For immediate release

15 January 2018

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This announcement contains inside information

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Watkin Jones plc

('Watkin Jones' or the 'Group')

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Full year results for the year ended 30 September 2017

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Watkin Jones plc (AIM:WJG), a leading UK developer and constructor of multi-occupancy property assets, with a focus on the student accommodation and build to rent sectors, announces its annual results for the year ended 30 September 2017. The Board is pleased to report a successful financial year with trading in line with its expectations.

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Financial Highlights

	FY 2017	FY2016	Movement
Revenue	301.9 million	£267.0 million	+13.1%
Gross profit	£63.5 million	£53.8 million	+18.0%
EBITDA (2016 adjusted) 1	£45.2 million	£41.6 million	+8.6%
Operating profit (2016 adjusted) 2	£42.7 million	£37.9 million	+12.7%
Profit before tax	£43.3 million	£13.3 million	+326.3%
Basic EPS (2016 adjusted) 3	14.0 pence	12.4 pence	+12.9%
Net cash	£41.0 million	£32.2 million	+27.3%
Dividend per share	6.6 pence	4.0 pence	10.0%

 

Notes

1.    For FY17, there is no difference between EBITDA and adjusted EBITDA.  EBITDA comprises operating profit from continuing operations plus the Group's profit from joint ventures, adding back charges for depreciation and amortisation.  For FY16, adjusted EBITDA is stated before exceptional IPO costs.

2.    For FY17, there is no difference between operating profit and adjusted operating profit.  For FY16, adjusted operating profit is stated before exceptional IPO costs.

3.     For FY17, there is no difference between basic and adjusted basic EPS. For FY16, adjusted basic EPS is calculated using the profit for the period from continuing operations excluding exceptional IPO costs and is based on the number of shares in issue at 30 September 2016.

 

·       Revenue and gross profit growth were strong and in line with our expectations, driven by student accommodation developments

·       Further increase in the gross margin, reflecting the strong locations of our student accommodation developments and a full-year contribution from Fresh Student Living, which was acquired in FY16

·       Final dividend of 4.4 pence per share to give a total dividend of 6.6 pence, up 10.0% in line with our progressive dividend policy (FY16 total dividend was 4.0 pence for the period after our IPO, equivalent to 6.0 pence on a full-year basis)

·       Continued robust cash performance, with a net cash inflow from operating activities of £19.2 million (FY16: £15.1 million after exceptional IPO costs), with a further £22.8 million of cash received in October 2017, relating to forward sales agreed before the year end

·       Net cash of £41.0 million at 30 September 2017 (30 September 2016: £32.2 million)

 

Business Highlights

 

Student accommodation development

·       All ten student accommodation developments for FY17 delivered ahead of the 2017/18 academic year (3,314 beds)

·       17 student accommodation developments (6,578 beds) were sold during the year, including one operational asset (590 beds), and had a total development value of £506.0 million

·       Total development pipeline of 9,120 student beds across 23 sites, with 15 forward sold (6,090 beds)

 

Delivery pipeline:

·      FY18 deliveries - all ten student developments (3,415 beds) scheduled for delivery ahead of the 2018/19 academic year are forward sold

·       FY19 deliveries - five student developments (2,675 beds) scheduled for delivery ahead of the 2019/20 academic year have already been forward sold

·       A further eight development sites (3,030 beds) have been secured and are targeted for delivery during FY19 to FY21

 

Build to rent development

·       The build to rent development pipeline continues to gain momentum.  The Group has five development sites, which it owns or has exchanged contracts to acquire, and is in separate negotiations on several other opportunities.  From these it is targeting to develop approximately 1,500 units during the period FY18 to FY22, subject to securing the remaining necessary planning consents

·       Successfully completed the Group's first build to rent development in Leeds (322 units)

 

Accommodation management

·       Created the Fresh Property Group, operating under the Fresh Student Living and Five Nine Living brands, bringing our accommodation management businesses under a single leadership

·       16,082 student beds under management for the 2017/18 academic year (52 schemes) up from 12,337 beds under management for the 2016/17 academic year (44 schemes)

·      Contracted to manage 535 build to rent units, across five schemes, including the scheme completed in Leeds during the year

 

 

Commenting on the results, Mark Watkin Jones, Chief Executive Officer of Watkin Jones plc, said:

 

"We are delighted to report another impressive set of final results demonstrating our ability to continue the strong momentum established during our first year on the AIM market.  The Group has generated strong revenue and earnings growth, driven by our core student accommodation development business.  We are also pleased to report further increases in gross margin, supported by the strong location of our student accommodation developments and first full year contribution from Fresh Property Group, the Group's accommodation management business.  This has contributed to a double-digit increase in earnings and an increase to the net cash on the balance sheet.

 

The delivery of all anticipated student accommodation developments in the year, combined with continued growth in the value of our development pipeline, is delivering a secure and growing base of revenue, earnings and cash flow, which in turn enables the Group to develop new business opportunities to enhance that growth.

 

We will look to replicate our strength and expertise in student accommodation in the build to rent sector.  Our build to rent division made significant progress in the year and we were delighted to deliver our first development.  As the sector continues to attract a growing number of UK and international funds it's pleasing to see our development pipeline grow, which will contribute further to the visibility of earnings that is fundamental to our business model.

 

The Group will continue to demonstrate its ability to generate significant returns for its shareholders and the Board looks forward with continued confidence.

 

As also announced today, after careful consideration I have decided that it is necessary for me to step back from my position as Chief Executive Officer.  The Group has reported strong results today and with excellent earnings visibility, Watkin Jones is in a strong position to achieve continued success in both student accommodation and build to rent.  Solid foundations are in place for my successor to work with, including an excellent management team that has supported me over the years in successfully growing the business and who will continue to drive Watkin Jones forward for the long-term benefit of our shareholders."

 

 

 

 

CHAIRMAN'S STATEMENT

 

Performance and dividend

 

The Group produced a strong trading performance in FY17, which was in line with our expectations.  Good revenue growth and rising gross margins contributed to a double-digit increase in earnings.  The business is also highly cash generative and we further increased the net cash on the balance sheet.

