TIDMWJG
RNS Number : 7403Y
Watkin Jones plc
18 January 2022
For immediate release 18 January 2022
Watkin Jones plc
('WJ' or the 'Group')
Full Year Results 2021
FY21 FY20(1) Change (%)
Revenue GBP430.2m GBP354.1m +21.5%
---------- ---------- -----------
Gross profit GBP84.8m GBP75.9m +11.7%
---------- ---------- -----------
Operating profit GBP57.3m GBP31.2m +83.3%
---------- ---------- -----------
Underlying Operating profit GBP57.3m GBP51.7m +10.8%
---------- ---------- -----------
Profit before tax GBP51.1m GBP25.3m +101.9%
---------- ---------- -----------
Underlying Profit before
tax GBP51.1m GBP45.8m +11.7%
---------- ---------- -----------
Basic earnings per share 16.4p 8.2p +98.5%
---------- ---------- -----------
Underlying Basic earnings
per share 16.4p 14.7p +11.2%
---------- ---------- -----------
Dividend per share 8.2p 7.35p +11.6%
---------- ---------- -----------
Adjusted net cash(2) GBP124.3m GBP94.8m +31.1%
---------- ---------- -----------
(1) For FY20 Underlying Operating profit, Underlying Profit
before tax and Underlying Basic earnings per share are calculated
before the impact of exceptional charges of GBP20.5 million
(2) Adjusted net cash is stated after deducting interest bearing
loans and borrowings, but before deducting IFRS 16 operating lease
liabilities of GBP129.3 million at 30 September 2021 (30 September
2020: GBP134.5 million)
Key Highlights
-- Revenue at GBP430.2 million, up 21.5%, reflecting increasing
contribution from our BTR developments and a strengthening
institutional investor forward sales market
-- Operating profit at GBP57.3 million, up 10.8%, underpinned by
strong operational delivery and tight cost control
-- Strong cash generation and liquidity position; GBP124.3
million net cash as at 30 September 2021
-- Full year dividend of 8.2p, up 11.6%; in line with policy of 2.0x cover
-- Work on 13 current developments on track; overall build costs remain within forecasts
-- 22,200 beds under Fresh management, up 10%
-- Record residential for rent secured development pipeline at GBP1.8 billion, up 20%
-- Continued progress on Affordable Homes
-- ESG credentials successfully formalised with launch of 'Future Foundations' ESG programme
-- Trading in the new financial year in line with expectations
Strong institutional demand for residential for rent assets
-- 3 BTR schemes (722 apartments) and 9 PBSA schemes (2,750
beds) forward sold since the start of FY21
- Includes 1 PBSA scheme (295 beds, 20 affordable) in Edinburgh
forward sold since 2 November 2021 trading update with total
revenue value of c.GBP47 million
Development pipeline further enhanced
-- 3 BTR schemes (1,442 apartments) and 10 PBSA schemes (4,271
beds) acquired since the start of FY21
- Includes 1 PBSA scheme (c.800 beds) in a prime regional
location with planning acquired since 2 November 2021 trading
update
-- Planning consents for 4 BTR apartment schemes and 6 PBSA schemes since the start of FY21
-- Following these developments, our current BTR and PBSA development pipeline is as follows
BTR PBSA
(apartments) (beds)
November 2021 update 4,012 7,142
New sites secured:
Prime regional location - 800
Other changes - (136)
---------------- ----------------
Current 4,012 7,806
---------------- ----------------
Future revenue value GBP0.95 billion GBP0.90 billion
---------------- ----------------
BTR pipeline
BTR apartments
---------------------------------------------
Total pipeline FY22 FY23 FY24 FY25
----------------------------------- --------------- ----- ----- ------ ------
Forward sold 609 71 354 184 -
Forward sales in legals 765 - - 486 279
Sites secured with planning 359 - 43 - 316
Sites secured subject to planning 2,279 - - 631 1,648
----------------------------------- --------------- ----- ----- ------ ------
Total secured 4,012 71 397 1,301 2,243
----------------------------------- --------------- ----- ----- ------ ------
Change since 2 Nov - - - - -
----------------------------------- --------------- ----- ----- ------ ------
PBSA pipeline
PBSA beds
----------------------------------------------
Total pipeline FY22 FY23 FY24 FY25
----------------------------------- --------------- ------ ------ ------ -----
Forward sold 2,547 1,946 601 - -
Forward sales in legals 252 - - 252 -
Sites secured with planning 2,401 - 1,020 1,381 -
Sites secured subject to planning 2,606 - 350 1,507 749
----------------------------------- --------------- ------ ------ ------ -----
Total secured 7,806 1,946 1,971 3,140 749
----------------------------------- --------------- ------ ------ ------ -----
Change since 2 Nov +664 - +296 +368 -
----------------------------------- --------------- ------ ------ ------ -----
Cladding remediation
We are supportive of the Government's announcement on 10 January
2022 regarding its intention to protect individual leaseholders
from bearing the cost of the remediation of unsafe cladding on
medium-rise buildings. We are engaging with the Government to
clarify its plans in this regard and to confirm whether pro-active
remediation will be taken into account. Our existing cladding
provision covers all schemes featuring ACM or HPL cladding which
are still within the limitation period. In these instances
replacement works have either been completed or are being procured
to commence.
We note the Government's intention for leaseholders to be able
to demand compensation for building safety defects up to 30 years
old, noting that historically, the business focused on general
contracting work for properties in the commercial, retail and
industrial sectors, as well as houses for private sale, rather than
residential leasehold developments.
Richard Simpson, Chief Executive Officer of Watkin Jones, said :
"This is a very strong set of results. WJ has once again
demonstrated its end-to-end development capability. As well as
handing over 12 schemes on time, we leveraged our excellent
institutional relationships to drive the forward sale of some 3,800
beds and continued to enhance the depth and quality of our
development pipeline, securing good visibility of future earnings.
Since the year end, we have continued this excellent momentum
across the business with increasingly strong investor appetite for
residential for rent homes."
Analyst meeting
A meeting for analysts will be held virtually at 09.30am today,
18 January 2022. A copy of the Final Results presentation is
available at the Group's website: http://www.watkinjonesplc.com
An audio webcast of the conference call with analysts will be
available after 12pm today:
http://webcasting.buchanan.uk.com/broadcast/61ded656e3976b4d1b2d49c7
For further information:
Watkin Jones plc
Richard Simpson, Chief Executive Officer Tel: +44 (0) 20 3617 4453
Sarah Sergeant, Chief Financial Officer www.watkinjonesplc.com
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
Max Jones / James Umbers www.jefferies.com
Media enquiries:
Buchanan
Henry Harrison-Topham / Steph Whitmore Tel: +44 (0) 20 7466 5000
watkinjones@buchanan.uk.com www.buchanan.uk.com
Notes to Editors
Watkin Jones is the UK's leading developer and manager of
residential for rent, with a focus on the build to rent, student
accommodation and affordable housing sectors. The Group has strong
relationships with institutional investors, and a reputation for
successful, on-time-delivery of high quality developments. Since
1999, Watkin Jones has delivered 46,000 student beds across 136
sites, making it a key player and leader in the UK purpose-built
student accommodation market, and is increasingly expanding its
operations into the build to rent sector. In addition, Fresh, the
Group's specialist accommodation management business, manages over
22,000 student beds and build to rent apartments on behalf of its
institutional clients. Watkin Jones has also been responsible for
over 80 residential developments, ranging from starter homes to
executive housing and apartments.
The Group's competitive advantage lies in its experienced
management team and capital-light business model, which enables it
to offer an end-to-end solution for investors, delivered entirely
in-house with minimal reliance on third parties, across the entire
life cycle of an asset.
Watkin Jones was admitted to trading on AIM in March 2016 with
the ticker WJG.L. For additional information please visit
www.watkinjonesplc.com
Chief Executive Officer's review
The Group delivered a strong operational and financial
performance in FY21, which is particularly pleasing given the
ongoing backdrop of COVID.
Our results for FY21 demonstrate that we are in the right
sectors, with the right capital-light model and with the right
team. At the same time we are continuing to lay the foundations for
our future growth, including ensuring we continue to be a
responsible and sustainable business.
We are confident that we have a robust platform for sustained
earnings growth and we expect to make further progress in the
coming year.
Performance
The Group performed well across all four divisions. Overall, our
financial performance was above FY20. Revenue was GBP430.2 million,
up 21.5% (FY20: GBP354.1 million), while gross profit increased by
11.7% to GBP84.8 million (FY20: GBP75.9 million) and adjusted
operating profit rose 10.8% to GBP57.3 million (FY20: GBP51.7
million). This shows the resilience of our businesses and bodes
well for the future.
Our operational performance was also strong. Despite the ongoing
disruption caused by the pandemic, all BTR and PBSA developments
scheduled for delivery in the year were completed and we continued
to progress our pipeline, successfully securing land, obtaining
planning consents and forward selling developments. Fresh also
enhanced its reputation with clients and customers, achieving high
standards in difficult circumstances.
The contribution from BTR has continued to grow rapidly.
Revenues were GBP138.6 million, representing 47.4% growth (FY20:
GBP94.0 million), as we successfully completed five schemes
totalling 1,041 apartments. The investment market in BTR is
increasingly positive and therefore supports our growth
aspirations, with our secured pipeline now standing at more than
4,000 apartments (9,100 bedrooms).
BTR has significant long-term appeal to investors, based on high
levels of occupancy and rent collection, combined with rental
growth. It also compares favourably with commercial property
sectors, such as retail and offices, which are still affected by
COVID uncertainty.
In student accommodation, we delivered seven schemes with 3,192
beds ahead of the start of the 2021/22 academic year. Revenues were
15% higher at GBP259.9 million (FY20: GBP226.0 million). Investor
demand remains resilient, as they continue to see long-term
consumer demand for a UK university education, based on on-campus
teaching. Institutions therefore continue to acquire assets at
robust prices. These conditions support our aspirations for this
business, with over 7,800 beds in our secured development
pipeline.
During the year, we made good progress with our affordable
housing pilot. This included forward selling 159 affordable homes
at the site in Crewe. The residential business achieved revenue of
GBP22.7 million, down 13.7% on FY20 (GBP26.3 million). Revenues in
FY20 benefited from the completion of a 35-apartment development in
Chester, which had been sold on a turnkey basis, and in FY21 we
suffered some build completion delays at our site in Preston.
