Watkin Jones (LSE:WJG) — Investor Presentation

0:01 Good afternoon, ladies and gentlemen, and welcome to the WATKIN JONES PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the q and a tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit

0:33 the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand you over to CEO, Richard Simpson. Good afternoon, sir. Good afternoon, and a very warm welcome to this presentation on our annual results, which finished on the 09/30/2022. As I've always already been introduced, but but no harm double tapping. My name is Richard Simpson. I'm the chief executive, and I'm supported by Sarah Sergeant, the chief financial officer. What we're gonna do is we're gonna run you through a few slides which look at our financial performance for that for that financial year. And we'll also endeavor to bring you up to date to the situation, the trading situation, operating situation, which we find ourselves in at at the moment.

1:33 I would imagine the this review of the pack will take between sort of thirty to thirty five minutes. And therefore, we're leaving plenty of time for q and a at at the end, which I think is is really what this is about to hear your thoughts, hear your questions, and give us an opportunity to respond to to those as best we can. So turning to the presentation then. The agenda is pretty self explanatory. We'll look at the summary for our financial year '22. We'll then do a little bit of a deeper dive into the numbers themselves, and we'll then turn to the outlook and thinking about the development market and the market, the underlying market for student accommodation and also build to rent before finishing up by thinking a little bit about ESG, our approach at the moment, and also how fresh our property management business is getting on. As I say, we will finish up with plenty of time for q and a.

2:42 So therefore therefore turning to the first one in terms of the outlook and summary. I think the best way to characterize f y twenty two is resilient and adaptable in the first eleven months. During that period of time, I think the business coped well with a fair bit of volatility, bill cost inflation, movement within asset prices. But fundamentally, a very strong demand for build to rent and purpose built student accommodation from from the investment universe. And then, of course, month 12 really surrounded or revolved around the mini budgets. And that's where we had two planned forward sales that were actually very, very well advanced and got caught up in the teeth of the storm there.

3:29 And both of the purchases decided to pull out citing material uncertainty at the time. But in terms of outlook, we have £700,000,000 worth of forward sold revenue to come over over the next few years. And of course, that's forward sold because of the sales we made principally last year and the year before. And therefore, just the time it takes to develop those properties out. We have that revenue contractually secure. So that's very important. But we also have 800,000,000, circa 800,000,000 of revenue to come on consented pipeline principally for student accommodation consents, which we are now actively marketing out there.

4:17 And I think one of the interesting characteristics here will be that we expect forward sales to resume in our h two. And so very much see that being second half second half weighted. There's a few comments on there about margins, but I won't I won't pick those up now because I know Sarah is gonna come to those in a second. Just turn turning over to FY '22 results. I'm gonna hand over to Sarah. Great. Thank you, Richard. I'll just do a a quick overview of our results for the financial year ending September 22. So, overall, I'm pleased to report the results were in line with the update that we did to the market at the beginning of October. Revenue of of just 407,000,000, representing a very small decline from the prior year position, and this is really due to the of the two forward sales that Richard has talked about, which didn't close as we had implemented in September.

5:18 Our gross margin was at 16.6%, again, a very slightly, less than the prior year, the impact of the higher level of land sales that we had in the prior year. We take these to revenue at a lower margin than we do the following works. Had operating profit at just under 55,000,000 that included a profit on disposal from the sale of two student assets, which we were holding on and holding on our balance sheet. Obviously, everything then flowed through to to EPS. EPS was slightly down on the prior year. We did have a small impact from a prior year tax adjustment in relation to some remedial works, which were disallowed. Pleased to report a a dividend of of 4.5p, which would be paid to shareholders very shortly.

6:09 And we had ROCE at 63%, again slightly down from the prior year, but obviously still represents a very, very strong position. I think there's one key point on these slides is that they are, reported on an underlying basis. This excludes the exceptional charge of 30,000,000 we took in the year for our provision of works to be done in relation to the Building Safety Act. Just following on to to balance sheet, the key points here were really the the strong gross and net cash position that we finished at at year end. As I said, we have disposed of two of our leased assets and therefore you see a corresponding reduction in the asset value and also the liability value for those.

6:59 I think finally, we we did have a level of buildup on our balance sheet. This was in relation to a couple of pieces of land that that we acquired. And indeed, there's one site in in Bristol, a very, very strong quality student scheme, which we are building out where we have the least to the University of Bristol. From from a cash flow perspective, that that really represent the the the outflow represents that that buildup of of land and working progress that I've I've just referred to. We obviously also had a corresponding increase in borrowings as we drew down on our on our credit facility in relation to the purchase of these pieces of land. But overall as as as as we look forward and we look into '23, you can see a strong liquidity position with with our gross cash and with our available facilities.

