Watkin Jones plc
('Watkin Jones' or the 'Group')
Half year results for the six months to 31 March 2021
'Maintaining momentum as confidence returns'
Watkin Jones plc (AIM:WJG), the UK's leading developer and manager of residential for rent, with a focus on the build to rent ('BtR') and purpose built student accommodation ('PBSA') sectors, announces its results for the six months ended 31 March 2021 ('H1-2021' or the 'period').
Financial Highlights
H1-2021
H1-2020 (Restated1)
Movement
Revenue
£178.4 million
£185.7 million
-3.9%
Gross profit
£41.3 million
£42.3 million
-2.3%
Operating profit
£29.1 million
£29.6 million
-1.8%
Profit before tax
£25.8 million
£26.7 million
-3.3%
EBITDA
£33.4 million
£34.2 million
-2.5%
Basic earnings per share
8.11 pence
8.46 pence
-4.1%
Dividend per share
2.6 pence
Nil pence
-
Cash
£88.7 million
£72.4 million
-
Net cash2
£31.7 million
£37.5 million
-
Commenting on the interim results, Richard Simpson, Chief Executive Officer of Watkin Jones, said: "As we begin to emerge from the pandemic, we are seeing increasing investor confidence in our market sectors. We've maintained the momentum from the second half of last year and made further good progress in securing new forward sales, adding to our development pipeline and keeping all our construction activities on track.
"All parts of the business have continued to perform well, and whilst our profit for the first half of the year was slightly below last year, this was because the first half last year was largely before the onset of the disruption caused by the pandemic.
"The fundamentals supporting the markets for high quality build to rent and student accommodation assets remain strong, driving growing institutional demand, and combined with the continued progress we have made in the first half of the year, gives us confidence in our future trading."
Financial headlines
· £29.1 million operating profit, slightly below last year's pre-pandemic level
· 33% of revenue was from BtR, showing its increasing importance to the Group (H1-2020: 22%)
· 23.2% gross margin, up 0.4% points (H1-2020: 22.8%), with a robust performance across all our businesses
· £146.3 million total liquidity available, being cash and available debt facilities (H1-2020: £153.4 million)
· 2.6 pence per share interim dividend (H1-2020: nil pence)
Notes
1. The comparative results for H1-2020 have been restated for an adjustment to opening IFRS 16 lease assets and liabilities. Further details are provided in note 3 to the interim financial statements.
2. Net cash is stated after deducting site specific bank loans and other interest-bearing loans, but before deducting IFRS 16 lease liabilities.
Business Highlights
Operational resilience demonstrated across all parts of the Group
· Work is on track on all 15 BtR and PBSA developments currently being built
· 3,424 new student bed property management mandates for Fresh since the start of the year
· Residential sales momentum maintained
Continued progress in forward sales market
· 909 beds across three PBSA developments contracted in the period
· 462-bed PBSA development in Leicester contracted after the half year
· 722 BtR apartments in advanced legals for sale, these being Hove (216 apartments), Leicester (184 apartments) and Lewisham (322 apartments)
· 295-bed PBSA development in Edinburgh for delivery in FY23, sale terms agreed
Development pipeline further enhanced
· £1.6 billion future revenue value now in our secured development pipeline (up from £1.0 billion last year):
Current
H1-2020
January 2021 Update
BtR (apartments)
5,008
2,660
4,466
PBSA (beds)
8,509
7,200
7,910
Future revenue value
c.£1.6 billion*
c.£1.0 billion*
c.£1.5 billion
* Excluding the revenue delivered in the period.
· 542 BtR apartments and 599 PBSA beds added to our pipeline since our last update in January 2021:
BtR (apartments)
PBSA (beds)
January 2021 update
4,466
7,910
New sites secured:
Edinburgh
524
286
Swansea
-
350
524
636
Design changes
18
(37)
Current
5,008
8,509
· Planning secured for our first co-living scheme, for 133 beds in Exeter, in which tenants have a private studio with shared communal facilities
Market dynamics supportive
· Significant increase in institutional demand for PBSA; confidence returning in occupancy levels for 2021-2022 academic year
· Growing institutional demand for BtR
Affordable homes opportunity
· Pilot on track
Analyst meeting
A conference call for analysts and investors will be held at 09.30am today, 18 May 2021. A copy of the Half Year Results presentation will be available on the Group's website: http://www.watkinjonesplc.com
An audio webcast of the conference call with analysts will be available after 12pm today:
https://webcasting.buchanan.uk.com/broadcast/607d6a2c0386285386cc951a
For further information:
Henry Harrison-Topham / Richard Oldworth Jamie Hooper / Steph Watson
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 and student accommodation sectors. The Group has strong relationships with institutional investors, and a reputation for successful, on-time-delivery of high quality developments. Since 1999, Watkin Jones has delivered 43,000 student beds across 130 sites, making it a key player and leader in the UK purpose-built student accommodation market. In addition, Fresh, the Group's specialist accommodation management business, manages over 20,000 student beds and build to rent apartments on behalf of its institutional clients. Watkin Jones has also been responsible for over 80 residential developments, ranging from starter homes to executive housing and apartments. The Group is increasingly expanding its operations into the build to rent sector and is piloting an opportunity to re-focus its residential house building operation as a developer of affordable homes.
