Half Year Results

RNS Number : 6232Z

Watkin Jones plc

21 May 2019

 

For immediate release

21 May 2019

Watkin Jones plc

('Watkin Jones' or the 'Group')

Half year results for the six months to 31 March 2019

'Delivering Performance'

Watkin Jones plc (AIM:WJG), a leading UK developer and constructor of multi-occupancy residential property assets, with a focus on the student accommodation and build to rent sectors, announces its results for the six months ended 31 March 2019 (the "period").  The Board is pleased to report a successful first six months of the financial year with trading in line with its expectations.

Financial Highlights

	H1 2019	H1 2018	Movement
Underlying results
Revenue	£159.1 million	£158.3 million	+0.5%
Gross profit	£37.6 million	£34.5 million	+9.0%
Adjusted profit before tax1	£26.0 million	£23.6 million	+10.0%
Adjusted EBITDA2	£26.6 million	£24.5 million	+8.6%
Adjusted basic earnings per share1	8.11 pence	7.53 pence	+7.7%
Dividend per share	2.75 pence	2.47 pence	+11.3%
Net cash	£18.3 million	£38.4 million	-

Statutory results
Profit before tax	£23.4 million	£23.6 million	-0.9%
EBITDA2	£24.0 million	£24.5 million	-1.9%
Basic earnings per share	7.31 pence	7.53 pence	-2.9%

Notes

1.    For H1 2019, adjusted profit before tax and adjusted basic earnings per share are calculated before the impact of an exceptional charge of £2.6 million.  This charge relates to the previously announced commitment to compensate the Group's new CEO, Richard Simpson, for the forfeiture of outstanding incentives held in respect of his former employer, of which £2.2 million is a non-cash charge.

2.    EBITDA comprises operating profit from continuing operations plus the Group's profit from joint ventures, adding back charges for depreciation and amortisation. For H1 2019, adjusted EBITDA is stated before the exceptional charge of £2.6 million.

3.    FY 2019 is the first year of adoption by the Group of IFRS 15 'Revenue from Contracts with Customers'. The consequence of adopting the accounting standard has been to account separately for the land and development agreement elements of forward-sold contracts, rather than treating them as a combined agreement.  The effect on the Group's results has been to reduce current period revenues and profit before tax by £613,000.  The prior period comparatives have not been restated.

·      Revenues for the period slightly ahead of the prior half year, continuing to be underpinned by student accommodation development activity, but also reflecting an increased contribution from the Group's other operating divisions.

·      Strong underlying profit growth for the half year, with gross profit increased by 9.0% to £37.6 million (H1 2018: £34.5 million) and adjusted profit before tax increased by 10.0% to £26.0 million (H1 2018: £23.6 million).

·      Gross margin for the six months to 31 March 2019 increased to 23.7% (H1 2018: 21.8%).

·      11.3% increase in the interim dividend to 2.75 pence per share (H1 2018: Interim dividend of 2.47 pence per share), in line with the Group's progressive dividend policy.

·      Net operating cash outflow of £48.8 million for the half year, resulting in a net cash balance at 31 March 2019 of £18.3 million (31 March 2018: £38.4 million), reflecting the annual working capital cycle for the business and a delay in the receipt of a contractual cash payment of £14.0 million (This was subsequently received in April 2019 on conclusion of the legal formalities relating to one of the Group's forward sold student accommodation developments).

Business Highlights

Student Accommodation Development

·      11 developments (5,334 beds) currently forward sold for delivery over the period FY 2019 to FY 2021. This includes the previously announced forward sale in the period of a 599 bed student accommodation development in Wembley, for delivery in FY 2021, and the exchange of contracts for the development of a 245 bed scheme in Swansea, for delivery in FY 2020.

·      A further three developments (594 beds) for delivery in FY 2019 and FY 2020 are currently in legals for sale.

·      In the period the Group exchanged contracts for the purchase of a prime site in Selly Oak, Birmingham, on which it expects to develop 608 student beds, subject to planning, for delivery in FY 2022.

·      Total development pipeline of over 9,000 student beds across 20 sites, targeted for delivery between FY 2019 and FY 2022.

·      Longer term pipeline continues to evolve with a number of additional sites under offer.

Build to Rent Development ("BtR")

·      Development of the 315 apartment scheme in Reading for M&G Real Estate progressing well and work commenced on the 300 apartment scheme in Wembley for Singaporean investors, both for delivery in FY 2021.

·      In the period the Group secured a significant development site in Woking, on which it expects to develop 336 apartments, subject to planning, for delivery in FY 2023 and obtained the planning consents for its 166 apartment scheme in Sutton, London, and for a 90 apartment scheme in Belfast, Northern Ireland, both for delivery in FY 2021.

·      In total, the Group now has a secured development pipeline, including Reading and Wembley, of eight sites, from which it is targeting to deliver approximately 1,800 apartments over the period FY 2020 to FY 2023. Five of these sites have planning (1,031 apartments). The Group is actively negotiating on several other opportunities.