7:56 From a segmental perspective and and and this slide here shows the breakdown of of of revenue between the different segments of of of our business. I think the key point is really to point out that growing contribution from from build to rent. So you can see we recorded revenue of 191,000,000, for build to rent. That represents 68% in sorry. That represents a 38% in in increase. I think the only other really key key point here is is is Fresh. That's our accommodation management business had a record year of revenue record revenue of just over 9,000,000.

8:40 Just moving on to to gross profit. So in terms of our segmental gross profit, we recorded margin of 17.170.2% for for BTR. That's very strong and and obviously ahead of our target margin of 15. And as Richard said, I'll come on and talk about the guidance that we're giving for margin for 2324 in a couple of slides time. I think the other kind of key point here is is is fresh really good increase in the gross margin there to 65% and that's due to the level of occupancy that's increased in the student buildings that that Fresh manages. And just the the final slide from a from a numbers perspective.

9:32 Given that the the the position that we thought we would be in at the half year and then the subsequent update that we gave to the market at the beginning of October, I thought it was important to to give a bridge from where we thought we were going to be to, obviously, that that full year delivery of 55,000,000 operating profit. At the half year, and and as Rich said, we did have confidence in achievement of our full full year number. And obviously, that was, you know, it's quite significantly impacted by events in in in September. You can see here that the building blocks, so so if look to the the right hand side of the table, you can see that impact in in yellow from the delay of the two forward sales.

10:18 So we had one forward sale in in Bristol and and one in Belfast. Those are pulled, and you can see the corresponding increase on our on on our profit. We did also experience some margin pressure on the last forward sales, which we did, complete in h two. But but equally, we had a strong profit from the disposal of the two lease lease assets and, obviously, then managed to mitigate some of that some of that position to result in the 55,000,000 operating profit.

10:52 I'll now turn to talk a little bit more about '23, what we're seeing, and then equally the outlook that we've given to the market both on revenue and margin. So in terms of of of of '23, we're guiding to a a a revenue number of about $550,000,000 for this financial year for an actual year. And this assumes that that the forward fund market will return to more normal demand levels in in q two. So that that puts it to the note that that's q q two of the calendar year, not q two of our of of our financial year. The the top table really shows the building blocks to that revenue forecast. You can see in green, this is a revenue that we've already forward sold.

11:42 That's on-site, contractually secure and being built out at the moment. The balance of of of the revenue, so that's 250,000,000. It comes from new forward sales where we have, a very, very strong secured by pipeline, as Richard said, that that has an overall revenue value about 700,000,000. And, obviously, we've got assumption of forward sale elements coming through there. It it I guess it's key to note here that we aren't assuming any of those forward sales happen until the second half of of of our year. I think the other point is that we've presumed that there'll be very little, construction revenue in relation to these forward sales.

12:27 It will just be the land element, and therefore, that gives us a little bit of flexibility about the the the timing of that. From a profit perspective, we're we're guiding to an operating profit of of of similar to financial year '22. So that's about 55,000,000. And and it's key to note that that does assume prudent investment evaluations, with obviously a a reduction in the in

12:53 the selling price, and that's obviously in line with some of the, forward sales that we completed in the second half of financial '22. Our cash flow will will follow its normal, annual, profile, which is where we we spend down on on cash during the course of the year from a working capital perspective, obviously, to finance our overheads, tax, dividends, and interest, and then rebuilds as we come into the, into the end of the financial year, as we complete the new forward sales. Having finally, the other key point in in on this slide is we have taken the decision just to slow down our affordable led housing business really as a result of the the the state of the market. We felt it was important to probably stick to the knitting, while we focus on the recovery of the more established and equally the higher margin student and BTR sectors of our business.

13:52 And just to give a bit more color, on the hike on the on our consented pipeline, as we said, that that this accords to total revenue of about 800,000,000. We can that this that's about, eight schemes in total, very, very quality assets. And, yeah, I think one advantage of of us not not completing any forward sales in in the last few months is that we'd be really be able to work on this pipeline, bring it bring it through planning, and indeed get planning permission. And it's a very strong base for for us as we look into look in look look into 23. I mean, just a couple of examples. We've got a fantastic student scheme in in in Stratford, a really, really great location.

