REG - Watkin Jones plc - Half Year Results
17/05/2022 07:00
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RNS Number : 7428L Watkin Jones plc 17 May 2022
17 May 2022
Watkin Jones plc
(the 'Group')
HY Results for the six months ended 31 March 2022
('H1-2022' or the 'period')
Record development pipeline, full year in line with expectations
Underlying Results ((1)) Statutory Results
H1-2022 H1-2021 Change (%) H1-2022 H1-2021 Change (%)
Revenue £193.0m £178.4m +8.2% £193.0m £178.4m +8.2%
Gross profit £29.9m £41.3m (27.6)% £29.9m £41.3m (27.6)%
Operating profit / (loss) £14.6m £29.1m (49.8)% £(13.4)m £29.1m (146.0)%]
Profit / (loss) before tax £11.4m £25.8m (55.8)% £(16.6)m £25.8m (164.3)%
Basic earnings per share 3.65p 8.11p (55.0)% (5.2)p 8.11p (164.1)%
Dividend per share 2.9p 2.6p +11.5% 2.9p 2.6p +11.5%
Adjusted net cash((2)) £26.8m £31.7m (15.5)%
(1) For H1-2022 Underlying Operating Profit, Underlying Profit before tax
and Underlying Earnings per share are calculated before the impact of the
exceptional charge of £28.0 million for the potential costs of the remedial
work required under the new Building Safety Act
(2) Adjusted net cash is stated after deducting interest bearing loans and
borrowings, but before deducting IFRS 16 operating lease liabilities of
£126.0 million at 31 March 2022 (31 March 2021: £134.5 million)
Key Highlights
· Full year underlying profit performance expected to be in line
with expectations
· £2.0 billion record pipeline (estimated future revenue), up 43%
on last year, of which £0.6 billion has already been forward sold; giving us
clear visibility of revenue and earnings growth in future years
· 8.2% increase in revenue to £193.0 million, boosted by
strengthening institutional investor demand
· £14.6 million underlying operating profit is down as expected on
last year due to:
o A higher proportion of lower margin land sales in the period; and
o The timing impact of the planned portfolio sale of three PBSA schemes
· In response to the new Building Safety Act and following a review
of all buildings over 11 metres tall developed by the Group over the last 30
years, we have recognised an exceptional charge of £28.0 million for the
potential costs of the remediation work required, which we expect will be
incurred over a period of up to 7 years
· £26.8 million adjusted net cash showing good liquidity after
high levels of growth investment in H1-2022 which will deliver forward sales
in H2-2022 and beyond
· Interim dividend of 2.9p, up 11.5%, reflecting the strengthening
development pipeline and expected strong H2-2022 profits
· Operational resilience of the business continues to be
demonstrated:
o 15 current developments on track
o Proactive management of inflationary increases for both asset values and
build costs, thus ensuring margins are maintained
· 22,155 beds under Fresh management, up 10% and bookings well
advanced for the next academic year
· Affordable-led Homes business is gaining traction with the
pipeline building from site acquisitions.
· Announced today the sale to EQT of a PBSA portfolio which
comprises three prime student developments along with two operational
properties. This has an FY-2022 profit contribution of c. £20 million. All
properties are to be managed by Fresh.
Richard Simpson, Chief Executive Officer of Watkin Jones, said:
"We are continuing to build on the positive momentum from the second half
of last year and have demonstrated operational resilience through the
strength of our business model. The sale today of a major portfolio of PBSA
schemes to EQT, a new institutional investor to the sector, with ongoing
management provided by our Fresh business, underlines the attraction of our
end-to-end offer for institutional capital targeting UK residential for rent.
Our pro-active management of build costs and sales values has ensured that our
overall development margins are maintained, and we are confident going into
the second half."
"We note the recent passing of the Building Safety Act. Whilst it is unclear
as to the exact remedial works that will be required, we have taken an
exceptional charge of £28 million. We expect these remedial costs to be
incurred over a period of up to 7 years."
Strong institutional demand for residential for rent assets
· 2 BTR schemes (837 apartments) and 2 PBSA schemes (601 beds)
forward sold since the start of FY22
- Includes 1 further BTR scheme (551 apartments) in Birmingham
forward sold since the 18 January 2022 preliminary announcement, with total
revenue value of c.£136 million
- PBSA portfolio of three developments (1,059 beds), along with two
operational properties, has recently closed, and a scheme in Bristol (800
beds) is under offer and expected to close shortly
Development pipeline further enhanced
· Record pipeline now standing at £2.0 billion (including
Affordable-led Homes pipeline of £0.1 billion)
· 2 BTR schemes (312 apartments) and 2 PBSA schemes (1,105 beds)
acquired since the start of FY22
- Includes BTR schemes in Leeds (230 apartments) and in Hove (82
apartments)
· Significant planning consents gained since the start of FY22 for
a BTR development in Belfast (778 apartments) and a PBSA development in
Stratford (397 beds)
Our BTR and PBSA development pipelines are as follows:
BTR PBSA
(apartments) (beds)
FY-2021 position 4,012 7,142
New sites secured 312 1,105
Other changes (13) (466)
Current 4,311 7,781
Future revenue value £1,000 m £900 m
PBSA pipeline
PBSA beds
Total pipeline FY22 FY23 FY24 FY25 FY26
Forward sold 3,570 1,946 935 689 - -
Forward sales in legals 1,071 - - 1,071 - -
Sites secured with planning 920 - - - 920 -
Sites secured subject to planning 2,220 - - 1,111 1,109 -
Total secured 7,781 1,946 935 2,871 2,029 -
Change since FY-2021 639 - (740) 99 1,280 -
BTR pipeline
BTR apartments
Total pipeline FY22 FY23 FY24 FY25 FY26
Forward sold 1,160 71 354 456 279 -
Forward sales in legals 821 - 43 406 372 -
Sites secured with planning 530 - - - 530 -
Sites secured subject to planning 1,800 - - 307 442 1051
Total secured 4,311 71 397 1,169 1,623 1051
Change since FY-2021 299 - - (132) (620) 1051
Building safety
In January 2022, the Government announced its intention to approach developers
to fund the remediation of life-critical fire safety issues on buildings over
11 metres and up to 30 years old. The largest developers within the industry
were subsequently asked to sign a voluntary pledge regarding the remediation
of such issues on these buildings.
