Half year results

RNS Number : 6766A
Watkin Jones plc
09 June 2016
 



For immediate release

9 June 2016

 

Watkin Jones plc

('Watkin Jones' or the 'Group')

 

Half year results for the six months to 31 March 2016

 

Watkin Jones plc (AIM:WJG), a leading UK developer and constructor of multi occupancy property assets, with a focus on the student accommodation sector, announces its maiden half year results for the six months ended 31 March 2016.  The Board is pleased to report a successful first six months of the financial year with trading in line with its expectations.

 

Financial Highlights


H1 2016

H1 2015

Movement

 

Revenue

£145.9 million

£103.8 million

+40.6%

 

Operating profit before exceptional IPO costs

 

£17.0 million

 

£9.3 million

 

+83.5%

 

Adjusted EBITDA1

 

£17.3 million

 

£9.5 million

 

+82.0%

 

Adjusted basic EPS2

 

5.2 pence

 

2.8 pence

 

+87.0%

 

Notes

1           Adjusted EBITDA comprises operating profit before exceptional IPO costs, adding back charges for depreciation and amortisation.

2           Adjusted basic EPS is calculated using the profit for the period from continuing operations excluding exceptional IPO costs.

 

·      Strong revenue and profit performance during the half year driven by student accommodation developments

·      1.33 pence per share proposed interim dividend; in line with IPO guidance

·      £15.4 million net cash at 31 March 2016 (£4.0 million net debt at 31 March 2015)

·      New £40 million five year Revolving Credit Facility and £10 million Working Capital Facility with HSBC put in place at IPO to provide development funding flexibility and working capital headroom.  Unutilised at 31 March 2016.

 

Business Highlights

·      Successful admission to AIM on 23 March 2016, with business continuing to deliver strong operational performance through the process

·      £114 million development value of six student accommodation developments (1,660 beds) forward sold since 1 October 2015

·      £90 million development value in legal negotiations for forward sale of three further student accommodation developments (1,234 beds)

·      Planning permissions for nine student developments (3,478 beds) obtained since 1 October 2015, including five obtained since admission to AIM (1,733 beds)

·      Development pipeline - Over 11,300 student beds in the pipeline across 31 sites, with 17 forward sold and four more in legal negotiations or under offer

·      Delivery pipeline -

·      2016 deliveries - All forward sold and on target to be completed ahead of the 2017 academic year

·      2017 deliveries - All sites secured with planning and only one remaining to sell which is in legal negotiations

·      2018 deliveries - All sites secured and progressing satisfactorily

·      2019/20 deliveries - four sites secured and a number of additional site acquisitions progressing

·      Fresh Student Living Limited ("Fresh") acquired for £15 million prior to IPO and successfully integrated into the Group. Fresh is engaged in the operational management of purpose built student accommodation assets

·      Fresh student accommodation beds under management already contracted to increase from 8,310 beds in FY 2016 to 17,924 beds by FY 2020

·      Five Nine Living Limited established for the management of multi occupancy property assets in the Private Rented Sector ('PRS'), leveraging the expertise of Fresh

·      Watkin Jones plc Board formally established, comprising Grenville Turner (Chairman); Simon Laffin (non-executive director); Mark Watkin Jones (CEO) and Philip Byrom (CFO).

 

Commenting on the results, Mark Watkin Jones, Chief Executive Officer of Watkin Jones plc, said:  "Following on from our successful admission to AIM in March this year, we are delighted to report such a strong maiden set of half year results today.  Our student accommodation development business remains positively underpinned by the fundamentals of the student accommodation market and the forward sale model provides us with excellent visibility as to future earnings and cash flow.  The current student accommodation pipeline of 31 development sites underpins the business outlook to FY 2018, with 16 of the 17 developments for delivery by the end of FY 2017 already forward sold.  We are at advanced positions regarding the acquisition of a number of site opportunities that will be for delivery in FY 2019 and beyond.

 

An opportunity exists for our residential business, with the potential for Watkin Jones to apply its student accommodation model to the development and management of purpose built PRS schemes.

 

These strong interim results, coupled with the status of the forward sold student accommodation pipeline and the fact that all developments for this year's delivery are progressing satisfactorily, provide the Board with confidence for the Group's performance going forward."

 



 

Chief Executive's Statement

 

Admission to AIM

Watkin Jones plc was admitted to trading on AIM, a market operated by the London Stock Exchange, on 23 March 2016, following a successful IPO process which valued the Group at £255 million on Admission.

 

It is pleasing to report that no significant disruption was caused to the running of the Group's business during the IPO process, which is a reflection of the breadth and experience of the operational management teams in place within the business.

 

Results for the six months to 31 March 2016

The Board is pleased to report that revenue from continuing operations has increased by 40.5% to £145.9 million for the six months to 31 March 2016, compared to the same period last year (H1 2015: £103.8 million).  Operating profit before exceptional IPO costs has increased by 83.5% to £17.0 million (H1 2015: £9.3 million).