The Group's competitive advantage lies in its experienced management team and business model, which enables it to offer an end-to-end solution for investors, delivered entirely in-house with minimal reliance on third parties, across the entire life cycle of an asset.
Watkin Jones was admitted to trading on AIM in March 2016 with the ticker WJG.L. For additional information please visit www.watkinjonesplc.com
Review of Performance
Results for the six months to 31 March 2021
Revenues for the period were £178.4 million, compared to the pre-pandemic £185.7 million for H1-2020. Our developments in build are all progressing in line with expectations.
Gross profit was £41.3 million (H1-2020: £42.3 million), with an improvement in the gross margin to 23.2% from 22.8% last year. Margin performance was as expected, with the developments in build contributing strongly.
Operating profit for the period was £29.1 million (H1-2020: £29.6 million).
Net finance costs for the period amounted to £3.2 million (H1-2020: £2.9 million), reflecting the additional cost associated with the £40.0 million increase in our RCF limit in May last year. Finance costs include £2.4 million (H1-2020: £2.6 million) in respect of the finance cost of capitalised operating leases under IFRS16.
Profit before tax for the period was £25.8 million (H1-2020: £26.7 million). Basic earnings per share for the period were 8.11 pence, compared to 8.46 pence for H1-2020.
Segmental review
Build to Rent ('BtR')
The contribution from BtR increased further in the period, with revenues of £59.1 million, up £17.9 million (43.3%) on H1-2020. Revenues derived from the build of our forward sold developments in Reading, Sutton, Stratford and Wembley, which are progressing on track for completion in H2-2021.
BtR gross profit for the period was £12.4 million (H1-2020: £6.6 million), an increase of 87.8%. The margin for the period was 21.0% (H1-2020: 16.1%), reflecting a robust performance across all of the developments in build for FY21 as they near completion.
We are in advanced legals for the forward sale of our developments in Hove (216 apartments), Leicester (184 apartments) and Lewisham (322 apartments plus 43 affordable).
In the period we secured a site in Belfast (780 apartments) and subsequent to the period end a site in Edinburgh (524 apartments), both subject to planning. We are actively progressing with several other site acquisitions.
The current BtR development pipeline is as shown in the table below:
BtR apartments
Total pipeline
FY21
FY22
FY23
FY24
FY25
Forward sold
928
857
71
-
-
-
Forward sales in legals
765
184
-
581
-
-
Sites secured with planning
-
-
-
-
-
-
Sites secured subject to planning
3,315
-
-
-
1,324
1,991
Total secured
5,008
1,041
71
581
1,324
1,991
Change*
+542
+184
-184
+43
+207
+292
Site acquisitions in legals
-
-
-
-
-
-
Total BtR pipeline
5,008
1,041
71
581
1,324
1,991
Change*
+295
+184
-184
+43
-40
+292
*The change in the pipeline is compared to the previous update in January 2021.
The appraised future revenue value to the Group of the secured development pipeline, excluding the revenue delivered in H1-2021, is c.£950.0 million (H1-2020: £550.0 million).
Student accommodation ('PBSA')
Revenues from PBSA were 13.3% lower than last year at £104.8 million (H1-2020: £120.8 million), with the prior year revenues benefitting by £23.5 million from the recognition of the full sales value of a development completed in Chester, which had been sold on a turnkey basis. Forward sold development revenues were therefore a little ahead of last year, reflecting the continued good progress on site of all developments in build.
PBSA revenues include the letting income on our six historic leased PBSA assets and this has been reduced by approximately £4.3 million compared to H1-2020 as a result of the lower level of student occupancy this year. We have seen a number of students returning to their accommodation as lockdown restrictions have eased and we expect the full year reduction in revenues to be within the previously guided maximum of £10.0 million.
The gross margin for PBSA was 24.1%, a small decrease on the 24.5% gross margin for H1-2020.
In the period we forward sold three PBSA developments in Bristol (291 beds), Leicester (250 beds) and York (368 beds) for delivery in FY22. For each of these developments, the clients concerned acquired the land site directly. Subsequent to the period end we exchanged contracts for the sale on a turnkey basis of our 462-bed scheme in Leicester, for delivery this financial year. The combined revenue value to the Group of these four contracted sales is £101.1 million.
We have also agreed terms for the forward sale of a 295-bed development in Edinburgh, subject to the receipt of a planning amendment, which is targeted for delivery in FY23.
We secured two sites subject to planning since the start of the year, these being in Edinburgh (286 beds) and Swansea (350 beds).
