REG - Watkin Jones plc - Full Year Results 2023
23/01/2024 07:00
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RNS Number : 5908A Watkin Jones plc 23 January 2024
23 January 2024
Watkin Jones plc
(the 'Group')
FY 2023 Results
Well positioned to capitalise on a market recovery
The Group announces its annual results for the year ended 30 September 2023
('FY23'):
Adjusted Results ((1)) Statutory Results
FY23 FY22 Change (%) FY23 FY22 Change (%)
Revenue £413.2m £407.1m 1.5% £413.2m £407.1m 1.5%
Gross profit £34.9m £67.6m (48.4)% £34.9m £67.6m (48.4)%
Operating profit/(loss) £0.2m £54.7m (99.6)% £(38.0)m £24.3m (256.4)%
(Loss)/profit before tax £(2.9)m £48.8m (105.9)% £(42.5)m £18.4m (331.0)%
Basic (loss)/earnings per share (0.6)p 14.8p (104.1)% (12.7)p 5.2p (344.2)%
Dividend per share 1.4p 7.4p (81.1)% 1.4p 7.4p (81.1)%
Adjusted net cash((2)) £43.9m £82.6m (46.9)%
(1) For FY23 Adjusted Operating profit, Adjusted Loss before tax and
Adjusted Basic Loss per share are calculated before the impact of the
exceptional charge of £35.0 million for the further costs of building safety
remedial works and restructuring costs of £3.1 million
(2) Adjusted net cash is stated after deducting interest bearing
loans and borrowings, but before deducting IFRS 16 operating lease liabilities
of £45.2 million at 30 September 2023 (30 September 2022: £49.1 million)
Key Highlights
· Revenue of £413.2 million from our previously sold developments on
site and two forward sales
· Adjusted operating profit of £0.2 million, reflecting low levels of
forward sale market activity, together with:
o lower margins across certain in-build schemes as anticipated, together
with additional site-specific costs related to accelerated completions on two
schemes and a third-party contractor insolvency
o £4.6 million book loss on the sale of three PRS assets
o impairment charge of £5.5 million on our non-core land bank and certain
pipeline assets which are no longer economically viable
· Exceptional charge in the year of £38.1 million
o £35.0 million further provision for building safety remedial works. Costs
expect to be incurred over a period of up to five years
o £3.1 million one-off restructuring costs associated with realignment of
the Group's cost base, delivering c.£4.0 million of annualised run rate
savings
· End year with c.£500 million of contractually secure forward sold
revenue
· Gross and adjusted net cash balance of £72.4 million and £43.9
million respectively, reflecting strong cash collections in the later part of
the year and proceeds from non-core asset sales
· The Board has decided not to recommend a final dividend in respect of
FY23 given the uncertain market backdrop but remains committed to its
progressive dividend policy as earnings recover
Outlook: FY24
· Current secured revenue from previously sold developments, on site,
of c.£300 million, covering FY24 cost base
· Forward fund market showing early signs of recovery as interest rates
stabilise
· All current development schemes on track, supported by continuing
moderation in build cost inflation
· Guidance for FY24 adjusted operating profit of £15-20 million
unchanged.
Outlook: Medium term
· Market leading business operating in the most attractive segments of
the UK residential for rent market, where we continue to see strong tenant
demand and rental growth
· Significant pent up investor demand and growing allocations for high
quality assets
· Secured development pipeline of £1.5 billion (estimated future
revenue):
o £0.5 billion forward sold; £0.3 billion secured with planning; £0.7
billion in planning (of which £0.1 billion secured since the year end)
· Currently in exclusivity on a further £0.4 billion of land
opportunities (subject to planning)
· Partnership track record, delivery capability and Fresh are material
differentiators
· Strategic focus on extracting more value from the Group's existing
capabilities, through Development Partnerships and Refresh (refurbishment /
repurposing development opportunities).
Alex Pease, Chief Executive Officer of Watkin Jones, said "Significant cost
inflation and volatility in real estate funding markets meant that FY23
represented a period of unprecedented challenge for the business. However, I
am pleased that against this backdrop the Group demonstrated resilience and
agility, taking a number of important actions operationally.
Whilst funding conditions remain difficult, the outlook is gradually improving
and the strong asset performance in PBSA and BTR sectors gives me confidence
in the longer-term market recovery and return to growth. In the near term, we
remain focussed on driving improvements to the productivity and efficiency of
the business, as well as looking at opportunities to extract more value from
our sector expertise and end-to-end capabilities.
Watkin Jones continues to have a market-leading team and offering to the
residential for rent sectors and we are taking the right steps to ensure we
are well placed to capitalise on this, as conditions improve."
Analyst meeting
A meeting for analysts will be held in person at 11.00am today, Tuesday 23rd
January 2024, at Buchanan, 107 Cheapside, London EC2V 6DN. A copy of the Full
Year results presentation is available at the Group's website:
http://www.watkinjonesplc.com (http://www.watkinjonesplc.com)
An audio webcast of the meeting with analysts will be available after 12pm
today:
https://stream.buchanan.uk.com/broadcast/65952d93b012a6d30b474616
(https://stream.buchanan.uk.com/broadcast/65952d93b012a6d30b474616)
For further information:
Watkin Jones plc
Alex Pease, Chief Executive Officer Tel: +44 (0) 20 3617 4453
Sarah Sergeant, Chief Financial Officer www.watkinjonesplc.com (http://www.watkinjonesplc.com/)
Peel Hunt LLP (Nominated Adviser & Joint Corporate Broker) Tel: +44 (0) 20 7418 8900
Mike Bell / Ed Allsopp www.peelhunt.com (http://www.peelhunt.com/)
Jefferies Hoare Govett (Joint Corporate Broker) Tel: +44 (0) 20 7029 8000
James Umbers/David Sheehan / Paul Bundred www.jefferies.com (http://www.jefferies.com/)
Media enquiries:
Buchanan
Henry Harrison-Topham / Steph Whitmore Tel: +44 (0) 20 7466 5000
watkinjones@buchanan.uk.com www.buchanancomms.co.uk
Notes to Editors
Watkin Jones is the UK's leading developer and manager of residential for
rent, with a focus on the build to rent, student accommodation and affordable
housing sectors. The Group has strong relationships with institutional
investors, and a reputation for successful, on-time-delivery of high quality
developments. Since 1999, Watkin Jones has delivered 48,000 student beds
across 143 sites, making it a key player and leader in the UK purpose-built
student accommodation market, and is increasingly expanding its operations
into the build to rent sector. In addition, Fresh, the Group's specialist
accommodation management business, manages over 22,000 student beds and build
to rent apartments on behalf of its institutional clients. Watkin Jones has
also been responsible for over 80 residential developments, ranging from
starter homes to executive housing and apartments.
The Group's competitive advantage lies in its experienced management team and
capital-light business model, which enables it to offer an end-to-end solution
for investors, delivered entirely in-house with minimal reliance on third
parties, across the entire life cycle of an asset.
Watkin Jones was admitted to trading on AIM in March 2016 with the ticker
WJG.L. For additional information please visit www.watkinjonesplc.com
(http://www.watkinjonesplc.com/)
CHIEF EXECUTIVE OFFICER'S REVIEW
This has been a challenging year and while we performed well operationally,
tough conditions in the investment market combined with build cost inflation,
a third-party contractor liquidation and acceleration costs to complete
certain developments contributed to weaker financial results.
Although we faced severe headwinds this year, we remain a resilient business
with leadership positions in highly attractive markets. The supply and demand
dynamics in both BTR and PBSA are more attractive than ever, with a genuine
shortage of accommodation. This is resulting in very high occupancy levels,
good letting and retention rates, and robust rental growth. At the same time,
economic conditions and planning challenges mean less stock is being
delivered. In PBSA for example, only 12,000 new beds have been delivered for
2023/24, well down on previous years.
Higher interest rates and economic uncertainty resulted in the investment
market being effectively closed for much of the year but there is still
significant institutional capital waiting to be allocated to residential for
rent. Asset values have remained relatively steady, as higher rental income
has compensated for softer yields. Combined with less new stock coming
through, these factors should help the investment market gradually rebound.
Performance
We delivered a good operational performance in FY23, completing four schemes
to our high quality standards. One further development completed following the
year end. We also continued to acquire sites and progress them through
planning.
