Watkin Jones plc
(the ‘Group’)
Full Year Results for the year ended 30 September 2024
Resilient performance reflected in improved profitability and cash position
The Group announces its annual results for the year ended 30 September 2024 (‘FY24’).
| Adjusted Results (1), (2) | Statutory Results | |||
| FY24 | FY23 | FY24 | FY23 | |
| Revenue | £362.4m | £413.2m | £362.4m | £413.2m |
| Gross profit | £33.8m | £34.9m | £33.8m | £34.9m |
| Operating profit | £10.6m | £0.2m | £3.6m | (£38.0m) |
| Profit / (loss) before tax | £9.2m | (£2.9m) | £(0.3m) | (£42.5m) |
| Basic earnings / (loss) per share | 3.5p | (0.6p) | 0.7p | (12.7p) |
| Dividend per share | – | 1.4p | – | 1.4p |
| Adjusted net cash3 | £83.4m | £43.9m | ||
(1) For FY24 Adjusted Operating Profit, Adjusted Profit before tax and Adjusted Earnings per share are calculated before the impact of exceptional charges of £7.0 million provided for remedial costs associated with building safety and £2.5 million for the unwinding of the discount rate on the building safety provision.
(2) For FY23 Adjusted Operating Profit, Adjusted Profit before tax and Adjusted Earnings per share are calculated before the impact of exceptional charges of £35.0 million provided for remedial costs associated with building safety, £3.1 million of restructuring costs and £1.5 million for the unwinding of the discount rate on the building safety provision.
(3) Adjusted net cash is stated after deducting interest bearing loans and borrowings, but before deducting IFRS 16 operating lease liabilities of £40.8 million at 30 September 2024 (30 September 2023: £45.2 million).
FY24 Highlights – Resilient performance
· Revenue of £362.4 million delivered predominantly from previously sold developments on site, supported by two further developments sold in the year and a successful first year of our Refresh offering.
· Significant improvement in adjusted operating profit from £0.2 million to £10.6 million, reflecting:
– Two schemes sold in the period, including our Stratford joint venture, which enables the Group to benefit from a base profit and future value generated by the scheme;
– Successful completion of six schemes, generating gross margins in line with guidance; and
– Benefit of cost saving actions implemented in FY23.
· Continued focus on cash generation resulted in higher period end gross and adjusted net cash balances of £97.0 million and £83.4 million, respectively.
· Pipeline successes:
– Achieved planning for a further c.2,600 PBSA beds, across four schemes; and
– Secured two further PBSA development sites, subject to planning.
· The net provision for building safety works has decreased by £6.7 million to £48.0 million, reflecting:
– Cash outflow of £16.2m, in line with expectations, including completion of remediation works on three buildings; and
– An additional provision of £7.0 million, covering certain additional properties and changes in scope on several properties already in the provision.
· Continuing the approach adopted at the FY23 year end, the Board is prioritising the maintenance of financial flexibility and consequently is not declaring a dividend; the Board will keep this approach under review.
Outlook – Building on our resilience in a challenging investment market
· Investment market gradually showing signs of recovery, though pace is likely linked to further reductions in gilt and interest rates.
· Medium term outlook remains strong with excellent sector fundamentals continuing to drive investor sentiment and allocations.
· In the near term we continue to focus on the factors within our control:
– Successfully delivering our in-build projects;
– Carefully managing our costs and cash; and
– Continuing to broaden our revenue base with new sources of income.
· c.£300 million of contractually secure forward sold revenue as at 30 September 2024, within a total pipeline of almost £2 billion.
· Secured a new development partnership transaction in December 2024, to deliver 295 homes in St Helens, and letter of intent signed on two further schemes.
· Encouraging progress with Refresh following a successful first year, with an active pipeline being pursued.
· HSBC £50m banking facility extended by two years.
· The Group remains focussed on developing its long-term pipeline, with new acquisitions and planning consents in order to capitalise on a market recovery, and continues to explore innovative structuring and development funding arrangements to enable this.
Alex Pease, Chief Executive Officer of Watkin Jones, said: “The Group produced a resilient operational performance during FY24, in what remains a difficult investment market. The slow pace of interest rate cuts and timing of the general election meant that, whilst investor sentiment remained positive, transactional activity has not improved as quickly as expected. We responded by focusing on the factors within our control: successfully delivering our in-build projects and carefully managing our costs. We have also continued to broaden our revenue base, opening up new sources of income through our Refresh and development partnership initiatives.
“While the investment market has continued to be challenging, the sectors in which we operate remain attractive. PBSA is still undersupplied and BTR offers a key solution to the UK’s housing shortage, helping to accelerate the delivery of new homes and fostering communities. As a market-leading developer with a strong track record, Watkin Jones is an ideal conduit for institutional capital. Looking to the medium term, we believe that there is an excellent opportunity in the sector and that we are well placed to take advantage of that.”
