Watkin Jones PLC · LSE:WJG
Watkin Jones — HY23 Earnings Presentation
37 slides from Watkin Jones's earnings presentation, May 2023
Slide 1: Well placed for market recovery – Half Year Results to 31 March 2023
Well placed for market recovery Half Year Results to 31 March 2023 Creating the future of living
Slide 2: Agenda
Agenda 1 HY23 Overview 5 Fresh 2 Financial Review 6 ESG: Future Foundations 3 Development Market 7 HY23 Summary 4 Sector Review 2
Slide 3: HY23 Overview
HY23 Overview 3
Slide 4: HY23 Highlights
HY23 Highlights ▪ HY results in line with expectations ▪ Revenue of £154 million from our forward sold developments which are in build ▪ Adjusted operating profit at £1.8 million reflecting reduced gross margin in line with previous costs and additional build costs on our Exeter scheme ▪ Good net ca
Slide 5: Outlook
Outlook Outlook – H2 ▪ H2 to be materially stronger than H1 with further forward sales expected as well as revenue from our sites in-build ▪ Currently targeting up to five further forward sales in FY23 ▪ Overall pricing in line with expectations, but we are seeing purchasers looking for back-end wei
Slide 6: Financial Review
Financial Review 6
Slide 7: HY23 Financials Highlights – P&L
HY23 Financials Highlights – P&L £M ▪ Overall H1 results in line with April Trading Update HY23 HY22 FY22 HY Movement Revenue 153.9 193.0 407.1 -20% ▪ Revenue at £153.9m, decline of (20)% vs Gross Profit 16.1 29.9 67.6 -46% prior year as expected; revenue from the build out of our forward sold sites
Slide 8: HY23 Financials Highlights – Balance Sheet
HY23 Financials Highlights – Balance Sheet £M ▪ Strong cash gross position of £83m vs £45m HY23 HY22 FY22 HY22 Leased assets 31.2 100.1 32.1 Other non-current assets 16.9 21.6 17.5 ▪ Net Cash position of £45m in HY23 vs £27m Total non-current assets 48.1 121.7 49.6 in HY22 Inventory and WIP 159.5 15
Slide 9: HY23 Financials Highlights – Cashflow / Liquidity
HY23 Financials Highlights – Cashflow / Liquidity £M Cash flow HY23 HY22 FY22 ▪ Net cash outflow of £24m Operating cashflow (23.9) (81.4) (26.9) ▪ Increase in borrowings following utilisation of Gross cash 83.3 44.7 110.8 the RCF on our Bristol PBSA scheme Borrowings (38.0) (17.9) (28.3) Net cash 45
Slide 10: HY23 Segmental Review – Revenue
HY23 Segmental Review – Revenue £M HY23 BTR 4.7 7.8 ▪ Revenue in line with HY22 at £93m PBSA ▪ Good progress with our BTR developments in build; predominantly 48.4 Hove, Lewisham, Birmingham and Leatherhead BtR PBSA ▪ 38% decrease in revenue vs HY22 to £48.4m; decrease due to Fresh number of and sta
Slide 11: HY23 Segmental Review – Gross Profit
HY23 Segmental Review – Gross Profit £M HY23 BTR ▪ Gross margin of 9%, compared to HY22 margin of 13%. (1.1) 0.9 PBSA ▪ Margin dilution from our Cardiff scheme which is a 4.8 development wrap project BtR 3.2 PBSA ▪ Gross margin of 10% for HY23, compared to HY22 margin of 16.6%. Fresh ▪ Impact from a
Slide 12: FY23 Outlook; Operating Profit
FY23 Outlook; Operating Profit ▪ H2 to be materially stronger than H1 ▪ Reflects profit contribution from our forward sold sites and from the forward sale that we have announced today ▪ In addition, five further forward sales in the market but need to consider: ▪ The structure of the current pricing
Slide 13: £1.7bn Secured Development Pipeline
£1.7bn Secured Development Pipeline • Reduction in secured development pipeline to £1.7bn from £2.0bn at year end. This reflects: Site Secured Subject Forward Sold • Revised valuations in line with the market to Planning • Active management not to proceed with the sites which would be significantly
Slide 14: Development Market
Development Market 14
Slide 15: Development market
Development market Land availability – Build costs – reduced Planning permissions Investor appetite reduced land activity inflation across the UK • Land values falling in • Inflation forecasts for • Planning challenges • Investor appetite and certain areas, with good 2023 reduced to maintain key bar
Slide 16: Land availability – opportunities emerging
Land availability – opportunities emerging Land acquisition activity reduced Early signs of improving sentiment in the UK greenfield land market 1 General market sentiment Number of sites coming to market Number of bids for each site Land deals ▪ Funding and viability challenges impact land market L
Slide 17: Build cost inflation – downward pressures
Build cost inflation – downward pressures Build cost inflation steadily reducing, est. 2.5% - 3.5% in 2023 Tender costs and activity falling, order books declining ▪ WJ now achieving some buying gains against previous budgets ▪ Downward pressure on margins to follow if demand continues to drop off B
Slide 18: Planning – key value driver / key barrier to entry