Build cost inflation was a significant challenge. Although it has eased as the
year progressed, several projects completing this year had been priced and
forward sold prior to the unprecedented build cost inflation and this caused
erosion of margin. We worked in partnership with our supply chain to manage
this and limit its impact on our developments as far as possible. In addition,
we incurred additional costs at our co-living scheme in Exeter, where the main
contractor went into liquidation during 2023. This required us to step in,
which our self‑build expertise enabled us to do quickly and effectively. The
scheme reached practical completion in September 2023. We also decided to
exercise caution in the prevailing market conditions and not accelerate the
development of some pipeline assets.
Overall, revenue was £413.2 million (FY22: £407.1 million), up 1.5%. Gross
profit declined to £34.9 million (FY22: £67.6 million), while adjusted
operating profit before exceptional items was £0.2 million (FY22: £54.7
million), reflecting the reduction in forward sales, lower margins across
certain in-build schemes as anticipated, the impairment of our non-core land
bank and certain pipeline assets and the book loss on disposal of the non-core
private rented sector assets. At the year end, we had adjusted net cash of
£43.9 million and total cash and available facilities of £103.6 million,
meaning the Group remains soundly financed. We were also pleased to extend the
maturity of our bank facility to November 2025.
BTR was the largest contributor to our results, reflecting progress with the
developments under construction and modest revenues from a forward sale. PBSA
saw revenue decline, due to the number of sites in-build and the stage of
their development, and the completion of only one forward sale in the year.
Fresh, our accommodation management business, performed well, with higher
revenues and an attractive gross margin.
Strategy
Our strategic focus is on growing our presence in residential to rent, driving
operational efficiency and ensuring we are a responsible business. While our
strategic direction is the right one, we also recognise the need to adapt it
to the conditions we face.
We are therefore looking at every aspect of our business to ensure we optimise
our margin and performance. For example, we have further improved the way we
manage procurement to maximise buying benefits, revamped our design guides for
schemes to ensure efficiency and consistency, and continued to build the
connections between our teams to increase operational effectiveness.
We are also determined to be well positioned to rebuild our pipeline when
market conditions turn, as we did successfully coming out of both the global
financial crisis and the pandemic. We will be very disciplined in doing so and
expect to see good opportunities to acquire sites as land prices reduce.
Alongside securing sites on our usual subject-to-planning basis, we will
explore the potential to partner with capital providers on land with existing
planning. This has the dual advantage of lower risk and increased speed for
bringing developments forward.
The two forward sales we completed in the year demonstrated our ability to act
quickly in the brief periods the market was open, but we also want to be
entrepreneurial and creative in our approach to the investment market. This
means looking at more innovative transaction structures, while still
delivering a high return on capital employed.
More broadly, we see potential in opening up additional revenue streams.
Examples include helping our institutional clients to refurbish their older
housing stock to meet residents' needs, while also making the buildings safer
and more environmentally efficient. This has the benefit of generating revenue
without additional investment, and leveraging our existing skill set.
Sustainability
We have continued to successfully implement our Future Foundations
sustainability strategy, which sets out our approach to our people, the places
we build and our impact on the planet.
We look to maintain a positive culture and our people approach is informed by
our employee engagement survey. During the year, we focused on providing
better training and development opportunities, recognising people's efforts
and celebrating inspirational performance. Our Star Awards are one such
initiative. These reward exceptional contributions from colleagues across a
range of categories. I am also pleased that we have maintained our exceptional
health and safety record, with an incident rate of just 4.9% of the industry
average in FY23.
The places we develop continue to evolve. We are designing buildings to higher
environmental standards than ever before, and we have evolved our
specification both to standardise our products and to take account of feedback
from institutional clients and residents. In particular, the feedback we
receive from Fresh residents is an important advantage for us.
From an environmental perspective, we are on a journey to net zero and have
further refined our understanding of our carbon emissions during the year. We
have published our assessment of the climate‑related risks and opportunities
facing the Company and our climate‑related financial disclosure statement
can be found within the Watkin Jones plc Annual Report for the year ended 30
September 2023.
Building safety
It goes without saying that the safety of our buildings is paramount. We
increased our building safety provision during the year, following the
evolution of government initiatives, greater access to properties identified
as being at risk, the receipt of fire safety reports, related cost estimates,
and the evolution and conclusion of legal proceedings and settlement and
contribution agreements with building owners.
The remedial works for properties included in our building safety provision
are progressing well. We remain committed to working collaboratively with
building owners and leaseholders to address issues with these legacy
buildings.
Outlook
We continue to operate in the most attractive segments of the residential for
rent market, with strong tenant demand and rental growth in our core PBSA and
BTR sectors.
In the short term, current secured revenue of circa £300 million from
previously sold developments is expected to cover our FY24 cost base. All
developments under construction are on track, supported by continuing
moderation in build cost inflation. Our secured development pipeline stands at
£1.5 billion.
Encouragingly, the forward fund market is showing early signs of recovery as
interest rates stabilise. Should interest rates trend downwards, we anticipate
that there will be growing investor demand and capital allocations for high
quality assets in our sectors.
While we remain focused on our core forward fund model, we will look at
potential opportunities to diversify our revenue streams through development
partnerships and refurbishment opportunities for institutional clients. This
should generate revenue and margin without requiring significant capital
investment.
Finally, on a personal note, I would like to thank the Board for giving me the
opportunity to lead this Company. I have worked at Watkin Jones for 13 years
and can confidently say that it is a fantastic business with extremely
dedicated and talented colleagues. I am incredibly proud to be its Chief
Executive Officer.
I would also like to thank my colleagues for their support, both to me
personally as I have taken on my new role, and to the business during what has
been a challenging year. I am confident that we are well placed to take
advantage of a recovery once markets improve.
Alex Pease
Chief Executive Officer
23 January 2024
OPERATIONAL REVIEW
Build To Rent
BTR apartments by estimated year of practical completion
Total pipeline FY24 FY25 FY26 FY27
Forward sold 2,907 672 809 1,110 316
Forward sales in the market 70 - - 70 -
Sites secured subject to planning 625 - - 230 395
Total secured 3,602 672 809 1,410 711
Total revenues for the year were £207.7 million (FY22: £191.2 million), up
8.6%.
Revenues included the build-out of our forward sold developments in Hove,
Lewisham, Birmingham and Leatherhead, and a development partnership scheme in
Cardiff. Subsequent to the year end Hove reached practical completion and we
handed over one block at Lewisham to the client.
We also forward sold a development in Belfast, which includes 627 BTR units
and 81 social rent affordable homes. Construction on this development will
start meaningfully in FY24 and the contribution to FY23 was restricted to a
small profit on the land transaction, as expected.
In FY23, we did not acquire or secure planning on any sites. The current
secured development pipeline for BTR is shown in the table above.
The secured development pipeline has an estimated future revenue value to us
of c.£0.6 billion (FY22: £1.0 billion), of which c.£447 million is
currently forward sold (FY22: £517 million).
Gross profit for the year was £19.8 million (FY22: £32.8 million), a
decrease of 39.6%. The gross margin was 9.5% (FY22: 17.2%), reflecting the
lower margin of the schemes we forward sold towards the end of FY22 and the
impact of build cost inflation.
The affordable housing business, which relates to single-family homes,
achieved 36 sales completions (FY22: 40) and delivered revenue of £19.6
million (FY22: £14.5 million) and gross profit of £1.9 million (FY22: £1.9
million), as we continued to progress our developments in Crewe and Preston.
Student Accommodation
PBSA beds by estimated year of practical completion
Total pipeline FY24 FY25 FY26 FY27 onwards
Forward sold 1,601 1,601 - - -
Forward sales in the market 1,510 - 260 727 523
Sites secured subject to planning 2,919 - - - 2,919
Total secured 6,030 1,601 260 727 3,442
Revenues from PBSA were £175.7 million (FY22: £180.0 million), down 2.4%.
During the year, we delivered four developments, comprising student schemes in
Edinburgh, Colchester and Swansea, and a 133-unit co-living scheme in Exeter.
We also forward sold one development, an 819-bed scheme in Bedminster,
Bristol, for delivery in FY24. The development is in a key regeneration area
and has strong environmental credentials, with a target BREEAM rating of
Excellent.
