Watkin Jones plc
(the ‘Group’)
HY Results for the six months ended 31 March 2023
‘Completion of the first forward fund transaction of FY23 reinforces confidence in recovery in the medium term’
The Group announces its interim results for the half year ended 31 March 2023 (‘HY23’ or ‘the period’)
| Adjusted Results (1), (2) | Statutory Results | |||||
| HY23 | HY22 | Change (%) | HY23 | HY22 | Change (%) | |
| Revenue | £153.9m | £193.0m | (20.3)% | £153.9m | £193.0m | (20.3)% |
| Gross profit | £16.1m | £29.9m | (46.2)% | £16.1m | £29.9m | (46.2)% |
| Operating profit / (loss) | £1.8m | £14.6m | (87.7)% | £0.7m | £(13.4)m | 105.2% |
| Profit / (loss) before tax | £0.3m | £11.4m | (97.4)% | (£0.8)m | £(16.6)m | 95.2% |
| Basic earnings per share | 0.11p | 3.65p | (97.0)% | (0.23)p | (5.20)p | 95.6% |
| Dividend per share | 1.4p | 2.9p | (51.7%)% | 1.4p | 2.9p | (51.7)% |
| Adjusted net cash(3) | £45.3m | £26.8m | 69.0% | |||
(1) For HY23 Adjusted Operating Profit, Adjusted Profit before tax and Adjusted Earnings per share are calculated before the impact of an exceptional charge of £1.1 million for people restructuring costs
(2) For HY22 Adjusted Operating Profit, Adjusted Profit before tax and Adjusted 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
(3) Adjusted net cash is stated after deducting interest bearing loans and borrowings, but before deducting IFRS 16 operating lease liabilities of £47.5 million at 31 March 2023 (31 March 2022: £126.0 million)
Key Highlights
· HY results in line with expectations:
– Revenue of £153.9 million from our forward sold developments which are on site; no new forward sales in the period
– Adjusted operating profit of £1.8m reflecting reduced gross margins in line with previous guidance and additional costs incurred on our Exeter scheme following the liquidation of the third party main contractor and the subsequent step in by Watkin Jones
– Net cash balance of £45.3 million
– Interim dividend of 1.4p, reflecting building confidence in the H2 performance
· Forward fund market continuing to recover:
– Underlying residential for rent market continues to perform well with both strong tenant demand and rental growth in our core PBSA and BTR sectors
– Announced today the forward sale of an 819 bed PBSA scheme in Bristol to KKR; pricing in line with margin guidance and delivering a FY23 profit contribution of c.£5 million and a day 1 net cash receipt of c. £25 million. The scheme will complete in 2024 and will be managed by Fresh.
– Currently we have a further five forward sales in the market, including one significant transaction. Two of these assets are under offer.
· Operational resilience continues to be demonstrated:
– 12 current developments on track with five due to achieve practical completion this summer
– £650 million contractually secure forward sold revenue to come through over the next two to three years
– Build costs and supply chain well managed throughout the period. Starting to see build inflation reduce which should give rise to future buying gains
– Good progress in all phases of our development model including land acquisitions and moving schemes through planning.
Outlook: H2
· Expected that H2-23 will be materially stronger than H1-23, with forward sales adding to performance from in-build developments
· Currently targeting up to five further forward sales in FY23, with full year earnings performance dependent on concluding these transactions in what remains a volatile environment, as well as finally agreed pricing and phasing terms
· While pricing on assets currently in the market is broadly in line with expectations, we are seeing purchasers looking for structures in the near term that weight profit more significantly to the latter stages of the development, to better align with their own funding requirements.
· Whilst the forward fund market is in the early stages of recovery, we have taken the decision to exercise caution in the short term and not accelerate pipeline assets on to our balance sheet in readiness for sale, which will result in c. £15 million of expected profit contribution from FY23 moving into FY24
Outlook: Longer term
· Encouraged by the continued recovery in the forward fund market, but will continue to take a risk-managed approach to managing our development pipeline through this period of volatility, which has resulted in a reduced pipeline value from c. £2 billion to c.£1.7 billion
· Starting to see attractive new land acquisition opportunities which support our long run target margins. Currently in exclusivity on c.£500 million expected revenue to come from exciting new development opportunities.
· This, combined with our current operational performance and the expected normalisation of the forward fund market reinforces confidence in the future
Richard Simpson, Chief Executive Officer of Watkin Jones, said:
“We are pleased to have delivered a half year result in line with expectations, managing build costs and our supply chain well. We are also encouraged by the early signs of build inflation reducing which should lead to future buying gains.
“We look to the second half of the year with confidence and are particularly pleased to have secured the forward sale transaction in Bristol and expect to complete further forward sales before the year end. The overall recovery in the forward fund market is encouraging, however the Group will maintain a cautious approach to managing the pipeline. In addition to growing confidence in the sector, we are seeing attractive land acquisition opportunities and these coupled with our excellent operational performance leave us confident for the future.”