TIDMWJG
RNS Number : 0733N
Watkin Jones plc
15 January 2019
For immediate release 15 January 2019
This announcement contains inside information
Watkin Jones plc
('Watkin Jones', the 'Group' or the 'Company')
Full year results for the year ended 30 September 2018
'Record results and continued momentum'
Watkin Jones plc (AIM:WJG), a leading UK developer and
constructor of multi-occupancy residential property assets, with a
focus on the student accommodation and build to rent sectors,
announces its annual results for the year ended 30 September 2018
('FY18'). The Board is pleased to report a successful financial
year with revenues and underlying earnings (which excludes
non-recurring profit items) slightly ahead of its previous
expectations.
Financial Highlights
FY18 FY17 Change (%)
Revenue GBP363.1 million GBP301.9 million +20.3%
Gross profit GBP72.4 million GBP63.5 million +14.0%
Net cash GBP80.2 million GBP41.0 million +95.5%
Operating profit GBP53.9 million GBP42.7 million +26.3%
Adjusted operating profit(1) GBP49.6 million GBP42.7 million +16.2%
Basic earnings per share 17.3 pence 14.0 pence +23.6%
Profit before tax GBP54.3 million GBP43.3 million +25.6%
Adjusted profit before tax(1) GBP50.1 million GBP43.3 million +15.7%
Adjusted basic earnings per share(1) 16.0 pence 14.0 pence +13.8%
EBITDA GBP56.3 million GBP45.2 million +24.6%
Adjusted EBITDA(2) GBP52.0 million GBP45.2 million +15.1%
Dividend per share 7.6 pence 6.6 pence +15.2%
Notes
1. For FY18, adjusted operating profit, adjusted profit before
tax and adjusted earnings per share are calculated before the
impact of an exceptional gain of GBP4.3 million. This gain relates
to compensation for the reduction in scope of services and early
termination of management contracts for assets sold by the Curlew
Student Trust (the 'Trust') and the Group's share of profit from
the sale of the assets paid on its carried interest investment in
the Trust. For FY17, there is no difference between the adjusted
and unadjusted measures.
2. EBITDA comprises operating profit from continuing operations
plus the Group's profit from joint ventures, adding back charges
for depreciation and amortisation. For FY18, adjusted EBITDA is
stated before the exceptional gain of GBP4.3 million. For FY17,
there is no difference between EBITDA and adjusted EBITDA.
-- Strong revenue and gross profit growth driven by student accommodation development
-- Robust gross margin of 20.0% (FY17: 21.0%), in line with our
expectations and reflecting the high-quality locations of our
student accommodation developments
-- Adjusted profit before tax(1) increased by 15.7% to GBP50.1
million and adjusted basic earnings per share(1) increased by 13.8%
to 16.0 pence
-- Proposed final dividend of 5.13 pence per share, to give a
total dividend of 7.6 pence per share, up 15.2% and in line with
our progressive dividend policy
-- Good cash performance, with a net cash inflow from operating
activities of GBP54.4 million (FY17: GBP19.2 million) contributing
to net cash at the year end of GBP80.2 million (30 September 2017:
GBP41.0 million)
Business Highlights
Student accommodation development
-- Ten developments (3,415 beds) completed as scheduled in FY18
-- Nine developments (4,490 beds) currently forward sold for delivery in FY19 and FY20
-- Total secured development pipeline of 7,534 student beds
across 17 sites, for delivery between FY19 and FY21
Build to rent development
-- Entered into development agreements with investors to deliver
apartment schemes in Reading and Wembley, for occupation in
FY21
-- Secured development pipeline, including Reading and Wembley,
of approximately 1,500 apartments across seven sites, for delivery
over the period FY20 to FY22
-- The Board continues to explore ways to enhance shareholder
returns from the build to rent opportunity, including the
possibility of establishing a new investment vehicle
Residential
-- Completed 175 sales (FY17: 94 sales), comprising homes and apartments in the North West
Accommodation management
-- At the start of FY19, Fresh Property Group ('FPG') had 15,421
student beds and build to rent apartments under management across
56 schemes (FY18: 16,617 beds and apartments across 57 schemes)
-- Strong underlying growth, including first contracts in
Ireland, offset by the previously announced loss of 4,597 student
beds following a portfolio sale by the Curlew Student Trust
-- In total, FPG contracted to manage 18,258 student beds across 65 schemes by FY21
-- Build to rent apartments under management contracted to
increase from 546 across five schemes to 820 across six schemes by
FY21
Board changes
-- As previously announced, Richard Simpson joined the Board as
Chief Executive Officer on 2 January 2019, with Mark Watkin Jones
stepping down as CEO as of that date and as a Director of the Board
on 15 January 2019
-- Liz Reilly will join as an independent Non-Executive Director from 21 January 2019
Commenting on the results, Richard Simpson, Chief Executive
Officer of Watkin Jones plc, said:
"Today Watkin Jones has reported a record set of full year
results which show that the Group has performed strongly across all
key financial metrics of the business. We continue to have
excellent visibility of our future revenues and earnings, supported
by the pipeline of forward sold and secured sites for student
accommodation. The locations and forward sale values we have
achieved for these schemes underpin our earnings expectations from
this division over the next twelve months and beyond.
Our success in securing the significant build to rent
development agreements in Reading and Wembley, together with our
secured pipeline of sites, is highly encouraging. In addition, our
residential and accommodation management divisions are well
positioned to contribute to progressive earnings growth. As a
result, we remain confident in the outlook for the Group.
On a personal note, having only recently joined the Group, I am
very much looking forward to working closely with my new
colleagues, stakeholders and shareholders to continue to deliver
the excellent performance for which Watkin Jones is known."
CHAIRMAN'S STATEMENT
Performance and dividend
The Group's performance was driven by another excellent result
in our core business, student accommodation development, with
encouraging progress in build to rent. The accommodation management
and residential businesses also did well in FY18 and increased
their contribution. Overall, the Group delivered pleasing revenue
growth, whilst maintaining a strong gross margin, resulting in a
double-digit increase in earnings. The cash performance was also
excellent, reflecting the favourable working capital profile of our
business model and contributing to a robust balance sheet at the
year end.
This year's performance was particularly pleasing in the context
of a challenging market. The political environment in the UK has
increased uncertainty and we are seeing more competition for our
people. As an emerging sector, build to rent is also attracting new
entrants. The outturn for the year is therefore a credit to the
executive team and everyone in Watkin Jones.
We look to reward shareholders through growing dividends and
continue to target a payout which is twice covered by earnings by
FY19. Having paid an interim dividend of 2.47 pence per share, the
Board has recommended a final dividend of 5.13 pence per share, to
give a total for the year of 7.6 pence per share. This represents
15.2% growth over the 6.6 pence per share paid in respect of FY17.
The total dividend is 2.1 times covered by adjusted basic earnings
per share.
The final dividend will be paid on 28 February 2019 to
shareholders on the register at the close of business on 25 January
2019. The shares will go ex-dividend on 24 January 2019.
Board, management and people
In my statement last year I noted that, for personal reasons,
Mark Watkin Jones had advised the Board of his intention to stand
down as Chief Executive Officer. Once again, I want to thank Mark
on behalf of the Board for his immense contribution to the Group,
which has transformed Watkin Jones into the successful business it
is today.
After a thorough search, we were delighted to appoint Richard
Simpson, who joined the Board as CEO on 2 January 2019, to succeed
Mark. Richard is highly regarded in the sector and has significant
senior-level experience, most recently as Group Property Director
of Unite plc, where he worked closely with Watkin Jones on several
occasions. He also chaired the British Property Federation's
cross-sector Student Accommodation Committee from 2013 to 2015. His
knowledge and skills will be invaluable to the Group as we continue
to grow.
Over the last year the transition arrangements have been put in
place to ensure a smooth and orderly handover of CEO
responsibilities. This has been possible through the work we did in
strengthening the senior management structure in the previous year.