Gross profit for the year was £11.4 million (FY22: £26.4 million), resulting
in a gross margin of 6.5% (FY22: 14.7%). The reduction in margin was in part
due to additional build costs on the Exeter scheme, where the third-party main
contractor went into liquidation, and acceleration costs required to achieve
completion on certain schemes. In Exeter our self-build capabilities enabled
us to step in quickly and effectively, to minimise the delay and deliver to
the revised timetable agreed with the client. Build cost inflation also
reduced the margin on some schemes during the year.
In FY23, we acquired 2 sites and secured planning on 2 sites, with the
potential to deliver around 590 beds. The current secured development pipeline
for PBSA is shown in the table above.
The secured development pipeline has an estimated future revenue value to us
of c.£0.9 billion (FY22: £1.0 billion), of which c.£60 million is currently
forward sold (FY22: £130 million).
Accommodation Management
Key statistics
Student beds and BTR apartments under management
23,064
FY23
22,896
FY22
Net promoter scores
+35
FY23
+34
FY22
Revenues in Fresh were £9.5 million (FY22: £9.1 million). The growth
reflects increased variable fee income related to higher student occupancy, as
well as the number of student beds and BTR apartments under management at the
start of FY23 (22,896) compared to FY22 (22,155).
Gross profit rose to £6.0 million (FY22: £5.9 million), at a margin of 63.2%
(FY22: 64.8%).
Fresh took on two new student schemes with 500 beds in the year and finished
FY23 with 23,064 units under management across 71 schemes. However, 6,800
student beds left Fresh management in October 2023, to be managed in-house by
clients. These losses are partially offset by new contract wins, leaving Fresh
with approximately 19,000 units under management across 71 schemes at the
start of FY24.
During the year, Fresh introduced a new delivery model to enhance its focus on
residents and clients, ensure clear accountability within the organisation,
support the ability to scale, and offer career paths to retain talent. Fresh
also continued to develop the Yardi property management software introduced in
the prior year, in particular to refine it for the student market.
The business has developed its branding, putting in place the Fresh Student
and Fresh Renting brands, to support online searches and reflect the differing
needs of the two sectors. Fresh has also created a white-label offering, which
is seeing strong interest from clients and allows, for example, the
development of branding for individual buildings for BTR clients.
Fresh has continued to support its student residents, focusing on the Be
wellbeing programme. This is reflected in its record net promoter score of +35
(FY22: +34) and the award of Platinum status in the Global Student Living
Index and winning Best Student Private Housing Provider for the third year in
a row. The Be wellbeing programme won the prestigious Health and Wellbeing
Award at the Property Week Student Housing Awards.
FINANCIAL REVIEW
Revenue
Revenue of £413.2 million was delivered in the year, increasing 1.5% from
£407.1 million in FY22, despite the subdued market conditions for forward
sales. Our position was however cushioned by secured revenues from forward
sales completed in prior years.
BTR development revenues grew by 8.6% to £207.7 million (FY22: £191.2
million), with revenues from our existing portfolio of developments
supplemented by the forward sale of our new project at Titanic Quarter,
Belfast during the year.
Revenues from our PBSA development business were £175.7 million (FY22:
£180.0 million), a decrease of 2.4%, with four schemes completed and our new
development in Bedminster forward sold during the year. PBSA revenues also
include the rental income from our four leased student accommodation assets.
The rental income on these was £9.0 million (FY22: £13.6 million), a
decrease of 33.8%, with the impact of the prior year disposal of two assets
offset by continued strong student occupancy at our remaining sites.
The Affordable Homes business delivered revenues of £19.6 million, up 35.2%
on the £14.5 million recorded in FY22 as plots reach completion at both our
Preston and Crewe developments.
Fresh, our Accommodation Management business, achieved record revenues of
£9.5 million (FY22: £9.1 million), with further increases to occupancy
levels across its portfolio.
Operating profit
Gross profit for the year was £34.9 million (FY22: £67.6 million), a
decrease of 48.4%, both as a result of trading performance described below and
the impact of impairments to land assets in the period of £5.5 million. We
re-assessed the carrying value of our non-core land bank as well as certain
pipeline assets on the balance sheet, where early stage development
opportunities were strategically aborted in response to volatile market
conditions. This resulted in a decreased gross margin of 8.4% (FY22: 16.6%).
Both our BTR and PBSA segments have been impacted by the reduction in forward
sales compared to the prior year, supply chain pressures and build cost
inflation, and acceleration costs required to achieve completion on certain of
our schemes.
BTR development gross profit decreased by 39.6% in the year to £19.8 million
(FY22: £32.8 million), with gross margin softening to 9.5% (FY22: 17.2%).
Gross profit from PBSA development was £11.4 million (FY22: £26.4 million),
with gross margin of 6.5% (FY22: 14.7%). The decrease reflected incremental
costs at our scheme in Exeter due to the main contractor going into
liquidation, as well as acceleration costs to physically complete a number of
schemes in the summer.
In Affordable Homes, gross profit was £1.9 million (FY22: £1.9 million),
with a reduced gross margin of 9.7% (FY22: 13.2%) reflecting the impact of
build cost inflation and an increase in the sales mix of affordable units.
Fresh generated a gross profit of £6.0 million (FY22: £5.9 million) with
the gross margin remaining broadly flat at 63.1% (FY22: 64.8%).
During the year, we completed the disposal of a portfolio of non-core private
rental sector (PRS) assets on an accelerated timetable ahead of the completion
of remedial works, to allow the business to focus on its strategic priorities.
This disposal resulted in gross anticipated cash receipts of £17.2 million
before repayment of associated borrowings, of which £1.9 million is deferred
to next year. A book loss on disposal of £4.6 million was recorded within
administrative expenses.
Administrative expenses increased to £72.8 million (FY22: £43.4 million)
with the effect of this disposal and exceptional items recorded in the year.
Excluding the impact of the above loss on disposal and the profit on disposal
of investment properties in the year ended 30 September 2022, administrative
expenses before exceptional items decreased by 3.5% to £30.1 million (FY22:
£31.2 million), reflecting the impact of the cost out programme implemented
during the year.
Adjusted operating profit of £0.2 million (FY22: £54.7 million) reflects the
reduction in new forward sales across the BTR and PBSA segments, and both the
impairment of land assets and the loss on disposal of the PRS assets. The
Group's operating loss was £38.0 million (FY22: operating profit of £24.3
million) including the impact of exceptional items in the year.
Exceptional items
An exceptional provision of £35.0 million has been made for remedial costs
associated with building safety matters, on which further details are included
in note 4. This is in addition to provisions made in prior years as a
consequence of:
· the introduction of secondary legislation and the evolution of
government initiatives during 2023, bringing a further four properties into
the provision.
· further access to and intrusive surveys conducted on relevant
buildings, the receipt of fire safety reports and related cost estimates,
alongside further experience of completing the works.
· the evolution and conclusion of legal proceedings, settlement and
contribution agreements with building owners during the year.
This is a highly complex area with significant estimates in respect of the
cost of remedial works, the quantum of any legal expenditure associated with
the defence of the Group's position in this regard, and the extent of those
properties within the scope of the applicable government guidance and
legislation, which continue to evolve. All our buildings were signed off by
approved inspectors as compliant with the relevant building regulations at the
time of completion. The investigation of the works required at many of the
buildings is at an early stage and therefore it is possible that these
estimates may change over time or if government legislation and regulation
further evolves.
One of the areas we also looked at during the year was management of the
Group's cost base. This resulted in a reduction in headcount and £3.1 million
of one-off restructuring costs in the year.
Finance costs
Finance costs for the year were £5.0 million (FY22: £6.0 million). These
costs relate to the finance cost of capitalised leases under IFRS 16, which
totalled £1.8 million (FY22: £4.5 million), which decreased following the
disposal of the Dunaskin and New Bridewell student leasehold properties in the
prior year, and the impact of the exceptional charge of £1.5 million (FY22:
£nil) for the unwind of the discounting of the building safety provision made
in prior periods. The balance of our finance costs represents the fees
associated with the availability of our revolving credit facility (RCF) with
HSBC and the interest cost of the loans previously held with Svenska
Handelsbanken AB.