14:39 And I think many of you are aware that Stratford as a as as a place has had such a significant rejuvenation, since the Olympics in in in 2012. And again, rare to get planning in such a in such a sought after location. I think we've got a similar, a similar scheme in in in Bristol. We've got a number of, student schemes which are coming through. And I guess it's key there because we have a the city as itself has a real, real shortage of student accommodation and equally of student accommodation, which is coming online in in in the next couple of years. So overall, very, very strong consented pipeline, which we are, out in the market with at the moment.

15:26 Just just a little bit on on on cost, obviously, as we obviously faced into the, in the market and, obviously, kind of on back of the trading update that we gave at the beginning of of October, It was important to make sure that our business was was was fit for the future as as as we came into slightly more in uncertain times. We conducted a very, very quick, review and and and cost out program. So we took out about 40 heads. That's about 10% of the WATKIN JONES workforce excluding Fresh. This will give us annualized savings of about 3 to 4,000,000, and, obviously, those savings are starting to come through now as as everybody, impacted left the business before, before Christmas.

16:15 I think the key point here is is is the cost was was mainly, or or the people out was was mainly in the support functions. We're obviously very keen to make sure we protected the the development and the divestment teams, which are so integral to the future success of the business going forwards.

16:38 And just looking forward to to to gross margin, so so we are guiding to a a blended gross margin of 12 to 14% for the next couple of years. I guess the the the key factors behind that are firstly, the impact of the price reductions on what we already have for sold and and in the second half of of of last year. We've obviously made we've obviously kind of kept those valuations, intact as as we've gone through the pipeline. The third point is this this pipeline is in pipeline is in relation to land at historical prices. So I think you're aware that we we hold very little land on our balance sheet, but we do hold it under option, and therefore, we have a contractually committed price to to to to work through the land.

17:30 And and then finally, we have a small impact from from development wrap projects. These are projects we do. For example, we're doing one for LNG in Cardiff at the moment, which do come at through lower margin because we don't hold any in in interest in that. So those are effectively the the drivers behind having a slightly lower blended gross margin. As we look forward, we very much see a a route to to recover our margins, and that's really, as we get a better price on land, and we are seeing land valuations come down five five to 10%. And equally, you see the opportunity to to rebuild the margin, as as build costs start to start to decrease.

18:15 I mean, you're all aware it's been a very, very, strong inflationary year for build costs in in the last year or so. Already, we're seeing that inflation number coming down, not yet to deflation, but we expect that to start moderating as as we go forwards. And and then finally, just a kind of summary of of the resilience of of the business. As Rich said, we have very good visibility of of secured revenue. We've got 700,000,000, which is for sold, and that will come through over the next, one to two years, of which approximately half will be in in in f y twenty three. A secured development pipeline, which is hold realistic values. We've taken out a couple of sites which were unprofitable.

19:04 We have a very strong capital light model. We are because of that capital light, we hold very little on our balance sheet and and therefore we're not exposed to to significant asset devaluation, in in in a downturn. And our model is is generally we've got one exception at the moment, but it's generally not to start on-site with a without a forward funding deal in place. And and from liquidity perspective, you know, a good strong, cash balance that we that we finished at the year end and and obviously sufficient or significant headroom on our RCF facility, which will allow us to take advantage of attractive land acquisitions as we look in the opportunity in the market. So on that note, I'll hand over to Richard.

19:51 He's just gonna talk a little bit more about the progress we've made in development. Thank you very much, Sarah. So as Sarah was talking about there, there is clearly volatility at the moment, and there is some uncertainty about valuations and pricing and certainly the outlook for for those. So as a developer, what are we doing to try and get in front of that? Well, it's already come out that despite having a secured term pipeline where the land price is fixed within the contracts, Clearly, of the contract, we can go back and proactively have discussions with vendors about potentially reducing those those prices. Now they don't commercial well, they don't contractually have to budge an inch, but but commercially, they they might seek to

20:44 agree a discount in order to have more certainty that we would go ahead and transact on the land. And certainly, those are those are those discussions are ongoing. But equally, where where we're looking at the next wave of development pipeline, sort of new acquisitions in the market, it is a pretty attractive market at the moment. And the sort of bearish sentiment which which persists It it is definitely leading to a reduction in land price. We shouldn't forget that most of the land we buy are in town and city centers and other competitors for that land would typically be commercial developers or maybe retail developers or maybe even hoteliers. And all of those markets are pretty depressed at the moment. So we do see good opportunities at at attractive margins, certainly back to our historic margins going forward.