This allowed us to broaden the leadership team's responsibilities,
enable effective delegation and support the development of the team
and the layers of management beneath. The leadership team has
responded superbly and their combined strength has made the
transition to a new CEO much easier. Given the strength of the
broader management team and their ability to support Richard in
taking the business forward, the Board and Mark have agreed that
this was the right time for him to step back from the business and
he stepped down from the Board on 15 January 2019. Mark and the
Watkin Jones family remain highly supportive shareholders.
One of the Board's objectives for the year was to appoint an
additional independent Non-Executive Director, who would become
Chair of the Remuneration Committee. We were therefore delighted to
announce that Liz Reilly will be joining the Board on 21 January
2019. She has an outstanding background in human resources and the
real estate sector and is currently Group Human Resources Director
at SEGRO plc, a FTSE 100 Real Estate Investment Trust. Liz adds
valuable skills and experience on the Board and we look forward to
working with her. Her appointment also means that the Non-Executive
Directors will form a majority on the Board, including myself as
Chairman.
We recognise the need to retain and motivate our senior leaders
and after consultation with major shareholders, introduced a new
long-term incentive plan this year. Details of the plan can be
found in the Remuneration Committee report in the Group's FY18
Annual Report.
Looking forward
The Board remains confident in the Group's prospects. We will
continue to grow the business through our focus on student
accommodation, while making further progress in build to rent,
which has the potential to become a second important income stream
for Watkin Jones over the next few years.
Grenville Turner
Independent Non-Executive Chairman
14 January 2019
CHIEF EXECUTIVE OFFICER'S REVIEW
Performance
Revenue from continuing operations rose by 20.3% to GBP363.1
million (FY17: GBP301.9 million). Gross profit was 14.0% higher at
GBP72.4 million (FY17: GBP63.5 million), contributing to a 16.2%
increase in operating profit to GBP49.6 million (FY17: GBP42.7
million), before an exceptional gain of GBP4.3 million. The
pre-exceptional operating margin was 13.7% (FY17: 14.1%). Our
business continues to be strongly cash generative, reflecting the
favourable cash profile of our forward sale model. The operating
cash inflow for the year was GBP54.4 million (FY17: GBP19.2
million).
Revenues benefited by GBP42.6 million from the forward sale of a
portfolio of four development sites, which completed on 30
September 2018. The benefit to margins was less significant, as the
majority of the profit on these developments will flow through over
the coming two years.
Student accommodation development generates the majority of our
revenue and earnings and the business had another strong year,
growing revenue by 22.1% to GBP312.7 million (FY17: GBP256.1
million). We completed all ten schemes on time (3,415 beds) and the
pipeline of development sites remains robust, enabling us to
maintain the high visibility of our future earnings.
We continue to make good progress in build to rent, both with
acquiring sites for our own developments and working with
institutions who are bringing opportunities to us. This allows us
to leverage our development expertise for them and gives us another
avenue for growth in this market. We entered into two significant
development agreements with institutions during the year, to
deliver a 315-apartment scheme for M&G in Reading and a
300-apartment scheme for Lum Chang Holdings Limited and Sin Heng
Chang Private Ltd in Wembley. Our pipeline in this business is now
around 1,500 apartments across seven sites, with several other
opportunities in legal negotiations or under offer.
Fresh Property Group ('FPG') continues to perform well and its
underlying growth was strong. As previously announced, FPG lost
4,597 student beds under management during the year, after our
client the Curlew Student Trust ('CST') sold its Enigma property
portfolio. Despite this, FPG saw a net drop in student beds and
build to rent apartments under management of just 1,196 units,
after winning 14 new student schemes to manage from the start of
the 2018/19 academic year. FPG's compensation for the initial
reduction in scope of services followed by early termination of the
management contracts with CST, plus FPG's share of the profit from
the proceeds of disposal of the assets, paid on its carried
interest in CST, resulted in an exceptional income in the year of
GBP4.3 million.
The residential business also had a good year, completing 175
sales (FY17: 94 sales). We see prospects for this business to grow
by strategically acquiring attractive new small to medium-sized
sites.
Operating review
Student accommodation
Performance
Revenues from student accommodation development rose strongly,
with a 22.1% increase to GBP312.7 million (FY17: GBP256.1 million).
The gross margin achieved on these sales was 19.4% (FY17: 22.1%).
On 30 September 2018 we completed the forward sale of a portfolio
of four student accommodation developments, with the purchaser
entering into an option agreement to acquire a fifth scheme subject
to receipt of planning. The revenue contribution from the forward
sale of the four developments in FY18, which mainly constituted the
land sales, was GBP42.6 million. The margin recognised on the
initial sales value was 11.1%, with the profit on the development
works to be recognised in FY19 and FY20. Adjusting for the impact
of this forward sale, the gross margin for the year was 20.7% and
was above the Group's target of 20%. The comparatively higher
margin in FY17 reflects the exceptional margin contribution from
certain developments completed in that year.
During the year, we completed ten student accommodation
developments across the UK, with a total of 3,415 beds. In doing
so, we maintained our track record of completing 100% of
developments before they were due to be let.
We look to maintain a robust pipeline, for delivery over the
following three years. For FY19, we are scheduled to deliver six
schemes with 2,723 beds. Five of these schemes (2,646 beds) have
been forward sold and the remaining scheme (77 beds) is
secured.
For FY20, we expect to deliver seven schemes (2,606 beds), of
which four schemes (1,844 beds) have been forward sold. The
remaining three schemes (762 beds) are secured. We continue to
build our delivery pipeline for FY21, with four development sites
(circa 2,205 beds) already secured.
In total, at the year end we had a secured development pipeline
of 17 sites, representing 7,534 beds, with an appraised development
value of approximately GBP650 million.
Our expertise and in-house resource have enabled us to continue
to make good progress with obtaining planning consents. During
FY18, we achieved planning consent for six developments (2,932
beds). A further two of our secured sites (798 beds) are
progressing through the planning process.
The market opportunity
The number of full-time students in the UK is a key determinant
of demand for PBSA, since these students are more likely to live
away from home than part-time students. The full-time student
population has steadily grown, increasing by an average of 2% per
year since 2004, to reach around 1.8 million in 2018.
Demand for university places remains substantially greater than
supply. In 2017/18, there were 695,565 applications to UK
universities, of which 533,360 were accepted, resulting in
unfulfilled demand for 162,205 places. UCAS applicants in 2017/18
were 6.4% higher than in 2011/12, the year before tuition fees
increased substantially.
The increase in the student population has occurred despite the
decline in the number of 18 year olds in the UK over recent years.
However, the demographic outlook is positive, with an upturn in
this age group coming through from 2021. Trends in international
students are also positive. Around 404,000 students are from
outside the UK, representing 22.5% of the student population and an
increase of 54% over the period 2006/7 to 2016/17.
Non-EU international student numbers increased by 20% over the
eight years to 2016/17 and they make up circa 15.8% of the
full--time student population. International students from the EU
are a relatively small proportion of the market at 6.7% and we do
not believe that any changes in EU student numbers post-Brexit
would have a noticeable impact on demand for PBSA.
For the start of the 2018/19 academic year, Cushman &
Wakefield reported, in their UK Student Accommodation Report
2018/19, that 627,000 PBSA bed spaces were available. Significant
scope remains for increased penetration of private PBSA,
particularly as universities turn to the private sector for
provision and more students than ever are studying away from home.
New PBSA predominantly comes from the private sector. In 2018, 77%
of new PBSA beds came from the private sector.
As a result of this growth, Cushman & Wakefield reported
that, for the 2018/19 academic year, 47% of beds are operated by
the private sector, up from 43% for 2017/18. The balance is
operated by the universities themselves. It is estimated that 75%
of university-operated accommodation was built pre-1999 and is no
longer fit for purpose or meeting occupier expectation. This is
contributing to a 'flight to quality', with students seeking
modern, high-specification accommodation in the private sector.
A similar 'flight to quality' is also evident in the private
sector, with students increasingly preferring the modern
high-quality PBSA private sector offering to the more traditional
private landlord-run houses of multiple occupation ('HMOs').
