17 May 2022

 

 

Watkin Jones plc

(the 'Group')

 

HY Results for the six months ended 31 March 2022

('H1-2022' or the 'period')

 

Record development pipeline, full year in line with expectations

 

	Underlying Results (1)			Statutory Results
	H1-2022	H1-2021	Change (%)	H1-2022	H1-2021	Change (%)
Revenue	£193.0m	£178.4m	+8.2%	£193.0m	£178.4m	+8.2%
Gross profit	£29.9m	£41.3m	(27.6)%	£29.9m	£41.3m	(27.6)%
Operating profit / (loss)	£14.6m	£29.1m	(49.8)%	£(13.4)m	£29.1m	(146.0)%]
Profit / (loss) before tax	£11.4m	£25.8m	(55.8)%	£(16.6)m	£25.8m	(164.3)%
Basic earnings per share	3.65p	8.11p	(55.0)%	(5.2)p	8.11p	(164.1)%
Dividend per share	2.9p	2.6p	+11.5%	2.9p	2.6p	+11.5%
Adjusted net cash(2)	£26.8m	£31.7m	(15.5)%

 

(1)   For H1-2022 Underlying Operating Profit, Underlying Profit before tax and Underlying Earnings per share are calculated before the impact of the exceptional charge of £28.0 million for the potential costs of the remedial work required under the new Building Safety Act

(2)   Adjusted net cash is stated after deducting interest bearing loans and borrowings, but before deducting IFRS 16 operating lease liabilities of £126.0 million at 31 March 2022 (31 March 2021: £134.5 million)

 

Key Highlights

 

·      Full year underlying profit performance expected to be in line with expectations

·      £2.0 billion record pipeline (estimated future revenue), up 43% on last year, of which £0.6 billion has already been forward sold; giving us clear visibility of revenue and earnings growth in future years

·      8.2% increase in revenue to £193.0 million, boosted by strengthening institutional investor demand

·      £14.6 million underlying operating profit is down as expected on last year due to:

o  A higher proportion of lower margin land sales in the period; and

o  The timing impact of the planned portfolio sale of three PBSA schemes

·      In response to the new Building Safety Act and following a review of all buildings over 11 metres tall developed by the Group over the last 30 years, we have recognised an exceptional charge of £28.0 million for the potential costs of the remediation work required, which we expect will be incurred over a period of up to 7 years

·      £26.8 million adjusted net cash showing good liquidity after high levels of growth investment in H1-2022 which will deliver forward sales in H2-2022 and beyond

·      Interim dividend of 2.9p, up 11.5%, reflecting the strengthening development pipeline and expected strong H2-2022 profits

·      Operational resilience of the business continues to be demonstrated:

o  15 current developments on track

o  Proactive management of inflationary increases for both asset values and build costs, thus ensuring margins are maintained

·      22,155 beds under Fresh management, up 10% and bookings well advanced for the next academic year

·      Affordable-led Homes business is gaining traction with the pipeline building from site acquisitions.

·      Announced today the sale to EQT of a PBSA portfolio which comprises three prime student developments along with two operational properties. This has an FY-2022 profit contribution of c. £20 million. All properties are to be managed by Fresh.

 

 

Richard Simpson, Chief Executive Officer of Watkin Jones, said: "We are continuing to build on the positive momentum from the second half of last year and have demonstrated operational resilience through the strength of our business model.  The sale today of a major portfolio of PBSA schemes to EQT, a new institutional investor to the sector, with ongoing management provided by our Fresh business, underlines the attraction of our end-to-end offer for institutional capital targeting UK residential for rent. Our pro-active management of build costs and sales values has ensured that our overall development margins are maintained, and we are confident going into the second half."

 

"We note the recent passing of the Building Safety Act. Whilst it is unclear as to the exact remedial works that will be required, we have taken an exceptional charge of £28 million. We expect these remedial costs to be incurred over a period of up to 7 years."

 

 

 

Strong institutional demand for residential for rent assets

 

·      2 BTR schemes (837 apartments) and 2 PBSA schemes (601 beds) forward sold since the start of FY22

-      Includes 1 further BTR scheme (551 apartments) in Birmingham forward sold since the 18 January 2022 preliminary announcement, with total revenue value of c.£136 million

-      PBSA portfolio of three developments (1,059 beds), along with two operational properties, has recently closed, and a scheme in Bristol (800 beds) is under offer and expected to close shortly

 

Development pipeline further enhanced

 

·      Record pipeline now standing at £2.0 billion (including Affordable-led Homes pipeline of £0.1 billion)

·      2 BTR schemes (312 apartments) and 2 PBSA schemes (1,105 beds) acquired since the start of FY22

-      Includes BTR schemes in Leeds (230 apartments) and in Hove (82 apartments)

·      Significant planning consents gained since the start of FY22 for a BTR development in Belfast (778 apartments) and a PBSA development in Stratford (397 beds)

 

Our BTR and PBSA development pipelines are as follows:

 

	BTR (apartments)	PBSA (beds)
FY-2021 position	4,012	7,142
New sites secured	312	1,105
Other changes	(13)	(466)
Current	4,311	7,781
Future revenue value	£1,000 m	£900 m

 

PBSA pipeline

	PBSA beds
	Total pipeline	FY22	FY23	FY24	FY25	FY26
Forward sold	3,570	1,946	935	689	-	-
Forward sales in legals	1,071	-	-	1,071	-	-
Sites secured with planning	920	-	-	-	920	-
Sites secured subject to planning	2,220	-	-	1,111	1,109	-
Total secured	7,781	1,946	935	2,871	2,029	-
Change since FY-2021	639	-	(740)	99	1,280	-

 

BTR pipeline

	BTR apartments
	Total pipeline	FY22	FY23	FY24	FY25	FY26
Forward sold	1,160	71	354	456	279	-
Forward sales in legals	821	-	43	406	372	-
Sites secured with planning	530	-	-	-	530	-
Sites secured subject to planning	1,800	-	-	307	442	1051
Total secured	4,311	71	397	1,169	1,623	1051
Change since FY-2021	299	-	-	(132)	(620)	1051

 

 

 

Building safety

In January 2022, the Government announced its intention to approach developers to fund the remediation of life-critical fire safety issues on buildings over 11 metres and up to 30 years old. The largest developers within the industry were subsequently asked to sign a voluntary pledge regarding the remediation of such issues on these buildings.