21:36 In terms of planning, we are looking to work with the local planning authority to tweak our planning permissions and look to maximize density and thereby maximize the value on them. And there is recent examples where we've had discussions successfully with local planning authorities about putting an amended application in where we can perhaps get an extra floor that can make a pretty material difference to the value of the development itself and cert certainly can look to offset some of the drop in overall value which which we have been experiencing within the residential sector. And then we've got the rent and operations. I mean, we shouldn't lose sight of the fact that the key the key hook for institutional investors to buy assets from us is exposure to the underlying residential sector in The UK.

22:26 And, of course, that has been characterized over the last few years as being really strong occupancy and and very strong rental growth. Clearly, of us are aware because it is far from the it it it it's it's it's seldom far from the news as to annualized rental growth within residential at the moment. It it is strong. And, of course, it's attractive attractive therefore for owners of those assets, and therefore it's attractive to institutions to talk to us about forward purchasing development pipeline.

22:55 And then Sarah's already covered build cost here, but clearly the key the key point for us is that we we are seeing a reduction in the rate of inflation. And not as she says, not yet negative, but we expect actually materials potentially to go negative over the course of this year. Labor's stickier, but nonetheless, I think there is also a scope for scope for labor prices to come down too. So we'll turn a little bit more into the color of some of the points I've already made. And we can see here with the land side of things. Land prices historically historically lags the market, but we are we are already seeing land prices come down, and we're already engaging with landowners about securing securing our our next wave of development sites, as I say, at at those discounts, which which help to contribute back to our historical targeted margins.

23:55 Planning. Again, these comments I've I've already made. We've had a good we've had a good good run actually over the last few years on planning. We we without trying to tempt fate, we tend to get our planning permissions. Various reasons for it. But I think I imagine imagine one of those reasons is that we we look in town and city centers among the very few places where there is quite clear government support and planning. It is exactly in those locations because they are looking to regenerate and and breathe breathe life back into those parts of towns and cities which otherwise perhaps have gone a bit quiet over the last few years. And I think that is a that is a sort of fairly reasonable tailwind for us as a business as we look to go forward. Have a little bit more visibility and confidence around planning than a number of other developers out there.

24:44 I think the other part is that we've got a good long long term track record in in not just securing planning, but then implementing and developing in a timely manner our developments. And we have a very large number of completed developments all over The UK where they are an important part of the local community. There are tenants. There are residents. They're being managed responsibly. And all of that is is important when we then come back with a new planning application and that local authority is well aware of us from our previous work. As I say, it it it's it's all part of our brand. And then this point on build costs, again, which I've already covered, but there's just a little bit more detail there there for you. But as I say, I think I think the key point here is that we are seeing build cost inflation reduce.

25:37 And this this slide and the next one actually look at a little bit about what happened in September. And really what this slide tries to pull out is a comparison of the risk free rate to residential yields. And you can see that the risk free rate is essentially the two the two lines at the bottom and residential yields. So it's the purple or dark blue line at the top. And you can see how to over the autumn of last year, how that how how that that that gap closed materially. And, of course, it is it is about the extra return investors get for for investing in residential as opposed to just investing in guilds, which is important for for them them to think about investing in our in our sectors in the asset classes.

26:29 And of course, what's really important, it's not just a straight comparison of of yield to yield, I e the net initial yield you you might generate from student or BTR compared to the risk free rate. We also need to add in rental growth because rental growth is an important part of total property return. And what you can see here shown in a number of different ways for completeness is that if you take the net initial yield of residential and you and and you

26:57 add on rental growth, then that is giving a a pretty material and attractive premium to the risk free rate. And and therefore, the maths are working for institutional investors to look to continue to buy product from us. And that is why we expect the market for forward sales to return over the course of this financial year.

27:24 Then just turning to the market review. Overall, we're seeing strong growth in demand from prospective students to come and study at UK universities. You can see a number of data points there. But, essentially, we are seeing a pretty robust supply demand imbalance. The a very simple way to analyze it is that there's around 2,000,000 full time students in The UK, and there's just under 700,000 purpose built student accommodation beds either owned owned by by universities or corporately provided, which which shows a a pretty material gap and therefore good scope to continue to increase supply within that market.

28:12 And similarly, when we turn to build to rent, we can see that occupancy has been extremely strong, which is driven very attractive rental growth. And actually projections looking forward are to are to remain strong even though the expectation of course is for poorer inflation to begin to subside. And therefore that is more about lack of supply and therefore fundamental demand drive driving up occupancy and pricing.

