plots have completed. We also have around 1,500 plots conditionally exchanged and in legal process for sale in the second half. And once these complete, we are on track to exceed our 2,000 plot sales target for the year. Alongside housebuilder sales, we remain active with our mixed tenure proposition. So far this year, we've reached practical completion on our first phase of affordable housing at Great Places with homes now occupied, and we are active on delivering on 2 further sites. Accelerating residential sales supports our capital efficiency by recycling funds from mature sites into early-stage Residential and Industrial & Logistics developments. All our schemes have place-making initiatives, and we've continued to be active throughout 2025, including achieving practical completion of 2 forest schools on our Thoresby Vale and Coalville sites opening in time for the new school year. Turning now to the financial performance of the group. Our key financial metric is EPRA NDV, which reflects our net assets adjusted to show the current value of our property portfolio as at 30th of June. This value is independently assessed every 6 months and reported in our accounts. And in the first half of 2025, our EPRA NDV increased by 0.8% to GBP 725 million. Growth was driven by rental income, fees and development management revenue, which is included under net revenue on this slide as well as valuation gains from management actions focused on maximizing the potential of our development sites. These gains were partially offset by operating costs, interest and dividends. And this steady progress in NDV moves us closer to the GBP 1 billion target for the end of 2027. So turning to the detail of value gains, the main component of the valuation movements. Our Industrial & Logistics portfolio delivered a strong performance. Value gains reflecting a property return of 5% were driven by management actions in strategic land and major developments. For example, at Wingates, heavy investment in servicing land combined with rising rents in the Northwest market contributed to these gains. And at Droitwich, we are on site close to completing our Grade A building, all contributing to an 8% return in the land part of the portfolio. This moves us closer to our target of delivering 4 million square feet of built space or service land sales by 2027. Additionally, our investment portfolio saw value gains of 1.6% in the first half, supported by active asset management, successful lettings and a rental market providing growth. And combined with the rent yield from this part of the portfolio gives a total property return of around 4.1% for this part in the first half. Turning to the Residential portfolio. One of its key roles, especially for more mature sites is to generate cash through land sales, which we then reinvest into the business for value creation. The residential value performance this half was mixed. Strategic land was flat as planning applications were put into the system. These remain at the beginning of their planning journey and will generate value as approvals progress. In major developments, demand for service residential land remains strong with 649 plots sold in the period, and this was reflected in the headline valuations, which remained stable with some sites increasing in value. We saw some rising delivery costs, some one-off, which led to a 3% reduction in valuation. And additionally, cost increases related to prior to site-wide infrastructure works on prior sales reflected in losses on sale contributed to an overall minus 5% property return on residential land and development sites. These cost increases were concentrated in 2 particular areas. Broadly 1/3 was cost inflation in horizontal costs and professional fees, with 2/3 site-specific one-off costs that we do not expect to be repeated. Looking ahead, demand remains healthy, and we are optimistic about exceeding our 2,000 plot sales target for the year. So overall, the portfolio achieved value gains of GBP 15.5 million in the first half, and this represents 2% growth across the entire portfolio. Activity across our Industrial & Logistics assets was the main driver of these gains outperforming the market. Residential valuations were stable, impacted by some cost increases focused on a small number of sites. With a loan-to-value at 19% at half year, this remains within our long-standing guardrails of a maximum of 25% midyear and a maximum of 20% at year-end. Our net debt increased from GBP 46.7 million at the end of 2024 to GBP 179.4 million at June 2025. As Lynda has spoken about, the increase was mainly driven by development spend as we progress works on our sites to create value ahead of year-end sales. And this year, the weather was particularly good for enabling works even in the North, and we're able to move sites forward at speed. Additional factors include payments of tax following sales at the end of last year, and these increases were partly offset by proceeds of sale received during the period. And as we entered the second half, we had GBP 59.8 million in cash and available revolving credit facilities, which we've maintained over the summer with development spend funded by sales proceeds. Looking forward to year-end, with strong visibility on land and property sales, which is expected to reduce loan to value from the current 19% down to a range of between 10% and 15%. We will continue investing in our sites and making selective land assembly acquisitions in half 2. Rent and fee income is expected to broadly cover our operating costs and proceeds from service land and property sales, along with deferred consideration from prior sales will generate a positive cash flow in the second half. This will come together to reduce net debt. This cash flow pattern I've spoken about before, which reflects our normal seasonal cycle with higher facility drawdowns midyear to fund site investments, balanced by repayments from property sales at year-end. And this approach ensures we maintain financial flexibility to support growth going forward. Our portfolio is entering an exciting new phase where site delivery is really now accelerating. We remain committed to building strong partnerships, developing our substantial pipeline and using capital efficiently to drive growth. We announced yesterday that I'll be expanding my role, and I'm excited to be leading our strategic and funding partnerships, refining our capital allocation and aligning with our sustainability priorities, all key pillars for this next stage of growth. I'll now hand you back over to Lynda to take you through the outlook and the road map to reach GBP 1 billion NDV.