While the Group has not been asked to sign the pledge, we agree that individual leaseholders should not have to pay for costs associated with necessary life-critical fire safety remediation work that arise in the short and medium term. We are mindful of our obligations as a responsible developer and will continue to monitor the developing legal situation in order to understand fully how Government expects the new regulatory regime to apply to the development sector as a whole.  In the meantime, we will continue to comply with our legal and contractual obligations.

We note the requirement for secondary legislation to clarify the impact of the Government's plans. However, we expect that, in due course, we will incur costs in relation to remediation works on developments over 11 metres tall and up to 30 years old.

Whilst it is unclear exactly what remedial works will be needed, we have undertaken an initial review of buildings above 11 metres developed by the Group over the last 30 years, and concluded that an exceptional charge of £28.0 million should be made for these potential costs. This amount covers the following areas set out in the Building Safety Act: i) the extension of scope for developers' responsibility to 30 years; ii) the increased scope by including buildings between 11m and 18m; and iii) the expanded scope to incorporate non-cladding fire safety defects.  This amount will be kept under review as the situation is clarified. We expect the costs will be incurred over a period of up to 7 years. The cost estimate assumes no future recoveries from sub-contractors and consultants in the supply chain.

This is in addition to the £15.0 million cladding provision set aside in 2020 which was to cover the remediation of all schemes with ACM or HPL cladding which were still within the original limitation period.

 

Name change

As the business has evolved and widened its activities, the Board intends to change the corporate and trading name to better reflect today's broader business. Further details will be released in due course.

 

Analyst meeting

A meeting for analysts will be held in person at 09.30am today, 17 May 2022, at Berenberg, 60 Threadneedle Street, London EC2R 8HP.  A copy of the Half Year Results presentation is available at the Group's website: http://www.watkinjonesplc.com

An audio webcast of the meeting with analysts will be available after 12pm today:

https://webcasting.buchanan.uk.com/broadcast/627dfea281ae755c56ba22f

For further information:

Watkin Jones plc
Richard Simpson, Chief Executive Officer	Tel: +44 (0) 20 3617 4453
Sarah Sergeant, Chief Financial Officer	www.watkinjonesplc.com
Peel Hunt LLP (Nominated Adviser & Joint Corporate Broker)		Tel: +44 (0) 20 7418 8900
Mike Bell / Ed Allsopp		www.peelhunt.com
Jefferies Hoare Govett (Joint Corporate Broker)		Tel: +44 (0) 20 7029 8000
Max Jones / James Umbers		www.jefferies.com

 

Media enquiries:

Buchanan
Henry Harrison-Topham / Steph Whitmore	Tel: +44 (0) 20 7466 5000
watkinjones@buchanan.uk.com	www.buchanan.uk.com

 

 

Notes to Editors

Watkin Jones is the UK's leading developer and manager of residential for rent, with a focus on the build to rent, student accommodation and affordable housing sectors The Group has strong relationships with institutional investors, and a reputation for successful, on-time-delivery of high quality developments.  Since 1999, Watkin Jones has delivered 46,000 student beds across 136 sites, making it a key player and leader in the UK purpose-built student accommodation market, and is increasingly expanding its operations into the build to rent sector.  In addition, Fresh, the Group's specialist accommodation management business, manages over 22,000 student beds and build to rent apartments on behalf of its institutional clients.  Watkin Jones has also been responsible for over 80 residential developments, ranging from starter homes to executive housing and apartments.

 

The Group's competitive advantage lies in its experienced management team and capital-light business model, which enables it to offer an end-to-end solution for investors, delivered entirely in-house with minimal reliance on third parties, across the entire life cycle of an asset.

 

Watkin Jones was admitted to trading on AIM in March 2016 with the ticker WJG.L.  For additional information please visit www.watkinjonesplc.com

 

 

 

 

 

 

Review of Performance

 

Results for the six months to 31 March 2022

 

Revenues for the period increased 8.2% to £193.0 million, compared to £178.4 million for H1-2021.  Operationally the Group's businesses have continued to perform well, with our developments in-build all progressing in line with expectations.  The increase in revenues was due to the three land sales totalling £55.0 million in the period, compared to nil in H1-2021.

 

Gross profit was £29.9 million (H1-2021: £41.3 million), with gross margin at 15.5% compared to 23.1% last year.  The lower margin reflected the higher proportion of land sales in the period which generated a lower margin than the ensuing development activity.

 

Underlying Operating profit for the period was £14.6 million (H1-2021: £29.1 million), reflecting the impact of the lower gross margin.

 

Operating loss for the period was £13.4 million (H1-2021: profit of £29.1 million) after an exceptional cost of £28.0 million for the potential remedial works that may be required] under the Building Safety Act.

 

Net finance costs for the period amounted to £3.2 million (H1-2021: £3.2 million).  Finance costs include £2.4 million (H1-2021: £2.4 million) in respect of the interest on leases.