28:45 And then it's interesting even though we are going through this period of volatility, I think I think really what's happened over the last certainly the last few years, but if we bring it forward to what's happened in the last few months is residential demand from tenants has remained elevated. And as I say, therefore, there's strong occupancy, therefore, there's strong rental growth. And actually, if you compare that to almost any other part of real estate, you can look at commercial more traditional commercial sectors perhaps. You certainly wouldn't wouldn't have seen that level of performance or or that level of confidence about about the future performance either. And so what we're certainly seeing is that increasingly, institutional investors are looking to recycle out of more traditional real estate into the residential sector. Now the only real way for institutional investors to access residential to get exposure is through student accommodation and and it is through multi family build to rent. So we do we do expect over the medium to long term once we're through this volatility for very strong demand to to reestablish and in fact continue to grow from those institutional investors.

29:51 So I'm gonna hand over to Sarah to look at Fresh. Thank you, Richard. So just a a very quick update on Fresh. I think you're aware Fresh is our accommodation management platform, which operates predominantly in the student space, but but moving more into the BTR space. Very strong operation expertise. So we have over 23,000, units or or beds under management across The UK and Ireland at the moment. Very successful from a retention perspective, so retention rates of of of 98%. Fresh continues to, be market leading and get fantastic feedback both from clients and and from from residents alike. And you can see on the slide just some of the great examples of the awards that Fresh has has has won this year.

30:47 From an investment perspective, you know, we've continued to invest in fresh, and we see it very, very much as an important part of our business. We've established a a new leadership team with some excellent expertise in it. We've also done a a systems a update, and we've got a a program, a platform in called called Yardi, which effectively gives both clients and and and residents alike access to all the information they need in in in relation to to to the scheme. And then looking forward, we really see, great growth opportunities for for Fresh. As as I said, we see it very much moving in into the BTR, arena. It has a number of BTR sites that it manages at the moment and many more in in the pipeline. And, you know, there we would look at doing a a white label offer for for example where potentially the Fresh brand might not be, might not might not be appropriate. So

31:47 very, very, very pleased with Fresh. You know, it's it's always offered, very qualitative benefits to to the WATKIN JONES business, obviously, kind of in in enables us to be able to offer an an end to end solution to to our clients in terms of delivering a scheme, which we then go on to, go on to manage, but equally qualitative. So Fresh has a very strong gross margin as as we've seen earlier in the slides. And if I think about the margin guidance that I gave previously, that was just for BTR and and and for student. We can add another percentage point on on gross margin in in relation to fresh. So in summary, a great business, and and and really looking forward to supporting it as we look into this year.

32:34 I'm now gonna hand back quickly to Richard.

32:38 Perfect. Thank you very much, Sarah. So in terms of ESG, as you know, we've got our future foundations strategy here for ESG, which picks up planet places and people. And you can see just a very short summary of some of the achievements or some of the things which we've been working on over the course of last year. I think it's it's fair to say that just like many companies, it's still relatively early days for us in terms of our ESG strategies, but I think we're making initial progress in in line with what we'd look to do. I think perhaps for me, the key one is is around scope three emissions because that's where that's really your your supply chain's carbon footprint, and it's about how do you how do you sort of how do you change behaviors appropriately, and how do you change your methods of procurement, the materials you use, and the ways in which you physically undertake construction on-site to to reduce that carbon footprint. And I think that's an important point for us to look to make further progress on.

33:44 It is it is equally probably the one of the most difficult challenges within a sort of ESG plan. So certainly for a real estate developer, whereas I say, majority of the carbon footprint really comes from our supply chain. Now the way to move into that is to start by benchmarking where we are today. And that's why we're working with an organization called Science Based Targets. And that is one of our main targets for this year. And what what that would effectively do is quantify our carbon footprint across the business into our supply chain as well. We have that baseline, that is a great starting point. We can then see what our sensible targets to to really aim at and really work with our supply chain to achieve, and then we can push quite hard into those areas.

34:33 But otherwise, you can see that we have within our places area is all about the sustainability of the buildings we build, use of air source heat pumps, making sure that all of the buildings are not just the smart thinking has gone into how we build them, but then also how how they can be operated long term, downstream, post construction efficiently and sustainably. So I will move forward to leveraging our strengths. This really is a slide where we are thinking about possible ways to improve the business. And there are a number of potential areas which we are we are sort of working through at the moment as a board.

