WATKIN JONES PLC FULL YEAR RESULTS To 30 September 2017 - Mark Watkin Jones - CEO Philip Byrom - CFO
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Mark Watkin Jones – CEO Philip Byrom – CFO WATKIN JONES PLC FULL YEAR RESULTS To 30 September 2017 15th January 2018
FINANCIAL HIGHLIGHTS Christchurch Road, Bournemouth 454 Beds | Completed 2017 2
FINANCIAL HIGHLIGHTS
• Revenue up 13.1% to £301.9M (FY16 £267M) driven by student accommodation developments.
• Further increase in the gross margin to 21.0% (FY16 20.1%) reflecting the quality of our student
accommodation development locations and a full year contribution from Fresh Student Living.
• EBITDA up 8.6% to £45.2 million (FY16 £41.6 million before exceptional IPO costs).
• Record operating profit up 12.7% to £42.7 million (FY16 £37.9 million before exceptional IPO costs).
• Profit before tax up 326% to £43.3 million (FY16 £13.3 million).
RESULTS SUMMARY
• Basic EPS up by 12.9% to 14.0 pence per share (FY16 12.4 pence per share before exceptional IPO
costs and based on the number of shares in issue at 30th September 2016).
• Net cash up by 27.3% at 30th September 2017 to £41.0 million (FY16 £32.2 million).
• Final dividend recommended of 4.4 pence per share to give a total dividend of 6.6 pence per share,
up 10% on an equivalent full year basis of 6 pence per share for FY16.
• The Board has decided to adopt a policy of aiming to pay dividends at a level which will be two times
covered by annual earnings and will implement this policy in full by FY19.
3
BUSINESS HIGHLIGHTS
VISIBILITY
4
Tower Wharf, Chester 334 Beds | Completed 2017
BUSINESS HIGHLIGHTS - VISIBILITY
• Total development pipeline of 9,120 beds across 23 developments.
STUDENT
• 7,497 beds with planning consent.
ACCOMMODATION • All ten student accommodation developments for FY17 delivered ahead of the 2017/18 academic
DEVELOPMENT year (3,314 beds).
PIPELINE
• 17 student accommodation developments (6,578 beds) sold during the year with a value of £506M.
• 15 developments (6,090 beds) pre-sold to Investors.
• Growing momentum in Build to Rent.
BUILD TO RENT
DEVELOPMENT
• 5 sites secured and 3 developments in negotiation to develop > 1,500 units during FY 2018-FY
PIPELINE 2022.
• 703 units across 4 developments with planning consent.
• Fresh Property Group created operating the Fresh Student Living and Five Nine Living brands.
• 16,082 student beds under management for the 2017/18 academic year across 52 schemes.
ACCOMMODATION
MANAGEMENT • 535 build to rent units under management across 5 schemes.
• Potential loss of 5,124 beds post FY18 from the sale of assets by the Curlew Student Trust (“CST”)
• Curlew Student Trust 2 (CST2) launched and Fresh will be the preferred Property Manager for CST2.
• Gross margin increased to 16.7% (FY16 11.5%).
RESIDENTIAL
• Land bank of 589 plots.
5
AMBITION & STRATEGY North Hanover Street, Glasgow 440 Beds | Completed 2017 6
AMBITION & STRATEGY
• Continue growth of the core • Continue expansion into the
student property development complementary Build to Rent
business: focus on high quality Sector to replicate our success
earnings. in Student Accommodation.
• Maintain a strong forward sold
position to limit risk. • Follow the PBSA business
• Maintain our position as the model to limit risk.
partner of choice for our
existing clients and add new • Become the partner of choice
clients. for Investors in Build to Rent.
• Continue growth of Fresh
Student Living to increase • Continue to grow margin.
recurring management fee
income. • Continue to release cash from
inventory.
• Growth of Five Nine Living to
add to recurring management • Develop out Land Bank.
fee income.
• Acquire strategic sites.