The current PBSA development pipeline is as shown in the table below:
PBSA beds
Total pipeline
FY21
FY22
FY23
FY24
FY25
Forward sold
4,360
3,192
1,168
-
-
-
Forward sales in legals
547
-
-
547
-
-
Sites secured with planning
778
-
778
-
-
-
Sites secured subject to planning
2,824
-
-
1,816
673
335
Total secured
8,509
3,192
1,946
2,363
673
335
Change*
+599
-
+1
-75
+338
+335
Site acquisitions in legals
1,517
-
-
357
394
766
Total PBSA pipeline
10,026
3,192
1,946
2,720
1,067
1,101
Change*
+118
-
+1
-380
+162
+335
*The change in the pipeline is compared to the previous update in January 2021.
The appraised future revenue value to the Group of the secured development pipeline, excluding the revenue delivered in H1-2021, is c.£625.0 million (H1-2020: c.£500.0 million).
Accommodation management (Fresh)
Fresh achieved revenues of £3.8 million (H1-2020: £4.1 million), reflecting the largely fixed nature of its management fee income. The reduction of 8% reflects the loss of some income that varies with student occupancy levels, partly offset by the higher number of student beds and BtR apartments under management at the start of the year (20,179), compared to the start of FY20 (17,721).
Operationally, Fresh has continued to support both its student customers and clients through the pandemic. Since the start of the year it has won new mandates for 3,424 student beds.
The reduction in Fresh's revenue for the period led to a modest decrease in gross profit to £2.2 million (H1-2020: £2.6 million), at a margin of 58.4% (H1-2020: 61.9%).
By FY 2023, Fresh is currently appointed to manage 22,981 student beds and BtR apartments across 71 schemes, including expected renewals, an increase of 1,191 beds since our update in January 2021.
Residential
The residential development business achieved 33 sales completions in the period, in line with its targets (H1-2020: 73 sales). H1-2020 sales included the completion of the 35-apartment scheme at Trafford Street, Chester, which had been sold on a turnkey basis. Excluding this sale, house completions for H1-2021 were at a similar level to last year. The momentum we reported in new sales being reserved during the summer months of 2020 has continued, with a further 55 reservations since the start of the year, adding to the 25 reservations with which we started the year.
Revenues for the division were £8.9 million lower than last year at £10.7 million. H1-2020 revenues included the revenue from the completion of the apartment scheme in Chester, as well as the remaining higher value sales of apartments at our Duncan House, Stratford development.
The gross profit achieved by the division was £1.5 million (H1-2020: £3.7 million), at a margin of 14.0% (H1-2020: 19.0%). The reduction in margin reflects the mix of sales, with last year's margin benefiting in particular from the apartment sales at Duncan House.
Affordable homes pilot
We made good progress with the launch of the North West affordable homes pilot in the period.
Pipeline
We completed the acquisition of the site in Crewe for 245 units and exchanged contracts on a site for 51 units in Llay, Wrexham. We are also in advanced legal negotiations to secure a further site in the North West for 189 units, which will bring the current affordable homes pipeline to 485 units for delivery over the period FY22 - FY25. All of these sites have planning. Given the encouraging initial progress, a number of further site opportunities are also under review.
Forward sales
Subsequent to the period end we exchanged forward sale contracts with Adra for 23 units at the site in Llay and we expect to exchange contracts imminently for the forward sale of 159 units at the site in Crewe. We are also progressing heads of terms for the forward sale of 133 units at the further new site that we are in the process of acquiring. All forward sale values are in line with our financial appraisals.
Balance sheet and liquidity
Our financial position and liquidity remains strong. We had a cash balance at 31 March 2021 of £88.7 million (31 March 2020: £72.4 million), whilst net cash stood at £31.7 million (31 March 2020: £37.5 million), before deducting IFRS 16 lease liabilities.
The Group had undrawn headroom of £47.6 million on its revolving credit facility ('RCF') with HSBC at 31 March 2021 and an unutilised overdraft facility of £10.0 million, giving total cash and available facilities of £146.3 million (31 March 2020: £153.4 million).
We have continued to secure opportunities in the land market during the pandemic. We have also been able to progress the development of our BtR and PBSA schemes in Leicester for completion in FY21. 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 £63.1 million since the start of the year. Our inventory and work in progress balance has similarly increased by £63.3 million in the period to £189.0 million. Of this balance, £42.3 million relates to the work in progress cost of the two developments in Leicester.
Contract assets and receivables at 31 March 2021 stood at £38.7 million and £23.5 million respectively and were broadly unchanged from the position at 30 September 2020. The contract assets relate primarily to the final payments to be received on completion of the forward sold developments in build. Contract and trade liabilities amounted to £98.1 million at 31 March 2021 and were also at a similar level to the FY20 year-end position.
Environmental, Social and Governance ('ESG')
We continue to evolve our ESG framework. Our work in the period has centred on identifying the key initiatives for the business, determining the targets against which we will measure and report our performance and how the initiatives will be integrated as part of our day to day operations. As part of this work we are engaging with our key stakeholders to identify what is important to them and to help inform our approach.