While the Group has not been asked to sign the pledge, we agree that
individual leaseholders should not have to pay for costs associated with
necessary life-critical fire safety remediation work that arise in the short
and medium term. We are mindful of our obligations as a responsible developer
and will continue to monitor the developing legal situation in order to
understand fully how Government expects the new regulatory regime to apply to
the development sector as a whole. In the meantime, we will continue to
comply with our legal and contractual obligations.
We note the requirement for secondary legislation to clarify the impact of the
Government's plans. However, we expect that, in due course, we will incur
costs in relation to remediation works on developments over 11 metres tall and
up to 30 years old.
Whilst it is unclear exactly what remedial works will be needed, we have
undertaken an initial review of buildings above 11 metres developed by the
Group over the last 30 years, and concluded that an exceptional charge of
£28.0 million should be made for these potential costs. This amount covers
the following areas set out in the Building Safety Act: i) the extension of
scope for developers' responsibility to 30 years; ii) the increased scope by
including buildings between 11m and 18m; and iii) the expanded scope to
incorporate non-cladding fire safety defects. This amount will be kept under
review as the situation is clarified. We expect the costs will be incurred
over a period of up to 7 years. The cost estimate assumes no future recoveries
from sub-contractors and consultants in the supply chain.
This is in addition to the £15.0 million cladding provision set aside in 2020
which was to cover the remediation of all schemes with ACM or HPL cladding
which were still within the original limitation period.
Name change
As the business has evolved and widened its activities, the Board intends to
change the corporate and trading name to better reflect today's broader
business. Further details will be released in due course.
Analyst meeting
A meeting for analysts will be held in person at 09.30am today, 17 May 2022,
at Berenberg, 60 Threadneedle Street, London EC2R 8HP. A copy of the Half
Year Results presentation is available at the Group's website:
http://www.watkinjonesplc.com (http://www.watkinjonesplc.com)
An audio webcast of the meeting with analysts will be available after 12pm
today:
https://webcasting.buchanan.uk.com/broadcast/627dfea281ae755c56ba22f
For further information:
Watkin Jones plc
Richard Simpson, Chief Executive Officer Tel: +44 (0) 20 3617 4453
Sarah Sergeant, Chief Financial Officer www.watkinjonesplc.com (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
Max Jones / James Umbers 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.buchanan.uk.com
Notes to Editors
Watkin Jones is the UK's leading developer and manager of residential for
rent, with a focus on the build to rent, student accommodation and affordable
housing sectors The Group has strong relationships with institutional
investors, and a reputation for successful, on-time-delivery of high quality
developments. Since 1999, Watkin Jones has delivered 46,000 student beds
across 136 sites, making it a key player and leader in the UK purpose-built
student accommodation market, and is increasingly expanding its operations
into the build to rent sector. In addition, Fresh, the Group's specialist
accommodation management business, manages over 22,000 student beds and build
to rent apartments on behalf of its institutional clients. Watkin Jones has
also been responsible for over 80 residential developments, ranging from
starter homes to executive housing and apartments.
The Group's competitive advantage lies in its experienced management team and
capital-light business model, which enables it to offer an end-to-end solution
for investors, delivered entirely in-house with minimal reliance on third
parties, across the entire life cycle of an asset.
Watkin Jones was admitted to trading on AIM in March 2016 with the ticker
WJG.L. For additional information please visit www.watkinjonesplc.com
(http://www.watkinjonesplc.com/)
Review of Performance
Results for the six months to 31 March 2022
Revenues for the period increased 8.2% to £193.0 million, compared to £178.4
million for H1-2021. Operationally the Group's businesses have continued to
perform well, with our developments in-build all progressing in line with
expectations. The increase in revenues was due to the three land sales
totalling £55.0 million in the period, compared to nil in H1-2021.
Gross profit was £29.9 million (H1-2021: £41.3 million), with gross margin
at 15.5% compared to 23.1% last year. The lower margin reflected the higher
proportion of land sales in the period which generated a lower margin than the
ensuing development activity.
Underlying Operating profit for the period was £14.6 million (H1-2021: £29.1
million), reflecting the impact of the lower gross margin.
Operating loss for the period was £13.4 million (H1-2021: profit of £29.1
million) after an exceptional cost of £28.0 million for the potential
remedial works that may be required] under the Building Safety Act.
Net finance costs for the period amounted to £3.2 million (H1-2021: £3.2
million). Finance costs include £2.4 million (H1-2021: £2.4 million) in
respect of the interest on leases.
