Watkin Jones PLC · LSE:WJG
Watkin Jones — FY2023 Earnings Presentation
48 slides from Watkin Jones's earnings presentation, Jan 23, 2024
Slide 1: Full Year Results 30 September 2023
Lewisham, London Full Year Results 30 September 2023 23 January 2024 Well positioned to capitalise on a market recovery
Slide 2: Agenda
Agenda 1. Overview 2. FY23 Results 3. FY24 & Outlook 4. Market Review 5. Broadening the Earnings Base 6. Summary 7. Q&A Alex Pease Chief Executive Officer Sarah Sergeant Chief Financial Officer Watkin Jones plc. FY23 Results 2
Slide 3: Overview
Overview Watkin Jones plc. FY23 Results 3
Slide 4: FY23 Overview
FY23 Overview FY23 Results in line Resilience and Adaptability Controlling the Controllables with October trading update Challenged Real Estate market Strong balance sheet Organisation design & efficiency savings conditions targeted so not to inhibit growth Capital light model / low debt £413m Staff
Slide 5: CEO reflections - WJ key strengths underpinning recovery and vision
CEO reflections - WJ key strengths underpinning recovery and vision Market & Sector Leading business Strong Occupational Performance Broadening Earning Streams to Drive Forward Fund Market Vertically integrated Robust rental growth Options to capitalise further on our expertise Partnership Track Rec
Slide 6: FY23 Results
FY23 Results Watkin Jones plc. FY23 Results 6
Slide 7: FY23 Financial Highlights - P&L
FY23 Financial Highlights - P&L £M FY23 FY22 Movement Revenue 413.2 407.1 2% Overall results in line with October Trading Update Gross Profit 40.4 67.6 -40% Revenue at £413m / Gross Margin: 9.8% Overheads (30.1) (31.2) -3% (excluding land impairment) Core Trading Operating Profit 1 10.2 36.4 -72%
Slide 8: FY23 Operating Profit – Bridge to Final Outturn
FY23 Operating Profit – Bridge to Final Outturn • FY24 Sale Opportunity : 40% • Potential Sale FY25 onwards: 30% Pipeline Viability: 30% • Increases in interest rates and prevailing economic uncertainty have impacted negatively on market liquidity; delay in planned pipeline forward sales • Impact of
Slide 9: FY23 Financial Highlights – Strong Liquidity Position
FY23 Financial Highlights – Strong Liquidity Position £M Net cash outflow of £31.5m FY23 FY22 Movement predominantly reflects investment in new Net Cash From Operating Activities (31.5) (26.9) (4.6) land sites of £11m and £15m provision spend on remedial works Gross Cash 72.4 110.8 (38.4) Strong
Slide 10: Cashflow Bridge – Strong Year End Cash Position
Cashflow Bridge – Strong Year End Cash Position £M We have maintained a strong year end cash position despite market conditions and delays in our anticipated forward sales: • £11m (net of RCF drawdown) investment in land for two PBSA schemes in the South • £11m WIP investment on enabling works on si
Slide 11: FY23 Financial Highlights - Balance Sheet
FY23 Financial Highlights - Balance Sheet £M FY23 FY22 • Inventory and WIP decrease throughout the year due to impairment of land assets and ROU & Leased Assets 29.5 32.1 PRS disposal Other Non-Current Assets 30.6 17.5 • Increase in other current assets due to timing Total Non-Current Assets 60.2 49
Slide 12: Provision for Legacy Building Safety
Provision for Legacy Building Safety • Further provision of £35m recognised for legacy building safety • Recognised as a result of: • Introduction of secondary legislation and evolution of government initiatives during 2023; signing of the Government's Responsible Actors' Scheme • Changes in scope a
Slide 13: NAV – Bridge to FY23
NAV – Bridge to FY23 £M Net Movement: • Bedminster & PRS Disposals • 2 Land Acquisitions • Utilisation: £10m • Provision Increase: £(46)m • Reimbursement £11m Watkin Jones plc. FY23 Results 13
Slide 14: FY24 & Outlook
FY24 & Outlook r Watkin Jones plc. FY23 Results 14
Slide 15: FY24 Operating Profit Outlook – No change to previous guidance
FY24 Operating Profit Outlook – No change to previous guidance • Sites with planning in market • Sites secured STP • (Potential market pressures) Operating Profit To Be Secured • Guiding to £15m > £20m • Positive potential operating profit forecast pre any further forward sales • Forward sold revenu
Slide 16: Cashflow – Strong secured cash position for HY24
Cashflow – Strong secured cash position for HY24 • Strong secured cash position forecast for HY24, before any further forward sales or land acquisitions • Secured unwind of working capital from final bullet payments on sites which have / are due to complete in FY24: c.£25-30m in H1 • Minimal net out