This trend is also being driven by the recent fiscal and
planning barriers which make the acquisition of houses for student
letting more costly and difficult for private landlords, which will
lead to a reduction in the number of students living in HMOs.
This accords with the national and local government agendas,
which recognise PBSA as a better solution for housing students and
enables HMOs to be made available to help towards the shortage in
residential accommodation.
PBSA investment
Institutional investors see UK PBSA as a mature, stable and
income-producing asset class. This makes it a defensive investment
and an attractive asset to hold in times of uncertainty. Investors
also favour the continued headline rental growth in the sector,
which Cushman & Wakefield reported stood at 2.8% for the
2018/19 academic year.
As a result of these factors, investor sentiment remains strong
and they are willing to pay premiums for larger portfolios of PBSA
assets, so they can quickly allocate their capital and build scale.
Around GBP4.1 billion of stock was traded in 2017, with a further
GBP2.45 billion traded in the first three quarters of 2018. An
additional GBP0.65 billion of stock is believed to be under offer.
Demand for this stock comes from both domestic and international
institutions.
Competition
Watkin Jones operates across the entire PBSA development
lifecycle. While there are other specialist PBSA developers in the
UK, most do not construct their own developments, few provide asset
management services, and their scale and geographical focus vary
considerably. Some are owner/operators, who invest in assets and
manage developments themselves. Some non-specialist developers have
exposure to PBSA, offering procurement, planning and construction
services. Typically, these firms are either housebuilders or
commercial property developers providing student accommodation
developments.
We believe our focus, market knowledge, geographical coverage
and ability to work across the entire development cycle give us a
competitive advantage. We also believe that we are the only
developer that forward sells all its schemes to investors. This
makes us an attractive conduit for institutions looking to increase
exposure to PBSA and means we do not compete with our institutional
clients by also being an asset owner. These factors make us well
placed to compete effectively.
Build to rent
Performance
In FY18, we continued to make good progress with our build to
rent development pipeline, as well as securing development funding
agreements with institutional investors.
In May 2018, we entered into a development funding agreement
with M&G Real Estate to deliver a build to rent scheme in
Reading. Under the agreement, we will receive GBP68.5 million for
the development works we are to carry out, with completion targeted
for FY21. The scheme is in the Thames Quarter, close to the railway
station and town centre, and comprises 315 high-specification
studio, one, two and three-bed apartments. Residents will benefit
from outstanding facilities, including a triple height atrium,
cinema room, multiple private dining facilities, tenant lounges and
a selection of rooftop terraces, providing views of the River
Thames.
In August 2018, we announced a development agreement with Kelaty
Propco Limited, a joint venture ultimately owned by Singapore
incorporated Lum Chang Holdings Limited and Sin Heng Chang Private
Ltd. The 300-apartment scheme is in Wembley, London and is adjacent
to a 599-bed student accommodation site we acquired from the joint
venture. The development is targeted for completion in FY21.
During the year, we secured planning consents for 147 units at
Holdenhurst Road, Bournemouth, and we also secured consent for 165
units at our site in Sutton.
The other notable event in the year was securing a significant
development site in Uxbridge. We are progressing planning consent
for the site, on which we expect to deliver around 260 units.
Including the developments in Reading and Wembley, we now have a
secured delivery pipeline of approximately 1,500 apartments across
seven sites, which we are targeting to deliver between FY19 and
FY22. In addition, we have several other site opportunities which
are in legal negotiations to acquire or are under offer.
The market opportunity
Build to rent represents an exciting opportunity and continues
to have growing momentum as an asset class.
There is well-known structural supply and demand imbalance in
the UK residential property market, with the supply of new homes in
the UK failing to keep up with demand. Factors driving this demand
include rising life expectancy, an increase in one-person
households and immigration. The government is targeting 300,000 new
dwellings each year but only 195,000 were delivered in 2017/18,
continuing a trend established over many years of delivery falling
short of requirements. In their 2017 House Building Report, Knight
Frank reported that the UK's population is growing at a rate of
200,000-250,000 additional households every year, whilst over the
previous 15 years the supply of new homes has averaged only
160,000, clearly demonstrating the sustained shortage in new
homes.
The shortage of new builds contributes to high house prices in
parts of the country with the strongest local economies, pricing
many people out of the market. As a result, many people are renting
for the medium to long term instead. Young people are increasingly
seeing property renting as a better lifestyle choice, providing
quality of living, whilst maintaining flexibility, in the
expectation of changing jobs more frequently than in the past.
These trends mean that young adults between the ages of 20 to
30, accustomed to the benefits of all-inclusive PBSA, make up a
significant share of the build to rent market. Renters are also
getting older and, across the private rented sector, people in
their late 20s and early 30s make up 46% of renters, up from 27% in
2006.
Rented housing now accounts for 20% of the UK's total housing
stock, but the market is fragmented and dominated by small
buy-to-let landlords, with little over 3% being owned by
institutions. This compares with around 25% in the USA, which is a
more mature institutional market. The proportion of UK rented homes
owned by institutions is therefore expected to rise, as build to
rent offers them an attractive income stream that correlates
strongly with inflation and is considered highly sustainable
through the economic cycle. Investment in the build to rent sector
is estimated to total GBP3 billion in 2018, up 50% since 2017, and
is forecast to reach GBP70 billion by 2022.
Accommodation management
Fresh Property Group ('FPG') is a key part of our end-to-end
solution for clients, which spans sourcing of sites to managing the
completed developments. FPG operates under the Fresh Student Living
brand in student accommodation and the Five Nine Living brand in
build to rent.
FPG can take on all aspects of accommodation management for
clients, including mobilising, marketing and letting, managing the
building and tenants, collecting rent and providing the operational
financial reporting for the asset. The business has invested
significant amounts in best-in-class systems and processes, which
makes it highly scalable, with efficient processing of back-office
functions, freeing our people to focus on providing excellent
service.
The business continued to grow strongly in FY18, generating
revenue of GBP7.3 million (FY17: GBP6.1 million) and gross profit
of GBP4.5 million (FY17: GBP3.8 million), representing a gross
margin of 61.8% (FY17: 61.9%).
As previously announced, during the year the Curlew Student
Trust ('CST') sold a portfolio of student accommodation assets
managed by FPG (the Enigma portfolio).
This resulted in FPG providing a reduced level of service from 1
May 2018 to August 2018, when the management agreements were
finally terminated. FPG was fully compensated for its loss of
revenue associated with the reduced scope of services and early
termination of the management agreements, as discussed in the
financial review. The sale reduced FPG's number of student beds
under management for the 2018/19 academic year by 4,597.
Following the successful sale of the Enigma portfolio, Curlew
Capital has set up a new fund, CST2, to continue to develop and
acquire student accommodation assets across the UK. FPG remains the
property manager for the remaining eight assets in CST (1,714 beds)
and is preferred manager for CST2, which has already secured a
portfolio of over 1,300 beds, with a further 1,300 beds in
solicitors' hands, and has ambitious growth plans. This presents
the potential for further long-term growth in FPG.
FPG had a good year for winning new management contracts,
picking up 14 student accommodation schemes with effect from the
start of the 2018/19 academic year. As a result, FPG saw a net drop
in beds under management of only 1,196, despite the CST sale.
Excluding the beds under management associated with the properties
sold by CST, FPG's beds under management were increased by 3,740
beds, or 23%, compared to the start of the 2017/18 academic
year.
This led to FPG having 15,421 student beds and build to rent
apartments under management at the start of FY19 across 56 schemes.
Of these schemes, 48% were developed by Watkin Jones and 52% by
third parties, showing the broad attraction of FPG's offer to
institutional clients. By FY21, FPG is currently contracted to
manage 18,258 student beds across 65 schemes.
The new business won in the year included FPG's first contracts
in Ireland. It was awarded the management of two schemes in Dublin
for the 2018/19 academic year (369 beds) and another two schemes
(595 beds) for the 2019/20 academic year. FPG has established Fresh
Property Group Ireland Limited to pursue further opportunities in
Ireland, including in build to rent. The establishment of the Irish
business utilises FPG's existing management systems and represents
a low-cost way to enter a new market.