 

Underlying profit before tax for the period was £11.4 million (H1-2021: £25.8 million) and loss before tax for the period was £16.6 million (H1-2021: profit before tax of £25.8 million), with the reduction due to the lower gross margin for the period and the impact of the exceptional cost of £28.0 million. Underlying Basic earnings per share for the period were 3.65 pence, compared to 8.11 pence for H1-2021.

 

Segmental review

 

Build to Rent ('BTR')

The contribution from BTR increased further in the period, with revenues of £93.8 million, up £34.7 million (59%) on H1-2021.  Revenues were derived from the build of our forward sold developments in Hove and Lewisham which are progressing on track for completion in 2023 and 2024 respectively, and from the land sales of our significant developments in Lewisham and Sherlock Street, Birmingham.

 

BTR gross profit for the period was £12.0 million (H1-2021: £12.4 million), a decrease of 3%.  The gross margin for the period was 12.8% (H1-2021: 21.0%), reflecting the dilution from the two land sales as well as the earlier stage of development of the other sites.

 

We have made good progress with negotiations and legal documentation relating to the forward sale of our developments in Belfast (778 apartments) and Bath (316 apartment), having secured planning on the Belfast site since the period end.

 

Subsequent to the period end we secured two sites in Leeds (230 apartments) and  Hove (82 apartments) subject to planning.  We are actively progressing a number of further site acquisitions so we are able to capitalise on the growing institutional demand for UK assets.

 

Student accommodation ('PBSA')

 

Revenues from PBSA were 25.3% lower than last year at £78.3 million (H1-2021: £104.8 million) reflecting the number of and stage of development of the sites in-build as well as the timing of the expected portfolio sale of three schemes which is expected to complete shortly.

 

PBSA gross profit for the period was £13.0 million (H1-2021: £25.2 million) with gross margin for the period being 16.6% (H1-2021: 24.1%), reflecting the effect of the land sale in Edinburgh and the earlier stage of development of the sites in build, and the timing of the portfolio sale.

 

In the period we forward sold two PBSA developments in Edinburgh (315 beds) and Colchester (286 beds) for delivery in FY23.  For Colchester, the client concerned acquired the land site directly. 

 

Subsequent to the period end and as announced today, we have agreed the forward sale of a three development, 1,059 bed portfolio, for delivery in 2023 and 2024. We have also agreed terms for the forward sale of an 800 bed development in Bristol. Subsequent to the period end we secured planning on a site in Stratford (397 beds) and marketing for this development is progressing well.

 

 

 

 

Accommodation management (Fresh)

 

Fresh achieved revenues of £4.1 million (H1-2021: £3.8 million), reflecting the higher levels of student occupancy as the sector recovers from the pandemic. This is shown by the higher number of student beds and BTR apartments under management at the start of FY22 (22,155), compared to the start of FY21 (20,179).

 

The increase in Fresh's revenue for the period led to a modest increase in gross profit to £2.7 million (H1-2021: £2.2 million), at a margin of 65.9% (H1-2021: 57.9%).

 

Operationally, Fresh has continued to support its residents through the pandemic focusing on community engagement and the Be Wellbeing programme.  Its reputation in the sector continues to grow as a result and this is reflected in its success in winning new mandates since the start of the year for 3,208 student beds.  Fresh has also just recently been appointed on their first co-living scheme in Exeter for 133 units

 

For FY23, Fresh is currently appointed to manage 24,409 student beds and build to rent apartments across 76 schemes, including expected renewals.

 

Affordable-led Homes

 

The affordable-led residential development business achieved 19 sales completions in the period, (H1-2021: 33 sales).  The decrease was due to the transition of the business as well as some build delays at the site in Preston, although a number of sales have completed subsequent to the period end. This led to a reduction in revenue to £5.4 million from the £10.7 million last year.

 

The gross profit achieved by the division was £0.6 million (H1-2021: £1.5 million), at a margin of 11.0% (H1-2021: 14.0%).  The reduction in margin reflects the mix of sales.

 

We have made good progress with our pipeline. We exchanged contracts on a site in Flint for 200 units and also gained planning permission for our Belfast site which includes 150 affordable units as part of the overall development. This, in conjunction with good asset management of our existing land bank, has brought the current affordable homes pipeline to over 500 units for delivery over the period FY23 to FY26.

 

 

Balance sheet and liquidity

Our financial position and liquidity remains strong.  We had a gross cash balance at 31 March 2022 of £44.7 million (31 March 2021: £88.7 million), whilst net cash stood at £26.8 million (31 March 2021: £31.7 million), before deducting IFRS 16 lease liabilities.

 

The Group had undrawn headroom of £85.8 million on its revolving credit facility ('RCF') with HSBC at 31 March 2022 and an unutilised overdraft facility of £10.0 million, giving total cash and available facilities of £140.5 million (31 March 2021: £146.3 million).

 

The strength of our liquidity position has enabled us to continue to advance our growth opportunities through securing opportunities in the land market during the period.  This investment, combined with our normal annual cash profile, which sees a utilisation of cash in the first half of the year, resulted in a reduction in our net cash balance of £97.5 million since the start of the year.  Our inventory and work in progress balance has increased by £27.4 million in the period to £155.0 million.  Of this balance, £57.0 million relates to the acquisition of land in Bedminster, Birmingham and Leatherhead.

 

Contract assets and receivables at 31 March 2022 stood at £37.4 million and £55.8 million respectively and had increased £51.2 million from the position at 30 September 2021.  The contract assets relate primarily to the final payments to be received on completion of the forward sold developments in build which have increased as developments have progressed and receivables included £22 million for the land sale from the Sherlock Street, Birmingham development for which cash was received shortly after the period end.  Contract and trade liabilities amounted to £69.8 million at 31 March 2021 and had reduced £22.2 million since FY21 year-end position.  The FY21 year-end position was higher due to a high level of construction activity linked to the handover of developments at that time.

