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Watkin Jones plc (WJG)

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Tuesday 19 January, 2021

Watkin Jones plc

Full Year Results

RNS Number : 0970M
Watkin Jones plc
19 January 2021
 

For immediate release

19 January 2021

 

 

 

Watkin Jones plc

('Watkin Jones' or the 'Group')

 

Full year results for the year ended 30 September 2020

 

'Return to dividend driven by robust performance with foundations in place for future growth'

 

Watkin Jones plc (AIM:WJG), the UK's leading developer and manager of residential for rent with a focus on the build to rent ('BtR') and purpose built student accommodation ('PBSA') sectors , announces its annual results for the year ended 30 September 2020 ('FY20').

 

 

FY20

FY19

(Restated1)

Change

(%)

Revenue

£354.1m

£374.8m

-5.5%

Gross profit

£75.9m

£80.0m

-5.1%

Adjusted operating profit2

£51.7m

£55.6m

-7.1%

Adjusted profit before tax2

£45.8m

£50.4m

-9.3%

Adjusted basic earnings per share2

14.7p

16.1p

-8.7%

Dividend per share

7.35p

8.35p

-12.0%

Adjusted net cash3

£94.8m

£76.8m

+23.4%

 

 

 

 

Statutory operating profit

£31.2m

£53.0m

-41.1%

Statutory profit before tax

£25.3m

£47.9m

-47.1%

Basic earnings per share

8.2p

15.2p

-45.8%

 

 

Financial Highlights

 

· Solid financial performance, showing the resilience of the business during a challenging period for the UK economy.

· Revenue down 5.5% for the year, primarily as a result of forward sales of developments being deferred due to COVID-19 uncertainty.

· Robust gross margin for the year of 21.4% (FY19: 21.4%).

· Impact of COVID-19 disruption on operational delivery minimised and additional construction cost substantially mitigated, with FY20 planned deliveries all completed.

· All Government financial assistance received to support furloughed staff, totalling £0.8 million, repaid at the start of FY21.

· Full-year final dividend of 7.35 pence per share proposed, in line with policy of 2.0x cover by adjusted earnings, reflecting strength of financial performance and cash position.

· Strong liquidity position:

£134.5 million gross cash at 30 September 2020 (30 September 2019: £115.6 million).

£94.8 million net cash (after deducting loans, but excluding IFRS 16 operating lease liabilities), up from £76.8 million at 30 September 2019.

£100.0 million revolving credit facility with HSBC renewed to May 2025, of which £65.0 million was undrawn at 30 September 2020.

· Exceptional costs of £20.5 million, including £14.8 million in relation to remediating cladding on a number of past developments and £5.7 million of additional costs in relation to COVID-19.

 

 

 

Richard Simpson, Chief Executive Officer of Watkin Jones, said: "We delivered a robust financial performance for FY20, building on our strong first half despite the subsequent and ongoing disruption caused by COVID-19.  Our operations have performed well and we have taken the opportunity to secure sites to significantly increase our development pipeline, positioning us to deliver our growth strategy as the UK's leading developer and manager of residential for rent.

 

"COVID-19 undoubtedly caused delays to investment activity in the period, however I am pleased to report that the resumption in forward sales that we have seen, coupled with the increase in the number of student beds for delivery in FY21 and the scheduled completion of four BtR developments, should see Watkin Jones return to growth in the coming year, assuming there is no further significant disruption to our activities. We are pleased with our progress in growing our BtR and PBSA development pipelines and remain very confident in the long term prospects for these markets.  

 

"We have had a good start to FY21 with new forward sales and our developments progressing well. The current escalation of the pandemic and latest lockdown brings with it further operational challenges, not least of which to Fresh who continue to provide support to students in residence and those unable to return to their accommodation in January.  However, we have limited direct exposure to the level of student occupancy and with our COVID-secure operations working effectively we are able to continue delivering our developments on site. In light of our strong performance and cash position, we have resumed our previous dividend policy and the Board is therefore proposing a full-year dividend of 7.35 pence per share.

 

"Overall, I am confident about our business and its prospects, which are supported by strong sector dynamics and investor demand.  Throughout the pandemic, we have been able to adapt to the changing circumstances and this, together with our strong pipeline of future developments and increasing focus on our ESG agenda, will allow the Group to continue to deliver for its stakeholders. 

 

"I would like to take this opportunity to thank all the people across the Watkin Jones Group for their outstanding contribution in the most challenging of times.  I want to thank them all for their hard work and their willingness to innovate, overcome problems and adapt to new ways of working which has set the foundations for our future growth." 

 

 

Business Highlights

 

Further good progress with delivering our strategy.

 

Build to rent development - good progress with developments for delivery in FY21 and strong growth in pipeline

· Exciting progress with BtR strategy, delivering 159‑unit scheme in Bournemouth and making good progress on site with developments at Reading, Wembley, Sutton and Stratford, which are all on track for completion in FY21.

· Secured four significant new sites in Birmingham, Bath, Glasgow and Lewisham, London and, subsequent to the year end, a site in Belfast.

· 928 apartments across five sites forward sold for delivery over the period to FY22. Further three sites (722 apartments) currently in negotiation for sale for delivery over the period FY22 to FY23.

· Planning obtained for 538 BtR apartments on schemes in Brighton and Hove and Lewisham, London.

· Total secured development pipeline of 4,466 apartments across 13 sites, for delivery between FY21 and FY25.

 

 

BtR apartments

 

Total pipeline

FY21

FY22

FY23

FY24

FY25

Forward sold

928

857

71

-

-

-

Forward sales in negotiation

722

-

184

538

-

-

Sites secured with planning

-

-

-

-

-

-

Sites secured subject to planning

2,816

-

-

-

1,117

1,699

Total secured

4,466

857

255

538

1,117

1,699

Site acquisitions in legals

247

-

-

-

247

-

Total BtR pipeline

4,713

857

255

538

1,364

1,699

 

Student accommodation development - completed FY20 schemes and those for FY21 on track, pipeline increased

· Resilient operational performance, with 2,609 beds delivered. Six developments were completed ahead of the academic year despite lockdown restrictions and one scheme subsequent to the year end.

· 2,730 beds across six sites forward sold for delivery in FY21, with a further development (462 beds) in negotiation for forward sale.

· 1,168 beds across four sites forward sold for delivery in FY22, including sites in Bristol, York and Leicester forward sold subsequent to the year end.

· Added prime sites to the pipeline in Bristol, Bath, Edinburgh, Guildford and Manchester.

· Obtained planning for 1,217 PBSA beds across five sites, including an additional 100 beds at Kelaty House, Wembley.

· Signed an on-campus partnership agreement with Cranfield University for delivery in FY21 (415 beds) and FY22 (198 beds).

· Total secured development pipeline of 7,910 student beds across 20 sites, for delivery between FY21 and FY24.

 

 

PBSA beds

 

Total pipeline

FY21

FY22

FY23

FY24

FY25

Forward sold

3,898

2,730

1,168

-

-

-

Forward sales in negotiation

714

462

-

252

-

-

Sites secured with planning

1,117

-

777

340

-

-

Sites secured subject to planning

2,181

-

-

1,846

335

-

Total secured

7,910

3,192

1,945

2,438

335

-

Site acquisitions in legals

1,998

-

-

662

570

766

Total PBSA pipeline

9,908

3,192

1,945

3,100

905

766

 

Accommodation management (Fresh) - strong operational performance in the face of the pandemic

· Fresh continued to perform well during the pandemic, as we focused on supporting student and tenant welfare.

· At 30 September 2020, Fresh managed 20,179 student beds and BtR apartments across 66 schemes (30 September 2019: 17,721 beds and apartments, across 64 schemes).

· Nine new PBSA schemes (3,593 beds) mobilised in the year, ready for occupation and management from the start of the 2020/21 academic year.

· Won mandates during the year for the future management of 1,414 PBSA beds.

· Currently appointed to manage 21,790 student beds and BtR apartments by FY23, including expected renewals.

· Began to implement new management system for both BtR and student accommodation, for roll out in FY21.

· Achieved COVID-secure accreditation for the properties Fresh manages and provided significant support to student and residential tenants throughout the pandemic.

 

Residential - solid performance and exploring opportunities to develop a presence in affordable housing

· Good performance against backdrop of COVID-19 pandemic, with 95 sales completions (FY19: 150 completions), including 25 apartments in our developments at Stratford and Bath.

· Completed the 35-apartment development at Trafford Street, Chester, which was forward sold in FY19.

· Strong pick up in sales in the summer months following the lifting of the initial COVID-19 lockdown measures and introduction of temporary stamp duty relief, with 25 sales reserved or exchanged going into FY21.

· Commenced development of a site for 97 homes in Preston, including 34 affordable homes.

· Pilot testing opportunity to combine our residential delivery capability with our proven residential for rent development model in the affordable housing sector.

· Secured, subsequent to the year end, our first affordable homes site for 245 homes in Crewe, with an offer progressing for the forward sale of 159 affordable and BtR homes.

 

 

Notes

1.  IFRS 16 'Leases' was applicable to the Group for the first time for FY20.  The Group has adopted the fully retrospective approach in applying the standard, recognising its material impact on the Group's results and statement of financial position.  The comparative results for FY19 have therefore been restated according to the transition arrangements set out in the standard.  Further details on the nature of the changes to the Group's accounting required by this standard, as well as its main impacts and the adjustments made to restate the comparative figures, are detailed in the financial review below and in note 4 to the financial statements.

2.  Adjusted operating profit, adjusted profit before tax and adjusted basic earnings per share are calculated before the impact of exceptional charges of £20.5 million (FY19: exceptional charge of £2.6 million).

3.  Adjusted net cash is stated after deducting loans, but before deducting IFRS 16 operating lease liabilities of £134.4 million at 30 September 2020 (30 September 2019: £137.5 million).

 

 

Analyst meeting

 

A meeting for analysts will be held virtually at 09.30am today, 19 January 2021.  A copy of the Final Results presentation is available at the Group's website: http://www.watkinjonesplc.com

 

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

https://webcasting.buchanan.uk.com/broadcast/5fda032ac26cbe3059348df4

 

 

 

 

Chairman's statement

 

This has been a difficult year for everyone, but Watkin Jones has proved its ability to adapt and respond to the most challenging of times.

 

The resilience of our business was soundly tested this year by the COVID-19 pandemic and I am pleased to say that we have emerged in good shape.  This is testament to our strong executive leadership, our ability to adapt our operations quickly and effectively, and the support of our people, supply chain, shareholders and institutional clients.

 

Performance

Our operations have performed well through the pandemic and we delivered solid financial results, proving the robustness of our business.

 

Since the onset of the pandemic, protecting the health and wellbeing of our people, tenants and supply chain partners has been our absolute priority.  While Government advice did not require us to close our development sites, we did so from 23 March 2020 until we were sure we could operate them safely.  Introducing new working practices on our sites enabled us to deliver six of our seven student schemes ahead of the start of the academic year.  For the seventh development, in Walthamstow, we agreed a staged handover with the client, with final completion early in FY21.  However, we did incur some extra costs as a result of the disruption to our operations and measures taken to accelerate works, as well as some late delivery damages in relation to Walthamstow.

 

Build to rent again made a material contribution to our performance, as we completed one development and made further progress with the other schemes on site.  The residential business had a good recovery in sales following the easing of the initial "lockdown" and Fresh continued to perform well, while successfully adapting to operating in a COVID-secure environment.

 

While the Group is soundly financed and has good liquidity, in a highly uncertain environment at the beginning of the pandemic, we considered it prudent to implement comprehensive cash conservation measures.  At the year end, we had a net cash balance of £94.8 million and headroom within our debt facilities of a further £75.0 million, giving us confidence in our financial position.

 

Dividends

On 1 April 2020, we announced the temporary suspension of dividend payments.  The Board did not therefore declare an interim dividend in FY20.  However, in light of the Group's performance and our strong cash position, we have resumed our previous dividend policy of paying a dividend 2.0x covered by adjusted earnings.  The Board is therefore proposing a full-year dividend of 7.35 pence per share, which will be paid on 26 February 2021 to shareholders on the register on 29 January 2021.

 

Board, management and people

I have been hugely impressed by the way our people, throughout the business, have responded to the challenges of COVID-19.  Their flexibility, expertise and commitment enabled us to react effectively and in a way that reflects our culture, and I thank them all on the Board's behalf.

 

The Board has always focused carefully on the Group's culture and how the decisions we make could affect it.  As one example, at our quarterly reviews of health and safety performance we always ensure that the health and safety team feels it has the support it needs to make the right decisions and to prioritise protecting people above all else.  This in turn helps to reinforce a culture where our people feel valued and respected, and are incentivised to perform.

 

The Group has strong executive leadership and we have seen the benefits of that this year.  One of the Board's responsibilities is to ensure that we have the breadth and depth of leadership we will need in the future, so we can meet our growth objectives.  The Board therefore spent time during the year reviewing talent across the Group and considering succession planning.  This exercise demonstrated the great strides we have taken with building our leadership pipeline in the last twelve months.