 

This performance underpins our ability to reward shareholders through our progressive dividend policy.  At the time of the IPO, we promised to pay a healthy dividend, recognising that this was important to investors in an environment where many companies were having to reduce or scrap their dividend payouts.

 

Last year's total dividend was 4.0 pence per share which, taking into account the timing of the IPO, was equivalent to a dividend for the full year of 6.0 pence.  After paying an interim dividend of 2.2 pence per share this year, the Board has recommended a final dividend of 4.4 pence per share, to give a total dividend of 6.6 pence. This represents growth in the total dividend of 10.0% against the FY16 full-year equivalent.  The final dividend will be paid on 28 February 2018 to shareholders on the register at close of business on 26 January 2018.  The shares will go ex ? dividend on 25 January 2018.

 

The Board has also 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 fully by FY19.

 

 

Board, management and people

 

There were no changes to Board membership during the year.  The Directors continue to work well together, and towards the end of 2017 we began our first formal appraisal of the Board's performance to identify areas for further development.

 

The Group's success this year reflects the strong leadership of the Executive Directors, Mark Watkin Jones and Phil Byrom, and their colleagues.

 

Mark, Phil and the team have continued to successfully manage the pipeline, control costs, ensure delivery and implement our strategy for growth.  I want to thank them and everyone in Watkin Jones for their significant contribution.

 

The Group has an experienced and stable senior team and we spent time this year assessing their capabilities, investing in development and considering succession planning.  We are also proposing to introduce a long-term incentive plan during FY18, to help us retain our senior people and reward performance.

 

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.  The Board is keen to retain the benefit of Mark's valuable 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 him becoming a Non-Executive Director of Watkin Jones.

 

After 15 years at the helm, the Board understands Mark's desire to relinquish the Chief Executive Officer position and the associated demands of this role.  Mark has played a pivotal part in shaping the Watkin Jones strategy and success.  Under Mark's leadership, Watkin Jones has gone through a transformational period, a key part of which has been the establishment and development of a strong senior management team who have increasingly taken on the day to day responsibility for the running of the business and who are capable of supporting the Group's long-term growth aspirations.  The Board will be seeking a successor to Mark who can build on this platform and maintain the Group's track record of profitable, cash generative growth.

 

The Board would like to thank Mark for his enormous contribution and is also delighted that he has indicated a willingness to continue to support his successor and the business going forward.

 

Looking forward

 

The Board is confident about the outlook for the Group.  The development pipeline gives us excellent visibility of our revenues and earnings, protecting our performance and giving us the time to adjust our plans if necessary.  While Brexit is a source of uncertainty for many businesses, it is unlikely to be a significant issue for the Group.  EU students are only 7% of the market and the demand for UK higher education is such that universities will continue to fill their places, no matter what happens to EU student numbers.

 

While we see growth opportunities across all parts of the Group, over the medium term we see the greatest upside potential in build to rent.  The Board is encouraged by our progress to date in that market and the Group now has the foundations to develop a second major business over the coming years.

 

Grenville Turner

Independent Non ? Executive Chairman

12 January 2018

 

 

 

 

CHIEF EXECUTIVE OFFICER'S REVIEW

 

Performance

 

Revenue from continuing operations rose by 13.1% to £301.9 million (FY16: £267.0 million), contributing to an 18.0% increase in gross profit to £63.5 million (FY16: £53.8 million).  Operating profit was 12.7% higher at £42.7 million (FY16: £37.9 million before exceptional IPO costs), representing an operating margin of 14.1% (FY16: 14.2%).

 

Our business is strongly cash generative and we achieved an operating cash inflow of £19.2 million (FY16: £15.1 million after exceptional IPO costs), with a further £22.8 million of cash received after the year end, relating to forward sales we agreed during FY17.

 

Developing student accommodation generates our core revenue and earnings and the business had another excellent year.  We completed all ten schemes on time (3,314 beds), maintaining our 100% record of delivering ahead of the start of the academic year.  We also continued to refill the pipeline of development sites, ensuring we maintain the visibility of earnings that is fundamental to our business model.

 

Our accommodation management business, Fresh Property Group, is continuing to perform well.  It currently has 16,082 student beds under management for the 2017/18 academic year, a 30% increase on the number under management for 2016/17.  The business is also expanding in the build to rent market and now has 535 units under management, including the 322-unit scheme we completed in Leeds during the year.

 

We are successfully building a pipeline of development opportunities in build to rent.  The Group has five development sites, which it owns or has exchanged contracts to acquire, and is in separate negotiations on several other opportunities.

 

The private residential business also had a good year, completing 94 sales and increasing its gross margin to 16.7%, from 11.5% in FY16.

 

 

Operating review

 

Student accommodation

 

The market opportunity

 

The number of full-time students in the UK is a key determinant of demand for PBSA, since these students are more likely to live away from home than part-time students.  The full-time student population has steadily grown, increasing by an average of 2% per year since 2004, to reach 1.74 million.  Despite the increase in tuition fees in 2012, demand for university places remains substantially greater than supply.  In 2016/17, there were 699,850 applications to UK universities, of which 533,890 were accepted.  UCAS applicants in 2016/17 were 7% higher than in 2011/12.

 

UK demographics are positive, with an upturn in the number of 17 to 21-year-olds coming through from 2021. Trends in international students are also positive.  Over 397,000 students are now from outside the UK, representing 23% of the student population and an increase of 70% over the period 2005/06 to 2015/16.  Non-EU international student numbers increased by 24% from 2008/09 to 2015/16, making up circa 17.8% of the full?time student population.  While EU international student acceptances have fallen in 2017 by 2.1%, this is offset by an increase in non-EU international students of 1.8%.  EU international students make up a relatively small proportion of the market at circa 7.3% and we do not believe that the changes in EU student numbers will have a noticeable impact on demand for PBSA.

 

At the start of the 2017/18 academic year Cushman and Wakefield reported that 602,000 PBSA bed spaces were available.  Significant scope remains for increased penetration of private PBSA, particularly as universities turn to the private sector for provision and more students than ever are studying away from home (1.04 million).  Since 2013, growth has predominantly come from the private sector, where bed numbers up to 2016 have increased by 43% compared to an increase of 5% in university accommodation across the same period.