Underlying profit before tax for the period was £11.4 million (H1-2021:
£25.8 million) and loss before tax for the period was £16.6 million
(H1-2021: profit before tax of £25.8 million), with the reduction due to the
lower gross margin for the period and the impact of the exceptional cost of
£28.0 million. Underlying Basic earnings per share for the period were 3.65
pence, compared to 8.11 pence for H1-2021.
Segmental review
Build to Rent ('BTR')
The contribution from BTR increased further in the period, with revenues of
£93.8 million, up £34.7 million (59%) on H1-2021. Revenues were derived
from the build of our forward sold developments in Hove and Lewisham which are
progressing on track for completion in 2023 and 2024 respectively, and from
the land sales of our significant developments in Lewisham and Sherlock
Street, Birmingham.
BTR gross profit for the period was £12.0 million (H1-2021: £12.4 million),
a decrease of 3%. The gross margin for the period was 12.8% (H1-2021:
21.0%), reflecting the dilution from the two land sales as well as the earlier
stage of development of the other sites.
We have made good progress with negotiations and legal documentation relating
to the forward sale of our developments in Belfast (778 apartments) and Bath
(316 apartment), having secured planning on the Belfast site since the period
end.
Subsequent to the period end we secured two sites in Leeds (230 apartments)
and Hove (82 apartments) subject to planning. We are actively progressing
a number of further site acquisitions so we are able to capitalise on the
growing institutional demand for UK assets.
Student accommodation ('PBSA')
Revenues from PBSA were 25.3% lower than last year at £78.3 million (H1-2021:
£104.8 million) reflecting the number of and stage of development of the
sites in-build as well as the timing of the expected portfolio sale of three
schemes which is expected to complete shortly.
PBSA gross profit for the period was £13.0 million (H1-2021: £25.2 million)
with gross margin for the period being 16.6% (H1-2021: 24.1%), reflecting the
effect of the land sale in Edinburgh and the earlier stage of development of
the sites in build, and the timing of the portfolio sale.
In the period we forward sold two PBSA developments in Edinburgh (315 beds)
and Colchester (286 beds) for delivery in FY23. For Colchester, the client
concerned acquired the land site directly.
Subsequent to the period end and as announced today, we have agreed the
forward sale of a three development, 1,059 bed portfolio, for delivery in 2023
and 2024. We have also agreed terms for the forward sale of an 800 bed
development in Bristol. Subsequent to the period end we secured planning on a
site in Stratford (397 beds) and marketing for this development is progressing
well.
Accommodation management (Fresh)
Fresh achieved revenues of £4.1 million (H1-2021: £3.8 million), reflecting
the higher levels of student occupancy as the sector recovers from the
pandemic. This is shown by the higher number of student beds and BTR
apartments under management at the start of FY22 (22,155), compared to the
start of FY21 (20,179).
The increase in Fresh's revenue for the period led to a modest increase in
gross profit to £2.7 million (H1-2021: £2.2 million), at a margin of 65.9%
(H1-2021: 57.9%).
Operationally, Fresh has continued to support its residents through the
pandemic focusing on community engagement and the Be Wellbeing programme.
Its reputation in the sector continues to grow as a result and this is
reflected in its success in winning new mandates since the start of the year
for 3,208 student beds. Fresh has also just recently been appointed on their
first co-living scheme in Exeter for 133 units
For FY23, Fresh is currently appointed to manage 24,409 student beds and build
to rent apartments across 76 schemes, including expected renewals.
Affordable-led Homes
The affordable-led residential development business achieved 19 sales
completions in the period, (H1-2021: 33 sales). The decrease was due to the
transition of the business as well as some build delays at the site in
Preston, although a number of sales have completed subsequent to the period
end. This led to a reduction in revenue to £5.4 million from the £10.7
million last year.
The gross profit achieved by the division was £0.6 million (H1-2021: £1.5
million), at a margin of 11.0% (H1-2021: 14.0%). The reduction in margin
reflects the mix of sales.
We have made good progress with our pipeline. We exchanged contracts on a site
in Flint for 200 units and also gained planning permission for our Belfast
site which includes 150 affordable units as part of the overall development.
This, in conjunction with good asset management of our existing land bank, has
brought the current affordable homes pipeline to over 500 units for delivery
over the period FY23 to FY26.
Balance sheet and liquidity
Our financial position and liquidity remains strong. We had a gross cash
balance at 31 March 2022 of £44.7 million (31 March 2021: £88.7 million),
whilst net cash stood at £26.8 million (31 March 2021: £31.7 million),
before deducting IFRS 16 lease liabilities.
The Group had undrawn headroom of £85.8 million on its revolving credit
facility ('RCF') with HSBC at 31 March 2022 and an unutilised overdraft
facility of £10.0 million, giving total cash and available facilities of
£140.5 million (31 March 2021: £146.3 million).
The strength of our liquidity position has enabled us to continue to advance
our growth opportunities through securing opportunities in the land market
during the period. This investment, combined with our normal annual cash
profile, which sees a utilisation of cash in the first half of the year,
resulted in a reduction in our net cash balance of £97.5 million since the
start of the year. Our inventory and work in progress balance has increased
by £27.4 million in the period to £155.0 million. Of this balance, £57.0
million relates to the acquisition of land in Bedminster, Birmingham and
Leatherhead.
Contract assets and receivables at 31 March 2022 stood at £37.4 million and
£55.8 million respectively and had increased £51.2 million from the position
at 30 September 2021. The contract assets relate primarily to the final
payments to be received on completion of the forward sold developments in
build which have increased as developments have progressed and receivables
included £22 million for the land sale from the Sherlock Street, Birmingham
development for which cash was received shortly after the period end.