 

There were no changes to the composition of the Board or its committees during the year.  The Directors continue to work well together and we significantly stepped up our formal and informal interactions this year, as we oversaw and supported the Group's response to the pandemic.

 

 

 

Governance

We have continued to evolve and reinforce our corporate governance framework so it remains fit for purpose as the Group grows.  One example is the formal and rigorous review of our strategy during the year, supported by an external facilitator.  Our discussions considered how we can make a difference in our markets, how we should be structured to best take advantage of the opportunities we see, and the associated risks we face.  Since the end of the year, this work has enabled us to approve a new strategy to evolve the residential business into an affordable housing-led developer, under a capital-light partnership model.  We intend to carefully trial the new model, through a pilot in the North West.  The Board also put considerable focus on risk management during the year, ensuring we have a real understanding of the risks facing the business and the barriers we have in place to limit their potential impact, as well as the costs and consequences of getting it wrong.

 

As part of our ongoing enhancements to governance, we recruited our first in-house Company Secretary, who will join us in 2021.  I want to thank Prism for their excellent support to our company secretarial function.

 

Environmental, social and governance ("ESG") initiatives are firmly on the Board's agenda, reflecting both the importance of these matters to our stakeholders and their potential to influence the Group's long-term success.  The Executive team has worked hard to develop and refine our approach this year.  Our decision to be proactive about undertaking remedial cladding works, despite not being legally required to do so, is one example of our determination to do what is right.

 

Looking forward

We remain in highly uncertain times, both in terms of the progress of the pandemic and its economic impact.  Even so, we are confident in the underlying strength of the UK's higher education sector, in the growing demand for more build to rent properties, and in our ability to adapt to changing circumstances, which will enable us to continue to deliver for our stakeholders.

 

Grenville Turner

Non‑Executive Chairman

19 January 2021

 

 

 

 

Chief Executive Officer's review

 

This was an exceptionally challenging year, but one which fully demonstrated the quality of the business and its people.

 

Performance

Despite the inevitable disruption from COVID-19 in the second half of the year, we built on our strong first half and delivered a robust financial performance for FY20 as a whole.  We also made further strategic progress as the UK's leading developer and manager of residential for rent.

 

This outcome reflects the outstanding contribution from our people across the Group.  I want to thank them all for their hard work and their willingness to innovate, overcome problems and adapt to new ways of working.  It also demonstrates the highly defensive nature of residential for rent as an asset class, and the support of our clients, customers, supply chain partners and communities, which we truly appreciate.

 

Revenue was £354.1 million (FY19: £374.8 million), a reduction of 5.5%, which was primarily due to the delay in some anticipated forward sales in the second half of the year.

 

Gross profit was £75.9 million (FY19: £80.0 million), while operating profit was £51.7 million (FY19: £55.6 million) before exceptional charges of £20.5 million (FY19: £2.6 million).  The exceptional charges mainly relate to the anticipated cost of remediating cladding on past developments, as well as additional costs and impairment charges incurred as a result of the pandemic.  The pre-exceptional operating margin was 14.6% (FY19: 14.8%).

 

While the business is soundly financed and has substantial headroom in its banking facilities, we prudently took the early decision that we should conserve cash during the pandemic.  This helped us to achieve a strong closing cash balance of £134.5 million (FY19: £115.7 million).

 

Our rapid response to COVID‑19 enabled us to meet the revised delivery schedule for student accommodation we set out at the half‑year.  This strong operational performance contributed to revenue in the year of £226.0 million for our student accommodation division, compared with £246.1 million in FY19.  In total, we delivered 2,609 beds across seven schemes.

 

For FY21, we have seven schemes with 3,192 beds scheduled for delivery.  Of this, six schemes with 2,730 beds have been forward sold, with the remaining scheme in negotiation for sale.

 

Build to rent development again made a significant contribution to our performance, with revenue of £94.0 million (FY19: £77.4 million).  We made good progress with the developments in Reading, Wembley, Sutton and Stratford, which are all moving forward as planned for completion in FY21.  We also completed our development in Bournemouth in the year, albeit later than planned due to some issues with on site management and the installation of the cladding system, compounded by the onset of the pandemic.

 

We have continued to add attractive sites to the pipeline for both BtR and PBSA developments, supporting our growth ambitions in the residential for rent market.  We secured nine sites during the second half of the year and a further four sites after our year end, three of which were under forward sales agreements.

 

Fresh delivered another solid performance, with revenue of £7.6 million (FY19: £7.5 million).  Nine new PBSA schemes (3,595 beds) were mobilised in the year, ready for occupation and management from the start of the 2020/21 academic year.  At the end of the year, the division had a total of 20,179 student beds and BtR apartments under management across 66 schemes, up from 17,721 units across 64 schemes at the start of the year.  Fresh won mandates during the year for the future management of 1,414 PBSA beds and, by FY23, Fresh is currently appointed to manage 21,790 student beds and apartments, including expected renewals.

 

The residential development business achieved revenues of £26.3 million (FY19: £34.3 million), with a strong pick up in sales following the lifting of the initial COVID-19 "lockdown" measures and introduction of the temporary stamp duty relief.

 

Strategy

We continue to successfully implement the growth strategy we set out last year.  BtR development will be the biggest contributor to growth in the coming years, and we expect it to make a comparable contribution to revenues as PBSA by FY23, based on our current pipeline.  We have also identified an opportunity for a closely aligned residential development business, which combines affordable housing with our BtR and residential for sale offers.

 

Streamlining and investing in our operations is a key pillar of our strategy, helping us to deliver better outcomes for clients and customers while improving our own efficiency.  We continued to implement the restructuring I outlined in my report last year, in particular combining three regional student accommodation delivery divisions into one.  The development side of the business is now organised around cross‑functional hubs, responsible for delivering both PBSA and BtR developments, which supports our ability to leverage our PBSA expertise into the BtR market.

 

We have created a strategic framework for managing ESG initiatives.  I see being a responsible company as a business imperative.  One of the key attractions for us of the affordable housing market is the opportunity to help meet a pressing social need that will make a real difference to people's lives.

 

ESG performance

Health and safety is vitally important to us, in terms of protecting the people and subcontractors who work for us and in ensuring that residents have a safe place to live.  This ethos underpinned our careful response to COVID-19 and our decision to remediate cladding on properties we had previously developed, despite having no legal liability to do so.

 

I am pleased to say that we have continued to improve day-to-day health and safety performance within the business this year.  Our incident rate, which is the number of incidents recorded per 100,000 employees, was 128 (FY19: 152), which compares with 2,420 for the wider industry (source: HSE).

 

Other examples of our commitment to ESG include our decision to ensure that everyone who was furloughed during the early stages of the pandemic would continue to receive 80% of their pay, rather than just the amount covered by Government assistance.  In addition, we took the decision that the executive team and the Directors would take a 20% pay cut during the period we received furlough money from the Government.  We subsequently repaid the financial assistance we had received once we were certain the business was in sound shape.  We appreciate that this affected our profits but we believe that a highly ethical approach to business is best for our clients, investors and society, and is therefore best for shareholders.

 

I am a firm believer in the importance of culture to long-term business success.  The reorganisation of the development and delivery divisions has helped to flatten our structure, empowering our people and making communication and engagement easier and more effective.  This structure also gives more transparency about career opportunities, so our people can better see where they can take their careers in Watkin Jones.  The introduction of agile working also supports our culture, by allowing our people to make their own decisions about how and where they work most effectively, while aiding collaboration.  This will help us to attract and retain people who will thrive in such an environment, while also allowing us to reap the benefits of a more diverse workforce.

 

We also continue to work hard to minimise our environmental impact and to ensure we engage effectively with all of our stakeholders.

 

Brexit

As I reported last year, we did a significant amount of work in preparing for a range of possible Brexit outcomes.  We are pleased to see the agreement of a trade deal with the EU.  This will further help ensure our supply chain continuity and we do not believe Brexit will affect the timely delivery of our development schemes.

 

Outlook

Institutional forward sale markets started to recover in the final quarter of FY20 and this has enabled us to complete three forward sales of PBSA developments since the year end.  These schemes are in Bristol, York and Leicester and total 909 beds for delivery in FY22.

 

The COVID-related delays to our development cycle will take time to unwind.  However, the resumption of forward sales, the increase in the number of student beds for delivery in FY21 and the scheduled completion of four BtR developments should see us return to growth in the coming year, assuming we do not see further significant disruption to our activities from COVID-19.  While the new lockdown in January 2021 requires us to continue supporting our employees and customers, we have safe operating procedures in place to continue our on site developments, and we are closely monitoring the situation.

 

Our work this year to add attractive new development sites to the pipeline also underpins the visibility of our revenue and earnings in future years.  We will continue to secure new sites in the coming months, while being careful to protect our liquidity.

 

In summary, I am fundamentally optimistic about our business, the dynamics of the sectors we operate in and the strength of investor demand for our product.

 

Richard Simpson

Chief Executive Officer

19 January 2021

 

 

 

 

Operating review

 

Build to rent

 

BtR is an important and growing contributor to the Group's financial performance.  Revenues in the year were £94.0 million, up 21.4% from £77.4 million in FY19.  This revenue performance reflected the completion in the year of the 159-apartment scheme in Bournemouth, and good progress on site with the forward sold developments in Reading, Wembley, Sutton and Stratford which are due for delivery in FY21.  Despite temporary disruption on site resulting from COVID-19, construction is proceeding to plan for all four schemes.  The completion of the development in Bournemouth was hampered by on-site management issues and problems with the cladding system, which were further compounded by the initial COVID-19 disruption.

 

Gross profit for the year was £14.9 million (FY19: £13.8 million), at a margin of 15.8% (FY19: 17.8%).  The margin achieved in the year is consistent with our guidance of an average 15% margin for BtR developments in the medium term.  The margin in FY19 benefited from a strong contribution from the Reading scheme, which was the main contributor to BtR revenues in that year.

 

There were no new forward sales in the year, due to a slowdown in institutional client investment activity caused by the COVID-19 related uncertainty.  The forward sale market began to recover towards the end of the year and we are currently negotiating on the sale of three developments (722 apartments).

 

The Group secured four significant new development sites during the year, three of which are subject to planning.  These sites are in Birmingham (550 apartments), Bath (343 apartments), Glasgow (779 apartments) and Lewisham, London (322 apartments).  Subsequent to the year end a further site was secured subject to planning in Belfast (778 apartments).

 

We also obtained planning permission for 538 BtR apartments at sites in Brighton and Hove (216 apartments) and Lewisham, London (322 apartments) for delivery in FY23.

 

The current BtR development pipeline is as shown in the table below:

 

 

BtR apartments

 

Total pipeline

FY21

FY22

FY23

FY24

FY25

Forward sold

928

857

71

-

-

-

Forward sales in negotiation

722

-

184

538

-

-

Sites secured with planning

-

-

-

-

-

-

Sites secured subject to planning

2,816

-

-

-

1,117

1,699

Total secured

4,466

857

255

538

1,117

1,699

Site acquisitions in legals

247

-

-

-

247

-

Total BtR pipeline

4,713

857

255

538

1,364

1,699

 

The appraised future revenue value to the Group of the above secured development pipeline is c.£900.0 million, of which c.£90.0 million is currently forward sold.

 

Student accommodation

 

Revenues from student accommodation development were £226.0 million (FY19: £246.1 million), a decline of 8.2%.  The reduction in revenue was primarily due to a delay in the anticipated forward sale of a scheme which is currently in build in Leicester, for delivery in FY21, and in the forward sale of several other new developments, as the COVID-19 pandemic caused a hiatus in institutional clients' investment activity.

 

The division recorded a robust gross profit of £54.3 million (FY19: £54.9 million), despite the disruption caused by the pandemic.  The gross margin of 24.0% was ahead of the 22.3% for FY19, reflecting the delay to new forward sales of land, which typically attract a lower margin than we achieve on the subsequent works carried out under the development agreement.

 

 

 

We closed all our development sites on 23 March 2020, as we assessed our response to the pandemic and introduced COVID-secure working practices, with close to full working capacity achieved again by the end of May.  By carefully reprogramming our developments, including appropriate scenario planning, and introducing extended working hours and rotating shift patterns where required, we were able to complete six schemes with 2,256 beds that were due for delivery ahead of the new academic year.

 

For the seventh scheme due in FY20, a 353-bed development in Walthamstow, we agreed a phased delivery with the client, with two of the three blocks handed over for the 2020/21 academic year and the third block completed approximately three months later.  While we incurred some damages as a result of the late completion, our close working relationship with the client and the efforts we made to recover the delay caused by the COVID-19 disruption and to complete as quickly as possible, enabled us to negotiate an improved position.