 

ESG

In November 2021 we launched Future Foundations, our ESG strategy. The strategy formalised our commitments and targets around core themes of future people, places and planet. This included a commitment to achieving net zero scope 1 and 2 carbon emissions by 2030.

Our ESG initiatives are progressing well. We are increasing the amount of modular construction within our build programmes, reducing waste and build time. Our timber frame trial is scheduled to commence shortly which will help us assess how we can best utilise modern methods of construction in our developments. We have also reviewed our plant strategy with a view to sourcing energy-efficient alternatives with a lower carbon footprint. Following a rigorous tender process, we have now outsourced our tower crane and plant requirements to third party providers.

The health and safety of our employees, contractors and residents of the properties we manage is a key priority for the Group. We have continued to improve day-to-day health and safety performance within the business. We target an incident rate of less than 5% of the national average for the construction industry, and we are currently performing ahead of that target.

Dividend

The Board has declared an interim dividend for the period of 2.9 pence per share, which will be paid on 30 June 2022 to shareholders on the register at close of business on 10  June 2022.  The shares will go ex-dividend on 9 June 2022.

 

Outlook

Today we have announced the sale of the PBSA portfolio and are significantly advanced with a number of other forward sales which have recently gained planning consent. This, combined with our current developments being on track, gives us confidence in delivery of our full year expectations.

 

The underlying market fundamentals supporting residential for rent remain strong, as evidenced by increasing investor appetite for both BTR and PBSA. This, combined with the growth in our development pipeline, operational capabilities and financial strength, underpins our confidence in the future prospects for the Group.

 

 

Richard Simpson

Chief Executive Officer

17 May 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Comprehensive Income

for the six month period ended 31 March 2022 (unaudited)

 

		6 months to 31 March 2022	6 months to 31 March 2021	12 months to 30 September 2021
Continuing operations	Notes	£'000	£'000	£'000
Revenue		192,966	178,420	430,211
Cost of sales		(163,116)	(137,089)	(345,430)
Gross profit		29,850	41,331	84,781
Administrative expenses		(15,281)	(12,255)	(27,526)
Operating profit before exceptional costs		14,569	29,076	57,255
Exceptional costs	6	(28,000)	-	-
Operating profit / (loss)		(13,431)
Share of profit in joint ventures		-	-	(87)
Finance income		22	1	4
Finance costs		(3,238)	(3,239)	(6,051)
Profit / (loss) before tax from continuing operations		(16,647)	25,838	51,121
Income tax (credit) / expense	8	3,322	(5,056)	(9,189)
Profit /(loss) for the period attributable to ordinary equity holders of the parent		(13,325)	20,782	41,932
Other comprehensive income
Net gain on equity instruments designated at fair value through other comprehensive income		-	-	108
Total comprehensive income for the period attributable to ordinary equity holders of the parent		(13,325)	20,782	42,040
Earnings per share for the period attributable to ordinary equity holders of the parent		Pence	Pence	Pence
Basic earnings per share	9	(5.202)	8.113	16.369
Diluted earnings per share	9	(5.185)	8.108	16.340
Underlying basic earnings per share (excluding exceptional costs)	9	3.652	8.113	16.369
Underlying diluted earnings per share (excluding exceptional costs)	9	3.640	8.108	16.340

 

Consolidated Statement of Financial Position

as at 31 March 2022 (unaudited)

		31 March 2022	31 March 2021	30 September 2021
	Notes	£'000	£'000	£'000
Non-current assets
Intangible assets		12,445	13,004	12,724
Investment property (leased)	11	95,397	101,475	98,567
Right of use assets	11	4,695	4,923	4,468
Property, plant and equipment		746	4,068	3,656
Investment in joint ventures		17	3,243	17
Deferred tax asset		7,165	3,313	4,057
Other financial assets		1,241	1,133	1,241
		121,706	131,159	124,730
Current assets
Inventory and work in progress		155,027	189,005	127,593
Contract assets		37,367	38,682	13,810
Trade and other receivables		55,808	23,457	28,198
Cash and cash equivalents	13	44,685	88,727	136,293
		292,887	339,871	305,894
Total assets		414,593	471,030	430,624
Current liabilities
Trade and other payables		(75,396)	(91,602)	(89,198)
Contract liabilities		(1,128)	(6,537)	(2,845)
Interest-bearing loans and borrowings		(615)	(870)	(4,653)
Lease liabilities		(6,611)	(6,139)	(6,113)
Provisions	7	(3,152)	(5,384)	(4,667)
Current tax liabilities		(2,276)	(4,087)	(2,015)
		(89,178)	(114,619)	(109,491)
Non-current liabilities
Interest-bearing loans and borrowings		(17,262)	(56,132)	(7,308)
Lease liabilities		(119,421)	(125,544)	(123,139)
Provisions	7	(30,345)	(3,587)	(4,732)
Deferred tax liabilities		(813)	(1,187)	(1,143)
		(167,841)	(186,450)	(136,322)
Total Liabilities		(257,019)	(301,069)	(245,813)
Net assets		157,574	169,961	184,811
Equity
Share capital		2,562	2,562	2,562
Share premium		84,612	84,612	84,612
Merger reserve		(75,383)	(75,383)	(75,383)
Fair value reserve of financial assets at FVOCI		536	428	536
Share-based payment reserve		3,171	2,515	2,824
Retained earnings		142,076	155,227	169,660
Total Equity		157,574	169,961	184,811

 

 

 

 

 

 

 

 

Consolidated Statement of Changes in Equity

for the six month period ended 31 March 2022 (unaudited)