 

The growth in revenue reflects an underlying increase in the value of student accommodation projects in development, combined with excellent progress in the construction of the nine developments in build for completion in the current financial year.  In addition, Group revenues have benefitted from higher sales of residential properties and from the sale of commercial property that was in inventory at the start of the period.

 

The overall gross margin for the period was in line with management expectations at 16.1%, compared to 14.7% for the equivalent period last year, reflecting the Group's progressive shift away from lower margin contracting work towards higher margin own development opportunities.

 

Overhead costs for the period amounted to £6.5 million, compared to £6.0 million for H1 2015.  This is a modest increase given the higher operating activity for the period, with the underlying overhead structure for the business substantially unchanged.

 

Costs associated with the IPO include transaction related fees and commissions amounting to £6.5 million.  In addition, the pre-IPO reorganisation referred to in the Group's Admission Document resulted in a net cost to the Group of £20.1 million relating to settling the various share based management incentive arrangements that triggered on completion of the IPO.  These items have been charged as an operating exceptional cost.

 

After accounting for the exceptional IPO costs and net finance costs of £0.3 million, the Group has reported a loss before tax for the period of £9.9 million (H1 2015 £9.0 million profit).  Excluding the exceptional IPO costs, the adjusted profit before tax for the period was £16.7 million.

 

Adjusted basic earnings per share for continuing operations, excluding the exceptional IPO costs, was 5.2 pence for the period, an increase of 87% on the like for like calculated figure of 2.8 pence for the same period last year.

 

Segmental review

Student accommodation development

Revenues from student accommodation development for the period amounted to £122.6 million, an increase of 26% on the comparative period last year (H1 2015: £97.3 million).

 

The gross margin for the period on student accommodation developments amounted to 17.9%, compared to 14.8% for H1 2015.  This significant improvement reflects the progressive move to own development projects away from lower margin contracting opportunities.  The margin in the second half is expected to strengthen further as the contribution from higher margin developments increases.

 

The student accommodation pipeline is robust.  All developments for completion in the current financial year are forward sold and there is only one development for completion in FY 2017 remaining to be sold, which is currently in legal negotiations.  All developments for completion in FY 2017 have planning consents and all development sites for FY 2018 have been secured.  Five of these already have planning consents and the remainder are progressing satisfactorily through the planning process.

 

In all, the Group currently has 31 development sites in the pipeline, representing in excess of 11,300 beds and with an appraised total development value in excess of £850 million.  Of these, 27 are for delivery by FY 2018 and four are for delivery in FY 2019 and beyond.  A number of other sites are under offer with a view to building up the secured pipeline for FY 2019.

 

Since 1 October 2015, six development sites have been forward sold (1,660 beds) and three are in legal negotiations (1,234 beds), with a total development value in excess of £200 million.

 

Watkin Jones has also been successful in continuing to secure planning consents, with nine planning consents being achieved since 1 October 2015 (3,478 beds) and of these, five planning consents have been achieved since the Group was admitted to AIM (1,733 beds).

 

The Group's development sites are geographically spread across the UK and the operating divisions responsible for building the schemes are organised on this basis.  The steps taken to negotiate national procurement terms with key sub-contractors and to standardise development layouts is continuing to ensure that build costs are kept under control.

 



 

Student accommodation management

Student accommodation management services are provided by Fresh Student Living Limited ('Fresh'), which was acquired by the Group on 25 February 2016 for a consideration of £15.0 million.  Fresh is a working capital light business and the consideration paid was largely attributable to the value of intangible assets.  Fresh has been successfully integrated into the Group.

 

Fresh provides ongoing student letting and operational management services for a variety of clients under contracts which are typically for between three and seven years, although some are for longer.  Fresh also provides consultancy and mobilisation services to clients for new schemes which are in development.  This is a key part of the complete development and management solution which Watkin Jones is able to offer to its clients.

 

As of 31 March 2016, Fresh was contracted to manage 8,310 beds across 32 schemes, with an annual management fee income of £2.3 million.  By FY 2020, Fresh is currently contracted to manage 17,924 beds across 59 schemes.

 

For the one month period post-acquisition, Fresh contributed revenue of £0.4 million and a gross margin of £0.26 million.  On a like for like basis, Fresh' revenues for the six months to 31 March 2016 amounted to £2.2 million, compared to £1.2 million for the comparative period last year.  The gross margin achieved is approximately 65%.

 

Residential development

In the six months to 31 March 2016, the residential development business achieved 79 sales completions, compared to 26 for the same period last year, and generated revenues of £16.4 million (H1 2015: £6.4 million).