 

The cost of the damages is included in the exceptional COVID‑19 cost to the business.  In addition, the business incurred exceptional costs relating to the waiver of 2020/21 final term rents due from students who were tenants of the Group's leased student accommodation properties and were unable to return to their accommodation as a result of the first lockdown and due to a further impairment to the carrying value of one of the leased properties, which was already impaired, as a result of lower occupancy due to the pandemic.  More information on exceptional items is included in the financial review below.

 

We forward sold one PBSA development in the year, the 348-bed scheme at Wilder Street, Bristol, for delivery in FY21.  This follows an option agreement announced in October 2018, which was conditional on full planning consent being achieved.  The consideration payable to us for Wilder Street is c.£33.8 million, net of all client funding and acquisition costs, and is payable over FY20 and FY21 as the development works progress.

 

We also obtained planning for and completed an agreement with DWS to add a further 100 beds to the scheme at Kelaty House in Wembley, for delivery in FY21.

 

In April, we signed an on-campus partnership agreement with Cranfield University to develop 415 beds for delivery in FY21 and a further 198 beds for FY22.  The development value to us is £48.0 million, payable over the period FY20 to FY22.  The agreement also contains an option for a second phase of 252 beds.  This is a significant addition to our PBSA development pipeline and paves the way for similar university partnerships.

 

The Group secured a further six PBSA development sites in the year, four of which are subject to planning.  These comprised two sites in Edinburgh (644 beds) and sites in Bath (335 beds), Bristol (387 beds), Guildford (375 beds) and Manchester (419 beds).

 

After our year end we entered into forward sales agreements for three new development sites, for which the clients concerned acquired the land directly.  These were in Bristol (291 beds), York (368 beds) and Leicester (250 beds), all for delivery in FY22 and with a total forward sold development value of £65.2 million.

 

The Group obtained planning for 1,217 beds, comprising the additional 100 beds for the Wembley site, 984 beds for sites in Edinburgh and 133 beds in Exeter.

 

The current PBSA development pipeline is as shown in the table below:

 

 

PBSA beds

 

Total pipeline

FY21

FY22

FY23

FY24

FY25

Forward sold

3,898

2,730

1,168

-

-

-

Forward sales in negotiation

714

462

-

252

-

-

Sites secured with planning

1,117

-

777

340

-

-

Sites secured subject to planning

2,181

-

-

1,846

335

-

Total secured

7,910

3,192

1,945

2,438

335

-

Site acquisitions in legals

1,998

-

-

662

570

766

Total PBSA pipeline

9,908

3,192

1,945

3,100

905

766

 

The appraised future revenue value to the Group of the above secured development pipeline is c.£600.0 million, of which c.£215.0 million is currently forward sold.

 

 

Accommodation management (Fresh)

 

Fresh generated revenues of £7.6 million, broadly in line with the £7.5 million recorded in FY19.  Gross profit was £4.5 million (FY19: £4.6 million), reflecting a margin of 59.8% (FY19: 61.5%).  The stable revenue position reflects the fact that Fresh's revenues largely derive from fixed management fees, but with a modest level of variable income based on the level of occupancy revenues achieved.  The disruption to student lettings in the final term of the 2020/21 academic year resulted in a small reduction in expected fee income and consequential decrease in the gross margin relative to FY19.  The gross margin was, however, in line with our normal target of 60.0%.

 

At the start of the financial year, Fresh had 17,721 student beds and BtR apartments under management, across 64 schemes.  This compared with 15,421 units across 56 schemes a year earlier.

 

Fresh continued to perform well, mobilising nine new PBSA schemes in the year (3,593 beds) and winning mandates for the future management of 1,414 PBSA beds.  At the end of the financial year, Fresh had 20,179 PBSA beds and BtR apartments under management across 66 schemes, and is currently appointed to manage 21,790 beds and apartments by FY23, including expected renewals.  Fresh is now the fourth largest operator of student beds in the UK (source: CBRE), up from sixth in 2019, and it remains the largest third-party operator.

 

Ensuring customers were living in a COVID‑secure environment was a key focus for the business from March, with occupancy levels in student accommodation remaining relatively high during lockdown.  Around 60% of students were still in residence at the start of lockdown, with more than one third of beds still occupied in June.  This required Fresh to develop new ways of working, so customers could continue to receive essential services and support during the pandemic.  In September 2020, the Group was awarded COVID-secure accreditation by the British Safety Council, reflecting the rigorous approach adopted by Fresh and the Group's other divisions.  The latest lockdown measures will impact students who had planned to return to their accommodation for the start of the 2020/21 spring term.  We will continue to respond to the situation as it evolves and to provide them with the necessary support.

 

At the start of FY20, Fresh launched its Be wellbeing and lifestyle programme, which puts residents at the heart by creating communities that thrive and care for each other, where our residents feel welcomed and connected, and can enjoy a range of tailored activities, events and support.

 

Adapting the Be programme during the pandemic to provide on line communities, support activities and advice has enabled residents to remain connected and feel supported during this difficult period.

 

The business continues to invest in its infrastructure systems, to support service delivery to both residents and to clients.

 

The implementation of our new single management platform Yardi is progressing well and will launch in 2021.  This will result in a seamless customer journey for residents from the point of initial booking through the whole length of their tenancy.  Live data via our new app will enable residents to manage all aspects of their tenancy, as well as connect with our on site teams and their neighbours in a way that is convenient for them.

 

Yardi will give Fresh a best-in-class control framework and the ability to provide dynamic reporting to clients.

 

Fresh is also moving to a single consumer brand.  The consolidation of the Fresh Student Living and Five Nine Living brands under the new single Fresh brand will be complete in early FY21 and will communicate a clear customer proposition that is relevant to the broader residential for rent market, while also enabling the targeting of specific audiences with relevant messaging and creative concepts.

 

Residential

The residential business delivered revenues of £26.3 million in FY20, down from £34.3 million in FY19.  Overall, the division achieved 95 sales in the year, compared to 150 in FY19.  Revenues in the prior year were helped by strong sales from the apartment development at Duncan House, Stratford.  Sales in FY20 were inevitably impacted by the initial COVID-19 lockdown in the critical spring period and by the temporary suspension in site build.  We did, however, see a good pick up in sales in the summer months, following the easing of the initial lockdown and introduction of the temporary stamp duty relief, and the division entered FY21 with 25 sales exchanged or reserved.

 

Important contributions to revenue in the year came from:

 

· a solid performance from the division's operations in the North West, and in particular the development at Macclesfield;

· further sales of apartments at the Duncan House, Stratford, and Riverview Court, Bath developments; and

· the completion of the 35-apartment development at Trafford Street, Chester, which was forward sold in the previous financial year.

 

Gross profit for the year was £4.0 million (FY19: £7.2 million), representing a margin of 15.4% (FY19: 20.9%).  The lower margin reflects the mix of revenues this year, and in particular the contribution in the prior year from the high‑margin sales of apartments at Duncan House, Stratford.

 

We acquired and commenced a development site for 97 homes in Preston during the year and commenced development of a site for 29 homes in Bontnewydd, North Wales.

 

Alongside the demand for private housing to buy, there is also a significant need for more affordable housing.  Affordable housing is increasingly delivered as part of mixedtenure schemes, which incorporate an element of BtR and private housing for sale. This enables the delivery of a meaningful number of affordable units, while the inclusion of the other tenures makes the scheme more economically viable.  We see an opportunity to pivot our residential housing division to become part of a new business stream, led by affordable housing.  If our North West trial of this model is successful, it has the potential to deliver important social benefits through the provision of much-needed affordable homes.

 

Subsequent to the year end, we secured our first site under the affordable homes pilot strategy.  This site, for 245 units in Crewe, has planning and is targeted to deliver 90 affordable, 69 BtR and 84 private for sale homes, and should start to contribute to revenues from the end of FY21. Offers for the forward sale of the affordable and BtR homes have been received and are progressing into legals.

 

With the addition of the above site the future pipeline stands at c.745 homes and apartments.

 

 

 

 

Financial Review

 

The Group remains well capitalised, with significant liquidity and substantial headroom within its banking facilities, supporting future growth.

 

Highlights

 

FY20

FY19

 

 

£m

£m

Change

Revenue

354.1

374.8

-5.5%

Gross profit

75.9

80.0

-5.1%

Administrative expenses

(24.2)

(24.4)

-0.7%

Operating profit before exceptional items

51.7

55.6

-7.1%

Exceptional costs

(20.5)

(2.6)

 

Operating profit

31.2

53.0

-41.1%

Share of profit in joint ventures

0.2

0.3

 

Net finance costs

(6.1)

(5.4)

 

Profit before tax from continuing operations

25.3

47.9

-47.1%

Income tax expense

(4.2)

(9.1)

 

Profit for the year

21.1

38.8

-45.7%

Basic earnings per share from continuing operations

8.2p

15.2p

-45.8%

Adjusted basic earnings per share

14.7p

16.1p

-8.7%

Dividend per share

7.35p

8.35p

-12.0%

 

Comparative figures for FY19 have been restated as necessary for the adoption of IFRS 16 - Leases, as described later in this section.

 

Revenue

Revenue was £354.1 million, down 5.5% from £374.8 million in FY19.  The reduction was primarily the result of delays to forward sales of developments as a result of COVID-19, which slowed institutional clients' activity during the second half of the year, as well as lower residential sales.

 

Revenues from student accommodation development were £226.0 million (FY19: £246.1 million).  The reduction in the year was mainly due to a delay in the forward sale of our scheme in Leicester, which is currently in build for delivery in FY21, as well as delays in the forward sale of other new developments.

 

BtR development revenues increased 21.4% in the year to £94.0 million (FY19: £77.4 million), reflecting the completion of the development in Bournemouth and continued progress with the schemes in build at Reading, Wembley, Sutton and Stratford.  BtR revenues were, however, also impacted by the delay in the forward sale of new developments.

 

Accommodation management revenues earned by Fresh were £7.6 million, against £7.5 million in FY19.  Despite the disruption to student occupancy in the second half of FY20 as a result of the pandemic, the consistent revenue performance reflects the fixed management fee income earned by Fresh, with only a modest level of fees being variable based on the level of occupancy revenues achieved.  The latter did, however, suppress Fresh's revenues when considering that the number of student beds and apartments under management at the start of FY20 (17,721) was 14.9% higher than at the start of FY19 (15,421).

 

The residential business delivered revenues of £26.3 million, compared to £34.3 million for FY19.  The division experienced a good recovery in sales following the relaxation of the initial COVID-19 lockdown measures and introduction of the temporary stamp duty relief, but its revenue performance was inevitably impacted by the disruption to its important spring selling period and by the temporary closure to its sites, which delayed the build completion of some homes into FY21.

 

There were no significant revenues in the year generated by developing commercial property alongside PBSA and BtR developments.  This activity produced revenue of £9.5 million in the previous year.

 

 

 

Gross profit

Gross profit was £75.9 million (FY19: £80.0 million), reflecting a gross margin consistent with last year of 21.4% (FY19: 21.4%).  Whilst we had a shift in the revenue mix towards BtR, which is at a lower margin than PBSA, the maintained gross margin was primarily attributable to a stronger margin achieved in the year on our student accommodation development activities.

 

The gross profit from our PBSA development activities was £54.3 million (FY19: £54.9 million) at a margin of 24.0% (FY19: 22.3%).  The improvement in the margin reflects the absence of new forward land sales in the second half of the year, which would otherwise have added to revenues but would have reduced the gross margin.  We typically earn a low or nil margin on the land sale element of new forward sales, which under IFRS 15 'Revenue from Contracts with Customers' is accounted for separately from the revenues due under the agreement to carry out the development works.  This means that we typically earn a lower margin in the year in which the land sale occurs, followed by higher margins in the following years as the development works are undertaken.

 

BtR development generated a gross profit of £14.9 million (FY19: £13.8 million), resulting in a gross margin of 15.8% (FY19: 17.8%).  The margin achieved in the year was broadly in line with our expectation of generating a 15% margin from our BtR development activities in the medium term, with the slight improvement reflecting the absence of anticipated new forward land sales in the second half of the year, which as noted for PBSA above, are typically at low or nil margin.  The gross margin in FY19 benefited from a strong contribution from the development at Reading, which accounted for a higher proportion of BtR revenues in that year.

 

Fresh continued to generate a highly attractive level of profitability, with gross profit of £4.5 million (FY19: £4.6 million) equating to a gross margin of 59.8% (FY19: 61.5%).  The slight drop in margin reflects the impact of the modest reduction in variable fee income as a result of the disruption to student occupancy in the second half of the year.

 

Gross profit for the residential business was £4.0 million, versus £7.2 million in FY19.  The reduction in the gross margin from 20.9% in FY19 to 15.4% in FY20 was primarily due to a change in mix, with the prior year benefiting from higher margin sales from developments completed in that year.