 

	Share Capital £'000	Share Premium £'000	Merger Reserve £'000	Fair value of financial assets at FVOCI £'000	Share-based payment reserve £000	Retained earnings £'000	Total £'000
Balance at 30 September 2020	2,562	84,612	(75,383)	428	2,348	153,271	167,838
Profit for the period	-	-	-	-	-	20,782	20,782
Share-based payments	-	-	-	-	167	-	167
Other comprehensive income	-	-	-	-	-	-	-
Dividend paid (note 10)	-	-	-	-	-	(18,826)	(18,826)
Balance at 31 March 2021	2,562	84,612	(75,383)	428	2,515	155,227	169,961
Profit for the period	-	-	-	-	-	21,150	21,150
Share-based payments	-	-	-	-	309	-	309
Other comprehensive income	-	-	-	108	-	-	108
Deferred tax debited directly to equity	-	-	-	-	-	(59)	(59)
Dividend paid (note 10)	-	-	-	-	-	(6,658)	(6,658)
Issue of shares	-	-	-	-	-	-	-
Balance at 30 September 2021	2,562	84,612	(75,383)	536	2,824	169,660	184,811
Loss for the period	-	-	-	-	-	(13,325)	(13,325)
Share-based payments	-	-	-	-	347	-	347
Other comprehensive income	-	-	-	-	-	-	-
Dividend paid (note 10)	-	-	-	-	-	(14,259)	(14,259)
Balance at 31 March 2022	2,562	84,612	(75,383)	536	3,171	142,076	157,574

 

 

 

 

Consolidated Statement of Cash Flows

for the six month period ended 31 March 2022 (unaudited)

 

		6 months to 31 March 2022	6 months to 31 March 2021	12 months to 30 September 2021
	Notes	£'000	£'000	£'000
Cash flows from operating activities
Cash (outflow)/inflow from operations	12	(78,274)	(35,467)	76,307
Interest received		22	1	4
Interest paid		(3,278)	(3,658)	(6,638)
Tax (paid) / refunded		148	(1,641)	(8,211)
Net cash (outflow)/inflow from operating activities		(81,382)	(40,765)	61,462
Cash flows from investing activities
Acquisition of property, plant and equipment		(556)	(763)	(208)
Proceeds on disposal of property, plant and equipment		2,000	-	4
Cash flow from joint venture interest		-	-	57
Net cash inflow / (outflow) from investing activities		1,444	(763)	(147)
Cash flows from financing activities
Dividend paid	10	(14,259)	(18,826)	(25,484)
Payment of principal portion of lease liabilities		(3,359)	(2,768)	(6,145)
New other interest- bearing loan		-	261	-
Payment of capital element of other interest-bearing loans		(403)	(164)	(242)
Drawdown of RCF		9,625	19,808	25,705
Repayment of bank loans		(3,274)	(2,569)	(53,369)
Net cash outflow from financing activities		(11,670)	(4,258)	(59,535)
Net (decrease)/increase in cash		(91,608)	(45,786)	1,780
Cash and cash equivalents at beginning of the period		136,293	134,513	134,513
Cash and cash equivalents at end of the period	13	44,685	88,727	136,293

 

 

Notes to the consolidated financial information

1.             General information

Watkin Jones plc (the 'Company') is a limited company incorporated in the United Kingdom under the Companies Act 2006 (Registration number 09791105).  The Company is domiciled in the United Kingdom and its registered address is 7-9 Swallow Street, London, W1B 4DE.

 

The principal activities of the Company and its subsidiaries (collectively the 'Group') are the development and management of multi-occupancy residential rental properties.

 

The consolidated interim financial statements of the Group for the six month period ended 31 March 2022 comprises the Company and its subsidiaries.  The basis of preparation of the consolidated interim financial statements is set out in note 2 below.

 

The financial information for the six months ended 31 March 2022 is unaudited.  It does not constitute statutory financial statements within the meaning of Section 434 of the Companies Act 2006.  The consolidated interim financial statements should be read in conjunction with the financial information for the year ended 30 September 21 which has been prepared in accordance with international accounting standard in conformity with the requirements of the Companies Act 2006.  The report of the auditors on those financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498(2) of the Companies Act 2006.

 

This report was approved by the directors on 16 May 2022.

 

2.             Basis of preparation

This set of condensed consolidated interim financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the UK.  The interim financial statements have been prepared based on the UK adopted International Financial Reporting  Standards "IFRS" that are expected to exist at the date on which the Group prepares its financial statements for the year ended 30 September 2022.  To the extent that IFRS at 30 September 2022 do not reflect the assumptions made in preparing the interim financial statements, those financial statements may be subject to change.

 

The interim financial statements have been prepared on a going concern basis and under the historical cost convention.

 

The interim financial statements have been presented in pounds sterling and all values are rounded to the nearest thousand (£'000), except when otherwise indicated.

 

The preparation of financial information in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Although these estimates are based on management's best knowledge of the amount, event or actions, actual events may ultimately differ from those estimates.

 

The interim financial statements do not include all financial risk information and disclosures required in the annual financial statements and they should be read in conjunction with the financial information that is presented in the Company's audited financial statements for the year ended 30 September 2021.  There has been no significant change in any risk management policies since the date of the last audited financial statements.

 

Going concern

At 31 March 2022, the Group had a robust liquidity position, with cash and available headroom in its banking facilities totalling £140.5m made up of cash balances of £44.7m, RCF headroom of £85.8m and an overdraft facility of £10.0m.

