Watkin Jones (LSE:WJG) — Investor Presentation

0:00 Good afternoon, and welcome to the WATKIN JONES PLC investor presentation. Throughout the quarter presentation, investors will be in listen only mode. Questions are encouraged, and they can be submitted at any time by the q and a tab situated in the right corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received in the meeting itself. Have the company come review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to fit the following poll. I'd now like to hand you over to Alex Pease, CEO. Good afternoon, sir. Good afternoon, and welcome all to the 2025 financial full year results for WATKIN JONES. I'm Alex Pease, the chief executive, and I'm joined today by Simon Jones, our chief financial officer, and and also George Dyer, our group investment director. The agenda for this afternoon will begin with a short overview from myself reflecting on the business and operational performance across the year.

0:56 We'll update on the core occupational and investment markets we operate in before focusing in on our financial and operational highlights. Next slide. We entered f y twenty five with a continued environment of economic volatility, ongoing geopolitical disruption, slower than and then followed by slower than anticipated rate cuts and a drawn out weight for an unsympathetic budget, which has resulted in limited sentiment improvements across the year. With this backdrop, WATKIN JONES has continued our approach over the last twelve twenty four months with with a strategy of control, execution, and diversification, looking to provide a firmer platform for future growth.

1:48 Inevitably, as a consequence of severely reduced market liquidity in the last couple of years, has been a lag this year on overall revenues due to lower rental levels of con of contracted income at the start of the year. However, we are very pleased to have delivered a resilient and positive operational performance with improved metrics year on year across many of our core targets. Our adjusted operating profit of 6,300,000 is at the top end of consensus and also delivered an improved gross profit margin of 12.4%. We've continued to prioritize our cash and debt management with a strong gross and net cash back position of 80,000,000 and 70,000,000, respectively.

2:34 And it's worth noting, if not for a twenty four hour delay on receipt of transactional funds from our Glasgow transaction, these totals would have been circa £10,000,000 higher. A priority for the business has been our people. They represent a core asset group for for us with their depth and breadth of knowledge and experience across all real estate sectors. We have focused on providing greater communication, training, incentivization, and recognition and have been rewarded with exceptionally strong staff survey results with year on year improvements across the last three years. Whilst I'll discuss our operational divisions in more details later on, it is worth drawing out some of these key highlights.

3:21 Our delivery function has performed extremely well in the year, completing four schemes all on or ahead of program and realizing betterments to margin of over £3,000,000. We continue to grow in confidence and execution of our diversification strategies. Refresh and development partnerships have both together delivered over 90,000,000 of revenues with growing high quality pipelines in both areas. Whilst liquidity has remained scarce, we have looked to innovate and flex our model to complete four development transactions through the year across three different subsectors. We've also enhanced our pipeline with 1,400 beds receiving planning consent, three new acquisitions secured, and four under offer, ultimately growing our potential pipeline to over £2,000,000,000.

4:15 Fresh, our operational business, has also had a very strong year, growing their units under management by over 2,000 beds net through both new sites coming online and also takeovers from competitors. Twelve months ago, we set out three core areas of focus for the business to respond to some of the specific challenges being presented by the wider economic conditions. The necessity to not rely solely on a single transactional model, evolutions in demands and trends in our capital and operating markets, and the desire to build a stronger and more resilient business. These strategies look to target those areas of the business and wide environment which were within our control and where we may be able to generate incremental gains.

5:07 First and foremost, we wanted to enhance our execution. We targeted cost controls and efficiencies across all areas of the business, generating material savings. We have optimized our delivery and construction capabilities, generating opportunity to outperform and have levered our in house development, design, and planning expertise to boost both performance and also aid development viability. We have looked at ways of broadening our revenue base through diversification in both models and markets, offering more granularity and resilience to our earnings. We've continued to replenish our pipeline, and have we looked to show innovation and agility in our transactions. We have demonstrated a consistent focus and application to build in resilience to the business, maximizing our cash generation and control, retaining liquidity and agility, and also motivating and aligning our people, ultimately, with a goal to position a more resilient business and create a platform for growth.

6:12 I think this slide is really important because I I sat here twelve months ago, and then I really do believe we've delivered on what we said we were going to target. Moving to the next slide. So on on the execution side, we set ourselves very clear targets to drive this improved execution in the business, and we've been really pleased with the resilient performance that the business has delivered. Barriers to liquidity have been well trailed, and we've looked to innovate in the form of both the structure of our deals and and the markets that we're operating in. And that's resulted in four four development transactions, which was an increase of a 100% on last year. With high interest rates and economic volatility, it's come a more constrained debt environment.

6:58 And we've retained a very positive relationship with our lenders. We're very pleased to execute a new two year RCF facility at the start of the financial year. There's been continued intransigence in the land market with more limited activity than anticipated. Whilst we are clearly seeing land values fall, they they've fallen about 3.3 this year, so have also the transaction levels. And I think I'll read through from this is if landowners aren't needing to sell their land, then they're holding on to it, which has resulted in, you know, continued challenges trying to find viable pieces of land. However, we've continued, from what can join his point of view, to both preserve, replenish, and renew our pipeline, as I said, with three acquisitions and and three more in the pipeline.