Slide 17: Illustrative Recovery Profile - Pipeline Outlook
Illustrative Recovery Profile - Pipeline Outlook Revenue Mix & Gross Margin % Blend: FY24 > FY26 £700 £699 £697 £696 £694 £693 £692 £690 £689 £687 £686 £685 15% £683 £682 £680 £679 £678 £676 £675 £673 £672 £671 £669 £668 £666 £665 £664 £662 £661 £659 £658 £657 £655 £654 £652 £651 12% £650 £648 £647
Slide 18: Fresh – A key differentiator and part of our end-to-end proposition
Fresh – A key differentiator and part of our end-to-end proposition Review of FY23 Strong retention in year; some churn in UUM, but opportunities to offset with new growth Best Private Housing Provider for 3rd year in a row, rated as a Platinum Provider 2023/24 bookings returned to pre-covid l
Slide 19: ESG – Progress made across People, Places, Planet
ESG – Progress made across People, Places, Planet Review of FY23 • Excellent health & safety performance; incident rate 4.9% of the national industry average • All sites submitted for planning met BREEAM Excellent standards • Over 98% diversion of waste from landfill, ahead of 2025 target • Continue
Slide 20: Market Review
Market Review r Watkin Jones plc. FY23 Results 20
Slide 21: Market Summary - Excellent operational fundamentals underpin a positive market outlook
Market Summary - Excellent operational fundamentals underpin a positive market outlook Positive Underpinning Driving Asset Forward Funding Supply Demand Strong Operational Performance & Remains a Key Characteristics Performance for Increasing Investor Conduit for Investors Asset Owners Allocations •
Slide 22: Investment Market – Constrained but emerging signs of liquidity returning
Investment Market – Constrained but emerging signs of liquidity returning Total living investment (£bn)9 • UK Living investment reduced in 2023 though only slightly below 5-year average • Investment activity, BTR c. £2.9bn and PBSA c. £3.2bn9 (vs £11.5bn in 2022) • Watkin Jones achieved sales across
Slide 23: Titanic Quarter, Belfast – A Case Study in Urban Regeneration
Titanic Quarter, Belfast – A Case Study in Urban Regeneration Transaction overview • BTR and Affordable Homes Regeneration scheme Tenure Type Build to Rent Acquisition Structure Subject to planning and funding - Dec 2020 Planning Permission April 2022 Residential Units 708 (627 BTR Units and 81 Affo
Slide 24: Metal Works, Bristol – A Case Study in Partnerships unlocking value
Metal Works, Bristol – A Case Study in Partnerships unlocking value Transaction overview • 819 unit PBSA regeneration scheme with 15-year lease agreement to University of Bristol Tenure Type PBSA Site Acquired Feb 2022 Planning Permission June 2021 Residential Units 819 PBSA Beds Tenant University o
Slide 25: Land & Planning - Increased opportunity & margins building back to long run targets
Land & Planning - Increased opportunity & margins building back to long run targets Land acquisition activity Planning – barriers to Taking advantage of the and pricing reducing entry remain high land market dislocation -39% YoY land sales for Q3 2023 Planning applications & consents Strategic initi
Slide 26: Broadening the Earnings base
Broadening the Earnings base r Watkin Jones plc. FY23 Results 26
Slide 27: Existing In-house Delivery & Operational expertise – Offers key differentiators & adaptability
Existing In-house Delivery & Operational expertise – Offers key differentiators & adaptability In-house Central Pre-Construction Building Improvement Delivery team & Procurement Team & Refresh Fresh Speed of mobilisation & Project Management Capability Converting a threat to an Deep customer & produ
Slide 28: Where a broadened earnings base might evolve
Where a broadened earnings base might evolve Watkin Jones plc. FY23 Results 28
Slide 29: Where a broadened earnings base might evolve
Where a broadened earnings base might evolve Watkin Jones plc. FY23 Results 29
Slide 30: Strategic Development Partnerships – De-risked balance sheet & earlier recognition of revenue
Strategic Development Partnerships – De-risked balance sheet & earlier recognition of revenue • Partnership acquisition & development strategy with investors to secure good quality consented land • Levers Watkin Jones’ existing development and delivery skillsets into incremental earnings • Strategic
Slide 31: ‘Refresh’ – Redevelopment opportunities emerging leveraging WJ expertise
‘Refresh’ – Redevelopment opportunities emerging leveraging WJ expertise Scale of opportunity? WJ well placed Why do it? to deliver Potentially significant Existing In-house Teams Limited like-for like competition Of 719,000 UK PBSA beds, 538,0001 Fresh – customer, rental & are 8 years+, poorer qual