The health and safety of our employees, supply chain partners and tenants of the properties we manage is our number one priority. We continue to deploy strict Covid-19 working practices on our sites and through Fresh to ensure that the wellbeing of students and our BtR consumers is catered for. Whilst we have continued to operate highly effectively, this is against the backdrop of the pandemic and our employees have continued to work tirelessly in exceptionally difficult circumstances. Their efforts and commitment have been exemplary and I would again like to thank them all personally.
Cladding update
In our FY20 results we made a provision of £15.0 million to cover the cost of cladding remedial works on previous high-rise residential buildings we had developed, working with the property owners concerned to ensure the safety of tenants, even though we are not legally liable. These works are progressing in line with our previous guidance.
£5.1 million of the cost of the works was incurred in FY20, with a further £0.9 million incurred in H1-2021. The remaining provision of £9.0 million is expected to be incurred over the remainder of FY21 and FY22.
The Government has recently announced that it intends to levy a tax on the profits of residential developers, combined with a planning gain levy on future developments, in order to recoup the cost of its high-rise cladding replacement support scheme. The precise scope and detail of the residential developer tax have not yet been concluded and will be the subject of a consultation process over the coming months. We are currently preparing our response and will actively participate in the consultation process.
Dividend
The Board has declared an interim dividend for the period of 2.6 pence per share, which will be paid on 30 June 2021 to shareholders on the register at close of business on 9 June 2021. The shares will go ex-dividend on 8 June 2021.
Outlook
The underlying market fundamentals supporting residential for rent remain strong, as evidenced by increasing investor appetite for both BtR and PBSA as we emerge from the pandemic. 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
18 May 2021
Consolidated Statement of Comprehensive Income
for the six month period ended 31 March 2021 (unaudited)
6 months to 31 March 2021
6 months to 31 March 2020 (Restated - note 3)
12 months to 30 September 2020
Continuing operations
Notes
£'000
£'000
£'000
Revenue
178,420
185,672
354,121
Cost of sales
(137,089)
(143,373)
(278,205)
Gross profit
41,331
42,299
75,916
Administrative expenses
(12,255)
(12,682)
(24,249)
Operating profit before exceptional costs
29,076
29,617
51,667
Exceptional costs
6
-
-
(20,437)
Operating profit
29,076
29,617
31,230
Share of profit in joint ventures
-
-
199
Finance income
1
200
251
Finance costs
(3,239)
(3,084)
(6,366)
Profit before tax from continuing operations
25,838
26,733
25,314
Income tax expense
7
(5,056)
(5,104)
(4,222)
Profit for the period attributable to ordinary equity holders of the parent
20,782
21,629
21,092
Other comprehensive income
Net gain on equity instruments designated at fair value through other comprehensive income
-
-
(6)
Total comprehensive income for the period attributable to ordinary equity holders of the parent
20,782
21,629
21,086
Earnings per share for the period attributable to ordinary equity holders of the parent
Pence
Pence
Pence
Basic earnings per share
8
8.113
8.458
8.246
Diluted earnings per share
8
8.108
8.425
8.234
Adjusted basic earnings per share (excluding exceptional costs)
8
8.113
8.458
14.717
Adjusted diluted earnings per share (excluding exceptional costs)
8
8.108
8.425
14.696
Consolidated Statement of Financial Position
as at 31 March 2021 (unaudited)
31 March 2021
31 March 2020 (Restated - note 3)
30 September 2020
Notes
£'000
£'000
£'000
Non-current assets
Intangible assets
13,004
13,564
13,284
Investment property (leased)
10
101,475
110,125
104,623
Right of use assets
10
4,923
5,402
4,763
Property, plant and equipment
4,068
4,965
4,376
Investment in joint ventures
3,243
2,794
3,243
Deferred tax asset
3,313
3,758
3,313
Other financial assets
1,133
1,139
1,133
131,159
141,747
134,735
Current assets
Inventory and work in progress
189,005
108,640
125,660
Contract assets
38,682
79,211
41,522
Trade and other receivables
23,457
20,419
23,518
Cash and cash equivalents
12
88,727
72,394
134,513
339,871
280,664
325,213
Total assets
471,030
422,411
459,948
Current liabilities
Trade and other payables
(91,602)
(69,153)
(97,300)
Contract liabilities
(6,537)
(4,462)
(8,967)
Lease liabilities
(6,139)
(6,209)
(6,310)
Provisions
(5,384)
-
(6,277)
Interest-bearing loans and borrowings
(870)
(1,021)
(711)
Current tax liabilities
(4,087)
(6,869)
(819)
(114,619)
(87,714)
(120,384)
Non-current liabilities
Interest-bearing loans and borrowings
(56,132)
(33,861)
(38,956)
Lease liabilities
(125,544)
(131,437)
(128,143)
Deferred tax liabilities
(1,187)
(1,042)
(1,040)
Provisions
(3,587)
-
(3,587)
(186,450)
(166,340)
(171,726)
Total Liabilities
(301,069)
(254,054)
(292,110)
Net assets
169,961
168,357
167,838
Equity
Share capital