 

The residential business develops the full range of private residential property, from starter homes to larger executive properties and apartment developments.  Traditionally, the division's activities have been focused on the North Wales and North West region, as well as providing the residential element of mixed use planning consents.  Going forward the division will also be responsible for the Group's developments in the Private Rented Sector ('PRS'), which the Board sees as a key part of the Group's future growth strategy.  The division is currently undertaking its first purpose built PRS development in Leeds, which is scheduled for completion in FY 2017.

 

The gross margin for the residential business was relatively modest at 7.4% for the period (H1 2015: 13.1%), but this is suppressed by the fact that the division achieved a key objective in the period, which was to complete the sale of apartments at Gorse Stacks in Chester and the ongoing sale of homes at the canal marina development at Droylsden, Manchester.  These are legacy development sites for which the sales are at nil margin, but importantly generate cash from brought forward inventory.  Sales from these two developments in the period totalled £9.8 million.  The gross margin for the residential business will continue to strengthen as more profitable developments come on stream.

 

Dividend

The Board proposes a maiden interim dividend for the period of 1.33 pence per share.  This is in line with the guidance provided in the Group's Admission Document, which indicated that the Board intend to make an interim and final dividend payment for each financial year, split as to one third for the interim payment and two thirds for the final payment, with a total dividend of 4.0 pence per Ordinary Share being paid for the year ending 30 September 2016.  This is also in line with the Board's stated intention at IPO, giving an initial dividend yield of 6%, calculated by reference to the Placing Price of £1 per Ordinary Share, and is an enhanced dividend equal to two thirds of the full year equivalent, taking into account that the Admission took place near the end of the first half year to 31 March 2016.

 

It is proposed that the maiden interim dividend will be paid on 30 June 2016 to shareholders on the register at the close of business on 17 June 2016.  The shares will go ex-dividend on 16 June 2016.

 

Balance sheet and borrowings

The Group had net cash at 31 March 2016 of £15.4 million, comprising cash of £32.6 million less borrowings of £17.2 million.  This compares favourably to the guidance provided at the time of the IPO, which indicated that net cash at Admission would be at least £10 million.  The Group's net cash position has increased by £19.3 million compared to 31 March 2015, even after absorbing the exceptional costs of £26.6 million associated with the IPO, the £15 million cost of acquiring Fresh and a £10 million dividend paid to the existing shareholders prior to Admission.  The strong cash generation reflects the strength of the Group's forward sale business model for its student accommodation developments.  In addition, progress has continued to be made in releasing cash from inventory and work in progress, particularly associated with legacy residential and commercial developments.  Inventory and work in progress has been reduced by £29.7 million since 30 September 2015.

 

Prior to the IPO, the Group successfully concluded with HSBC a new £40 million five year revolving credit facility agreement ('RCF') and a £10 million working capital facility.  The RCF is available to support the Group's ongoing land procurement and development opportunities and will be used for strategic land acquisitions or to fund discrete developments activities where required alongside the forward sale funding model.  As at 31 March 2016 the RCF and working capital facility were unutilised.

 


 

Outlook

The Group's student accommodation development business remains positively underpinned by the fundamentals of the student accommodation market and the forward sale model provides the Group with excellent visibility as to future earnings and cash flow.  The current student accommodation pipeline of 31 development sites underpins the business outlook to FY 2018, with 16 of the 17 developments for delivery by the end of FY 2017 already forward sold.

 

Watkin Jones is at advanced positions regarding the acquisition of a number of site opportunities that will be for delivery in FY 2019 and beyond.  The Group also has several major schemes progressing through planning.  The student accommodation management business through Fresh is expected to start making an increasing contribution to the Group's results, with the annuity nature of its revenue stream and high visibility on the growth of its contracted management income providing a very positive addition.

 

An opportunity exists for the Group's residential business, with the potential for Watkin Jones to apply its student accommodation model to the development and management of purpose built PRS schemes.  The Group is currently involved in negotiations regarding a number of PRS opportunities.  Five Nine Living Limited, the Group's recently established PRS management business, is already receiving significant levels of interest as a management company for existing PRS developments, given its affiliation to Fresh.

 

The strong set of results for the first six months of the year, coupled with the status of the forward sold student accommodation pipeline and the fact that all developments for this year's delivery are progressing satisfactorily, provide the Board with confidence for the Group's performance going forward.