We've successfully grown our Industrial & Logistics land bank progressing sites through planning and into delivery. We're investing to create a scalable platform, a deliverable pipeline and a strong ability to respond to market opportunities. The growth in our plan accelerates in the latter years as having invested significantly in enabling works in 2024 and 2025, we intend to deliver around 4 million square foot of capacity into the market as we go through the period 2025 to 2027. This will be delivered through a mix of build-to-hold, build-to-suit, forward funding and service land sales. While this part of the portfolio is in delivery, we continue to invest in around 5 million square foot of enabling works to unlock significant development capacity in the coming years. And the graphic, which may be familiar to those of you who saw our year-end results presentation, remind you of the volume of enabling works and service land and development that we're targeting by the end of 2027. And we're making really good progress. And as I've already mentioned, we've completed 2.4 million square foot of enabling works and are on site with a further 3.3 million square foot. And this demonstrates that we're making good headway in creating the development pipeline to deliver our strategic objectives. In the year-to-date, we've completed the first 2 build-to-hold assets, which are now in the investment portfolio, illustrated by that tiny orange bar in the bottom right-hand corner. But over time, you'll see the bars on the right-hand side of the graphic fill up to reflect the progress as we accelerate through the next couple of years. We remain focused on scaling the business and investing to progress towards our GBP 1 billion EPRA NDV target. Since the end of 2020, we've delivered cumulative growth of 40.5%, which equates to a compound annual growth rate of around 7.7%. Now the chart illustrates the key elements driving us to GBP 1 billion. And having built a deliverable pipeline, we have a line of sight on what we need to do to get there. There's no silver bullet as we continue to invest the cash that we generate to drive the land bank forward, it's the mix of these components and our ability to flex and respond to market conditions and pivot into opportunities that will deliver sustainable growth and value creation. So in summary, we've opened up the next generation of sites in our portfolio, and we've built a scalable platform that supports value growth across all areas. Our land bank is one of our superpowers. We have sites with planning consent in strong locations across the regions that can deliver at scale. And we continue to invest through the cycle to make our sites liquid, putting us in a strong position to both deliver capacity into the market as it improves and capitalize on emerging sectors. Our specialist skill set spans a number of these core growth sectors, and we have a strong track record of delivery. We have clear visibility of the pipeline opportunity presented by our sites, and we have confidence in delivering our strategic targets. Our long-term through-the-cycle business model means that we navigate short-term uncertainties and remain focused on creating long-term value for our shareholders. With that, I'd like to thank you for your continued support and attention, and we look forward to answering your questions. Thank you for listening.

Thank you all. We have had a number of questions pre-submitted and submitted live. [Operator Instructions] Our first question, in terms of your Industrial & Logistics development, what is build-to-suit? And how does it differ from forward funding?