 

Administrative expenses

Administrative expenses were £24.2 million in FY20, a slight reduction on the £24.4 million for FY19.  As a result of COVID-19, we took precautionary measures to reduce spend across a number of areas, for example suspending the 1 April pay review, reducing the salaries for the Executive Committee and the fees for the Non‑Executive Directors by 20% during the period April - June 2020 and cutting back on discretionary expenditure, including on consultancy costs.  The Group's profit performance this year also resulted in a reduction in the cost of the bonus accrual of c.£1.3 million.  These cost reductions offset increases in our headcount in the year, with the average number of management and administrative personnel increasing by seven to 116, inflationary cost increases and higher insurance costs as a result of a more challenging insurance market.

 

Operating profit before exceptional items

Operating profit before exceptional items was £51.7 million (FY19: £55.6 million).  The operating margin was 14.6% (FY19: 14.8%), reflecting the maintained gross margin and holding of administrative expenses.

 

Exceptional items

The Group incurred a number of exceptional costs during the year, totalling £20.5 million (FY19: £2.6 million).  The largest component was a provision of £14.8 million in respect of remedial works relating to cladding.  Of this, £4.9 million was utilised in the year, with the remainder expected to be incurred over the next two financial years.

 

In addition, we incurred exceptional charges totalling £5.7 million as a result of the COVID-19 pandemic:

 

· £2.7 million relating to the additional direct costs incurred on site as a result of additional health and safety measures and the implementation of accelerated working practices, to make up for construction delays caused by COVID-19, as well as the cost of damages arising from the late completion of the Walthamstow PBSA scheme;

· £1.1 million for waiving the final 2019/20 rent instalments for students living in the Group's leased student accommodation assets, who left their accommodation prior to 23 March 2020 and were unable to return; and

· £1.9 million in respect of an impairment to one of the student accommodation leased investment property assets, as a result of the reduction in student occupancy for the 2020/21 academic year due to the pandemic.

 

Exceptional costs in FY19 totalled £2.6 million.  This related to the cost of compensating our CEO, Richard Simpson, for forfeiting outstanding incentives he held in respect of his former employer.

 

Share of profit in joint ventures

The Group's share of profit in joint ventures was £0.2 million (FY19: £0.3 million).  These relate to the balance of profits arising in relation to PBSA developments completed in Belfast in prior years.

 

Finance costs

Our finance costs are primarily the finance cost of capitalised leases under IFRS 16.  Finance costs also include fees associated with the availability of our revolving credit facility ("RCF") with HSBC, and the interest cost of the loans we have with Svenska Handelsbanken AB (see "Bank facilities" below).  The net finance cost for the year was £6.1 million (FY19: £5.4 million), of which £5.1 million was in respect of capitalised leases (FY19: £5.2 million).

 

Profit before tax

Profit before tax for the year amounted to £25.3 million (FY19: £47.9 million).  Adjusted profit before tax, which excludes the impact of exceptional items, was £45.8 million (FY19: £50.4 million).

 

Taxation

The corporation tax charge was £4.2 million (FY19: £9.1 million).  The effective tax rate of 16.7% (FY19: 18.9%) was less than the UK corporation tax rate of 19%.  The lower tax rate was primarily due to a prior year tax credit relating to the taxation of distributions from the Curlew Student Fund, which had already been taxed at source, and the higher proportionate benefit relative to the lower profit of specific tax allowances, including land remediation expenditure.

 

Earnings per share

Basic earnings per share from continuing operations was 8.2 pence (FY19: 15.2 pence).  Adjusted basic earnings per share, which excludes the impact of the exceptional items discussed above, was 14.7 pence (FY19: 16.1 pence).

 

Dividends

On 1 April 2020, we announced that we were suspending the interim dividend, as a result of the economic uncertainty and disruption caused by COVID-19.  However, given the Group's subsequent operational performance, the strength of our financial position and the Board's confidence in the outlook, the Board has proposed a final dividend of 7.35 pence per share.  The dividend is 2.0x covered by adjusted earnings, in line with our dividend policy.

 

At 30 September 2020, the Company had distributable reserves of £100.8 million available to pay dividends.

 

EBITDA

EBITDA is an important measure of our underlying performance.  It is calculated as operating profit plus profit from joint ventures, before interest, tax, depreciation and amortisation.

 

EBITDA decreased by 34.6% to £40.9 million (FY19: £62.5 million).  Adjusted EBITDA, which excludes exceptional items, was £61.3 million (FY19: £65.0 million), representing an adjusted EBITDA margin of 17.3% (FY19: 17.4%).

 

Statement of financial position

At 30 September 2020, non-current assets amounted to £134.7 million (FY19: £142.7 million), with the most significant item being the carrying value of the leased student accommodation investment properties amounting to £104.6 million (FY19: £110.2 million), which arises following the adoption of IFRS 16 (see "Implementation of IFRS 16 'Leases'" below).  Right-of-use assets relating to office and car leases amount to £4.8 million (FY19: £5.9 million).  The reduction in the balances in the year reflect the depreciation and impairment charges.  Intangible assets relating to Fresh amounted to £13.3 million, reduced by the amortisation charge of £0.6 million in the year, and are supported by the future cash flows for the business.

 

Inventory and work in progress was £125.7 million, down from £134.2 million at 30 September 2019.  The reduction was mainly attributable to the residential sales in the year, notably from the apartment developments at Stratford and Bath and the housing development in Macclesfield, which resulted in a reduction in residential stock and work in progress of £12.3 million.  PBSA and BtR inventory and work in progress was largely unchanged from last year as we realised cash from the sale of the Liverpool Road, Chester PBSA development and the forward sale of the Wilder Street, Bristol land site, but spent similar amounts on the PBSA and BtR developments in build in Leicester and on the acquisition of a new BtR site in Glasgow.

 

Contract assets were £41.5 million at the year end (30 September 2019: £25.6 million).  These contract assets are mainly the final payment balances which will be received on the completion in FY21 of the forward sold developments currently in build, of which £30.6 million related to the developments in build in Reading, Sutton and Wembley.

 

Trade and other receivables at 30 September 2020 stood at £23.5 million (FY19: £13.9 million), with the increase mainly in respect of certified and retention balances that will be payable on the developments in build.

 

Contract liabilities and trade and other payables amounted to £106.3 million at 30 September 2020 (30 September 2019: £86.5 million), with the increase of £19.8 million due to a higher value of subcontract and supplier liabilities (£72.4 million) compared to a year ago (£50.7 million), reflecting the value of work performed in the final months of the year on the developments completed at the end of FY20 and those in build for FY21.

 

Our corporation tax liability was reduced to £0.8 million at 30 September 2020, from £7.0 million at 30 September 2019, reflecting our quarterly payments on account during the year.

 

The provision for cladding remedial works of £9.9 million has been split between current liabilities (£6.3 million) and non‑current liabilities (£3.6 million), based on our anticipated expenditure over the next two years.

 

Interest-bearing loans and borrowings stood at £39.7 million at 30 September 2020, net of debt arrangement fees of £0.9 million, compared to £38.8 million at 30 September 2019 (see "Bank facilities" below).

 

Implementation of IFRS 16 'Leases'

The Group has applied IFRS 16 'Leases' for the first time in FY20.  This standard affects the Group's six historic student accommodation sale and leaseback properties, as well as leases for the rental of office space and motor vehicles.  The new standard creates investment property (leased) assets for the student accommodation leases, right-of-use assets for the office and motor vehicle leases and a liability for future lease payments.

 

We have adopted the fully retrospective approach in applying the standard, recognising its material impact on the Group's results and statement of financial position.  As noted earlier, the comparative results for FY19 and the statement of financial position at 30 September 2019 have therefore been restated according to the transition arrangements set out in the standard.

 

The investment property (leased) assets recognised at 30 September 2020 amount to £104.6 million (30 September 2019: £110.2 million), net of impairment charges of £5.7 million (30 September 2019: £3.5 million).  The impairment charge at 30 September 2019 was previously classified as an onerous lease provision.

 

The right-of-use assets recognised at 30 September 2020 amount to £4.8 million (30 September 2019: £5.9 million).

 

Corresponding lease liabilities of £134.4 million have been recognised (30 September 2019: £137.5 million), of which £128.1 million (30 September 2019: £131.3 million) is non-current and reflects the remaining length of the PBSA leases, varying between six and 32 years.  The two leases with the longest remaining terms, Dunaskin Mill, Glasgow, and New Bridewell, Bristol, which are profitable, account for £75.9 million of the total lease liabilities.

 

The difference between the right‑of‑use assets and lease liabilities at 30 September 2019 of £21.3 million, net of a deferred tax asset of £3.5 million, the reclassification of the onerous lease provision of £3.5 million and previously prepaid lease rental payments of £0.6 million, is reflected in a reduction in retained earnings of £14.9 million at that date.

 

In our interim financial statements for the six months ended 31 March 2020, the student accommodation leased assets were included as right-of-use assets.  However, the interaction of IAS 40 'Investment property' with IFRS 16 requires that leased assets on which rental income is received are classified as investment property.  The leased student accommodation assets have therefore been reclassified as investment property (leased) in accordance with IAS 40.

 

 

 

The Group's income statements for FY20 and FY19 have been impacted as follows:

 

 

FY20

FY19

 

Pre

IFRS 16

IFRS 16

Pre

IFRS 16

IFRS 16

 

IFRS 16

Impact

Reported

IFRS 16

Impact

Reported

 

£'m

£'m

£'m

£'m

£'m

£'m

Gross profit

72.5

3.4

75.9

76.8

3.2

80.0

Administrative expenses

(24.3)

0.1

(24.2)

(24.5)

0.1

(24.4)

Operating profit before exceptional items

48.2

3.5

51.7

52.3

3.3

55.6

Exceptional costs

(20.5)

-

(20.5)

(2.6)

-

(2.6)

Operating profit

27.7

3.5

31.2

49.7

3.3

53.0

Share of profit in joint ventures

0.2

-

0.2

0.3

-

0.3

Net finance charges

(1.0)

(5.1)

(6.1)

(0.3)

(5.1)

(5.4)

Profit before tax

26.9

(1.6)

25.3

49.7

(1.8)

47.9

Adjusted EBITDA

49.9

11.4

61.3

53.9

11.1

65.0

 

Further details on the nature of the changes to the Group's accounting required by this standard, as well as its main impacts and the adjustments made to restate the comparative figures, are provided in note 4 to the financial statements below.

 

Cash flows

 

 

FY20

FY191

Continuing operations

£m

£m

Operating profit before exceptional items

51.7

55.6

Exceptional items

(8.7)

(0.4)

Depreciation and amortisation

9.4

9.2

Impairment of leased student accommodation property (non-exceptional)

0.3

0.8

(Increase)/decrease in working capital

2.1

(26.2)

Finance costs paid

(6.5)

(5.7)

Tax paid

(10.0)

(9.8)

Net cash inflow from operating activities

38.3

23.5

Purchase of fixed assets

(0.2)

(0.3)

Cash flow from joint venture interests

0.8

-

Cash flow from other financial assets

-

0.2

Dividends paid

(14.3)

(20.1)

Payment of lease liabilities

(6.1)

(5.9)

Payment of hire purchase liabilities

(1.0)

(1.3)

Cash flow from borrowings

1.4

12.9

Increase in cash

18.9

9.0

Cash at beginning of year

115.6

106.6

Cash at end of year

134.5

115.6

Less: borrowings

(39.7)

(38.8)

Net cash before deducting lease liabilities

94.8

76.8

Less: lease liabilities

(134.4)

(137.5)

Net debt

(39.6)

(60.7)

1.  Restated for the impact of IFRS 16.

 

In a typical year, the Group's cash balance peaks around the year end, as we receive the final payments on student accommodation developments completing ahead of the new academic year.

 

The Group is then a net user of cash until the following year end, as a result of outflows such as tax and dividend payments, overhead costs and land purchases.  The cash balance at the year end is therefore important for funding our day-to-day cash requirements and puts the Group in a strong position when bidding for new sites to grow the future development pipeline.

 

 

 

The Group's net cash flow from operating activities was £38.3 million (FY19: £23.5 million), reflecting a strong cash flow from the Group's trading operations in the year.  The cash flow from operating activities, before deducting the cash cost of exceptional items, finance costs and tax payments, was £63.5 million (FY19: £39.4 million).  The working capital balance was relatively unchanged, decreasing by £2.1 million in the year, compared to an increase of £26.2 million in FY19.

 

Finance costs paid totalled £6.5 million (FY19: £5.7 million), including £5.1 million (FY19: £5.2 million), as a result of the finance charges on the capitalised lease liabilities, for which the capital repayments amounted to £6.1 million (FY19: £5.9 million).

 

Dividends paid in the year amounted to £14.3 million (FY19: £20.1 million) and corporation tax payments totalled £10.0 million (FY19: £9.8 million).

 

At the year end, we had a gross cash balance of £134.5 million and loans of £39.7 million, resulting in a net cash position of £94.8 million.  At 30 September 2019, we had gross cash of £115.6 million, loans of £38.8 million and net cash of £76.8 million.