 

 

 

Mark Watkin Jones

Chief Executive Officer

8 June 2016

 

 



 

For further information:

Watkin Jones plc


Mark Watkin Jones, Chief Executive Officer

Tel: +44 (0) 1248 362 516

Philip Byrom, Chief Financial Officer

www.watkinjonesplc.com



Zeus Capital Limited (Nominated Adviser & Joint Broker)


Corporate Finance


Dan Bate / Nick Cowles / Jamie Peel

Tel: +44 (0) 161 831 1512

Corporate Broking

Tel: +44 (0) 20 3829 5000

Dominic King / Benjamin Robertson

www.zeuscapital.co.uk


 

Peel Hunt LLP (Joint Broker)

Tel: +44 (0) 20 7418 8900

Mike Bell / Matthew Brooke-Hitching

www.peelhunt.com



 

Media enquiries:

Buchanan


Henry Harrison-Topham / Richard Oldworth / Stephanie Watson

Tel: +44 (0) 20 7466 5000

watkinjones@buchanan.uk.com

www.buchanan.uk.com

 

Notes to Editors

 

Watkin Jones is a leading UK developer and constructor of multi occupancy property assets, with a focus on the student accommodation sector.  The Group has strong relationships with institutional investors, and a good reputation for successful, on-time-delivery of high quality developments.  Since 1999, Watkin Jones has delivered over 28,000 student beds across 88 sites, making it a key player and leader in the UK purpose built student accommodation market.  In addition, Watkin Jones has been responsible for over 50 residential developments, ranging from starter homes to executive housing and apartments.

 

The Group's competitive advantage lies in its experienced management team and 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.  Key components of the business model are:

 

·      Site identification - extensive experience of site identification and acquisition facilitates high quality sites being acquired;

·      Planning consents - in depth knowledge and experience of the planning consent process specific to this type of asset facilitates high success rates on planning applications;

·      In-house construction and delivery - in-house construction expertise, management and delivery limits reliance on third parties and, together with favourable contractual relationships with key suppliers, enhances control of cost;

·      Funding structure - forward sale model reduces risk for Watkin Jones and provides security and visibility of the asset pipeline for investors.  The Group has strong relationships with blue chip investors, including a number that are repeat investors in Watkin Jones developments; and

·     Asset management - dedicated property management division provides a continued service solution to investors post development completion and completes the 'end to end' business model.

 



 

Consolidated Statement of Comprehensive Income

for the six month period ended 31 March 2016 (unaudited)

 



 

6 months to

31 March 2016

 

6 months to

31 March 2015

12 months to

30 September

2015

 

Continuing operations

Notes

£'000

£'000

£'000

Revenue


145,888

103,815

244,246

Cost of sales


(122,359)

(88,533)

(200,198)

Gross profit


23,529

15,282

44,048

Administrative expenses


(6,042)

(5,309)

(10,611)

Distribution costs


(464)

(697)

(981)

Operating profit before exceptional costs


 

17,023

 

9,276

 

32,456

Operating exceptional costs

6

(26,561)

-

-

Operating(loss)/ profit


(9,538)

9,276

32,456

Share of profit in joint ventures


-

-

1,165

Finance income


127

35

95

Finance costs


(466)

(294)

(810)

(Loss)/Profit before tax from continuing operations


(9,877)

9,017

32,906

Income tax expense

7

(3,348)

(1,943)

(6,296)

(Loss)/Profit for the period from continuing operations


(13,225)

7,074

26,610

Discontinued operations

Profit/(Loss) after tax for the period from discontinued operations


86

(1,298)

(4,433)

(Loss)/Profit for the period attributable to ordinary equity holders of the parent


(13,139)

5,776

22,177

Other comprehensive income





Net gain on available-for-sale financial assets


 

87

 

70

 

112

Total comprehensive (loss)/ income for the period attributable to ordinary equity holders of the parent


 

(13,052)

 

5,846

 

22,289






Earnings per share for the period attributable to ordinary equity holders of the parent


Pence

Pence

(restated)

Pence

(restated)

 

Basic earnings per share

 

8

 

(5.152)

 

2.265

 

8.696

Basic earnings per share for continuing operations

 

8

 

(5.186)

 

2.774

 

10.434

Adjusted basic earnings per share for continuing operations (excluding operating exceptional costs)

8

 

 

5.201

 

 

2.774

 

 

10.434

 

 



 

Consolidated Statement of Financial Position

as at 31 March 2016 (unaudited)

 



31 March

2016

31 March

2015

30 September

2015


Notes

£'000

£'000

£'000

Non-Current assets





Intangible assets

10

15,572

3,193

-

Property, plant and equipment


4,648

5,008

4,807

Investment in joint ventures


5,077

8,394

7,220

Deferred tax asset


1,369

684

1,514

Other financial assets


2,505

1,116

1,169



29,171

18,395

14,710

Current assets





Inventory and work in progress


90,022

114,361

119,683

Trade and other receivables


20,761

35,305

20,553

Other financial assets


-

52

-

Cash at bank and in hand

12

32,604

17,200

59,270



143,387

166,918

199,506

Total assets


172,558

185,313

214,216

Current liabilities





Trade and other payables


(59,421)

(58,405)

(69,696)

Provisions


(339)

(388)

(339)

Other financial liabilities


(56)

-

(47)

Interest-bearing loans and borrowings


(16,329)

(9,241)

(9,759)