35:24 And really, as I say, the the main the main aim of this is just to have better, more resilient business and then presumably that that would that would have a stronger rating on the stock market. I think the key point to make on this is that we really believe in the forward funds, capital light, hierarchy model, and we see that as remaining core.

35:50 So then turning to the summary. Quite quite a bit's been covered in the last thirty five minutes, and I don't intend to summarize all of it. But I think what we've seen is that over the course of last year, actually very strong 11, twelfths. And across the operational side on all areas from securing securing land, securing planning, undertaking development, forward selling well, managing build cost inflation, that proceeded well. And it was really in that twelve month where two of the planned sales fell over, which led to our update in October in terms of our performance. And where we're looking into the current market, we're still experiencing volatility as is everybody.

36:40 But we are seeing those early green shoots of institution investors coming back to look at the circle 800,000,000 of the consented pipeline, which we have for sale, really spending time having signed nondisclosure agreements, getting into data rooms, doing due diligence on them, beginning to talk about pricing, which continues to give us confidence that we will resume forward selling in our financial h two. And and I I think longer term, the outlook for institutional investors investing in the residential for rental, the living sector remains incredibly robust. It probably is the most attractive part of UK real estate,

37:22 And therefore, we would expect significant volumes of institutional investor capital to continue to flow into the sector. And clearly as market leader of student accommodation and BTR multifamily development, we we would expect to be at the front of the at the front of the queue there for that capital. So that concludes the formal part of the presentation and we can now turn to q and a. Richard, Sarah, that's great. And thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the top right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard.

38:13 Sarah, Richard, we obviously received a number of pre submitted questions ahead of today's event. And as you can see there in the q and a tab, we've also received a number of questions throughout your presentation this afternoon as well. So firstly, thank you to all of those on the call for taking the time to submit their questions. And Richard, sir, if I could just hand back to you to respond to those where it's appropriate to do so, I'll pick up from you at the end. Thank you. Perfect. Thank you very much indeed. So let me just turn to the first question here. And I think Sarah can probably pick this one up. So let let let me pose it for her.

38:49 For the two sales that didn't happen last year, have the buyers completely gone away, or are you back in discussions with them? If not, how are the sales discussions progressing? Yeah. No. Of course. Thanks, Richard. So in in terms of those two sales, they are obviously still very much part of that consented pipeline that that I took you through in in the slides. In relation to one of them, the the the the previous buyer is is is back in negotiation with us, which is very positive, in in terms of of market sentiment. The other one has gone away, but we're obviously, have a lot of interest coming through, from other parties in relation to that asset. And as as as as Richard said, you know, we've obviously got a significant number of investors, in the data rooms having signed DAs and obviously looking across the whole portfolio.

39:45 Perfect. Thanks, Sarah. And I think there's another good question that's come in, which perhaps I can just pose for yourself, which is really saying, what are the top three risks? Perhaps f two three risks, but what are the top risks that could stop you hitting the 2023 outlook? Yeah. And, of course, and and I think there's probably really one significant risk, and and that's of that that is that our our assumptions, on that forward sale market, returning, not not happening. I think I set out in in in that bridge the level of revenue and profit dependency from us having to complete forward sales in in the second half of of the year. As I said, we have really just assumed that the land element of of of the forward sale and therefore, yeah, gives us a little bit flexibility of timing.

40:39 But there is still a a, you know, obviously, a a significant dependency on the market reopening and then and on us being able to complete those sales in in in in the six months and to to the to the end of September. But but as, again, as, know, Richard has has has alluded to, we are seeing very great levels of interest at the moment and really kind of continuing to work through all the processes is that we need to to get those sales through. I I think, yeah, probably a key point is is that internally, we we've obviously done a lot of work to to get these, let's say, you know, fit for purpose, ready to be forward sold, oven ready, and, obviously, working with our lawyers and our other advisers to to make sure we can make that process as as smooth as smooth as possible.

41:31 Perfect. Thanks, Sarah. I'll I'll pick up the next one, which is what is the typical net income yield that your BTR developments offer to investors? So I'd say income yield clearly varies across The UK, but a blended average is probably around four and a quarter percent. It's around that sort of level. That would be the net initial yield. And, of course, as we looked at that slide just a few minutes ago, the best way to look at total well, the best way to look at property return is to take your net initial yield and you add to that your rental growth. So rental growth for residential at the moment across The UK is at elevated levels. I've seen some cities which are quoting double digit annualized growth.