·      The Group continues to explore the opportunity of creating a separate BtR investment vehicle and will update shareholders further as appropriate.

Accommodation Management

·      At the start of FY 2019, Fresh Property Group ('FPG') had 15,421 student beds and BtR apartments under management across 56 schemes (H1 2018: 16,617 beds and apartments across 57 schemes), with the reduction reflecting the previously announced loss of 4,597 student beds following a portfolio sale by the Curlew Student Trust, offset by strong underlying growth.

·      FPG is currently appointed to manage 21,018 units across 73 schemes by FY 2022.

Residential

·      Robust level of sales activity in the first half of the year, with 53 homes and apartments sold in the Division's core North West market (H1 2018: 28 sales).

·      22 affordable residential apartments which form part of the Group's mixed-use development at Stratford, London, sold in the period.

Commenting on the interim results, Richard Simpson, Chief Executive Officer of Watkin Jones plc, said: "We are pleased to report another strong set of results, in-line with our expectations. The financial performance of the Group continues to be underpinned by robust student accommodation development activity and we are very encouraged by the increased contribution from the Group's other operating divisions.

Institutional investor demand for our student accommodation developments is strong and we continue to see quality new investors entering the market, such as DWS at Wembley.  Similarly, investor momentum is growing in the BtR market, with a significant increase in reported transaction volumes in the first quarter of 2019.  The majority of these transactions are forward fund purchases of assets, which plays to Watkin Jones strategy and heritage.  We are able to leverage our proven expertise in developing and managing multi-occupancy residential rental accommodation and to continue be a partner of choice for institutional clients looking for scale.

I continue to be very excited by the opportunities in this business, seeing the market dynamics for both student accommodation and BtR so strongly supportive of the Group's forward sale model.  Together with our pipeline of forward sold and secured development sites, this will continue to provide excellent visibility on future earnings and cash flow.  Consequently, the Board remains confident in the prospects for the Group."

Analyst meeting

A meeting for analysts will be held at 09.30am today, 21 May 2019, at the offices of Buchanan, 107 Cheapside, London EC2V 6DN.  A copy of the Interim Results presentation is available at the Company's website: http://www.watkinjonesplc.com 

An audio webcast of the analysts meeting will be available after 12pm today: https://webcasting.buchanan.uk.com/broadcast/5cd18793cfde5e11cc82410d

Review of Performance

Results for the six months to 31 March 2019

Revenues for the half year were in line with management's expectations and amounted to £159.1 million, as compared to £158.3 million for the first half of last year, with the Group performing well across all its business segments.  Good progress was made on the forward sold student accommodation developments in build in the first half of the year, though as expected, timing and mix profile meant that revenues from this division were £13.4 million less than for H1 2018.  This reduction in revenue was, however, offset by higher contributions from the Group's other operating segments.

Gross profit increased by £3.1 million (9.0%) to £37.6 million (H1 2018: £34.5 million), reflecting an increase in the gross margin for the period to 23.7% (H1 2018: 21.8%).  The improvement in gross margin reflects the particular profile of the student accommodation pipeline currently in development, which includes several premium sites that command higher forward sales values.  In addition, the Group achieved improved gross profit contributions from its Build to Rent and Residential operations.

Operating profit before exceptional costs increased by 9.1% to £26.0 million (H1 2018: £23.8 million).

Further to the announcement of 8 February 2019, an exceptional charge of £2.6 million (H1 2018: £Nil) was booked in the period representing the cost to the Group of compensating the new CEO, Richard Simpson, for the forfeiture of outstanding incentives held in respect of his former employer, Unite Group plc ("Unite").  This comprises a cash charge of £0.4 million in respect of the forfeit of his 2018 Unite bonus and a non-cash charge of £2.2 million in respect of the forfeit of his outstanding 2015 - 2017 Unite LTIP awards.

Profit before tax for the period amounted to £23.4 million, compared to £23.6 million for the prior half year.  Adjusted profit before tax, excluding the exceptional charge, increased by £2.4 million to £26.0 million (H1 2018: £23.6 million), resulting in an increase of 7.7% in adjusted basic earnings per share to 8.11 pence (H1 2018: 7.53 pence).

FY 2019 is the first year of adoption by the Group of IFRS 15 'Revenue from Contracts with Customers'.  The consequence of adopting the accounting standard has been to account separately for the land and development agreement elements of forward-sold contracts, rather than treating them as a combined agreement.  The effect on the Group's results has been to reduce current period revenues and profit before tax by £613,000.  The prior period comparatives have not been restated.

 

Segmental review

Student accommodation

Revenues from student accommodation development amounted to £128.8 million for the period, compared to £142.2 million for the comparative period last year, a decrease of 9.5%.  The decrease in revenues was as anticipated and reflects the reduction in the number of developments in build for completion in FY 2019, compared to the prior year.  For FY 2019 the Group is scheduled to complete six schemes (2,723 beds), compared with ten schemes (3,415 beds) in FY 2018.