Current tax liabilities


(3,165)

(3,717)

(7,077)



(79,310)

(71,751)

(86,918)

Non-Current liabilities





Interest-bearing loans and borrowings


(11,935)

(10,424)

 

Deferred tax liabilities


(355)

(396)

 

Provisions


(2,518)

(2,124)

 

Other non-current liabilities


-

(2,147)

(1,304)

 



(4,499)

(16,955)

(14,248)

 

Total Liabilities


(83,809)

(88,706)

(101,166)

 

Net assets


88,749

96,607

113,050

 

Equity





Share capital


2,550

1,000

1,000

Share premium


84,612

6,300

6,300

Merger reserve


(75,383)

-

-

Available-for-sale reserve


240

111

153

Retained earnings


76,730

89,196

105,597

Total Equity


88,749

96,607

113,050

 

 



 

Consolidated Statement of Changes In Equity

for the six month period ended 31 March 2016 (unaudited)


Share
 capital

Share premium

 

 

Merger

reserve

 

Available-for-sale reserve

Retained earnings

Total

30 September 2014

1,000

6,300

-

41

83,420

90,761

Profit for the period

-

-

 

-

-

5,776

5,776

Other comprehensive income

-

-

 

-

70

-

70

Balance at 31 March 2015

1,000

6,300

-

111

89,196

96,607

Profit for the period

-

-

 

-

-

16,401

16,401

Other comprehensive income

-

-

 

-

42

-

42

Balance at 30 September 2015

1,000

6,300

-

153

105,597

113,050

 

Dividend paid prior to IPO (note 9)

-

-

-

-

(10,000)

(10,000)

Share restructuring prior to IPO

1,695

167,864

-

-

-

169,559

Capital reduction prior to IPO

-

(167,864)

-

-

167,864

-

Issue of shares on IPO

855

84,586

-

-

-

85,441

Issue of shares to employees of Fresh Student Living Limited

-

26

-

-

-

26

Merger accounting on aggregation of Watkin Jones plc and Watkin Jones Group Limited

(1,000)

(6,300)

(75,383)

-

(173,592)

(256,275)

Loss for the period

-

-

-

-

(13,139)

(13,139)

Other comprehensive income

-

-

 

-

87

-

87

Balance at 31 March 2016

2,550

84,612

(75,383)

240

76,730

88,749

 



 

Consolidated Statement of Cash Flows

for the six month period ended 31 March 2016 (unaudited)



6 months to

31 March

2016

6 months to

31 March

2015

12 months to

30 September

2015


Notes

£'000

£'000

£'000

Cash flows from operating activities





Cash generated from/ (used in) operations

 

11

6,907

(14,161)

32,008

Interest received


127

35

95

Interest paid


(382)

(294)

(875)

Interest element of finance lease rental payments


(12)

(13)

(20)

Tax paid


(6,911)

(927)

(2,777)

Net cash inflow/(outflow) from operating activities


(271)

(15,360)

28,431

Cash flows from investing activities





Movement in loans from joint ventures


-

-

1,339

Acquisition of property, plant and equipment


(5)

-

(50)

Proceeds on disposal of property, plant and equipment


1

31

70

Acquisition of Fresh Student Living Limited


(15,075)

-

-

Cash in Fresh Student Living Limited at acquisition


579

-

-

Loan repayment from joint venture


2,143

-

-

Purchase of other financial assets


(1,024)

(78)

(378)

Net cash (outflow)/inflow from investing activities


(13,381)

(47)

981

Cash flows from financing activities





Dividend paid


(10,000)

-

-

Issue of Shares prior to IPO


88,151

-

-

Issue of Shares on IPO


85,441

-

-

Acquisition of shares in Watkin Jones Group Limited


(173,592)

-

-

Capital element of finance lease rental payments


(180)

(203)

(393)

Proceeds from borrowings


-

7,894

8,940

Repayment of borrowings


(2,834)

(1,022)

(4,627)

Net cash (outflow)/inflow from financing activities


(13,014)

6,669

3,920






Net (decrease)/increase  in cash


(26,666)

(8,738)

33,332

Cash and cash equivalents at

beginning of the period


59,270

25,938

25,938

Cash and cash equivalents at

end of the period

 

12

32,604

17,200

59,270

 

 



 

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 Units 21-22, Llandygai Industrial Estate, Bangor Gwynedd, LL57 4YH.

 

The Company was incorporated as HDCO3 Limited on 23 September 2015.

 

The Company acquired all the issued shares in Watkin Jones Group Limited on 15 March 2016.  This was achieved through a combination of a share for share exchange over 319,247 shares in Watkin Jones Group Limited, involving the issue of 81,407,985 ordinary shares in the Company at an issue price of £1 per share, and the completion of an agreement to purchase the remaining 680,753 shares for an amount of £173,592,015 in cash.  The transaction valued Watkin Jones Group Limited at £255,000,000.  On the same day the Company was re-registered as Watkin Jones plc.