 

 

PBSA investment

 

Institutional investors increasingly see UK PBSA, which has maintained good headline rental growth, as a core real?estate holding. Headline rental growth in 2016/17 was 2.9%.  The increasing maturity of the market is seeing investors demand greater scale, driving investment activity.  The UK student accommodation market has also attracted capital from all over the globe.  The largest share of transactions from non-UK domiciled investors in 2016 was from Asia, whilst 2017 has seen significant investment activity from North America.  It is estimated that £3.6 billion of stock has been traded in 2017. £1.05 billion of stock is believed to be under offer and a further £1.5 billion of stock is believed to be in the market.

 

 

Competition

 

We operate across the entire PBSA development lifecycle, and whilst there are other specialist PBSA developers in the UK, most do not construct their own developments, few provide asset management services, and their scale and geographical focus vary considerably. Some are owner/operators, who invest in assets and manage developments themselves.

 

Some non-specialist developers have exposure to PBSA, offering procurement, planning and construction services.  Typically, these firms are either housebuilders or commercial property developers with student accommodation divisions.

 

We believe our focus, market knowledge, geographical coverage and ability to work across the entire development cycle give us a competitive advantage.  We also believe that we are the only developer that forward sells all its schemes to investors, making us an attractive conduit for institutions looking to increase exposure to PBSA.  These factors make us well placed to compete effectively.

 

Performance

 

Revenues from student accommodation development were £256.1 million, up 8.0% on the £237.2 million achieved in FY16.  This reflected the quality of the sites, which had correspondingly higher values, and in turn fed through to a higher gross margin, which rose to 22.1% (FY16: 20.5%).

 

We look to maintain a pipeline of student accommodation of around 10,000 beds, for delivery over the following three years.  Our pipeline remains robust.  All ten of the developments for completion in FY18, ahead of the 2018/19 academic year, have been forward sold.  For FY19, we are targeting delivery of seven developments, of which five had been forward sold at the year end.  All the sites for FY19 have been secured and all have planning consent.  We have secured five sites for FY20 and a number of other sites are in negotiation.  Of the secured sites, three have planning consent, with the remainder progressing through the planning process.

 

In total, at the year end, we had a development pipeline of 23 sites, representing 9,120 beds, with an appraised development value of £762 million.  Of these beds:

 

·    3,415 are for delivery in FY18;

·    3,153 are for delivery in FY19; and

·    2,552 are for delivery in FY20 and beyond.

 

In total, we sold 17 developments with 6,578 beds during the year, including one operational asset of 590 beds, with a total development value of £506 million.

 

The planning environment remains challenging but our expertise and in-house resource has enabled us to continue to make good progress.  During FY17, we achieved planning consent for six developments (1,610 beds), with consent for a further three developments (959 beds) received since the year end.

 

 

Build to rent

 

The market opportunity

 

Build to rent has significant momentum as an asset class, with a number of factors creating demand for properties and supporting rental levels.  This makes build to rent an exciting opportunity for institutional investors.

 

There is well-known structural supply and demand imbalance in the UK property market and for many years, the supply of new homes has fallen well short of the number required.  In 2016/17, the number of new homes built reached 217,350.  This was the highest for nine years but still well below the 300,000 that the government is targeting by 2022.  The shortage of new builds contributes to high house prices in parts of the country with the strongest local economies, pricing many people out of the market.  As a result, many people are renting for the long term instead.

 

In addition, the population has become more transitory, moving from a "job for life" attitude to the expectation that young people will now have several jobs during their lifetime.  Young adults between the ages of 20 to 30, accustomed to the benefits of all-inclusive PBSA, make up a significant share of the build to rent market and often enjoy the flexibility of renting.

 

Since 1991, the private rented sector has more than doubled in size and now accommodates 19% of all UK households (circa five million households).  This figure is forecast to increase to 25% by 2021, as the sector continues to grow.  Private renters are also getting older, with 46% of those in their late twenties and early thirties being tenants, up from 24% in 2006.

 

The rental market is fragmented and dominated by small buy-to-let landlords, with little over 3% being owned by institutions.  This is expected to change, as build to rent offers institutions an attractive income stream that correlates strongly with inflation and is considered highly sustainable through the economic cycle.  Current investment in the build to rent sector is estimated to total £25 billion and is forecast to reach £70 billion by 2022.  According to recent research by the Investment Property Forum, 80% of residential investors surveyed intend to increase their exposure over the next twelve months, with £8 billion earmarked for investment in 2018.

 

 

Performance

 

During the year, we completed our first build to rent development, the 322-apartment scheme in Leeds.  In October 2017, it won Best Large Development at the Yorkshire Residential Property Awards.

 

Another key initiative for us was the preparation of our build to rent development specification.  This enables institutional clients to specify our product offering and allows us to appropriately cost potential schemes.

 

We made good progress with securing a pipeline of further development opportunities.  We acquired a site in Sutton, London, on which we have now obtained planning for 165 units, and secured planning for a site in Leicester to build a total of 322 units.  Subsequent to the year end, we also secured planning on a site in Bournemouth, to build a total of 147 units and on a site in Sheffield for 62 units.  In addition, we have exchanged contracts to acquire a site in Uxbridge, which subject to planning consent, will deliver approximately 270 units, and we are in separate negotiations on several other opportunities.  We are targeting the development of around 1,500 units on these sites during the period FY18 to FY22, subject to obtaining the remaining necessary planning consents.

 

We are encouraged by our progress to date and by the prospects we see in build to rent.  As noted above, there is growing institutional demand for build to rent assets, and through Fresh Property Group we will increasingly be able to demonstrate the revenue enhancement and cost savings achievable with specialist management, which in turn will increase the value of completed assets.  We are therefore currently taking a prudent approach to forward sales, in anticipation of rising values in the build to rent market.

 

Accommodation management

 

We created Fresh Property Group during FY17, to bring our two accommodation management businesses under a single leadership team.  It operates under the Fresh Student Living brand in student accommodation and Five Nine Living in build to rent.  Creating Fresh Property Group allows us to present institutional clients with a single accommodation management offering that covers both the PBSA and build to rent markets, and helps us to make maximum use of our resources and expertise, while avoiding duplication.