7:47 The construction and delivery industry has also enjoyed very challenging legislative and also steep building costs inflation, and supply chain disruption over the last few years. We really do believe that our delivery capabilities are a genuine USP, and the teams this year have executed an exceptional performance in f y twenty five, driving betterments to both programs and margins across the board. Planning is always a top topical conversation, and in The UK, it continues to be renowned for its dysfunctionality. Whilst new government initiatives are positive, it remains a consistent barrier to development. We've just seen the the first highlights of the new NPPF, which do do offer some quite promising, details.

8:35 We need to see see a bit more, but, is is absolutely hopeful they might start unblocking the big delays and and create more visibility for us on the planning side. This year, we've also faced into new building reg safety regulations, which in turn have caused material delays across the sector. WATKIN JONES have a highly skilled in house planning function, and we delivered a 100% success rate in the year with 1,400 units consented. Equally, we have the in house specialist skill sets to navigate the building safety gateways. The year end, we've received our first two gateway approvals, and, again, this is a 100% record. We focused on keeping the business lean and right sized, looking to employ additional resource really in the crucial areas that we want to to provide growth for the business.

9:26 We've also spent considerable time and resource on ensuring we are communicating to, motivating, and empowering our people, reflecting their value to the business. As we head into 2026, the economic and political environment do remain volatile. However, there are some early indicators of potential improvements in market backdrop and and optimism that some of the headwinds described may abate over the course of the year. In particular, we talk a lot about interest rates, so it's, you know, great news to get the interest rate cut today. And if that trajectory continues, that'll be a big unblocker from a real estate perspective generally. So whilst I I do say we are hopeful there will be improvements in market conditions, which will support our BAU operational and development activities, But I think, irrespective of this, we do firmly believe that a continued approach to diversifying our revenues is is absolutely the right strategy for the business and can offer us not only more resilience, but also growth opportunities.

10:29 The primary goal for us is to enable the business to maintain profitability through all economic cycles. This can help support more consistent and granular revenue streams, which are less tied to investment cycles and offer a greater range of project types and sizes. Whilst focusing on close adjacencies to our existing models and sectors, we can open up access to wider pools and types of capital and also tenants and customer bases. To date, our diversification strategies have included, firstly, our refresh model involving the refurbishment and repositioning of the existing assets. This can generate more granular and noncyclical returns for us. Secondly, our development partnership strategy.

11:17 This couples WATKIN JONES with investors to deliver existing consented sites, which accelerates our revenue generation and reduces our exit risk. Increasingly, we feel that the group is well placed to offer wider asset management strategies, potentially monetizing our deep sector development and operational expertise. We believe that WATKIN JONES are extremely well and perhaps uniquely placed to drive these strategies forward. Our vertically integrated model and one stop shop across the development cycle provides the agility and innovation to pivot into these adjacent strategies. Our depth of design, product, and delivery capabilities help to unlock these developments, and our depth of institutional relationships help us to deliver funding on them.

12:05 In summary, our ambition is absolutely clear to us. We want to create a more resilient platform with sustainable diversified returns and cash generation, which will not only augment our wider developments and transactional activities, but also drive further growth into the business as we move forward. I'm now just gonna hand over to George. He's gonna talk you through, you know, the high level dynamics affecting, you know, supply demand and the investment market generally. Good afternoon. Turning now to the market overview. I'll provide an overview and update on the operational investment market dynamics in our key sectors. The UK PBSA market is seeing significant pressure on supply, which we believe will continue to drive performance into the medium term.

12:52 Student to bed ratios are expected to tighten, moving from 1.6 today to 1.9 by 2030. That is driven by new limited supply and assuming a conservative demand growth of 1%. Structural undersupply is driven by three main factors. Viability challenges continue to impact new deliveries. By 2027, new deliveries are expected to have fallen to 70% below the ten year average. Obsolescence of all the schemes is reducing current market supply with over 50,000 beds having been removed from the market since 2020. Equally, policy and taxation changes are accelerating reduction in HMOs across The UK with 43% reduction in stock in the last five years.

13:39 For WATKIN JONES, this creates a clear opportunity. Development and delivery of newbuild schemes in a market impacted by constrained supply will continue to deliver good medium term investment performance. Despite some fluctuations in international student numbers in the past two years, the overall PBSI demand outlook remains positive. Domestic applications were up 3.1% to 20 fivetwenty six with international applications up 2.2%. QS forecasts that international student demand is likely to continue to grow by 3.5% per year to 2,030, making The UK the fastest growing Angouphone destination. This is driven by the strength of The UK higher education sector compared to global competitors as well as a challenging political landscape in other key markets.

14:28 The US, for example, has seen a 17% drop this year in international numbers. Over the last few years, we've started to see some divergence in the university application performance with high tariff universities materially outperforming with an 8% increase in applications since 2022. Importantly, for WATKIN JONES, we continue to monitor our market exposure carefully, pinpointing the higher demand, higher tariff cities, which offer good supply demand dynamics. As a result, 91% of our pipeline is located in higher tariff university markets. Investment in PBSA remains broadly aligned with 2024 volumes at around GBP 3,400,000,000 up to Q3 twenty twenty five.