The gross margin for the period on student accommodation developments amounted to 23.7%, compared to 20.7% for H1 2018.  The improvement in the margin reflects the specific mix profile of the schemes in development and is a result of the Group's success in sourcing quality sites and obtaining planning consents in those target locations which will attract stronger investor demand.

In the period, as previously announced, the Group completed the forward sale of a 599 bed scheme in Wembley for delivery in FY 2021 and exchanged contracts for the development of a 245 bed scheme in Swansea, for delivery in FY 2020.  The forward sale of the Wembley scheme contributed £30.0 million to revenues in the period, primarily in respect of the land sale.

The Group has a solid student accommodation development pipeline, currently comprising 20 development sites from which it is targeting to deliver over 9,000 beds to the market over the period FY 2019 to FY 2022, with an appraised net development value of approximately £850 million.

The above pipeline includes a prime site secured in the period in Selly Oak, Birmingham on which the Group expects to develop 608 student beds, subject to planning, for delivery in FY 2022.  The Group is currently in negotiation on a number of other opportunities which will further add to the pipeline going forward.

A total of 11 developments (5,334 beds) are currently forward sold for delivery over the period FY 2019 to FY 2021 and a further three developments (594 beds) for delivery in FY 2019 and FY 2020 are currently in legals for sale.

Build to Rent ('BtR) development

Revenues from BtR amounted to £8.8 million (H1 2018: £0.6 million), reflecting the contribution from the development in Reading for 315 apartments, which is progressing well, and the commencement of works on the 300 apartment scheme in Wembley.

The gross profit for the period from BtR amounted to £1.9 million (H1 2018: £0.3 million) at a margin of 21.7%, reflecting a strong performance on the early stage of the Reading development and is ahead of the 15% average margin we would expect to achieve from our broader BtR pipeline in the medium term.

We continued to make good progress with our BtR development pipeline in the period, with the significant addition of the prime development site in Woking, on which, subject to planning, the Group expects to develop 336 apartments for delivery in FY 2023.  We also secured the planning consents for 166 apartments on our development site in Sutton, London, and for 90 apartments on our site in Belfast, Northern Ireland, both for delivery in FY 2021.

In total, the Group now has a secured development pipeline, including Reading and Wembley, of eight sites, from which it is targeting to deliver approximately 1,800 apartments over the period FY 2020 to FY 2023.  Five of these sites have planning (1,031 apartments).  The Group has a substantial targeted pipeline and is actively negotiating on a number of opportunities.

The Group continues to explore the opportunity of creating a separate BtR investment vehicle and will update shareholders further as appropriate.

Accommodation management

For the six months ended 31 March 2019, FPG increased its revenues to £3.9 million (H1 2018: £3.7 million) and maintained its gross profit at £2.4 million.  This was a strong performance given the loss of 4,597 beds under management following the sale of the portfolio of student schemes by the Curlew Student Trust in FY 2018 and reflects FPG's success in offsetting this loss by winning mandates to manage 14 new schemes with effect from the start of the 2018/19 academic year (3,740 beds).  The gross margin achieved was 62.6%, as compared to the H1 2018 margin of 65.3%, reflecting the change in mix of schemes under management, though this margin was slightly ahead of the FY 2018 full year margin of 61.8%.

At the start of FY 2019, FPG had 15,421 student beds and build to rent apartments under management across 56 schemes.  By FY 2022, FPG is currently appointed to manage 21,018 units across 73 schemes.

Residential

In the six months to 31 March 2019, the residential development business achieved 53 sales completions in its core North West market, as compared to 28 in H1 2018, reflecting the good level of demand in this region compared to the broader UK, as well as the phasing of sites in development.  In addition, the Group sold the 22 affordable residential apartments which form part of its mixed-use development at Stratford, London.

Revenues for the residential development business amounted to £17.4 million, compared to £5.3 million for the equivalent prior period.  The gross margin achieved was 16.7% (H1 2018: 10.1%).  Sales from the legacy Droylsden site at nil margin amounted to £2.5 million in H1 2019, compared to £1.9 million in H1 2018.  Excluding the Droylsden sales, the gross margin for the period was 19.5% (H1 2018: 15.8%), reflecting the contribution from higher margin sites.

 

Balance sheet and cashflow

The Group had net cash at 31 March 2019 of £18.3 million, comprising cash of £57.8 million less borrowings of £39.6 million.  This compares to net cash at 31 March 2018 of £38.4 million and at 30 September 2018 of £80.2 million.