Fresh delivered another good performance, with revenues of
GBP7.8 million (FY20: GBP7.6 million), though its revenues were
impacted to a degree by the lower student occupancy during the
year, which reduced its variable fee income. The business
demonstrated its capabilities during the pandemic, working closely
with tenants, students, their parents and other key stakeholders,
including universities and the NHS. The strength of its performance
has helped Fresh to stand out from other operators, enhanced its
reputation with institutional clients and contributed to a further
increase in units under management. At the end of the year, Fresh
had 22,155 student beds and apartments under management. By 2024,
it is currently contracted to manage around 23,900 units, including
expected renewals.
Strategy
Our performance in the year demonstrates the success of our
strategy to date. Since the end of the year, we have confirmed our
intention to pivot our residential division from a pure developer
of homes for sale to an affordable housing led business and have
renamed it our Affordable Homes division. There is huge demand for
more social housing in the UK and we are pleased to be able to
contribute to meeting this pressing need, with the potential to
benefit many thousands of people in the coming years.
The move also brings Affordable Homes into line with the
business model for other development operations. Rather than build
homes and then sell them, which incurs risk and ties up working
capital, we will forward sell the developments to institutions.
This de-risked, capital-light model offers us high returns on
capital. Institutional demand is also strong. The market for our
developments will naturally include registered providers such as
housing associations, but financial investors are also attracted to
affordable housing, given the low-risk rental payments which are
effectively backed by government.
Enhancing our approach to ESG
ESG is a prerequisite for delivering our growth plans. Being a
responsible business supports our ability to build strong
relationships with our supply chain, planning authorities and
residents amongst others. It is also increasingly important for our
institutional clients who want their partners to reflect their own
standards. During the year, we spent considerable time refining our
approach to ESG.
Our approach encompasses three key themes: people, places and
planet. Health and safety is the number one topic in our business.
The enhanced protocols required by COVID inevitably slow activity
on site, so it has been necessary to find ways to increase our
productivity and keep our programmes on track, without compromising
safety. The fact that we have successfully completed our
developments while working as safely as ever is testament to our
focus. Our incident rate, which is the number of incidents recorded
per 100,000 employees, was 102 (FY20: 128), which compares with
2,760 for the wider industry (source: HSE).
The wellbeing and mental health of our people has been a big
focus for us in the last year, in light of the ongoing pandemic. We
have also been thinking hard about how to offer long-term,
meaningful and rewarding careers, recognising that being a
responsible business is good for employee engagement. To support
our efforts, we have recruited our first Chief People Officer.
COVID has also put the importance of having the right culture
into sharp relief. Over the last couple of years, we have been
working to define what great looks like, so we can empower our
people to take responsibility for delivery. At the same time, we
want to maintain our ability to be entrepreneurial and seize
opportunities as they arise, as we did with land purchases during
the year.
Cladding remediation
In FY20, we set aside a provision of GBP15 million for remedial
works on cladding. The cladding remediation programme is
progressing well and we expect to complete the work over the next
two years. As we have previously noted, while we do not have legal
liability to address this, we feel it is the right thing to do. The
cost of the cladding works, which is being shared with the property
owners, continues to be in line with our original estimates.
In February 2021, the Government announced a tax on the profits
of residential developers, combined with a planning gain levy on
future developments, to recoup a portion of the cost of its
high-rise cladding replacement support scheme. Profits on PBSA
developments are to be excluded from the residential property
developer tax but profits from BTR developments are likely to be
within scope.
We are supportive of the Government's announcement on 10 January
2022 regarding its intention to protect individual leaseholders
from bearing the cost of the remediation of unsafe cladding on
medium-rise buildings. We are engaging with the Government to
clarify its plans in this regard and to confirm whether pro-active
remediation will be taken into account.
We note the Government's intention for leaseholders to be able
to demand compensation for building safety defects up to 30 years
old, noting that historically, the business focused on general
contracting work for properties in the commercial, retail and
industrial sectors, as well as houses for private sale, rather than
residential leasehold developments.
We will provide an update on any implications for the Group as
these plans evolve into clear proposals.
Board and management
Grenville Turner and Phil Byrom stepped down from the Board
towards the end of 2021. Watkin Jones went from strength to
strength under Grenville as Chair and Phil made a major
contribution to the Group in his many years as CFO and was a
particular support for me when I joined as CEO. I want to express
my huge thanks to them both and welcome Alan Giddins and Sarah
Sergeant as our new Chair and CFO. We are delighted to have them on
board.
Outlook
We continued to make good progress during the year. Our
development capability, combined with favourable market dynamics
and our capital-light business model, has enabled us to deliver
strong operational and financial performance. In particular, we
continued to enhance our BTR and PBSA development pipeline, which
has an estimated future revenue value to the Group of c.GBP1.8
billion, our largest ever. This gives us excellent visibility of
revenues over the next few years. Together with the ongoing re --
focusing of our residential business into the affordable housing
market, we are confident that we have a robust platform for
sustained earnings growth and we expect to make further progress in
the coming year.
Richard Simpson
Chief Executive Officer
18 January 2022
Operating review
Build To Rent
BTR continues to gain momentum, with five developments completed
as planned in the second half of the year. These were the schemes
in Reading, Stratford, Sutton and Wembley, all of which had been
forward sold prior to the start of the year, and the Leicester
development, which was sold on a turnkey basis during FY21. In
total, these schemes comprised 1,041 apartments.
This activity resulted in a significant increase in BTR revenues
in FY21. Revenues rose from GBP94.0 million in FY20 to GBP138.6
million this year, representing growth of 47.4%.
BTR gross profit for the year doubled to GBP29.8 million (FY20:
GBP14.9 million), resulting in a gross margin of 21.5% (FY20:
15.8%). The strong gross margin for FY21 reflects our operational
performance in efficiently finishing the schemes completing in the
year, with good control of costs. In addition, we only had one new
forward land sale in the year. The land sale element of our forward
sales agreements are typically at a lower margin than the
subsequent development revenues and a higher volume of land sales
would therefore normally reduce the overall margin for the year. We
will continue to target BTR margins at 15% in the medium term.
During the year, in addition to the turnkey sale of the 184 --
apartment Leicester scheme, we forward sold a 216-apartment
development in Hove for delivery in FY23. Subsequent to the year
end, we completed the forward sale of a development for 322
apartments in Lewisham to be delivered in two phases in FY23 and
FY24.
We have added attractive new sites to our BTR pipeline. During
the year, we secured a site in Belfast for 778 apartments and a
site in Edinburgh for 450 apartments, both subject to planning.
After the year end, we secured a site for 214 apartments in
Leatherhead, with the benefit of planning. We are working on a
number of other site acquisitions.
We also continued to obtain planning permissions, securing
consent for a 551-apartment scheme in central Birmingham and 316
apartments in Bath, as part of a mixed-use scheme including PBSA.
The Birmingham scheme is our largest consented BTR development to
date.
The current BTR secured development pipeline is shown in the
table below:
BTR apartments
-------------- ---- -------------- ----- -----
Total pipeline FY22 FY23 FY24 FY25
---------------------------------- -------------- ---- -------------- ----- -----
Forward sold 609 71 354 184 -
Forward sales in legals 765 - - 486 279
Sites secured with planning 359 - 43 - 316
Sites secured subject to planning 2,279 - - 631 1,648
---------------------------------- -------------- ---- -------------- ----- -----
Total secured 4,012 71 397 1,301 2,243
---------------------------------- -------------- ---- -------------- ----- -----
The estimated future revenue value to the Group of the secured
development pipeline is c.GBP0.95 billion (FY20: c.GBP0.9 billion),
of which c.GBP197 million is currently forward sold (FY20: c.GBP90
million).
The BTR market opportunity
Several factors are creating strong demand for BTR
accommodation, as increasing numbers of people rent their homes for
the medium to long term.
There is a long-standing structural supply and demand imbalance
in the UK housing market, with new homes completed each year
generally falling well short of the government's annual target of
300,000.
Urbanisation is another important factor. The UK has one of the
highest rates of urbanisation, which influences issues such as
infrastructure constraints, competition for land, planning,
logistics and housing affordability. Many of the locations where we
see the greatest potential for BTR are in urban areas with
universities, where education leads to employment and the need for
housing.
Across the market as a whole, 92.5% of the BTR units currently
completed, under construction or in planning are in urban
areas.
Lifestyles are also changing. People are increasingly getting
married and having children later, delaying the point at which they
buy a house. Young people in particular often see renting as a
better lifestyle choice, providing quality of living while
maintaining flexibility, in the expectation of changing jobs more
frequently than in the past. BTR also offers good home working
facilities, combined with a sense of community, which is likely to
be increasingly attractive given the change in working patterns
caused by the pandemic.
With consistently strong demand for housing, the supply of BTR
apartments continues to grow. At Q2 2021, the total number of BTR
apartments completed, under construction or in the pipeline
amounted to c.196,000 units, up 17% on a year earlier.
Of these, just over 62,000 had been completed. At full maturity,
the BTR sector could grow to 1.75 million units (source: Savills,
August 2021), providing significant scope for growth.
Ownership of UK rented housing is fragmented, with only around
3% estimated to be owned by institutional investors (source:
British Property Foundation). This is well below the levels seen in
countries with more mature rental markets. While the largest UK
owners have several thousand units each, both Germany and the USA
have investors who own more than 100,000 units each (source:
Savills, August 2021).
Institutions are increasingly attracted to BTR assets in the UK,
which provide high income security with occupancy and rent
collection rates typically over 95%. CBRE estimates that around
GBP1.5 billion was invested in BTR in the first six months of 2021,
up 34% over the same period in 2020. Major institutions such as
Goldman Sachs and Macquarie have entered the market to buy BTR
developments this year.
The sector has historically been dominated by domestic capital,
but Knight Frank estimates that more than 60% of the investment in
BTR in H1 2021 came from outside the UK.
While BTR yields have remained broadly stable in recent years,
the strong institutional demand is putting yields under downward
pressure. The reduction in corporate debt rates of 66 bps between
Q1 2020 and Q2 2021 has also increased the spread between prime BTR
yields and the cost of debt to its highest level in more than six
years, creating room for yield compression (source: Savills).
Student Accommodation
During the year, we completed all seven PBSA developments (3,192
beds) due for delivery ahead of the 2021/22 academic year. This
contributed to revenues of GBP259.9 million, up 15.0% from the
GBP226.0 million recorded in FY20. PBSA revenues include the rental
income of our six historic leased PBSA assets. Lower student
occupancy as a result of the pandemic reduced this revenue by
c.GBP5.0 million, which was within our guidance.
Gross profit was GBP50.5 million, down 7.0% (FY20: GBP54.3
million), giving a gross margin of 19.4% (FY20: 24.0%). The reduced
gross margin was primarily as a result of the reduction in the
level of rental income from the leased assets and the lower margin
associated with new forward land sales in the year. The underlying
margin from development activity was in line with our
expectations.