Slide 32: Case Study - Refresh
Case Study - Refresh Live Refresh project: Existing University PBSA Halls of Residence Units: 700+ Status: Under negotiation with WJ consortium Watkin Jones role: Development / Delivery Works comprise: Building Safety • Full recladding / Firestopping • Correct inherent building defects to current Bu
Slide 33: Where a broadened earnings base might evolve
Where a broadened earnings base might evolve Watkin Jones plc. FY23 Results 33
Slide 34: Summary
Summary Watkin Jones plc. FY23 Results 34
Slide 35: Summary
Summary 1. Market leading business 2. Resilience and agility 3. High performing operational sectors 4. Controlling the controllables 5. Depth of expertise and knowledge of markets 6. Broaden and diversify earnings Watkin Jones plc. FY23 Results 35
Slide 36: Q&A
Q&A 36
Slide 37: Appendix
Appendix Watkin Jones plc. FY23 Results 37
Slide 38: Segmental Review: Revenue & Gross Profit
Segmental Review: Revenue & Gross Profit £M FY23 Rev FY23 GP 19.6 0.7 1.2 9.5 1.9 BTR Growing contribution from BTR, 9% increase in Revenue to £208m / 9.5% GM Good progress from developments in build at Cardiff, Birmingham, 6.0 11.4 Leatherhead, Bath and Lewisham Alongside forward sale and ong
Slide 39: NAV Bridge
NAV Bridge £M Sep-22 Mar-23 Sep-23 WIP Remedial Land Remedial BSA Dividend Other Disposals Dividend Other Investment Spend Acquisitions Spend Provision Non Current Assets 50 (2) 48 4 8 60 Land & WIP 147 2 160 27 2 124 Bedminster 10 (44) PRS Properties (20) Other Current Assets 79 7 86 7 22 115 Asset
Slide 40: Secured Development Pipeline: PBSA & BTR
Secured Development Pipeline: PBSA & BTR £M PBSA £0.9BN SECURED PIPELINE BTR £0.6BN SECURED PIPELINE Forward Sold Site Secured STP Site Secured With Planning Site Secured Site Secured With Planning STP Forward Sold WJ £1.5BN SECURED PIPELINE Forward Sold Site Secured STP Site Secured With Planning W
Slide 41: PBSA - Supply/Demand imbalances drive operational performance
PBSA - Supply/Demand imbalances drive operational performance PBSA headroom expected to continue to increase over PBSA rental growth outstripping inflation, driven by PBSA Delivery has declined over the past 5 years the next 10 years 1 lack of supply 3 2 2m 2.5m 40 Number of beds (000s) Demand pool/
Slide 42: Residential for Rent performance driving growing interest and allocations from investors
Residential for Rent performance driving growing interest and allocations from investors Residential allocations have increased from 2.7% to 9.1% over the past 6 years 6 UK Living sectors investment has increased rise from £7.6 billion in 2018 to £15.1 billion in 2022 6 Residential Allocations as a
Slide 43: BTR - Supply challenges failing to meet demand
BTR - Supply challenges failing to meet demand New consents and supply (as measured by EPC Homes available for rent has decreased whilst Rental pricing continues to increase given issuances) are both decreasing 4 enquiries have substantially increased 5 the lack of supply 6 New homes (annual rolling
Slide 44: Sector Performance and Returns
Sector Performance and Returns Living sector capital values have been less volatile 7 Impact on Capital Values 2022-23 8 PBSA 9% 8.1% 8% 7% 6% 5.6% 5% 4.0% 4% Industrial 2.8% 3% BTR Office Retail Living 2% 1% 0% • Strong net operating income in both BtR and PBSA sectors • To an extent off-set yield
Slide 45: Forward fund - market
Forward fund - market Investment in standing assets has fallen across all living sectors this year 9 • Remains the key conduit for investment into BTR and will remain a key component of PBSA investment • Strong operational performance limiting distress in existing assets • Constrained supply not mee
Slide 46: BTL Total Return Spread to Gilts
BTL Total Return Spread to Gilts • Spread to Gilts remains attractive on a long term basis, tracking above the 3-4% premium expected for Real Estate vs 10 year Government Gilts. • With rental growth expected to be ca. 5% next year5 and assuming yields remain static, spread to gilts will still remain
Slide 47: Bibliography
Bibliography 1. Cushman & Wakefield 2023 Student Accommodation report 2. StuRents Annual Report 2023/ Cushman & Wakefield 3. StudentCrowd, ONS 4. Department for Levelling Up, Housing & Communities 5. Zoopla Research 6. Savills UK Market Update 2023 7. MSCI Nov 2023 8. CBRE UK Purpose-Built Student A
Slide 48: 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