FPG continues to grow its presence in the build to rent sector.
For FY18, it managed five schemes with 546 apartments between them.
During the year, it also won a contract to manage a 274-apartment
scheme in Manchester, which is scheduled for delivery in 2020,
taking the total number of build to rent apartments under
management to 820. A key initiative for FPG in the year was
developing a service offering for smaller build to rent
developments, without communal facilities. This broadens its
addressable market in build to rent.
FPG has also taken on the management of its first fully
mixed-use scheme, Avon Studios in Bath. This is a single block
incorporating 94 student beds, ten build to rent units and four
affordable housing units.
FPG's single infrastructure, sitting across both student and
build to rent, allows it to deliver a unified management service
for the client, capturing economies of scale across the whole block
while providing a service tailored to the individual tenant groups
within the building.
To support its operational effectiveness, FPG has equipped its
accommodation teams with the Salesforce CRM system, to maximise the
conversion of enquiries into bookings. The system will lead to
improved analysis of marketing spend and return on investment, to
enable targeted spend that generates the best returns. It will also
give FPG a single view of the customer.
The quality of FPG's service was again recognised through the
industry awards it received in the year. These included the
National Student Housing Survey International Quality Mark 2018,
and the Best Private Halls of Residence and Unsung Hero awards at
the Property Week Student Accommodation Awards 2018.
All of FPG's accommodation teams have completed mental health
training with charity partner Young Minds. This is of particular
significance, given the increasing prevalence of stress and mental
health issues among students.
Residential
The residential business had a good year, completing 175 sales
against 94 in the prior year. This resulted in revenues of GBP30.0
million (FY17: GBP18.1 million). The business continues to make
sales at nil margin at its legacy development site at Droylsden,
Manchester. These sales totalled GBP10.2 million in the year (FY17:
GBP6.0 million). Sales from this site are ongoing and will continue
to release cash from inventory. The gross margin for the business
was 14.6%, down from 16.7% in FY17, as a result of these nil-margin
sales.
Excluding the nil-margin sales, the gross margin achieved for
the business was 22.2% (FY17: 25.0%).
The business is well placed to achieve sustained profitable
growth going forward. We will look to acquire small to medium sized
housing sites in the North West, whilst also acquiring attractive
sites suitable for small apartment schemes identified by the
Group's national site acquisitions team. For example, in FY18 we
commenced the development of a 44-apartment scheme in Bath which
will be completed in FY19.
In addition, the planning consents for PBSA sites often include
a residential element. An example of this is our current mixed-use
development in Stratford, which includes 44 residential apartments,
also for delivery in FY19.
However, we do not intend to acquire a substantial land bank in
this business and our intention is to manage the working capital
requirements so that, as far as possible, the business is
self-funding. At the year end, we had a land bank of 657 plots (30
September 2017: 589 plots).
Strategy
The Group is following a consistent strategy, based on the four
pillars of our business. Student accommodation development remains
core and the Board is committed to continuing to drive that
business forward, while we develop a second substantial revenue
stream in the build to rent market and benefit from increasing
contributions from the FPG and residential businesses.
We continue to look at ways to enhance shareholder returns from
the longer-term value creation opportunity in build to rent. This
may include establishing an independent new investment vehicle,
which would be able to attract third-party capital and would
acquire the Group's build to rent developments on a forward-sale
basis, thereby not changing the Group's business model. We will
update shareholders on our plans as appropriate.
As we look for development opportunities for student
accommodation and build to rent, we are identifying smaller sites
suitable for our residential business to develop apartments. We
will carefully manage the working capital required for this part of
the business.
People and culture
The Group has seen real benefits from the changes we made last
year to our senior management structure. This included establishing
an Executive Committee, to provide leadership to the Group below
Board level. We also invested in and empowered the Operational
Board, which comprises the members of the Executive Committee plus
the managing directors of the delivery divisions, and the
management teams below them throughout the Group. This work has
helped the teams to achieve an excellent performance across our
businesses. As part of the succession process, the Executive
Committee and Operational Board have assumed increasing
responsibility over the year for the day to day management of the
Group. The success of this transition has given me confidence that
this is the right time for me to step away from the Group and allow
Richard and the team to take the business forward.
Watkin Jones is a specialised business with a highly structured
delivery process, which allows our people to develop a deep
understanding of their roles. This is enabling us to tackle our
development schemes earlier, making it easier to deliver them and
contributing directly to our people's job satisfaction and the
Group's financial performance.
This is my last report as Chief Executive Officer and I want to
thank all of my colleagues around the Group for helping to make
Watkin Jones the success it is today.
Sustainability
Watkin Jones is a business that thinks for the long term and we
therefore look to ensure we can deliver sustainably, benefiting all
of our stakeholders along the way. This means understanding and
managing the needs of our stakeholders, which include our people,
clients, supply chain and shareholders. Our view is that their
success is our success, and we aim to work with them to maintain
high levels of trust, loyalty and respect. The Group's stakeholders
also include our communities and the local and global environment,
and we take their needs into account in the way we operate. More
information about our approach to sustainability can be found in
the Group's FY18 Annual Report.
Brexit
Whilst the outcome of negotiations surrounding the UK's exit
from the European Union remain uncertain, the Group is carrying out
a review with its supply chain to establish the potential risks
that might arise from a 'no deal' Brexit on the supply of materials
and labour required for our developments. Whilst the responsibility
for maintaining continuity of supply rests predominantly with our
supply chain, we are focussed on ensuring that the appropriate
contingency measures are put in place to ensure that our
development activities will continue without material
interruption.
Outlook
I believe that the Group is in the best shape it has ever been.
We continue to have excellent visibility of our future revenues and
earnings, supported by the pipeline of forward-sold and secured
sites for student accommodation. Despite delivering fewer student
beds in FY19, the locations and forward sale values we have
achieved for these schemes underpin our earnings expectations from
this division over the next twelve months and beyond.
Our success in securing the significant build to rent
development agreements in Reading and Wembley, together with our
secured pipeline of sites, is highly encouraging. In addition, our
residential and accommodation management divisions are well
positioned to contribute to progressive earnings growth. As a
result, we remain confident in the outlook for the Group.
Mark Watkin Jones
Chief Executive Officer (until 2 January 2019)
14 January 2019
FINANCIAL REVIEW
Highlights
FY18 FY17
Continuing operations GBPm GBPm Change
------------------------------------------------ ------ ------ ------
Revenue 363.1 301.9 +20.3%
Gross profit 72.4 63.5 +14.0%
Overheads (22.8) (20.8) +9.5%
------------------------------------------------ ------ ------ ------
Operating profit before exceptional items 49.6 42.7 +16.2%
Exceptional income 4.3 -
------------------------------------------------ ------ ------ ------
Operating profit 53.9 42.7 +26.3%
Profit on disposal of interest in joint venture 0.1 0.9
Share of profit in joint ventures 1.0 0.5
Net finance costs (0.7) (0.8)
------------------------------------------------ ------ ------ ------
Profit before tax 54.3 43.3 +25.6%
Tax (10.1) (7.5)
------------------------------------------------ ------ ------ ------
Profit for the year 44.2 35.8 +23.5%
------------------------------------------------ ------ ------ ------
Basic earnings per share 17.3p 14.0p +23.6%
Adjusted basic earnings per share 16.0p 14.0p +13.8%
Dividend per share 7.6p 6.6p 15.2%
------------------------------------------------ ------ ------ ------
Revenue
Revenue from continuing operations increased from GBP301.9
million in FY17 to GBP363.1 million in FY18, representing growth of
20.3%. Student accommodation development remains the primary driver
of our top line, with revenue growth of GBP56.6 million or 22.1% in
FY18. This result benefited from the completion of the forward sale
of four PBSA developments on 30 September 2018, which accounted for
GBP42.6 million of the revenue in the year and primarily represents
the initial land sales values achieved. These forward sales also
had an impact on the gross margin in our student business, as
discussed further below.