Planning – key value driver / key barrier to entry Challenging national context… Watkin Jones well-placed… ▪ LPAs under-resourced / funded = increasingly delayed decision making ▪ Specialist planning team - strong track record in planning success ▪ Greater assessment complexity - emphasis on design
Slide 19: WJ Self-Build Strength
WJ Self-Build Strength Track record Team members wellbeing & loyalty • Dedicated & experienced self-build team of 250 headcount - eNPS score of +15 • 7,200 units, 27 projects, construction value c £715m in the last 3 years • EDI partnerships with Women into Construction, First Military Recruitment,
Slide 20: FY22 completions
FY22 completions Conduit Street, Leicester Cranfield University phase 1B Duncan House, Stratford Westfield Road, Edinburgh 250 beds 198 beds 29,000sqft fit out 396 beds Frederick House, York Gorgie Road, Edinburgh Steelworks, Sheffield phase 2 Unity Street, Bristol 368 beds 249 beds 61 beds 291 beds
Slide 21: …and FY23 progress
…and FY23 progress Iona St, Edinburgh 279 beds Ty Nant, Swansea Hawkins Rd, Colchester 370 beds 286 beds Hove, Brighton 216 units Sherlock St, Birmingham 551 beds Bath Lewisham 651 beds 322 units Dalby Ave, Bedminster 819 beds Central Quay, Cardiff Randalls Way, Leatherhead Lower Parliament St, Nott
Slide 22: Sector Review
Sector Review 22
Slide 23: UK Living Sector - investor returns and allocations
UK Living Sector - investor returns and allocations Short term liquidity challenges but long term growth trends in investor UK annual investment volumes (£bn) & residential market share 5 allocations ▪ Significant short-term disruption to transaction liquidity since September 2022 ▪ Continued mid an
Slide 24: Market Review – PBSA - Operational
Market Review – PBSA - Operational Projected increase in full-time undergraduates 6 Demand - student numbers continue to thrive ▪ 2.2 million full time students in UK = +4% year on year growth ▪ 760,000 applicants and 560,000 acceptances – near record years ▪ UCAS predict applications could increase
Slide 25: Market Review – PBSA - Investment
Market Review – PBSA - Investment Continued investment demand but suppressed activity Record levels of investment into UK PBSA in 2022 6 (total investment quarterly) ▪ 2022 a record investment year c£7.2bn invested ▪ A significant slowdown in Q4 2022 but distorted by delayed close of £3.3bn sale of
Slide 26: Market Review – BTR - Operational
Market Review – BTR - Operational Imbalance between landlord instructions and tenant demand 8 Lack of housing delivery driving supply demand imbalances ▪ Tenant demand +46% / Landlord instructions -21% (March 23) Occupancy and Rent collections very strong ▪ UK BTR rent collection 99% and occupancy 9
Slide 27: Market Review – BTR - Investment
Market Review – BTR - Investment Reduced transaction volumes but large scale and longer term deals BTR investment volumes (£m), UK 9 underpin reasonable Q1 performance ▪ 2022 a strong investment year c£4.4bn invested ▪ Q4 2022 activity materially impacted at c£500m ▪ Investor caution remains but mom
Slide 28: Fresh Review
Fresh Review 28
Slide 29: Fresh Review
Fresh Review Operational Expertise Market Leading Investment Growth • 23,000 units under • Resident NPS score +34 • New delivery model • Mobilising/takeover of management across UK & (PY +32) established 1,257 beds for 1 Sept ‘23 Ireland • Global Student Living • Development of house of • New BTR sc
Slide 30: ESG
ESG 30
Slide 31: ESG – Future Foundations
ESG – Future Foundations ▪ Future Foundations sets out our ESG commitments under Future People, Future Places and Future Planet ▪ This included a commitment to achieving net zero scope 1 and 2 carbon emissions by 2030 ▪ Our ESG initiatives are progressing well: Future People ▪ Health & Safety: incid
Slide 32: HY23 Summary
HY23 Summary 32
Slide 33: In summary
In summary HY23 Summary ▪ H1 in line with expectations; on site construction underpinned profitable period ▪ Post period end first forward fund closed - evidence of market recovery Outlook ▪ R4R sector performing strongly, expect forward fund market to fully recover across the medium term ▪ H2 expec
Slide 34: Appendix
Appendix 34
Slide 35: Secured Development Pipeline: PBSA & BTR
Secured Development Pipeline: PBSA & BTR £M PBSA £0.9BN SECURED PIPELINE BTR £0.8BN SECURED PIPELINE Site Secured Forward Sold Subject to Planning Forward Sold Site Secured Subject to Site Secured With Site Secured With Planning Planning Planning 35
Slide 36: Bibliography
Bibliography 1. Savills Report - UK Residential Development Land Q1 2023 2. Knight Frank Residential Development Land Index Report Q1 2023 3. Garner & Theobold Tender Price Forecast Q2 2023 4. Department for Levelling Up, Housing & Communities 5. Cushman & Wakefield BTR report Q1 2023 6. Knight Fran
Slide 37: 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