7
DEVELOPMENT PIPELINE –
STUDENT ACCOMMODATION
8
Blackhorse Lane, Walthamstow 527 Beds | Completed 2017
CURRENT PIPELINE OF STUDENT PROJECTS UNDERPINS
VISIBILITY
PIPELINE PROVIDES EARNINGS VISIBILITY STUDENT ACCOMMODATION PIPELINE SUMMARY
• 9,120 beds secured and scheduled to be delivered
in the next four years across 23 schemes
• 7,497 beds with planning consent
• 14 schemes currently under construction
• 15 schemes and 6,090 beds pre sold to investors
• 1 scheme (682 beds) under offer/in legals to
acquire
4000
3500
3000 Number of Beds - Unsecured
Number of Beds
in Legals Sites
2500
Number of Beds - Secured
2000 Sites
Number of Beds - Under
1500
Offer/In Legals
1000 Number of Beds - Forward
Sold
500
Student accommodation
0 pipeline locations
FY18 FY19 FY20 FY21
9
STUDENT ACCOMMODATION MARKET Occupier Demand Laycock Studios, Sheffield 139 Beds | Completed 2017 10
PURPOSE BUILT STUDENT PROPERTY MARKET
OCCUPIER DEMAND
Occupier Demand
• >1.7 million full time under graduate students in UK.
• 397,000 (23%) students in the UK are from outside of the UK - an
increase of 70% in the period 2005/06 to 2015/16.
• Flight to improved quality continues.
Bed Numbers in the UK
• 602,000 PBSA beds in the UK (C&W – October 2017) with an
estimated 252,974 PBSA beds in the UK operated by the Private Sector
(CBRE – Nov 2016).
• The balance in the UK is operated by the Universities of which it is estimated that
75% was built pre 1999 and is no longer fit for purpose or meeting occupier
expectation.
The Offer
• Typical layout allows occupancy with chosen flat mates.
• All inclusive rents.
• Safe/secure with on site management.
• Enhanced Services – gyms, common rooms, laundry.
11STUDENT ACCOMMODATION
MARKET
Investment Demand
12
New Bridewell, Bristol 500 Beds | Completed 2016PURPOSE BUILT STUDENT PROPERTY MARKET
INVESTMENT DEMAND
Purpose Built Student Accommodation Investment Demand
• PBSA remains a stable income producing asset.
• Asset Class is now seen as Mature.
• Estimated that £3.6 billion of stock traded during 2017 with £1.05 billion of stock believed to be under offer and a
further £1.5 billion of stock is believed to be in the market typically in portfolios.
• Investment sentiment remains strong and investors willing to pay premiums for larger portfolios driven by need to
allocate investment capital and build scale quickly.
• Rental Growth continues.
• Direct Let Yields – 4.5% Prime London, 5% Inner London, 5.5% Prime Regional, 6% Secondary Regional.
• Our current development partners include AIG, Arlington, Brookfield – BRSE, CBREGlobal, Generation Estates, GSA,
L&G, La Salle IM, M&G, UBS, UPP.
13DEVELOPMENT PIPELINE
BUILD TO RENT
Sutton Court Road, Sutton (BTR scheme) 14
165 Units | Planning SecuredDEVELOPMENT PIPELINE OF BUILD TO RENT OPPORTUNITIES
Year of Commencement
GROWING MOMENTUM BUILD TO RENT PIPELINE SUMMARY
• 1,701 units in the pipeline
• 8 development sites
• 5 development sites secured
• 3 developments under negotiation – 734 units
• 703 units (4 developments) with planning consent
900
800 Number of Units -
Unsecured under
700
negotiation
Number of Beds
600 Number of Units - Secured
500 Units
400
Number of Units - Under
300 Offer / In Legals
200
Number of Units - Forward
100 Sold
Build to Rent pipeline
0 locations
FY18 FY19 FY20 FY21
15BUILD TO RENT MARKET Belle Vue, Leeds (BTR scheme) 322 Beds | Completed 2016 16
BUILD TO RENT – AN EMERGING & UNDERSUPPLIED
ASSET CLASS
CONSUMER DEMAND INVESTMENT CASE
• General population is growing - 65.6M people in UK – June 2016. • Increasing institutional demand keen to emulate the success of
Forecast at 71.4M by 2030. “Multi-Family housing” in the US and continental Europe.