Against the backdrop of the ongoing disruption caused by the
pandemic, we successfully completed all the developments due for
delivery in FY21 on time, with the exception of a small delay in
the delivery of one scheme in Glasgow for which the build programme
was heavily impacted by the Scottish Government's enforced closure
of construction sites in 2020. Acceleration measures had been
negotiated with the client for this development to ensure it could
still be delivered ahead of the start of the new academic year.
We achieved a number of new sales in the year. These comprised a
462-bed scheme in Leicester, which was sold on a turnkey basis and
was one of the seven developments that we completed in FY21, and
six new forward sales for 1,687 beds for delivery in FY22. These
were in Bristol (291 beds), Edinburgh (645 beds), Exeter (133
beds), Leicester (250 beds) and York (368 beds).
The Exeter scheme is our first fully co-living studio scheme,
available to rent to the wider residential tenant market, including
students.
Subsequent to the year end, we concluded forward sales
agreements for a scheme in Colchester (286 beds) and a further
scheme in Edinburgh (295 beds and 20 affordable units), for
delivery in FY23.
We also made good progress with adding to our development
pipeline. During the year, we secured sites subject to planning in
Edinburgh (c.390 beds), South London (c.750 beds) and East London
(c.390 beds). We also secured sites in Nottingham (354 beds) and
Swansea (370 beds), on which we have obtained planning, and after
the year end we secured a site with the benefit of planning in
Bedminster (819 beds). Significant planning consents were also
obtained for 523 beds in Birmingham and for 335 beds in Bath, as
part of the mixed -- use scheme that includes BTR.
The current PBSA secured development pipeline is as shown in the
table below:
PBSA beds
-------------- ----- --------- ----- ----
Total pipeline FY22 FY23 FY24 FY25
---------------------------------- -------------- ----- --------- ----- ----
Forward sold 2,547 1,946 601 - -
Forward sales in legals 252 - - 252 -
Sites secured with planning 2,401 - 1,020 1,381 -
Sites secured subject to planning 2,606 - 350 1,507 749
---------------------------------- -------------- ----- --------- ----- ----
Total secured 7,806 1,946 1,971 3,140 749
---------------------------------- -------------- ----- --------- ----- ----
The estimated future revenue value to the Group of the secured
development pipeline is c.GBP0.9 billion (FY20: GBP0.6 billion), of
which c.GBP160 million is currently forward sold (FY20: c.GBP215
million).
The PBSA market opportunity
The number of full-time students in the UK is a key determinant
of demand for PBSA. In 2019/20, there were around two million full
-- time students, up 3.9% on the previous year.
Undergraduate numbers rose 2.3% in 2019/20 to just over 1.6
million, while postgraduate numbers increased by 10.5% to 0.4
million. Overall, student numbers are up 14% over the last five
years.
Trends in demand for university places remain positive. 2021
brought the first increase in the number of 18 year olds in the UK
since 2015, a trend set to continue until 2030. At the same time,
the proportion of 18 year olds applying for higher education
continues to grow, reaching a record 41.5% (source: Cushman &
Wakefield) of which a record 89.1% of applications were
accepted.
UCAS data for 2021 shows a 17.1% increase in applications from
non-EU countries, in particular India (up 42%), China (up 31%) and
the USA (up 28%). The change in the Tier 4 visa rules is one factor
making UK higher education more attractive. Chinese and American
students are respectively 2.2 times and 1.9 times more likely to
live in PBSA than UK students (source: Savills).
EU student numbers fell by around 17,000 or 40%. This is likely
to be the result of Brexit, which has led to higher tuition fees
for EU students and the withdrawal of financial support from
Student Finance England. While EU student numbers may decline
further, they make up only 6-7% of the market (against 19% for
non-EU) and there is more than enough demand from other sources to
compensate.
While COVID disrupted the number of UK and international
students who were able to take up accommodation for the 2020/21
academic year, the pandemic is only expected to have a short --
term effect on occupancy. Students clearly prefer to study away
from home at their chosen university and more normal occupancy
levels are anticipated for 2021/22.
A notable trend in higher education is the 'flight to quality'.
With universities charging the same tuition fees and no cap on
student numbers, better institutions have grown and lower-quality
institutions have struggled. The latest data show that high-tariff
institutions recorded a 13.2% increase in acceptances, compared to
only 1.1% for low-tariff universities. This has clear implications
for the location of new PBSA developments.
There is a long-term demand-supply imbalance for PBSA, which is
only expected to increase, with the predicted annual increase in
the number of students exceeding the supply of new beds. There are
currently around 681,000 PBSA beds in the UK (source: Cushman &
Wakefield), with privately owned PBSA accounting for more than 51%
and the private sector delivering 85% of the new beds this year. In
total, around 20,000 new private sector rooms were delivered in
2020/21, against an original expectation of 35,000, with COVID
causing developers to push some projects back. The total
development pipeline nationwide stands at 115,000 beds, of which
around 67,000 have full planning approval.
Much PBSA stock is outdated and needs redevelopment, presenting
further opportunities. Around one quarter of total PBSA was built
pre-1999 and university accommodation is even more dated, with
around 50% built pre-1999 and 74% pre -- 2009 (source: Cushman
& Wakefield).
Institutional investors are attracted to UK PBSA as a mature,
stable and income -- producing asset class. The investment market
remains very active, with GBP2.0 billion of assets traded in the
first half of 2021 (source: Knight Frank). This followed a record
GBP6.0 billion in 2020, although GBP4.7 billion of this was
accounted for by a single large transaction.
Since the start of 2020, a number of new investors have entered
the sector, demonstrating continued confidence in the sector's
ability to deliver attractive returns.
Affordable Homes
Revenues for the Affordable Homes division amounted to GBP22.7
million, compared to GBP26.3 million for FY20, a reduction of
13.7%. The business achieved 79 sales completions in the year
(FY20: 95). These sales were primarily of traditional housing at
our sites in North Wales, Macclesfield and Preston, and continued
sales of apartments in Bath.
The reduction in revenues was mainly due to build delays at the
Preston site, where the build programme had initially been
suspended during the early stages of the pandemic and we
experienced some challenges on-site, which have since been
addressed. In addition, revenues in FY20 benefited from the
completion of a 35-apartment scheme in Chester, which had been sold
on a turnkey basis.
Gross profit for the year was 36.7% lower at GBP2.6 million
(FY20: GBP4.0 million), representing a margin of 11.3% (FY20:
15.4%). The reduction in gross profit reflects the lower sales
volume, as well as a lower margin due to the mix of sales, which
included a number of units at the older developments in
Macclesfield and Bath that were cleared at low margins.
Significantly, we made good progress with our North West
affordable homes pilot, paving the way for transitioning the
residential business to be an affordable housing -- led
developer.
In the year, we secured sites in Crewe (245 units) and Llay,
Wrexham (51 units), on which we obtained planning, and we have
forward sold:
-- 159 affordable homes at the Crewe site to Plus Dane Housing,
whose bid was successfully supported by grant funding from Homes
England. These units are to be delivered over the period FY22 to
FY26; and
-- 23 affordable homes at the Llay site to Adra, for delivery
over a two-year period once site works can commence
The balance of the units at Crewe and Llay are for open-market
sale.
We continue to progress a number of other site opportunities for
affordable homes developments.
As part of our plans to transition the residential business, we
have restructured its operations in order to support the scaling up
of its delivery capabilities and to align its site acquisition and
planning processes with those of the wider Group, creating a
focused affordable homes investment hub. We have also evaluated
suitable alternative modern methods of construction, in order to
support higher build volumes in a sustainable way, and we will be
trialling timber frame construction on the Crewe site.
We expect that Affordable Homes will start to contribute to
Group revenues from FY22.
The affordable homes market opportunity
Affordable housing is defined by the National Planning Policy
Framework as housing for sale or rent, for people whose needs are
not met by the market.
There are several different types of affordable housing. One
example is social rent, where homes are owned by local authorities
or registered providers (such as housing associations). Social
rents are set by government guidelines and usually covered by
housing benefit or local housing allowance. There are also homes
with affordable rents, which are subject to rent controls that
require the rent to be no more than 80% of the local market rent,
including service charges. In addition, there are tenures such as
shared ownership and other forms of low-cost home ownership, where
people are supported to buy some or all of the equity in their
home.
There is significant unmet demand for affordable housing. The
National Housing Federation estimates that the UK needs 145,000 new
affordable homes to be built each year. However, the average annual
delivery since 2013 has been just 46,000 homes.
Property developers looking to secure planning consent from
local authorities will usually be required to undertake what are
known as s106 requirements, designed to reduce the impact of their
development on the local community. These requirements often
include constructing affordable housing. Around 50% of all
affordable housing is delivered in this way.
Historically, the balance has been provided by housing
associations, usually with grant support from bodies such as Homes
England and the Greater London Authority. Homes England's grant
funding for the next four to five-year period from 2021 is likely
to be c.GBP12 billion, a significant uplift on the GBP9 billion for
the period from 2016 to 2021.
There has also been a steep rise in private capital looking to
deploy into affordable housing, due to the sector's favourable
long-term demand, the return characteristics, the potential for
growth and insulation from volatility. Affordable housing also
provides the best opportunity for social impact and investors are
increasingly looking for opportunities to enhance their ESG
credentials.
More generally, affordable housing is a key focus for all
political parties. Legislation therefore tends to be supportive of
the affordable homes market. The government's proposed planning
reforms have a number of key themes that support our approach to
affordable housing, including an emphasis on affordability,
building communities and developing in an environmentally and
socially responsible way.
Accommodation Management
Fresh achieved revenues of GBP7.8 million (FY20: GBP7.6
million). The increase was supported by the growth in the number of
beds under management at the start of FY21 (20,179), compared to
the start of FY20 (17,721). However, while the majority of Fresh's
revenues derive from fixed management fees, a proportion varies
with student occupancy and this element was reduced as a result of
the pandemic, suppressing revenue growth overall.
Gross profit was GBP4.1 million, down from GBP4.5 million in
FY20. This represented a margin of 52.6% (FY20: 59.8%). The lower
margin reflects the loss of variable fee income. In a normal year,
we expect Fresh to generate a gross margin of around 60%.
Fresh had a successful year for new business, winning mandates
for 4,296 student beds and BTR apartments across ten sites. These
were a mix of new schemes and taking on existing schemes from the
previous operator. At 30 September 2021, Fresh was managing 22,155
student beds and BTR apartments across 69 schemes. The business is
currently appointed to manage 23,885 beds and apartments by FY24,
including expected renewals.