So with the build-to-suit transaction, what will happen is we'll make a land sale, so we realize the land sale. And then we will build a building for an end occupier who is effectively the purchaser of the land. So the land moves out of our balance sheet and then we build -- it's funded by them, and we take either a fee or a profit share on the way through that build. With a forward funding, it's not that dissimilar. So we would usually secure a pre-let for a forward funding in advance. So rather than it being the end occupier, we have a tenant lined up. And then an investor will purchase the land and then fund us again on a monthly sort of basis as we deliver the building for that pre-let or that tenant. And we will get a profit share or again, a proportion of a fee as we go along, but typically, sort of a profit share at the end. And then once it's complete, it transfers over to that investor. A certainly different but slightly similar sort of language that you hear sometimes is a forward sale rather than a forward fund. In that instance, almost the completed building is presold to an investor. And in that, we would then -- again, there's usually a pre-let tenant attached, and we would sort of build for that investor. And once it's complete, the whole thing sort of transfers over to the investor. So there's some different sort of structures. The way I think about it when we think about sort of the 60% of the development pipeline that we're going to deliver through these sorts of structures is they're really for us about a land sale within different components of profit that we're taking over and above the straight land sale.

Micros often phrases land sales are big wins. What percentage of 2025, 2026 revenue do you expect from similar landmark or large-scale land deals?

So we have a steady flow as we -- particularly as we get into the second half of the year of land sales and transactions that we're making under the strategy. So this is attached to the Residential portfolio where we're trying to where we're targeting 2,000 sort of plot sales per annum, and we track towards that because it's really important as we go through the year as we're drawing debt in the early part of the year, we're generating revenue from sales to pay that debt down. Another core component of revenue generation from us when it comes to sales actually comes from at the moment, mainly sort of sales of some of those more secondary assets that sit in our investment portfolio. What we expect to sort of see as we switch through the remaining years of the strategy is that you'll see more service land actually coming into play in the -- from the Industrial & Logistics portfolio to drive sales. I think it's important to sort of talk a little bit about sort of Microsoft and Ansty and actually a transaction that we did a couple of years ago called Kellingley. So we will, if we find the right opportunities to drive value, take those opportunities to dispose of whole sites. And when you look -- in terms of what it means between '25 and '26, so '25 is quite a big year for us investing in infrastructure. So we still have a sales program that's largely coming from residential sales and the sales of some of the more secondary investment assets. But actually, as we get to '26, you should see towards the end of that year, the second part of the Microsoft transaction completing. So that should bring the other GBP 53.5 million in.

How sensitive are your valuations to delays in local authority planning departments, which are often under-resourced or to infrastructure delivery that may not be fully in your control?

So maybe sort of we do this in 2 parts. I'll talk a little bit about planning and then sort of Kitty can bring to life sort of some of the infrastructure delivery bits that might not be in our control in terms of one of the things that happened in the first half of the year. So the way that the value values the sites is on a residual sort of valuation basis. And when a site is going through planning, there is a really heavy risk weighting attached to sort of the valuation of the site at the beginning of that process, which as the site gets closer to planning, actually sort of starts to sort of drop away. And then the point you've got your planning consent, you typically get a kickup in valuation because the site now has a consent and is ready to sort of -- for the next phase of what we do with it to bring it into delivery. Once it goes to development, you've still got a residual sort of valuation going on. And that reflects the -- reflecting a couple of things here. One is the investment that we need to make in the site to sort of make it a service site, but the other bit is actually sort of delivery risk because until you have finished putting the infrastructure in site, there is an element of sort of risk from a market perspective. And then it's probably good to bring this to life in terms of sort of what happened on some of the resi sites...