2,562
2,553
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
428
434
428
Share-based payment reserve
2,515
2,263
2,348
Retained earnings
155,227
153,878
153,271
Total Equity
169,961
168,357
167,838
Consolidated Statement of Changes in Equity
for the six month period ended 31 March 2021 (unaudited)
Share Capital £'000
Share Premium £'000
Merger Reserve £'000
Fair value of financial assets at FVOCI £'000
Share-based payment reserve £000
Retained earnings £'000
Total £'000
Balance at 30 September 2019
2,553
84,612
(75,383)
434
2,311
146,568
161,095
Profit for the period
-
-
-
-
-
21,629
21,629
Share-based payments
-
-
-
-
(48)
-
(48)
Dividend paid (note 9)
-
-
-
-
-
(14,319)
(14,319)
Balance at 31 March 2020 (restated)
2,553
84,612
(75,383)
434
2,263
153,878
168,357
(Loss) for the period
-
-
-
-
-
(537)
(537)
Share-based payments
-
-
-
-
85
-
85
Other comprehensive income
-
-
-
(6)
-
-
(6)
Deferred tax debited directly to equity
-
-
-
-
-
(70)
(70)
Issue of shares
9
-
-
-
-
-
9
Balance at 30 September 2020
2,562
84,612
(75,383)
428
2,348
153,271
167,838
Profit for the period
-
-
-
-
-
20,782
20,782
Share-based payments
-
-
-
-
167
-
167
Dividend paid (note 9)
-
-
-
-
-
(18,826)
(18,826)
Balance at 31 March 2021
2,562
84,612
(75,383)
428
2,515
155,227
169,961
Consolidated Statement of Cash Flows
for the six month period ended 31 March 2021 (unaudited)
6 months to 31 March 2021
6 months to 31 March 2020
12 months to 30 September 2020
(Restated - note 3)
Notes
£'000
£'000
£'000
Cash flows from operating activities
Cash (outflow)/inflow from operations
11
(35,467)
(12,975)
54,868
Interest received
1
200
245
Interest paid
(3,658)
(3,300)
(6,792)
Tax paid
(1,641)
(5,211)
(10,035)
Net cash (outflow)/inflow from operating activities
(40,765)
(21,286)
38,286
Cash flows from investing activities
Acquisition of property, plant and equipment
(763)
(672)
(317)
Proceeds on disposal of property, plant and equipment
-
19
69
Cash flow from joint venture interest
-
-
812
Net cash outflow from investing activities
(763)
(653)
564
Cash flows from financing activities
Dividend paid
9
(18,826)
(14,319)
(14,319)
Proceeds from exercise of share options
-
-
9
Payment of principal portion of lease liabilities
(2,768)
(2,998)
(6,089)
New other interest- bearing loan
261
-
-
Payment of capital element of other interest-bearing loans
(164)
(526)
(1,034)
Drawdown of RCF
19,808
1,302
20,843
Repayment of bank loans
(2,569)
(4,778)
(18,499)
Bank loan arrangement fees
-
-
(900)
Net cash outflow from financing activities
(4,258)
(21,319)
(19,989)
Net (decrease)/increase in cash
(45,786)
(43,258)
18,861
Cash and cash equivalents at beginning of the period
134,513
115,652
115,652
Cash and cash equivalents at end of the period
12
88,727
72,394
134,513
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 2021 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 2021 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 20 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 17 May 2021.
2. Basis of preparation
The interim financial statements have been prepared based on IFRS that are expected to exist at the date on which the Group prepares its financial statements for the year ended 30 September 2021. To the extent that IFRS at 30 September 2021 does 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 2020. There has been no significant change in any risk management policies since the date of the last audited 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 2020.
Restatement of results for six months to 31 March 2020
After the release of the half year results to 31 March 2020, several changes were made in relation to the initial application of the new accounting standard, IFRS 16, and incorporated into the audited full year results for the year ending 30 September 2020. The comparative figures to 31 March 2020 have now been restated to reflect these amendments, which relate to the Group's six historic student accommodation sale and leaseback properties. These assets had been reported in the H1-2020 consolidated statement of financial position as 'right of use' assets, but have been reclassified as 'investment property (leased) assets' at 30 September 2020. This better reflects the asset classification requirements of IAS 40 'Investment Property' when applied in conjunction with IFRS 16. In addition, a change was made to the Incremental Borrowing Rates ("IBRs") used to calculate the initial values for the investment property (leased) assets and associated lease liabilities, which had the effect of reducing their opening values. The IBRs were increased to better reflect the likely borrowing rate which would be paid over a similar term to the underlying long leases. Presentational changes have also been made to the consolidated statement of financial position at 31 March 2020 in relation to provisions for onerous leases, which are now reported within investment property (leased) assets as impairment provisions; and to prepayment and accrual balances relating to the leases which are now included in the lease asset and liability values.