15:16 Demand has remained strongest for operational assets and whilst development transactions are happening, it's been primarily through joint ventures and at a slower rate. We are seeing significant capital looking at value add and repositioning strategies for older PBSA stock. It's a trend we believe will continue, and this aligns particularly well with our refresh model. Capital is available, but selective on specific strategies or locations. Our ability to source high quality pipeline, work structure creative deals alongside a wider refurbishment capability through refresh position us very well to capture this demand. The build trend sector continues to face similar challenges around supply. New BTR starts are now 45% below the ten year average, driven largely through viability challenges.

16:08 On top of this, the impact of the legislative changes to the private rental sector is driving a staggering net loss of nearly 300,000 rental homes since 2022. This accelerating rental undersupply is expected to support strong occupancy and rental performance over the medium and longer term. Fueled by lack of quality and supply in The UK rental market, BTR operational fundamentals remain strong. Occupancy across the sector is around 97%, and rental growth, while normalized, is still forecast outpace inflation at 3.3% per year through to 2029. Population growth in the core rental demographic, which is the ages of 20 to 54, is set to increase by over 2,000,000 in the next decade, with SABL's predicting a 20% growth in rental demand by 2031.

17:09 The BTO investment market is characterized by strong investor demand but hampered by lack of stock and viability. Around GBP 3,000,000,000 has been invested into BTR in The UK so far this year, with capital skewed again towards stabilized operational stock. Single family homes is the fastest growing BTR segment, accounting for 46% of year to date investment. And coliving, a microform of BTR, is another growing key subsector, with 45% of surveyed investors plan to enter into the sector by 2028. BTR remains a core strategic focus for WATKIN JONES, and our pipeline incorporates both multifamily but also co living and single family housing. We remain confident in the sector fundamentals and strong medium term investment trends.

17:59 In recent years, one of the key challenges has been reduction in availability of lower cost of capital strategies. Positively, recent investor sentiment survey suggests intentions for future investment is refocusing towards core and core plus investment, with 60% of capital likely targeting these profiles, up from 41% last year. If these intentions do manifest and return our expectations are resetting, this could have a material impact in unlocking liquidity for funding in greater amounts. We believe the focus will initially be on operational assets. However, with limited new best in class stock available and the drive for ESG and building safety compliance schemes, this will likely push investment towards development assets. In summary, we believe the residential rent sectors in UK still represents some of the most attractive real estate markets to invest in, underpinned by accelerating undersupply, barriers to new development and continued demand drivers.

18:58 Investors remain committed to these sectors. The continued downward trend in rates as evidenced today, alongside reduction in gilt yields, we'll continue to drive investors back towards core strategies, which will help to drive liquidity in these markets. I will now hand over to Simon, who will take you through our financial results. Thanks very much, George, and good afternoon, everybody. I'll now take you through the financial highlights for full year 2025 and then talk through some further detail on our outlook and pipeline. So in summary, as Alex alluded to, I'm pleased to report that our results were the top end of the market consensus forecast with adjusted operating profit of 6,300,000 and adjusted profit before tax of £5,600,000.

19:46 Our continuing strong operational cost control and effective delivery management contributed to a strengthening margins to 12.4%. That's up 1.3 percentage points over the year. This cost control has been evident across all areas of the business. For example, overheads were down around 4% despite the persistent inflationary pressures in the economy. Our revenue and core trading gross profit fell versus last year as a result of about 20% lower secured forward sold revenue at the start of this year compared to the start of last year, and that was due to fewer sales in previous years and therefore fewer schemes in build. Our core trading trading profit includes, as last year, the margin from the sale of joint venture interests.

20:37 And this year, that was the sale of our Glasgow scheme to a joint venture owned 95% by Maslow Capital and 5% by the group that we announced in September. This is considered the sale of a subsidiary under accounting standards. And as such, we cannot show this divestment within operating profit in the financial statements. In the year, we've taken an incremental provision for building safety remediations of £5,000,000. This increase is driven by the completion of investigations on some further properties concluding that remedial work is required, so necessitating a further provision. We've also taken impairment charge So we've taken an impairment charge of £7,100,000 against the carrying value to assets.

21:25 So as a result, on a statutory basis, the profit out term was an operating loss of £5,800,000. To illustrate the achievement of gross margin a little bit further, I've shown on this slide here the forward hold start margin at the start of the year, which amounted to some £19,000,000 or about 55% of the year in outturn. Despite the challenging market that George has mentioned, we delivered four transactions in the year with a further combined gross margin of about £10,000,000. Our refresh business delivered £1,500,000 of gross margin, and Fresh, our accommodation management business, generated just under £5,000,000.

22:13 Moving on to cash flow. As I mentioned earlier, we remained entirely focused on cash management and cash control with gross cash just over £80,000,000, which after debt outstanding of around £10,000,000 resulted in net cash of £17,500,000 versus £83,000,000 last year. As a result, cash and available facilities headroom amounted about $130,000,000 versus $143,000,000 last year, and that includes the $10,000,000 accordion within our HSBC RCF facility as we announced earlier in last year. Our drop in trading cash flow was impacted by delays in the transmission, as Alex mentioned, of just over 10,000,000 pack counts from from our Glasgow sale.