Absolutely. So we're going through those valuation processes, we get sort of an update every 6 months on the costs that it's going to be to complete the development, and they're prepared by third-party consultants. So we get that sort of independent view to challenge our own assumptions around that. What we saw sort of at the first half is we saw some of our residential valuations going backwards. And some of this is related to those cost plans of movements. So for instance, we saw an element of cost inflation coming through. We also saw some changes in some of the costs associated with adopting our drainage facilities at our Waverley site, which is a site that we've been in for a very long time. Those come through because partly the inflation, we're then assessing at that point in time, what's happened to costs, what's happened to inflation, how is that going to ripple across the whole portfolio. So any increase in inflation is implied for all future costs, and we obviously maintain a contingency within the costs as well. That element is slightly sort of out of our control. We make sure that we retain that contingency, but it's appropriate to reflect costs as they come through. With the Waverley drainage, what we saw in the first half was we have now got to a critical size on Waverley where we have enough homes occupied and that triggers the drainage to be adopted, which is a good thing. It transfers the risk off because we've been in the site for quite a period of time. What we saw was as we have been working with the statutory bodies, they're requiring something different in order to update that drainage. It's not something that we expect to be a challenge across other sites. It's very specific to Waverley and partly because actually we've been selling land there for really quite some time. So catching up to meet some specific requirements that they've got. So that's an example of some costs that were sort of hard to anticipate, I suppose. And so we've seen them sort of come through. But to the best of our abilities, we are sort of forecasting those costs and then almost like refining them every 6 monthly period of testing ourselves, are they right? What do we know now? How can we update them so that we've got sort of the latest picture as we go forward.

What happens if servicing and remediation costs on a large site spiral? Are those borne entirely by Harworth or shared with buyers?

So I'd say on this one, it depends on the basis that we've contracted to deliver the land. So if you take a residential sort of sites as we sort of go through the sort of early part of the year, we'll put phases of land sites into the market. We'll agree price sort of through a competitive process with whichever housebuilder we're going to sell that to. And part of that arrangement will be that we'll actually deliver them a service site at the -- for the contract to complete. We retain a charge over the land. So there's often a phase payment in resi transactions. So we'll retain a charge over the land until basically that payment has been completed to us. But largely, once we have contracted a price for the land and agreement to service, any sort of cost risk will be borne by Harworth unless there's something specific in the agreement that we've got with a housebuilder or another counterparty to counter that. And there are examples where you might do that. You might sometimes ensure a risk if you think actually there's a particular work around a site. And then sometimes you may also have some sort of cost cap beyond which actually sort of costs may shed. So it really depends on the contract that you've got in place to deliver the site. They're different from an I&L perspective to a resi perspective. Residential will have face payments, as I said, we'll take a charge on the land. Normally, when we're doing Industrial & Logistics disposals, it's a sort of straightforward agreement to provide a service site and then the payment is the bullet at the end.

Yes. And I suppose whether we're taking sort of increased costs over that time frame also partly depends on the contracts. So have we done sort of a fixed sort of build contract with the contractor, isn't the contractors spot, there's an overrun. We spent quite a lot of time doing due diligence around the sites to try and ascertain sort of what are we working with before entering into sort of those contracts so that we can sort of again manage that risk of cost increases as best we can.

How much of your dividend is underpinned by recurring income? And how do you balance dividends with reinvestment in new land or infrastructure?

So we have a recurring income stream through the investment portfolio. So we've got annualized rent of about GBP 18.5 million now, and that's grown over the last couple of years. It's shrunk as we sort of reposition the portfolio and now it's very much on an upward trajectory. We supplement that with fee income as well. So in the first half, we've got some fee income through development agreements where we are delivering service land or the affordable housing, for example, for end purchases and also fees associated with Planning Promotion Agreements. We've got about GBP 4 million of Planning Promotion Agreements in the first half. The combination of those income streams goes sort of quite a long way towards covering the overheads and the dividends with the balance sort of supplemented by land sales. Those land sales, we now have quite a strong track record of delivering sort of north of GBP 100 million of land sales of every year, a combination of Residential and Industrial & Logistics. So there is that recurring element to those land sales, too. Our aim is to grow the investment portfolio. So we're targeting growing it to about GBP 900 million by 2029. And part of the reason for that is to give us that sort of increased income that goes further towards covering those costs and sort of the dividend. When it comes to reinvestment, we absolutely prioritize the dividend. We've had sort of a policy of growing it by 10% every year, which we've been doing now for must be 10 years. I think we've been doing it since listing. So quite a long sort of track record of that, and there's no proposal to sort of change the dividend policy at the moment. So then when we're thinking about the reinvestment, it's all about prioritizing that capital. Where do we want to put it to maximize returns, where do we need to put it to make sure that the pipeline is in the right place. If we look at the first half, we've prioritized spending GBP 20 million on Gateway 45 and buying out our joint venture partner there. That creates a massive opportunity for the group. It's 800,000 square feet next door to our Skelton site. So we're always sort of assessing those. And because we're typically sort of making that reinvestment decisions without long-term sort of contracts that we're tied into, it enables us to be quite flexible in terms of where we invest the balance sheet to ensure that we're driving forward at the right pace.