The restatements for these changes are immaterial on total comprehensive income, reduce net equity by £0.5 million and have no impact on cash. The detailed changes to each affected financial statement line items are as follows:
Impact on consolidated statement of comprehensive income due to increase in IBR:
6 months to 31 March 2020 Increase/(decrease)
£'000
Cost of sales
(420)
Finance costs
324
Income tax expense
43
Net impact on total comprehensive income for the period
53
Impact on basic and diluted earnings per share (EPS) due to the correction relating to the IBR:
6 months to 31 March 2020 Increase
Pence
Basic earnings per share
0.021
Diluted earnings per share
0.021
Impact on consolidated statement of financial position as at 31 March 2020:
Reclassification of student sale and leaseback properties
Increase in IBR
Reclassification of onerous lease provision, prepayments and accruals.
Total Increase/ (decrease)
£'000
£'000
£'000
£'000
Investment property (leased)
121,775
(8,256)
(3,457)
110,062
Right of use assets
(121,775)
-
-
(121,775)
Deferred tax asset
-
28
91
119
Trade and other receivables
-
-
(593)
(593)
Total assets
-
(8,228)
(3,959)
(12,187)
Trade and other payables
-
-
(141)
(141)
Lease liabilities
-
(8,110)
-
(8,110)
Current tax liabilities
-
30
-
30
Provisions
-
-
(3,457)
(3,457)
Total liabilities
-
(8,080)
(3,598)
(11,678)
Net impact on equity
-
(148)
(361)
(509)
Impact on consolidated statement of cash flows due to the correction relating to the increase in IBR:
6 months to 31 March 2020 Increase/(decrease)
£'000
Cash outflow from operations
(83)
Interest paid
324
Payment of principal portion of lease liabilities
(241)
Net impact on cash flows for the period
-
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 2021 (unaudited)
Student accommodation
Build to rent
Residential
Accommodation management
Corporate
Total
£'000
£'000
£'000
£'000
£'000
£'000
Segmental revenue
104,759
59,112
10,670
3,816
63
178,420
Segmental gross profit
25,215
12,397
1,490
2,228
1
41,331
Administration expenses
-
-
-
(1,708)
(10,547)
(12,255)
Finance income
-
-
-
-
1
1
Finance costs
-
-
-
-
(3,239)
(3,239)
Profit/(loss) before tax
25,215
12,397
1,490
520
(13,784)
25,838
Taxation
-
-
-
-
(5,056)
(5,056)
Profit/(loss) for the period
25,215
12,397
1,490
520
(18,840)
20,782
Inventory and WIP
56,700
90,656
31,316
-
10,333
189,005
6 months to 31 March 2020 (unaudited) (Restated - note 3)
Student accommodation
Build to rent
Residential
Accommodation management
Corporate
Total
£'000
£'000
£'000
£'000
£'000
£'000
Segmental revenue
120,766
41,241
19,613
4,147
(95)
185,672
Segmental gross profit
29,570
6,648
3,743
2,565
(227)
42,299
Administration expenses
-
-
-
(1,804)
(10,878)
(12,682)
Finance income
-
-
-
-
200
200
Finance costs
-
-
-
-
(3,084)
(3,084)
Profit/(loss) before tax
29,570
6,648
3,743
761
(13,989)
26,733
Taxation
-
-
-
-
(5,104)
(5,104)
Profit/(loss) for the period
29,570
6,648
3,743
761
(19,093)
21,629
Inventory and WIP
22,067
42,807
33,599
-
10,167
108,640
The comparative information for the 6 months to 31 March 2020 has been re-presented in a way which is consistent with the internal reporting provided to the chief operating decision-maker. Revenue of £4,698,000 and gross profit of £689,000 has been transferred from the residential to the build to rent segment.