Loss before tax
Loss before tax for the year was
£42.5 million (FY22: profit before tax of £18.4 million). Adjusted loss
before tax, which excludes the impact of the exceptional items, was £2.9
million (FY22: adjusted profit before tax of £48.8 million).
Taxation
The corporation tax credit was £9.9 million (FY22: charge of £5.0 million).
The effective tax rate of 23% (FY22: 27%) was more than the standard UK
corporation tax rate of 22% for the year, primarily as a result of the
remeasurement of deferred tax assets to the future UK corporation tax rate of
25% which will be effective when those assets are expected to unwind.
Information on our tax strategy can be found in the Investor section of our
website, watkinjonesplc.com.
Earnings per share
Basic earnings per share from continuing operations for the year was a loss of
12.7 pence (FY22: earnings of 5.2 pence). Adjusted basic earnings per share,
which excludes the impact of the exceptional items, was a loss of 0.6 pence
(FY22: earnings of 14.8 pence).
Dividends
The Board proposed an interim dividend of 1.4 pence per share (FY22: 2.9 pence
per share) which was paid in June 2023.
Since then, we have continued to face into a very challenging end market. As
such, the Board decided that there will be no further dividend paid in respect
of FY23. This gives a total dividend for the year of 1.4 pence per share
(FY22: 7.4 pence per share).
At 30 September 2023, the Company had distributable reserves of £41.1 million
available to pay dividends.
EBITDA
EBITDA, which is calculated as set out below, was a loss of £21.0 million
(FY22: profit of £14.5 million) after the inclusion of exceptional items of
£38.1 million (FY22: £30.4 million). Adjusted EBITDA, which excludes
exceptional items, was £17.2 million (FY22: £44.8 million), with an adjusted
EBITDA margin of 4.2% (FY22: 11.0%).
Return on capital employed
The return on capital employed (ROCE) for the year, calculated as set out
below, was impacted by the lower operating profit in the period at 0.2% (FY22:
63.1%).
Statement of financial position
At 30 September 2023, non-current assets amounted to £60.2 million (FY22:
£49.6 million), with the most significant item being the carrying value of
the leased student accommodation investment properties amounting to £24.2
million (FY22: £27.3 million).
The deferred tax asset, predominantly relating to carried forward losses from
the year ended 30 September 2023, amounted to £12.1 million (FY22: £1.9
million) and is expected to be fully utilised in the short to medium term.
Right‑of‑use assets relating to office and car leases amounted to £5.3
million (FY22: £4.7 million). Intangible assets relating to Fresh amounted
to £11.6 million (FY22: £12.2 million) and were reduced by the amortisation
charge of £0.6 million in the year.
Reimbursement assets related to agreed client contributions towards building
safety remedial costs of £10.9m have been recognised in the period (FY22:
£nil).
Inventory and work in progress was £123.5 million (FY22: £147.1 million),
with the decrease reflecting the forward sale during the period of our
Bedminster PBSA site and the disposal of our PRS assets, offset by investment
in new land sites for development in Guildford and Bristol.
Contract assets increased significantly in the year to £66.4 million (FY22:
£50.8 million). These mainly relate to the final payment balances which are
received on completion of developments in build. The increase in the year
reflects the increased contributions from BTR developments which typically
have a longer construction period and don't reach practical completion dates
just prior to the Group's year end as PBSA developments typically do. Contract
liabilities reduced by £3.6 million during the year to £1.5 million.
The Building Safety provision of £65.6 million is predominantly classified as
non‑current liabilities, based on our anticipated expenditure over the next
five years. The increase in the provision of £32.2 million includes an
additional exceptional provision made in the year (considered in the review of
'Exceptional items' above) and the utilisation of the brought‑forward
provision.
Interest-bearing loans and borrowings stood at £28.5 million at
30 September 2023 (FY22: 28.3 million).
Cash and net debt
FY23 FY22
£m £m
Operating profit before exceptional items 0.2 54.7
Profit on disposal of fixed assets (0.3) (20.9)
Depreciation and amortisation 11.5 8.4
Increase in working capital (28.6) (61.7)
Finance costs paid (2.8) (5.8)
Tax paid (11.5) (1.6)
Net cash outflow from operating activities (31.5) (26.9)
Sale of fixed assets 15.0 11.6
Dividends paid (15.1) (21.8)
Payment of lease liabilities (6.8) (4.7)
Cash flow from borrowings - 16.3
Decrease in cash (38.4) (25.5)
Cash at beginning of year 110.8 136.3
Cash at end of year 72.4 110.8
Less: borrowings (28.5) (28.2)
Net cash before deducting lease liabilities 43.9 82.6
Less: lease liabilities (45.2) (49.1)
Net (debt)/cash (1.3) 33.5
Total cash and available facilities
FY23 FY22
£m £m
Cash and cash equivalents 72.4 110.8
Revolving credit facility (RCF) 50.0 100.0
Drawn balance on RCF (28.8) (24.8)
Overdraft 10.0 10.0
Total cash and available facilities 103.6 196.0
Lease liabilities arising from the adoption of IFRS 16 'Leases' in the prior
year were reduced by £3.9 million to £45.2 million (FY22: £49.1 million),
reflecting capital repayments made in the year offset by indexed rent
increases on our student leased investment properties.
At the year end, we had a cash balance of £72.4 million and loans of
£28.5 million, resulting in a net cash position of £43.9 million. At 30
September 2022, we had a cash balance of £110.8 million and loans of £28.2
million, resulting in a net cash position of £82.6 million.
Net cash balances are stated before deducting the lease liabilities of
£45.2 million (30 September 2022: £49.1 million), arising as a result of
applying IFRS 16.
The lease liabilities relate primarily to several historic student
accommodation sale and leaseback properties, for which the future lease rental
liabilities are expected to be substantially covered by the future net student
rental incomes to be received.
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, as well as initial proceeds from the latest
forward sales.
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. However, in FY24, as a result of the physical completions of some
of our BTR developments, we will be receiving these final payments throughout
the year and therefore the profile will be more evenly spread than in previous
years.
The cash balance at the year end is still important for funding our
day‑to‑day cash requirements and for putting the Group in a strong
position when bidding for new sites.
The Group's net cash outflow from operating activities for the year was
£31.5 million (FY22: outflow of £26.9 million), reflecting investment in
new development sites and the stages of development of sites under
construction.
Net finance costs paid totalled £2.8 million (FY22: £5.8 million), including
the finance charges on the capitalised lease liabilities of £1.8 million
(FY22: £4.5 million), which substantially reduced following the disposal of
certain leased student accommodation investment properties in the prior year.
Dividends paid in the year totalled £15.1 million (FY22: £21.8 million).
Dividends paid in FY23 comprised the final dividend for FY22 and the interim
dividend for FY23.
Bank facilities
During the year the Group extended its RCF with HSBC for a further six months
to run to November 2025 in order to allow the borrowings and forward sales
markets time to stabilise following recent volatility. It has a maximum
available facility of £50.0 million (30 September 2022: £100.0 million), of
which £28.8 million was drawn against the facility at the year end
(30 September 2022: £24.8 million), giving headroom of £21.2 million.
This facility can be accessed to fund land acquisitions and development works.
The total facility was reduced during the year, given the anticipated volume
of land acquisitions, and to benefit from lower non-utilisation fees.
We also have an undrawn overdraft facility of £10.0 million. Total cash and
available facilities at 30 September 2023 therefore stood at £103.6 million
(FY22: £196.0 million).
On disposal of the PRS assets during the year ended 30 September 2023, the
Group repaid its associated loan facilities with Svenska Handelsbanken AB. The
outstanding balance at the year end was therefore £nil (30 September 2022:
£4.0 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 2025. The basis of the
review and an analysis of the downside risks is set out in note 2.1.
Alternative performance measures (APMs)
We use APMs as part of our financial reporting, alongside statutory reporting
measures. These APMs are provided for the following reasons:
1) to present users of the annual report with a clear
view of what we consider to be the results of our underlying operations,
enabling consistent comparisons over time and making it easier for users of
the report to identify trends;
2) to provide additional information to users of the
annual report about our financial performance or position;
3) to show the performance measures used by the Board in
determining dividend payments; and
4) to show the performance measures that are linked to
remuneration for the Executive Directors.