• Supply of homes cannot keep up with demand. Estimated that 300k new • High demand for quality, aggregated investment stock. Existing
dwellings required each year to meet demand, only 217k delivered in stock availability is low, meaning investors have to focus on new
2016/17. Current UK housing deficit estimated at 1.4M homes. build opportunities.
• Rented housing stock has doubled to c.19% (as a proportion of housing
stock) in the last two decades. Continued growth forecast due to • Knight Frank estimate that £25bn invested in BTR to date and
government support, the housing supply deficit, population growth and forecast this to increase to £70bn by 2022 with 50% of
investment coming from North America.
stretched affordability metrics for many people.
• Change of attitude : In US 29% of people rent and in the UK it’s 15%. • Fledgling sector with a huge amount of market share to chase.
• Consumers are not going to come out of modern PBSA and look to live in US market has grown from £1bn to £80bn since 1992. Similar
an inferior product. BTR will cater for these consumers. Potentially up to growth in UK will see 240,000 units being delivered by 2030.
500k students per annum leave the higher education sector.
• Stable rental income with projected annual rental growth,
WATKIN JONES OPPORTUNITY relatively low volatility of returns, exposure to real estate make
the asset class attractive to pension funds and insurers.
• WJ can leverage its significant experience in delivering Multi Occupancy
Buildings into the BTR Sector.
• Existing WJ Investor relationships – Similar operators to PBSA.
• Same model dynamics to PBSA to be employed in BTR.
• WJ are recognised as a Tier 1 Developer and Contractor giving comfort
to Institutions over delivery.
• WJ will be managing 16,000+ Multi Tenanted Residential Units in the
PBSA sector from September 2017. We have the capability to replicate
this style of management in BTR.
• Year round deliveries improving resource and supply chain efficiencies.
17FRESH PROPERTY GROUP North Hanover Street, Glasgow 440 Beds | Completed 2017 18
FRESH PROPERTY GROUP
KEY FACTS
16, 617 Total Units Under Management
469 Total Staff
74 Central Services Staff
57
Total
16,082 52 535 5 Number of
PBSA Beds Under Number of PBSA BTR Units Under Number
Management Of BTR Schemes Schemes
Management Schemes
£108m Cash Under Management. £1.5bn Assets Under Management
19GROUP FINANCIALS Morfa Road, Swansea (Ph 2) 340 Beds | Completed 2017 20
INCOME STATEMENT
Group Income Statement (Continuing operations) Student
(IFRS) Revenue by Division Accommodation
Development
(£ million)
£ million Accommodation
FY17 FY16 Management
Student accommodation 256.1 237.2 Residential
Build to rent 1.2 -- Development
Accommodation management 6.1 2.8
Residential 18.1 26.3 Build to Rent
Corporate 20.4 0.7
Revenue 301.9 267.0
Student accommodation 56.5 48.6 Corporate
Build to rent 0.7
Accommodation management 3.8 1.7
Residential 3.0 3.0
Corporate (0.5) 0.5 Student
Gross Profit by Division Accommodation
Gross profit 63.5 53.8 Development
Gross Margin 21.0% 20.1% (£ million)
Accommodation
Overheads (20.8) (15.9)
Management
Operating profit before exceptional IPO costs 42.7 37.9
Operating Margin 14.1% 14.2%
Residential
Exceptional IPO costs - (26.6) Development
Operating profit 42.7 11.3
Profit on disposal of interest in joint venture 0.9 -
Build to Rent
Share of profit in joint ventures 0.5 3.0
Net finance costs (0.8) (1.0)
Profit before tax 43.3 13.3 Corporate
* - Chart excludes £500k corporate loss
EBITDA 45.2 41.6
EBITDA Margin 15% 15.6%
21SEGMENTAL SUMMARY
Revenue and Gross Profit by Segment
Student Accommodation Build to rent
(£ million) (£ million)
Revenue Gross Profit Revenue Gross Profit
256.1 1.2
237.2
0.7
56.6 48.6
0 0
FY 2017 FY 2016 FY 2017 FY 2016
• Revenues up by 13.1% to £301.9 million.