The reduction in net cash for the period of £61.9 million reflects the Group's normal annual cashflow profile which, depending on the timing of forward development sales, sees a cash utilisation in the first half of the year, followed by cash generation in the second half of the year as development sites for delivery in future years are forward sold and the significant final payments due on completion of the current year's developments are received.  In addition, the half year cash position was impacted by a delay in the receipt of a contractual cash payment of £14.0 million, which was received in April 2019 (post period end) following the completion of certain legal formalities relating to one of the Group's forward sold student developments.

Inventory and work in progress increased by £20.3 million in the period to £153.1 million, reflecting investments of £11.4 million and £12.1 million respectively in the Group's BtR and student accommodation development pipelines.

The above factors resulted in a net cash outflow from operating activities for the period of £48.8 million, whilst the cash cost of the FY 2018 final dividend paid in the period amounted to £13.1 million.

Trade and other receivables at 31 March 2019 amounted to £50.0 million (31 March 2018: £27.4 million), whilst trade and other payables amounted to £70.3 million (31 March 2018: £91.2 million), increasing working capital by £43.5 million compared to 31 March 2018.  In addition to the delayed contractual payment of £14.0 million referred to above, this is attributable to the different stage of completion and timing of payments due on major developments in build, notably Stratford.  At 31 March 2018, the Group had benefitted from advance payments received on account of £17.1 million, included in trade and other payables, whereas at 31 March 2019, the later stage of those developments represents a receivable balance for work done of £21.5 million, shown in trade and other receivables.  The latter includes the progressive recognition of receivables of final payments as the current year developments near completion (of which Stratford accounts for £13.1 million).

Dividend

The Board has stated its intention of aiming to pay dividends at a level that will be two times covered by annual adjusted earnings and that it planned to implement this policy fully by FY 2019.  The Board has declared an interim dividend for the period of 2.75 pence per share, which is a 11.3% increase on the interim dividend paid last year.  It will be paid on 28 June 2019 to shareholders on the register at close of business on 7 June 2019.  The shares will go ex-dividend on 6 June 2019.

 

Outlook

The underlying market dynamics for both student accommodation and BtR are strongly supportive of the Group's forward sale model, which combined with our pipeline of forward sold and secured development sites, continues to provide the Group with excellent visibility on future earnings and cash flow.  Consequently, the Board remains confident in the prospects for the Group.

Richard Simpson

Chief Executive Officer

21 May 2019

For further information:

Watkin Jones plc
Richard Simpson, Chief Executive Officer	Tel: [phone]
Philip Byrom, Chief Financial Officer	www.watkinjonesplc.com
Peel Hunt LLP (Nominated Adviser & Joint Corporate Broker)		Tel: [phone]
Mike Bell / Justin Jones		www.peelhunt.com
Jefferies Hoare Govett (Joint Corporate Broker)		Tel: [phone]
Max Jones / Will Soutar		www.jefferies.com

Media enquiries:

Buchanan
Henry Harrison-Topham / Richard Oldworth Jamie Hooper / Steph Watson	Tel: [phone]
[e-mail]	www.buchanan.uk.com

Notes to Editors

Watkin Jones is a leading UK developer and constructor of multi occupancy property assets, with a focus on the student accommodation and Build to Rent 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 38,000 student beds across 117 sites, making it a key player and leader in the UK purpose built student accommodation market.  In addition, the Fresh Property Group, the Group's specialist accommodation management company, manages over 15,000 student beds and Build to Rent apartments on behalf of its institutional clients.  Watkin Jones has also been responsible for over 80 residential developments, ranging from starter homes to executive housing and apartments.  The Group is now expanding its operations into the Build to Rent sector.

The Group's competitive advantage lies in its experienced management team and business model, which enables it to offer an end-to-end solution for investors, delivered entirely in-house with minimal reliance on third parties, across the entire life cycle of an asset.

Watkin Jones was admitted to trading on AIM in March 2016 with the ticker WJG.L.  For additional information please visit: www.watkinjonesplc.com
 

Consolidated Statement of Comprehensive Income

for the six month period ended 31 March 2019 (unaudited)

		6 months to 31 March 2019	6 months to 31 March 2018	12 months to 30 September 2018
Continuing operations	Notes	£'000	£'000	£'000
Revenue		159,104	158,319	363,054
Cost of sales		(121,469)	(123,779)	(290,624)
Gross profit		37,635	34,540	72,430
Administrative expenses		(11,612)	(10,693)	(22,818)
Operating profit before exceptional (costs)/income		26,023	23,847	49,612
Exceptional (costs)/income	5	(2,576)	-	4,283
Operating profit		23,447	23,847	53,895
Profit on disposal of interest in joint venture		-	121	121
Share of profit in joint ventures		-	-	1,023
Finance income		210	59	228
Finance costs		(223)	(391)	(925)
Profit before tax from continuing operations		23,434	23,636	54,342
Income tax expense	6	(4,787)	(4,416)	(10,136)
Profit for the period attributable to ordinary equity holders of the parent		18,647	19,220	44,206
Other comprehensive income
Net gain on available-for-sale financial assets		-	66	37
Total comprehensive income for the period attributable to ordinary equity holders of the parent		18,647	19,286	44,243
Earnings per share for the period attributable to ordinary equity holders of the parent		Pence	Pence	Pence
Basic earnings per share	7	7.305	7.529	17.317
Diluted earnings per share	7	7.288	7.529	17.310
Adjusted basic earnings per share (excluding exceptional (costs)/income)	7	8.113	7.529	15.958
Adjusted diluted earnings per share (excluding exceptional (costs)/income)	7	8.094	7.529	15.952