Year ended 30 September 2020
Student accommodation
Build to rent
Residential
Accommodation management
Corporate
Total
£'000
£'000
£'000
£'000
£'000
£'000
Segmental revenue
226,026
93,991
26,268
7,586
250
354,121
Segmental gross profit
54,285
14,884
4,042
4,540
(1,835)
75,916
Administration expenses
-
-
-
(3,432)
(20,817)
(24,249)
Exceptional costs
-
-
-
-
(20,437)
(20,437)
Share of operating profit in joint ventures
199
-
-
-
-
199
Finance income
-
-
-
-
251
251
Finance costs
-
-
-
-
(6,366)
(6,366)
Profit/(loss) before tax
54,484
14,884
4,042
1,108
(49,204)
25,314
Taxation
-
-
-
-
(4,222)
(4,222)
Profit/(loss) for the period
54,484
14,884
4,042
1,108
(53,426)
21,092
Inventory and WIP
30,706
53,964
30,656
-
10,334
125,660
5. Disaggregated revenue information
6 months to 31 March 2021 (unaudited)
Student accommodation
Build to rent
Residential
Accommodation management
Corporate
Total
£'000
£'000
£'000
£'000
£'000
£'000
Type of goods or service
Construction contracts or development agreements
99,283
58,405
-
-
63
157,751
Sale of land
-
-
-
-
-
-
Sale of completed property
-
-
10,670
-
-
10,670
Rental income
5,476
707
-
-
-
6,183
Accommodation management
-
-
-
3,816
-
3,816
Total revenue from contracts with customers
104,759
59,112
10,670
3,816
63
178,420
Timing of revenue recognition
Goods transferred at a point in time
-
-
10,670
-
-
10,670
Services transferred over time
104,759
59,112
-
3,816
63
167,750
Total revenue from contracts with customers
104,759
59,112
10,670
3,816
63
178,420
6 months to 31 March 2020 (unaudited)
Student accommodation
Build to rent
Residential
Accommodation management
Corporate
Total
£'000
£'000
£'000
£'000
£'000
£'000
Type of goods or service
Construction contracts or development agreements
87,460
40,554
-
-
(95)
214,367
Sale of land
-
-
-
-
-
93,557
Sale of completed property
23,502
-
19,613
-
-
40,528
Rental income
9,804
687
-
-
-
18,873
Accommodation management
-
-
-
4,147
-
7,460
Total revenue from contracts with customers
120,766
41,241
19,613
4,147
(95)
185,672
Timing of revenue recognition
Goods transferred at a point in time
23,502
-
19,613
-
-
43,115
Services transferred over time
97,264
41,241
-
4,147
(95)
142,557
Total revenue from contracts with customers
120,766
41,241
19,613
4,147
(95)
185,672
Year ended 30 September 2020
Student accommodation
Build to rent
Residential
Accommodation management
Corporate
Total
£'000
£'000
£'000
£'000
£'000
£'000
Type of goods or service
Construction contracts or development agreements
181,248
92,618
-
-
250
274,116
Sale of land
5,558
-
-
-
-
5,558
Sale of completed property
23,502
-
26,268
-
-
49,770
Rental income
15,718
1,373
-
-
-
17,091
Accommodation management
-
-
-
7,586
-
7,586
Total revenue from contracts with customers
226,026
93,991
26,268
7,586
250
354,121
Timing of revenue recognition
Goods transferred at a point in time
29,060
-
20,961
-
-
50,021
Services transferred over time
196,966
93,991
5,307
7,586
250
304,100
Total revenue from contracts with customers
226,026
93,991
26,268
7,586
250
354,121
6. Exceptional costs
6 months to 31 March 2021
6 months to 31 March 2020
12 months to 30 September 2020
£'000
£'000
£'000
COVID-19 costs
COVID-19 additional costs of on-site working and in completing developments
-
-
(2,659)
Waiver of academic year 2019/20 final term rents due on leased student accommodation assets due to lockdown measures
-
-
(1,086)
Impairment of the right-of-use carrying value of leased student accommodation assets due to reduced 2020/21 student occupancy
-
-
(1,892)
Total COVID-19 costs
-
-
(5,637)
Fire safety recladding works
-
-
(14,800)
Total exceptional costs
-
-
(20,437)
7. 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 2021 of 19.6 % to the profit for the period.
8. Earnings per share
Basic earnings per share ("EPS") amounts are calculated by dividing the net profit or loss for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares in issue during the year.
The following table reflects the income and share data used in the basic EPS computations:
6 months to 31 March 2021
6 months to 31 March 2020
12 months to 30 September 2020
£'000
£'000
£'000
Profit for the period attributable to ordinary equity holders of the parent
20,782
21,629
21,092
Adjusted profit for the period attributable to ordinary equity holders of the parent (excluding exceptional (costs)/income after tax)
20,782
21,629
37,646
Number of shares
Number of shares
Number of shares
Number of ordinary shares for basic earnings per share
256,163,459
255,722,099
255,795,659
Adjustments for the effects of dilutive potential ordinary shares
151,310
1,016,400
367,800
Weighted average number for diluted earnings per share
256,314,769
256,738,499
256,163,459
Pence
Pence
Pence
Basic earnings per share
Basic profit for the period attributable to ordinary equity holders of the parent
8.113
8.458
8.246
Adjusted basic earnings per share (excluding exceptional (costs)/income after tax)
Adjusted profit for the period attributable to ordinary equity holders of the parent
8.113
8.458
14.717
Diluted earnings per share
Basic profit for the period attributable to diluted equity holders of the parent
8.108
8.425
8.234
Adjusted diluted earnings per share (excluding exceptional (costs)/income after tax)
Adjusted profit for the period attributable to diluted equity holders of the parent
8.108
8.425
14.696
9. Dividends
6 months to 31 March 2021
6 months to 31 March 2020
12 months to 30 September 2020
£'000
£'000
£'000
Final dividend paid in February 2020 of 5.6 pence
-
14,319
14,319
Final dividend paid in February 2021 of 7.35 pence
18,826
-
-
18,826
14,319
14,319
An interim dividend of 2.6 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 £6,660,000 has not been recognised at that date. At 31 March 2021 the Company had distributable reserves available of £81,990,000.