Would you ever consider spinning off your Industrial & Logistics assets into a REIT to highlight recurring income separately from lumpy development sales?

I think what -- as a start of for [indiscernible] on this one, what I would say is our focus is basically to make sure that we're actually sort of always doing things that are in the best interest of our shareholders. And at the moment, when you look at that portfolio, and Kitty sort of referenced it in our last answer, our current strategy is to grow it to GBP 900 million by the end of 2029. And that's for a number of reasons. It's core to our funding for one. So it's not just about the recurring income that it throws off and actually sort of growing that. It's about -- it's actually the security for our lenders. We're funded through a revolving credit facility. So the lenders require some security, and they don't really like sort of putting it against a strategic land bank. So it plays a role, a really important role in our funding and revenue generation. It's also sort of pretty fundamental to the growth. So one of the ways that we can actually grow the business and bring different types of debt, different structures in to support that growth is actually by actually having a larger asset base against which to secure it. So at the moment, the strategy on that investment portfolio is to grow it towards GBP 900 million. So we can do all of those things and it can basically sort of provides a real sort of solid basis from which to sort of raise funding to grow the business. I think the other side of it is, look, it's also highly liquid. It will be Grade A assets. So there will be the newest shiniest things that we can build that sit in that portfolio. So should we feel that we need to sort of go and raise some capital that isn't just sort of about debt or raising equity, we can actually sort of use that portfolio to seed the vehicle and raise funding in that way. It is a sort of never say never, but it's a very sort of like, I would say, future -- long time in the future sort of strategy because at the moment, we know exactly what we want to do with it as we sort of work through to '29 and beyond.

How solid is the demand pipeline for residential developers and the plots you're servicing? Are cancellations or slow take-up at risk?

Yes, absolutely. So we've sold sort of 549 units in the first half, and we've got line of sight on 1,600 plots to be sold at the end of the year. So those 1,600 are either completed, conditionally exchanged or in legals. So we've got sort of a pretty good line of sight as we go through the year. The land that we're out there marketing at the moment is seeing a healthy level of bids, so similar numbers of parties to what we've seen before. But obviously, we need to get those over the line as we get towards the end of the year. I think everything that we're seeing at the moment gives us confidence around that. And we're certainly sort of tracking to meet that sort of 2,000 target. It's very much about execution now.

Yes. I think it's probably fair to say that from a wider housebuilder market. Yes, it's probably -- '25 has probably been a bit of a slower year than we all came into thinking '25 would be, but that's a macro issue. It's not sort of something that's sort of -- that's really sort of driven by sort of the housebuilders themselves. It's actually...

And I guess our product, our service land product is quite a unique part of what they buy. It's very much sort of serves that shorter-term pipeline. They don't have to hold the land for so long. It's lower risk. So it definitely sort of feeds in, in a different way to the broader land market.

And as a product, it's been hugely resilient through the cycle. So from COVID right the way through, we've continued to have a really healthy level of demand for that product.

[Operator Instructions] How lumpy should we expect sales to be as property sales volumes fell in H1? How much of the reduction is simply timing with sales expected in H2? And how much is weaker demand?