 

Consolidated Statement of Financial Position

as at 31 March 2019 (unaudited)

		31 March 2019	31 March 2018	30 September 2018
	Notes	£'000	£'000	£'000
Non-current assets
Intangible assets		14,123	14,682	14,403
Property, plant and equipment		4,670	5,004	4,809
Investment in joint ventures		2,558	1,536	2,558
Deferred tax asset		236	533	42
Other financial assets	9	1,162	1,143	1,350
		22,749	22,898	23,162
Current assets
Inventory and work in progress		153,085	145,548	132,778
Trade and other receivables		50,041	27,401	26,967
Cash and cash equivalents	12	57,906	61,606	106,640
		261,032	234,555	266,385
Total assets		283,781	257,453	289,547
Current liabilities
Trade and other payables		(70,344)	(91,194)	(99,119)
Provisions		(933)	(699)	(1,068)
Other financial liabilities		-	(13)	-
Interest-bearing loans and borrowings		(1,524)	(1,401)	(1,605)
Current tax liabilities		(9,412)	(4,635)	(7,204)
		(82,213)	(97,942)	(108,996)
Non-current liabilities
Interest-bearing loans and borrowings		(38,089)	(21,852)	(24,877)
Deferred tax liabilities		(1,049)	(1,368)	(1,050)
Provisions		(1,277)	(2,006)	(1,602)
		(40,415)	(25,226)	(27,529)
Total Liabilities		(122,628)	(123,168)	(136,525)
Net assets		161,153	134,285	153,022
Equity
Share capital		2,553	2,553	2,553
Share premium		84,612	84,612	84,612
Merger reserve		(75,383)	(75,383)	(75,383)
Available-for-sale reserve		-	465	436
Share-based payment reserve		2,166	-	84
Retained earnings		147,205	122,038	140,720
Total Equity		161,153	134,285	153,022

 

Consolidated Statement of Changes in Equity

for the six month period ended 31 March 2019 (unaudited)

	Share Capital £'000	Share Premium £'000	Merger Reserve £'000	Available-for-sale reserve £'000	Share-based payment reserve £000	Retained earnings £'000	Total £'000
30 September 2017	2,553	84,612	(75,583)	399	-	114,050	126,231
Profit for the period	-	-	-	-	-	19,220	19,220
Dividend paid (note 8)	-	-	-	-	-	(11,232)	(11,232)
Other comprehensive income	-	-	-	66	-	-	66
Balance at 31 March 2018	2,553	84,612	(75,383)	465	-	122,038	134,285
Profit for the period	-	-	-	-	-	24,986	24,986
Share-based payments	-	-	-	-	84	-	84
Dividend paid (note 8)	-	-	-	-	-	(6,304)	(6,304)
Other comprehensive income/(loss)	-	-	-	(29)	-	-	(29)
Balance at 30 September 2018	2,553	84,612	(75,383)	436	84	140,720	153,022
IFRS 9 Restatement (note 3)	-	-	-	(436)	-	436	-
IFRS 15 Restatement (note 3)	-	-	-	-	-	497	497
Balance at 1 October 2018	2,553	84,612	(75,383)	-	84	141,653	153,519
Profit for the period	-	-	-	-	-	18,647	18,647
Share-based payments	-	-	-	-	2,063	-	2,063
Deferred tax equity movement	-	-	-	-	19	-	19
Dividend paid (note 8)	-	-	-	-	-	(13,095)	(13,095)
Balance at 31 March 2019	2,553	84,612	(75,383)	-	2,166	147,205	161,153

 

Consolidated Statement of Cash Flows

for the six month period ended 31 March 2019 (unaudited)

