Watkin Jones Plc · LSE:WJG
Watkin Jones — FY2022 Earnings Presentation
42 slides from Watkin Jones's earnings presentation, December 2022
Slide 1: Operational Resilience: Full Year Results to 30 September 2022
Operational Resilience Full Year Results to 30 September 2022 Creating the future of living
Slide 2: Agenda
Agenda 1 FY22 & Outlook Summary 6 Fresh Review 2 FY22 Results 7 ESG – Future Foundations 3 FY23 & Outlook 8 Leveraging our Strengths 4 Development 9 Summary 5 Market Review 10 Q&A 2
Slide 3: FY22 & Outlook Summary
FY22 & Outlook Summary 3
Slide 4: FY22 & Outlook Summary
FY22 & Outlook Summary FY22 Resilient and adaptable over first 11 months The ‘mini budget’ impacted planned forward sales in the last month of our financial year Good operational performance Eight developments delivered in the year Build costs and supply chain well managed Completed forw
Slide 5: FY22 Results
FY22 Results 5
Slide 6: FY22 Financials Highlights – P&L
FY22 Financials Highlights – P&L £M Overall results in line with October Trading Update FY22 FY21 Movement Revenue 407.1 430.2 -5% Revenue at £407m, small decline of (5)% vs PY Gross profit 67.6 84.8 -20% due to impact of two forward sales not closing in Operating profit 1 54.7 57.3 -5% Septembe
Slide 7: FY22 Financials Highlights – Balance Sheet
FY22 Financials Highlights – Balance Sheet £M Strong year end gross and net cash position of £111m FY22 FY21 and £83m, respectively Leased assets 32.1 103.0 Reduction of leased assets due to disposal of two Other non-current assets 17.5 21.7 properties in H2; four properties remaining Total non-
Slide 8: FY22 Financials Highlights – Cashflow / Liquidity
FY22 Financials Highlights – Cashflow / Liquidity £M Cashflow Net cash outflow of £27m reflects investment FY22 FY21 Movement in new development sites Operating cash inflow/outflow -26.9 61.5 -88.3 Gross cash 110.8 136.3 -25.5 Increase in borrowings also as a result of the Borrowings -28.3 -12.0
Slide 9: FY22 Segmental Review – Revenue
FY22 Segmental Review – Revenue £M BTR 14.5 12.3 FY22 Growing contribution from BTR 9.1 38% increase in revenue to £191m PBSA Good progress with revenues from developments in build and land sales (as part of the forward sale) for Lewisham, Sherlock Street, Leatherhead BtR and Bath 180.0 Fresh
Slide 10: FY22 Segmental Review – Gross Profit
FY22 Segmental Review – Gross Profit £M BTR FY22 1.9 0.6 Total gross margin of 17.2%, compared to FY21 margin 5.9 PBSA of 21.5% Ahead of target margin (15%) BtR 26.4 Fresh PBSA Gross margin of 15%, compared to FY21 margin of Homes 19.4% 32.8 Commercial Reflects a blended margin mix weighed m
Slide 11: Bridge from HY22 to FY22 profit delivery of £55m Operating Profit
Bridge from HY22 to FY22 profit delivery of £55m Operating Profit • At HY22 confidence in achievement of FY profit position • Outturn impacted by two forward sales which were delayed from September 2022 • Experienced margin pressure on last forward sales which did complete in H2 • Position partially
Slide 12: FY23 & Outlook
FY23 & Outlook 12
Slide 13: FY23 Outlook; Revenue and Operating Profit
FY23 Outlook; Revenue and Operating Profit • FY23 outlook assumes forward fund market returning to more normal demand levels in Q2 (calendar year 2023); this will impact H1/H2 weighting • c.£550m revenue forecast for FY23 • c.£300m revenue forward sold and contractually secure • c. £150m secured sit
Slide 14: High Quality Consented Pipeline for FY23 – c £0.8bn Revenue
High Quality Consented Pipeline for FY23 – c £0.8bn Revenue Image Scheme Beds/Units Use Class Status Bristol Prime Regional PBSA City 819 PBSA Planning Granted 15 yr lease to University of Bristol Birmingham Prime Regional PBSA City 523 PBSA Planning Granted Rare sought after Selly Oak location clos
Slide 15: High Quality Consented Pipeline for FY23 – c £0.8bn Revenue
High Quality Consented Pipeline for FY23 – c £0.8bn Revenue Image Scheme Beds/Units Use Class Status Bristol Prime Regional PBSA city adjacent to new University of Bristol campus 260 PBSA Resolution to Grant Planning Edinburgh Sought after and undersupplied BTR 293 BTR Resolution to Grant Planning m
Slide 16: Cost base reduction
Cost base reduction Review of Clear that c. 40 roles overhead cost business have been base carried Aim to review functions could Redundancy Annualised removed out in the structure be streamlined consultation saving of (about 10% of September and and processes to be more process £3-4m, cost the WJ Oc
Slide 17: Looking forward: Gross Margin recovery
Looking forward: Gross Margin recovery Phase 1 Phase 2 FY23 – FY25 FY26 and beyond Blended gross margin 12 - 14% 15% plus • Impact of price reduction on H2 FY22 forward sales • Unsecured pipeline at target • Prudent valuations on pipeline secured margins (20% PBSA and 15% with planning and sites sec
Slide 18: Resilience of the business
Resilience of the business Good visibility of secured revenue • £700m forward sold which will come through in FY23 to FY25 • Total secured development pipeline of £2 billion • Removed unprofitable pipeline • Prudent assumption on forecast sales value Capital light model • Not exposed to significant
Slide 19: Development
Development 19
Slide 20: Building Margins - Opportunities
Building Margins - Opportunities Active asset management of pipeline…. driving returns & rebuilding margins Land • Proactive engagement with landowners looking at restructuring and pricing on existing assets and transactions • Securing new land at attractive margins Planning • Looking to maximise de