 

On 23 March 2016 the Company completed an Initial Public Offering by way of a placing of 85,440,493 Ordinary Shares at 100 pence per share and a Vendor Placing of 45,900,100 Ordinary Shares at 100 pence per share.  The Company's shares were admitted to trade on the Alternative Investment Market ('AIM') of the London Stock Exchange on 23 March 2016.

 

The principal activities of the Company and its subsidiaries (collectively the 'Group') are those of property development and the management of properties for multiple residential occupation.

 

The consolidated interim financial statements of the Group for the six month period ended 31 March 2016 comprises the Company and the subsidiaries that were acquired by the Company before the listing of the Company's shares on AIM.  The basis of preparation of the consolidated interim financial statements is set out in note 2 below.

 

The financial information for the 6 months ended 31 March 2016 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 2015 that is presented in the Company's Admission Document dated 16 March 2016, which has been prepared in accordance with IFRSs as adopted by the European Union.  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 434 of the Companies Act 2006.

 

This report was approved by the directors on 8 June 2016.

 

2.      Basis of preparation

 

The consolidated interim financial statements of the Group for the six months ended 31 March 2016 and the comparatives for the six months ended 31 March 2015 and the 12 months ended 30 September 2015 have been prepared on the basis that Watkin Jones plc was in existence throughout these periods.  The terms of the acquisition of the shares in Watkin Jones Group Limited were such that the group reconstruction should be accounted for as a continuation of the existing group rather than an acquisition.  Accordingly the interim financial statements and all comparative periods have been prepared on that basis.

 

The Group has not previously prepared financial statements in accordance with IFRS but the intention is to transition to IFRS in the Group's consolidated financial statements for the period to 30 September 2016.

 

The interim financial statements have been presented as of 31 March 2016 and 30 September 2015 and for the periods then ended to provide an indication of the comparative information that will be included in the Group's consolidated financial statements and interim financial statements for the periods ended 30 September 2016 and 31 March 2017 assuming that the Group adopts IFRS with a date of transition of 1 October 2014.  The interim financial statements for the period ended 31 March 2015 have been presented to provide comparative information for the interim financial statements for the period ended 31 March 2016 and have been prepared on the same basis.  The financial information has been prepared based on IFRS that is expected to exist at the date on which the Group prepares its 30 September 2016 financial statements.  To the extent that IFRS at 30 September 2016 does not reflect the assumptions made in preparing the 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 Admission Document dated 16 March 2016.  There has been no significant change in any risk management policies since the date of the Admission Document.

 

 

3.      Accounting policies

 

With the exception of the accounting policy for intangible assets other than goodwill, which has been adopted for the first time in the preparation of these interim financial statements and is set out below, the accounting policies used in preparing these interim financial statements are the same as those set out and used in preparing the financial information that is presented in the Company's Admission Document dated 16 March 2016.

 

3.1    Other intangible assets

 

Intangible assets other than goodwill are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the consolidated statement of comprehensive income on a straight-line basis over the estimated useful lives of the intangible assets as follows:-

 

                Customer relationships                                     -               11 years

                Brand                                                                     -               10 years

 

4.      Acquisition of Fresh Student Living Limited

 

On 25 February 2016 Founded Living Limited, a subsidiary of Watkin Jones Group Limited, acquired the 750 Ordinary Shares in Fresh Student Living Limited ("Fresh") held by Mark and Glyn Watkin Jones, who were both directors of and shareholders in Watkin Jones Group Limited, for a cash consideration of £11,835,512.  The shares acquired represented 77.48% of the issued shares of the company.

 

On 23 March 2016, on satisfaction of the condition of Admission to AIM of Watkin Jones plc, Founded Living Limited acquired the 218 A Ordinary Shares held by various directors and senior managers of Fresh, for a cash consideration of £3,164,488.  The shares acquired represented the remaining issued shares of the company.  As a condition of the acquisition of these shares, the vendor shareholders were required to invest £1,397,609, being 50% of the net of tax proceeds received, in shares in Watkin Jones plc as part of the IPO.

 

The total consideration paid for the shares in Fresh was therefore £15,000,000, plus stamp duty of £75,010.  Fresh is engaged in the management of purpose built student accommodation.  Its services include the letting and operational management of properties, for which the company is engaged under a management agreement and receives a management fee, as well as consultancy and mobilisation services provided during the development phase of a student property.

 

The resulting goodwill of £9,516,106 arising on the acquisition has been capitalised and is subject to an annual impairment review by management.  Goodwill is attributed to Fresh's knowledge and expertise in the letting and management of purpose built student accommodation and in the synergy with the Group's student accommodation development business.