42:19 Now I don't think any investor would look to bake in that sort of level for long. But nonetheless, if you were to potentially put into your model maybe 4%, something like that for the next few years, perhaps then trending down to 3%, I think that would be relatively prudent. And, of course, what what that would give you is comfortably comfortably a a total an ungeared total return in the sevens potentially even slightly higher into the eights. And of course, when you put this when you compare that as a spread to the risk free rate, you know, that guilts are mean, they are fluctuating, but but guilt short to long are somewhere in the threes to the low fours. That is probably an attractive spread. So, Sarah, if I can if I can pose you this question that's come in, which is how is how is the cost inflation in labor and construction materials impacting your business?

43:17 Yeah. No. Of course. Thanks, Richard. So so our our forward sold forward sold model means that when we complete a forward sale, we also secure and lock in our procurement packages at the same time. So so we obviously do that by working through with our subcontractors and getting a price for the packages in terms of for them to be able to build out the development. So at the point of that that full sale, we obviously have full visibility of of revenue and also full visibility of of costs and and therefore full visibility of our margin. We obviously also when we're going through the the numbers of the development would would build in a level of inflation for for for build costs.

44:04 Historically, so last year, that would have been between 78%. We obviously now looking at lower inflation levels, and they said kind of 3%. So, you know, our our model allows us to protect protect against build cost inflation as we look forward. And as I set out in our in our in that kind of blocks to rebuilding the margin, we would like to see that there will be some incremental benefit to come through as we're procuring at the moment, where we think there has been a a decline in in in in build cost inflation. As Richard said, we're expecting that to come through from materials. We still think given some of the the pressures on on on The UK economy that that the labor piece will be will be sticky.

44:55 Perfect. Thanks. Thanks, Sarah. Let me pick up the next one, which is build to rent student accommodation or formal homes. Where do you see the greatest upside? I think at the moment, we're seeing strongest appetite, greatest potential liquidity within student accommodation. And so given the fact that our highest margin development is also student accommodation, then this is an area which we are going to be just focusing on a little bit more strongly. We still firmly believe in build to rent multifamily, very significant addressable market. And I think it will continue to be a very important part of the growth of the company over the over the coming years. And then as Sarah flagged just a few minutes ago on the affordable housing side, we do really believe in it. But seeing as it's a relatively new part of our business and clearly we are going through volatility at the moment, we are just pausing to some extent how our sort of plans, aspirations for this part until we're safety through the volatility and then potentially well, we certainly will then revisit exactly what what we're looking to do next there.

46:09 There's another question about who are your competitors and how have they fared in this environment? Is it a buyer's market for institutional investors? So in terms of competitors, it's difficult to characterize exactly who who they are. Principally, a development point of view, they'd be your SME developers with regional biases and regional focuses and regional areas of expertise. They are very heavily bank debt dependent and therefore have been extremely quiet recently. But equally, as I mentioned earlier, we tend to buy land in town and city centers. So we have come up and we do come up against hoteliers and commercial developers and so on. But again, they're very quiet at the moment.

46:55 I think they will be actually for quite some time and And which does give us a very interesting opportunity. And then the final bucket of competitors are probably the REITs. So the student REITs and I'd say the BTR REITs. There's there's obviously Granger which is intending to convert, but I I already sort of think of them as a REIT. And all of those businesses have have expressed quite a high degree of caution about their development program at the moment and understandably so because their core business is their operational platform. And and that needs that needs all the sort of care and attention they can they can provide and discretionary activities such as development, understanding take a bit of a backseat. So I think I think in some what that does is it does create good opportunities for us to go and secure attractive land, competitive prices to really sort of build up that that next wave of our development pipeline.

47:54 And And then the final point is, is it a buyer's market for institution investors? I I think you have to say at the moment the the market's tilted in favor of the buyer. And we know that markets move and evolve, so we expect that to continue for a period of time through this volatility. That's why Sarah said we've been pretty prudent as to the sales values which which we think we can achieve for our next wave of consented forward sales. But then, of course, as the market normalizes, my my strong view would be that there is real scarcity value in consented student accommodation and consented BTR schemes across The UK. And therefore, a lot of competitive tension from bidders tends to tilt it back firmly in favor of the seller. It's worth bearing in mind actually being able to secure planning is is really not that straightforward.

48:47 In fact, it it kinda leads me on to the next question which which let me read out, and I'll I'll I'll talk about planning. There's a lot in the press about the planning system being dysfunctional. How do you see it currently for your sort of development, and how do you see it evolving? So as I say, that that was a I'd already sort of started that segue into that question. It's a very good question. I mean, is planning is is is is very bureaucratic, and it's highly inefficient across The UK. And therefore, if you have a track record of securing planning on a fairly regular basis, then I think that is a real source of competitive advantage. And it's something which WJG a good track record with. And I flagged a couple of possible reasons for that earlier.