Analyst meeting
A meeting for analysts will be held in person at 09.30am today, Thursday 23rd January at the offices of MHP Group, 60 Great Portland Street, London W1W 6RT. A copy of the Full Year results presentation is available on the Group’s website: http://www.watkinjonesplc.com.
An audio replay of the meeting with analysts will be available after 12pm today at the following link:
https://stream.brrmedia.co.uk/broadcast/67616bdd139c6b2fd9c48681/6790cc332fca8d88fde0f43b
For further information:
| Watkin Jones plc | ||
| Alex Pease, Chief Executive Officer | Tel: +44 (0) 20 3617 4453 | |
| Simon Jones, Chief Financial Officer | www.watkinjonesplc.com | |
| Peel Hunt LLP (Nominated Adviser & Joint Corporate Broker) | Tel: +44 (0) 20 7418 8900 | |
| Mike Bell / Ed Allsopp | www.peelhunt.com | |
| Jefferies Hoare Govett (Joint Corporate Broker) | Tel: +44 (0) 20 7029 8000 | |
| James Umbers / Paul Bundred | www.jefferies.com | |
Media enquiries:
| MHP Group | |
| Reg Hoare / Rachel Farrington | Tel: +44 (0) 7801 894577 |
| watkinjones@mhpgroup.com | www.mhpgroup.com |
Chief Executive Officer’s review
The Group produced a resilient operational performance in FY24, in the context of a difficult investment market. The slow pace of interest rate cuts and the surprise timing of the general election meant that whilst investor sentiment remained positive, transactional activity on developments has not improved as quickly as expected, and we completed fewer forward sales as a result. We responded by focusing on the factors within our control: successfully delivering our in-build projects, carefully managing our costs and further increasing our resilience. In particular, we have broadened our revenue base, opened up new sources of income and worked hard to protect our cash position.
While the investment market has continued to be challenging, the sectors in which we operate remain attractive. PBSA is still undersupplied and BTR offers a key solution to the UK’s housing shortage, helping to accelerate the delivery of new homes and fostering communities. Rents in both sectors continue to grow. We are also encouraged that the new government is pro-housebuilding and wants to unblock the planning system to meet its ambitious housing targets.
Performance
During FY24 we completed five projects and handed over the first phase of a sixth. All finished on time and materially to budget, despite being procured and delivered in a very difficult construction environment, with high build cost inflation and supply chain disruption during
FY22 and FY23. Our in-build sites are all progressing to plan. I am pleased that in the year we were able to close two forward sale transactions of our PBSA schemes at Stratford in East London and at Gas Lane in Bristol.
Group revenue was £362.4 million (FY23: £413.2 million), down 12.3%. In part this reflected the accounting treatment of the transaction of the Stratford development with Housing Growth Partnership (HGP), discussed later in this report. While it shares many of the characteristics of a forward sale, it was accounted for as the disposal of a subsidiary rather than a land sale. This excluded it from revenue, which would otherwise have been £24.8 million higher.
Gross profit reduced slightly to £33.8 million (FY23: £34.9 million) although operating profit before exceptional items was up materially at £10.6 million (FY23: £0.2 million).
BTR was again the largest contributor to our revenue but the improved profitability of our PBSA developments was the main driver of our increased profits. We were also pleased by the initial results of our Refresh business (see below), which, from a standing start, doubled our budget targets with revenue of £10.9 million at a strong gross margin of 13.8%.
At the year end, we achieved a better cash position than we forecast, with an adjusted net cash position of £83.4 million (30 September 2023: £43.9 million) and total cash and available facilities of £143.2 million (30 September 2023: £103.6 million), meaning our balance sheet remains strong.
Strategy
We have continued to successfully implement our three-part strategy, which aims to diversify our sources of income in residential to rent, drive operational efficiency and ensure we are a responsible business.
Diversify our sources of income
Forward sales remain central to our model but with limited activity during the period, we have been proactive in leveraging
our expertise in the residential for rent sector by developing new approaches, broadening our offering and diversifying our income streams. We are pursuing further ‘Development Partnerships’ with clients, looking to accelerate delivery and revenues by acquiring sites with planning consent or developing a consented site our partner already owns. Also, post FY24 close, we signed a development partnership with Torus to build 295 new affordable homes in Moss Nook, St Helens. This is another very positive example of us diversifying our sources of income.
The joint venture with HGP is an example of us exploring and executing alternative structures and in the case of that deal we have a significant opportunity to outperform our underwriting whilst managing risk.
We will continue to consider differing types of transaction which give us access to capital, and the potential to charge fees, whilst leveraging our leading development and construction expertise in the sector. Such flexibility should enable us to develop our pipeline and place the business in a strong position to capitalise on the opportunities that arise when the market recovers.