 

Net cash balances are stated before deducting the operating lease liabilities of £134.4 million (30 September 2019: £137.5 million), arising as a result of applying IFRS 16.  We believe the net cash balance before deducting operating lease liabilities is a more relevant measure for the Group.  The lease liabilities relate primarily to several historic student accommodation sale and leaseback properties, for which the lease rental liabilities are expected to be substantially covered by the future net student rental incomes to be received, in the absence of the short-term disruption caused by COVID-19.

 

Bank facilities

During the year, we renewed our RCF with HSBC for five years to May 2025, while increasing the facility from £60.0 million to £100.0 million on the same terms.  At the year end, we had drawn £35.0 million against the RCF, giving unused headroom within the facility of £65.0 million.  We have also maintained an overdraft facility of £10.0 million.

 

The Group also has loan facilities with Svenska Handelsbanken AB, which are used to fund our operating build to rent stock in Sheffield and Droylsden.  These facilities run to March 2022.  The outstanding balance at the year end was £5.0 million (30 September 2019: £5.5 million).

 

Going concern

We have undertaken a thorough review of the Group's ability to continue to trade as a going concern for the period to 31 January 2022 (the "forecast period").  This review has been undertaken taking into consideration the following matters:

 

Liquidity

At 30 September 2020, the Group had a robust liquidity position, with cash and available headroom in its banking facilities totalling £209.5 million, as set out below.

 

£m

Cash balances

134.5

RCF headroom

65.0

Overdraft facility

10.0

Total cash and available facilities

209.5

 

Strong liquidity has been maintained through the first quarter of FY21, providing the Group with a good level of cash and available banking facilities for the year ahead.

 

As noted above, the RCF is committed and has a five-year term to May 2025.  All financial covenants under the facility were comfortably met at 30 September 2020 and will continue to be met through the forecast period.

 

Business model

Our forward sale business model, is by definition, capital-light.  By forward selling the majority of our BtR and PBSA developments, we receive payment for the land either at the same time as or shortly after we complete the purchase, and before we commit to any significant development expenditure.  Once forward sold, we receive payment for the development works as they progress.

 

By being in control of our development pipeline we are able to ensure that we only commit construction expenditure to developments that are either forward sold or to undertake a modest level of enabling works.  In certain circumstances we may decide to continue construction activities beyond the initial enabling phase, without a forward sale agreement in place, but we take this decision based on our available liquidity and can suspend the works should it prove necessary.  This greatly limits our exposure to development expenditure which is not covered by cash income.

 

Sites are normally secured on a subject to satisfactory planning basis, which gives us time to manage the cash requirements and to market them for forward sale.  We also take a cautious approach to managing our land acquisition programme to ensure that we have sufficient liquidity available to complete the acquisition of the sites without any new forward sales being secured.

 

The Fresh business receives a regular contractual monthly fixed fee income from its multiple clients and the short to medium-term risk to its revenue stream is low.

 

For our residential business, which is currently relatively small and only has a few sites in build, we manage our development expenditure so that, other than for infrastructure works, we only commit expenditure where it is supported by a forward sales position.

 

We also receive rental income from tenants on our leased PBSA assets and operational BtR assets.  The level of rental income received, whilst reduced in the short term for the PBSA assets as a result of COVID-19, is relatively small in the context of the Group's revenues as a whole.

 

Our business model and approach to cash management therefore provides a high degree of resilience.

 

Counterparty risk

Our clients are predominantly blue-chip institutional funds and the risk of default is low.  The funds for a forward sold development are normally specifically allocated by the client or backed by committed debt funding.

 

For forward sold developments our cash income remains ahead of our development expenditure through the life of the development, such that if we were exposed to a client payment default, we could suspend the works, thereby limiting any cash exposure.

 

Fresh has many clients and these are mostly institutional funds with low default risk.

 

Base case cash forecast

We have prepared a base case cash forecast for the forecast period, based on our current business plan and trading assumptions for the year, including a lower level of revenue from the leased PBSA assets as a result of COVID-19.  This is strongly supported by our forward sold pipeline of six PBSA developments and four BtR developments for delivery in FY21, as well as Fresh's contracted income and the reserved/exchanged sales for our residential business.  Our currently secured cash flow, derived from our forward sold developments and other contracted income, net of overheads and tax, results in a modest cash utilisation over the forecast period, with the result that our liquidity position is strongly maintained.

 

In addition to the secured cash flow, the base case forecast assumes a number of new forward sales and further house sales, which if achieved will result in a further strengthening of our liquidity position, after allowing for dividend payments.  We currently have under offer and are progressing sales of three BtR schemes and one PBSA scheme, which will underpin the additional forward sales assumptions in the forecast.

 

Risk analysis

In addition to the base case forecast and though considered unlikely, we have considered the following possible significant downside risks as a consequence of the pandemic:

 

· counterparty risk - whilst the majority of our clients are not considered to present a default risk, we have identified two which we consider could be more vulnerable in the event of further sustained disruption;

· suspension of the forward sale markets, resulting from a significant economic downturn or market uncertainty - this is our most significant risk as it would greatly limit our ability to achieve any further forward sales and would potentially mean that we have to complete on secured site acquisitions without a subsequent forward sale in place; and

· collapse of the housing market - in this scenario we have considered the possibility of a significant reduction in future house sales.

 

We have run various model scenarios to assess the possible impact of the above risks, including a worst case downside scenario assuming the following:

 

· default by the two identified counterparty risks;

· no further forward sales are achieved, other than those currently under offer, as a result of a freeze in the sales markets;

· only 50% of further house sales are achieved beyond those currently reserved/exchanged; and

· we continue to complete the acquisition of our secured sites in line with the current target programmes, with limited mitigating actions being taken.

 

In the worst case downside scenario we have included for the payment of our FY20 full-year proposed dividend in line with our policy.

 

The cash forecast prepared under the worst case downside scenario illustrates that adequate liquidity is maintained through the forecast period.

 

Based on the thorough review and robust downside forecasting undertaken, and having not identified any material uncertainties that may cast any significant doubt, the Board is satisfied that the Group will be able to continue to trade for the period to 31 January 2022 and has therefore adopted the going concern basis in preparing the financial statements.

 

Philip Byrom

Chief Financial Officer

19 January 2021

 

 

For further information:

Watkin Jones plc

 

Richard Simpson, Chief Executive Officer

Tel: +44 (0) 20 3617 4453

Phil Byrom, 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 / Will Soutar

www.jefferies.com

 

Media enquiries:

Buchanan

 

Henry Harrison-Topham / Richard Oldworth

Jamie Hooper / Steph Watson

 

Tel: +44 (0) 20 7466 5000

[email protected]

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 and student accommodation 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 over 43,000 student beds across 130 sites, making it a key player and leader in the UK purpose built student accommodation market.  In addition, Fresh, the Group's specialist accommodation management business, manages over 20,000 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 is increasingly expanding its operations into the build to rent sector.

 

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.

 

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

 

 

 

 

Consolidated statement of comprehensive income

for the year ended 30 September 2020

 

 

 

 

 

Year

ended

30

September

2020

Year

ended

30

September

2019

Restated

(note 4)

 

 

Notes

£'000

£'000

Continuing operations

 

 

 

Revenue

5

354,121

374,785

Cost of sales

 

(278,205)

(294,752)

Gross profit

 

75,916

80,033

Administrative expenses

 

(24,249)

(24,433)

Operating profit before exceptional items

 

51,667

55,600

Exceptional costs

6

(20,437)

(2,576)

Operating profit

 

31,230

53,024

Share of profit in joint ventures

 

199

286

Finance income

 

251

428

Finance costs

 

(6,366)

(5,874)

Profit before tax

 

25,314

47,864

Income tax expense

7

(4,222)

(9,041)

Profit for the year attributable to ordinary equity holders of the parent

 

21,092

38,823

Other comprehensive income

 

 

 

Other comprehensive income that will not be reclassified to profit or loss in subsequent periods:

 

 

 

Net loss on equity instruments designated at fair value through other comprehensive income

 

 

(6)

 

(2)

Total comprehensive income for the year attributable to ordinary equity holders of the parent

 

21,086

38,821

 

 

 

Pence

Pence

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

 

 

 

Basic earnings per share

8

8.246

15.202

Diluted earnings per share

8

8.234

15.175

Adjusted proforma basic earnings per share (excluding exceptional costs)

8

14.717

16.111

Adjusted proforma diluted earnings per share (excluding exceptional costs)

8

14.696

16.082

 

 

 

 

Consolidated statement of financial position

as at 30 September 2020

 

 

 

 

 

30

September

2020

30

September

2019

Restated

(note 4)

30 September 2018

Restated

(note 4)

 

Notes

£'000

£'000

£'000

Non-current assets

 

 

 

 

Intangible assets

 

13,284

13,844

14,403

Investment property (leased)

10

104,623

110,224

117,483

Right-of-use assets

10

4,763

5,930

7,013

Property, plant and equipment

 

4,376

4,966

4,809

Investment in joint ventures

 

3,243

2,794

2,558

Deferred tax asset

 

3,313

3,836

3,155

Other financial assets

 

1,133

1,139

1,350

 

 

134,735

142,733

150,771

Current assets

 

 

 

 

Inventory and work in progress

 

125,660

134,226

132,778

Contract assets

 

41,522

25,578

8,758

Trade and other receivables

 

23,518

13,850

17,499

Cash and cash equivalents

12

134,513

115,652

106,640

 

 

325,213

289,306

265,675

Total assets

 

459,948

432,039

416,446

Current liabilities

 

 

 

 

Trade and other payables

 

(97,300)

(81,368)

(84,014)

Contract liabilities

 

(8,967)

(5,164)

(14,314)

Provisions

 

(6,277)

-

-

Interest-bearing loans and borrowings

 

(711)

(1,324)

(1,605)

Lease liabilities

10

(6,310)

 (6,192)

(5,770)

Current tax liabilities

 

(819)

(7,043)

(7,204)

 

 

(120,384)

(101,091)

(112,907)

Non-current liabilities

 

 

 

 

Interest-bearing loans and borrowings

 

(38,956)

(37,481)

(24,877)

Lease liabilities

10

(128,143)

(131,330)

(137,522)

Deferred tax liabilities

 

(1,040)

(1,042)

(1,050)

Provisions

 

(3,587)

-

-

 

 

(171,726)

(169,853)

(163,449)

Total liabilities

 

(292,110)

(270,944)

(276,356)

Net assets

 

167,838

161,095

140,090

Equity

 

 

 

 

Share capital

 

2,562

2,553

2,553

Share premium

 

84,612

84,612

84,612

Merger reserve

 

(75,383)

(75,383)

(75,383)

Fair value reserve of financial assets at FVOCI

 

428

434

436

Sharebased payment reserve

 

2,348

2,311

84

Retained earnings

 

153,271

146,568

127,788

Total equity

 

167,838

161,095

140,090

 

 

 

 

Consolidated statement of changes in equity

for the year ended 30 September 2020

 

 

 

 

 

Share

capital

 

 

 

Share

premium

 

 

 

Merger

reserve

Fair value

reserve of

financial

assets at

FVOCI

 

Share-based

payment

reserve

 

 

 

Retained

earnings

 

 

 

 

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

As at 30 September 2018

 

2,553

 

84,612

 

(75,383)

 

436

 

84

 

141,217

 

153,519

Effect of initial application of IFRS 16 (note 4)

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(13,429)

 

 

(13,429)

As at 30 September 2018 (restated)

 

 

2,553

 

 

84,612

 

 

(75,383)

 

 

436

 

 

84

 

 

127,788

 

 

140,090

Profit for the year (restated)

 

-

 

-

 

-

 

-

 

-

 

38,823

 

38,823

Other comprehensive income

 

 

-

 

 

-

 

 

-

 

 

(2)

 

 

-

 

 

-

 

 

(2)

Total comprehensive income (restated)

 

 

-

 

 

-

 

 

-

 

 

(2)

 

 

-

 

 

38,823

 

 

38,821

Share-based payments

 

-

 

-

 

-

 

-

 

2,208

 

-

 

2,208

Deferred tax credited directly to equity

 

 

-

 

 

-

 

 

-

 

 

-

 

 

19

 

 

70

 

 

89

Dividend paid (note 9)

 

-

 

-

 

-

 

-

 

-

 

(20,113)

 

(20,113)

Balance at 30 September 2019 (restated)

 

 

2,553

 

 

84,612

 

 

(75,383)

 

 

434

 

 

2,311

 

 

146,568

 

 

161,095

Profit for the year

-

-

-

-

-

21,092

21,092

Other comprehensive income

 

 

-

 

 

-

 

 

-

 

 

(6)

 

 

-

 

 

-

 

 

(6)

Total comprehensive income

 

 

-

 

 

-

 

 

-

 

 

(6)

 

 

-

 

 

21,092

 

 

21,086

Share-based payments

 

-

 