Build to rent generated revenues of GBP3.8 million in FY18
(FY17: GBP1.2 million), with this business expected to make an
increasing contribution to the Group's performance from FY19.
Our accommodation management business, Fresh Property Group,
showed good growth, with revenue up 19.2% to GBP7.3 million (FY17:
GBP6.1 million).
The residential business also had a strong year, with revenues
up by GBP11.9 million, or 65.8%, to GBP30.0 million.
In addition to the four primary businesses, the Group generated
revenue from the development of commercial property associated with
our mixed-use planning consents. This is reported within our
corporate segment and accounted for GBP9.3 million of revenue in
FY18 (FY17: GBP20.4 million). In both years, this revenue related
to a hotel and offices at our development site at Christchurch
Road, Bournemouth. These properties were forward sold in FY17 and
completed in FY18.
Gross profit
Gross profit increased from GBP63.5 million in FY17 to GBP72.4
million in FY18. This represented growth of 14.0% and a gross
margin of 20.0% (FY17: 21.0%).
The gross margin for the student accommodation development
business was 19.4% (FY17: 22.1%). The forward sales that completed
on 30 September 2018, discussed above, were at comparatively low
margins as they primarily related to the land, with the development
and construction margin due to flow through over the next two
years. Adjusting for the impact of these sales, the underlying
gross margin for this business in FY18 was 20.7% and remained above
our 20% hurdle rate for these developments. The comparatively
higher margin in FY17 reflects the exceptional margin contributions
from certain developments completed in that year.
Build to rent generated a gross profit of GBP1.0 million (FY17:
GBP0.7 million). Fresh Property Group contributed gross profit of
GBP4.5 million (FY17: GBP3.8 million) and maintained its high gross
margin of 61.8% (FY17: 61.9%). Gross profit from residential sales
was GBP4.4 million, up from GBP3.0 million in FY17. The gross
margin of 14.6% (FY17: 16.7%) reflects the impact of a further
GBP10.2 million of nil margin sales at the legacy development site
at Droylsden, Manchester. Excluding these legacy site sales, the
gross margin was 22.2% (FY17: 25.0%). Gross profit from commercial
property was GBP1.8 million, compared with a loss of GBP0.5 million
in FY17.
Administrative expenses
Administrative expenses include the costs of Group support
services as well as head office costs, and totalled GBP22.8 million
for FY18 (FY17: GBP20.8 million). The growth of 9.5% reflects an
underlying rise in salary costs, with an average salary increase of
approximately 5% across the Group, and additional resources to
support the growth of the business, including new development
directors and technical specialists.
Operating profit before exceptional items
Operating profit before exceptional items was GBP49.6 million
(FY17: GBP42.7 million), up 16.2%. The operating margin was 13.7%
(FY17: 14.1%).
Exceptional items
Curlew Student Trust's sale of a portfolio of assets, and the
subsequent reduction in scope and early termination of Fresh
Property Group's contracts to manage the majority of these assets,
resulted in an exceptional gain for the Group of GBP4.3 million. Of
this, GBP3.0 million was received as compensation for the reduction
in scope of the management contracts and their early termination.
The Group also holds a carried interest in the Curlew Student Trust
and made an exceptional profit of GBP1.3 million by way of its
share of the profit arising from the portfolio sale.
There were no exceptional items in FY17.
Cash flows
FY18 FY17
Continuing operations GBPm GBPm
------------------------------------------ ------ ------
Operating profit before exceptional items 49.6 42.7
Exceptional items 4.3 -
Depreciation and amortisation 1.3 1.0
Decrease/(increase) in working capital 11.3 (18.4)
Finance costs paid (1.0) (1.0)
Tax paid (11.1) (5.1)
------------------------------------------ ------ ------
Net cash inflow from operating activities 54.4 19.2
Purchase of fixed assets (0.3) (0.3)
Cash flow from joint venture interests 1.6 5.6
Cash flow from other financial assets 1.4 -
Dividends paid (17.5) (12.4)
Cash flow from borrowings 1.7 6.0
------------------------------------------ ------ ------
Increase in cash 41.3 18.1
Cash at beginning of year 65.3 47.2
------------------------------------------ ------ ------
Cash at end of year 106.6 65.3
Less: borrowings (26.4) (24.3)
------------------------------------------ ------ ------
Net cash 80.2 41.0
------------------------------------------ ------ ------
Profit on disposal of interest in joint venture
During the year, the Group sold its legacy interest in Rufus
Estates Limited, a joint venture relating to a development site in
Chester. The sale generated a profit of GBP0.1 million. In FY17,
the Group realised a profit of GBP0.9 million after disposing of
its joint venture interest in Athena Hall (Jersey) Limited, which
owned a student accommodation property previously developed by the
Group.
Share of profit in joint ventures
The Group has several joint ventures with Lacuna Developments
Limited, based in Northern Ireland, allowing us to develop student
accommodation sites in Belfast. Our share of profit in these joint
ventures in FY18 was GBP1.0 million (FY17: GBP0.5 million).
Finance costs
Our finance costs are primarily fees associated with the
availability of our revolving credit facility ("RCF") with HSBC,
and the interest cost of the loans we have with Svenska
Handelsbanken AB (see bank facilities below). The net finance cost
for the year was GBP0.7 million, down from GBP0.8 million in FY17,
as a result of increased interest received on our cash
balances.
Taxation
The tax charge for the year was GBP10.1 million (FY17: GBP7.5
million). This represents an effective tax rate of 18.7%, broadly
in line with the standard rate of corporation tax of 19%. The
effective tax rate in FY17 was 17.3%, reflecting the benefit of a
prior year adjustment of GBP0.8 million.
Earnings per share
Basic earnings per share from continuing operations were 17.3
pence (FY17: 14.0 pence). Adjusted basic earnings per share, which
exclude the impact of the exceptional gains discussed above, were
16.0 pence (FY17: 14.0 pence).
Dividends
As discussed in the Chairman's Statement, the Board has
recommended a final dividend of 5.13 pence per share, giving a
total dividend for the year of 7.6 pence. The cash cost of the
final dividend will be GBP13.1 million.
At 30 September 2018, the Company had distributable reserves of
GBP135.2 million available to pay the final dividend.
EBITDA
EBITDA is an important measure of underlying performance for the
Group. It is calculated as operating profit plus profit from joint
ventures, before interest, tax, depreciation and amortisation.
EBITDA increased by 24.6% to GBP56.3 million (FY17: GBP45.2
million).
Adjusted EBITDA, which excludes exceptional items, increased by
15.1% to GBP52.0 million (FY17: GBP45.2 million), representing an
adjusted EBITDA margin of 14.3% (FY17: 15.0%).
Statement of financial position
At the year end, inventory and work in progress stood at
GBP132.8 million (30 September 2017: GBP125.2 million), with the
increase of GBP7.6 million due to expenditure on the residential
and academic elements of the mixed-use development site at
Stratford. The year end balance included GBP43.5 million in
relation to our build to rent development sites and operational
assets, which we are targeting to sell in the coming year. We were
also carrying GBP18.9 million of work in progress relating to the
residential and academic elements of the Stratford mixed-use
scheme, which we are also looking to convert into sales in
FY19.
Trade and other receivables decreased by GBP9.3 million to
GBP27.0 million, primarily as a result of the receipt of the
proceeds from the completion of the sale of the hotel at
Christchurch Road, Bournemouth, for which the Group had a
receivable balance of GBP11.8 million at the end of FY17.
Trade and other payables increased by GBP10.5 million in the
year to GBP99.1 million, reflecting the increase in the Group's
activity level.
Other financial assets reduced by GBP1.3 million to GBP1.4
million, as a result of the distribution of portfolio sales
proceeds by the Curlew Student Trust.
Cash flows
The Group continued to generate strong cash flow, with a net
cash flow from operating activities of GBP54.4 million. This
performance benefited from a receipt of GBP38.8 million from the
forward sale of the four assets on 30 September 2018. Cash flow in
the year was also enhanced by the receipt of GBP22.8 million of
cash relating to forward sales agreed in FY17 which were
contractually completed in FY18.