 

Fresh Property Group is a key part of the Group's complete end-to-end solution for clients, which spans sourcing of sites to managing the completed developments.  It can take on all aspects of accommodation management for clients, including mobilising, marketing and letting, managing the building and tenants, and collecting rent.  The business has invested significant amounts in best-in-class systems and processes, which make it highly scalable and provide efficient processing of back-office functions, freeing our people to focus on providing excellent service.

 

The business grew strongly in FY17, generating revenue of £6.1 million and gross profit of £3.8 million, representing a margin of 61.9%.  For FY16, this reporting segment comprised the Fresh Student Living business, which we acquired in February 2016.  For the period post?acquisition, Fresh Student Living contributed £2.8 million to FY16 revenue and £1.7 million to gross profit.  On a like?for?like basis, Fresh Student Living's revenues for the year to 30 September 2016 amounted to £5.1 million, at a gross margin of approximately 60%.

 

In addition to managing student schemes we developed, Fresh Property Group continued to win contracts to manage third-party developments during the year.  In total, Fresh Property Group is currently contracted to manage 16,082 student beds across 52 schemes for the 2017/18 academic year (2016/17 academic year: 12,337 beds across 44 schemes).  By FY20, Fresh Property Group is currently contracted to manage 20,628 beds across 68 schemes, which is an increase of 1,992 beds since the date of Watkin Jones plc's last annual report.

 

The number of contracted beds under management by FY20 may initially be reduced by 5,124 beds as a consequence of the sale of a portfolio of assets by the Curlew Student Trust ("CST").  However, the launch of CST 2, which will have a life of 25 years, and for which Fresh will be the preferred property manager, presents a significant replacement growth opportunity.  More detail is given later in this report.

 

We also continue to develop our letting and operational management services for the build to rent sector, where we are looking to leverage our capabilities and institutional relationships developed in PBSA.  At the end year, there were five schemes managed under the Five Nine Living brand, with 535 units between them, including the development the Group completed in Leeds during the year.

 

Key initiatives to support the growth of Fresh Property Group in FY17 included launching a new website for Fresh Student Living.  This offers a better service to students and, in turn, helps us to improve returns for our institutional clients.  In addition, we launched the Five Nine Living website, which includes a full online booking system.  We believe this functionality is currently unique in the build to rent market.

 

The quality of Fresh Property Group's service was recognised by the industry during the year, when it won Operator of the Year at Property Week's Student Accommodation Awards.  A number of our front-line staff and teams were also winners at the inaugural Student Housing Leadership Awards.

 

Residential

 

The residential business performed in line with our expectations in the year.  It completed 94 sales in FY17 (2016: 127), resulting in revenue of £18.1 million, down from £26.3 million in FY16.  Revenue in the prior year included £11.0 million of sales at nil-margin from the Group's legacy development sites in Droylsden, Manchester and the Cestria, Chester development.  Sales in FY17 included £6.0 million of nil-margin sales from these two sites.  Sales at Droylsden, Manchester are ongoing and will continue to release cash from inventory.

 

With fewer nil-margin sales from legacy sites and more profitable schemes coming into development during FY17, the gross margin was increased to 16.7% (FY16: 11.5%).

 

Our objective is to continue to grow the residential business, acquiring suitable sites to enable us to maintain a land bank sufficient for around three years of development.  At the year end, the land bank was 589 plots (30 September 2016: 573 plots).

 

 

Strategy

 

The Group is following a consistent strategy, which is delivering sustainable growth and positioning us to take advantage of the exciting opportunities ahead.

 

The visibility provided by developing student accommodation is central to this strategy.  It gives us a secure and growing base of revenue, earnings and cash flow, which allows us to develop new businesses to enhance that growth.  The strength of our student accommodation pipeline makes this an excellent time to pursue our strategy in build to rent.  We can use the knowledge, experience and relationships we have developed in student accommodation over nearly two decades, which are all directly applicable in the build to rent market.

 

Our development pipeline will also provide a stream of new contracts in accommodation management, in both student and build to rent.  Winning contracts to manage buildings developed by third parties is another exciting source of growth for this business, as the market is far greater than the buildings we develop ourselves.

 

People and culture

 

Any business is only as good as the people it employs, which is why we invest so much time and money in developing our people and helping them to achieve their potential.

 

Our primary focus in FY17 was on ensuring the Group has the leadership it needs to achieve its growth plans.  We have established an Executive Committee to provide the executive leadership to the Group below Board level and to further the management of our governance responsibilities.  The members of the Executive Committee are myself, Phil Byrom (CFO), Alex Pease (Investment Director), Jim Davies (MD Newmark Developments) and Rebecca Hopewell (CEO Fresh Property Group).

 

The operational Board was unchanged during the year, and we have looked to invest in and empower them, as well as the management teams below them and throughout the Group.  This included helping our people to understand how they contribute to the business and to show them the opportunities available within the Group, which we believe make us an employer of choice.  As part of this, we have begun succession planning for management at Board level and below.

 

Our other activities in the year encompassed enhancing performance management and improving communication, to drive engagement and collaboration across our divisions.

 

 

Sustainability

 

With a history dating back more than two centuries, it is natural for us to think for the long term.  We therefore aim to ensure we are economically, socially and environmentally sustainable.  The way we work is governed by a set of robust policies and we look to understand and manage the needs of our stakeholders, which include our people, clients, supply chain and shareholders, as well as wider society in the form of our communities and both the local and global environment.

 

Curlew Student Trust portfolio sale

 

We have been advised by Curlew Capital that the Curlew Student Trust ("CST") is in legal negotiations to sell a portfolio of its assets.  CST was launched in 2013 as a seven-year Fund, with a strategy to forward fund and hold good quality student accommodation assets in strong university towns and cities across the UK.  CST is backed by clients of CBRE Global Investment Partners.  The sale is expected to exchange and complete in the next few weeks.

 

The sale transaction includes 14 schemes (5,124 beds) which are managed by the Fresh Property Group.  It is expected that Fresh will continue to provide management services to the new owner for FY18, but that ultimately the new owner may decide to take the management in house.  Fresh will be fully compensated for any unexpired contract periods on all of the assets should they be terminated early by the new owner.  Should Fresh not be retained as property manager for these assets, this will not have a material effect on the Group's financial performance.