 

The book and fair value of the net assets acquired in respect of Fresh were as follows:

 


Book

value

Fair value

adjustment

Fair

value


£'000

£'000

£'000

Non-Current assets




Intangible assets




  Customer relationships

-

5,604

5,604

  Brand

-

499

499

  Goodwill

-

9,516

9,516

Property, plant and equipment

90

-

90

Deferred tax asset

261

-

261

Other financial assets

150

54

204


501

15,673

16,174

Current assets




Trade and other receivables

1,262

-

1,262

Cash at bank and in hand

579

-

579


1,841

-

1,841

Total assets

2,342

15,673

18,015

Current liabilities




Trade and other payables

(1,830)

(10)

(1,840)


(1,830)

(10)

(1,840)

Non-Current liabilities




Deferred tax liabilities

-

(1,100)

(1,100)


-

(1,100)

(1,100)

Total Liabilities

(1,830)

(1,110)

(2,940)





Net assets

512

14,563

15,075

 

In the period since acquisition, Fresh contributed revenue of £407,000 and an operating profit of £53,000.

 



 

5.      Segmental reporting

 

The Group has identified three segments for which it reports under IFRS 8 'Operating segments'.  The following represents the segments that the Group operates in:

 

a.         Student Accommodation Development - Purpose built student accommodation developments.

b.         Residential Development - The development of traditional residential and private rented sector property.

c.          Student Accommodation Management - The management of student accommodation property.  This segment was established following the acquisition of Fresh Student Living Limited on 25 February 2016.

 

Corporate - central revenue and costs not solely attributable to any one division.

 

All revenues arise in the UK.

 

Performance is measured by the Board based on gross profit as reported in the management accounts.

 

6 months ended

31 March 2016

(unaudited)

Student

Accommodation

Development

Residential

Development

Student

Accommodation

Management

Corporate

Total


£'000

£'000

£'000

£'000

£'000







Segmental revenue

122,587

16,398

407

6,496

145,888

Segmental gross profit

21,971

1,217

261

80

23,529

Administration expenses

-

-

(208)

(5,834)

(6,042)

Distribution costs

-

-

-

(464)

(464)

Operating exceptional costs

-

-

-

(26,561)

(26,561)

Finance income

-

-

-

127

127

Finance costs

-

-

-

(466)

(466)

Profit/(loss) before tax

21,971

1,217

53

(33,118)

(9,877)

Taxation

-

-

-

(3,348)

(3,348)

Profit/(loss) for the period

21,971

1,217

53

(36,466)

(13,225)







Inventory and work in progress

25,060

56,618

-

5,303

86,981

Inventory and work in progress - discontinued

-

-

-

-

3,041

Total inventory and work in progress

-

-

-

-

90,022

 

 

 



 

6 months ended

31 March 2015

(unaudited)

Student Accommodation

Development

Residential

Development

Student

Accommodation

Management

Corporate

Total


£'000

£'000

£'000

£'000

£'000







Segmental revenue

97,345

6,372

-

98

103,815

Segmental gross profit

14,436

837

-

9

15,282

Administration expenses

-

-

-

(5,309)

(5,309)

Distribution costs

-

-

-

(697)

(697)

Finance income

-

-

-

35

35

Finance costs

-

-

-

(294)

(294)

Profit/(loss) before tax

14,436

837

-

(6,256)

9,017

Taxation

-

-

-

(1,943)

(1,943)

Profit/(loss) for the period

14,436

837

-

(8,199)

7,074







Inventory and work in progress

31,887

53,473

-

5,144

90,504

Inventory and work in progress - discontinued

-

-

-

-

23,857

Total inventory and work in progress

-

-

-

-

114,361

 

 

6.      Operating exceptional costs



 

 

6 months to

 31 March 2016

 

 

6 months to

 31 March 2015

 

12 months to

 30 September

2015

 

Exceptional IPO costs


£'000

£'000

£'000

IPO transaction costs


6,500

-

-

Management incentive payments


20,061

-

-

 

Total exceptional IPO costs


 

26,561

-

-

 

The charge for management incentive payments comprises amounts payable to certain senior management of Watkin Jones Group Limited in connection with various share based incentive arrangements which fell due on the Admission to AIM of Watkin Jones plc.  The amount comprises a total charge of £21,735,400, plus stamp duty costs of £98,440, less an amount previously provided of £1,773,200.  Of the total incentive payments made, management agreed to invest £13,942,984 in shares in Watkin Jones plc as part of the IPO.

 

7.      Income taxes

 

The tax expense for the period has been calculated by applying the estimated tax rate for the financial year ending 30 September 2016 of 20.3% to the profit before exceptional IPO costs.  The tax credit on the exceptional IPO costs has been restricted to 1.6% as the majority of these costs are considered not deductible for tax purposes.  An adjustment to the tax charge has been made for known deferred tax movements in the period.