Slide 21: Building Margins - Land
Building Margins - Land Land availability and pricing offers enhanced opportunity • Increased funding rates and build costs pressurising landowners • Struggling commercial property sectors reduce land competition for WJ • Emerging downwards pricing trend and increasing availability in land • Signifi
Slide 22: Building Margins - Planning
Building Margins - Planning Number of local plans adopted each year, 2012-2022 Very positive momentum on planning consents in last quarter 40 37 35 • Planning backdrop remains very challenging = fewer consents 31 29 31 30 27 26 27 • Under resourced / funded planning departments 22 • Complexity of pl
Slide 23: Building Margins - Build Costs
Building Margins - Build Costs Build costs - an opportunity for outperformance in 2023 • Unprecedented cost inflation in 2022 driven by strong demand vs supply challenges; Brexit, Ukraine, labour & rising energy costs • Build cost inflation forecasts suggest significant reductions in 2023 • Further
Slide 24: Residential Yields v Risk Free Rate – a look back
Residential Yields v Risk Free Rate – a look back Gross Residential (BTL) Yield Spread to Gilts Gross Residential (BTL) Yield 10 Year Gilt Rate 5 Year Swap Rate 6% 5% 4% 3% 2% 1% 0% Jun-22 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Dec-22 Sep-22 -1% Average 2022
Slide 25: Current and forecast Total Property Return is still attractive
…..but current and forecast Total Property Return is still attractive….. Blended Average Net PBSA/BTR Regional Yield Spread to Gilts Blended Average Investor Total Net Returns Spread to Gilts 10 Year Gilt Rate (FT Markets Data) / Projection Assumes 3.55% Held Constant Blended Average Net PBSA/BTR Re
Slide 26: Market Review
Market Review 26
Slide 27: Market Review - PBSA
Market Review - PBSA Population forecast 18-year olds (2020=100) Robust Supply / demand imbalance supports investment case: • 8% YOY growth in University accepted applications 503,000 FY22/23 • Future growth - 25% population increase in UK 18-year olds - 2020 to 2030 • Core UK cities shortfalls show
Slide 28: Market Review - BTR
Market Review - BTR Strong operational demand and performance fuels investment Cumulative Rental Growth Forecast % appetite 20.0% • Exceptional rental growth: 12.1% UK average in 2022 (Knight Frank) 15.0% • 98% occupancy / 99% rent collection across London & regions (CBRE) 10.0% 5.0% • Key drivers:
Slide 29: Market Review – Investment Horizons
Market Review – Investment Horizons FY22 demonstrated significant investment volumes in UK Residential for Rent 17% investors active in all 3 sectors (PBSA, BTR, Co-Living), expected to grow to 42% by 2026 • Transaction Volumes - PBSA c.£4.9bn and BTR c.£5.4bn (Q3 2021 - Q3 2022 - CBRE) • WJ Strong
Slide 30: Fresh Review
Fresh Review 30
Slide 31: Fresh Review
Fresh Review Operational expertise Market leading Investment Growth • ~23,000 UUM across UK &I • Resident NPS score +34 (PY +32) • New leadership team • Extended student portfolio • Strong retention 98% • Global Student Living Awards established ~1,300 Winner • Piloting technology to support • New B
Slide 32: ESG – Future Foundations
ESG – Future Foundations 32
Slide 33: ESG Update
ESG Update Sustainability • Future Foundations strategy launched November 2021 • Targeting net zero for scope 1 and 2 GHG emissions and meaningful reduction in scope 3 GHG emissions by 2030 • ESG incorporated into executive remuneration Planet • Scope 1: slight increase on prior year following norma
Slide 34: Leveraging our Strengths
Leveraging our Strengths 34
Slide 35: Leveraging our strengths through a challenging market
Leveraging our strengths through a challenging market • Watkin Jones is a market leader in R4R development & fundamental drivers for the PBSA and BtR sectors remain strong – Long term outlook is very strong….. • ……But Real Estate capital market volatility in the last two years has impacted short ter
Slide 36: Summary
Summary 36
Slide 37: In Summary
In Summary FY22 Resilient and adaptable over first 11 months The ‘mini budget’ impacted planned forward sales in the last month of our financial year Good operational performance Eight developments delivered in the year Build costs and supply chain well managed Completed forward sales of
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Slide 39: Appendix
Appendix 39
Slide 40: BtR Pipeline
BtR Pipeline £M 500 Forward Sold Site Secured With Planning Site Secured STP Land under Negotiation to Buy Sites To Acquire 0 FY23 FY24 FY25 FY26 FY27 FY23 FY24 FY25 FY26 FY27 Forward sold 73% 49% 26% 6% 1% Planning secured 89% 81% 60% 22% 1% Sites secured 100% 91% 68% 26% 1% 40
Slide 41: PBSA Pipeline
PBSA Pipeline £M 500 Forward Sold Site Secured With Planning Site Secured STP Land under Negotiation to Buy Sites To Acquire 0 FY23 FY24 FY25 FY26 FY27 FY23 FY24 FY25 FY26 FY27 Forward sold 27% 11% 0% 0% 0% Planning secured 82% 56% 24% 0% 0% Sites secured 100% 76% 55% 24% 1% 41
Slide 42: Disclaimer
Disclaimer This presentation has been prepared by or on behalf of Watkin Jones plc (“Watkin Jones”). The information set out in this presentation is not intended to form the basis of any contract. By attending (whether in person, by telephone or webcast) this presentation or by reading the presentat