23:02 And that, alongside with fewer site completions and therefore fewer bullet and retention payments, was the that explains the drop in cash during the year. Moving on to the balance sheet. Net assets remained strong at a £125,000,000 or around 45p per share, and that excludes goodwill. Inventory and WIP have reduced year on year, reflecting the disposal of the Glasgow scheme, but also impacted by the investments we've continued to make in our pipeline as we exchanged on new sites and invested in enabling works and planning for our projects in the pipeline. The overall net provision for building safety has further reduced in the year by almost £2,000,000 to just over £46,000,000 in the year, reflecting the completion of works on six further buildings and the small increase mentioned earlier of £5,000,000.

23:58 We've been very successful in securing firm contributions from building owners to these remedial works. And just over £10,000,000 remains as an asset on the balance sheet, and this will be recovered as works were undertaken. We also continue to evaluate recovery of remedial costs from our supply chain. And we've a team actively engaged on this, giving us confidence we'll achieve cash recoveries. So now moving on to the outlook and pipeline. As I mentioned earlier, market conditions remain challenging, so we continue to focus on those factors within our control, cost, delivery management, and cash flow. We start the new financial year with some £340,000,000 of secured revenue, and that's up from just over £290,000,000 last year.

24:51 During this financial year, our focus will remain on the delivery of our secured pipeline in line with stated margins and, as such, the practical completion of the three schemes we have due for completion this year. So far, we signed one new deal for 484 student beds in Bristol, which is conditional only on receipt of gateway to consent, which is expected shortly. We have further three development partnerships we're currently under offer on and two further sites in the market, which are well advanced in legals and we'll try and conclude subject to market conditions. There remain a number of further schemes that we plan to launch to market in the later in the year. That said, in conclusion, the market does remain challenging, and transactions are taking much longer to close.

25:45 During our f y twenty four results, we set out further detail on our strategy to create a more resilient revenue base by growing our refresh and development partnership revenue to augment our existing business. In f y twenty four, our revenue mix was 20% diversified revenue and 80% from our traditional transactions. And at the end of that financial year, we shared our expectations for this to evolve to a sixty forty split by financial year 2027. As you can see on the right, we have continued to focus on this in order to grow a smoother revenue profile. And in f y twenty five, diversified revenue was 30% of our revenue mix, and that includes the three development partnerships deals that we announced during the year.

26:34 So in summary, we're delivering on the strategy to re reach that mix of sixty forty by f y twenty twenty seven. If we move on to the pipeline, you can see from the slide, on the pipeline, it's grown to just over £2,000,000,000 of opportunities, representing over 11,000 beds and units. We've worked very hard this year to replenish this pipeline as we complete projects, and the growth is around 4% year on year. Overall, 70% of the pipeline is secured, And importantly, almost half the pipeline has a planning consent. So these are schemes which are ready to be divested to deliver revenue and profit now.

27:21 12% of our pipeline is currently under offer in legals, which we hope to close in this financial year. This focus has been especially successful in our development partnerships business, where we've doubled our pipeline since last year to £400,000,000, which gives us a great base from which to augment our existing business. So by way of overall summary, we're we're pleased with our f y twenty twenty five results in difficult market conditions. Our focus on cost and cash has yielded results with our core trading gross profit percentage up against last year, and we're excited by the strength and growth in our pipeline as we continue to engage it with funders.

28:09 I'll now hand back to Alex to start the operational updates. Thanks, Simon. So moving to delivery. As I've previously discussed, do believe that our delivery function offers us a very clear USP and differentiator in the market and particularly challenged markets. And this is no different to when we came out of the GFC. You know, having that delivery function was a a real enabler for us, and I I I see a lot of, you know, analogies between the two the two time periods. It means we're able to maintain control and manage risks and also maximize opportunity, which would otherwise be paid away to a a third party contractor. I think it's also really important because what it does is it offers investors a one stop solution for both development and delivery risk.

29:00 That means that we can sort of wrap it all for them in in in in one one bundle, which is is increasingly important. This delivery function, as I say, it allows us to pivot into other markets and other models. So refresh and develop partnerships are, you know, both exceptionally good examples, which just couldn't do those models if you didn't have the delivery and development functions that we do, and it means we can cut our teeth in the adjacent sectors. Our delivery teams have had a very strong year, I've talked about, through controlling our design, our programs, managing our supply chain, you know, very, very strongly. We've been able to deliver a really great great success in the year, all of our schemes within, program and the the best wins in margins that we've already talked about.

29:46 I I think it's always worth talking about health and safety when you're talking about construction. It it has to be an absolute core priority for the group and the culture within WATKIN JONES, health and safety rides all the way through it. So then I think that's always incredibly impressive, the fact that the health and safety team are considered absolutely home side, and they are there to make it safer for our personnel and for the developments. And that is not always the case in in in development construction businesses, but it's it's something that we're we're rightly proud of trying to outperform the national statistics and and also maintain our ISO audits. I think there's been a huge amount talked about in terms of sort of the building safety act and the regulator and the new regulations, which are all coming from a fundamental, you know, good intent. You know, we all want to make building safer.