The following APMs appear in this annual report
Reconciliation
FY23 FY22
Reason for use £'000 £'000
Adjusted operating profit 1 Operating (loss)/profit (37,970) 24,319
Add: exceptional items in administrative expenses 38,140 30,365
Adjusted operating profit 170 54,684
Adjusted (loss)/profit before tax 1,4 (Loss)/profit before tax (42,459) 18,393
Add: exceptional items 39,598 30,365
Adjusted (loss)/profit before tax (2,861) 48,758
Adjusted basic (loss)/earnings per share 1,3,4 (Loss)/profit after tax (32,547) 13,414
Add: exceptional items 39,598 30,365
Less: tax on exceptional items (8,716) (5,769)
Adjusted (loss)/profit after tax (1,665) 38,010
Weighted average number of shares 256,434,903 256,385,882
Adjusted basic (loss)/earnings per share (0.649) pence 14.825 pence
EBITDA 1 Operating (loss)/profit (37,970) 24,319
Add: share of loss in joint ventures (13) (16)
Add: impairment of land assets 5,496 -
Add: loss/(profit) on disposal of non-core assets 4,584 (18,253)
Add: depreciation 6,388 7,852
Add: amortisation 559 559
EBITDA (20,956) 14,461
Adjusted EBITDA 1 EBITDA (20,956) 14,461
Add: exceptional items in administrative expenses 38,140 30,365
Adjusted EBITDA 17,184 44,826
Adjusted net cash 2 Net cash/(debt) (1,294) 33,454
Add: lease liabilities 45,195 49,099
Adjusted net cash 43,901 82,553
Return on capital employed 1,2 Adjusted operating profit 170 54,684
Net assets at 30 September 130,005 176,953
Less: adjusted net cash (43,901) (82,553)
Less: intangible assets (11,606) (12,165)
Less: investment property (leased) (24,240) (27,331)
Less: right-of-use assets (5,276) (4,738)
Add: lease liabilities 45,195 49,099
Adjusted net assets at 30 September 90,177 99,265
Adjusted net assets at 1 October 99,265 73,972
Average adjusted net assets 94,721 86,619
Return on capital employed 0.2% 63.1%
Sarah Sergeant
Chief Financial Officer
23 January 2024
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 September 2023
Year ended 30 September 2023 Year ended 30 September 2022
Before Before
Exceptional exceptional Exceptional exceptional
items items Total items items Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Continuing operations
Revenue 5 413,236 - 413,236 407,076 - 407,076
Cost of sales (378,377) - (378,377) (339,450) - (339,450)
Gross profit 34,859 - 34,859 67,626 - 67,626
Administrative expenses 6 (34,689) (38,140) (72,829) (12,942) (30,365) (43,407)
Operating profit/(loss) 170 (38,140) (37,970) 54,684 (30,365) 24,319
Share of loss in joint ventures (13) - (13) (16) - (16)
Finance income 496 - 496 72 - 72
Finance costs (3,514) (1,458) (4,972) (5,982) - (5,982)
(Loss)/profit before tax (2,861) (39,598) (42,459) 48,758 (30,365) 18,393
Income tax credit/(expense) 8 1,196 8,716 9,912 (10,778) 5,769 (4,979)
(Loss)/profit for the year attributable to ordinary equity holders of the (1,665) (30,882) (32,547) 37,980 (24,596) 13,414
parent
Other comprehensive income
That will not be reclassified to profit or loss in subsequent periods:
Net (loss)/gain on equity instruments designated at fair value through other (188) - (188) 157 - 157
comprehensive income, net of tax
Total comprehensive (loss)/income for the year attributable to ordinary equity (1,853) (30,882) (32,735) 38,137 (24,596) 13,571
holders of the parent
Pence Pence Pence Pence Pence Pence
Earnings per share for the year attributable to ordinary equity holders of the
parent
Basic (loss)/earnings per share 9 (0.649) (12.043) (12.692) 14.825 (9.593) 5.232
Diluted (loss)/earnings per share 9 (0.649) (12.043) (12.692) 14.748 (9.543) 5.205
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 September 2023
30 September 30 September
2023 2022
Notes £'000 £'000
Non-current assets
Intangible assets 11,606 12,165
Investment property (leased) 24,240 27,331
Right-of-use assets 5,276 4,738
Property, plant and equipment 1,796 2,009
Investment in joint ventures 1 1
Reimbursement assets 4,007 -
Deferred tax assets 12,096 1,941
Other financial assets 1,129 1,366
60,151 49,551
Current assets
Inventory and work in progress 123,516 147,118
Contract assets 66,368 50,821
Trade and other receivables 35,104 28,628
Reimbursement assets 11 6,858 -
Current tax receivable 7,088 -
Cash and cash equivalents 72,431 110,841
311,365 337,408
Total assets 371,516 386,959
Current liabilities
Trade and other payables (100,723) (89,717)
Contract liabilities (1,469) (5,052)
Interest-bearing loans and borrowings - -
Lease liabilities (7,567) (6,248)
Provisions 11 (24,457) (7,713)
Current tax liabilities - (4,402)
(134,216) (113,132)
Non-current liabilities
Interest-bearing loans and borrowings (28,530) (28,288)
Lease liabilities (37,628) (42,851)
Provisions 11 (41,137) (25,735)
(107,295) (96,874)
Total liabilities (241,511) (210,006)
Net assets 130,005 176,953
Equity
Share capital 2,564 2,564
Share premium 84,612 84,612
Merger reserve (75,383) (75,383)
Fair value reserve of financial assets at FVOCI 425 662
Share‑based payment reserve 1,407 526
Retained earnings 116,380 163,972
Total equity 130,005 176,953
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2023
Fair value
reserve of
financial Share-based
Share Share Merger assets at payment Retained
capital premium reserve FVOCI reserve earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 30 September 2021 2,562 84,612 (75,383) 536 2,824 169,660 184,811
Profit for the year - - - - - 13,414 13,414
Other comprehensive income - - - 126 - 31 157
Total comprehensive income - - - 126 - 13,445 13,571
Share-based payments 2 - - - 209 - 211
Recycled reserve for fully vested share-based payment schemes - - - - (2,507) 2,507 -
Deferred tax debited directly to equity - - - - - 141 141
Dividend paid - - - - - (21,781) (21,781)
Balance at 30 September 2022 2,564 84,612 (75,383) 662 526 163,972 176,953
Loss for the year - - - - - (32,547) (32,547)
Other comprehensive income - - - (237) - 49 (188)
Total comprehensive income - - - (237) - (32,498) (32,735)
Share-based payments - - - - 1,067 - 1,067
Recycled reserve for fully vested share-based payment schemes - - - - (186) 186 -
Deferred tax debited directly to equity - - - - - (151) (151)
Dividend paid - - - - - (15,129) (15,129)
Balance at 30 September 2023 2,564 84,612 (75,383) 425 1,407 116,380 130,005
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 September 2023
Year ended Year ended
30 September 30 September
2023 2022
Notes £'000 £'000
Cash flows from operating activities
Cash outflow from operations 12 (17,215) (19,592)
Interest received 496 72
Interest paid (3,315) (5,782)
Tax paid (11,466) (1,557)
Net cash outflow from operating activities (31,500) (26,859)
Cash flows from investing activities
Acquisition of property, plant and equipment (550) (660)
Proceeds on disposal of property, plant and equipment 210 4,341
Proceeds on disposal of right-of-use assets - 7,897
Proceeds on disposal of PRS assets 15,323 -
Cash flow from joint venture interests - -
Net cash inflow from investing activities 14,983 11,578
Cash flows from financing activities
Dividends paid 10 (15,129) (21,781)
Proceeds from exercise of share options - -
Payment of principal portion of lease liabilities (6,806) (4,717)
Payment of capital element of other interest‑bearing loans - (389)
Drawdown of RCF 27,579 20,625
Repayment of bank loans and RCF (27,537) (3,909)
Net cash outflow from financing activities (21,893) (10,171)
Net decrease in cash (38,410) (25,452)
Cash and cash equivalents at 1 October 2022 and 1 October 2021 110,841 136,293
Cash and cash equivalents at 30 September 2023 and 30 September 2022 72,431 110,841
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 30 September 2023
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)
and its shares are listed on the Alternative Investment Market of the London
Stock Exchange. The Company is domiciled in the United Kingdom and its
registered address is 12 Soho Square, London, United Kingdom, W1D 3QF.