-

 

-

 

-

 

37

 

-

 

37

Deferred tax debited directly to equity

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(70)

 

 

(70)

Issue of shares

9

-

-

-

-

-

9

Dividend paid (note 9)

 

-

 

-

 

-

 

-

 

-

 

(14,319)

 

(14,319)

Balance at 30 September 2020

 

2,562

 

84,612

 

(75,383)

 

428

 

2,348

 

153,271

 

167,838

 

 

 

 

Consolidated statement of cash flows

for the year ended 30 September 2020

 

 

 

 

 

Year

ended

30

September

2020

Year

ended

30

September

2019

Restated

(note 4)

 

Notes

£'000

£'000

Cash flows from operating activities

 

 

 

Cash inflow from operations

11

54,868

38,943

Interest received

 

245

428

Interest paid

 

(6,792)

(6,090)

Tax paid

 

(10,035)

(9,769)

Net cash inflow from operating activities

 

38,286

23,512

Cash flows from investing activities

 

 

 

Acquisition of property, plant and equipment

 

(317)

(361)

Proceeds on disposal of property, plant and equipment

 

69

87

Cash flow from joint venture interests

 

812

-

Cash distribution received from other financial assets

 

-

209

Net cash inflow from investing activities

 

564

(65)

Cash flows from financing activities

 

 

 

Dividends paid

9

(14,319)

(20,113)

Proceeds from exercise of share options

 

9

-

Payment of principal portion of lease liabilities

 

(6,089)

(5,953)

Payment of capital element of other interest bearing loans

 

(1,034)

(1,307)

Drawdown of RCF

 

20,843

46,244

Repayment of bank loans

 

(18,499)

(33,306)

Bank loan arrangement fees

 

(900)

-

Net cash outflow from financing activities

 

(19,989)

(14,435)

Net increase in cash

 

18,861

9,012

Cash and cash equivalents at 1 October 2019 and 1 October 2018

 

115,652

106,640

Cash and cash equivalents at 30 September 2020 and 30 September 2019

 

134,513

115,652

 

 

 

 

Notes to the consolidated financial statements

for the year ended 30 September 2020

 

1. General information

Watkin Jones plc (the "Company") is a public limited company incorporated in the United Kingdom under the Companies Act 2006 (registration number 9791105).  The Company is domiciled in the United Kingdom and its registered address is 7-9 Swallow Street, London, England, W1B 4DE.

 

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 financial statements for the Group for the year ended 30 September 2020 comprise the Company and its subsidiaries.  The basis of preparation of the consolidated financial statements is set out in note 2 below.

 

2. Basis of preparation

The preparation of the financial statements in conformity with the Group's accounting policies requires the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenue and expenses during the reported period.  Whilst these estimates and assumptions are based on the Directors' best knowledge of the amount, events or actions, actual results may differ from those estimates.

 

The financial information set out above does not constitute the Group's statutory accounts for the years ended 30 September 2020 or 2019, but is derived from those accounts.  Statutory accounts for 2019 have been delivered to the Registrar of Companies, and those for 2020 will be delivered in due course.  The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain statements under Section 498(2) or (3) of the Companies Act 2006.

 

Whilst the financial information included in this announcement has been computed in accordance with IFRS as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS.  The Company expects to send its 2020 Annual Report to shareholders on 26 January 2021.

 

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods for which the financial information included in this announcement has been presented.  The financial information included in this announcement is prepared on the historical cost basis except as disclosed in these accounting policies.  The financial information is presented in pounds sterling and all values are rounded to the nearest thousand (£'000), except when otherwise indicated.

 

3. Accounting policies

The results for the year have been prepared on a basis consistent with the accounting policies set out in the Watkin Jones plc Annual Report for the year ended 30 September 2020.

 

4. New standards and interpretations

New standards and interpretations adopted for the first time during the financial year ended 30 September 2020

IFRS 16 'Leases'

In the current year, the Group has applied IFRS 16 'Leases' for the first time.  The date of the initial application of IFRS 16 for the Group is 1 October 2019.  IFRS 16 replaces IAS 17 'Leases' and IFRIC 4 'Determining whether an Arrangement contains a lease'.

 

IFRS 16 introduces new or amended requirements in respect of lease accounting.  It introduces significant changes to lessee accounting by removing the distinction between operating and finance leases, requiring the recognition of an investment property (leased) asset or a right-of-use asset and a lease liability at commencement of all leases, except for short-term leases and leases of low-value assets when such recognition exemptions are adopted.  In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged.

 

Details of the Group's approach to the transition to IFRS 16 are set out below, followed by a description of the impact of adopting IFRS 16.

 

 

Approach to the transition to IFRS 16

The Group has chosen to apply IFRS 16 retrospectively at the date of initial application, as if it had already been effective at the commencement date of the existing lease contracts.  The two capitalisation exemptions proposed by the standard - lease contracts with a duration of less than twelve months and lease contracts for which the underlying asset has a low value - have been used.  The Group has elected to only apply IFRS 16 to contracts previously identified as a lease under IAS 17.  In contrast to lessee accounting, IFRS 16 substantially carries forward the lessor accounting requirements from IAS 17.  Under IFRS 16, a lessor continues to classify leases as either finance leases or operating leases and account for those two types of leases differently.

 

Impact of lessee accounting

IFRS 16 has changed how the Group accounts for leases previously classified as operating leases under IAS 17, which were off-balance sheet.  The accounting for these leases upon the initial adoption of the standard is as follows:

 

· recognise investment property (leased) or right-of-use assets in the consolidated statement of financial position, initially measured at the present value of the future minimum lease payments from the inception of each lease discounted at the lease's incremental borrowing rate.  Depreciation has been recognised in relation to these assets with the initial asset valuation calculated on the basis that depreciation has been applied from the inception of the underlying lease;

· recognise lease liabilities in the consolidated statement of financial position, initially measured at the present value of the future minimum lease payment from the inception of each lease discounted at the lease's incremental borrowing rate.  The discount has been unwound each year with the initial liability valuation calculated on the basis that the unwind of the discount has been applied from the inception of the lease; and

· the difference between the right‑of‑use assets, lease liabilities and prepaid or accrued lease payments has resulted in an adjustment to equity at 1 October 2018 relative to that previously reported.

 

Subsequent treatment is as follows:

 

· to recognise depreciation of investment property (leased) and right-of‑use assets in the consolidated statement of comprehensive income;

· the lease liability is unwound each year, with the discount unwind recognised as an interest expense; and

· to separate the total amount of cash paid into a portion repaying the principal of the lease liability (presented within financing activities) and interest (presented within operating activities) in the consolidated statement of cash flows.

 

The application of IFRS 16 has generated a different profile for the recognition of lease expenditure in the Group statement of comprehensive income when compared to IAS 17.  The calculation of lease liabilities under IFRS 16 requires the discounting of future minimum lease payments with the unwind of the discount then recognised in the statement of comprehensive income.  When estimating future minimum lease payments, the minimum rent increases applicable under each lease are factored into the calculation and for the six student accommodation sale and leaseback properties these minimum annual rent increases range from 1.5% to 2.5%.  This results in the timing of the recognition of lease costs under IFRS 16 having a greater weighting in the early life of the leases than under IAS 17 and lower costs in the later years.  In addition, EBITDA for the Group has increased significantly as the costs associated with these leases will now be recognised as depreciation and interest.  The following tables set out the adjustments recognised as at the date of initial application of IFRS 16.

 

 

Statement of comprehensive income for the year ended 30 September 2019

 

 

As reported

IFRS 16

adjustment

As restated

 

£'000

£'000

£'000

Continuing operations

 

 

 

Revenue

374,785

-

374,785

Cost of sales

(298,020)

3,268

(294,752)

Gross profit

76,765

3,268

80,033

Administrative expenses

(24,472)

39

(24,433)

Operating profit before exceptional items

52,293

3,307

55,600

Exceptional costs

(2,576)

-

(2,576)

Operating profit

49,717

3,307

53,024

Share of profit in joint ventures

286

-

286

Finance income

428

-

428

Finance costs

(695)

(5,179)

(5,874)

Profit before tax

49,736

(1,872)

47,864

Income tax expense

(9,436)

395

(9,041)

Profit for the year attributable to ordinary equity holders of the parent

40,300

(1,477)

38,823

 

 

 

 

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

 

 

 

Basic earnings per share

15.780

(0.578)

15.202

Diluted earnings per share

15.740

(0.565)

15.175

Adjusted proforma basic earnings per share (excluding exceptional costs)

16.689

(0.578)

16.111

Adjusted proforma diluted earnings per share (excluding exceptional costs)

16.646

(0.564)

16.082

 

The application of IFRS 16 resulted in an increase in operating profit of £3.3 million due to lease payments no longer being recognised in the statement of comprehensive income and replaced by depreciation and interest costs.  This has led to a net reduction in cost of sales and administrative expenses.  An increased interest expense, in comparison to IAS 17, was recognised in respect of interest on lease liabilities of £5.2 million with overall profit for the year attributable to ordinary equity holders of the parent reduced by £1.5 million.

 

 

Statement of comprehensive income for the year ended 30 September 2020

 

 

On a see-

through

basis

 

IFRS 16

adjustment

 

As reported

 

£'000

£'000

£'000

Continuing operations

 

 

 

Revenue

354,121

-

354,121

Cost of sales

(281,669)

3,464

(278,205)

Gross profit

72,452

3,464

75,916

Administrative expenses

(24,306)

57

(24,249)

Operating profit before exceptional items

48,146

3,521

51,667

Exceptional costs

(20,437)

-

(20,437)

Operating profit

27,709

3,521

31,230

Share of profit in joint ventures

199

-

199

Finance income

251

-

251

Finance costs

(1,263)

(5,103)

(6,366)

Profit before tax

26,896

(1,582)

25,314

Income tax expense

 (4,523)

301

(4,222)

Profit for the year attributable to ordinary equity holders of the parent

22,373

(1,281)

21,092

 

 

 

 

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

 

 

 

Basic earnings per share

8.746

(0.500)

8.246

Diluted earnings per share

8.734

(0.500)

8.234

Adjusted proforma basic earnings per share (excluding exceptional costs)

15.218

(0.501)

14.717

Adjusted proforma diluted earnings per share (excluding exceptional costs)

15.196

(0.500)

14.696

 

The application of IFRS 16 resulted in an increase in operating profit of £3.5 million due to lease payments no longer being recognised in the statement of comprehensive income and replaced by depreciation and interest costs.  This has led to a net reduction in cost of sales and administrative expenses.  An increased interest expense, in comparison to IAS 17, was recognised in respect of interest on lease liabilities of £5.1 million with overall profit for the year attributable to ordinary equity holders of the parent reduced by £1.3 million.

 

 

Statement of financial position at 30 September 2018

 

As reported

IFRS 16

adjustment

As restated

 

£'000

£'000

£'000

Non-current assets

 

 

 

Intangible assets

14,403

-

14,403

Investment property (leased)

-

117,483

117,483

Right-of-use assets

-

7,013

7,013

Property, plant and equipment

4,809

-

4,809

Investment in joint ventures

2,558

-

2,558

Deferred tax asset

42

3,113

3,155

Other financial assets

1,350

-

1,350

 

23,162

127,609

150,771

Current assets

 

 

 

Inventory and work in progress

132,778

-

132,778

Contract assets

8,758

-

8,758

Trade and other receivables

18,209

(710)

17,499

Cash and cash equivalents

106,640

-

106,640

 

266,385

(710)

265,675

Total assets

289,547

126,899

416,446

Current liabilities

 

 

 

Trade and other payables

(84,308)

294

(84,014)

Contract liabilities

(14,314)

-

(14,314)

Provisions

(1,068)

1,068

-

Interest-bearing loans and borrowings

(1,605)

-

(1,605)

Lease liabilities

-

(5,770)

(5,770)

Current tax liabilities

(7,204)

-

(7,204)

 

(108,499)

(4,408)

(112,907)

Non-current liabilities

 

 

 

Interest-bearing loans and borrowings

(24,877)

-

(24,877)

Lease liabilities

-

(137,522)

(137,522)

Deferred tax liabilities

(1,050)

-

(1,050)

Provisions

(1,602)

1,602

-

 

(27,529)

(135,920)

(163,449)

Total liabilities

(136,028)

(140,328)

(276,356)

Net assets

153,519

(13,429)

140,090

Equity

 

 

 

Share capital

2,553

-

2,553

Share premium

84,612

-

84,612

Merger reserve

(75,383)

-

(75,383)

Fair value reserve of financial assets at FVOCI

436

-

436

Share‑based payment reserve

84

-

84

Retained earnings

141,217

(13,429)

127,788

Total equity

153,519

(13,429)

140,090

 

On 1 October 2018, £117.5 million was recognised in the statement of financial position as investment property (leased) assets in respect of student leaseback arrangements and £7.0 million as right-of-use assets in respect of office properties and motor vehicles.  In addition, a lease liability of £143.3 million was recognised in respect of these assets.  Trade and other receivables reduced by £0.7 million due to the reclassification of prepayments from receivables to lease liabilities.  Provisions reduced by £2.7 million due to the reclassification of these provisions to investment property (leased) assets as impairment provisions.  Deferred tax assets totalling £3.1 million were recognised in relation to the future tax benefit from these adjustments.