Contract and trade liabilities amounted to £69.8 million at 31 March 2021 and
had reduced £22.2 million since FY21 year-end position. The FY21 year-end
position was higher due to a high level of construction activity linked to the
handover of developments at that time.
ESG
In November 2021 we launched Future Foundations, our ESG strategy. The
strategy formalised our commitments and targets around core themes of future
people, places and planet. This included a commitment to achieving net zero
scope 1 and 2 carbon emissions by 2030.
Our ESG initiatives are progressing well. We are increasing the amount of
modular construction within our build programmes, reducing waste and build
time. Our timber frame trial is scheduled to commence shortly which will help
us assess how we can best utilise modern methods of construction in our
developments. We have also reviewed our plant strategy with a view to sourcing
energy-efficient alternatives with a lower carbon footprint. Following a
rigorous tender process, we have now outsourced our tower crane and plant
requirements to third party providers.
The health and safety of our employees, contractors and residents of the
properties we manage is a key priority for the Group. We have continued to
improve day-to-day health and safety performance within the business. We
target an incident rate of less than 5% of the national average for the
construction industry, and we are currently performing ahead of that target.
Dividend
The Board has declared an interim dividend for the period of 2.9 pence per
share, which will be paid on 30 June 2022 to shareholders on the register at
close of business on 10 ( )June 2022. The shares will go ex-dividend on 9
June 2022.
Outlook
Today we have announced the sale of the PBSA portfolio and are significantly
advanced with a number of other forward sales which have recently gained
planning consent. This, combined with our current developments being on track,
gives us confidence in delivery of our full year expectations.
The underlying market fundamentals supporting residential for rent remain
strong, as evidenced by increasing investor appetite for both BTR and PBSA.
This, combined with the growth in our development pipeline, operational
capabilities and financial strength, underpins our confidence in the future
prospects for the Group.
Richard Simpson
Chief Executive Officer
17 May 2022
Consolidated Statement of Comprehensive Income
for the six month period ended 31 March 2022 (unaudited)
6 months to 6 months to 12 months to
31 March 31 March 30 September
2022 2021 2021
Notes £'000 £'000 £'000
Continuing operations
Revenue 192,966 178,420 430,211
Cost of sales (163,116) (137,089) (345,430)
Gross profit 29,850 41,331 84,781
Administrative expenses (15,281) (12,255) (27,526)
Operating profit before exceptional costs 14,569 29,076 57,255
Exceptional costs 6 (28,000) - -
Operating profit / (loss) (13,431)
Share of profit in joint ventures - - (87)
Finance income 22 1 4
Finance costs (3,238) (3,239) (6,051)
Profit / (loss) before tax from continuing operations (16,647) 25,838 51,121
Income tax (credit) / expense 8 3,322 (5,056) (9,189)
Profit /(loss) for the period attributable to ordinary equity holders of the (13,325) 20,782 41,932
parent
Other comprehensive income
Net gain on equity instruments designated at fair value through other
comprehensive income
- - 108
Total comprehensive income for the period attributable to ordinary equity
holders of the parent
(13,325) 20,782 42,040
Earnings per share for the period attributable to ordinary equity holders of Pence Pence Pence
the parent
Basic earnings per share 9 (5.202) 8.113 16.369
Diluted earnings per share 9 (5.185) 8.108 16.340
Underlying basic earnings per share (excluding exceptional costs)
9 3.652 8.113 16.369
Underlying diluted earnings per share (excluding exceptional costs)
9 3.640 8.108 16.340
Consolidated Statement of Financial Position
as at 31 March 2022 (unaudited)
31 March 31 March 30 September
2022 2021 2021
Notes £'000 £'000 £'000
Non-current assets
Intangible assets 12,445 13,004 12,724
Investment property (leased) 11 95,397 101,475 98,567
Right of use assets 11 4,695 4,923 4,468
Property, plant and equipment 746 4,068 3,656
Investment in joint ventures 17 3,243 17
Deferred tax asset 7,165 3,313 4,057
Other financial assets 1,241 1,133 1,241
121,706 131,159 124,730
Current assets
Inventory and work in progress 155,027 189,005 127,593
Contract assets 37,367 38,682 13,810
Trade and other receivables 55,808 23,457 28,198
Cash and cash equivalents 13 44,685 88,727 136,293
292,887 339,871 305,894
Total assets 414,593 471,030 430,624
Current liabilities
Trade and other payables (75,396) (91,602) (89,198)
Contract liabilities (1,128) (6,537) (2,845)
Interest-bearing loans and borrowings (615) (870) (4,653)
Lease liabilities (6,611) (6,139) (6,113)
Provisions 7 (3,152) (5,384) (4,667)
Current tax liabilities (2,276) (4,087) (2,015)
(89,178) (114,619) (109,491)
Non-current liabilities
Interest-bearing loans and borrowings (17,262) (56,132) (7,308)
Lease liabilities (119,421) (125,544) (123,139)
Provisions 7 (30,345) (3,587) (4,732)
Deferred tax liabilities (813) (1,187) (1,143)
(167,841) (186,450) (136,322)
Total Liabilities (257,019) (301,069) (245,813)
Net assets 157,574 169,961 184,811
Equity
Share capital 2,562 2,562 2,562
Share premium 84,612 84,612 84,612
Merger reserve (75,383) (75,383) (75,383)
Fair value reserve of financial assets at FVOCI 536 428 536
Share-based payment reserve 3,171 2,515 2,824
Retained earnings 142,076 155,227 169,660
Total Equity 157,574 169,961 184,811
Consolidated Statement of Changes in Equity
for the six month period ended 31 March 2022 (unaudited)
Share Fair value of financial assets at FVOCI Share-based payment reserve Total