We will continue to keep an open mind when exploring the funding options available to us, in order to provide a robust business in the long-term interests of our stakeholders.
Our new Refresh business stream, meanwhile, has turned a challenge into an opportunity, as clients saw the high
standard of our building safety remediation work and asked us to apply that skill and experience to remediate their other assets.
This service can be further expanded to include a fuller refurbishment and repositioning of an asset. We are leveraging our wide network of institutional contacts to grow the business and the volume of assets requiring remediation and the level of interest suggests we can achieve meaningful revenues and further diversify our income. To position ourselves to take advantage of this opportunity, we have created a dedicated team to provide this offering, which includes refurbishment and redevelopment. This team works closely with Fresh, who provide insight on resident needs, which can then be incorporated into our proposal.
Driving operational efficiency
Driving efficiencies was a key focus in FY24, as we began the second phase of our programme to deliver excellence through operational improvement. The aim is to further improve productivity and efficiency while reducing risk, ensuring our processes, governance and decision-making work well and set us up to outperform. As part of this, we have redesigned our Delivery function to ensure we have the right resources in the right place, and to give our people the capacity to lead. Richard Harris, Managing Director of Group Delivery, is retiring in January 2025 and we have taken the opportunity to split his role. We have promoted and appointed to the executive team Gwyn Pritchard and Michael Bunyan to head up Construction and Project Services respectively. Richard has mentored them as part of our succession planning, to ensure a smooth transition. I want to thank Richard for his important contribution to the Group. We have also added to the executive team in the year with the appointment of Simon Jones as Chief Financial Officer and Adam McGhin as Chief Legal Officer & Company Secretary. Both Simon and Adam have substantial experience in the real estate sector and their leadership will prove key in driving forward the business to achieve our strategic goals.
Build cost inflation reduced during FY24 and we also benefited from our efforts to mitigate rising costs, including developing stronger relationships with our supply chain. We have created excellent partnerships with suppliers in FY24 to further improve our buying power and held our second supplier conference, with an enthusiastic reception as we launched Refresh to them.
The Fresh division continues to provide a reliable income stream to the business. Having a management arm is also hugely accretive to our understanding of the sector and what really matters to residents when living in PBSA and BTR buildings. We anticipate further opportunity to increase Fresh’s market share over the coming years as competitors exit the market.
Being a responsible business
This has been a tough period for our people but we have worked hard to keep them engaged and motivated, and I am pleased that we have retained our key personnel and skillsets. We have also maintained our exceptional health and safety record, substantially outperforming the peer group average.
Refresh captures everything good about sustainability. It gives people a better, safer place to live, helps improve the surrounding area and is good for the planet, as we can extend the building’s useful life and avoid the substantial carbon emissions from replacing it. We also continue to reduce our own environmental impact. For example, we have redesigned the standard student bedroom and reduced the associated Scope 3 emissions by 10%. We are also diverting 99.15% of waste from landfill.
We made good progress with building safety remediation in the year, completing three projects at a cash cost in line with our expectations. The number of buildings in scope, the extent of the work required and discussions with building owners on reimbursement all continue to evolve, and the Board took the decision to recognise an additional £7.0 million liability during the year.
People
Our people are our greatest strength. The expertise and market-leading position of the business flows directly from the skills and quality of our people. When I carry out site visits throughout year, I am always struck and inspired by the knowledge and commitment of our staff. Their expertise is fundamental in continuing to deliver our strategy for the benefit of the residents and all of our stakeholders.
Outlook
We see good prospects for our capital- light forward sale model. The attractions of our end markets mean there is significant capital wanting to allocate to the residential to rent sector but too few built assets to satisfy this demand. The major shortage of accommodation means new assets are urgently needed and the requirements of the Building Safety Act and focus on ESG performance also mean investors want new, best-in-class assets.
The low number of transactions in FY24 will affect our FY25 results, by delaying revenue from building out schemes we had expected to forward sell. The Group’s performance will be significantly influenced by the evolution in forward fund liquidity over the coming months and, while it is possible to deliver year-on-year progress in FY25, this will require market conditions to improve at a faster pace as we enter the new financial year.
The business will continue to grow our diversification strategies in ‘Refresh’ and ‘Development Partnerships’ across the UK living sectors to provide a resilient base for our traditional transactional and planning-led development activities. We will also continue to assess innovative and alternative real estate funding opportunities if accretive to the scale and speed of growth in the business.
As a market-leading developer with a strong track record, Watkin Jones is an ideal conduit for institutional capital. Further interest rate cuts are forecast, which should improve forward fund liquidity. We are actively sourcing new land for development and are currently marketing a number of schemes, with encouraging investor interest. Looking to the medium term, we believe that there is an excellent opportunity in the sector and that we are well placed to take advantage of that.
Alex Pease
Chief Executive Officer
23 January 2025