Continuing to support its student customers and clients through
the pandemic was a major focus for Fresh during the year. The
business had demonstrated its credentials in FY20 when it received
COVID-secure accreditation from the British Safety Council and it
continued to employ rigorous safety protocols during FY21. Fresh's
Be wellbeing programme was also key for supporting residents. It
provides online communities, support and advice, helping people to
remain connected during a difficult period.
Fresh's service quality was reflected in its performance at the
National Student Housing Awards 2021, where it won more awards than
any other operator. These were: Best Private Halls Provider UK;
Best Private Halls Provider ROI; Best Student Wellbeing UK; Best
Student Wellbeing ROI; Best Customer Service ROI; and Best Learning
Environment - Calico Liverpool.
Fresh also received the International Accommodation Quality Mark
for the UK and ROI and had 23 team members nominated as Student
Accommodation Heroes.
In the Global Student Living Survey, Fresh achieved a net
promoter score of +32, against a benchmark figure for large
providers of +12 and university halls of -8.
During the year, we launched our new management platform, Yardi,
for our BTR schemes. The platform has been built specifically for
Fresh and the needs of our clients and residents. It means we have
a single platform from our website and point of enquiry, all the
way through to client reporting, with live data at the touch of a
button. A fully integrated app supports the residents' experience,
enabling them to manage all aspects of their tenancy and to connect
with our teams and their neighbours. We are already seeing good
improvements in our website performance and positive feedback from
residents. We started to roll out Yardi for our student schemes in
October 2021, helping to drive efficiencies for us and our
clients.
The accommodation management market opportunity
The market for professional accommodation management services
continues to grow, as institutional investors seek management
partners to work with them to drive the performance of their PBSA
and BTR assets.
Overall growth in the market is directly linked to demand for
new student accommodation and BTR developments, as described above.
Opportunities for accommodation management providers continue to
arise as new buildings are completed. There is also a growing
secondary market as existing contracts expire and are retendered.
In recent months, we have seen an increase in portfolios of PBSA
assets for sale, which creates opportunities to manage those assets
on behalf of new owners once deals complete.
In previous years, the pipeline of opportunities for Fresh was
dominated by PBSA assets, reflecting the much greater number of
such schemes compared to BTR. We are now seeing a marked increase
in the number of BTR schemes that are available to tender.
In addition, we see exciting potential in the co-living market,
where the properties are highly similar to PBSA and offer a good
halfway point between student accommodation and BTR. This makes
them highly suitable for new graduates, for example.
Many of the larger accommodation managers are the in-house arms
of owner operators. The pool of pure third-party operators remains
small, with Fresh being the largest third-party manager of student
property in the UK.
Successful operation in the market requires sufficient scale to
invest in the infrastructure and the specialist skills required. At
least 5,000 beds under management is seen as the minimum level,
making it difficult for new operators to enter the market. As a
result, no notable new entrants have been seen in the student
market in recent years. A similar dynamic is expected in the BTR
market as it develops and Fresh will be looking to leverage its
experience and expertise in the PBSA market to secure its position
in the BTR space.
Financial review
The Group delivered a robust financial performance in the year,
demonstrating the resilience of the business against the backdrop
of the ongoing COVID pandemic.
Highlights
FY21 FY20
GBPm GBPm Change
------------------------------------------ ------ ------ -------
Revenue 430.2 354.1 +21.5%
Gross profit 84.8 75.9 +11.7%
Administrative expenses (27.5) (24.2) +13.5%
------------------------------------------ ------ ------ -------
Operating profit before exceptional items 57.3 51.7 +10.8%
Exceptional costs - (20.5)
------------------------------------------ ------ ------ -------
Operating profit 57.3 31.2 +83.3%
Share of (loss)/profit in joint ventures (0.1) 0.2
Net finance costs (6.1) (6.1)
------------------------------------------ ------ ------ -------
Profit before tax 51.1 25.3 +101.9%
Income tax expense (9.2) (4.2)
------------------------------------------ ------ ------ -------
Profit for the year 41.9 21.1 +98.8%
------------------------------------------ ------ ------ -------
Basic earnings per share 16.4p 8.2p +98.5%
Adjusted basic earnings per share 16.4p 14.7p +11.2%
Dividend per share 8.2p 7.35p +11.6%
------------------------------------------ ------ ------ -------
Revenue
Revenue grew strongly to GBP430.2 million, up 21.5% from
GBP354.1 million in FY20, reflecting increased revenues from our
BTR and PBSA development activities.
BTR development revenues were 47.4% higher at GBP138.6 million
(FY20: GBP94.0 million) and arose from the five developments that
were completed in the year, as well as the forward sale of our site
in Hove. This strong revenue performance was achieved despite lower
than anticipated forward land sales in the year, with the forward
sale of our scheme in Lewisham completing shortly after the year
end.
Revenues from our PBSA development business were GBP259.9
million (FY20: GBP226.0 million), an increase of 15.0%, driven by
the seven schemes that were completed in the year and good progress
on the schemes in build for delivery in FY22.
In addition, revenues benefited from the forward sale of two
development sites in Edinburgh and one in Exeter in the second half
of the year. PBSA revenues also include the rental income from our
six leased student accommodation assets. The rental income on these
was reduced by c.GBP5.0 million, compared to a normal year, as a
result of the lower student occupancy caused by the pandemic. This
revenue reduction was at the lower end of our previous
guidance.
The Affordable Homes business delivered revenues of GBP22.7
million, down 13.7% on the GBP26.3 million recorded in FY20.
Revenues in the prior year included c.GBP5.3 million from the
completion of a 35-apartment scheme in Chester which had been sold
on a turnkey basis. However, revenues in FY21 were c.GBP4.0 million
lower than anticipated due to build delays at our site in Preston.
The affordable housing pilot is expected to contribute to revenues
from FY22.
Fresh, our Accommodation Management business, achieved revenues
of GBP7.8 million (FY20: GBP7.6 million). There was good underlying
growth in the number of PBSA beds and BTR apartments under
management, up 13.9% from 17,721 at the start of FY20 to 20,179 at
the start of FY21. However, whilst Fresh's management fee income is
largely fixed, a proportion is variable based on the level of
occupancy and this was reduced by approximately GBP0.8 million as a
result of the pandemic.
In addition to our core businesses, we recorded revenues of
GBP1.3 million (FY20: GBP0.3 million) from developing commercial
property alongside PBSA and BTR developments. This is reported
within our Corporate segment. The revenues for FY21 related to the
fitting out of an academic space in Duncan House, Stratford, which
we have exchanged contracts to sell on completion of the fit-out
works in FY22.
Gross profit
Gross profit for the year was GBP84.8 million (FY20: GBP75.9
million), an increase of 11.7%. This resulted in a gross margin of
19.7% (FY20: 21.4%).
BTR development gross profit doubled in the year to GBP29.8
million (FY20: GBP14.9 million), reflecting both the strong revenue
growth and a higher gross margin at 21.5% (FY20: 15.8%). The higher
gross margin was primarily the result of keeping costs well
controlled as we closed out developments in the year, despite the
operational challenges brought about by the pandemic.
The BTR gross margin also benefited from the lower than
anticipated new forward land sales in the year. We typically earn a
lower margin on the land sale element of a forward sale than we do
on the separate contract for development works. Under IFRS 15
'Revenue from Contracts with Customers', the distinct contracts for
the land sale and development works are accounted for separately.
This means that we typically earn a lower margin in the year in
which the land sale occurs, followed by higher margins in the
following years as the development works are undertaken. We
continue to target a gross margin of around 15% in BTR, with a
margin on land sales of up to 10% and a development margin of 16%
to 20%.
In the year, we incurred a charge of GBP3.0 million against the
BTR gross profit in respect of a provision made against the
carrying value of two of our historic BTR operating assets, which
we are holding in inventory for sale, in order to cover the
estimated cost of works to be carried out to improve the
saleability of the assets.
Gross profit from PBSA development was 7.0% lower at GBP50.5
million, compared with GBP54.3 million in FY20. The gross margin
was 19.4% (FY20: 24.0%). This was partly the result of the c.GBP5.0
million reduction in rental income from the leased PBSA assets as
noted above, with the lost revenue feeding directly through to
lower profit. The underlying margin from our PBSA development
activities was approximately 21.7%, with the margin in FY20 having
benefited from there being no new forward land sales at lower
margin in that year and a particularly strong contribution from
several developments in build. Our target margin for PBSA is around
20%, with a margin on land sales of up to 10% and a development
margin of 22% to 25%.
In Affordable Homes, gross profit was GBP2.6 million (FY20:
GBP4.0 million), resulting in a gross margin of 11.3% (FY20:
15.4%). The reduction in gross margin reflects the mix of sales in
the year, with a number of remaining units at the division's older
developments in Bath and Macclesfield cleared at lower margin.
Fresh generated a gross profit of GBP4.1 million (FY20: GBP4.5
million) with the gross margin reducing to 52.6% (FY20: 59.8%) as a
result of the loss of variable fee income related to student
occupancy levels, as discussed above.
Within the Corporate segment we recorded a loss of GBP2.1
million (FY20: GBP1.8 million). The loss in the year primarily
related to an impairment provision made against a historic land
site, following a re-assessment of its intended use. Commercial
property development did not generate any significant profit in
either FY21 or FY20.
Administrative expenses
Administrative expenses increased by 13.5% to GBP27.5 million
(FY20: GBP24.2 million). Overheads in FY20 were suppressed by cost
savings during the pandemic, mainly as a result of lower bonuses,
reduced salaries for a period of time, a reduction in business
travel and measures taken to control discretionary expenditure.
Overhead costs in FY21 have reverted to a more normal level and
reflect an annual increase from FY19 of approximately 6.0%.
Operating profit before exceptional items
Operating profit before exceptional items increased to GBP57.3
million (FY20: GBP51.7 million), at an operating margin of 13.3%
(FY20: 14.6%).
Exceptional items
No exceptional items were incurred in FY21.
In FY20, the Group incurred an exceptional charge of GBP20.5
million, including a GBP14.8 million provision related to remedial
works on cladding and charges totalling GBP5.7 million relating to
additional costs arising from the COVID pandemic, more information
on which can be found in the FY20 annual report.