Share Premium £'000 £000 Retained £'000
Capital £'000 Merger earnings
£'000 Reserve £'000
£'000
Balance at 30 September 2020 2,562 84,612 428 2,348 153,271 167,838
(75,383)
Profit for the period - - - - - 20,782 20,782
Share-based payments - - - - 167 - 167
Other comprehensive income - - - - - - -
Dividend paid (note 10) - - - - - (18,826) (18,826)
Balance at 2,562 84,612 (75,383) 428 2,515 155,227 169,961
31 March 2021
Profit for the period - - - - 21,150 21,150
-
Share-based payments - - - - 309 - 309
Other comprehensive income - - - 108 - - 108
Deferred tax debited directly to equity - - - - - (59)
(59)
Dividend paid (note 10) - - - - - (6,658) (6,658)
Issue of shares - - - - - - -
Balance at 30 September 2021 2,562 84,612 (75,383) 536 2,824 169,660 184,811
- - - - - (13,325) (13,325)
Loss for the period
Share-based payments - - - - 347 - 347
Other comprehensive income - - - - - - -
Dividend paid (note 10) - - - - - (14,259) (14,259)
Balance at 2,562 84,612 (75,383) 536 3,171 142,076 157,574
31 March 2022
Consolidated Statement of Cash Flows
for the six month period ended 31 March 2022 (unaudited)
6 months to 6 months to 12 months to
31 March 31 March 30 September
2022 2021 2021
Notes £'000 £'000 £'000
Cash flows from operating activities
Cash (outflow)/inflow from operations 12 (78,274) (35,467) 76,307
Interest received 22 1 4
Interest paid (3,278) (3,658) (6,638)
Tax (paid) / refunded 148 (1,641) (8,211)
Net cash (outflow)/inflow from operating activities (81,382) (40,765) 61,462
Cash flows from investing activities
Acquisition of property, plant and equipment (556) (763) (208)
Proceeds on disposal of property, plant and equipment 2,000 - 4
Cash flow from joint venture interest - - 57
Net cash inflow / (outflow) from investing activities 1,444 (763) (147)
Cash flows from financing activities
Dividend paid 10 (14,259) (18,826) (25,484)
Payment of principal portion of lease liabilities (3,359) (2,768) (6,145)
New other interest- bearing loan - 261 -
Payment of capital element of other interest-bearing loans (403) (164) (242)
Drawdown of RCF 9,625 19,808 25,705
Repayment of bank loans (3,274) (2,569) (53,369)
Net cash outflow from financing activities (11,670) (4,258) (59,535)
Net (decrease)/increase in cash (91,608) (45,786) 1,780
Cash and cash equivalents at 136,293 134,513 134,513
beginning of the period
Cash and cash equivalents at 44,685 88,727 136,293
end of the period 13
Notes to the consolidated financial information
1. General information
Watkin Jones plc (the 'Company') is a limited company incorporated in the
United Kingdom under the Companies Act 2006 (Registration number 09791105).
The Company is domiciled in the United Kingdom and its registered address is
7-9 Swallow Street, London, W1B 4DE.
The principal activities of the Company and its subsidiaries (collectively the
'Group') are the development and management of multi-occupancy residential
rental properties.
The consolidated interim financial statements of the Group for the six month
period ended 31 March 2022 comprises the Company and its subsidiaries. The
basis of preparation of the consolidated interim financial statements is set
out in note 2 below.
The financial information for the six months ended 31 March 2022 is
unaudited. It does not constitute statutory financial statements within the
meaning of Section 434 of the Companies Act 2006. The consolidated interim
financial statements should be read in conjunction with the financial
information for the year ended 30 September 21 which has been prepared in
accordance with international accounting standard in conformity with the
requirements of the Companies Act 2006. The report of the auditors on those
financial statements was unqualified, did not contain an emphasis of matter
paragraph and did not contain any statement under section 498(2) of the
Companies Act 2006.
This report was approved by the directors on 16 May 2022.
2. Basis of preparation
This set of condensed consolidated interim financial statements has been
prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by
the UK. The interim financial statements have been prepared based on the UK
adopted International Financial Reporting Standards "IFRS" that are expected
to exist at the date on which the Group prepares its financial statements for
the year ended 30 September 2022. To the extent that IFRS at 30 September
2022 do not reflect the assumptions made in preparing the interim financial
statements, those financial statements may be subject to change.
The interim financial statements have been prepared on a going concern basis
and under the historical cost convention.
The interim financial statements have been presented in pounds sterling and
all values are rounded to the nearest thousand (£'000), except when otherwise
indicated.
The preparation of financial information in conformity with IFRS requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Although these estimates are based on management's best knowledge of the
amount, event or actions, actual events may ultimately differ from those
estimates.
The interim financial statements do not include all financial risk information
and disclosures required in the annual financial statements and they should be
read in conjunction with the financial information that is presented in the
Company's audited financial statements for the year ended 30 September 2021.
There has been no significant change in any risk management policies since the
date of the last audited financial statements.
Going concern
At 31 March 2022, the Group had a robust liquidity position, with cash and
available headroom in its banking facilities totalling £140.5m made up of
cash balances of £44.7m, RCF headroom of £85.8m and an overdraft facility of
£10.0m.
