half year results to 31 march 2019 - watkin jones plc/media/files/w/watkin-jones/documents… ·...

HALF YEAR RESULTS

To 31 March 2019

“Delivering Performance”

Financial Highlights

Delivering Performance

Bridge Street Exchange, Cardiff2

Highlights Strategic PrioritiesMarket Updates Investor Demand Pipeline SummaryActivityFinancial Highlights

• Strong overall performance for H1 2019

• WJ performing well across all business

areas

• Revenues slightly ahead YoY

• Underlying profit before tax growth of 10%

• Gross margin increased to 23.7% (H1

2018: 21.8%)

• EPS increased 7.7% to 8.11pps

• Interim DPS increased 11.3% to 2.75pps

• Performance robust and scalable

Results Summary

* Operating profit, profit before tax, EBITDA and basic earnings per

share are stated before an exceptional charge of £2.6m.

3

Underlying Results H1 2019 H1 2018 Movement

Revenue £159.1 million £158.3

million

+0.5%

Gross profit £37.6 million £34.5 million +9.0%

Operating profit* £26.0 million £23.8 million +9.1%

Profit before tax * £26.0 million £23.6 million +10.0%

EBITDA * £26.6 million £24.5 million +8.6%

Basic earnings per share* 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

Business Highlights

4


Business Highlights – Maintaining Visibility

• Good progress with PBSA pipeline

• 9,100 beds in pipeline - increasing visibility to 2022+

• 11 developments (5,334 beds) forward sold for delivery 2019-2021

• 2019 & 2020 delivery pipeline sold or under offer at targeted pricing

• Forward sale & development of Wembley (599 beds) for DWS for 2021 & Swansea (245 beds) for Brookfield 2020

• Deepening pipeline with c.600 bed development site secured, subject to planning, in Selly Oak, Birmingham

• Building momentum with BtR pipeline

• Pipeline of 1,800 units across 8 sites assembled

• 5 of the sites have planning (c.1000 units)

• Partnered development schemes at Reading and Wembley (615 units) progressing well

• Exchanged contracts to purchase site in Woking (c. 330 units) on a subject to planning basis

• Secured planning at London Sutton (166 units) and Belfast (90 units)

• Homes performing in line with expectations

• North West UK housing market robust

• Reservations and completions on track with 53 homes and apartments sold in the period (H1 2018: 28 sales)

• 22 affordable residential units sold from the mixed-use Stratford development

• Fresh Property Group (FPG) performing in line

• FPG have successfully secured the management of an additional 1,979 units across 9 schemes (12% growth of beds under

management)

• Good visibility of growth with FPG appointed to manage a total of 21,018 units across 73 schemes by FY 2022

• Consumer facing benefits to the wider group

Accommodation

Management

Student

Accommodation

Development

Pipeline

Build to Rent

Development

Pipeline

Residential

Brexit

• Broader Brexit uncertainty weighing on markets but our focus of PBSA and BtR currently performing well

• PBSA & BtR are prime sectors

• Investor demand strong, including increasing interest from overseas

• Good visibility of forward order book

• Strong track record in construction & supply chain management

Business Highlights

5

Group Performance

Duncan House, Stratford6


Revenue by Segment

• Revenues continue to be driven by Student Accommodation (81%),

but with increasing contribution from other segments including

BtR.

• Gross margin increased to 23.7% (H1 2018: 21.8%), as a result of

specific mix of 2019 developments, reflecting quality of location of

developments and forward sales values achieved.

• Operating profit before exceptional costs increased by 9.1%.

• Operating margin increased to 16.4% (H1 2018: 15.0%).

• Exceptional costs of £2.6m comprise the cost of compensating the

Group’s new CEO for the forfeiture of outstanding incentives held

in respect of his former employer, of which £2.2m is a share based

non-cash charge.

• Half year annualised Return on Equity 25.7% (FY 2018: 26.6%).

H1 2019 (£m) H1 2018 (£m) Student accommodation

Build to rent

Residential

Accommodation

management

Corporate

7

Group Income Statement


128.8142.2

115.2

30.6 29.4 25

H1 2019 H1 2018 H1 2017

Revenue (£m) Gross Profit (£m)

Build to Rent (BtR)

• Revenue growth reflects progress in the build

of the Reading development and

commencement of the Wembley scheme.

• Encouraging gross margin for the period of

21.7%

• Medium term margin view remains at 15%

8.8

0.6 0.6

1.9

0.3 0.4

H1 2019 H1 2018 H1 2017


Student Accommodation

• Revenues in line with management

expectation, but below H1 2018 due to lower

number of developments in build.