So half 1 to half 1, the change is very much sort of timing really. If we look at the residential sales, for example, as touched on, we are on track to meet that 2,000-plus sales target. It's just it's more sort of half 2 weighted. We're also anticipating with sales coming in to reduce debt in the second half of the year, some sales of some selected assets out of the investment portfolio. That's part of our churn to Grade A and our management of that portfolio. And those are also then in the second half, whereas we had some of those in the first half of last year. So that's the comparison year-on-year. Expecting sort of a very sort of healthy sort of sales pipeline this year. So we're working on an awful lot. I guess the one bit that I would flag is, obviously, last year, we had the first phase at Microsoft and also the Ansty sort of sale, those big one-offs. And this year, the sales are sort of more about that sort of usual sort of churn of land and property that we see in the business.

Yes. And I think from a wider market context, it's probably, again, just worth adding that sort of the deals are out there, sort of -- but they're just taking longer to get over the line. People are -- from an investor or an occupier perspective, there's just a lot more caution about the macro, but sort of so far, so good.

Residential sites have seen cost inflation pressures. What mitigation strategies are in place to manage those costs?

Well, so as I said, the cost in inflation, and we review sort of every 6 months and then it applies sort of going forward. So we've effectively taken that cost hit already on future costs. But we review all of our costs on a really sort of regular basis. We are always looking for opportunities to save costs or the cost to be adding value to the site as well because that can sometimes make sense if that means that we can then achieve a service land sale at sort of a higher level. The key at the moment is probably completing those year-end sales to prove that sort of valuation demand, really sort of prove the liquidity of those sites. And as we just said, we're sort of on pretty good track to do that. And then the other thing that I would flag is was there was some inflationary sort of impact on those half years of costs within the Residential side. That probably accounted for about 1/3 of the increase. So it wasn't sort of a huge amount. The majority of the increase came from some very specific site increases at Waverley, Coalville and Ironbridge. And those are -- the Waverley one we touched on with the drainage, but Coalville and Ironbridge were cost increases that related to actually adding additional units on site. So they should deliver value creation as we secure planning and then as we go forward to the service land sales on those sites. So I expect that although there was a hit in the first half, it will drive long-term value. So it's probably sort of a roundabout way of saying we are always looking at that sort of value creation piece with the cost side. It's very much the mentality that we take and constantly sort of holding ourselves to account with any sort of cost increases.

How much concentration risk does Harworth have in tying reputation to very large corporate occupiers that could walk away before completion?

So I would say, none. And we can't think of sort of -- I can't think of when that has been an issue. I mean we talked about from a resi perspective, we retain a charge on the land. So whoever has acquired the land from us and is on, say, a phased sort of payment sort of profile for that land has every incentive to continue to sort of pay us for land because if they miss a payment, we basically sort of take the land back. From an Industrial & Logistics perspective, we're either building spec. So we'll go with some speculative development as we sort of go through the cycle, and we're happy at that point that we've sort of pushed the trigger on that to take that risk and to let it up as we go. When it comes to build-to-suit, I mean, again, that is all about the sort of structure of the deal opposite the occupier. But often, they are funding the development as we go, and there'll be the appropriate mechanics in the contract sort of should they default. But largely -- and if it's a pre-let and something that we're thinking of holding is sort of say sort of similar, but largely, sort of we are -- we'll be as contractually tight as we can, both around the sort of relationship that we have with any party that we're delivering service land to, but also, as Kitty touched on earlier, the supply chain and actually want the contract to deliver. And one thing we have learned is particularly sort of with the supply chain over the last few years but making sure that you're stepping right down into it and you know sort of who's got what contracts on for others is massively important, but also making sure that your subcontractors are also sort of being paid in a timely manner so that there's nothing that should be falling over sort of underneath the sort of the top deal to sort of to put us at risk. And that means we spend a lot of time making sure we've got the appropriate step-in rights and warranties to sort of take over should something happen.

Yes. Is there a risk that you grow too large and are only focused on being a trader and lose your regeneration routes and unique selling point?