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 2023 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 financial statements of the Group have been prepared and approved by the
Directors in accordance with International Accounting Standards in conformity
with the requirements of the Companies Act 2006 and in accordance with United
Kingdom adopted International Accounting Standards.
The preparation of financial information in conformity with IFRS requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Although these estimates are based on management's best knowledge of the
amount, event or actions, actual events may ultimately differ from those
estimates.
The financial information set out above does not constitute the Group's
statutory accounts for the years ended 30 September 2023 or 2022, but is
derived from those accounts. Statutory accounts for 2022 have been delivered
to the Registrar of Companies, and those for 2023 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.
The accounting policies set out in the notes have, unless otherwise stated,
been applied consistently to all periods presented in these financial
statements. The financial statements are prepared on the historical cost basis
except as disclosed in these accounting policies.
The financial statements are presented in pounds sterling and all values are
rounded to the nearest thousand (£'000), except when otherwise indicated.
2.1 Going Concern
The Directors have undertaken a thorough review of the Group's ability to
continue to trade as a going concern for the period to 31 January 2025 (the
'forecast period'). This review has been undertaken taking
into consideration the following matters.
Liquidity
At 30 September 2023, the Group had a robust liquidity position, with cash and
available headroom in its banking facilities totalling £103.6 million.
Strong liquidity has been maintained through the first quarter of the year
ending 30 September 2024, providing the Group with a good level of cash and
available banking facilities for the year ahead.
The Group's revolving credit facility (RCF) is committed and has recently been
extended to November 2025 to give flexibility to a renewal given the current
market conditions. The total facility was reduced during the year, given the
anticipated volume of land acquisitions, and to benefit from lower
non-utilisation fees. All financial covenants under this facility were met at
30 September 2023 and are forecast to be met throughout the period to 31
January 2025.
Business Model
Our forward sale business model is capital light. By forward selling the
majority of our build to rent (BTR) and purpose built student accommodation
(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 fee income from its
multiple clients and the short to medium‑term risk to its revenue stream is
low.
For our Affordable Homes 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. In addition, a significant portion of
our largest site has been forward sold such that we will receive payment for
development works as they
progress.
We also receive rental income from tenants on our leased PBSA assets. The PBSA
assets are anticipated to be fully occupied for the 2023/24 academic year. Our
business model and approach to cash management therefore provides a high
degree of resilience.
Counterparty Risk
The Group's 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. This is well
supported by our forward sold pipeline of three PBSA developments and seven
BTR developments for delivery during the period FY24 to FY27, as well as the
reserved/exchanged and forward sales for our Affordable Homes business and the
contracted income for Fresh. 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 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.
Risk Analysis
In addition to the base case forecast, we have considered the possibility of
continued disruption to the forward sale market given the market turbulence
seen in the UK over the last 12 months. This is our most significant risk as
it would greatly limit our ability to achieve any further forward sales.
We have run various model scenarios to assess the possible impact of the above
risks, including an extreme downside scenario assuming no further forward
sales are achieved.
The cash forecast prepared under this scenario illustrates that adequate
liquidity is maintained through the forecast period and the financial
covenants under the RCF would still be met.
The minimum gross cash balance under this scenario was £32.4 million
(excluding the £10.0 million overdraft). In addition we have reviewed the
potential impact on the Group's Tangible Net Worth Covenant of any additional
increase in the provision for Building Safety. The headroom on this covenant
under the extreme downside scenario would allow for a further four properties
to be provided for, assuming an average provision per property of £2.1
million.
We consider the likelihood of events occurring which would exhaust the total
cash and available facilities balances remaining to be remote. However, should
such events occur, management would be able to implement reductions in
discretionary expenditure and consider the sale of the Group's land sites to
ensure that the Group's liquidity was maintained.
While there remains sufficient headroom under this scenario for all the
financial covenants, a sale of the Group's land sites would enable the
repayment of the RCF balance (as the RCF is drawn down against
these assets). There would then be no requirement for the covenants to be
tested.
Conclusion
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 2025 and has therefore adopted the going concern
basis
in preparing the financial statements.
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 2023.
4. Building Safety provision
Our contract obligations
In January 2020, following the Grenfell Tower fire in June 2017, the
Government issued guidance on the suitability of certain cladding solutions
used on high rise residential buildings. The Group subsequently carried out a
detailed assessment of its property portfolio.
Taking into account the prevailing Government guidance and legal framework at
the time, as well as consultation with building owner clients and technical
and legal advice, the assessment encompassed buildings completed in 2008 or
later (i.e. within the 12 year contractual period). The assessment identified:
1) Buildings of any height that featured
aluminium composite material ('ACM') and
2) Buildings above 18m in height that featured high pressure laminate ('HPL').
The Group identified 15 buildings that featured significant ACM; of these, 13
have been remediated by the Company. The remaining two builds were undertaken
by external contractors, are within the contractual period, and benefit from
insurance-backed warranties provided by the external contractor and architect.
One of these buildings has been remediated and the external contractor
retained liability for this.
The Group took an exceptional provision in the year ended 30 September 2020 of
£14,800,000 for the remedial costs of these properties, which included
contributions agreed with the respective owners.
Further legislation in England
In January 2022 this guidance was withdrawn and in April the Building Safety
Act 2022 (the 'BSA') was enacted, with the government announcing its intention
to:
i) extend the scope of developers' responsibility to 30 years;
ii) increase the scope by including buildings above 11 metres; and
iii) expand the scope to incorporate life critical safety defects.
In the year ended 30 September 2022, the Group performed a review of buildings
above 11 metres developed by the Company over the last 30 years. Industry
practice is not to retain records for buildings that are out of contract and
therefore we do not have fulsome documentation for buildings that were out of
contract. In such cases, the Group undertook a number of procedures to
evaluate the risk to the Group. These procedures included a review of the
external façade materials, carrying out intrusive surveys where constructive
dialogue with property owners had commenced and making enquiries of employees
who worked on the relevant construction projects. This review concluded that
an exceptional provision of £30,365,000 should be made for these potential
costs. This provision was made in relation to 18 properties.
During the year ended 30 September 2023, following the introduction of the
secondary legislation that provided greater clarity on the scope and approach
of the BSA in relation to leasehold buildings, the Group was formally
approached to sign up to the Responsible Actors' Scheme ('RAS') which came
into force on 4 July 2023. By signing up to the RAS the Group is required to
sign the Developer's Remediation Contract ('the Contract') which requires us
to:
· Take responsibility for all necessary work to address life-critical
fire safety-defects arising from the design and construction of buildings 11
metres and over in height that we developed or refurbished in England over the
30 years ending on 4 April 2022
· Keep residents in those buildings informed about progress towards
meeting this commitment
· Reimburse taxpayers for funding spent on remediating their buildings,
i.e. where leaseholders have accessed the Building Safety Fund to remediate
their properties
The Group signed the Contract in December 2023.
The Contract is intended to cover leasehold buildings rather than PBSA or BTR,
and therefore the significant majority of buildings that the Group has
developed over the last 30 years are outside the scope of the contract. There
are thirteen leasehold buildings falling within the scope of the RAS, and five
of these are included within the provision. One of these properties relates to
remediation works that have been undertaken as a result of the building owner
accessing the Building Safety Fund. Based on our internal review procedures
described above, the provision includes an estimation of works required in
relation to buildings identified as requiring remediation.
Under the obligations of the scheme, and where information is available, we
will write out to building owners to understand their position regarding those
buildings.
Legislation in Wales
In 2023, the Welsh Government's announced a new scheme with developers to
tackle fire safety defects in medium highrise residential buildings. The Group
has been approached in respect of one property which we have provided for on
the basis that certain remedial works are required. In our view, based on the
investigative procedures that we have carried out, there are no further
remedial works required to other Welsh properties.
Legislation in Scotland
The Housing (Cladding Remediation) (Scotland) Bill was published in November
2023 and has not yet been finalised. It is the Group's expectation that the
basis for this Bill will be consistent with the RAS, such that it is intended
to cover leasehold buildings. The Group has constructed one leasehold property
in Scotland, which remains under contract. In our view, based on the
investigative procedures that we have carried out, there is no remedial work
required on that property.