		6 months to 31 March 2019	6 months to 31 March 2018	12 months to 30 September 2018
	Notes	£'000	£'000	£'000
Cash flows from operating activities
Cash (outflow)/inflow from operations	11	(45,712)	15,632	66,582
Interest received		210	59	228
Interest paid		(416)	(367)	(1,199)
Interest element of finance lease rental payments		(23)	(24)	(48)
Tax paid		(2,871)	(8,251)	(11,140)
Net cash (outflow)/inflow from operating activities		(48,812)	7,049	54,423
Cash flows from investing activities
Acquisition of property, plant and equipment		(185)	(349)	(298)
Proceeds on disposal of property, plant and equipment		39	-	18
Proceeds from disposal of interest in joint venture		-	250	400
Purchase of other financial assets		-	(33)	(350)
Cash distribution received from other financial assets		188	1,670	1,744
Loan repayments from joint ventures		-	-	1,176
Net cash inflow from investing activities		42	1,538	2,690
Cash flows from financing activities
Dividend paid	8	(13,095)	(11,231)	(17,536)
Capital element of finance lease rental payments		(621)	(397)	(1,203)
Drawdown of bank loans		16,042	3,178	8,036
Repayment of bank loans		(2,290)	(3,856)	(5,095)
Net cash inflow/(outflow) from financing activities		36	(12,306)	(15,798)
Net (decrease)/increase in cash		(48,734)	(3,719)	41,315
Cash and cash equivalents at beginning of the period		106,640	65,325	65,325
Cash and cash equivalents at end of the period	12	57,906	61,606	106,640

 

Notes to the consolidated financial information

1.      General information

Watkin Jones plc (the 'Company') is a limited company incorporated in the United Kingdom under the Companies Act 2006 (Registration number 09791105).  The Company is domiciled in the United Kingdom and its registered address is Units 21-22, Llandygai Industrial Estate, Bangor Gwynedd, LL57 4YH.

The principal activities of the Company and its subsidiaries (collectively the 'Group') are the development and management of multi-occupancy residential rental properties.

The consolidated interim financial statements of the Group for the six month period ended 31 March 2019 comprises the Company and its subsidiaries.  The basis of preparation of the consolidated interim financial statements is set out in note 2 below.

The financial information for the six months ended 31 March 2019 is unaudited.  It does not constitute statutory financial statements within the meaning of Section 434 of the Companies Act 2006.  The consolidated interim financial statements should be read in conjunction with the financial information for the year ended 30 September 2018, which has been prepared in accordance with IFRSs as adopted by the European Union.  The report of the auditors on those financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 434 of the Companies Act 2006.

This report was approved by the directors on 20 May 2019.

2.      Basis of preparation

The interim financial statements have been prepared based on IFRS that are expected to exist at the date on which the Group prepares its financial statements for the year ended 30 September 2019.  To the extent that IFRS at 30 September 2019 do not reflect the assumptions made in preparing the interim financial statements, those financial statements may be subject to change.

The interim financial statements have been prepared on a going concern basis and under the historical cost convention.

The interim financial statements have been presented in pounds sterling and all values are rounded to the nearest thousand (£'000), except when otherwise indicated.

The preparation of financial information in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Although these estimates are based on management's best knowledge of the amount, event or actions, actual events may ultimately differ from those estimates.

The interim financial statements do not include all financial risk information and disclosures required in the annual financial statements and they should be read in conjunction with the financial information that is presented in the Company's audited financial statements for the year ended 30 September 2018.  There has been no significant change in any risk management policies since the date of the last audited financial statements.

3.      Accounting policies

The accounting policies used in preparing these interim financial statements are the same as those set out and used in preparing the Company's audited financial statements for the year ended 30 September 2018 with the exception of the new accounting standards noted below.

The Group adopted IFRS 15 "Revenue from contracts with customers" from 1 October 2018 retrospectively using the cumulative effect approach. Under the cumulative effect approach the results of the prior year are not restated but the initial impact of adopting the standard is taken to opening reserves. IFRS 15 replaces IAS 18 "Revenue" and IAS 11 "Construction Contracts" and introduces a 5-step model to account for revenue, with new guidance provided in areas on which previous IFRSs were silent. The adoption of the new standard has required the land sale and development agreement elements for forward-sold schemes to be accounted for separately, rather than treating them as a combined agreement. The effect on the Group's results for the six months ended 31 March 2019 has been to reduce revenues and profit before tax by £613,000, to increase the tax creditor by £116,000 and to restate opening reserves at 1 October 2018 by an increase of £497,000.

The Group also adopted IFRS 9 "Financial Instruments" from 1 October 2018.  The Group accounts for its financial assets and liabilities at fair value and does not have any complex financial instruments.  The adoption of IFRS 9 has not had a material effect on the Group's financial statements.  However, the previously reported "available-for-sale reserve" of £436,000 has been transferred to "retained earnings" at 1 October 2018, as the concept of an "available-for-sale reserve" has been removed under IFRS 9.  From 1 October 2018, the underlying assets are now measured as a financial instrument held at fair value through Other Comprehensive Income and thus the results have been transferred to "retained earnings".

4.      Segmental reporting

The Group has identified four segments for which it reports under IFRS 8 'Operating segments'.  The following represents the segments that the Group operates in:

a.          Student accommodation - the development of purpose-built student accommodation;

b.         Build to rent - the development of build to rent accommodation;

b.         Residential - the development of traditional residential property; and

c.          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.