Group forecasts have been prepared that have considered the Group's current financial position and current market circumstances.  We have prepared a base case cash flow forecast for the period to 17 May 2023.  In addition to the base case forecast, and though considered unlikely given current market conditions, we have considered a severe but possible downside scenario of a suspension of the forward sale market where no further forward sales are achieved other than those currently under offer.  The cash forecast under this scenario illustrates that adequate liquidity is maintained through the forecast period.

Based on the results of the analysis undertaken, the Directors have a reasonable expectation that the Group has adequate resources available to continue to trade for the period to 17 May 2023 and has therefore adopted the going concern basis in preparing the financial statements.

 

3.            Accounting policies

The accounting policies used in preparing these interim financial statements are the same as those set out and used in preparing the Company's audited financial statements for the year ended 30 September 2021.

 

 

4.            Segmental reporting

The Group has identified four segments for which it reports under IFRS 8 'Operating segments', as follows:

 

A          Student accommodation - the development of purpose-built student accommodation;

B          Build to rent - the development of build to rent accommodation;

C          Residential - the development of residential property for sale; and

D          Accommodation management - the management of student accommodation and build to rent property.

 

Corporate - revenue from the development of commercial property forming part of mixed use schemes and other revenue and costs not solely attributable to any one operating segment.

 

Performance is measured by the Board based on gross profit as reported in the management accounts.  Apart from inventory and work in progress, no other assets or liabilities are analysed into the operating segments.

 

6 months to 31 March 2022 (unaudited)	Student Accommodation	Build to rent	Residential		Accommodation management	Corporate	Total
	£'000	£'000	£'000	£'000		£'000	£'000
Segmental revenue	78,284	93,753	5,408	4,086		11,435	192,966
Segmental gross profit	13,018	12,038	635	2,673		1,486	29,850
Administration expenses	-	-	-	(3,120)		(12,161)	(15,281)
Exceptional costs	-	-	-	-		(28,000)	(28,000)
Finance income	-	-	-	-		22	22
Finance costs	-	-	-	-		(3,238)	(3,238)
Profit/(loss) before tax	13,018	12,038	635	(447)		(41,891)	(16,647)
Taxation	-	-	-	-		3,322	3,322
Profit/(loss) for the period	13,018	12,038	635	(447)		(38,569)	(13,325)
Inventory and WIP	79,574	45,443	27,321		-	2,689	155,027

 

 

6 months to 31 March 2021 (unaudited)	Student Accommodation	Build to rent	Residential		Accommodation management	Corporate	Total
	£'000	£'000	£'000	£'000		£'000	£'000
Segmental revenue	104,759	59,112	10,670	3,816		63	178,420
Segmental gross profit	25,215	12,397	1,490	2,228		1	41,331
Administration expenses	-	-	-	(1,708)		(10,547)	(12,255)
Finance income	-	-	-	-		1	1
Finance costs	-	-	-	-		(3,239)	(3,239)
Profit/(loss) before tax	25,215	12,397	1,490	520		(13,784)	25,838
Taxation	-	-	-	-		(5,056)	(5,056)
Profit/(loss) for the period	25,215	12,397	1,490	520		(18,840)	20,782
Inventory and WIP	56,700	90,656	31,316	-		10,333	189,005

 

 

 

 

 

 

Year ended 30 September 2021	Student Accommodation	Build to rent	Residential		Accommodation management	Corporate	Total
	£'000	£'000	£'000	£'000		£'000	£'000
Segmental revenue	259,882	138,569	22,663	7,762		1,335	430,211
Segmental gross profit	50,464	29,765	2,560	4,081		(2,089)	84,781
Administration expenses	-	-	-	(4,229)		(23,297)	(27,526)
Share of operating profit in joint ventures	(87)	-	-	-		-	(87)
Finance income	-	-	-	-		4	4
Finance costs	-	-	-	-		(6,051)	(6,051)
Profit/(loss) before tax	50,377	29,765	2,560	(148)		(31,433)	51,121
Taxation	-	-	-	-		(9,189)	(9,189)
Profit/(loss) for the period	50,377	29,765	2,560	(148)		(40,622)	41,932
Inventory and WIP	25,754	64,086	27,420		-	10,333	127,593

 

 

 

 

5.            Disaggregated revenue information

 

6 months to 31 March 2022 (unaudited)	Student Accommodation	Build to rent	Residential	Accommodation management	Corporate	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Type of goods or service
Construction contracts or development agreements	64,534	45,005	-	-	2,110	111,649
Sale of land	6,447	48,200	-	-	-	54,647
Sale of completed property	-	-	5,408	-	9,325	14,733
Rental income	7,303	548	-	-	-	7,851
Accommodation management	-	-	-	4,086	-	4,086
Total revenue from contracts with customers	78,284	93,753	5,408	4,086	11,435	192,966
Timing of revenue recognition
Goods transferred at a point in time	6,447	48,200	5,408	-	9,325	69,380
Services transferred over time	71,837	45,553	-	4,086	2,110	123,586
Total revenue from contracts with customers	78,284	93,753	5,408	4,086	11,435	192,966

 

 

 

 

 

 

 

 

 

 

 

 

 

6 months to 31 March 2021 (unaudited)	Student Accommodation	Build to rent	Residential	Accommodation management	Corporate	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Type of goods or service
Construction contracts or development agreements	99,283	58,405	-	-	63	157,751
Sale of land	-	-	-	-	-	-
Sale of completed property	-	-	10,670	-	-	10,670
Rental income	5,476	707	-	-	-	6,183
Accommodation management	-	-	-	3,816	-	3,816
Total revenue from contracts with customers	104,759	59,112	10,670	3,816	63	178,420
Timing of revenue recognition
Goods transferred at a point in time	-	-	10,670	-	-	10,670
Services transferred over time	104,759	59,112	-	3,816	63	167,750
Total revenue from contracts with customers	104,759	59,112	10,670	3,816	63	178,420