• Gross margin for the period of 23.7%

compared to 20.7% for H1 2018.

8

Revenue and Gross Profit by Segment


Residential

• 53 sales completions achieved in the core North

West market, compared to 28 in H1 2018.

• 22 affordable apartments at Stratford sold.

• Gross margin 16.7% (H1 2018: 10.1%).

• Gross margin 19.5% (H1 2018: 15.8%) exc nil

margin sales from the legacy Droylsden site.

Accommodation Management

• Revenues increased despite loss of beds

associated with Curlew portfolio sale, largely

offset by new contract wins.

• Gross margin of 62.6% (H1 2018: 65.3%),

reduced due to change in mix of schemes, but

ahead of FY 2018 full year margin of 61.8%.

17.4

5.3 5.6

2.9

0.5 0.7

H1 2019 H1 2018 H1 2017


3.8 3.7

3

2.4 2.4

1.9

H1 2019 H1 2018 H1 2017


9

Revenue and Gross Profit by Segment


• Gross cash balance of £57.9m at 31 March 2019

(31 March 2018: £61.6m)

• Net cash balance of £18.3m at 31 March 2019

(31 March 2018: £38.4m)

• Decrease in cash in the period of £48.7m (H1

2018: £3.7m)

• Normal cash profile sees a cash utilisation in the

first half of the year.

• Half year cash position impacted by a delay in the

receipt of a contractual cash payment of £14.0m,

received in April 2019

• Some investment in the BtR and PBSA

development pipelines

11

Group Cash

Summarised Cash Flows

£ million

H1

2019

H1

2018

Operating profit before exceptional items 26.0 23.8

Inventory and work in progress (20.1) (20.3)

Trade and other receivables (22.5) 9.1

Trade and other payables (29.7) 2.6

(Increase)/decrease in working capital (72.3) (8.6)

Depreciation and amortisation 0.6 0.5

Net finance costs (0.2) (0.3)

Tax paid (2.9) (8.3)

Net cash (outflow)/inflow from operating activities (48.8) 7.1

Cash flow from investing activities 0.1 1.5

Dividends paid (13.1) (11.2)

Cash flow from borrowings 13.1 (1.1)

Decrease in cash (48.7) (3.7)

Cash at beginning of period 106.6 65.3

Cash at end of period 57.9 61.6

Less: borrowings (39.6) (23.2)

Net cash 18.3 38.4

Market Updates

Bailey Fields, Sheffield12

PBSA Market

13Albion Way, London


PBSA Market – Strong Fundamentals

1728 1730 1771 1827 1855 1878

682 699 713 728 739 750

495 520 545 565 590 615

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Stu

den

ts (

00

0s)

Students and supply

Total students 1st years (UG) + International (UG + PG) PBSA Beds

654 677 700 718 718 700 690

465 496 512 532 535 534 534

1710 1728 1730 1771 1827 1855 1878

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Stu

den

ts (

00

0s)

Full time student numbers

Applicants Acceptances Full time students

UK University Education

• UK university sector #2 global ranking

• Student applications – 29% excess demand

over available places

• Student accommodation – demand for PBSA

exceeds supply

• Government international education strategy –

30% growth in international students by 2030

• Government immigration white paper

supportive of international students

• Challenges for lower tier Universities:

Lower applications and UK HE Sector Review

Augar Review

Source: UCAS, HESA

Source: HESA

14


10%

11%

12%

13%

14%

15%

16%

17%

18%

19%

20%

0

50

100

150

200

250

300

350

400

450

500

(00

0S

)

International demand

EU ROW International %

© 2019 Jones Lang LaSalle IP, Inc. All rights reserved.

Source: HESA

PBSA Market – UK University Demand

300

325

350

375

400

425

450

475

500

525

550

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

Acce

pta

nce

s (

00

0s)

UK demand

UK acceptances No change Trend

+64,900

• Short term trends: Increased 2019/20

applications across the board

• Demographics – UK population growth

• Record high UK HEI participation rates

• International appeal – Growing demand –

Chinese applications up c.30% YOY

15


313,527

94,844

201,277

30,711

Size of the PBSA market 2018/19 (beds)

University Core Noms/leased Direct let Under construction

© 2019 Jones Lang LaSalle IP, Inc. All rights reserved.