• Gross margin for the student accommodation • Build to rent segment reported for the first time in FY17.
development business increased to 22.1% from 20.5% • Revenues of £1.2m represent rental income from the
in FY16. Group’s completed build to rent stock in Sheffield and
• Increase in gross margin reflects the quality of location Droylsden.
of student accommodation developments. • Build to rent development activities to be commenced.
• Robust student accommodation pipeline provides
excellent earnings and cashflow visibility.
22SEGMENTAL SUMMARY
Revenue and Gross Profit by Segment
Accommodation Management Residential Development
(£ million) (£ million)
Revenue Gross Profit
Revenue Gross Profit
26.3
6.1 18.0
3.8
2.8
3.0 3.0
1.7
FY 2017 FY 2016
FY 2017 FY 2016
• Revenues for Fresh of £6.1 million (FY16: £2.8 million for
the seven month post-acquisition period).
• Gross margin of 61.9%. • 94 sales completions (FY16: 127 sales completions).
• FY17 – 12,337 student beds (44 schemes) (FY16: 8,310 • FY16 sales included £11.0 million of sales at nil margin
beds (32 schemes)). from the Group’s sites in Droylsden, Manchester and
• FY18 – 16,082 contracted student beds (52 schemes). Cestria, Chester. FY17 sales included £6.0 million of nil
• Potential loss of 5,124 beds post FY18 from the sale of a margin sales from these two sites.
portfolio of assets by the Curlew Student Trust (“CST”). • Gross margin increased to 16.7% from 11.5% in FY16.
• Launch of CST 2 for which Fresh will be the preferred • Excluding the sales from the legacy sites at nil margin, the
manager presents a more significant growth opportunity. margin from the underlying residential business improved
• Progress made in developing the Five Nine Living to 25.0% from 19.8% in FY16.
business to provide similar services to the build to rent
sector. Currently managing 535 units (5 schemes).
23STATEMENT OF FINANCIAL POSITION
Group Statement of Financial Position
(IFRS)
£ million
30 Sept 2017 30 Sept 2016 • Intangible assets of £15.0 million at 30
Intangible assets 15.0 15.5
September 2017 relate to Fresh.
Property, plant and equipment 4.9 1.9 • £3.6 million invested in plant, principally
Investment in joint ventures 1.8 6.0 new tower cranes acquired under HP
Deferred tax asset 0.3 0.3 agreements.
Other financial assets 2.7 2.5
• Investment in joint ventures reduced by
Non-current assets 24.7 26.2 £4.2 million since 30 September 2016 as
Inventory and WIP 125.2 128.2 a result of the disposal of the Group’s
Trade and other receivables 36.3 16.4 interest in Athena Hall (Jersey) Limited.
Cash at bank and in hand 65.3 47.2
• Inventory and WIP reduced by £3.0 million
Current assets 226.8 191.8 in the year, but includes Aberdeen and
Bath sites for which the sales legally
Total assets 251.5 218.0
completed shortly after the year end. Also
includes the cost of build to rent sites
acquired in the period.
Trade and other payables (88.7) (90.8)
Provisions (0.7) (0.3) • Trade and other receivables increased in
Interest bearing loans and borrowings (1.5) (15.0) respect of amounts receivable on
Current tax liabilities (8.2) (6.0)
developments in progress and land
deposits paid.
Current liabilities (99.1) (112.1)
Interest bearing loans and borrowings (22.8) - • Property specific loans amounting to £8.4
Deferred tax liabilities (1.4) (1.2)
million renewed for a five year term.