Overall landscape
Historically PBSA and BTR properties that are out of contract have been
considered to be out of time for claims, although in England there remains
uncertainty over how the BSA will be applied in this regard. However, as set
out above, the RAS does not specifically apply to PBSA and BTR properties,
noting that the overall objective of the government policy was to protect
individual leaseholders in the wake of the Grenfell Tower fire.
Since the implementation of the BSA, we have been in contact with government
and industry bodies and other housebuilders and developers to confirm that our
interpretation of the legislation is consistent with others. We also engaged
an independent consultant to assess the scope and cost of our remedial works
on relevant properties to ensure that our approach was appropriate.
We will continue to keep abreast of any changes to legislation and guidance,
recognising that the approach to building safety continues to evolve.
Impact on financial statements
Provisions are recognised when three criteria are met: 1) the Group has a
present obligation as a result of a past event; 2) it is probable that an
outflow of resources will be required to settle the obligation; and 3) a
reliable estimate can be made of the obligation.
A further net exceptional provision of £35.0 million has been made for these
remedial costs in the year ended 30 September 2023 as a result of:
· The introduction of secondary legislation and the evolution of
government initiatives during 2023 as set out above which has brought two
further properties into the provision;
· Greater access to the various properties which were identified as being
at risk, further intrusive surveys conducted on relevant buildings, the
receipt of fire safety reports and related cost estimates, alongside further
experience of completing the works; these have led to additional costs
required compared to initial expectations; and
· The evolution and conclusion of legal proceedings, settlement and
contribution agreements with building owners during the year.
This is a highly complex area with significant estimates in respect of the
cost of remedial works, the quantum of any legal expenditure associated with
the defence of the Group's position in this regard, and the extent of those
properties within the scope of the applicable government guidance and
legislation, which continue to evolve. All our buildings were signed off by
approved inspectors as compliant with the relevant Building Regulations at the
time of completion.
The amount provided for these works has been estimated by reference to recent
industry experience and external quotes for similar work identified. The
investigation of the works required at many of the buildings is at an early
stage and therefore it is possible that these estimates may change over time
or if government legislation and regulation further evolves.
As a number of other housebuilders and developers have done over the last
twelve months, we have included an additional amount of contingency within our
provision to reflect further buildings being identified as within the scope of
the RAS and for unforeseen remediation costs beyond management's current
knowledge. We have also implemented a consistent contingency policy across the
properties where work is yet to start.
We expect this cost to be incurred over the next five years, and the provision
has been discounted to its present value accordingly. The timing of this
expenditure will be dependent on the timely engagement by building owners,
revisions to programme under the new BSA Gateways, and the availability of
appropriately qualified subcontractors.
We have made progress with negotiating contributions from clients to mitigate
our liability in relation to these remedial works and at the balance sheet
date have recognised reimbursement assets of £10.9 million (30 September
2022: £nil). These will be recovered over one to five years.
Should the costs associated with these remedial works increase by 10%, the
provision required would increase by £3,800,000. Should the discount rate
applied to the calculation reduce by 1%, the provision required would increase
by £800,000. Further details of the provision are set out in note 11.
Should an additional property be identified which requires remedial works for
which the Group is liable, it would be reasonable to estimate the additional
cost at £2,100,000, based on the average expected cost of works for
properties included within the provision for which the Group will perform
remediation works.
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
operated in during FY23 and FY22:
a. Student Accommodation - the development of purpose built student
accommodation;
b. Build To Rent - the development of build to rent accommodation;
c. Affordable Homes - the development of residential housing; and
d. Accommodation Management - the management of student accommodation and
build to rent/private rental sector (PRS) 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.
Student Build Affordable Accommodation
Accommodation To Rent Homes Management Corporate Total
Year ended 30 September 2023 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 175,739 207,711 19,607 9,481 698 413,236
Segmental gross profit 11,409 19,836 1,920 5,988 1,202 40,355
Impairment of land assets - - - - (5,496) (5,496)
Gross profit 11,409 19,836 1,920 5,988 (4,294) 34,859
Administration expenses - - - (5,441) (24,664) (30,105)
Loss on disposal of PRS assets - - - - (4,584) (4,584)
Exceptional administrative expenses - - - - (38,140) (38,140)
Operating profit 11,409 19,836 1,920 547 (71,682) (37,970)
Share of loss in joint ventures - - - - (13) (13)
Finance income - - - - 496 496
Finance costs - - - - (3,514) (3,514)
Exceptional finance costs - - - - (1,458) (1,458)
Profit/(loss) before tax 11,409 19,836 1,920 547 (76,171) (42,459)
Taxation - - - - 9,912 9,912
Continuing profit/(loss) for the year 11,409 19,836 1,920 547 (66,259) (32,547)
Profit for the year attributable to ordinary equity shareholders of the parent (32,547)
Inventory and work in progress 83,430 10,970 27,314 - 1,802 123,516
Student Build Affordable Accommodation
Accommodation To Rent Homes Management Corporate Total
Year ended 30 September 2022 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 180,037 191,228 14,478 9,072 12,261 407,076
Gross profit 26,353 32,808 1,915 5,909 641 67,626
Administration expenses - - - (5,788) (25,407) (31,195)
Profit on disposal of student leasehold properties
- - - - 18,253 18,253
Exceptional administrative expenses - - - - (30,365) (30,365)
Operating profit 26,353 32,808 1,915 121 (36,878) 24,319
Share of loss in joint ventures - - - - (16) (16)
Finance income - - - - 72 72
Finance costs - - - - (5,982) (5,982)
Profit/(loss) before tax 26,353 32,808 1,915 121 (42,804) 18,393
Taxation - - - - (4,979) (4,979)
Continuing profit/(loss) for the year 26,353 32,808 1,915 121 (47,783) 13,414
Profit for the year attributable to ordinary equity shareholders of the parent 13,414
Inventory and work in progress 75,840 38,763 29,785 - 2,730 147,188
6. Exceptional costs
Year ended Year ended
30 September 30 September
2023 2022
£'000 £'000
Recognised in administrative expenses
Building Safety provision 35,000 30,365
Restructuring costs 3,140 -
Total exceptional items recognised in administrative expenses 38,140 30,365
Recognised in finance costs
Unwind of discount rate on Building Safety provision 1,458 -
Total exceptional items recognised in finance costs 1,458 -
Total exceptional costs 39,598 30,365
There have been exceptional items during the year of £35,000,000 (2022:
£30,365,000) relating to a further net provision made for Building Safety
related costs. The provision made in the prior year has been unwound to its
present value, resulting in £1,458,000 of finance costs. Further information
on these charges is included in note 4 and note 11.
Action has been taken during the year ended 30 September 2023 to manage the
Group's cost base, with exceptional restructuring and redundancy costs of
£3,140,000 incurred.
All of the exceptional costs in the year were treated as allowable deductions
for corporation tax purposes.
7. Total operating profit
This is stated after charging/(crediting):
Year ended Year ended
30 September 30 September
2023 2022
£'000 £'000
Audit services to the parent company 100 100
Audit services to the subsidiaries 275 275
Amortisation of intangible assets 559 559
Impairment of land assets 5,496 -
Depreciation:
Property, plant and equipment 697 747
Investment property (leased) 4,217 6,156
Right-of-use assets 1,474 949
Profit on disposal of student leasehold properties - (18,253)
Loss on disposal of PRS assets 4,584 -
Loss on disposal of other right-of-use assets - 116
Profit on disposal of property, plant and equipment (294) (2,783)
8. Income taxes
Year ended Year ended
30 September 30 September
2023 2022
£'000 £'000
Current income tax
UK corporation tax on profits for the year - 2,708
Adjustments in respect of prior periods 318 1,133
Foreign taxes 27 55
Total current tax 345 3,896
Deferred tax
Origination and reversal of temporary differences (9,229) 808
Adjustments in respect of prior year 216 4
Remeasurement of deferred tax for changes in tax rates (1,244) 271
Total deferred tax (10,257) 1,083
Total tax (credit)/expense (9,912) 4,979
Reconciliation of total tax (credit)/expense
Year ended Year ended
30 September 30 September
2023 2022
£'000 £'000
(Loss)/profit before tax (42,459) 18,393
(Loss)/profit multiplied by standard rate of corporation tax in the UK of 22% (9,341) 3,495
(2022: 19%)
Fixed asset differences 40 (7)
Expenses not deductible 86 34
Income not taxable (36) 33
Remeasurement of deferred tax for changes in tax rates (1,244) 271
Other differences 178 45
Differences to foreign tax rates (20) (29)
Adjustments in respect of prior periods 318 1,133
Prior year adjustment to deferred tax 107 4
At the effective rate of tax of 23.3% (2022: 27.1%) (9,912) 4,979
Income tax (credit)/expense reported in the statement of profit or loss (9,912) 4,979
As a result of the Finance Act 2021, the rate of UK corporation tax increased
to 25% from 6 April 2023. The deferred tax assets and liabilities held by the
Group at the start of the current year have been revalued to reflect this
increase. The deferred tax asset arising from losses in the period is expected
to be fully utilised in the short to medium term.