The working capital decrease of GBP11.3 million reflects the
movements in inventory and work in progress, receivables and
payables, discussed above.
Dividends paid in the year amounted to GBP17.5 million, while
tax payments totalled GBP11.1 million.
The settlement from the reduction in scope of services and early
termination of the Fresh Property Group management contracts,
together with the distributions from the Group's investment in the
Curlew Student Trust, following the portfolio sale, resulted in
cash receipts of GBP6.0 million for the Group.
Fresh Property Group used GBP0.3 million of these receipts to
make a similar carried interest investment in Curlew Student Trust
2, which was launched in the year, recognising the importance of
Fresh Property Group's role as property manager for the Fund.
These movements contributed to a cash balance of GBP106.6
million at the year end and a net cash position of GBP80.2 million,
after deducting borrowings of GBP26.4 million. At 30 September
2017, the Group had cash of GBP65.3 million, borrowing of GBP24.3
million and net cash of GBP41.0 million.
The Group's cash balance typically peaks around the year end, as
in the last weeks of the financial year we receive the final
payments on student accommodation developments completing ahead of
the new academic year, as well as the initial proceeds from the
latest forward sales. The Group is then a net utiliser of cash
during the first half of the following year, as a result of
outflows such as tax and dividend payments, overhead costs and land
purchases. We therefore see the cash balance at the year end as an
appropriate level for funding our day-to-day cash requirements and
to put the Group in a position of strength when bidding for new
sites.
Bank facilities
The Group's bank facilities comprise a GBP40 million five-year
RCF, which matures on 15 March 2021, and a GBP10 million on-demand
working capital facility, both with HSBC Bank plc. At 30 September
2018, we had drawn GBP17.4 million against the RCF (30 September
2017: GBP13.3 million), while the working capital facility was
undrawn, giving us total undrawn facilities of GBP32.6 million.
The RCF is available to support our land procurement and
development opportunities and can be used for strategic land
acquisitions or to fund discrete development activities, primarily
the residential or commercial elements of certain larger mixed-use
developments, alongside the forward sale model. We used the RCF to
assist with several site acquisitions during the year and to fund
the build of the residential and academic facilities at our
development site in Stratford.
The Group also has loan facilities with Svenska Handelsbanken
AB, which are used to fund the Group's operating build to rent
stock in Sheffield and Droylsden. These facilities run to March
2022. The outstanding balance at 30 September 2018 was GBP7.3
million (30 September 2017: GBP8.4 million).
Philip Byrom
Chief Financial Officer
14 January 2019
For further information:
Watkin Jones plc
Richard Simpson, Chief Executive Tel: +44 (0) 1248 362 516
Officer
Phil Byrom, Chief Financial Officer www.watkinjonesplc.com
Peel Hunt LLP (Nominated Adviser & Joint Tel: +44 (0) 20 7418
Corporate Broker) 8900
Mike Bell / Justin Jones www.peelhunt.com
Jefferies Hoare Govett (Joint Corporate Tel: +44 (0) 20 7029
Broker) 8000
Max Jones / Will Souter www.jefferies.com
Media enquiries:
Buchanan
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 a leading UK developer and constructor of multi
occupancy residential property assets, with a focus on the student
accommodation and Build to Rent sectors. The Group has strong
relationships with institutional investors, and a good reputation
for successful, on-time-delivery of high quality developments.
Since 1999, Watkin Jones has delivered 38,000 student beds across
117 sites, making it a key player and leader in the UK purpose
built student accommodation market. In addition, the Fresh Property
Group, the Group's specialist accommodation management company,
manages over 15,000 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 now
expanding its operations into the Build to Rent sector.
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
Consolidated statement of comprehensive income
for the year ended 30 September 2018
Year ended Year ended
30 September 30 September
2018 2017
Notes GBP'000 GBP'000
----------------------------------------------------------------------------------- ----- ------------ ------------
Continuing operations
Revenue 4 363,054 301,914
Cost of sales (290,624) (238,383)
----------------------------------------------------------------------------------- ----- ------------ ------------
Gross profit 72,430 63,531
Administrative expenses (22,818) (20,846)
----------------------------------------------------------------------------------- ----- ------------ ------------
Operating profit before exceptional income 49,612 42,685
Exceptional income 5 4,283 -
----------------------------------------------------------------------------------- ----- ------------ ------------
Operating profit 53,895 42,685
Profit on disposal of interest in joint venture 121 930
Share of profit in joint ventures 1,023 519
Finance income 228 101
Finance costs (925) (957)
----------------------------------------------------------------------------------- ----- ------------ ------------
Profit before tax 54,342 43,278
Income tax expense 6 (10,136) (7,478)
----------------------------------------------------------------------------------- ----- ------------ ------------
Profit for the year attributable to ordinary equity holders of the parent 44,206 35,800
----------------------------------------------------------------------------------- ----- ------------ ------------
Other comprehensive income
Subsequently reclassified to income statement:
Net gain on available-for-sale financial assets 37 130
----------------------------------------------------------------------------------- ----- ------------ ------------
Total comprehensive income for the year attributable to ordinary equity holders of
the parent 44,243 35,930
----------------------------------------------------------------------------------- ----- ------------ ------------
Pence Pence
--------------------------------------------- ------ ------
Earnings per share for the year attributable
to ordinary equity holders of the parent
Basic earnings per share 717.317 14.024
--------------------------------------------- ------ ------
Diluted earnings per share 717.310 14.024
--------------------------------------------- ------ ------
Adjusted proforma basic earnings per share
(excluding exceptional income) 715.958 14.024
--------------------------------------------- ------ ------
Adjusted proforma diluted earnings per share
(excluding exceptional income) 715.952 14.024
--------------------------------------------- ------ ------
Consolidated statement of financial position
as at 30 September 2018
30 September 30 September
2018 2017
Notes GBP'000 GBP'000
-------------------------------------- ----- ------------ ------------
Non-current assets
Intangible assets 14,403 14,962
Property, plant and equipment 4,809 4,911
Investment in joint ventures 2,558 1,816
Deferred tax asset 42 277
Other financial assets 1,350 2,698
-------------------------------------- ----- ------------ ------------
23,162 24,664
-------------------------------------- ----- ------------ ------------
Current assets
Inventory and work in progress 132,778 125,220
Trade and other receivables 26,967 36,299
Cash and cash equivalents 10 106,640 65,325
-------------------------------------- ----- ------------ ------------
266,385 226,844
-------------------------------------- ----- ------------ ------------
Total assets 289,547 251,508
-------------------------------------- ----- ------------ ------------
Current liabilities
Trade and other payables (99,119) (88,664)
Provisions (1,068) (699)
Other financial liabilities - (13)
Interest-bearing loans and borrowings (1,605) (1,505)
Current tax liabilities (7,204) (8,199)
-------------------------------------- ----- ------------ ------------
(108,996) (99,080)
-------------------------------------- ----- ------------ ------------
Non-current liabilities
Interest-bearing loans and borrowings (24,877) (22,823)
Deferred tax liabilities (1,050) (1,368)
Provisions (1,602) (2,006)
-------------------------------------- ----- ------------ ------------
(27,529) (26,197)
-------------------------------------- ----- ------------ ------------
Total liabilities (136,525) (125,277)
-------------------------------------- ----- ------------ ------------
Net assets 153,022 126,231
-------------------------------------- ----- ------------ ------------
Equity
Share capital 2,553 2,553
Share premium 84,612 84,612
Merger reserve (75,383) (75,383)
Available-for-sale reserve 436 399
Share based payment reserve 84 -
Retained earnings 140,720 114,050
-------------------------------------- ----- ------------ ------------
Total equity 153,022 126,231
-------------------------------------- ----- ------------ ------------
Consolidated statement of changes in equity
for the year ended 30 September 2018
Available- Share-based
Share Share Merger for-sale payment Retained
capital premium reserve reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ------- ------- -------- ---------- ----------- -------- --------
Balance at 1 October 2016 2,553 84,612 (75,383) 269 - 90,681 102,732
----------------------------- ------- ------- -------- ---------- ----------- -------- --------
Profit for the year - - - - - 35,800 35,800
Other comprehensive income - - - 130 - - 130
----------------------------- ------- ------- -------- ---------- ----------- -------- --------
Total comprehensive income - - - 130 - 35,800 35,930
Transactions with owners
Dividend paid (note 8) - - - - - (12,431) (12,431)
----------------------------- ------- ------- -------- ---------- ----------- -------- --------
Balance at 30 September 2017 2,553 84,612 (75,383) 399 - 114,050 126,231
----------------------------- ------- ------- -------- ---------- ----------- -------- --------
Profit for the year - - - - - 44,206 44,206
Other comprehensive income - - - 37 - - 37
----------------------------- ------- ------- -------- ---------- ----------- -------- --------
Total comprehensive income - - - 37 - 44,206 44,243
----------------------------- ------- ------- -------- ---------- ----------- -------- --------