 

8.      Earnings per share

 

Basic earnings per share 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 outstanding during the year, except that for the six month period ended 31 March 2016 and for the prior comparative periods, the number of shares in issue at 31 March 2016 has been used in the calculations in order to give the basic earnings per share attributable to ordinary equity holders of the parent following the IPO.

 

There is no difference between basic earnings per share and diluted earnings per share as there are no dilutive share option arrangements in place at 31 March 2016.

 

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

 


Period

ended 31

March

2016

Period

ended 31

March

2015

Year

ended 30

September

2015


£'000

£'000

£'000

 

(Loss)/Profit attributable to ordinary equity holders of the parent

(13,139)

5,776

22,177

(Loss)/Profit from continuing operations attributable to ordinary equity holders of the parent

(13,225)

7,074

26,610

Adjusted profit from continuing operations attributable to ordinary equity holders of the parent (excluding operating exceptional costs)

13,264

7,074

26,610



(Restated)

(Restated)

Weighted average number of ordinary shares for basic earnings per share

255,026,325

255,026,325

255,026,325


 

Pence

 

Pence

(Restated)

 

Pence

(Restated)

Basic earnings per share




Basic (loss)/ profit for the period attributable to ordinary equity holders of the parent

(5.152)

2.265

8.696

 

Basic earnings per share for continuing operations




Basic (loss)/ profit for the period attributable to ordinary equity holders of the parent

(5.186)

2.774

10.434

 

Adjusted basic earnings per share for continuing operations (excluding operating exceptional costs)




Basic profit for the period attributable to ordinary equity holders of the parent

5.201

2.774

10.434

 

9.      Dividends

 

An interim dividend of £14.689615 per ordinary Share was paid to the holders of E and F Ordinary Shares in Watkin Jones Group Limited on 1 March 2016.  The total dividend paid amounted to £10,000,000.

 

 

10.    Intangible assets


Customer

Relationships

Brand

Goodwill

Total


£'000

£'000

£'000

£'000

Cost:





As at 1 October 2014

-

-

3,193

3,193

As at 31 March 2015

-

-

3,193

3,193

As at 1 April 2015

-

-

3,193

3,193

Impairment during the period

-

-

(3,193)

(3,193)

As at 30 September 2015

-

-

-

-

As at 1 October 2015

-

-

-

-

Arising on acquisition of Fresh Student Living

5,604

499

9,516

15,619

As at 31 March 2016

5,604

499

9,516

15,619

 

Amortisation:





As at 1 October 2014

-

-

-

-

As at 31 March 2015

-

-

-

-

As at 1 April 2015

-

-

-

-

As at 30 September 2015

-

-

-

-

As at 1 October 2015

-

-

-

-

Amortisation for the period

(43)

(4)

-

(47)

As at 31 March 2016

(43)

(4)

-

(47)

 

Net book value:





As at 31 March 2015

-

-

3,193

3,193

As at 30 September 2015

-

-

-

-

As at 31 March 2016

5,561

495

9,516

15,572

 

The impairment during the year ended 30 September 2015 arose in July 2015 following a review carried out by the Board as a consequence of the decision to discontinue the activities of the construction contracting division.

 

11.    Reconciliation of operating profit to net cash flows from operating activities

 


6 months

ended 31

March

2016

6 months

ended 31

March

2015

Year

ended 30

September

2015


£'000

£'000

£'000

(Loss)/profit before tax from continuing operations

(9,877)

9,017

32,906

Profit/(loss) before tax from discontinued operations

108

(1,663)

(4,753)

(Loss)/Profit before tax

(9,769)

7,354

28,153

Depreciation

253

244

489

Amortisation of intangible assets

47

-

-

Goodwill impairment

-

-

3,193

Loss/(Profit) on sale of plant and equipment

2

(9)

(40)

Finance income

(127)

(35)

(95)

Finance costs

466

294

810

Share of profit in joint ventures

-

-

(1,165)

Decrease/(increase) in inventory and work in progress

29,539

(22,731)

(28,026)

Interest capitalised in development land, inventory and work in progress

122

28

329

Decrease/(increase) in trade and other receivables

1,054

(2,822)

13,314

(Decrease)/increase in trade and other payables

(14,680)

3,516

15,489

Provision for property lease commitment

-

-

(443)

Net cash inflow/(outflow) from operating activities

6,907

(14,161)

32,008

 

 

12.    Analysis of net cash

 



6 months

ended 31

March 2016

6 months

ended 31

March 2015

12 months

ended 30

September 2015



£'000

£'000

£'000

 

Cash at bank and in hand


 

32,604

 

17,200

 

59,270

Finance leases


(358)

(728)

(538)

Bank loans


(16,883)

(20,448)

(19,645)

 

Net cash


15,363

(3,976)

39,087

 

 

 

- Ends -


This information is provided by RNS
The company news service from the London Stock Exchange
 
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