We utilised GBP4.9 million of the cladding provision in FY20 and
a further GBP1.0 million in FY21. We increased the provision by a
further GBP0.5 million during the year, following receipt of a
successful claim against a consultant who had been engaged on one
of the properties we had remediated. The balance of the provision
of GBP9.4 million is expected to be utilised over the next two
years. In FY21 we undertook cladding remedial works on two
developments, with the timing of the remaining works subject to
agreement with the owners of the properties concerned. The cost of
the cladding works, which is being shared with the property owners,
continues to be in line with our original estimates.
Finance costs
The net finance cost for the year was GBP6.1 million (FY20:
GBP6.1 million). These costs are primarily the finance cost of
capitalised leases under IFRS 16, which totalled GBP4.9 million
(FY20: GBP5.4 million).
The balance of our finance costs are the 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.
Profit before tax
Profit before tax for the year was GBP51.1 million (FY20:
GBP25.3 million). For FY20, adjusted profit before tax, which
excludes the impact of the exceptional items for that year, was
GBP45.8 million.
Taxation
The corporation tax charge was GBP9.2 million (FY20: GBP4.2
million). The effective tax rate of 18% (FY20: 16.7%) was less than
the standard UK corporation tax rate of 19.0%, primarily as a
result of a deferred tax credit relating to the remeasurement of
deferred tax balances to take account of the increase in the
corporation tax rate to 25.0% from April 2023.
The effective tax rate in FY20 was reduced by a prior year tax
credit relating to the taxation of distributions from the Curlew
Student Fund, which had already been taxed at source, and the
higher proportionate benefit relative to the lower profit of
specific tax allowances, including land remediation
expenditure.
Information on our tax strategy can be found in the Investor
section of our website, watkinjonesplc.com.
Earnings per share
Basic earnings per share from continuing operations was 16.4
pence (FY20: 8.2 pence). For FY20, adjusted basic earnings per
share, which excludes the impact of the exceptional items for that
year, was 14.7 pence.
Dividends
The Board has proposed a final dividend of 5.6 pence per share.
Taken together with the interim dividend of 2.6 pence per share,
this will give a total dividend for the year of 8.2 pence per
share. The dividend is 2.0x covered by adjusted earnings, in line
with our stated policy.
In FY20, the Board suspended the interim dividend as a result of
the uncertainty caused by the pandemic. The Company paid a full
year final dividend of 7.35 pence per share.
At 30 September 2021, the Company had distributable reserves of
GBP75.3 million available to pay dividends.
EBITDA
EBITDA increased by 61.2% to GBP65.9 million (FY20: GBP40.9
million), giving an EBITDA margin of 15.3% (FY20: 11.5%). For FY20,
adjusted EBITDA, which excludes the exceptional items for that
year, was GBP61.3 million, representing an adjusted EBITDA margin
of 17.3%.
Return on capital employed
The return on capital employed (ROCE) for the year was strong at
72.1% (FY20: 58.5%), and was consistent with the average of the
three years before the pandemic of 72.6%. Our ROCE performance
reflects the benefit of our capital-light forward sale business
model, with our operating profit generated from a relatively
consistent and modest level of capital employed.
Statement of financial position
At 30 September 2021, non-current assets amounted to GBP124.7
million (FY20: GBP134.7 million), with the most significant item
being the carrying value of the leased student accommodation
investment properties amounting to GBP98.6 million (FY20: GBP104.6
million). Right-of-use assets relating to office and car leases
amounted to GBP4.5 million (FY20: GBP4.8 million). The reduction in
these balances in the year reflects the depreciation charges.
Intangible assets relating to Fresh amounted to GBP12.7 million
(FY20: GBP13.3 million) and were reduced by the amortisation charge
of GBP0.6 million in the year.
We had no significant interest in joint ventures at 30 September
2021, following a reduction in the balance of GBP3.2 million in the
year to GBP17,000. This reduction reflected the distribution of
dividends from our four development joint ventures in Belfast,
which have completed their development activities and are now being
wound up. These dividends were set-off against the amounts owing to
those companies.
Inventory and work in progress was GBP127.6 million. This was
largely unchanged from last year end's position of GBP125.7 million
and reflects the normal churn of sites through the business. In the
year, inventory and work in progress was reduced by GBP44.5 million
as a result of the sale of the Hove site and the Leicester PBSA and
BTR developments, but we spent a similar amount on the acquisition
of the Lewisham and Crewe sites, with the Lewisham site sold
shortly after the year end. In the year, we made impairment
provisions totalling GBP5.0 million against the carrying value of
inventory and work in progress, as discussed in the review of gross
profit.
Contract assets reduced significantly in the year to GBP13.8
million (FY20: GBP41.5 million). These mainly relate to the final
payment balances which are received on completion of developments
in build. The reduction in the year reflects the benefit of the
final payments that were received following the handover of the
developments completed in the period.
Contract liabilities and trade and other payables amounted to
GBP92.0 million and were GBP14.2 million lower than at 30 September
2020, reflecting a lower level of on-site build activity across the
year end relative to a year ago.
The remaining provision for cladding remedial works of GBP9.4
million has been split relatively equally between current and
non-current liabilities, based on our anticipated expenditure over
the next two years. The movement in the provision in the year is
considered under the review of 'Exceptional items' above.
Interest-bearing loans and liabilities stood at GBP12.0 million
at 30 September 2021, down from GBP39.7 million a year ago. The
reduction primarily relates to the repayment of the loans on the
Hove and Leicester sites, on completion of the sales in the year.
The current portion of our loans has increased by GBP4.0 million to
GBP4.7 million, which reflects the March 2022 maturity date of our
facilities with Svenska Handelsbanken AB.
Lease liabilities arising from the adoption of IFRS 16 'Leases'
in the prior year were reduced by GBP5.2 million to GBP129.3
million (FY20: GBP134.5 million), reflecting capital repayments
made in the year of GBP6.1 million and net additions of GBP0.9
million.
Cash and net debt
FY21 FY20
GBPm GBPm
---------------------------------------------------------------------- ------- -------
Operating profit before exceptional items 57.3 51.7
Exceptional items - (8.7)
Depreciation and amortisation 8.7 9.4
Impairment of leased student accommodation property (non-exceptional) - 0.3
(Increase)/decrease in working capital 10.3 2.1
Finance costs paid (6.7) (6.5)
Tax paid (8.2) (10.0)
---------------------------------------------------------------------- ------- -------
Net cash inflow from operating activities 61.4 38.3
Purchase of fixed assets (0.2) (0.2)
Cash flow from joint venture interests 0.1 0.8
Dividends paid (25.5) (14.3)
Payment of lease liabilities (6.1) (6.1)
Cash flow from borrowings (27.9) 0.4
---------------------------------------------------------------------- ------- -------
Increase in cash 1.8 18.9
Cash at beginning of year 134.5 115.6
---------------------------------------------------------------------- ------- -------
Cash at end of year 136.3 134.5
====================================================================== ======= =======
Less: borrowings (12.0) (39.7)
---------------------------------------------------------------------- ------- -------
Net cash before deducting lease liabilities 124.3 94.8
====================================================================== ======= =======
Less: lease liabilities (129.3) (134.4)
---------------------------------------------------------------------- ------- -------
Net debt (5.0) (39.6)
---------------------------------------------------------------------- ------- -------
At the year end, we had a cash balance of GBP136.3 million and
loans of GBP12.0 million, resulting in a net cash position of
GBP124.3 million. At 30 September 2020, we had a cash balance of
GBP134.5 million, loans of GBP39.7 million and net cash of GBP94.8
million.
Net cash balances are stated before deducting the lease
liabilities of GBP129.3 million (30 September 2020: GBP134.5
million), arising as a result of applying IFRS 16. We believe the
net cash balance before deducting lease liabilities is a more
relevant measure for the Group.
The lease liabilities relate primarily to several historic
student accommodation sale and leaseback properties, for which the
future lease rental liabilities are expected to be substantially
covered by the future net student rental incomes to be
received.
In a typical year, the Group's cash balance peaks around the
year end, as we receive the final payments on student accommodation
developments completing ahead of the new academic year, as well as
initial proceeds from the latest forward sales.
The Group is then a net user of cash until the following year
end, as a result of outflows such as tax and dividend payments,
overhead costs and land purchases. The cash balance at the year end
is therefore important for funding our day-to-day cash requirements
and for putting the Group in a strong position when bidding for new
sites.
Our average month end net cash balance during FY21 was GBP44.2
million and had reduced by GBP107.4 million during the year to a
net debt balance of GBP12.6 million at the end of July 2021, before
increasing strongly by GBP136.9 million in the final two months of
the year to the closing net cash position of GBP124.3 million.
The Group's net cash flow from operating activities for the year
was GBP61.4 million (FY20: GBP38.3 million), reflecting a strong
cash flow from our trading operations. The cash flow from operating
activities, before deducting the cash cost of exceptional items,
finance costs and tax payments, was GBP76.3 million (FY20: GBP63.5
million). The working capital balance was reduced by GBP10.3
million, compared to a reduction of GBP2.1 million in FY20.
Finance costs paid totalled GBP6.7 million (FY20: GBP6.5
million), including the finance charges on the capitalised lease
liabilities of GBP4.9 million (FY20: GBP5.1 million), for which the
capital payments amounted to GBP6.1 million (FY20: GBP6.1
million).
Dividends paid in the year totalled GBP25.5 million (FY20:
GBP14.3 million). The dividend payments in FY21 were significantly
higher as they included both the full year dividend for FY20,
following the suspension of the interim dividend for that year, as
well as the interim dividend for FY21. Dividends paid in FY20
comprised only the final dividend for FY19.
Bank facilities
The Group has a GBP100.0 million RCF which runs until May 2025.
At the year end, GBP7.8 million was drawn against the facility (30
September 2020: GBP35.0 million), giving headroom of GBP92.2
million. We also have an undrawn overdraft facility of GBP10.0
million. Total cash and available facilities at 30 September 2021
therefore stood at GBP238.5 million (FY20: GBP209.5 million).
In addition, the Group has loan facilities with Svenska
Handelsbanken AB, which are used to fund our operating build to
rent stock in Sheffield and Droylsden. We are currently progressing
a renewal of these facilities, which run to March 2022. The
outstanding balance at the year end was GBP4.5 million (30
September 2020: GBP5.0 million).
Going concern
We have undertaken a thorough review of the Group's ability to
continue to trade as a going concern for the period to 31 January
2023. The basis of the review and an analysis of the downside risks
is set out in the section on 'Risk management and principal risks'
in the Watkin Jones plc Annual Report for the year ended 30
September 2021.