Transactions with owners
Share-based payments - - - - 84 - 84
Dividend paid (note 8) - - - - - (17,536) (17,536)
----------------------------- ------- ------- -------- ---------- ----------- -------- --------
Balance at 30 September 2018 2,553 84,612 (75,383) 436 84 140,720 153,022
----------------------------- ------- ------- -------- ---------- ----------- -------- --------
Consolidated statement of cash flows
for the year ended 30 September 2018
Year ended Year ended
30 September 30 September
2018 2017
Notes GBP'000 GBP'000
--------------------------------------------------------------------- ----- ------------ ------------
Cash flows from operating activities
Cash inflow from operations 9 66,582 25,378
Interest received 228 101
Interest paid (1,199) (1,083)
Interest element of finance lease rental payments (48) (33)
Tax paid (11,140) (5,117)
--------------------------------------------------------------------- ----- ------------ ------------
Net cash inflow from operating activities 54,423 19,246
--------------------------------------------------------------------- ----- ------------ ------------
Cash flows from investing activities
Acquisition of property, plant and equipment (298) (336)
Proceeds on disposal of property, plant and equipment 18 42
Proceeds from disposal of interest in joint venture 400 5,510
Cash distribution received from other financial assets 1,744 -
Purchase of other financial assets (350) -
Loan payments from joint ventures 1,176 73
--------------------------------------------------------------------- ----- ------------ ------------
Net cash inflow from investing activities 2,690 5,289
--------------------------------------------------------------------- ----- ------------ ------------
Cash flows from financing activities
Dividends paid 8 (17,536) (12,431)
Capital element of finance lease rental payments (1,203) (605)
Drawdown of RCF 8,036 24,833
Repayment of bank loans (5,095) (18,228)
--------------------------------------------------------------------- ----- ------------ ------------
Net cash outflow from financing activities (15,798) (6,431)
--------------------------------------------------------------------- ----- ------------ ------------
Net increase in cash 41,315 18,104
Cash and cash equivalents at 1 October 2017 and 1 October 2016 65,325 47,221
--------------------------------------------------------------------- ----- ------------ ------------
Cash and cash equivalents at 30 September 2018 and 30 September 2017 10 106,640 65,325
--------------------------------------------------------------------- ----- ------------ ------------
Notes to the consolidated financial statements
for the year ended 30 September 2018
1. General information
Watkin Jones plc (the "Company") is a public limited company
incorporated in the United Kingdom under the Companies Act 2006
(registration number 9791105). The Company is domiciled in the
United Kingdom and its registered address is 21--22 Llandygai
Industrial Estate, Llandygai, Bangor, Gwynedd LL57 4YH.
The principal activities of the Company and its subsidiaries
(collectively the "Group") are those of property development and
the management of properties for multiple residential
occupation.
The consolidated financial statements for the Group for the year
ended 30 September 2018 comprise the Company and its subsidiaries.
The basis of preparation of the consolidated financial statements
is set out in note 2 below.
2. Basis of preparation
The preparation of the financial statements in conformity with
the Group's accounting policies requires the Directors to make
estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at the balance sheet date and the reported amounts of
revenue and expenses during the reported period. Whilst these
estimates and assumptions are based on the Directors' best
knowledge of the amount, events or actions, actual results may
differ from those estimates.
The financial information set out above does not constitute the
Group's statutory accounts for the years ended 30 September 2018 or
2017, but is derived from those accounts. Statutory accounts for
2017 have been delivered to the Registrar of Companies, and those
for 2018 will be delivered in due course. The auditor has reported
on those accounts; their reports were (i) unqualified, (ii) did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report and
(iii) did not contain statements under Section 498(2) or (3) of the
Companies Act 2006.
Whilst the financial information included in this announcement
has been computed in accordance with IFRS as adopted by the
European Union, this announcement does not itself contain
sufficient information to comply with IFRS. The Company expects to
send its 2018 Annual Report to shareholders on 21 January 2019.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods for which the
financial information included in this announcement has been
presented. The financial information included in this announcement
is prepared on the historical cost basis except as disclosed in
these accounting policies. The financial information is presented
in pounds sterling and all values are rounded to the nearest
thousand (GBP'000), except when otherwise indicated.
3. Accounting policies
The results for the year have been prepared on a basis
consistent with the accounting policies set out in the Watkin Jones
plc Annual Report for the year ended 30 September 2018.
4. Segmental reporting
The Group has identified four segments for which it reports
under IFRS 8 'Operating Segments'. The following represents the
segments that the Group operates in:
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 traditional residential property; 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.
All revenues arise in the UK.
Performance is measured by the Board based on gross profit as
reported in the management accounts.
Apart from Inventory and WIP, no other assets or liabilities are
analysed into the operating segments.
Student Build Accommodation
Year ended 30 accommodation to rent Residential management Corporate Total
September 2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- ------------- ------- ----------- ------------- --------- --------
Segmental revenue 312,695 3,764 29,965 7,302 9,328 363,054
--------------------------------------------- ------------- ------- ----------- ------------- --------- --------
Segmental gross profit 60,705 1,020 4,377 4,513 1,815 72,430
Administration expenses - - - (3,171) (19,647) (22,818)
Exceptional income - - - 4,283 - 4,283
Share of disposal of interest in joint
venture - - - - 121 121
Share of operating profit in joint ventures 1,023 - - - - 1,023
Finance income - - - - 228 228
Finance costs - - - - (925) (925)
--------------------------------------------- ------------- ------- ----------- ------------- --------- --------
Profit/(loss) before tax 61,728 1,020 4,377 5,625 (18,408) 54,342
Taxation - - - - (10,136) (10,136)
--------------------------------------------- ------------- ------- ----------- ------------- --------- --------
Continuing profit/(loss) for the year 61,728 1,020 4,377 5,625 (28,544) 44,206
--------------------------------------------- ------------- ------- ----------- ------------- --------- --------
Profit for the year attributable to ordinary
equity shareholders of the parent 44,206
--------------------------------------------- ------------- ------- ----------- ------------- --------- --------
Inventory and work in progress 32,371 44,187 47,021 - 9,199 132,778
--------------------------------------------- ------------- ------- ----------- ------------- --------- --------
Student Accommodation
Year ended 30 accommodation Build to Residential management Corporate Total
rent
September 2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------- ------------- -------- ----------- ------------- --------- --------
Segmental revenue 256,138 1,216 18,076 6,126 20,358 301,914
-------------------------------------------- ------------- -------- ----------- ------------- --------- --------
Segmental gross profit 56,553 685 3,024 3,795 (526) 63,531
Administration expenses - - - (1,702) (19,144) (20,846)
Share of disposal of interest in joint
venture 930 - - - - 930
Share of operating profit
in joint ventures 535 - - - (16) 519
Finance income - - - - 101 101
Finance costs - - - - (957) (957)
Profit/(loss) before tax 58,018 685 3,024 2,093 (20,542) 43,278
Taxation - - - - (7,478) (7,478)
-------------------------------------------- ------------- -------- ----------- ------------- --------- --------
Continuing profit/(loss) for the year 58,018 685 3,024 2,093 (28,020) 35,800
-------------------------------------------- ------------- -------- ----------- ------------- --------- --------
Profit for the year attributable to ordinary
equity shareholders of the parent 35,800
-------------------------------------------- ------------- -------- ----------- ------------- --------- --------
Inventory and work in progress 33,337 41,429 38,868 - 11,586 125,220
-------------------------------------------- ------------- -------- ----------- ------------- --------- --------
5. Exceptional income
Year ended Year ended
30 September 30 September
2018 2017
GBP'000 GBP'000
------------------------------------------------------------------------------------------ ------------ ------------
Exceptional income
Compensation for reduction in scope of services and termination of accommodation
management
contracts resulting from the sale of a portfolio of properties by the Curlew Student
Trust 3,020 -
Profit share arising from the sale of the portfolio of properties by the Curlew Student
Trust 1,263 -
------------------------------------------------------------------------------------------ ------------ ------------
Total exceptional income 4,283 -
------------------------------------------------------------------------------------------ ------------ ------------
Following the sale of a portfolio of properties by the Curlew
Student Trust ("CST"), Fresh Property Group ("FPG") was compensated
for the initial reduction in the scope of management services and
subsequent termination of the accommodation management contracts
for those properties by the new owner. In addition, FPG holds a
carried interest investment in CST associated with its role as
preferred property manager and received a share of the profit
realised by CST on the sale of the property portfolio.