10. Leases
Investment property (leased)
Office Leases
Motor Vehicle Leases
Total
£'000
£'000
£'000
£'000
Cost
At 30 September 2019
158,231
9,411
1,597
169,239
Additions/adjustment
3,162
-
283
3,445
Disposals
-
-
(248)
(248)
At 31 March 2020 (restated)
161,393
9,411
1,632
172,436
Additions
-
-
30
30
Disposals
-
-
(230)
(230)
At 30 September 2020
161,393
9,411
1,432
172,236
Additions
-
720
13
733
Disposals
-
-
(321)
(321)
At 31 March 2021
161,393
10,131
1,124
172,648
Depreciation
At 30 September 2019
44,550
4,203
875
49,628
Charge for the period
3,261
396
305
3,962
Disposals
-
-
(138)
(138)
At 31 March 2020 (restated)
47,811
4,599
1,042
53,452
Charge for the period
3,261
395
247
3,903
Disposals
-
-
(203)
(203)
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
Impairment
At 30 September 2019
3,457
-
-
3,457
Charge for the period
-
-
-
-
At 31 March 2020 (restated)
3,457
-
-
3,457
Charge for the period
2,241
-
-
2,241
At 30 September 2020
5,698
-
-
5,698
Charge for the period
-
-
-
-
At 31 March 2021
5,698
-
-
5,698
Net Book Value
At 31 March 2021
101,475
4,713
210
106,398
At 30 September 2020
104,623
4,417
346
109,386
At 31 March 2020 (restated)
110,125
4,812
590
115,527
At 30 September 2019
110,224
5,208
722
116,154
11. Reconciliation of profit before tax to net cash flows from operating activities
6 months to 31 March 2021
6 months to 31 March 2020
12 months to 30 September 2020
(Restated - note 3)
£'000
£'000
£'000
Profit before tax
25,838
26,733
25,314
Depreciation of leased investment properties and right-of-use assets
3,695
3,903
7,865
Depreciation of plant and equipment
338
436
998
Impairment of leased investment properties
-
-
2,241
Amortisation of intangible assets
280
280
560
(Profit) on sale of plant and equipment
-
(3)
(24)
Finance income
(1)
(200)
(245)
Finance costs
3,239
3,084
6,366
Share of profit in joint ventures
-
-
(199)
(Increase)/decrease/(increase) in inventory and work in progress
(63,345)
25,586
8,566
Interest capitalised in development land, inventory and work in progress
419
216
465
(Increase)/decrease in contract assets
2,840
(53,633)
(15,944)
(Increase)/decrease in trade and other receivables
61
(7,093)
(10,786)
Increase/(decrease) in contract liabilities
(2,430)
(702)
3,803
Increase/(decrease) in trade and other payables
(5,675)
(11,534)
15,987
Increase/(decrease) in provision for fire safety cladding works
(893)
-
9,864
Increase/(decrease) in share-based payment reserve
167
(48)
37
Net cash (outflow)/inflow from operating activities
(35,467)
(12,975)
54,868
12. Analysis of net cash/(debt)
31 March 2021
31 March 2020
30 September 2020
£'000
£'000
£'000
Cash at bank and in hand
88,727
72,394
134,513
Other interest-bearing loans
(728)
(866)
(631)
Bank loans
(56,275)
(34,016)
(39,036)
Net cash before deducting lease liabilities
31,724
37,512
94,846
Lease liabilities
(131,683)
(137,647)
(134,453)
Net debt
(99,959)
(100,135)
(39,607)
13. Employee Benefits - long-term incentive plans
In January 2021, 1,230,560 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) and Total Shareholder Return (TSR) performance as follows:
TSR (50% of award)
% of TSR award vesting1
250 pence or less
0%
325 pence or greater
100%
EPS growth (50% of award)
% of EPS award vesting1
10% p.a. or less
0%
20% p.a. or more
100%
1Vesting on a straight-line basis between target levels
The fair value of share awards granted subject to EPS conditions is 194.8 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
195.8 pence
Exercise price
1 penny
Expected term
3 years
Risk-free interest rate
(0.07)%
Are dividend equivalents receivable for the award holder?
Yes
Expected volatility
31.3%
This resulted in an estimated fair value for an award with TSR performance conditions of 63.78 pence. For the six months ended 31 March 2021, the amount charged to the statement of comprehensive income and credited to share based payment reserve was £167,575 (31 March 2020: (£47,765)).
- Ends -
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