Alternative performance measures (APMs)
We use APMs as part of our financial reporting, alongside
statutory reporting measures. These APMs are provided for the
following reasons:
1) to present users of the annual report with a clear view of
what we consider to be the results of our underlying operations,
enabling consistent comparisons over time and making it easier for
users of the report to identify trends;
2) to provide additional information to users of the annual
report about our financial performance or position;
3) to show the performance measures used by the Board in
determining dividend payments; and
4) to show the performance measures that are linked to
remuneration for the Executive Directors.
The following APMs appear in this results announcement.
Reconciliation
FY21 FY20
Reason for GBP'000 GBP'000
use
---------------------------------- ---------- --------------------------- ------------ ------------
Adjusted operating profit 1 Operating profit 57,255 31,230
Add: exceptional items - 20,437
--------------------------- ------------ ------------
Adjusted operating profit 57,255 51,667
---------------------------------- ---------- --------------------------- ------------ ------------
Adjusted profit before tax 1,4 Profit before tax 51,121 25,314
Add: exceptional items - 20,437
--------------------------- ------------ ------------
Adjusted profit before
tax 51,121 45,751
---------------------------------- ---------- --------------------------- ------------ ------------
Adjusted basic earnings per share 1,3,4 Profit for the year 41,932 21,092
Add: exceptional items - 20,437
Less: tax on exceptional
items - (3,883)
--------------------------- ------------ ------------
Adjusted profit for the
year 41,932 37,646
Weighted average number
of shares 256,163,459 255,795,659
--------------------------- ------------ ------------
Adjusted basic earnings 16.369 pence 14.717 pence
per share
---------------------------------- ---------- --------------------------- ------------ ------------
EBITDA 1 Operating profit 57,255 31,230
Add: share of (loss)/profit
in joint ventures (87) 199
Add: depreciation 8,128 8,863
Add: amortisation 560 560
--------------------------- ------------ ------------
EBITDA 65,856 40,852
---------------------------------- ---------- --------------------------- ------------ ------------
Adjusted EBITDA 1 EBITDA 65,856 40,852
Add: exceptional items - 20,437
--------------------------- ------------ ------------
Adjusted EBITDA 65,856 61,289
---------------------------------- ---------- --------------------------- ------------ ------------
Adjusted net cash 2 Net debt (4,920) (39,607)
Add: lease liabilities 129,252 134,453
--------------------------- ------------ ------------
Adjusted net cash 124,332 94,846
---------------------------------- ---------- --------------------------- ------------ ------------
Adjusted operating profit
Return on capital employed 1,2 (as above) 57,255 51,667
--------------------------- ------------ ------------
Net assets at 30 September 184,811 167,838
Less: adjusted net cash
(as above) (124,332) (94,846)
Less: intangible assets (12,724) (13,284)
Less: investment property
(leased) (98,567) (104,623)
Less: right-of-use assets (4,468) (4,763)
Add: lease liabilities 129,252 134,453
--------------------------- ------------ ------------
Adjusted net assets at
30 September 73,972 84,775
Adjusted net assets at
1 October 84,775 91,772
--------------------------- ------------ ------------
Average adjusted net assets 79,374 88,274
--------------------------- ------------ ------------
Return on capital employed 72.1% 58.5%
---------------------------------- ---------- --------------------------- ------------ ------------
Sarah Sergeant
Chief Financial Officer
18 January 2022
Consolidated statement of comprehensive income
for the year ended 30 September 2021
Year ended Year ended
30 September 30 September
2021 2020
Notes GBP'000 GBP'000
----------------------------------------------------------------------------------- ----- ------------ ------------
Continuing operations
Revenue 4 430,211 354,121
Cost of sales (345,430) (278,205)
----------------------------------------------------------------------------------- ----- ------------ ------------
Gross profit 84,781 75,916
Administrative expenses (27,526) (24,249)
----------------------------------------------------------------------------------- ----- ------------ ------------
Operating profit before exceptional items 57,255 51,667
Exceptional costs 5 - (20,437)
----------------------------------------------------------------------------------- ----- ------------ ------------
Operating profit 57,255 31,230
Share of (loss)/profit in joint ventures (87) 199
Finance income 4 251
Finance costs (6,051) (6,366)
----------------------------------------------------------------------------------- ----- ------------ ------------
Profit before tax 51,121 25,314
Income tax expense 6 (9,189) (4,222)
----------------------------------------------------------------------------------- ----- ------------ ------------
Profit for the year attributable to ordinary equity holders of the parent 41,932 21,092
----------------------------------------------------------------------------------- ----- ------------ ------------
Other comprehensive income
Other comprehensive income that will not be reclassified to profit or loss in
subsequent periods:
Net gain/(loss) on equity instruments designated at fair value through other
comprehensive
income 108 (6)
----------------------------------------------------------------------------------- ----- ------------ ------------
Total comprehensive income for the year attributable to ordinary equity holders of
the parent 42,040 21,086
----------------------------------------------------------------------------------- ----- ------------ ------------
Pence Pence
-------------------------------------------------------------------------------------- ------ ------
Earnings per share for the year attributable to ordinary equity holders of the parent
Basic earnings per share 716.369 8.246
-------------------------------------------------------------------------------------- ------ ------
Diluted earnings per share 716.340 8.234
-------------------------------------------------------------------------------------- ------ ------
Adjusted proforma basic earnings per share (excluding exceptional costs) 716.369 14.717
-------------------------------------------------------------------------------------- ------ ------
Adjusted proforma diluted earnings per share (excluding exceptional costs) 716.340 14.696
-------------------------------------------------------------------------------------- ------ ------
Consolidated statement of financial position
as at 30 September 2021
30 September 30 September
2021 2020
Notes GBP'000 GBP'000
------------------------------------------------ ----- ------------ ------------
Non-current assets
Intangible assets 12,724 13,284
Investment property (leased) 9 98,567 104,623
Right-of-use assets 9 4,468 4,763
Property, plant and equipment 3,656 4,376
Investment in joint ventures 17 3,243
Deferred tax assets 4,057 3,313
Other financial assets 1,241 1,133
------------------------------------------------ ----- ------------ ------------
124,730 134,735
------------------------------------------------ ----- ------------ ------------
Current assets
Inventory and work in progress 127,593 125,660
Contract assets 13,810 41,522
Trade and other receivables 28,198 23,518
Cash and cash equivalents 11 136,293 134,513
------------------------------------------------ ----- ------------ ------------
305,894 325,213
------------------------------------------------ ----- ------------ ------------
Total assets 430,624 459,948
------------------------------------------------ ----- ------------ ------------
Current liabilities
Trade and other payables (89,198) (97,300)
Contract liabilities (2,845) (8,967)
Interest-bearing loans and borrowings (4,653) (711)
Lease liabilities 9 (6,113) (6,310)
Provisions (4,667) (6,277)
Current tax liabilities (2,015) (819)
------------------------------------------------ ----- ------------ ------------
(109,491) (120,384)
------------------------------------------------ ----- ------------ ------------
Non-current liabilities
Interest-bearing loans and borrowings (7,308) (38,956)
Lease liabilities 9 (123,139) (128,143)
Provisions (4,732) (3,587)
Deferred tax liabilities (1,143) (1,040)
------------------------------------------------ ----- ------------ ------------
(136,322) (171,726)
------------------------------------------------ ----- ------------ ------------
Total liabilities (245,813) (292,110)
------------------------------------------------ ----- ------------ ------------
Net assets 184,811 167,838
------------------------------------------------ ----- ------------ ------------
Equity
Share capital 2,562 2,562
Share premium 84,612 84,612
Merger reserve (75,383) (75,383)
Fair value reserve of financial assets at FVOCI 536 428
Share -- based payment reserve 2,824 2,348
Retained earnings 169,660 153,271
------------------------------------------------ ----- ------------ ------------
Total equity 184,811 167,838
------------------------------------------------ ----- ------------ ------------
Consolidated statement of changes in equity
for the year ended 30 September 2021
Fair value
reserve of
financial Share-based
Share Share Merger assets at payment Retained
capital premium reserve FVOCI reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- ------- ------- -------- ---------- ----------- -------- --------
Balance at 30 September 2019 2,553 84,612 (75,383) 434 2,311 146,568 161,095
---------------------------------------- ------- ------- -------- ---------- ----------- -------- --------
Profit for the year - - - - - 21,092 21,092
Other comprehensive income - - - (6) - - (6)
---------------------------------------- ------- ------- -------- ---------- ----------- -------- --------
Total comprehensive income - - - (6) - 21,092 21,086
---------------------------------------- ------- ------- -------- ---------- ----------- -------- --------
Share-based payments - - - - 37 - 37
Deferred tax debited directly to equity - - - - - (70) (70)
Issue of shares 9 - - - - - 9
Dividend paid
(note 8) - - - - - (14,319) (14,319)
---------------------------------------- ------- ------- -------- ---------- ----------- -------- --------
Balance at 30 September 2020 2,562 84,612 (75,383) 428 2,348 153,271 167,838
---------------------------------------- ------- ------- -------- ---------- ----------- -------- --------
Profit for the year - - - - - 41,932 41,932
Other comprehensive income - - - 108 - - 108
---------------------------------------- ------- ------- -------- ---------- ----------- -------- --------
Total comprehensive income - - - 108 - 41,932 42,040
---------------------------------------- ------- ------- -------- ---------- ----------- -------- --------
Share-based payments - - - - 476 - 476
Deferred tax debited directly to equity - - - - - (59) (59)
Dividend paid
(note 8) - - - - - (25,484) (25,484)
---------------------------------------- ------- ------- -------- ---------- ----------- -------- --------
Balance at 30 September 2021 2,562 84,612 (75,383) 536 2,824 169,660 184,811
---------------------------------------- ------- ------- -------- ---------- ----------- -------- --------
Consolidated statement of cash flows
for the year ended 30 September 2021
Year ended Year ended
30 September 30 September
2021 2020
Notes GBP'000 GBP'000
Cash flows from operating activities
Cash inflow from operations 10 76,307 54,868
Interest received 4 245
Interest paid (6,638) (6,792)
Tax paid (8,211) (10,035)
--------------------------------------------------------------------- ----- ------------ ------------
Net cash inflow from operating activities 61,462 38,286
--------------------------------------------------------------------- ----- ------------ ------------
Cash flows from investing activities
Acquisition of property, plant and equipment (208) (317)
Proceeds on disposal of property, plant and equipment 4 69
Cash flow from joint venture interests 57 812
--------------------------------------------------------------------- ----- ------------ ------------
Net cash inflow from investing activities (147) 564
--------------------------------------------------------------------- ----- ------------ ------------
Cash flows from financing activities
Dividends paid 8 (25,484) (14,319)
Proceeds from exercise of share options - 9
Payment of principal portion of lease liabilities (6,145) (6,089)
Payment of capital element of other interest -- bearing loans (242) (1,034)
Drawdown of RCF 25,705 20,843
Repayment of bank loans (53,369) (18,499)
Bank loan arrangement fees - (900)
--------------------------------------------------------------------- ----- ------------ ------------
Net cash outflow from financing activities (59,535) (19,989)
--------------------------------------------------------------------- ----- ------------ ------------
Net increase in cash 1,780 18,861
Cash and cash equivalents at 1 October 2020 and 1 October 2019 134,513 115,652
--------------------------------------------------------------------- ----- ------------ ------------
Cash and cash equivalents at 30 September 2021 and 30 September 2020 136,293 134,513
--------------------------------------------------------------------- ----- ------------ ------------
Notes to the consolidated financial statements
for the year ended 30 September 2021
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) and its shares are listed on the
Alternative Investment Market of the London Stock Exchange. The
Company is domiciled in the United Kingdom and its registered
address is 7-9 Swallow Street, London, England, W1B 4DE.