 

 

 

Year ended 30 September 2021	Student Accommodation	Build to rent	Residential	Accommodation management	Corporate	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Type of goods or service
Construction contracts or development agreements	195,015	90,428	-	-	1,335	286,778
Sale of land	18,500	15,000	-	-	-	33,500
Sale of completed property	35,580	31,703	22,663	-	-	89,946
Rental income	10,787	1,438	-	-	-	12,225
Accommodation management	-	-	-	7,762	-	7,762
Total revenue from contracts with customers	259,882	138,569	22,663	7,762	1,335	430,211
Timing of revenue recognition
Goods transferred at a point in time	54,080	46,703	22,663	-	-	123,446
Services transferred over time	205,802	91,866	-	7,762	1,335	306,765
Total revenue from contracts with customers	259,882	138,569	22,663	7,762	1,335	430,211

 

 

 

 

 

 

 

 

 

 

 

6.            Exceptional costs

 

	6 months to 31 March 2022	6 months to 31 March 2021	12 months to 30 September 2021
	£'000	£'000	£'000
Net legacy building safety expense	(28,000)	-	-
Total exceptional costs	(28,000)	-	-

 

 

 

7.            Provisions

 

Legacy building safety improvements provision

	£'000
Current
At 1 October 2021	9,399
Arising during the year	28,000
Utilised	(3,902)
At 31 March 2022	33,497

 

The provision is classified as follows:

	£'000
Current	3,152
Non-current	30,345
At 31 March 2022	33,497

 

In response to the revised government guidance, issued in January 2020, on the suitability of certain cladding solutions used on high‑rise residential buildings, the Group has been working with the owners of certain of its previously developed properties to remediate or replace cladding and to share the costs. A provision of £14,800,000 was made in the year ending 30 September 2020 for the Group's anticipated contribution toward the cost of the fire safety recladding works. The provision remaining at 31 March 2022 amounts to 5,497,000 of which £3,152,000 is expected to be incurred within the next twelve months and £2,345,000 is expected to be incurred after 31 March 2022.

In January 2022, the Government announced its intention to approach developers to fund the remediation of life critical fire safety issues on buildings over 11 metres and up to 30 years old. While noting the requirement for secondary legislation to clarify the impact of the Government's plans, the Group expects that, in due course, it will incur costs in relation to remediation works on developments over 11 metres tall and up to 30 years old.

Whilst it is unclear exactly what remedial works will be needed, we have made an initial review of buildings above 11 metres developed by the Company over the last 30 years, which concluded that an exceptional charge of £28,000,000 should be made for these potential costs. This amount covers the following areas set out in the Building Safety Bill; i) the extension of scope for developers' responsibility to 30 years; ii) the Increased scope by including buildings between 11m and 18m and iii) the expanded scope to incorporate critical life safety defects.  We expect this money will be spent over the next 7 years.

This is a highly complex area with judgements and estimates in respect of the cost of remedial works, and the extent of those properties within the scope of the applicable Government guidance and legislation, which continue to evolve.  These factors could result in a range of reasonably possible outcomes on the anticipated remedial works ranging from an increase in the costs of £4,600,000 to a reduction in costs of £23,400,000.

 

 

 

8.            Income taxes

 

The tax expense for the period has been calculated by applying the estimated effective tax rate for the financial year ending 30 September 2022 of 19.83 % to the profit for the period.

 

 

9.            Earnings per share

Basic earnings per share ("EPS") amounts are calculated by dividing the net profit or loss for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares in issue during the year.

 

The following table reflects the income and share data used in the basic EPS computations:

	6 months to 31 March 2022	6 months to 31 March 2021	12 months to 30 September 2021
	£'000	£'000	£'000
Profit / (loss) for the period attributable to ordinary equity holders of the parent	(13,325)	20,782	41,932
Underlying profit for the period attributable to ordinary equity holders of the parent (excluding exceptional (costs)/income after tax)	9,355	20,782	41,932
	Number of shares	Number of shares	Number of shares
Number of ordinary shares for basic earnings per share	256,163,459	256,163,459	256,163,459
Adjustments for the effects of dilutive potential ordinary shares	839,998	151,310	453,761
Weighted average number for diluted earnings per share	257,003,457	256,314,769	256,617,220
	Pence	Pence	Pence
Basic earnings per share
Basic profit for the period attributable to ordinary equity holders of the parent	(5.202)	8.113	16.369
Underlying basic earnings per share (excluding exceptional (costs)/income after tax)
Underlying profit for the period attributable to ordinary equity holders of the parent	3.652	8.113	16.369
Diluted earnings per share
Basic profit for the period attributable to diluted equity holders of the parent	(5.185)	8.108	16.340
Underlying diluted earnings per share (excluding exceptional (costs)/income after tax)
Underlying profit for the period attributable to diluted equity holders of the parent	3.640	8.108	16.340

 

 

 

 

10.          Dividends

 

	6 months to 31 March 2022	6 months to 31 March 2021	12 months to 30 September 2021
	£'000	£'000	£'000
Final dividend paid in February 2021 of 7.35 pence	-	18,826	18,826
Interim dividend paid in June 2021 of 2.6 pence	-	-	6,658
Final dividend paid in February 2021 of 5.6 pence	14,259	-	-
	14,259	18,826	25,484

 

An interim dividend of 2.9 pence per ordinary share will be paid on 30 June 2021.  This dividend was declared after 31 March 2021 and as such the liability of 7,352,000 has not been recognised at that date. At 31 March 2022 the Company had distributable reserves available of £61,000,000.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11.          Leases