6 months to 31 March 2019 (unaudited)	Student Accommodation	Build to rent	Residential		Accommodation management	Corporate	Total
	£'000	£'000	£'000	£'000		£'000	£'000
Segmental revenue	128,754	8,767	17,433	3,857		293	159,104
Segmental gross profit	30,578	1,904	2,918	2,413		(178)	37,635
Administration expenses	-	-	-	-		(11,612)	(11,612)
Exceptional costs	-	-	-	-		(2,576)	(2,576)
Finance income	-	-	-	-		210	210
Finance costs	-	-	-	-		(223)	(223)
Profit/(loss) before tax	30,578	1,904	2,918	2,413		(14,379)	23,434
Taxation	-	-	-	-		(4,787)	(4,787)
Profit/(loss) for the period	30,578	1,904	2,918	2,413		(19,166)	18,647

Inventory and work in progress

44,464

55,543

43,948

-

9,130

153,085

 

6 months to 31 March 2018 (unaudited)	Student Accommodation	Build to rent	Residential	Accommodation management	Corporate	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Segmental revenue	142,203	626	5,279	3,727	6,484	158,319
Segmental gross profit	29,365	315	533	2,433	1,894	34,540
Administration expenses	-	-	-	-	(10,693)	(10,693)
Profit on sale of interest in joint venture	-	-	-	-	121	121
Finance income	-	-	-	-	59	59
Finance costs	-	-	-	-	(391)	(391)
Profit/(loss) before tax	29,365	315	533	2,433	(9,010)	23,636
Taxation	-	-	-	-	(4,416)	(4,416)
Profit/(loss) for the period	29,365	315	533	2,433	(13,426)	19,220

Inventory and work in progress

39,442

46,562

50,793

-

8,821

145,618

5.      Exceptional (costs)/income

	6 months to 31 March 2019	6 months to 31 March 2018	12 months to 30 September 2018
	£'000	£'000	£'000
Cost of compensating the Group's new CEO, Richard Simpson, for his forfeit Unite Group plc ("Unite") 2018 bonus	(411)	-	-
Cost of Watkin Jones plc share awards issued in compensating Richard Simpson for his forfeit Unite 2015 - 2017 share awards	(2,165)	-	-
Compensation for reduction in scope of services and termination of accommodation management contracts resulting from a sale of a portfolio of properties by the Curlew Student Trust	-	-	3,020
Profit share arising from the sale of the portfolio of properties by the Curlew Student Trust	-	-	1,263
Total exceptional (costs)/income	(2,576)	-	4,283

6.      Income taxes

The tax expense for the period has been calculated by applying the estimated tax rate for the financial year ending 30 September 2019 of 19.95% to the profit for the period.

 

7.      Earnings per share

Basic earnings per share ("EPS") amounts are calculated by dividing the net profit or loss for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares in issue during the year.

The following table reflects the income and share data used in the basic EPS computations:

	6 months to 31 March 2019	6 months to 31 March 2018	12 months to 30 September 2018
	£'000	£'000	£'000
Profit for the period attributable to ordinary equity holders of the parent	18,647	19,220	44,206
Adjusted profit for the period attributable to ordinary equity holders of the parent (excluding exceptional (costs)/income after tax)	20,709	19,220	40,737
	Number of shares	Number of shares	Number of shares
Number of ordinary shares for basic earnings per share	255,268,875	255,268,875	255,268,875
Adjustments for the effects of dilutive potential ordinary shares	580,198	-	102,929
Weighted average number for diluted earnings per share	255,849,073	255,268,875	255,371,804
	Pence	Pence	Pence
Basic earnings per share
Basic profit for the period attributable to ordinary equity holders of the parent	7.305	7.529	17.317
Adjusted basic earnings per share (excluding exceptional (costs)/income after tax)
Adjusted profit for the period attributable to ordinary equity holders of the parent	8.113	7.529	15.958
Diluted earnings per share
Basic profit for the period attributable to diluted equity holders of the parent	7.288	7.529	17.310
Adjusted diluted earnings per share (excluding exceptional (costs)/income after tax)
Adjusted profit for the period attributable to diluted equity holders of the parent	8.094	7.529	15.952

8.      Dividends

	6 months to 31 March 2019	6 months to 31 March 2018	12 months to 30 September 2018
	£'000	£'000	£'000
Final dividend paid in February 2018 of 4.4 pence	-	11,232	11,232
Interim dividend paid in June 2018 of 2.47 pence	-	-	6,304
Final dividend paid in February 2019 of 5.13 pence	13,095	-	-
	13,095	11,232	17,536

An interim dividend of 2.75 pence per ordinary share will be paid on 28 June 2019.  This dividend was declared after 31 March 2019 and as such the liability of £7,019,894 has not been recognised at that date.