Provisions (2.0) (2.0) • £13.3 million drawn under the £40m RCF
Non-current liabilities (26.2) (3.2) with HSBC at 30 September 2017 to fund
specific land sites.
Total liabilities (125.3) (115.3) • Cash of £65.3 million (FY16: £47.2
million) and net cash of £41.0 million
(FY16: £32.2 million).
Net assets 126.2 102.7
24STATEMENT OF CASH FLOWS
Group Statement of Cash Flows • £19.2 million net cash inflow from
£ million operating activities after absorbing
£18.4 million into working capital.
FY17 FY16
Operating profit before exceptional IPO costs 42.7 37.9 • £22.8 million of cash received
Loss from discontinued operations - (1.1) shortly after the year end relating to
Exceptional IPO costs - (26.6) forward sales agreed in FY17
Depreciation and amortisation 1.0 0.8
(Aberdeen and Bath).
(Increase)/decrease in working capital (18.4) 13.5 • £12.4 million dividends paid. Final
Finance costs paid (1.0) (1.2) dividend of 4.4 pence will cost
Tax paid (5.1) (8.2) £11.2 million.
Net cash inflow from operating activities 19.2 15.1
Cash flow from joint venture interests 5.6 4.2
• £5.6 million of cash received from
Dividends paid (12.4) (13.4) joint venture interests, principally the
Net cash flow from (sale)/purchase of fixed assets (0.3) 2.6 sale of Athena Hall (Jersey) Limited.
Acquisition of Fresh - (14.5)
Purchase of other financial assets - (1.0) • £6.0 million cash inflow from
Cash flow from borrowings 6.0 (5.1) borrowings.
Increase/(decrease in cash) 18.1 (12.1)
• Increase of £18.1 million in cash
Cash at beginning of year 47.2 59.3
balances to £65.3 million.
Cash at end of year 65.3 47.2
Less: borrowings (24.3) (15.0) • Net cash of £41.0 million after
Net cash 41.0 32.2 deducting borrowings of £24.3
million.
25THE MODEL Byrom Street, Liverpool 398 Beds | Completed 2016 26
…PROVIDES AN END TO END SOLUTION
CONSTRUCTION AND
SITE PROCUREMENT & PLANNING TRANSACTION AND FUNDING SCHEME MANAGEMENT
DELIVERY
Negotiation of Forward sale
option / to
acquisition Institutional
investors Land sale &
Identify Obtain planning
development Construction Asset management
site permission
agreement
Discussions with Value added
University/ key opportunities
stakeholders
Typically 2 ½ years 3 - 7 years
Typical Top Down Appraisal • Say 500 Bed Scheme X Rent X Term X Yield = Gross Development Value less 20% Return Hurdle = Balance for Build, Funding Cost and Land acquisition cost
Theoretical Example of funding for a Development with a GDV of £35M and land cost of £5M
Refundable deposit (10%) Forward sell site to fund on receipt of Build costs Consultancy/build
Typically £500,000 planning £22.7 million £20,000/scheme
For £6.0 million Construction &
3rd party planning cost Additional Planning gain payment from Mobilisation/build
Say £300,000 Development Profit £150/bed
fund on receipt of planning
Say £1.0 million
£5.3 million
Management/per annum
• Paid monthly over course of build
£320/bed
Profit: £1.7 million (£7M in less £5M land • Typical 10% retention released NB. All operational costs paid by
less 3rd Party planning costs of £300K) on completion landlord/leaseholder
Cash flow: Cash flow:
Cash flow: Cash flow:
(£0.8) million (Deposit + 3rd party +£2.5 million (Uplift on land + Planning
+£5.3 million +£160,000 p.a.
Planning Fees) Gain Payment + Deposit
27CEO SUCCESSION Bath Lane, Leicester 600 Units | Completed 2016 28
CEO SUCCESSION
It is with regret that Mark Watkin Jones has notified the Board of his intention to stand down as the Group’s Chief Executive Officer once a
suitable successor has been appointed, following an orderly handover period. For personal reasons, Mark is not able to undertake a full time
executive role over the longer term and he and the Board believe that it is in the Group’s best interests to recruit a successor. The Board will
initiate a formal search process to identify a new Chief Executive Officer.