30:43 It's it's been much maligned the system. We are working very closely with the regulator. We think that is the right approach to do it. We we are trying to work with them, not against them. I think, the the standards of our applications have been, lauded by the regulator as as sort of best in class, and and we're really pleased to receive two successful gateway applications, so far. You know, undoubtedly, it has been painful for all developers. It's created big delays, but it does feel like the regulator is now more aligned with the market and and and are making steps to try and improve that. I think why is this important? Because I think it's actually a real USP that we can monetize with investors. The the ability to control the design process, the risk process with regard gateways is is another USP, which, you know, I think is a real strength of ours.

31:38 There are there are a few case studies here, and and I'm just conscious of time and allowing enough time for q and a. So I'm gonna through them relatively quickly. This case study so often, we just talk about case studies on on deals that we've done, and you don't you don't revisit it. And and, actually, this scheme in Stratford was the scheme we talked about last year. It was an innovative JV partnership with housing housing growth partnership, sort of a subsidiary of Lloyd's banking group. And we we we jointly, WATKIN JONES had secured the scheme of secured planning, and then we funded it with HGP. I guess, the the really positive updates are, firstly, on the delivery side, we're we're very much on program. We're within our budgets. We've mitigated, you know, quite significant development construction risks. We've we've bridged over the H S 1 Tunnel.

32:28 We did that very successfully. And, yeah, look, we're confident that we're gonna deliver, you know, a a very high quality product. Because we are in a JV, and this is enabling us to build up an asset management and investment management capability within our business on our own schemes, and I think that's gonna be a real string to our bow going forwards. We've been able to create and launch a brand for the for this asset. We've also agreed a collaboration agreement with John Lewis on furniture packages, and, you know, I that's, again, a a nice sell point. Most importantly, we've been able to secure a 51% nomination agreement with a very large in London University for the first year lettings. So really looking to prove that those lettings for the area.

33:16 So all in all, just just a nice positive representation of, you know, different areas of our business coming together and and delivering a high quality product for our for ourselves and our JV partner. In terms of refresh, we've we've spoken a lot about it last year, and it may it it I still absolutely fundamentally believe this is going to be a large growth area for us. We know that there's already significant capital targeting this area, looking for repositioning strategies and value add strategies, and we believe we're seeing very good momentum in market engagement. Over the last eighteen months, we've delivered more than £20,000,000 worth of revenue, and we completed five projects this year. We are absolutely meeting and, in some cases, exceeding our target margins of 10 to 12%.

34:05 And it's this sort of performance which is underpinning our confidence in the strategy and scalability. So looking ahead, we've got, over 40,000,000 of projects either in exclusivity negotiations or actually enabling works on-site. That That combines with a further 55,000,000 of projects which are in detailed negotiations, and we're tracking a wider 230,000,000 pipeline. I think the one thing I'd say on on refresh, it has been slowed in terms of the execution of deals, firstly, by the due diligence required to, you know, make sure that we've got cost certainty and we understand what what what's beneath the layers in the building, but also the building safety act and the requirements to, you know, get sign off before you could commence has also slowed things down.

34:52 But we do believe that, you know, our expertise in navigating these building safety standards and being able to deliver complex remediation and refurbishment projects will give us a competitive advantage. So this depth of opportunity reflects a clear market trend, and as I said, it's capital chasing it. And we feel we're incredibly well placed to capture that demand and leverage all of the wider business capabilities that we have across both new build and refurbishment to give us that ability to access the larger projects. Again, just a quick whiz through a a case study on on a a refresh project completed in the year. I I think this is just a good, demonstration of of what a refresh project could look like.

35:40 Firstly, starting with the owner, a private equity owner, what what are they looking to do? They're looking to, from a defensive point of view, enhance the sort of cosmetic aspects of their building to make sure that they keep their lettings high, in in a market. And secondly, they were looking to boost their net operating income because they were they were gonna position for sale later in the year. So what were able to do for them was we arranged accelerated programs in different phases so we could minimize disruption to the students. The students were able to stay in situ. So whilst 5,500,000 revenue across the project is not a huge revenue, it was actually driven in a very short time frame. And as I said, the the the margins we achieved were were absolutely in line with, what we set out.

36:29 So the key is if we can generate a number of these projects each year, they're more granular income, they're more regular income, and we think they're hedged to sort of wider sort of investment cycles. The case study, I'll I'll ask time Simon to talk about because the both the finance and investment team were were highly involved in this. But this is one of our innovative JV structures, which we closed in the year in Glasgow. Sure. Thanks. Thanks very much, Alex. I I mentioned Glasgow earlier. Obviously, Obviously, that was a big big big driver of of profitability in the year, and we announced it in September and really showcasing our ability to to flex our model to to dealing with market conditions as they are and to deliver value to the group. So the scheme in Glasgow or the odd as we call it is a 784 unit PBSA scheme, which is being delivered, as I mentioned earlier, in a joint venture between ourselves and Maslow Capital.