Group forecasts have been prepared that have considered the Group's current
financial position and current market circumstances. We have prepared a base
case cash flow forecast for the period to 17 May 2023. In addition to the
base case forecast, and though considered unlikely given current market
conditions, we have considered a severe but possible downside scenario of a
suspension of the forward sale market where no further forward sales are
achieved other than those currently under offer. The cash forecast under
this scenario illustrates that adequate liquidity is maintained through the
forecast period.
Based on the results of the analysis undertaken, the Directors have a
reasonable expectation that the Group has adequate resources available to
continue to trade for the period to 17 May 2023 and has therefore adopted the
going concern basis in preparing the financial statements.
3. Accounting policies
The accounting policies used in preparing these interim financial statements
are the same as those set out and used in preparing the Company's audited
financial statements for the year ended 30 September 2021.
4. Segmental reporting
The Group has identified four segments for which it reports under IFRS 8
'Operating segments', as follows:
A Student accommodation - the development of purpose-built
student accommodation;
B Build to rent - the development of build to rent
accommodation;
C Residential - the development of residential property for
sale; and
D Accommodation management - the management of student
accommodation and build to rent property.
Corporate - revenue from the development of commercial property forming part
of mixed use schemes and other revenue and costs not solely attributable to
any one operating segment.
Performance is measured by the Board based on gross profit as reported in the
management accounts. Apart from inventory and work in progress, no other
assets or liabilities are analysed into the operating segments.
6 months to 31 March 2022 (unaudited) Student Build to Residential Accommodation Corporate Total
Accommodation rent management
£'000 £'000 £'000 £'000 £'000 £'000
Segmental revenue 78,284 93,753 5,408 4,086 11,435 192,966
Segmental gross profit 13,018 12,038 635 2,673 1,486 29,850
Administration expenses - - - (3,120) (12,161) (15,281)
Exceptional costs - - - - (28,000) (28,000)
Finance income - - - - 22 22
Finance costs - - - - (3,238) (3,238)
Profit/(loss) before tax 13,018 12,038 635 (447) (41,891) (16,647)
Taxation - - - - 3,322 3,322
Profit/(loss) for the period 13,018 12,038 635 (447) (38,569) (13,325)
Inventory and WIP 79,574 45,443 27,321 - 2,689 155,027
6 months to 31 March 2021 (unaudited) Student Build to Residential Accommodation Corporate Total
Accommodation rent management
£'000 £'000 £'000 £'000 £'000 £'000
Segmental revenue 104,759 59,112 10,670 3,816 63 178,420
Segmental gross profit 25,215 12,397 1,490 2,228 1 41,331
Administration expenses - - - (1,708) (10,547) (12,255)
Finance income - - - - 1 1
Finance costs - - - - (3,239) (3,239)
Profit/(loss) before tax 25,215 12,397 1,490 520 (13,784) 25,838
Taxation - - - - (5,056) (5,056)
Profit/(loss) for the period 25,215 12,397 1,490 520 (18,840) 20,782
Inventory and WIP 56,700 90,656 31,316 - 10,333 189,005
Year ended Student Build to Residential Accommodation Corporate Total
30 September 2021 Accommodation rent management
£'000 £'000 £'000 £'000 £'000 £'000
Segmental revenue 259,882 138,569 22,663 7,762 1,335 430,211
Segmental gross profit 50,464 29,765 2,560 4,081 (2,089) 84,781
Administration expenses - - - (4,229) (23,297) (27,526)
Share of operating profit in joint ventures (87) - - - - (87)
Finance income - - - - 4 4
Finance costs - - - - (6,051) (6,051)
Profit/(loss) before tax 50,377 29,765 2,560 (148) (31,433) 51,121
Taxation - - - - (9,189) (9,189)
Profit/(loss) for the period 50,377 29,765 2,560 (148) (40,622) 41,932
Inventory and WIP 25,754 64,086 27,420 - 10,333 127,593
5. Disaggregated revenue information
6 months to 31 March 2022 (unaudited) Student Build to Residential Accommodation Corporate Total
Accommodation rent management
£'000 £'000 £'000 £'000 £'000 £'000
Type of goods or service
Construction contracts or development agreements 64,534 45,005 - - 2,110 111,649
Sale of land 6,447 48,200 - - - 54,647
Sale of completed property - - 5,408 - 9,325 14,733
Rental income 7,303 548 - - - 7,851
Accommodation management - - - 4,086 - 4,086
Total revenue from contracts with customers 78,284 93,753 5,408 4,086 11,435 192,966
Timing of revenue recognition
Goods transferred at a point in time 6,447 48,200 5,408 - 9,325 69,380
Services transferred over time 71,837 45,553 - 4,086 2,110 123,586
Total revenue from contracts with customers 78,284 93,753 5,408 4,086 11,435 192,966
6 months to 31 March 2021 (unaudited) Student Build to Residential Accommodation Corporate Total
Accommodation rent management
£'000 £'000 £'000 £'000 £'000 £'000
Type of goods or service
Construction contracts or development agreements 99,283 58,405 - - 63 157,751
Sale of land - - - - - -
Sale of completed property - - 10,670 - - 10,670
Rental income 5,476 707 - - - 6,183
Accommodation management - - - 3,816 - 3,816
Total revenue from contracts with customers 104,759 59,112 10,670 3,816 63 178,420
Timing of revenue recognition
Goods transferred at a point in time - - 10,670 - - 10,670
Services transferred over time 104,759 59,112 - 3,816 63 167,750
Total revenue from contracts with customers 104,759 59,112 10,670 3,816 63 178,420
Year ended Student Build to Residential Accommodation Corporate Total
30 September 2021 Accommodation rent management
£'000 £'000 £'000 £'000 £'000 £'000
Type of goods or service
Construction contracts or development agreements 195,015 90,428 - - 1,335 286,778