Why Now?
We have delivered another impressive set of results demonstrating our ability to continue the strong momentum established during our first
year on the AIM market. We believe that Watkin Jones is in the strongest position that it has ever been in, with an extremely capable
management team committed to the future success of the business.
Making this change now allows Mark’s successor a great opportunity, to have time, to really get to know the Company, for the benefit of the
business in the longer term.
We are confident in the outlook for the Group.
Commitment
Mark is and will be fully committed to the Company and its success during the search process to identify a new Chief Executive and for a
measured and necessary transition period post appointment. Mark has committed to the Board that until a suitable replacement is found that
he will remain in his position. Mark’s time at Watkin Jones has been his life’s work and the family remain the largest shareholder with nearly
30% of the shareholding, so it is in the upmost interest of the family to ensure a robust transition. The Board have indicated that they are keen
to retain the benefit of Mark’s knowledge and experience and the intention is that, following the transition the Board will look at how this might
be achieved including the option of Mark becoming a Non-Executive Director of Watkin Jones.
Why Announce Now?
We have excellent visibility on our revenues and earnings and it is a good and sensible time to be dealing with succession. Succession needs
to be dealt with and we pride ourselves on being open and transparent with our shareholders and colleagues and we believe that our
transparency puts us in a position of strength. By being open it allows us to seek the most appropriate successor and keeps our shareholders
and colleagues fully informed of what is happening in the business. This we believe will be to the benefit of the business in the future and in
particular over the longer term.
29DISCLAIMER
This presentation is for information purposes only and no reliance may be placed up on it. No representation or warranty,
either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained
in this presentation. The financial information referenced in this presentation does not contain sufficient detail to allow a full
understanding of the results of Watkin Jones plc (“Watkin Jones”). For more detailed information, please see the full year
results announcement for the twelve months ended 30 September 2017 which can be found on the Investors section of the
Watkin Jones website - www.watkinjonesplc.com.
This presentation does not constitute or form part of any offer or invitation for sale or subscription of, or any solicitation of
any offer to buy or subscribe for, any securities of Watkin Jones. The making of this presentation does not constitute a
recommendation regarding any such securities.
Any projections or other forward-looking statements are made by the Directors of Watkin Jones in good faith based on the
information available to them at 15 January 2018 and reflect the Directors’ knowledge and information available at that
date and their beliefs and expectations. These statements may involve risk and uncertainty because they relate to events
and depend upon circumstances that may or may not occur in the future. There are a number of factors which could cause
actual results or developments to differ materially from those expressed or implied by these forward‐looking statements. Any
of the assumptions underlying these forward‐looking statements could prove inaccurate or incorrect and therefore any
results contemplated in the forward‐looking statements may not actually be achieved.
Unless otherwise required by applicable law, regulation or accounting standard, Watkin Jones does not intend to update any
projections or other forward-looking statements contained in this presentation. Each forward-looking statement speaks only
as at 15 January 2018 and Watkin Jones and its advisers expressly disclaim any obligations or undertaking to release any
update of, or revisions to, any forward-looking statements in this presentation. No statement in the presentation is intended
to be, or intended to be construed as, a profit forecast or profit estimate and no statement in the presentation should be
interpreted to mean that earnings per Watkin Jones share for the current or future financial years will necessarily match or
exceed the historical earnings per Watkin Jones share. As a result, you are cautioned not to place any undue reliance on
such forward-looking statements. Past performance of securities in Watkin Jones cannot be relied upon as a guide to the
future performance of such securities.
30Mark Watkin Jones Philip Byrom Chief Executive Officer Chief Financial Officer Watkin Jones plc Llandygai Industrial Estate Bangor Gwynedd LL57 4YH www.watkinjones.com
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