	Investment property (leased)	Office Leases	Motor Vehicle Leases	Total
	£'000	£'000	£'000	£'000
Cost
At 30 September 2020	161,393	9,411	1,432	172,236
Additions/adjustment	-	720	13	733
Disposals	-	-	(321)	(321)
At 31 March 2021	161,393	10,131	1,124	172,648
Additions	243	1	-	244
Disposals	(7)		(150)	(157)
At 30 September 2021	161,629	10,132	974	172,735
Additions	-	132	562	694
Disposals	-	-	-	-
At 31 March 2022	161,629	10,264	1,536	173,429

 

Depreciation
At 30 September 2020	51,072	4,994	1,086	57,152
Charge for the period	3,148	424	123	3,695
Disposals	-	-	(295)	(295)
At 31 March 2021	54,220	5,418	914	60,552
Charge for the period	3,144	367	83	3,594
Disposals			(144)	(144)
At 30 September 2021	57,364	5,785	853	64,002
Charge for the period	3,170	354	113	3,637
Disposals	-	-	-	-
At 31 March 2022	60,534	6,139	966	67,639
Impairment
At 30 September 2020	5,698	-	-	5,698
Charge for the period	-	-	-	-
At 31 March 2021	5,698	-	-	5,698
Charge for the period
At 30 September 2021	5,698	-	-	5,698
Charge for the period	-	-	-	-
At 31 March 2022	5,698	-	-	5,698

 

Net Book Value
At 31 March 2022	95,397	4,125	570	100,092
At 30 September 2021	98,567	4,347	121	103,035
At 31 March 2021	101,475	4,713	210	106,398
At 30 September 2020	104,623	4,417	346	109,386

 

 

 

 

12.          Reconciliation of profit before tax to net cash flow from operating activities

 

	6 months to 31 March 2022	6 months to 31 March 2021	12 months to 30 September 2021
	£'000	£'000	£'000
Profit / (loss) before tax	(16,647)	25,838	51,121
Depreciation of leased investment properties and right-of-use assets	3,637	3,695	7,289
Depreciation of plant and equipment	244	338	839
Amortisation of intangible assets	280	280	560
Loss/(profit) of disposal of right-of-use assets	-	-	6
(Profit) / loss on sale of plant and equipment	(1,308)	-	85
Finance income	(22)	(1)	(4)
Finance costs	3,238	3,239	6,051
Share of profit in joint ventures	-	-	87
Increase in inventory and work in progress	(27,434)	(63,345)	(1,933)
Interest capitalised in development land, inventory and work in progress	40	419	587
(Increase)/decrease in contract assets	(23,557)	2,840	27,712
(Increase)/decrease in trade and other receivables	(27,610)	61	(4,680)
Decrease in contract liabilities	(1,717)	(2,430)	(6,122)
Decrease in trade and other payables	(11,862)	(5,675)	(5,302)
Increase / (decrease) in provision for fire safety cladding works	24,098	(893)	(465)
Increase in share-based payment reserve	346	167	476
Net cash (outflow)/inflow from operating activities	(78,274)	(35,467)	76,307

 

 

 

13.          Analysis of net cash / (debt)

	31 March 2022	31 March 2021	30 September 2021
	£'000	£'000	£'000
Cash at bank and in hand	44,685	88,727	136,293
Other interest-bearing loans	(87)	(728)	(389)
Bank loans	(17,790)	(56,275)	(11,572)
Net cash before deducting lease liabilities	26,808	31,724	124,332
Lease liabilities	(126,032)	(131,683)	(129,252)
Net debt	(99,224)	(99,959)	(4,920)

 

 

 

 

 

14.          Employee benefits - long-term incentive plans

In January 2022, 959,808 share awards were made under the Watkin Jones plc Long-Term Incentive Plan (the Plan).  The awards have an exercise price of one penny per share and become exercisable after three years from the date of grant subject to continued employment and the Company's Earning per Share (EPS), absolute total shareholder return (absolute TSR) performance, and relative total shareholder return (relative TSR) as follows:

Absolute TSR (25% of award)	% of TSR award vesting1
Less than 5% p.a.	0%
Equal to 5% p.a.	20%
14% p.a. or greater	100%

Relative TSR (25% of award)	% of TSR award vesting1
Less than median ranking	0%
Equal to median ranking	20%
Upper quartile or greater ranking	100%

 

 

 

 

EPS growth (50% of award)	% of EPS award vesting1
5% p.a. or less	0%
Equal to 5% p.a.	20%
14% p.a. or greater	100%

¹Vesting on a straight-line basis between target levels

The fair value of share awards granted subject to EPS conditions is 265.0 pence and has been estimated as the market price of an ordinary share of the Company at the date the award was granted less the one penny exercise price for the award.  The fair value of the share awards subject to TSR performance conditions has been estimated at the grant date using a Monte Carlo valuation model using the following assumptions:

 

Share price	266.0 pence
Exercise price	1 penny
Expected term	3 years
Risk-free interest rate	1.05%
Are dividend equivalents receivable for the award holder?	Yes
Expected volatility	31%

 

 

 

 

To model the impact of the relative TSR performance condition, the volatility for each company in the comparator group has been calculated using historical data (where available) which matches the length of the performance period remaining at the grant date (2.66 years).  In addition, the valuation model included the correlation between the peer group and the Company as well as the inter-correlations between the peers.

 

This resulted in an estimated fair value for an award with absolute TSR performance conditions of 144.38 pence and an estimated value for an award with relative TSR performance conditions of 178.34 pence. 

 

For the six months ended 31 March 2022, the amount charged to the statement of comprehensive income and credited to share based payment reserve in relation to all the active awards granted to that date was £346,000 (31 March 2021: £167,575).

 

- Ends -