 

Curlew Capital have advised us that, following the success of CST, they have received approval to launch a second Fund, Curlew Student Trust 2 ("CST 2"), backed again by clients of CBRE Global Investment Partners. CST 2 will have a similar strategy to CST to forward fund and hold good quality student accommodation assets in strong university towns and cities across the UK.  CST 2 will have a 25-year life and is expected to be launched in January 2018.  CST 2 has already secured two seed assets (917 beds) for delivery in 2020 and has ambitious growth plans.  Fresh will be the preferred property manager for CST 2, which creates the potential for longer-term business growth for Fresh.

 

Outlook

 

I believe that Watkin Jones is in an excellent position.  Student accommodation continues to provide strong visibility and we have growing momentum in build to rent.  At the same time, our investment in our people gives us the leadership we need to take advantage of the opportunities ahead.

 

As noted in the Chairman's statement, after careful consideration I have decided that it is necessary for me to step back from my position as Chief Executive Officer.  The Group has reported strong results for FY17 and with excellent earnings visibility, Watkin Jones is in a strong position to achieve continued success in both student accommodation and build to rent.  Solid foundations are in place for my successor to work with, including an excellent management team that has supported me over the years, in successfully growing the business, and who will continue to drive Watkin Jones forward for the long-term benefit of our shareholders.

 

Mark Watkin Jones

Chief Executive Officer

12 January 2018

 

 

 

 

CHIEF FINANCIAL OFFICER'S REVIEW

 

Highlights

Continuing operations	FY 2017 £m	FY 2016 £m	Change
Revenue	301.9	267.0	+13.1%
Gross profit	63.5	53.8	+18.0%
Administrative expenses	(20.8)	(15.9)	+30.9%
Operating profit before exceptional IPO costs	42.7	37.9	+12.7%
Exceptional IPO costs	-	(26.6)
Operating profit	42.7	11.3
Profit on disposal of interest in joint venture	0.9	-
Share of profit in joint ventures	0.5	3.0
Net finance costs	(0.8)	(1.0)
Profit before tax	43.3	13.3	+326.3%
Tax	(7.5)	(8.2)
Profit for the year	35.8	5.1
Basic earnings per share	14.0p	3.8p
Adjusted basic earnings per share	14.0p	12.4p	12.9%
Dividend per share	6.6p	4.0p

 

The Group delivered another strong financial performance in FY17, with growth in revenue, gross margin and earnings.  No exceptional costs were incurred in FY17.  The solid increase in revenues to £301.9 million, coupled with a gross margin achieved of 21.0%, led to a profit for the year of £35.8 million and an increase in basic earnings per share to 14.0 pence.  Cash flow from operations was also strong, with cash balances increased by £18.1 million to £65.3 million.

 

Revenue

 

Revenue from continuing operations rose by 13.1% to £301.9 million, primarily as a result of growth in our student accommodation development activities, which showed a £19.0 million (8.0%) increase in revenue, and a full-year contribution from the Fresh Student Living accommodation management business we acquired in FY16.  Fresh contributed revenues of £6.1 million in FY17, compared to £2.8 million for the seven-month post-acquisition period last year.  This growth was partially offset by an expected reduction in revenue from residential sales, which benefitted in FY16 from a higher level of sales from legacy sites.  

 

As well as the revenue generated by our primary businesses, we earned £20.4 million (FY16 £0.7 million) of additional revenue from the development of commercial property associated with mixed-use planning consents.  This revenue is reported within our Corporate segment and for FY17 related to the forward sales of a hotel and offices at our Christchurch Road, Bournemouth development site.  We also completed the delivery of 454 student beds at this site in the year.

 

Gross profit

 

Gross profit increased to £63.5 million (FY16: £53.8 million), resulting in a gross margin of 21.0% (FY16: 20.1%).  The higher gross margin reflects the quality of location of our student accommodation developments and the effective acquisition of land sites for development at competitive prices.  The gross margin for the student accommodation development business increased to 22.1% from 20.5% in FY16.  In addition, the margin benefitted from the full-year contribution from Fresh, which contributed a margin of 61.9%, and from an improved margin on residential sales.  Residential sales in FY16 included £11.0 million of sales from legacy development sites at nil margin, compared to £6.0 million in FY17, which led to an improvement in the residential gross margin from 11.5% to 16.7%.  Excluding the sales from legacy sites at nil margin, the margin from the underlying residential business improved to 25.0% from 19.8% in FY16.

 

Administrative expenses

 

Administrative expenses include the costs of Group support services, as well as head office costs, and were in line with our expectations at £20.8 million (FY16: £15.9 million).  This reflects a full year of additional costs as a public company, an increase in support services personnel to support the growth in the Group's operations, a full year of overheads for Fresh and some investment in this business to create the platform for its expansion into the build to rent sector.

 

 

 

Operating profit before exceptional items

 

There were no exceptional items in FY17 and the operating profit achieved was £42.7 million, representing a margin of 14.1%. As described below, the Group incurred exceptional costs associated with the IPO in FY16.  Adjusting for these resulted in an operating profit before exceptional items of £37.9 million in FY16, representing a margin of 14.2%.

 

Exceptional items

 

In FY16, the Group incurred a number of exceptional costs in relation to its IPO.  These totalled £26.6 million and comprised £6.5 million of transaction ? related fees and commissions, and £20.1 million for settling share ? based management incentive arrangements that triggered on completion of the IPO.

 

Profit on disposal of interest in joint venture

 

The Group disposed of its joint venture interest in Athena Hall (Jersey) Limited during the year, realising a profit on disposal of £0.9 million.  This company owned a student accommodation property in Ipswich that had previously been developed by the Group.  The proceeds received from the disposal, including the repayment of a loan to Athena Hall (Jersey) Limited, amounted to £6.2 million, of which £0.7 million remains owed by way of a loan to the purchaser and is repayable within three years from the date of the transaction.

 

Share of profit in joint ventures

 

Our share of profit in joint ventures totalled £0.5 million, compared to £3.0 million in FY16. We have several joint ventures with Lacuna Developments Limited, based in Northern Ireland, which enable us to benefit from development opportunities in Belfast.  One student accommodation scheme was completed in FY17, with a second in build for delivery in FY18.