It's a very good question. And in fact, one that we were asked only a few hours ago, actually. So what is our focus? I mean our focus is basically on running a great company that continues to deliver great returns and value to investors. That doesn't necessarily mean it just needs to keep getting bigger and bigger and bigger. And in fact, we talked a little bit about the investment portfolio in one of the earlier answers, sort of you could grow that to GBP 900 million. And actually, if basically liquidating GBP 300 million of that to go again into something else was the right thing to do. What we would -- what we have to do is manage all of these assets, land and the income-producing assets as if really they were all just one big income portfolio. It's the same mentality. You're basically focused on making sure you can drive the mix, manage sort of any risk, geographical concentration or otherwise, but basically to drive the best returns. So our focus before we did anything would always be on making sure we could actually sort of keep driving those returns and delivering where investors were expecting us to deliver.

Yes, I think that's right. I think the pathway to sort of GBP 1 billion is very much about that value creation and the potential that we see out of the portfolio rather than just looking to be bigger.

We're now moving on to our final question. If we did not get to your question, please e-mail the Harworth team who will respond to any questions that weren't covered today. What KPIs are used to track progress on regeneration sites? And how often is the progress audited?

Yes. So we target sort of at a property level, delivering an IRR of 15% from all of our sites. The reason that we use that as a metric is the sites tend to be sort of lower value at the beginning and then they create value become bigger and we need that sort of constant sort of return over the life of the asset in order to drive the overall portfolio returns. Alongside that, we have milestones on sort of planning, completion of works, lettings and sales within the course of the year. The way that we sort of work internally is we have sort of models and business plans for every single site that we own, so over 100 sites, and we go through those every 6 months as a minimum to really interrogate those sites. They are also, on a selected basis, audited by our internal audit team. They are also presented to Board. If there are any changes, they get above a certain threshold, they get sort of accelerated up to executive committee for additional review. So we stay quite close to those overall sort of metrics and where things are moving. We need to understand if there are delays, why are the delays and what's feeding through if there are cost increases, what's driven that and how can we manage that. So that -- it really is the business of living and breathing and holding the teams to account for the work that they do on each of those sites.

Thank you. And Lynda, I'd now like to hand over for any closing remarks.

Well, probably just a couple of sort of closing sort of comments. So thank you for joining us and for your questions and for listening to the presentation this afternoon. I think sort of -- I'm probably going to conclude in a similar way to what I said in the presentation is we're really pleased that the business is making really strong operational progress from period to period in executing that strategy. The strategy is very clear. We know what we've got to do, and we're heads down sort of focused on delivering that. The investment in the next generation of Industrial & Logistics sites is really important, and it's been really -- it's going to be really key to driving the growth to GBP 1 billion as we go through the sort of latter years of the plan. If we look back to 4.5 years ago when we put the strategy together, we probably had maybe sort of 5 sites in our I&L portfolio that we're producing product. We're now sort of heading towards 11, and that is a really big shift. And we've worked really hard to get all of those sites through planning as we've gone through the last sort of 4 years, while we have been driving the velocity through -- in terms of sales on our residential sort of sites. The business is really well positioned to deliver product at scale and meet demand in the markets that we operate in. That's -- we see that as being really important. What we do sort of is important to the regions that we operate in, but actually having sites that can deliver sort of into the market as it will inevitably sort of change and be able to sort of meet demand. We've got new and emerging industries. Nobody was talking about data 3 years ago. I'm absolutely sure nobody was talking about defense about 18 months ago. And those are just 2 of the emerging sectors that we're seeing. But with a big focus in our regions on advanced manufacturing, which is another thing that we have a really strong skill set in and a track record of delivery. So we feel we're really well positioned to capitalize on those emerging sectors. Our through-the-cycle business model and our specialist skill set has been really robust as we've gone through 3 pretty tricky years in the markets that we've been in. And we've got a track record of really consistent performance and progress towards the targets. So we feel that we've got a line of sight as we enter the last couple of years of the strategic plan on what we need to do and the sites that we need to do that from to get us to that GBP 1 billion. Thank you.

Thank you to Lynda and Kitty for joining us today. That concludes the Harworth Group plc investor presentation. Please take a moment to complete a short survey following this event. The recording of this presentation will be made available on Engage Investor. I hope you enjoyed today's webinar.