• Supply : Demand dynamic favourable

• Student number growth creates

development opportunity

• Ageing estate/obsolescence creates

development opportunity

• Low rate of new construction

• Product evolution, FPG consumer facing

• Clear Opportunity for WJ

PBSA Market – PBSA Supply Review

16


• Turning the macro into an

operational model

• WJ value chain comes from

understanding consumer demand,

investor demand and delivering

through development expertise

• End to end solution leveraging WJ

& FPG expertise/consumer brand

insights

• Targeting 20% margin

HEI: Uni Rank, Full time/Intl Students, growth

Market: Campus location, PRS/HMO strength, Supply:Demand ratio PBSA

Micro Location: Transport, amenities, campus

Asset: Size, Spec, Configuration, Mkt Segment

Delivery: Planning, buildability, efficiency

Management: efficiencies, margin, service, add ons

Time: 3-4 yr development

Returns:20%

margin

17

PBSA – Operational Model


• Market led – PBSA & Investor

• Development expertise

• Deep understanding of cost &

value drivers

• Scalable and sustainable

SOUTH EAST

Rent: £175/wk

Net income: £5,600 pa

NIY: 5.5%

Capital value: £105k

Land: £25k

Build costs: £60k

Target margin: 22-24%

LONDON

Rent: £230/wk

Net income: £9,070 pa

NIY: 4.75%


Land: £60k

Build costs: £85k


Note

All figures are illustrative and relate to an

approximate per bed basis

Rent = gross per week

Net Income = net annualised

Net initial yield (NIY) = forward fund yield

Capital Value = net per bed

Land = per bed with planning

Build costs = all other costs per bed

18

PBSA – Operational Model

OTHER UK REGIONS

Rent: £140-165/wk

Net income: £4,500-5,600 pa

NIY: 5.5-6.0%

Capital value: £60-90k

Land: £10-15k

Build costs: £55-60k


Build to Rent Market

19Kelaty House, London


• BtR – UK residential market disruptor

• Structural shortage of housing – housing starts,

household sizes

• Population growth +7.5m by 2035

• Rise in renters – additional 2.4m households 10%

in 2000 to 20% in 2018

• Decline of retail landlords – c.180k BtL forecast to

leave the sector v c.140k BtR pipeline

• Institutional investors can access UK residential

market dynamics

• Improving standards in UK PRS in which WJ has

expertise

Sources: HMLR, MHCLG

BtR Market – Macro Market Dynamics

0%

10%

20%

30%

40%

50%

60%

70%

80%

19

31

19

36

19

41

19

46

19

51

19

56

19

61

19

66

19

71

19

76

19

81

19

86

19

91

19

96

20

01

20

06

20

11

20

16

20

21

Pro

po

rtio

n o

f h

ou

sin

g in

En

glan

d

Housing in England

Private rented Social rented Owner occupied

64

65

66

67

68

69

70

14A 15A 16A 17A 18A 19E 20E 21E 22E 23E 24E 26E

UK

po

pu

lati

on

(m

illio

ns)

CAGR

0.7%

CAGR

0.5%

Latest UK population forecasts (ONS)