37:26 And indeed, it was them that we announced a a second deal in Bristol earlier this week. This this scheme in Glasgow will deliver to us about a £115,000,000 of secured revenue over the the three year development construction contract. And, obviously, it delivers a significant cash inflow when we did the divestment at the end of last year as as we announced in in the September announcement. The transaction structure then delivers a secured profit on that build through through the construction process. And and similar to the Stratford, discussion that we just had with Alex a moment or so ago, there's a promote payment structure, which means that on the onward sale, we'll do all of the development, all of the all of the letting, and ultimately a divestment. But on the onward sale of that property, we have the potential to get additional value based on the exit proceeds.

38:21 And importantly, as part of that, we retain operational control throughout the delivery and design and construction process. And fresh, our construct our operational management business will oversee operational management, ensuring our ability to drive performance and therefore value for us and our JV partner. Moving on to the next slide. I've just got a a few comments on on Fresh. Just mentioned Fresh. It's our accommodation management business. And I really here want to just highlight the strength and resilience of our platform here. So during the year, we onboarded 2,250 units, and already we secured a further 1,500 units for this year and beyond, giving us excellent forward visibility. Operationally, occupancy across this business remains strong in the portfolio underpinned by high quality assets and service.

39:15 And, really, we're very, very proud of the experience we're delivering here, and that's that's reflected in a student net promoter score of plus 35 and a client net promoter score of plus seven 37, giving us clear evident evidence that both partners and residents value what Fresh brings. Our scale here continues to build. Fresh now manages around 21,000 units. And as mentioned, during the period, we we secured 3,700 new units, again, reinforcing both momentum and market confidence in our proposition. Looking ahead, we've over 2,000 units progressing through illegals for this year and next and a robust pipeline that we're tracking of around about 11,000 additional units.

40:02 And that depth of pipeline allows us to be selective whilst driving sustainable gross growth across the portfolio. Also importantly, we think we're really leading the pack here with smart reporting, creative AI driven marketing, and introducing AI an AI customer journey improvement to augment and improve inquiries, conversion, and retention. Strategically, Fresh is also helping to expand our footprint into coliving with our second regional scheme now mobilizing in Cardiff. And importantly, Fresh is also engaged on two refresh projects, showcasing the benefit of our end to end model by linking operations, refurbishment, and development to unlock value throughout the cycle.

40:48 So in summary, Fresh has shown shown strong unit growth, high occupancy and satisfaction, a deep pipeline, and continuous innovation. It really does remain an important differentiator for the group, which is resilient in today's market and positioned for dis disciplined growth this year and beyond. I'll now hand back to Alex for his summary. Sectors, most businesses, and, you know, in in that light, my my summary is we we've had a really robust and resilient operational performance, which we we are pleased with. We've started excellence in execution in all of the areas that we can control, and, you know, I'm very pleased with the delivery that the business has demonstrated.

41:40 We feel like our diversification strategies, they're really gaining momentum. We believe that there can be genuine areas of growth for us, and we're gonna carry on pushing that. Even if liquidity turned back on tomorrow, I would still double down on the diversification and look to grow the business both ways because I fundamentally believe that that resilient base is is core to us moving forward. We're pivoting the business, you know, ultimately to, you know, face into this evolving market, and we we believe we're really well placed to create that broader revenue, broad more resilience, you know, to augment, as I said, you know, the the the more normal business activities that we carry out. I think we would remain absolutely a market leader in our field with the strength of a vertically integrated platform, which does allow us to be agile and innovative, and we're operating in some of the most attractive markets still in in in UK real estate.

42:34 Overall, as I said before, the ambition's clear. We want to generate a more resilient business, a platform for growth, and really to grow it into the future. So I'm now going to move straight into sort of q and a, and I think we've got about fifteen minutes to to to deal with the q and a. We've had a number of pre submitted questions, which I'll I'll just run through, and to allocate as as we go through. So first one, at a fundamental level, what do you see as the main driver behind dropping gross margins from 20% pre '22 to 10% in the last couple of years? Okay. So the the way I look at this, there's nothing fundamentally which has changed within our business to to generate those sorts of margins. I I think you gotta be clear here. 20% was massively outperforming the market. A typical developer in our field would normally be targeting ten, twelve, 13%, that that that sort of territory.

43:33 The the reason why we've been able to achieve those outperformance margins consistently up until sort of '22 was because of the vertically integrated platform. We generate margin through our land buying, through our design, through our planning, through our value engineering, through our project management, through our construction, and through our end operation. And if you take construction just as a simple one, you know, that is a circa 4%, 5% margin, which we're not paying away to a third party contractor. We're in housing. So all all of that still still remains. What's driven the pricing downwards? Well, pretty much every headwind that we've had to face into over the last few years. So significant inflation in build costs, land not really moving down, you know, particularly quickly, interest rate movements out, guilt rate movements out, a lack of liquidity coming through.