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 2021 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 reporting 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 2021 or
2020, but is derived from those accounts. Statutory accounts for
2020 have been delivered to the Registrar of Companies, and those
for 2021 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 2021 Annual Report to shareholders on 24 January 2022.
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 2021.
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 operated in during FY21 and FY20:
a. Student Accommodation - the development of purpose built
student accommodation;
b. Build To Rent - the development of build to rent
accommodation;
c. Affordable Homes (formerly Residential) - the development of
residential housing; 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 work in progress, no other assets or
liabilities are analysed into the operating segments.
As detailed in the Chief Executive Officer's review, subsequent
to the year end, the Group confirmed its intention to reposition
the Residential division from being a developer of homes for sale
to an affordable housing-led developer, and has renamed it the
Affordable Homes division. Consequently, previous references to the
Residential segment have been changed to Affordable Homes. No
revenues relating to the development of homes under the affordable
homes business model were recorded in FY21 or FY20 and the revenues
for those years relate to the former Residential business.
Affordable
Homes
Student Build (formerly Accommodation
Year ended 30 Accommodation To Rent Residential) Management Corporate Total
September 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------- ------------- ------- ------------ ------------- --------- --------
Segmental revenue 259,882 138,569 22,663 7,762 1,335 430,211
-------------------------------------------- ------------- ------- ------------ ------------- --------- --------
Segmental gross profit 50,464 29,765 2,560 4,081 (2,089) 84,781
Administration expenses - - - (4,229) (23,297) (27,526)
Share of loss in joint ventures (87) - - - - (87)
Finance income - - - - 4 4
Finance costs - - - - (6,051) (6,051)
-------------------------------------------- ------------- ------- ------------ ------------- --------- --------
Profit/(loss) before tax 50,377 29,765 2,560 (148) (31,433) 51,121
Taxation - - - - (9,189) (9,189)
-------------------------------------------- ------------- ------- ------------ ------------- --------- --------
Continuing profit/(loss) for the year 50,377 29,765 2,560 (148) (40,622) 41,932
-------------------------------------------- ------------- ------- ------------ ------------- --------- --------
Profit for the year attributable to ordinary
equity shareholders of the parent 41,932
-------------------------------------------- ------------- ------- ------------ ------------- --------- --------
Inventory and work in progress 25,754 64,086 27,420 - 10,333 127,593
-------------------------------------------- ------------- ------- ------------ ------------- --------- --------
Affordable
Homes
Student Build (formerly Accommodation
Year ended 30 Accommodation To Rent Residential) Management Corporate Total
September 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------- ------------- ------- ------------ ------------- --------- --------
Segmental revenue 226,026 93,991 26,268 7,586 250 354,121
-------------------------------------------- ------------- ------- ------------ ------------- --------- --------
Segmental gross profit 54,285 14,884 4,042 4,540 (1,835) 75,916
Administration expenses - - - (3,432) (20,817) (24,249)
Exceptional costs - - - - (20,437) (20,437)
Share of profit in joint ventures 199 - - - - 199
Finance income - - - - 251 251
Finance costs - - - - (6,366) (6,366)
-------------------------------------------- ------------- ------- ------------ ------------- --------- --------
Profit/(loss) before tax 54,484 14,884 4,042 1,108 (49,204) 25,314
Taxation - - - - (4,222) (4,222)
-------------------------------------------- ------------- ------- ------------ ------------- --------- --------
Continuing profit/(loss) for the year 54,484 14,884 4,042 1,108 (53,426) 21,092
-------------------------------------------- ------------- ------- ------------ ------------- --------- --------
Profit for the year attributable to ordinary
equity shareholders of the parent 21,092
-------------------------------------------- ------------- ------- ------------ ------------- --------- --------
Inventory and work in progress 30,706 53,964 30,656 - 10,334 125,660
-------------------------------------------- ------------- ------- ------------ ------------- --------- --------
5. Exceptional costs
Year ended Year ended
30 September 30 September
2021 2020
GBP'000 GBP'000
------------------------------------------------------------------------------------------ ------------ ------------
COVID costs
COVID additional costs of on-site working and in completing developments - (2,659)
Waiver of academic year 2019/20 final term rents due on leased student accommodation
assets
due to lockdown measures - (1,086)
Impairment of the right-of-use carrying value of leased student accommodation assets due
to
reduced 2020/21 student occupancy - (1,892)
------------------------------------------------------------------------------------------ ------------ ------------
Total COVID costs - (5,637)
------------------------------------------------------------------------------------------ ------------ ------------
Fire safety recladding works - (14,800)
------------------------------------------------------------------------------------------ ------------ ------------
Total exceptional costs - (20,437)
------------------------------------------------------------------------------------------ ------------ ------------
There have been no exceptional items during the year. In the
prior year, a total impairment charge of GBP2,241,000 was
recognised in relation to the carrying value of leased student
accommodation assets. GBP1,892,000 of this impairment charge was
treated as an exceptional item due to the impact of reduced student
occupancy during the 2020/21 academic year as a result of the COVID
pandemic. This element of the total charge was estimated by
comparing the final impairment calculations to a calculation of the
impairment charge using the income forecasts for 2020/21 prepared
prior to the pandemic.
All of the exceptional costs in the prior year were treated as
allowable deductions for corporation tax purposes.
6. Income taxes
Year ended Year ended
30 September 30 September
2021 2020
GBP'000 GBP'000
------------------------------------------------------- ------------ ------------
Current income tax
UK corporation tax on profits for the year 9,635 4,076
Adjustments in respect of prior periods 254 (305)
------------------------------------------------------- ------------ ------------
Total current tax 9,889 3,771
------------------------------------------------------- ------------ ------------
Deferred tax
Origination and reversal of temporary differences 51 455
Adjustments in respect of prior year (13) (10)
Remeasurement of deferred tax for changes in tax rates (738) 6
------------------------------------------------------- ------------ ------------
Total deferred tax (700) 451
------------------------------------------------------- ------------ ------------
Total tax expense 9,189 4,222
------------------------------------------------------- ------------ ------------
Reconciliation of total tax expense
Year ended Year ended
30 September 30 September
2021 2020
GBP'000 GBP'000
----------------------------------------------------------------------------------- ------------ ------------
Profit before tax 51,121 25,314
Profit multiplied by standard rate of corporation tax in the UK of 19% (2020: 19%) 9,713 4,810
Expenses not deductible 110 288
Income not taxable (14) (53)
Remeasurement of deferred tax for changes in tax rates (738) 6
Other differences (123) (514)
Prior period adjustment 241 (315)
----------------------------------------------------------------------------------- ------------ ------------
At the effective rate of tax of 18.0% (2020: 16.7%) 9,189 4,222
----------------------------------------------------------------------------------- ------------ ------------
Income tax expense reported in the statement of profit or loss 9,189 4,222
----------------------------------------------------------------------------------- ------------ ------------
In the Budget 2021, the Government announced that the rate of
corporation tax will increase to 25% from 6 April 2023. The
deferred tax assets and liabilities held by the Group at the start
of the current year have been revalued to reflect this increase.
This resulted in an increase in deferred tax assets of GBP1,004,000
and an increase in deferred tax liabilities of GBP266,000.
7. Earnings per share
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
2021 2020
GBP'000 GBP'000
------------------------------------------------------------------------------------------ ------------ ------------
Profit for the year attributable to ordinary equity holders of the parent 41,932 21,092
Add back exceptional costs for the year (note 5) - 20,437
Less corporation tax benefit from exceptional costs for the year - (3,883)
------------------------------------------------------------------------------------------ ------------ ------------
Adjusted profit for the year attributable to ordinary equity holders of the parent
(excluding
exceptional costs after tax) 41,932 37,646
------------------------------------------------------------------------------------------ ------------ ------------
Number of Number of
shares shares
------------------------------------------------------------------------------------------ ------------ ------------
Weighted average number of ordinary shares for basic earnings per share 256,163,459 255,795,659
Adjustment for the effects of dilutive potential ordinary shares 453,761 367,800
------------------------------------------------------------------------------------------ ------------ ------------
Weighted average number for diluted earnings per share 256,617,220 256,163,459
------------------------------------------------------------------------------------------ ------------ ------------
Pence Pence
------------------------------------------------------------------------------------------ ------------ ------------
Basic earnings per share
Basic profit for the year attributable to ordinary equity holders of the parent 16.369 8.246
Adjusted proforma basic earnings per share (excluding exceptional costs after tax)
Adjusted profit for the year attributable to ordinary equity holders of the parent 16.369 14.717
Diluted earnings per share
Basic profit for the year attributable to diluted equity holders of the parent 16.340 8.234
Adjusted proforma diluted earnings per share (excluding exceptional costs after tax)
Adjusted profit for the year attributable to diluted equity holders of the parent 16.340 14.696
------------------------------------------------------------------------------------------ ------------ ------------
8. Dividends
Year ended Year ended
30 September 30 September
2021 2020
GBP'000 GBP'000
------------------------------------------------------------------------------ ------------ ------------
Interim dividend paid in June 2021 of 2.6 pence (June 2020: nil pence) 6,658 -
Final dividend paid in February 2021 of 7.35 pence (February 2020: 5.6 pence) 18,826 14,319
------------------------------------------------------------------------------ ------------ ------------
25,484 14,319
------------------------------------------------------------------------------ ------------ ------------
The interim dividend that would have been paid in June 2020 was
suspended as a precautionary measure whilst the impact of COVID on
the business was assessed.