 

Finance costs

 

Our net finance costs totalled £0.8 million, down from £1.0 million in FY16.  This was largely a consequence of our increased cash balances.  We continue to incur finance costs on the loans which we have with Svenska Handelsbanken AB, as well as for having available our revolving credit facility with HSBC (see below).

 

Taxation

 

The tax charge for the year was £7.5 million, representing an effective tax rate of 17.3%.  This reflects the underlying tax rate for the year of 19.5%, following the reduction in the headline rate from 20% to 19% in April 2017, coupled with the benefit of a prior year adjustment of £0.8 million, as a result of finalising the tax computations for FY16.  This adjustment arose from various items and deductible expenses, partly relating to the IPO, which were not taken into account when the tax numbers for the FY16 financial statements were prepared.

 

Earnings per share

 

Basic earnings per share from continuing operations were 14.0 pence.  In FY16, the calculation of earnings per share was affected by the change in the number of shares in issue as a result of the IPO.  On a proforma basis, after adjusting for the impact of the exceptional IPO costs and using the number of shares in issue at 30 September 2016, basic earnings per share for FY16 were 12.4 pence.

 

Dividends

 

As discussed in the Chairman's statement, the Board has recommended a final dividend of 4.4 pence per share, giving a total dividend for the year of 6.6 pence per share.  The cash cost of the final dividend will be £11.2 million.  At 30 September 2017, the Company had distributable reserves of £152.8 million available to pay the final dividend.

 

Adjusted EBITDA

 

Adjusted EBITDA is an important measure of underlying performance for the Group.  It is calculated as operating profit plus profit from joint ventures, before interest, tax, depreciation, amortisation and exceptional items.

 

Adjusted EBITDA increased by 8.6% to £45.2 million (FY16: £41.6 million), representing an adjusted EBITDA margin of 15.0% (FY16: 15.6%).

 

 

 

 

Cash flows

Cash flows	FY 2017 £m	FY 2016 £m
Operating profit before exceptional IPO costs	42.7	37.9
Loss from discontinued operations	-	(1.1)
Exceptional IPO costs	-	(26.6)
Depreciation and amortisation	1.0	0.8
(Increase)/decrease in working capital	(18.4)	13.5
Finance costs paid	(1.0)	(1.2)
Tax paid	(5.1)	(8.2)
Net cash inflow from operating activities	19.2	15.1
Cash flow from joint venture interests	5.6	4.2
Dividends paid	(12.4)	(13.4)
Net cash flow from purchase/(sale) of fixed assets	(0.3)	2.6
Acquisition of Fresh	-	(14.5)
Purchase of other financial assets	-	(1.0)
Cash flow from borrowings	6.0	(5.1)
Increase/(decrease) in cash	18.1	(12.1)
Cash at beginning of year	47.2	59.3
Cash at end of year	65.3	47.2
Less:  borrowings	(24.3)	(15.0)
Net cash	41.0	32.2

 

The Group's cashflow was strong.  A net cash inflow from operating activities of £19.2 million was achieved after absorbing £18.4 million into working capital, mainly in respect of amounts recoverable on developments.  Shortly after the year end we received £22.8 million of cash relating to forward sales we agreed during FY17, but which were not contractually completed in time to receive the cash by the year end.  This was in respect of our development sites at Pittodrie Street, Aberdeen and Midland Road, Bath.

 

We spent £12.4 million in paying dividends, the impact of which was reduced by £5.6 million of cash received from our joint venture interests, principally the proceeds from the disposal of Athena Hall (Jersey) Limited, and by £6.0 million net cash inflow from borrowings.

 

The resultant net increase in cash of £18.1 million gave closing cash balances of £65.3 million.  Net cash at the year end, after deducting borrowings of £24.3 million, amounted to £41.0 million.  In comparison, net cash at 30 September 2016 stood at £32.2 million, made up of £47.2 million of cash less borrowings of £15.0 million.

 

Statement of financial position

 

During the year we invested £3.6 million in new plant, principally tower cranes required to support our development programme.  These assets were acquired under hire purchase agreements.  The Group's investment in joint ventures was reduced by £4.1 million as a result of the disposal of Athena Hall (Jersey) Limited.  As noted above, working capital increased by £18.4 million over the period, with trade and other receivables increasing by £21.5 million to £36.3 million.  Inventory and work in progress stood at £125.2 million at 30 September 2017, compared to £128.2 million at the end of the previous year.  The inventory balance includes £11.5 million invested in the acquisition of the Sutton build to rent site.  Despite this, after adjusting for the timing of the forward sales receipts referred to above, our working capital position would have been relatively unchanged.

 

Bank facilities

 

At 30 September 2017, the Group had undrawn borrowing facilities of £36.7 million with HSBC Bank plc, comprising a £40 million five-year revolving credit facility ("RCF"), which matures on 15 March 2021, and a £10 million on demand and undrawn working capital facility.  The RCF is available to support our land procurement and development opportunities and can be used for strategic land acquisitions or to fund discrete development activities, primarily the residential or commercial elements of certain larger mixed-use developments, alongside the forward sale model.  We utilised the RCF to assist with several site acquisitions during the year and to fund the build of the hotel and offices at Christchurch Road, Bournemouth.

 

 

 

The Group's loan facilities with Svenska Handelsbanken AB, used to fund the operating build to rent stock which the Group holds in Sheffield and Droylsden, were renewed for a further five-year term in March 2017.  The outstanding balance on these loans at 30 September 2017 amounted to £8.4 million.