44:26 I think all of those have contributed, but, actually, for us to still be able to generate a 10% margin, you know, I I think, yeah, we we stand incredibly well against our peers in achieving that. The key for us is how we build that back, and, you know, we are confident that we are we we haven't lost any of those USPs. The one thing that won't change, you know, I don't think we'll go back to a 0% interest rate environment. Therefore, we we do need to sort of factor that into it. And and that's why, at the moment, our our sort of projection for our our BAU development activities is more sort of 13 to 15% returns, and our then our development partnership and refresh are more of the 10 to 12 returns. But on a risk adjusted basis, we we think they they still offer good value to the business.

45:15 So, hopefully, that answers that question. Next one, with a strong net cash position, how are you thinking about capital allocation priorities as market conditions improve? So yeah. Look. No. Absolutely. Totally understand the question. You know, I think we're very protective of our cash at the moment. We have been for the last few years, and we think that's the right right strategy. We want to see really genuine liquidity coming back on on a regularized basis, and and that will then give us more confident to release the handbrake more on on on sort of those sort of capital allocations. We absolutely want to move back to a sort of progressive dividend policy as as soon as we think it's right for the business. But at this point in time, the best use of our cash, we believe, is is putting it into new opportunities and looking to get the business back on a on a on a growth footing. So so that's where they sit at the moment, but it's gonna be continually under review by the management and and and, obviously, our nonexecs. It's is we we absolutely want to move back to that place where we can give back to the the shareholders of our dividends.

46:24 So, hopefully, that covers that one. Okay. So as diversified revenues grow to around 30, how do you expect to sort margin resilience and earnings visibility over the short to medium term? I I think I've of answered this already. We're really pleased that we've delivered exactly what we said we were going to deliver in terms of trying to increase that diversification, take some of the weight off the lumpier transactions and and plannings, which has sort of driven the business historically. You know, does increasing your percentage of development partnerships and and and refresh, you know, bring bring down average margins a little bit? Yes. It yes. It does. But are we also reducing risk in those that, you know, we're not we're not generating the risk in exits exits, so that doesn't sit with us. Also, the real benefit is the acceleration of revenue generation.

47:20 These schemes, we can typically get to site much quicker. Therefore, we can rebuild margins quicker and and revenues quicker. And as I said, I'm not looking to do is move away from our BAU development activities. I'm looking to augment it, and I think that's the really important thing. What I'd like to see is us be an overall bigger business, which does both. So moving on to the next one. Considering the deep discount of the share price against NAV and cash, have you considered some proceeds towards buybacks? Look. I I think I think this is similar situation. I I don't think of course, you know, we regularly consider this with with our brokers, with with our our management teams.

48:05 We we don't think that is the best use of cash at the moment. We we we think the best use of the cash is to make make sure we remain resilient and and and also give us optionality and opportunity to to to build the pipeline. And the second part of the question was, has there been engagement with any shareholders in terms of m and a transaction? And, no, that that's that's not where where where we're targeting at the moment. Next one. Simon, perhaps you you you what you can say on on some of this, but Yes. Yeah. This is one of the consensus revenue profit following you, how much visibility the visit is showing in the company. So so, look, we've seen some updates from from some of the analysts.

48:51 Not all of them is is is yet. Their consensus from a revenue perspective as as as I last saw it is in the low 3 hundreds and profit seven seven point three of that sort of order. That will probably change as new analyst reports come out over the coming days. Obviously, we've just announced our full year results, but that's the visibility we have at this point. I think I think what I would say look. You know, there's we there's still lots of work to do to to to fulfill, you know, potential consensus for the year. You know, there's there's multiple different ways we can try and achieve consensus. I I think we've got multiple different deals which we are progressing, you know, and any number of combinations could potentially take us to a consensus figure. So I think that visibility is positive.

49:40 And, you know, as Simon alluded to, you know, with 340,000,000 of contracted income to come over the next few years, it's a real positive to us that that's growing year on year. You know, that that's what we're looking to do because because that that will feed into this year, next, and and the year afterwards. Next one is just in in regards generally to sort of building safety provision, and, you know, we we've had a small increase. So I'm do you wanna just pick up sort of generally in terms of sort of, you know, how we're looking at at the provision? Yeah. So, look, over the last two or three years, if if you go back to the beginning of f y twenty four, the provision was around 55,000,000. End of last end of twenty four is 48. It's now 46. So the trajectory is clearly downwards.

50:30 We have taken a small incremental provision less than last year, significantly less than last than the year before. But that's a theme that you're seeing across all all built all all companies in in this sort of sector space. The increase in our provision is certainly significantly less than we've seen for others, particularly in the house building space. But it is a theme that this this is a continuingly emerging, issue. Many many providers, including ourselves, are having to take small incremental provisions, But we're working through those. We completed six buildings on target on on budget during the year, and we will in in line with the obligations to, the the guidance from the government, we will complete this this work over the next three or four years up until twenty nine, twenty thirty.

51:15 You know, there's always a lot of question. Do you think that we we'll see any further provisions? We've obviously disclosed there are a number of potential buildings, some contingent liabilities. We've gotta work out what the whether there are liabilities there, whether there are liabilities, and and assess that properly. So can can I absolutely say, as I said, in in the announcement early in the week, there will be no further provision? Absolutely not. I don't think anybody can. But I think we're managing through this. The fact that the trajectory of provision increases significantly slowed down should give us confidence that we are working through this problem effectively. K. So there's a question here, and I think I understand where it's coming from.