49:34 And I I I I think it does mean that we have confidence about continuing to convert land into consented schemes. And, you know, when you have land and you put a planning application in, it's it's it's an aspiration to have to better monetize it. But once you have your planning permission, then you can monetize it. So it's a really important gateway for any developer. And as I say, we do have we do have a good a good track record there. So I'm gonna raise a question with you that's coming about subcontractors and costs and things like that. So the question is, how much pressure is there on your subcontractors, and does this throw out your cost assumptions? Hi, Richard. I just think we've just lost Sarah. So let me just bring her back through if that's okay, sir. That's okay. And I'll I'll pick up this question just just while while you're you're doing doing that. That.

50:39 Perfect. Thank you. So yes. So it's interesting. Just like all markets as they evolve, there are some important changes and pressures and things. And just like there is on global supply chains at the moment in every single sector industry, yes, there is pressure on the subcontractors and their supply chain, and it is one to be monitored quite closely. We are I mean, effectively, I think I think the narrative behind this, and it's quite it's quite an obvious one, is that a lot of construction work takes a year or two. And therefore, are a number of contractors who secured work perhaps just pre this marked inflation last year. And potentially, therefore, the actual margins they're making are significantly lower than they thought they would.

51:31 But I guess they were trading through fine because would they assume their order book would be very strong for this year and potentially next year and potentially also not just a strong order book but perhaps a high margin order book as well because of the rate of inflation. And And clearly, clearly, what is happening now is that not only is the order book getting smaller because construction actives in The UK is is reducing pretty sharply. But also, as we set out, the bill cost inflation is coming down quite quickly. It it could well go negative for materials that would then put pressure on their margins. So I think there is definitely a risk of heightened distress. But as I say, it it it's probably no different to any other part of supply chain, and and and I'm positive it's being experienced globally.

52:19 It is one to be managed very closely. It's one to watch for quite closely. I do think we have an advantage in that we are a main contractor as well. And therefore, we do have good visibility into supply chains much more than your your your your typical developer would have. But it's a good question because I think there is we we need to be very, very, very vigilant in in in that sense. So Sorry, Richard. Just to say, Sarah's back on the line. Oh, perfect. Thank thank you very much for for finding Sarah. So, Sarah, I've I've got a question for you, which I think could be our last question just looking at the clock. But and I'll just read it straight out. But sorry if I've if I missed it. But how can the contracted forward sales be lost?

53:12 I. E. The two from end of the prior year. And if they can be lost, why should you investors be confident in the contracted sales level forecast for '22 and '23? Yeah. Sure. Can you hear me? Just to Yes. Yes. Settle them up. Per perfect. So if I, in terms of our contracted sales levels, as as I said, that that that there are schemes that we've already forward sold. So we forward sold those in financial year '22. We've got a a contractually secure agreement with the purchaser. We are building those out on on-site, and, obviously, we take the revenue and and and profit for those, to the p and l on a monthly basis. In terms of the two forward sales, that that they were, they were delayed just at the point as though we were going to complete the forward sale, and therefore, we couldn't recognize any revenue.

54:07 We haven't obviously done anything more with those, but they are still very much part of that consented pipeline, which we are working through the market with. So we have those out in the market and, obviously, talking to a number of purchases in relation. So moving toward to to then completed the forward for forward sale on them. So I I think it's really to differentiate between what we do have secured, where we have a contract and we are building out and the ones that we are looking to take into, contract. Perfect. Rick Richard, sir, if I may just jump back in there. Thank you very much indeed for addressing all of those questions that came in from investors this afternoon. And, of course, if there are any further questions that do come through, we'll make these available to you, immediately after the presentation has ended. Just for you to review to then add any additional responses, of course, where it's appropriate to do so.

55:02 Richard, just before redirecting those on the call to provide you their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that'd be great. Well, I'm simply gonna say thank you very much for your time this afternoon. It is it is it is really useful getting direct feedback and interaction with all investors, not just some of the largest institutional holders on on the register. So this is this has been particularly useful and to get to get a a lot of q and a into the nitty gritty of the business that I I found really interesting. So on behalf of myself and Sarah, a very big thank you. Richard, that's great. And Sarah as well, thank you once again for updating investors this afternoon.

55:49 Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views, and expectations? This may take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of WATKIN JONES PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.