Half Year Results

RNS Number : 7428L
Watkin Jones plc
17 May 2022
 

 

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:

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

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:

15 current developments on track

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

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%

1 Vesting 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 -

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
 
END
 
 
IR SFSSIWEESELI

Companies

Watkin Jones (WJG)
UK 100

Latest directors dealings