9.      Other financial assets

	31 March 2019	31 March 2018	30 September 2018
	£'000	£'000	£'000
Financial instruments at fair value
Available-for-sale financial assets at fair value through other comprehensive income	1,162	1,143	1,350
Other financial assets	1,162	1,143	1,350

The available-for-sale financial assets at fair value comprise units held in the Curlew Student Trust ("CST"), together with the value of the carried interest held by Fresh Property Group Ltd in CST and Curlew Student Trust 2 ("CST2").  CST and CST2 are Guernsey registered unitised funds established to invest in student accommodation.

In the period ended 31 March 2019, the Group received £188,000 from the Fund, by way of a further partial distribution of cash following the sale by the Fund of a portfolio of assets during the year ended 30 September 2018 (H1 2018: £1,670,000 received).

10.   Employee benefits - long term incentive plans

In February 2019 Richard Simpson was granted the following awards over Watkin Jones plc shares in compensation for share awards which lapsed when he ceased employment with his previous employer, Unite Group plc ("Unite"):

Buyout Award	Number of Shares subject to Buyout Award	Normal Vesting Date of Buyout Award	Vesting/Performance Conditions (in addition to continued service)
2015	92,480	2nd April 2019	None - Unite performance targets have already been achieved
2016	434,764	23rd June 2019	Vesting will be based on vesting outcome of 2016 Unite LTIP Awards
2017	438,765	10th April 2020	Vesting will be based on vesting outcome of 2017 Unite LTIP awards
2018	344,201	10th April 2021	Vesting will be based on the same performance conditions as the awards granted to other Watkin Jones plc senior executives under the May 2018 Long Term Incentive Plan

Each of the 2016, 2017 and 2018 Buyout Awards will also be subject to a two year holding period. To the extent that each of these awards vest, Richard Simpson will not be able to sell any shares resulting from exercise of the relevant award for a period of two years from the vesting date, other than to fund the resulting tax and NIC liabilities.

The fair value of the 2015 Buyout Award has been estimated using a Black Scholes valuation model and the element of the 2018 Buyout Award subject to total shareholder return ("TSR") performance conditions has been estimated using a Monte Carlo valuation model.  The following table lists the inputs to the respective valuation models:

Buyout Award	Share price at grant	Exercise price	Expected term (years)	Expected volatility (%)	Risk-free interest rate (%)	Are dividend equivalents receivable?
2015	230 pence	1 pence	0.15	27.0	0.71	Y
2018	230 pence	1 pence	2.17	27.0	0.71	Y

The fair value of the share awards from the 2018 Buyout Award subject to earning per share ("EPS") performance conditions is the market price of an ordinary share of Watkin Jones plc at the date the award is granted.

The 2016 Buyout Award and 2017 Buyout Awards are based on Unite's performance rather than Watkin Jones plc's performance, which are categorised as non-vesting conditions under IFRS 2.  Consequently, an estimate of the number of shares expected to vest, as estimated at the date of grant, has been factored into the fair value assumptions. The estimated vesting as a percentage of maximum is 83.5% for the 2016 Buyout Award and 84.76% for the 2017 Buyout Award.

For the six months ended 31 March 2019, the Group has recognised a charge of £2,165,000 relating to the 2015, 2016 and 2017 Buyout Awards as an exceptional cost on the basis that the vesting of the awards does not relate to Watkin Jones plc's performance conditions. A further charge of £36,000 has been made in respect of the 2018 Buyout Award, together with a  charge of £125,000 relating to the awards issued to Watkin Jones plc's senior executives under the 2018 LTIP, and these amounts have been charged to administrative expenses in the Consolidated Statement of Comprehensive Income (H1 2018: £Nil).

11.   Reconciliation of profit before tax to net cash flows from operating activities

	6 months to 31 March 2019	6 months to 31 March 2018	12 months to 30 September 2018
	£'000	£'000	£'000
Profit before tax	23,434	23,636	54,342
Depreciation	303	255	725
Amortisation of intangible assets	280	280	559
Profit on sale of plant and equipment	(17)	-	(7)
Finance income	(210)	(59)	(228)
Finance costs	223	391	925
Profit on disposal of interest in joint venture	-	(121)	(121)
Share of profit in joint ventures	-	-	(1,023)
Increase in inventory and work in progress	(20,306)	(20,328)	(7,558)
Interest capitalised in development land, inventory and work in progress	216	-	322
(Increase)/decrease in trade and other receivables	(22,461)	9,060	9,442
(Decrease)/increase in trade and other payables	(28,776)	2,518	9,155
(Decrease)/increase in provision for property lease commitment	(461)	-	(35)
Increase in share-based payment reserve	2,063	-	84
Net cash (outflow)/inflow from operating activities	(45,712)	15,632	66,582

12.   Analysis of net cash

		31 March 2019	31 March 2018	30 September 2018
		£'000	£'000	£'000
Cash at bank and in hand		57,906	61,606	106,640
Finance leases		(1,403)	(2,493)	(2,023)
Bank loans		(38,210)	(20,760)	(24,459)
Net cash		18,293	38,353	80,158

- Ends -

 

END

 

 

IR SESFASFUSELI