 

The net difference of £13.4 million has been recognised as a reduction in retained earnings.

 

 

Statement of financial position at 30 September 2019

 

 

As reported

IFRS 16

adjustment

As restated

 

£'000

£'000

£'000

Non-current assets

 

 

 

Intangible assets

13,844

-

13,844

Investment property (leased)

-

110,224

110,224

Right-of-use assets

-

5,930

5,930

Property, plant and equipment

4,966

-

4,966

Investment in joint ventures

2,794

-

2,794

Deferred tax asset

290

3,546

3,836

Other financial assets

1,139

-

1,139

 

23,033

119,700

142,733

Current assets

 

 

 

Inventory and work in progress

134,226

-

134,226

Contract assets

25,578

-

25,578

Trade and other receivables

14,443

(593)

13,850

Cash and cash equivalents

115,652

-

115,652

 

289,899

(593)

289,306

Total assets

312,932

119,107

432,039

Current liabilities

 

 

 

Trade and other payables

(81,407)

39

(81,368)

Contract liabilities

(5,164)

-

(5,164)

Provisions

(863)

863

-

Interest-bearing loans and borrowings

(1,324)

-

 (1,324)

Lease liabilities

 -

(6,192)

 (6,192)

Current tax liabilities

(7,056)

13

(7,043)

 

(95,814)

(5,277)

(101,091)

Non-current liabilities

 

 

 

Interest-bearing loans and borrowings

(37,481)

-

(37,481)

Lease liabilities

-

(131,330)

(131,330)

Deferred tax liabilities

(1,042)

-

(1,042)

Provisions

(2,594)

2,594

-

 

(41,117)

(128,736)

(169,853)

Total liabilities

(136,931)

(134,013)

(270,944)

Net assets

176,001

(14,906)

161,095

Equity

 

 

 

Share capital

2,553

-

2,553

Share premium

84,612

-

84,612

Merger reserve

(75,383)

-

(75,383)

Fair value reserve of financial assets at FVOCI

434

-

434

Share‑based payment reserve

2,311

-

2,311

Retained earnings

161,474

(14,906)

146,568

Total equity

176,001

(14,906)

161,095

 

On 1 October 2019, £110.2 million was recognised in the statement of financial position as investment property (leased) assets in respect of student leaseback arrangements and £5.9 million as right-of-use assets in respect of office properties and motor vehicles.  In addition, a lease liability of £137.5 million was recognised in respect of these assets.  Trade and other receivables reduced by £0.6 million due to the reclassification of prepayments from receivables to lease liabilities.  Provisions reduced by £3.5 million due to the reclassification of these provisions to investment property (leased) assets as impairment provisions.  Deferred tax assets totalling £3.5 million were recognised in relation to the future tax benefit from these adjustments.

 

The net difference of £14.9 million has been recognised as a reduction in retained earnings.

 

 

Statement of financial position at 30 September 2020

 

 

On a see-

through

basis

 

IFRS 16

adjustment

 

As reported

 

£'000

£'000

£'000

Non-current assets

 

 

 

Intangible assets

13,284

-

13,284

Investment property (leased)

-

104,623

104,623

Right-of-use assets

-

4,763

4,763

Property, plant and equipment

4,376

-

4,376

Investment in joint ventures

3,243

-

3,243

Deferred tax asset

251

3,062

3,313

Other financial assets

1,133

-

1,133

 

22,287

112,448

134,735

Current assets

 

 

 

Inventory and work in progress

125,660

-

125,660

Contract assets

41,522

-

41,522

Trade and other receivables

24,250

(732)

23,518

Cash and cash equivalents

134,513

-

134,513

 

325,945

(732)

325,213

Total assets

348,232

111,716

459,948

Current liabilities

 

 

 

Trade and other payables

(97,761)

461

(97,300)

Contract liabilities

(8,967)

-

(8,967)

Provisions

(9,208)

2,931

(6,277)

Interest-bearing loans and borrowings

(711)

-

(711)

Lease liabilities

-

(6,310)

(6,310)

Current tax liabilities

(819)

-

(819)

 

(117,466)

(2,918)

(120,384)

Non-current liabilities

 

 

 

Interest-bearing loans and borrowings

(38,956)

-

(38,956)

Lease liabilities

-

(128,143)

(128,143)

Deferred tax liabilities

(1,040)

-

(1,040)

Provisions

(6,691)

3,104

(3,587)

 

(46,687)

(125,039)

(171,726)

Total liabilities

(164,153)

(127,957)

(292,110)

Net assets

184,079

(16,241)

167,838

Equity

 

 

 

Share capital

2,562

-

2,562

Share premium

84,612

-

84,612

Merger reserve

(75,383)

-

(75,383)

Fair value reserve of financial assets at FVOCI

428

-

428

Share‑based payment reserve

2,348

-

2,348

Retained earnings

169,512

(16,241)

153,271

Total equity

184,079

(16,241)

167,838

 

On 30 September 2020, £104.6million was recognised in the statement of financial position as investment property (leased) assets in respect of student leaseback arrangements and £4.8 million as right-of-use assets in respect of office properties and motor vehicles.  In addition, a lease liability of £134.4 million was recognised in respect of these assets.  Trade and other receivables reduced by £0.7 million due to the reclassification of prepayments from receivables to lease liabilities.  Provisions reduced by £6.0 million due to the reclassification of these provisions to investment property (leased) assets as impairment provisions.  Deferred tax assets totalling £3.1 million were recognised in relation to the future tax benefit from these adjustments.

 

The net difference of £16.2 million has been recognised as a reduction in retained earnings.

 

 

Statement of cash flows for the year ended 30 September 2019

 

 

As reported

IFRS 16

adjustment

As restated

 

£'000

£'000

£'000

Cash flows from operating activities

 

 

 

Cash inflow from operations

27,811

11,132

38,943

Interest received

428

-

428

Interest paid

(911)

(5,179)

(6,090)

Tax paid

(9,769)

-

(9,769)

Net cash inflow from operating activities

17,559

5,953

23,512

Cash flows from investing activities

 

 

 

Acquisition of property, plant and equipment

(361)

-

(361)

Proceeds on disposal of property, plant and equipment

87

-

87

Cash distribution received from other financial assets

209

-

209

Net cash inflow from investing activities

(65)

-

(65)

Cash flows from financing activities

 

 

 

Dividends paid

(20,113)

-

(20,113)

Payment of lease liabilities

-

(5,953)

(5,953)

Payment of capital element of other interest bearing loans

(1,307)

-

(1,307)

Drawdown of RCF

46,244

-

46,244

Repayment of bank loans

(33,306)

-

(33,306)

Net cash outflow from financing activities

(8,482)

(5,953)

(14,435)

Net increase in cash

9,012

---

9,012

Cash and cash equivalents at 1 October 2019 and 1 October 2018

106,640

-

106,640

Cash and cash equivalents at 30 September 2020 and 30 September 2019

115,652

-

115,652

 

The application of IFRS 16 resulted in an increase in the cash inflow from operations of £11.1 million due to the reclassification of operating lease payments as interest paid and payment of lease liabilities.  Interest paid has increased by £5.2 million and the payment of lease liabilities by £5.9 million.

 

 

 

Statement of cash flows for the year ended 30 September 2020

 

 

On a see-through

basis

 

IFRS 16

adjustment

 

As reported

 

£'000

£'000

£'000

Cash flows from operating activities

 

 

 

Cash inflow from operations

43,676

11,192

54,868

Interest received

245

-

245

Interest paid

(1,689)

(5,103)

(6,792)

Tax paid

(10,035)

-

(10,035)

Net cash inflow from operating activities

32,197

6,089

38,286

Cash flows from investing activities

 

 

 

Acquisition of property, plant and equipment

(317)

-

(317)

Proceeds on disposal of property, plant and equipment

69

-

69

Cash flow from joint venture interests

812

-

812

Cash distribution received from other financial assets

-

-

-

Net cash inflow from investing activities

564

-

564

Cash flows from financing activities

 

 

 

Dividends paid

(14,319)

-

(14,319)

Proceeds from exercise of share options

9

-

9

Payment of principal portion of lease liabilities

-

(6,089)

(6,089)

Payment of capital element of other interest bearing loans

(1,034)

-

(1,034)

Drawdown of RCF

20,843

-

20,843

Repayment of bank loans

(18,499)

-

(18,499)

Bank loan arrangement fees

(900)

-

(900)

Net cash outflow from financing activities

(13,900)

(6,089)

(19,989)

Net increase in cash

18,861

-

18,861

Cash and cash equivalents at 1 October 2019

115,652

-

115,652

Cash and cash equivalents at 30 September 2020

134,513

-

134,513

 

The application of IFRS 16 resulted in an increase in the cash inflow from operations of £11.2 million due to the reclassification of operating lease payments as interest paid and payment of lease liabilities.  Interest paid has increased by £5.1 million and the payment of lease liabilities by £6.1 million.

 

New standards and interpretations that have not yet been adopted

The following standards and interpretations that are anticipated to be relevant to the Group have an effective date after the date of these financial statements.  The Group has not early adopted them and plans to adopt them from the effective dates once endorsed for application in the EU.  These standards are not expected to have a significant impact on the Group's consolidated financial statements.

 

 

Effective for accounting

Standard or interpretation

periods beginning on or after

Amendments to IFRS 3 'Business Combinations'

1 January 2020

Amendments to IAS 1 and IAS 8: Definition of Material

1 January 2020

Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform

1 January 2020

IFRS 17 'Insurance contracts'

1 January 2023

 

 

 

 

5. Segmental reporting

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

 

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 traditional residential property; 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.

 

All revenues arise in the UK.

 

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.

 

Year ended 30 September 2020

Student

accommodation

Build

to rent

 

Residential

Accommodation

management

 

Corporate

 

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

Segmental revenue

226,026

93,991

26,268

7,586

250

354,121

Segmental gross profit

 

54,285

 

14,884

 

4,042

 

4,540

 

(1,835)

 

75,916

Administration expenses

 

-

 

-

 

-

 

(3,432)

 

(20,817)

 

(24,249)

Exceptional costs

-

-

-

-

(20,437)

(20,437)

Share of operating profit in joint ventures

 

 

199

 

 

-

 

 

-

 

 

-

 

 

-

 

 

199

Finance income

-

-

-

-

251

251

Finance costs

-

-

-

-

(6,366)

(6,366)

Profit/(loss) before tax

 

54,484

 

14,884

 

4,042

 

1,108

 

(49,204)

 

25,314

Taxation

-

-

-

-

(4,222)

(4,222)

Continuing profit/(loss) for the year

 

 

54,484

 

 

14,884

 

 

4,042

 

 

1,108

 

 

(53,426)

 

 

21,092

Profit for the year attributable to ordinary equity shareholders of the parent

 

 

 

 

 

 

 

 

 

21,092

Inventory and work in progress

 

30,706

 

53,964

 

30,656

 

-

 

10,334

 

125,660

 

 

 

 

Year ended 30 September 2019

Student

accommodation

Build

to rent

 

Residential

Accommodation

management

 

Corporate

 

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

Segmental revenue

246,116

77,429

34,278

7,460

9,502

374,785

Segmental gross profit

 

54,850

 

13,783

 

7,158

 

4,586

 

(344)

 

80,033

Administration expenses

 

-

 

-

 

-

 

(3,167)

 

(21,266)

 

(24,433)

Exceptional costs

-

-

-

-

(2,576)

(2,576)

Share of operating profit in joint ventures

 

 

286

 

 

-

 

 

-

 

 

-

 

 

-

 

 

286

Finance income

-

-

-

-

428

428

Finance costs

-

-

-

-

(5,874)

(5,874)

Profit/(loss) before tax

 

55,136

 

13,783

 

7,158

 

1,419

 

(29,632)

 

47,864

Taxation

-

-

-

-

(9,041)

(9,041)

Continuing profit/(loss) for the year

 

 

55,136

 

 

13,783

 

 

7,158

 

 

1,419

 

 

(38,673)

 

 

38,823

Profit for the year attributable to ordinary equity shareholders of the parent

 

 

 

 

 

 

 

 

 

38,823

Inventory and work in progress

 

40,268

 

38,608

 

45,153

 

-

 

10,197

 

134,226

 

The prior year comparative information has been restated so that it is presented in a way which is consistent with the internal reporting provided to the chief operating decision-maker.  Revenue of £3,786,000 and gross profit of £555,000 has been transferred from the Residential to the Build to Rent segment.