 

Philip Byrom

Chief Financial Officer

12 January 2018

 

 

For further information:

Watkin Jones plc
Mark Watkin Jones, Chief Executive Officer	Tel: +44 (0) 1248 362 516
Phil Byrom, Chief Financial Officer	www.watkinjonesplc.com
Peel Hunt LLP (Nominated Adviser & Joint Corporate Broker)		Tel: +44 (0) 20 7418 8900
Mike Bell / Justin Jones / Matthew Brooke-Hitching		www.peelhunt.com
Jefferies Hoare Govett (Joint Corporate Broker)		Tel: +44 (0) 20 7029 8000
Max Jones / Will Soutar		www.jefferies.com

 

Media enquiries:

Buchanan
Henry Harrison-Topham / Richard Oldworth Jamie Hooper / Steph Watson	Tel: +44 (0) 20 7466 5000
[email protected]	www.buchanan.uk.com

 

Notes to Editors

 

Watkin Jones is a leading UK developer and constructor of multi occupancy property assets, with a focus on the student accommodation and build to rent sectors.  The Group has strong relationships with institutional investors, and a reputation for successful, on-time-delivery of high quality developments.  Since 1999, Watkin Jones has delivered more than 34,500 student beds across 107 sites.  In addition, Fresh Property Group, the Group's specialist accommodation management company, manages more than 16,000 student beds on behalf of its institutional clients.  Watkin Jones has also been responsible for over 50 residential developments, ranging from starter homes to executive housing and apartments.  The Group is now expanding its development and management operations into the build to rent sector.

 

The Group's competitive advantage lies in its experienced management team and business model, which enables it to offer an end-to-end solution for investors, delivered entirely in-house with minimal reliance on third parties, across the entire life cycle of an asset.

 

Watkin Jones was admitted to trading on AIM in March 2016 with the ticker WJG.L.  For additional information please visit: www.watkinjonesplc.com

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30 September 2017

 

		Year ended	Year ended
		30 September	30  September
		2017	2016
	Notes	£'000	£'000
Continuing operations
Revenue		301,914	266,980
Cost of sales		(238,383)	(213,169)
Gross profit		63,531	53,811
Administrative expenses		(20,846)	(15,928)
Operating profit before exceptional IPO costs		42,685	37,883
Exceptional IPO costs	5	-	(26,561)
Operating profit		42,685	11,322
Profit on disposal of interest in joint venture		930	-
Share of profit in joint ventures		519	2,972
Finance income		101	252
Finance costs		(957)	(1,282)
Profit before tax from continuing operations		43,278	13,264
Income tax expense	6	(7,478)	(8,179)
Profit for the year from continuing operations		35,800	5,085
Discontinued operations
Loss after tax for the year from discontinued operations		-	(878)
Profit for the year attributable to ordinary equity holders of the parent		35,800	4,207
Other comprehensive income
Subsequently reclassified to income statement:
Net gain on available-for-sale financial assets		130	116
Total comprehensive income for the year attributable to ordinary equity holders of the parent		35,930	4,323

 

		Pence	Pence
Earnings per share for the year attributable to ordinary equity holders of the parent
Basic earnings per share		14.024	3.123
Basic earnings per share from continuing operations	7	14.024	3.774
Adjusted basic earnings per share from continuing operations (excluding exceptional IPO costs)	7	14.024	23.489

 

 

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 30 September 2017

 

		30 September	30  September
		2017	2016
	Notes	£'000	£'000
Non-current assets
Intangible assets		14,962	15,521
Property, plant and equipment		4,911	1,876
Investment in joint ventures		1,816	5,950
Deferred tax asset		277	262
Other financial assets		2,698	2,545
		24,664	26,154
Current assets
Inventory and work in progress		125,220	128,157
Trade and other receivables		36,299	16,436
Cash and cash equivalents	10	65,325	47,221
		226,844	191,814
Total assets		251,508	217,968
Current liabilities
Trade and other payables		(88,664)	(90,781)
Provisions		(699)	(253)
Other financial liabilities		(13)	(63)
Interest-bearing loans and borrowings		(1,505)	(14,970)
Current tax liabilities		(8,199)	(6,018)
		(99,080)	(112,085)
Non-current liabilities
Interest-bearing loans and borrowings		(22,823)	(43)
Deferred tax liabilities		(1,368)	(1,151)
Provisions		(2,006)	(1,957)
		(26,197)	(3,151)
Total liabilities		(125,277)	(115,236)
Net assets		126,231	102,732
Equity
Share capital		2,553	2,553
Share premium		84,612	84,612
Merger reserve		(75,383)	(75,383)
Available-for-sale reserve		399	269
Retained earnings		114,050	90,681
Total equity		126,231	102,732

 

 

 

 

 

CONSOLISATED STATEMENT OF CHANGES IN EQUITY

for the year ended 30 September 2017

 

				Available-
	Share	Share	Merger	for-sale	Retained
	capital	premium	reserve	reserve	earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 October 2015	1,000	6,300	-	153	105,597	113,050
Profit for the year	-	-	-	-	4,207	4,207
Other comprehensive income	-	-	-	116	-	116
Total comprehensive income	-	-	-	116	4,207	4,323
Dividend paid	-	-	-	-	(13,395)	(13,395)
Share restructuring prior to IPO	1,695	167,864	-	-	-	169,559
Capital reduction prior to IPO	-	(167,864)	-	-	167,864	-
Issue of shares on IPO	855	84,586	-	-	-	85,441
Issue of shares to employees of Fresh Student Living Limited	-	26	-	-	-	26
Issue of shares to employee SIP	3	-	-	-	-	3
Group reconstruction of Watkin Jones plc and Watkin Jones Group Limited	(1,000)	(6,300)	(75,383)	-	(173,592)	(256,275)
Balance at 30 September 2016	2,553	84,612	(75,383)	269	90,681	102,732
Profit for the year	-	-	-	-	35,800	35,800
Other comprehensive income	-	-	-	130	-	130
Total comprehensive income	-	-	-	130	35,800	35,930
Dividend paid (note16)	-	-	-	-	(12,431)	(12,431)
Balance at 30 September 2017	2,553	84,612	(75,383)	399	114,050	126,231

 

 

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 30 September 2017

 