6. Income taxes
Year ended Year ended
30 September 30 September
2018 2017
GBP'000 GBP'000
-------------------------------------------------- ------------ ------------
Current income tax
UK corporation tax on profits for the year 10,320 8,096
Adjustments in respect of previous periods (101) (820)
-------------------------------------------------- ------------ ------------
Total current tax 10,219 7,276
-------------------------------------------------- ------------ ------------
Deferred tax
Origination and reversal of temporary differences (84) 202
Adjustments in respect of prior year 1 -
Total deferred tax (83) 202
-------------------------------------------------- ------------ ------------
Total tax expense 10,136 7,478
-------------------------------------------------- ------------ ------------
Reconciliation of total tax expense
Year ended Year ended
30 September 30 September
2018 2017
GBP'000 GBP'000
------------------------------------------------------------------------------------- ------------ ------------
Accounting profit before income tax 54,342 43,278
Profit multiplied by standard rate of corporation tax in the UK of 19% (2017: 19.5%) 10,325 8,439
Expenses not deductible 499 17
Income not taxable (441) (69)
Joint ventures results reported net of tax (242) (101)
Other differences 104 35
Prior period adjustment (100) (820)
------------------------------------------------------------------------------------- ------------ ------------
At the effective rate of tax of 18.7% (2017: 17.3%) 10,145 7,501
------------------------------------------------------------------------------------- ------------ ------------
Income tax expense reported in the statement of profit or loss 10,136 7,478
Income tax attributed to an available-for-sale asset 9 23
------------------------------------------------------------------------------------- ------------ ------------
10,145 7,501
------------------------------------------------------------------------------------- ------------ ------------
7. Earnings per share
Basic and diluted 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 shares in issue during the year. For the
years ending 30 September 2018 and 30 September 2017, all profits
arise from continuing operations.
The following table reflects the income and share data used in
the basic and diluted EPS computations:
Year ended Year ended
30 September 30 September
2018 2017
GBP'000 GBP'000
------------------------------------------------------------------------------------------ ------------ ------------
Profit for the year attributable to ordinary equity holders of the parent 44,206 35,800
Adjusted profit for the year attributable to ordinary equity holders of the parent
(excluding
exceptional income after tax) 40,737 35,800
------------------------------------------------------------------------------------------ ------------ ------------
Number Number
of shares of shares
-------------------------------------------------------------------------------------- ----------- -----------
Number of ordinary shares for basic earnings per share 255,268,875 255,268,875
Adjustment for the effects of dilutive potential ordinary shares 102,929 -
-------------------------------------------------------------------------------------- ----------- -----------
Weighted average number for diluted earnings per share 255,371,804 255,268,875
-------------------------------------------------------------------------------------- ----------- -----------
Pence Pence
-------------------------------------------------------------------------------------- ----------- -----------
Basic earnings per share
Basic profit for the year attributable to ordinary equity holders of the parent 17.317 14.024
Adjusted proforma basic earnings per share (excluding exceptional income after tax)
Adjusted profit for the year attributable to ordinary equity holders of the parent 15.958 14.024
Diluted earnings per share
Basic profit for the year attributable to diluted equity holders of the parent 17.310 14.024
Adjusted proforma diluted earnings per share (excluding exceptional income after tax)
Adjusted profit for the year attributable to diluted equity holders of the parent 15.952 14.024
-------------------------------------------------------------------------------------- ----------- -----------
8. Dividends
Year ended Year ended
30 September 30 September
2018 2017
GBP'000 GBP'000
----------------------------------------------------------------------------- ------------ ------------
Interim dividend paid in June 2018 of 2.47 pence (June 2017: 2.2 pence) 6,304 5,615
Final dividend paid in February 2018 of 4.4 pence (February 2017 2.67 pence) 11,232 6,816
----------------------------------------------------------------------------- ------------ ------------
17,536 12,431
----------------------------------------------------------------------------- ------------ ------------
The final dividend proposed for the year ended 30 September 2018
is 5.13 pence per ordinary share. This dividend was declared after
30 September 2018 and as such the liability of GBP13,095,293 has
not been recognised at that date. At 30 September 2018, the Company
had distributable reserves available of GBP135,248,000 (30
September 2017: GBP152,784,000).
9. Reconciliation of profit before tax to net cash flows from
operating activities
Year ended Year ended
30 September 30 September
2018 2017
GBP'000 GBP'000
------------------------------------------------------------------------- ------------ ------------
Profit before tax 54,342 43,278
Depreciation 725 520
Amortisation of intangible assets 559 559
(Profit)/loss on sale of plant and equipment (7) (26)
Finance income (228) (101)
Finance costs 925 957
Profit on disposal of interest in joint ventures (121) (930)
Share of profit in joint ventures (1,023) (519)
(Increase)/decrease in inventory and work in progress (7,558) 2,937
Interest capitalised in development land, inventory and work in progress 322 159
Decrease/(increase) in trade and other receivables 9,442 (21,523)
Increase/(decrease) in trade and other payables 9,155 (428)
(Decrease)/increase in provision for property lease commitment (35) 495
Increase in share based payment reserve 84 -
------------------------------------------------------------------------- ------------ ------------
Net cash inflow from operating activities 66,582 25,378
------------------------------------------------------------------------- ------------ ------------
Major non-cash transactions
There were no major non-cash transactions during the period.
10. Analysis of net cash/(debt)
At beginning Non-cash At end
of year Cash flow movements of year
30 September 2018 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ------------ --------- ---------- --------
Cash at bank and in hand 65,325 41,315 - 106,640
Finance leases (2,890) 1,203 (336) (2,023)
Bank loans (21,438) (2,941) (80) (24,459)
------------------------- ------------ --------- ---------- --------
Net cash 40,997 39,577 (416) 80,158
------------------------- ------------ --------- ---------- --------
At beginning Non-cash At end
of year Cash flow movements of year
30 September 2017 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ------------ --------- ---------- --------
Cash at bank and in hand 47,221 18,104 - 65,325
Finance leases (260) 605 (3,235) (2,890)
Bank loans (14,753) (6,605) (80) (21,438)
------------------------- ------------ --------- ---------- --------
Net cash 32,208 12,104 (3,315) 40,997
------------------------- ------------ --------- ---------- --------
11. Annual report
Copies of this announcement are available from the Company at
Units 21--22 Llandygai Industrial Estate, Llandygai, Bangor,
Gwynedd, LL57 4YH. The Group's annual report for the year ended 30
September 2018 will be posted to shareholders shortly and will be
available on our website at www.watkinjones.com.
-- Ends --
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SFEESLFUSELF
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