 

6. Exceptional costs

 

Year

ended

30

September

2020

Year

ended

30

September

2019

 

£'000

£'000

Covid-19 costs

 

 

COVID-19 additional costs of on-site working and in completing developments

(2,659)

-

Waiver of academic year 2019/20 final term rents due on leased student accommodation assets due to lockdown measures

 

(1,086)

 

-

Impairment of the right-of-use carrying value of leased student accommodation assets due to reduced 2020/21 student occupancy

 

(1,892)

 

-

Total COVID-19 costs

(5,637)

-

Fire safety recladding works

(14,800)

-

Cost of compensating the Group's new CEO, Richard Simpson, for his forfeit Unite Group plc ("Unite") 2018 bonus

 

-

 

(411)

Cost of Watkin Jones plc share awards issued on compensating Richard Simpson for his forfeit Unite 2015-2017 share awards

 

-

 

(2,165)

Total exceptional costs

(20,437)

(2,576)

 

During the year a total impairment charge of £2,241,000 was recognised in relation to the carrying value of leased student accommodation assets (note 10).  1,892,000 of this impairment charge has been treated as an exceptional item due to the impact of reduced student occupancy during the 2020/21 academic year as a result of the COVID-19 pandemic.  This element of the total charge has been calculated by comparing the final impairment calculations to a calculation of the impairment charge using the income forecasts for 2020/21 prepared prior to the pandemic.

 

All of the exceptional costs in the year have been treated as allowable deductions for corporation tax purposes (2019: £1,341,000 of the £2,576,000 exceptional costs were treated as allowable deductions).

 

7. Income taxes

 

 

 

 

Year

ended

30 September

2020

 

Year

ended

30

September

2019

Restated

(note 4)

 

£'000

£'000

Current income tax

 

 

UK corporation tax on profits for the year

4,076

9,426

Adjustments in respect of prior periods

(305)

183

Total current tax

3,771

9,609

Deferred tax

 

 

Origination and reversal of temporary differences

455

(644)

Adjustments in respect of prior year

(10)

76

Effect of tax rate change on opening balance

6

-

Total deferred tax

451

(568)

Total tax expense

4,222

9,041

 

Reconciliation of total tax expense

 

 

 

Year

ended

30

September

2020

Year

ended

30

September

2019

Restated

(note 4)

 

£'000

£'000

Profit before tax

25,314

47,864

Profit multiplied by standard rate of corporation tax in the UK of 19% (2019: 19%)

4,810

9,094

Expenses not deductible

288

282

Income not taxable

(53)

(79)

Other differences

(508)

(513)

Prior period adjustment

(315)

257

At the effective rate of tax of 16.7% (2019: 18.9%)

4,222

9,041

Income tax expense reported in the statement of profit or loss

4,222

9,041

 

 

 

8. Earnings per share

 

Basic and diluted 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 shares in issue during the year.

 

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

 

 

 

 

Year

ended

30

September

2020

Year

ended

30

September

2019

Restated

(note 5)

 

£'000

£'000

Profit for the year attributable to ordinary equity holders of the parent

21,092

38,823

Add back exceptional costs for the year (note 6)

20,437

2,576

Less corporation tax benefit from exceptional costs for the year

(3,883)

(255)

Adjusted profit for the year attributable to ordinary equity holders of the parent (excluding exceptional costs after tax)

 

37,646

 

41,144

 

 

Number of

Number of

 

shares

shares

Weighted average number of ordinary shares for basic earnings per share

255,795,659

255,382,181

Adjustment for the effects of dilutive potential ordinary shares

367,800

658,650

Weighted average number for diluted earnings per share

256,163,459

256,040,831

 

 

Pence

Pence

Basic earnings per share

 

 

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

8.246

15.202

Adjusted proforma basic earnings per share (excluding exceptional costs after tax)

 

 

Adjusted profit for the year attributable to ordinary equity holders of the parent

14.717

16.111

Diluted earnings per share

 

 

Basic profit for the year attributable to diluted equity holders of the parent

8.234

15.175

Adjusted proforma diluted earnings per share (excluding exceptional costs after tax)

 

 

Adjusted profit for the year attributable to diluted equity holders of the parent

14.696

16.082

 

 

9. Dividends

 

Year

ended

30

September

2020

Year

ended

30

September

2019

 

£'000

£'000

Interim dividend paid in June 2020 of nil pence (June 2019: 2.75 pence)

-

7,018

Final dividend paid in February 2020 of 5.6 pence (February 2019: 5.13 pence)

14,319

13,095

 

14,319

20,113

 

The interim dividend that would have been paid in June 2020 was suspended as a precautionary measure whilst the impact of COVID-19 on the business was assessed.

 

The final dividend proposed for the year ended 30 September 2020 is 7.35 pence per ordinary share. This dividend was declared after 30 September 2020 and as such the liability of £18,828,000 has not been recognised at that date.  At 30 September 2020, the Company had distributable reserves available of £100,816,000 (30 September 2019: £115,135,000).

 

 

 

10. Leases

 

Set out below are the carrying amounts of right-of-use assets recognised and the movements during the year:

 

 

Investment

property

(leased)

 

Plant and machinery

 

Motor

vehicles

 

 

Total

 

£'000

£'000

£'000

£'000

Cost

 

 

 

 

At 30 September 2018

158,231

9,411

1,577

169,219

Additions

-

-

372

372

Disposals

-

-

(352)

(352)

At 30 September 2019

158,231

9,411

1,597

169,239

Additions/adjustment

3,162

-

313

3,475

Disposals

-

-

(478)

(478)

At 30 September 2020

161,393

9,411

1,432

172,236

Depreciation

 

 

 

 

At 30 September 2018

38,077

3,412

563

42,052

Charge for the year

6,473

791

496

7,760

Disposals

-

-

(184)

(184)

At 30 September 2019

44,550

4,203

875

49,628

Charge for the year

6,522

791

552

7,865

Disposals

-

-

(341)

(341)

At 30 September 2020

51,072

4,994

1,086

57,152

Impairment

 

 

 

 

At 30 September 2018

2,671

-

-

2,671

Charge for the year

786

-

-

786

At 30 September 2019

3,457

-

-

3,457

Charge for the year

2,241

-

-

2,241

At 30 September 2020

5,698

-

-

5,698

Net book value

 

 

 

 

At 30 September 2020

104,623

4,417

346

109,386

At 30 September 2019

110,224

5,208

722

116,154

At 30 September 2018

117,483

5,999

1,014

124,496

 

Investment property (leased) assets relate to the Group's six student leaseback arrangements.  Each of the six leaseback arrangements are considered to be a separate CGU.  The Directors consider an impairment indication to exist if there is a shortfall between the annual net rental income generated by each property and the annual headlease payment due under each lease.  The Directors have reviewed the carrying value of four of these leases where there is an indication of impairment and compared them to their respective recoverable amounts.  An impairment charge totalling £2,241,000 (2019: £786,000) has been recognised in respect of one of the Group's sale and leaseback arrangements - Europa, Liverpool, because the recoverable amount was less than the depreciated carrying value of the asset.  1,892,000 (2019: £Nil) of this impairment charge has been recognised as an exceptional item in the consolidated statement of comprehensive income and £349,000 (2019: £786,000) has been recognised within student accommodation cost of sales.

 

The recoverable amount for each CGU has been calculated as its value in use.  The valuation technique used is a discounted cash flow.  Due to the bespoke nature of these arrangements these valuations are also considered to represent the fair value of each of the investment property (leased) assets.  The key inputs into the valuation are gross rental income, operating costs, lease term and an estimated discount rate reflecting the market assessment of risk that would be applied to each asset.  The estimated discount rates for each property are included in the next table.  A key assumption in the valuation calculation as at 30 September 2020 is that occupancy levels will return to those at the start of the 2019/20 academic year by the 2021/22 academic year.

 

 

 

 

Impairment charge/(reversal)

£'000

 

 

Fair value in use

£'000

 

Year

ended

30

September

2020

Year

ended

30

September

2019

 

 

Discount

rate (yields)

 

 

Lease

termination

date

Year

ended

30

September

2020

Year

ended

30

September

2019

Collegelands, Glasgow

-

(229)

5.5%

6 September 2026

14,244

17,220

Europa, Liverpool

2,241

993

6.5%

18 March 2030

12,462

18,172

Optima, Loughborough

-

153

6.0%

18 March 2030

2,182

2,375

Glassyard Building, London

-

(131)

5.0%

10 September 2034

11,177

11,551

Dunaskin Mill, Glasgow

-

-

5.5%

5 September 2051

53,059

53,084

New Bridewell, Bristol

-

-

5.5%

12 March 2052

56,964

56,913

Total

2,241

786

 

 

150,088

159,315

 

Set out below are the carrying amounts of lease liabilities and movements during the period:

 

Year

ended

30

September

2020

Year

ended

30

September

2019

 

£'000

£'000

At the start of the period

137,522

143,292

Additions

3,475

372

Disposals

(455)

(189)

Accretion of interest

5,103

5,179

Payments

(11,192)

(11,132)

At the end of the period

134,453

137,522

Current

6,310

6,192

Non-current

128,143

131,330

 

Lease liability maturity analysis

 

Year

ended

30

September

2020

Year

ended

30

September

2019

 

£'000

£'000

Year one

11,041

11,302

Year two

10,880

10,638

Year three

10,781

10,758

Year four

10,707

10,948

Year five

10,909

11,117

Onwards

150,554

159,372

 

204,872

214,135

 

 

 

 

Total commitments - Group as lessor

 

Year

ended

30

September

2020

Year

ended

30

September

2019

 

£'000

£'000

Non-cancellable operating lease rentals are receivable as follows:

 

 

Within one year

12,436

14,846

Later than one year and less than five years

573

3,586

After five years

780

917

 

13,789

19,349

The Group acts as lessor in respect of certain commercial property and for the student accommodation properties operated under the sale and leaseback arrangements detailed above.

 

 

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

 

 

Year ended

30 September

2020

Year

Ended

30

September

Restated

(note 5)

 

£'000

£'000

Profit before tax

25,314

47,864

Depreciation of leased investment properties and right-of-use assets

7,865

7,760

Depreciation of plant and equipment

998

835

Impairment of leased investment properties

2,241

786

Amortisation of intangible assets

559

559

(Profit) on sale of plant and equipment

(24)

(42)

Finance income

(245)

(428)

Finance costs

6,366

5,874

Share of profit in joint ventures

(199)

(286)

Decrease/(increase) in inventory and work in progress

8,566

(1,948)

Interest capitalised in development land, inventory and work in progress

465

216

(Increase)/decrease in contract assets

(15,944)

(16,820)

(Increase)/decrease in trade and other receivables

(10,785)

4,089

Increase/(decrease) in contract liabilities

3,803

(9,150)

Increase/(decrease) in trade and other payables

15,987

(2,593)

Provision for fire safety cladding works

9,864

-

Increase in share‑based payment reserve

37

2,227

Net cash inflow from operating activities

54,868

38,943

 

Major non-cash transactions

There were no major non-cash transactions during the period.

 

 

 

 

12. Analysis of net cash/(debt)

 

 

30 September 2020

At

beginning

of year

 

 

Cash flow

 

Other

movements

At

 end of year

 

£'000

£'000

£'000

£'000

Cash at bank and in hand

115,652

18,861

-

134,513

Bank loans

(37,413)

(1,444)

(179)

(39,036)

Other interest bearing loans

(1,392)

1,034

(273)

(631)

Net cash before deducting lease liabilities

76,847

18,451

(452)

94,846

Lease liabilities (note 10)

(137,522)

6,089

(3,020)

(134,453)

Net debt

(60,675)

24,540

(3,472)

(39,607)

 

 

 

30 September 2019 - restated (note 4)

At

beginning

of year

 

 

Cash flow

 

Other

movements

At

end of year

 

£'000

£'000

£'000

£'000

Cash at bank and in hand

106,640

9,012

-

115,652

Bank loans

(24,459)

(12,938)

(16)

(37,413)

Other interest bearing loans

(2,023)

1,307

(676)

(1,392)

Net cash before deducting lease liabilities

80,158

(2,619)

(692)

76,847

Lease liabilities (note 10)

(143,292)

5,953

(183)

(137,522)

Net debt

(63,134)

3,334

(875)

(60,675)

 

Cash at bank and in hand as at 30 September 2020 includes £814,225 of cash deposited by the Group in an escrow account in connection with a development in progress, access to which is contingent upon the completion of certain development works (30 September 2019: £1,853,000).  Non‑cash movements relate to the acquisition of property, plant and equipment under finance leases, the amortisation of bank loan arrangement fees and changes to the calculation of the value of lease liabilities as a result of movements in the rent inflation rates assumed.

 

 

13. Annual report

Copies of this announcement are available from the Company at 7-9 Swallow Street, London W1B 4DE.  The Group's annual report for the year ended 30 September 2020 will be posted to shareholders shortly and will be available on our website at www.watkinjonesplc.com.

 

- ENDS -

 

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