9. Earnings per share
The following table reflects the income and share data used in the basic and
diluted EPS computations:
Year ended Year ended
30 September 30 September
2023 2022
£'000 £'000
(Loss)/profit for the year attributable to ordinary equity holders of the (32,547) 13,414
parent
Add back exceptional costs for the year (note 6) 39,598 30,365
Less corporation tax benefit from exceptional costs for the year (8,716) (5,769)
Adjusted (loss)/profit for the year attributable to ordinary equity holders of (1,665) 38,010
the parent (excluding exceptional items after tax)
Year ended Year ended
30 September 30 September
2023 2022
Number of Number of
shares shares
Weighted average number of ordinary shares for basic earnings per share 256,434,903 256,385,882
Adjustment for the effects of dilutive potential ordinary shares - 1,338,930
Weighted average number for diluted earnings per share 256,434,903 257,724,812
Year ended Year ended
30 September 30 September
2023 2022
Pence Pence
Basic earnings per share
Basic (loss)/profit for the year attributable to ordinary equity holders of (12.692) 5.232
the parent
Adjusted basic earnings per share (excluding exceptional items after tax)
Adjusted (loss)/profit for the year attributable to ordinary equity holders of (0.649) 14.825
the parent
Diluted earnings per share
Basic (loss)/profit for the year attributable to diluted equity holders of the (12.692) 5.205
parent
Adjusted diluted earnings per share (excluding exceptional items after tax)
Adjusted (loss)/profit for the year attributable to diluted equity holders of (0.649) 14.748
the parent
10. Dividends
Accounting policy
Dividends are recognised through equity when approved by the parent's
shareholders or on payment, whichever is earlier.
Year ended Year ended
30 September 30 September
2023 2022
£'000 £'000
Final dividend paid in February 2023 of 4.50 pence (February 2022: 5.6 pence) 11,539 14,345
Interim dividend paid in June 2023 of 1.40 pence (June 2022: 2.9 pence) 3,590 7,436
15,129 21,781
An interim dividend in relation to the year ended 30 September 2023 of 1.40
pence per ordinary share was paid on 30 June 2023 (2022: 2.9 pence per
ordinary share).
The final dividend proposed for the year ended 30 September 2023 is nil pence
per ordinary share (2022: 4.5 pence per ordinary share). As such, no liability
(2022: liability of £11,539,000) has been recognised at that date. At 30
September 2023, the Company had distributable reserves available of
£41,115,000 (30 September 2022: £56,058,000).
11. Provisions
Building Safety provision
Reimbursement
Provision asset Total
£'000 £'000 £'000
At 1 October 2021 9,399 - 9,399
Arising during year 30,365 - 30,365
Utilised (6,316) - (6,316)
At 1 October 2022 33,448 - 33,448
Arising during year 45,865 (10,865) 35,000
Utilised (15,177) - (15,177)
Unwind of discount rate 1,458 - 1,458
At 30 September 2023 65,594 (10,865) 54,729
The balance can be classified as follows:
Reimbursement
Year ended 30 September 2023 Provision asset Total
Current 24,457 (6,858) 17,599
Non-current 41,137 (4,007) 37,131
Total 65,594 (10,865) 54,729
Reimbursement
Year ended 30 September 2022 Provision asset Total
Current 7,713 - 7,713
Non-current 25,735 - 25,735
Total 33,448 - 33,448
A provision of £33,448,000 was held at 30 September 2022 for the Group's
anticipated contribution towards the cost of building safety remedial works.
A further net increase in provision of £35,000,000 has been made during the
year ended 30 September 2023 for building safety remediation costs, comprising
an increase in cost provision of £45,865,000 offset by a corresponding
reimbursement asset of £10,865,000, reflecting customer contributions to
these remedial works which have been contractually agreed during the year. Of
this reimbursement asset, £6,973,000 was included in the net provision
disclosed at 1 October 2022 which represented the best estimate of the Group's
net contribution to remediation costs.
The judgements and estimates surrounding this provision and corresponding
reimbursement assets are set out in note 4.
The net provision at 30 September 2023 amounts to £54,729,000, of which
£17,599,000 is expected to be incurred in the year ending 30 September 2024
and £37,131,000 is expected to be incurred between 1 October 2024 and 30
September 2027. The provision has been discounted to its present value
accordingly, at a risk-free rate of 4.60% based on UK five-year gilt yields
(2022: 4.36%).
12. Reconciliation of profit before tax to net cash flows from operating
activities
Year ended Year ended
30 September 30 September
2023 2022
£'000 £'000
(Loss)/profit before tax (42,459) 18,393
Depreciation of leased investment properties and right-of-use assets 5,691 7,105
Depreciation of plant and equipment 697 747
Amortisation of intangible assets 559 559
Profit on disposal of right-of-use assets - (18,137)
Profit on disposal of property, plant and equipment (294) (2,783)
Loss on disposal of operational PRS assets 4,584 -
Finance income (496) (72)
Finance costs 4,972 5,982
Share of loss in joint ventures 13 16
Decrease/(increase) in inventory and work in progress 4,634 (19,525)
Increase in contract assets (15,547) (37,011)
Increase in trade and other receivables (6,476) (430)
(Decrease)/increase in contract liabilities (3,583) 2,207
Increase in reimbursement assets (10,865) -
Increase/(decrease) in trade and other payables 9,600 (901)
Increase in provisions 30,688 24,049
Increase in share‑based payment reserve 1,067 209
Net cash outflow from operating activities (17,215) (19,592)
Major non-cash transactions
There were no major non-cash transactions during the period.
13. Analysis of net cash/(debt)
At beginning Other
of year Cash flow movements At end of year
30 September 2023 £'000 £'000 £'000 £'000
Cash at bank and in hand 110,841 (38,410) - 72,431
Other interest‑bearing loans - - - -
Bank loans (28,288) (42) (200) (28,530)
Net cash before deducting lease liabilities 82,553 (38,452) (200) 43,901
Lease liabilities (49,099) 6,806 (2,902) (45,195)
Net cash/(debt) 33,454 (31,646) (3,102) (1,294)
At beginning Other
of year Cash flow movements At end of year
30 September 2022 £'000 £'000 £'000 £'000
Cash at bank and in hand 136,293 (25,452) - 110,841
Other interest‑bearing loans (389) 389 - -
Bank loans (11,572) (16,516) (200) (28,288)
Net cash before deducting lease liabilities 124,332 (41,579) (200) 82,553
Lease liabilities (129,252) 4,717 75,436 (49,099)
Net debt/(cash) (4,920) (36,862) 75,236 33,454
Cash at bank and in hand as at 30 September 2023 includes £53,000 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 2022: £53,000). Non‑cash movements relate
to the acquisition of property, plant and equipment under other
interest‑bearing loans, the amortisation of bank loan arrangement fees and
changes to the value of lease liabilities as a result of leases entered into
or terminated in the period or due to movements in the rent inflation rates
assumed.
14. Annual report
Copies of this announcement are available from the Company at 12 Soho Square,
London W1D 3QF. The Group's annual report for the year ended 30 September 2023
will be posted to shareholders shortly and will be available on our website at
www.watkinjonesplc.com.
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