52:00 But if if I if I got it wrong, then please feel free to prompt me. And it it it's to do how do you receive clearance to proceed under new health and safety rules? And I I think this is probably relating to the building safety regulator and and and how you get approval to actually start start on work on the sites. And it's it's worth talking about because if it's fundamentally changed how how developers and contractors can deliver schemes, I think it's had a really disproportionate effect on the sort of SME developers. I think it's it's massively inhibited some of our competitors. Because, fundamentally, what you need to do now, before you can start on-site, you need to take your scheme up to effectively a design stage four, so a very well progressed design.

52:48 Whereas, historically, you would progressed have your design to a certain stage, and then as you as you built out, you you would you would finalize design stages as as as you reach the critical path. So that's why it was called design and build contracting because you design as you as you went along. What they've looked to do is bring that design all the way forward. So you take your design for, and then you have to submit it to the regulator, and they go through in huge amounts of detail with significant professional teams to review to make sure that your building design is meeting, you know, all the relevant standards and and and and meets meets their expectations. After that, they issue you with a certificate, which means you can start on-site. So you can see that that probably increases your design period by six months, and, you know, then you've still got to get the decision making, which is meant to be twelve weeks, but has, up until now, trended much longer than that.

53:47 So that that's that's the challenge people have felt. I think one of the the big innovations they're going to bring in potentially is a stage sign off process whereby you if you do the design for your groundworks, you can then submit submit those and and get consent for them, and then you can commence your design works whilst you're you're designing the next phase of it. So it's much more similar to the Scottish warrant system, and it's it's much more sensible system overall. So, hopefully, that'll ask ask the question. Had a question about impairments of one of the assets, Simon, the the the 6,000,000 impairments. Do you want to just give some high level sort of of background background on that? Yeah. Sure. So, I think I think this question is about, one particular part of the impairment, the the the the the impairment against one particular asset.

54:39 And just to give a little bit of background, this is an asset which is slightly historic in our portfolio. We've we've been looking to divest it and and at the right time and right conditions in the market. And what we found, it it's more towards the what what Alex and and George might have termed the sort of middle tier tariff tier rather than the upper tier tariff in terms of student accommodation. And what we've seen in those markets, it's the liquidity has been a little bit more challenging. And particularly in this market, there's been very few transactions that have transacted, but two distressed transactions did occur, which which impacted the yield, which is effectively the the the return that investor will pay on a on a on a fully let, building, and that's how these are valued. You you value the building when it's completed, and and from there, you work back to what the residual land value is. And therefore, the impact of that reduction in your increase in yield is the yields pushed out. It meant that it was very difficult for us to value the asset at the historic acquisition price, and therefore, it led to an impairment. That said, it it's a it's a good asset in a good location.

55:47 We've got plans to divert divest this asset. It's just that given accounting rules, had to take an impairment to to to reflect the carrying value and the challenges that we've seen in that particular market this year. K. Thank you. So we've got one more question here. And, actually, it is not a particular question, but it's it's it's it's quite nice and supportive. So I'll I'll I'll read it out anyway. I totally support your position on protecting your cash. The future does still look uncertain. Downside risk are much more serious and and probable than upsides. Strong cash position will enable you to survive a potential drawn out downturn. Prudent and excellent decision. But that that's that's in line with our thinking. We're we're we're we're perhaps a little bit more hopeful about sort of the future, you know, but, yeah, people have been hopeful for the last two, three years. So we're we're we're trying to, you know, hope for the best and prepare for the worst if if if that makes sense. And I I think that's the right way to manage this business at the moment.

56:45 I think the business has got significantly more confidence in how we're approaching the markets, what we're doing, what our identity is, how we're how we're going to try and, you know, attack the the the wider economy. We need to sort of deliver on it, but, you know, I I do think from a business point of view that there's there's good confidence. I think we've got exceptional people. I'm incredibly impressed day in, day out with the people in the business that I come across, you know, across the whole plethora, you know, on on sites, managing our buildings, the the investment teams doing the deals, you know, the the back office staff. You know, I I this is the first time we've really talked about people within our presentations, and and and that that's a mistake because they are fundamental to what we do.

57:35 So I think that probably covers almost my closing remarks as well. We've we've got one minute. We've got no more questions. I'd just like to thank you all for your time. Thank you for listening, and, people found this constructive and useful. And, you know, please give us feedback. You know, we we do look at it and listen to it and and try and address, you know, what people are are thinking. I think the one thing I I'll I'll be remiss not to say that this is this is the first time that we've ever been able to complete our results prior to Christmas. You know, it has been a material effort from Simon and the finance timing team in particular. And and the reason for it is it frees up myself and Simon to be in the business in the most critical months of January, February.

58:23 It it gives shareholders earlier access to information, etcetera. So, yeah, just just worth worth a shout out. I I I think it it it should be appreciated, and and we hope people do. Okay. Thank you very much, guys. Great. Great. Great to speak to you all. That's great. Well, thank you very much for updating investors today. Could I please ask investors not to close the session? It should now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations. Half the management team, WATKIN JONES PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.