The final dividend proposed for the year ended 30 September 2021
is 5.6 pence per ordinary share and will be paid on 25 February
2022 to shareholders on the register at the close of business on 28
January 2022. This dividend was declared after 30 September 2021
and as such the liability of GBP14,345,000 has not been recognised
at that date. At 30 September 2021, the Company had distributable
reserves available of GBP75,332,000 (30 September 2020:
GBP100,816,000).
9. Leases
Set out below are the carrying amounts of right-of-use assets
recognised and the movements during the year:
Investment
property Motor
(leased) Offices vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ---------- ------- -------- -------
Cost
At 30 September 2019 158,231 9,411 1,597 169,239
Additions/adjustment 3,162 - 313 3,475
Disposals - - (478) (478)
--------------------- ---------- ------- -------- -------
At 30 September 2020 161,393 9,411 1,432 172,236
Additions/adjustment 243 721 13 977
Disposals (7) - (471) (478)
--------------------- ---------- ------- -------- -------
At 30 September 2021 161,629 10,132 974 172,735
--------------------- ---------- ------- -------- -------
Depreciation
At 30 September 2019 44,550 4,203 875 49,628
Charge for the year 6,522 791 552 7,865
Disposals - - (341) (341)
--------------------- ---------- ------- -------- -------
At 30 September 2020 51,072 4,994 1,086 57,152
Charge for the year 6,292 791 206 7,289
Disposals - - (439) (439)
--------------------- ---------- ------- -------- -------
At 30 September 2021 57,364 5,785 853 64,002
--------------------- ---------- ------- -------- -------
Impairment
At 30 September 2019 3,457 - - 3,457
Charge for the year 2,241 - - 2,241
--------------------- ---------- ------- -------- -------
At 30 September 2020 5,698 - - 5,698
Charge for the year - - - -
--------------------- ---------- ------- -------- -------
At 30 September 2021 5,698 - - 5,698
--------------------- ---------- ------- -------- -------
Net book value
At 30 September 2021 98,567 4,347 121 103,035
--------------------- ---------- ------- -------- -------
At 30 September 2020 104,623 4,417 346 109,386
At 30 September 2019 110,224 5,208 722 116,154
--------------------- ---------- ------- -------- -------
Investment property (leased) assets relate to the Group's six
student leaseback arrangements. Each of the six leaseback
arrangements are considered to be a separate CGU. The Directors
consider an impairment indication to exist if there is a shortfall
between the annual net rental income generated by each property and
the annual headlease payment due under each lease. The Directors
have reviewed the carrying value of four of these leases where
there is an indication of impairment and compared them to their
respective recoverable amounts. An impairment charge of GBPNil has
been recognised during the year. In the previous year, an
impairment charge of GBP2,241,000 was recognised in respect of one
of the Group's sale and leaseback arrangements - Europa, Liverpool
- because the recoverable amount was less than the depreciated
carrying value of the asset. GBP1,892,000 of this impairment charge
was recognised as an exceptional item in the consolidated statement
of comprehensive income and GBP349,000 was recognised within
Student Accommodation cost of sales.
The recoverable amount for each CGU has been calculated as its
value in use. The valuation technique used is a discounted cash
flow. Due to the bespoke nature of these arrangements, these
valuations are also considered to represent the fair value of each
of the investment property (leased) assets. The key inputs into the
valuation are gross rental income, operating costs, lease term and
an estimated discount rate reflecting the market assessment of risk
that would be applied to each asset. The estimated discount rates
for each property, together with their value in use, are included
in the next table.
Impairment charge/(reversal) Value in use
GBP'000 GBP'000
------------------------------ --------------------------
Year ended Year ended Year ended Year ended
30 September 30 September Lease 30 September 30 September
Discount termination
2021 2020 rate (yields) date 2021 2020
------------------------ -------------- -------------- ------------- ----------------- ------------ ------------
Collegelands, Glasgow - - 5.5% 6 September 2026 12,328 14,244
Europa, Liverpool - 2,241 6.5% 18 March 2030 10,756 12,462
Optima, Loughborough - - 6.0% 18 March 2030 2,166 2,182
Glassyard Building,
London - - 5.0% 10 September 2034 9,984 11,177
Dunaskin Mill, Glasgow - - 5.5% 5 September 2051 54,639 53,059
New Bridewell, Bristol - - 5.5% 12 March 2052 56,125 56,964
------------------------ -------------- -------------- ------------- ----------------- ------------ ------------
Total - 2,241 145,998 150,088
------------------------ -------------- -------------- ------------- ----------------- ------------ ------------
Set out below are the carrying amounts of lease liabilities and
movements during the period:
Year ended Year ended
30 September 30 September
2021 2020
GBP'000 GBP'000
------------------------------------------------------------------- ------------ ------------
At the start of the period 134,453 137,522
Additions 977 3,475
Disposals (33) (455)
Accretion of interest 4,895 5,103
Payments (11,040) (11,192)
------------------------------------------------------------------- ------------ ------------
At the end of the period 129,252 134,453
------------------------------------------------------------------- ------------ ------------
Current 6,113 6,310
Non-current 123,139 128,143
------------------------------------------------------------------- ------------ ------------
Lease liability maturity analysis
Year ended Year ended
30 September 30 September
2021 2020
GBP'000 GBP'000
------------------------------------------------------------------- ------------ ------------
Year one 11,226 11,041
Year two 11,086 10,880
Year three 11,015 10,781
Year four 11,222 10,707
Year five 11,433 10,909
Onwards 142,367 150,554
------------------------------------------------------------------- ------------ ------------
198,349 204,872
------------------------------------------------------------------- ------------ ------------
Group as lessor - operating lease rentals receivable
Year ended Year ended
30 September 30 September
2021 2020
GBP'000 GBP'000
------------------------------------------------------------------- ------------ ------------
Non-cancellable operating lease rentals are receivable as follows:
Within one year 13,514 12,436
Later than one year and less than five years 12,747 573
After five years 16,457 780
------------------------------------------------------------------- ------------ ------------
42,718 13,789
------------------------------------------------------------------- ------------ ------------
The Group acts as lessor in respect of certain commercial
property and for the student accommodation properties operated
under the sale and leaseback arrangements detailed above. The
increase in operating lease rentals receivable at 30 September 2021
compared to the prior year, has arisen as a result of the Group
entering into a ten year sub-lease with the University of Bristol
in September 2021 for the provision of student accommodation at its
New Bridewell property.
10. Reconciliation of profit before tax to net cash flows from
operating activities
Year ended Year ended
30 September 30 September
2021 2020
GBP'000 GBP'000
--------------------------------------------------------------------- ------------ ------------
Profit before tax 51,121 25,314
Depreciation of leased investment properties and right-of-use assets 7,289 7,865
Depreciation of plant and equipment 839 998
Impairment of leased investment properties - 2,241
Amortisation of intangible assets 560 560
Loss/(profit) of disposal of right-of-use assets 6 -
Loss/(profit) on disposal of property, plant and equipment 85 (24)
Finance income (4) (245)
Finance costs 6,051 6,366
Share of (loss)/profit in joint ventures 87 (199)
Decrease/(increase) in inventory and work in progress (1,933) 8,566
Interest capitalised in inventory and work in progress 587 465
Decrease/(increase) in contract assets 27,712 (15,944)
Decrease/(increase) in trade and other receivables (4,680) (10,786)
(Decrease)/increase in contract liabilities (6,122) 3,803
(Decrease)/increase in trade and other payables (5,302) 15,987
(Decrease)/increase in provision for fire safety cladding works (465) 9,864
Increase in share -- based payment reserve 476 37
--------------------------------------------------------------------- ------------ ------------
Net cash inflow from operating activities 76,307 54,868
--------------------------------------------------------------------- ------------ ------------
Major non-cash transactions
There were no major non-cash transactions during the period.
11. Analysis of net cash/(debt)
At beginning Other At end of
of year Cash flow movements year
30 September 2021 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------- ------------ --------- --------- ---------
Cash at bank and in hand 134,513 1,780 - 136,293
Other interest -- bearing loans (631) 242 - (389)
Bank loans (39,036) 27,664 (200) (11,572)
-------------------------------------------- ------------ --------- --------- ---------
Net cash before deducting lease liabilities 94,846 29,686 (200) 124,332
-------------------------------------------- ------------ --------- --------- ---------
Lease liabilities (note 9) (134,453) 6,145 (944) (129,252)
-------------------------------------------- ------------ --------- --------- ---------
Net debt (39,607) 35,831 (1,144) (4,920)
-------------------------------------------- ------------ --------- --------- ---------
At beginning Other
of year Cash flow movements At end of
year
30 September 2020 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------- ------------ --------- --------- ---------
Cash at bank and in hand 115,652 18,861 - 134,513
Other interest -- bearing loans (1,392) 1,034 (273) (631)
Bank loans (37,413) (1,444) (179) (39,036)
-------------------------------------------- ------------ --------- --------- ---------
Net cash before deducting lease liabilities 76,847 18,451 (452) 94,846
-------------------------------------------- ------------ --------- --------- ---------
Lease liabilities (note 9) (137,522) 6,089 (3,020) (134,453)
-------------------------------------------- ------------ --------- --------- ---------
Net debt (60,675) 24,540 (3,472) (39,607)
-------------------------------------------- ------------ --------- --------- ---------
Cash at bank and in hand as at 30 September 2021 includes
GBP53,000 of cash deposited by the Group in an escrow account in
connection with a development in progress, access to which is
contingent upon the completion of certain development works (30
September 2020: GBP814,000). Non -- cash movements relate to the
acquisition of property, plant and equipment under other
interest-bearing loans, the amortisation of bank loan arrangement
fees and changes to the value of lease liabilities as a result of
leases entered into or terminated in the period or due to movements
in the rent inflation rates assumed.
12. Subsequent events
On 21 October 2021, the Group entered into an agreement for the
forward sale of its BTR development in Lewisham, for a
consideration of GBP141,281,000 to be recognised over the duration
of the development works. At 30 September 2021, the Group held an
amount of GBP37,701,000 in stock and work in progress in respect of
this development.
On 11 January 2022, the Department of Levelling Up, Housing and
Communities issued a public letter to developers on cladding and
build safety. The Group will work through any impact as the
suggestions evolve into proposals and there are no associated costs
recorded in these financial statements. At 30 September 2021, the
provision for the remediation or replacement of cladding under
existing government guidelines was GBP9,399,000 (30 September 2020:
GBP9,864,000).
13. Annual report
Copies of this announcement are available from the Company at
7-9 Swallow Street, London W1B 4DE. The Group's annual report for
the year ended 30 September 2021 will be posted to shareholders
shortly and will be available on our website at
www.watkinjones.com.
- ENDS -
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