20

Source: ONS


• UK residential rents are very stable, with no

declines for over 20 years

• 60% rental growth over last 20 years

• PRS sector historic performance has been strong

• Sector fundamentals forecast future strong

performance - current guides 3% rental growth

from 2021

• BtR sector small (5% of PRS) but growing

• Institutional investor interest for UK BtR assessed

at £70bn*

• Development, forward funds & property

management are a key activity in growing the sector

BtR Market – BtR Investment

55

65

75

85

95

105

UK Rentals

21

Number of BtR units 2013-2018

Source: Savills, Knight Frank, Euroconstruct, ONS, EU, Worldbank Databank

Source: Savills, BPF, Molior

* Source: Savills, BPF


BtR - Operational Model

• How WJ looks at the BtR

market opportunity

• Turning the macro into an

operational model

• Value chain: consumer &

investor demand, development

expertise

• Regional variation

• Targeting 15%+ margin

City/Town – GDP, Industry, Growth

Resi Demand – Popn 18-44, Growth, Graduate retention, average earnings

Resi Supply – Size & Quality of PRS, PRS pipeline, Housing affordability ratio

Micro Location – Transport, Amenity, Work, betterment

Asset – Size, Spec, Product, Mkt segment

Management –efficiencies, margin,

service, add ons

Time – 3-4 year development

Returns –15%+

Margin

22


• Market led – PBSA & Investor

• Development expertise

• Deep understanding of cost &

value drivers

• Scalable and sustainable

SOUTH EAST

Rent: £1.3k/mth

Net Income: £11.5k pa

NIY: 4.0%


Land: £65k

Build costs: £170k

Target margin: 15%+

OTHER UK REGIONS

Rent: £1.1k/mth

Net Income: £10k pa

NIY: 4.5%


Land: £23k

Build costs: £155k

Target margin: 15%+

LONDON

Rent: £1.4k/mth

Net Income: £12.5k pa

NIY: 3.75%


Land: £95k

Build costs: £188k

Target margin: 15%+

23

Note

All figures are illustrative and relate to an

approximate per BtR unit basis

Rent = gross per month

Net Income = net annualised

Net initial yield (NIY) = forward fund yield

Capital Value = net sale value per unit

Land = per unit with planning

Build costs = all other costs per unit

BtR - Operational Model

Investor Demand

Oxford House, Bournemouth24


Investor Demand - PBSA

Transactions (£) Oct 2018 – March 2019

Direct Let 25 Year FRI Lease

Current Forecast Current Forecast

Prime London 4.0% Strengthening 3.5% Strengthening

Inner London 4.5% Strengthening 3.75% Strengthening

Prime Regional 5.25-5.5% Strengthening 4.0% Strengthening

Secondary

Regional6.0% Stable 4.0% Stable

Other Regional 7.0%+ Weakening 4.25% Strengthening

Source: JLL

Yield forecast

• Robust investor demand in Q1 2019 –

c.£0.5bn transacted, c£0.8bn under offer

• Defensive sector, rental growth and high

occupancy driving investor demand

• Investor activity slowed in the period as a

result of Brexit/uncertainty

• UK PBSA prime yields compressing through

transactional evidence

• Global institutions make up majority of

purchasers

25

Source: JLL

2011 2012 2013 2014 2015 2016 2017 2018 2019

Transacted Under offer

£1.0bn

£2.7bn

£2.0bn£1.7bn

£5.7bn

£3.2bn

£4.1bn

£3.2bn

£0.85bn

£0.52bn

5 year average - £3.6bn


Location Net yield Q4 2018 Net yield Q1 2019 Trend

London zone 2 3.15% 3.25% Stable

London zones 3-6 3.5% 3.5% Stable

Outer London/South East 3.75% 3.75% Stable

Prime Regional 4.25% 4.25% Stable

Source: CBRE, Q1 2019

Prime net investment yields

• Robust investor demand in Q1 - £1bn

committed

• Global institutional investors increasing

their involvement; Unibail, PSP, L&G,

Aberdeen Standard, M&G, Invesco

• Long term sector growth characteristics

outweigh event/cyclical concerns

• Investment yields well supported

throughout the UK

• Significant demand for investment

opportunities & forward funds

26

Investor Demand - BtR

Source: CBRE, Q1 2019


Case Study – Kelaty House, London

• The scheme : 599 PBSA beds, 300 BtR units

• Practical completion : Q3 2021

• Location: Wembley, North West London

• Off market acquisition – vendor felt confident with WJ

and so dealt off-market

• Development expertise unlocked complex mixed-use

scheme – PBSA, BtR, retail/community/leisure space

integrated through basement car parking

• Insight - Wembley regeneration area great location for

BtR and PBSA – placemaking with community,

transport & amenities

• Institutional grade - PBSA scheme of 599 beds

forward sale to DWS – 1st UK PBSA scheme

• Capital light – DWS capital is funding the PBSA

development

Indicative CGI

Indicative CGI

27


Case Study – Sutton Court Road, Sutton

Indicative CGI

Indicative CGI

• The scheme : 166 BtR units

• Practical completion : Q1 2021

• Location: Sutton, South London

• Off Market acquisition – WJ’s reputation generates

off-market leads

• Development expertise – unlocked scheme -

reworked existing unviable Resi consent to increase

density by 25%

• Prime BtR Location - scheme is 2mins from station

– c.25 mins to Victoria – surrounded by Sutton’s

amenities

28

Student Accommodation

Development Pipeline

Bath Lane, Leicester29


• Deepened high quality pipeline to 9,100 beds

• Increased earnings visibility with 2019 & 2020 pipeline either

forward sold or under offer

• 2021+ pipeline growing and further opportunities being

pursued

Student accommodation

pipeline locations

2646

2089

599

77

517

422

794

447

912

608

1019

1043

0

500

1000

1500

2000

2500

3000

3500

4000

FY19 FY20 FY21 FY22

Nu

mb

er o

f b

eds

Unsecured - under offer / inlegals

Secured - subject to planning

Secured - with planning

Under offer / in legals forsale

Forward sold

PBSA Development Pipeline

30


• Deepening pipeline to c.1800 units with quality

developments

• Commercial and Build to Sell residential slow down creating

land buying opportunity

• Various sites to extend pipeline being evaluated

616

159

271

184

603427

550

0

200

400

600

800

1000

1200

1400

FY20 FY21 FY22 FY23

Nu

mb

er o

f ap

artm

ents Unsecured - under offer /

in legals

Secured - subject toplanning

Secured - with planning

Forward sold

Student accommodation

pipeline locations

Build to Rent Development Pipeline

31

Strategic Priorities

Bagot Street, Birmingham32


• Highly capable business with a strong track record

• Trusted brand

• Market leader in multi-occupancy residential for rent

• PBSA and BtR robust & undersupplied sectors

• Scalable business model

• Operational excellence – land buying, planning, construction, forward sales process and ongoing management