Sale of land 18,500 15,000 - - - 33,500
Sale of completed property 35,580 31,703 22,663 - - 89,946
Rental income 10,787 1,438 - - - 12,225
Accommodation management - - - 7,762 - 7,762
Total revenue from contracts with customers 259,882 138,569 22,663 7,762 1,335 430,211
Timing of revenue recognition
Goods transferred at a point in time 54,080 46,703 22,663 - - 123,446
Services transferred over time 205,802 91,866 - 7,762 1,335 306,765
Total revenue from contracts with customers 259,882 138,569 22,663 7,762 1,335 430,211
6. Exceptional costs
6 months to 6 months to 12 months to
31 March 31 March 30 September
2022 2021 2021
£'000 £'000 £'000
Net legacy building safety expense (28,000) - -
Total exceptional costs (28,000) - -
7. Provisions
Legacy building safety improvements provision
£'000
Current
At 1 October 2021 9,399
Arising during the year 28,000
Utilised (3,902)
At 31 March 2022 33,497
The provision is classified as follows:
£'000
Current 3,152
Non-current 30,345
At 31 March 2022 33,497
In response to the revised government guidance, issued in January 2020, on the
suitability of certain cladding solutions used on high‑rise residential
buildings, the Group has been working with the owners of certain of its
previously developed properties to remediate or replace cladding and to share
the costs. A provision of £14,800,000 was made in the year ending 30
September 2020 for the Group's anticipated contribution toward the cost of the
fire safety recladding works. The provision remaining at 31 March 2022 amounts
to 5,497,000 of which £3,152,000 is expected to be incurred within the next
twelve months and £2,345,000 is expected to be incurred after 31 March 2022.
In January 2022, the Government announced its intention to approach developers
to fund the remediation of life critical fire safety issues on buildings over
11 metres and up to 30 years old. While noting the requirement for secondary
legislation to clarify the impact of the Government's plans, the Group expects
that, in due course, it will incur costs in relation to remediation works on
developments over 11 metres tall and up to 30 years old.
Whilst it is unclear exactly what remedial works will be needed, we have made
an initial review of buildings above 11 metres developed by the Company over
the last 30 years, which concluded that an exceptional charge of £28,000,000
should be made for these potential costs. This amount covers the following
areas set out in the Building Safety Bill; i) the extension of scope for
developers' responsibility to 30 years; ii) the Increased scope by including
buildings between 11m and 18m and iii) the expanded scope to incorporate
critical life safety defects. We expect this money will be spent over the
next 7 years.
This is a highly complex area with judgements and estimates in respect of the
cost of remedial works, and the extent of those properties within the scope of
the applicable Government guidance and legislation, which continue to
evolve. These factors could result in a range of reasonably possible
outcomes on the anticipated remedial works ranging from an increase in the
costs of £4,600,000 to a reduction in costs of £23,400,000.
8. Income taxes
The tax expense for the period has been calculated by applying the estimated
effective tax rate for the financial year ending 30 September 2022 of 19.83 %
to the profit for the period.
9. Earnings per share
Basic earnings per share ("EPS") amounts are calculated by dividing the net
profit or loss for the year attributable to ordinary equity holders of the
parent by the weighted average number of ordinary shares in issue during the
year.
The following table reflects the income and share data used in the basic EPS
computations:
6 months to 6 months to 12 months to
31 March 31 March 30 September
2022 2021 2021
£'000 £'000 £'000
Profit / (loss) for the period attributable to ordinary equity holders of the
parent
(13,325) 20,782 41,932
Underlying profit for the period attributable to ordinary equity holders of
the parent (excluding exceptional (costs)/income after tax)
9,355 20,782 41,932
Number of shares Number of shares Number of shares
Number of ordinary shares for basic earnings per share 256,163,459
256,163,459 256,163,459
Adjustments for the effects of dilutive potential ordinary shares 839,998
151,310 453,761
Weighted average number for diluted earnings per share 257,003,457
256,314,769 256,617,220
Pence Pence Pence
Basic earnings per share
Basic profit for the period attributable to ordinary equity holders of the (5.202)
parent
8.113 16.369
Underlying basic earnings per share (excluding exceptional (costs)/income
after tax)
Underlying profit for the period attributable to ordinary equity holders of 3.652 8.113 16.369
the parent
Diluted earnings per share
Basic profit for the period attributable to diluted equity holders of the (5.185) 8.108 16.340
parent
Underlying diluted earnings per share (excluding exceptional (costs)/income
after tax)
Underlying profit for the period attributable to diluted equity holders of the 3.640 8.108 16.340
parent
10. Dividends
6 months to 6 months to 12 months to
31 March 31 March 30 September
2022 2021 2021
£'000 £'000 £'000
Final dividend paid in February 2021 of 7.35 pence - 18,826 18,826
Interim dividend paid in June 2021 of 2.6 pence - - 6,658
Final dividend paid in February 2021 of 5.6 pence 14,259 - -
14,259 18,826 25,484
An interim dividend of 2.9 pence per ordinary share will be paid on 30 June
2021. This dividend was declared after 31 March 2021 and as such the
liability of 7,352,000 has not been recognised at that date. At 31 March 2022
the Company had distributable reserves available of £61,000,000.