• Customer Insight – leverage FPG’s insights to evolve our proposition to stay market leading

• Planning to share details on future strategy later in H2

Strategic Priorities

Activity since IPO in March 2016

29 built

19 under construction

ft2

3 million sqft built£1 billion soldDevelopments

22000 beds managed

16 investor

partnerships

33


• Established brand and reputation

• Complete solution for investors

• Attractive markets

• Significant growth prospects

• Focused on growth sectors

• Scalable

• Performing strongly - reduced risk, high visibility

• 2019 & 2020 PBSA pipeline forward sold or

under offer

• Growing PBSA & BTR pipeline

• FPG high margin annuity style revenues

• Strong capital structure

• Working capital light model, low gearing

Watkin Jones plc – Delivering Performance

34

Q&A

Sutton Court Road, Sutton35

Appendices

Queen Street, Belfast36

Fresh Property Group

37

Appendices

15,421 student beds and BtR apartments under

management at the start of FY19

358 total staff / 75 central services staff

56 total schemes (51 PBSA, 5 BtR)

£108m Cash Under Management

£1.5bn Assets Under Management

Fresh Property Group – Key Facts

38

The Model

Market Street, Newcastle39

Site procurement and planning Transaction and fundingConstruction and

delivery

Scheme

managementSite procurement and planning

Typically 3 years

Identify siteNegotiation

of option /

acquisition

Obtain

planning

permission

Forward

sale to

institutional

investors

Land sale &

development

agreement

ConstructionAsset

management

3-7 years

…provides an end-to-end solution

40

This presentation is for information purposes only and no reliance may be placed up on it. No representation or warranty, either expressed

or implied, is provided in relation to the accuracy, completeness or reliability of the information contained in this presentation. The financial

information referenced in this presentation does not contain sufficient detail to allow a full understanding of the results of Watkin Jones

plc (“Watkin Jones”). For more detailed information, please see the full year results announcement for the six months ended 31 March

2019 which can be found on the Investors section of the Watkin Jones website - www.watkinjonesplc.com.

This presentation does not constitute or form part of any offer or invitation for sale or subscription of, or any solicitation of any offer to buy

or subscribe for, any securities of Watkin Jones. The making of this presentation does not constitute a recommendation regarding any such

securities.

Any projections or other forward-looking statements are made by the Directors of Watkin Jones in good faith based on the information

available to them at 21 May 2019 and reflect the Directors’ knowledge and information available at that date and their beliefs and

expectations. These statements may involve risk and uncertainty because they relate to events and depend upon circumstances that may

or may not occur in the future. There are a number of factors which could cause actual results or developments to differ materially from

those expressed or implied by these forward‐looking statements. Any of the assumptions underlying these forward‐looking statements

could prove inaccurate or incorrect and therefore any results contemplated in the forward‐looking statements may not actually be achieved.

Unless otherwise required by applicable law, regulation or accounting standard, Watkin Jones does not intend to update any projections or

other forward-looking statements contained in this presentation. Each forward-looking statement speaks only as at 21 May 2019 and

Watkin Jones and its advisers expressly disclaim any obligations or undertaking to release any update of, or revisions to, any forward-

looking statements in this presentation. No statement in the presentation is intended to be, or intended to be construed as, a profit

forecast or profit estimate and no statement in the presentation should be interpreted to mean that earnings per Watkin Jones share for

the current or future financial years will necessarily match or exceed the historical earnings per Watkin Jones share. As a result, you are

cautioned not to place any undue reliance on such forward-looking statements. Past performance of securities in Watkin Jones cannot be

relied upon as a guide to the future performance of such securities.

Disclaimer

41

http://www.watkinjonesplc.com/

Richard Simpson

Chief Executive Officer

Philip Byrom

Chief Financial Officer

Watkin Jones plc

3rd Floor

7-9 Swallow Street

London

W1B 4DE

www.watkinjonesplc.com

42

http://www.watkinjonesplc.com/

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