11. Leases
Investment property (leased) Office Leases Motor Vehicle Leases Total
£'000 £'000 £'000 £'000
Cost
At 30 September 2020 161,393 9,411 1,432 172,236
Additions/adjustment - 720 13 733
Disposals - - (321) (321)
At 31 March 2021 161,393 10,131 1,124 172,648
Additions 243 1 - 244
Disposals (7) (150) (157)
At 30 September 2021 161,629 10,132 974 172,735
Additions - 132 562 694
Disposals - - - -
At 31 March 2022 161,629 10,264 1,536 173,429
Depreciation
At 30 September 2020 51,072 4,994 1,086 57,152
Charge for the period 3,148 424 123 3,695
Disposals - - (295) (295)
At 31 March 2021 54,220 5,418 914 60,552
Charge for the period 3,144 367 83 3,594
Disposals (144) (144)
At 30 September 2021 57,364 5,785 853 64,002
Charge for the period 3,170 354 113 3,637
Disposals - - - -
At 31 March 2022 60,534 6,139 966 67,639
Impairment
At 30 September 2020 5,698 - - 5,698
Charge for the period - - - -
At 31 March 2021 5,698 - - 5,698
Charge for the period
At 30 September 2021 5,698 - - 5,698
Charge for the period - - - -
At 31 March 2022 5,698 - - 5,698
Net Book Value
At 31 March 2022 95,397 4,125 570 100,092
At 30 September 2021 98,567 4,347 121 103,035
At 31 March 2021 101,475 4,713 210 106,398
At 30 September 2020 104,623 4,417 346 109,386
12. Reconciliation of profit before tax to net cash flow
from operating activities
6 months to 6 months to 12 months to
31 March 31 March 30 September
2022 2021 2021
£'000 £'000 £'000
Profit / (loss) before tax (16,647) 25,838 51,121
Depreciation of leased investment properties and right-of-use assets 3,637 3,695 7,289
Depreciation of plant and equipment 244 338 839
Amortisation of intangible assets 280 280 560
Loss/(profit) of disposal of right-of-use assets - - 6
(Profit) / loss on sale of plant and equipment (1,308) - 85
Finance income (22) (1) (4)
Finance costs 3,238 3,239 6,051
Share of profit in joint ventures - - 87
Increase in inventory and work in progress (27,434) (63,345) (1,933)
Interest capitalised in development land, inventory and work in progress 40 419 587
(Increase)/decrease in contract assets (23,557) 2,840 27,712
(Increase)/decrease in trade and other receivables (27,610) 61 (4,680)
Decrease in contract liabilities (1,717) (2,430) (6,122)
Decrease in trade and other payables (11,862) (5,675) (5,302)
Increase / (decrease) in provision for fire safety cladding works 24,098 (893) (465)
Increase in share-based payment reserve 346 167 476
Net cash (outflow)/inflow from operating activities (78,274) (35,467) 76,307
13. Analysis of net cash / (debt)
31 March 31 March 30 September
2022 2021 2021
£'000 £'000 £'000
Cash at bank and in hand 44,685 88,727 136,293
Other interest-bearing loans (87) (728) (389)
Bank loans (17,790) (56,275) (11,572)
Net cash before deducting lease liabilities 26,808 31,724 124,332
Lease liabilities (126,032) (131,683) (129,252)
Net debt (99,224) (99,959) (4,920)
14. Employee benefits - long-term incentive plans
In January 2022, 959,808 share awards were made under the Watkin Jones plc
Long-Term Incentive Plan (the Plan). The awards have an exercise price of
one penny per share and become exercisable after three years from the date of
grant subject to continued employment and the Company's Earning per Share
(EPS), absolute total shareholder return (absolute TSR) performance, and
relative total shareholder return (relative TSR) as follows:
Absolute TSR (25% of award) % of TSR award vesting(1)
Less than 5% p.a. 0%
Equal to 5% p.a. 20%
14% p.a. or greater 100%
Relative TSR (25% of award) % of TSR award vesting(1)
Less than median ranking 0%
Equal to median ranking 20%
Upper quartile or greater ranking 100%
EPS growth (50% of award) % of EPS award vesting(1)
5% p.a. or less 0%
Equal to 5% p.a. 20%
14% p.a. or greater 100%
(1)Vesting on a straight-line basis between target levels
The fair value of share awards granted subject to EPS conditions is 265.0
pence and has been estimated as the market price of an ordinary share of the
Company at the date the award was granted less the one penny exercise price
for the award. The fair value of the share awards subject to TSR performance
conditions has been estimated at the grant date using a Monte Carlo valuation
model using the following assumptions:
Share price 266.0 pence
Exercise price 1 penny
Expected term 3 years
Risk-free interest rate 1.05%
Are dividend equivalents receivable for the award holder? Yes
Expected volatility 31%
To model the impact of the relative TSR performance condition, the volatility
for each company in the comparator group has been calculated using historical
data (where available) which matches the length of the performance period
remaining at the grant date (2.66 years). In addition, the valuation model
included the correlation between the peer group and the Company as well as the
inter-correlations between the peers.
This resulted in an estimated fair value for an award with absolute TSR
performance conditions of 144.38 pence and an estimated value for an award
with relative TSR performance conditions of 178.34 pence.
For the six months ended 31 March 2022, the amount charged to the statement of
comprehensive income and credited to share based payment reserve in relation
to all the active awards granted to that date was £346,000 (31 March 2021:
£167,575).
- Ends -
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