		Year ended	Year ended
		30 September	30  September
		2017	2016
	Notes	£'000	£'000
Cash flows from operating activities
Cash inflow from operations	9	25,378	24,457
Interest received		101	252
Interest paid		(1,083)	(1,408)
Interest element of finance lease rental payments		(33)	(22)
Tax paid		(5,117)	(8,152)
Net cash inflow from operating activities		19,246	15,127
Cash flows from investing activities
Acquisition of property, plant and equipment		(336)	(150)
Proceeds on disposal of property, plant and equipment		42	2,750
Acquisition of Fresh Student Living Limited (net of cash acquired)		-	(14,496)
Proceeds from disposal of interest in joint venture		5,510	-
Loan repayment from joint venture		73	4,242
Purchase of other financial assets		-	(1,024)
Net cash inflow/(outflow) from investing activities		5,289	(8,678)
Cash flows from financing activities
Dividends paid		(12,431)	(13,395)
Issue of shares prior to IPO		-	88,151
Issue of shares on IPO		-	85,441
Cash outflow on group reconstruction of Watkin Jones plc and Watkin Jones Group Limited		-	(173,592)
Capital element of finance lease rental payments		(605)	(278)
Drawdown of RCF		24,833	-
Repayment of bank loans		(18,228)	(4,825)
Net cash outflow from financing activities		(6,431)	(18,498)
Net increase/(decrease) in cash		18,104	(12,049)
Cash and cash equivalents at 1 October 2016 and 1 October 2015		47,221	59,270
Cash and cash equivalents at 30 September 2017 and 30 September 2016	10	65,325	47,221

 

 

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION

for the year ended 30 September 2017

 

 

1. General information

Watkin Jones plc (the "Company") is a public limited company incorporated in the United Kingdom under the Companies Act 2006 (registration number 09791105).  The Company is domiciled in the United Kingdom and its registered address is Units 21-22, Llandygai Industrial Estate, Bangor, Gwynedd, LL57 4YH.

 

The principal activities of the Company and its subsidiaries (collectively the "Group") are those of property development and the management of properties for multiple residential occupation.

 

The consolidated financial statements for the Group for the year ended 30 September 2017 comprise the Company and its subsidiaries.  The basis of preparation of the consolidated financial statements is set out in note 2 below.

 

 

2. Basis of preparation

The preparation of the financial statements in conformity with the Group's accounting policies requires the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenue and expenses during the reported period.  Whilst these estimates and assumptions are based on the Directors' best knowledge of the amount, events or actions, actual results may differ from those estimates.

 

The financial information set out above does not constitute the Group's statutory accounts for the years ended 30 September 2017 or 2016, but is derived from those accounts.  Statutory accounts for 2016 have been delivered to the Registrar of Companies, and those for 2017 will be delivered in due course.  The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain statements under Section 498(2) or (3) of the Companies Act 2006.

 

Whilst the financial information included in this announcement has been computed in accordance with IFRS as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS.  The Company expects to send its 2017 Annual Report to shareholders later today.

 

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods for which the financial information included in this announcement has been presented.  The financial information included in this announcement is prepared on the historical cost basis except as disclosed in these accounting policies.  The financial information is presented in pounds sterling and all values are rounded to the nearest thousand (£'000), except when otherwise indicated.

 

3. Accounting policies

The results for the year have been prepared on a basis consistent with the accounting policies set out in the Watkin Jones plc Annual Report for the year ended 30 September 2017.

 

4. Segmental reporting

The Group has identified four segments for which it reports under IFRS 8 'Operating Segments'.  The following represents the segments that the Group operates in:

 

a.   Student accommodation - the development of purpose built student accommodation;

b.   Build to rent - the development of build to rent accommodation;

c.   Residential - the development of traditional residential property; and

d.   Accommodation management - the management of student accommodation and build to rent property.

 

Corporate - revenue from the development of commercial property forming part of mixed use schemes and other revenue and costs not solely attributable to any one division.

 

The build to rent segment has been introduced for the first time in FY17. This is a new segment in which the Group is to commence development activities. During FY17 several build to rent site opportunities were secured, leading to a holding of inventory and work in progress for this segment at 30 September 2017.

 

All revenues arise in the UK.

 

Performance is measured by the Board based on gross profit as reported in the management accounts.

 

 

 

	Student	Build		Accommodation
	Accommodation	to rent	Residential	Management	Corporate	Total
Year ended 30 September 2017	£'000	£'000	£'000	£'000	£'000	£'000
Segmental revenue	256,138	1,216	18,076	6,126	20,358	301,914
Segmental gross profit	56,553	685	3,024	3,795	(526)	63,531
Administration expenses	-	-	-	(1,702)	(19,144)	(20,846)
Share of disposal of interest in joint venture	930	-	-	-	-	930
Share of operating profit in joint ventures	535	-	-	-	(16)	519
Finance income	-	-	-	-	101	101
Finance costs	-	-	-	-	(957)	(957)
Profit/(loss) before tax	58,018	685	3,024	2,093	(20,542)	43,278
Taxation	-	-	-	-	(7,478)	(7,478)
Continuing profit/(loss) for the year	58,018	685	3,024	2,093	(28,020)	35,800
Loss from discontinued operations					-
Profit for the year attributable to ordinary equity shareholders of the parent						35,800
Inventory and work in progress	33,337	41,429	38,868	-	11,586	125,220
Inventory and work in progress - discontinued						-
Total inventory and work in progress						125,220

 

	Student		Accommodation
	Accommodation	Residential	Management	Corporate	Total
Year ended 30 September 2016	£'000	£'000	£'000	£'000	£'000
Segmental revenue	237,163	26,312	2,828	677	266,980
Segmental gross profit	48,575	3,033	1,666	537	53,811
Administration expenses	-	-	(1,375)	(13,176)	(14,551)
Distribution costs	-	-	-	(1,377)	(1,377)
Exceptional IPO costs	-	-	-	(26,561)	(26,561)
Share of operating profit in joint ventures	2,975	-	-	(3)	2,972
Finance income	-	-	-	252	252
Finance costs	-	-	-	(1,282)	(1,282)
Profit/(loss) before tax	51,550	3,033	291	(41,610)	13,264
Taxation	-	-	-	(8,179)	(8,179)
Continuing profit/(loss) for the year	51,550	3,033	291	(49,789)	5,085
Loss from discontinued operations					(878)
Profit for the year attributable to ordinary equity shareholders of the parent					4,207
Inventory and work in progress	68,635	53,666	-	5,506	127,807
Inventory and work in progress - discontinued					350
Total inventory and work in progress					128,157

 

 

 

 

5. Exceptional IPO costs

	Year ended	Year ended
	30 September	30  September
	2017	2016
	£'000	£'000
Exceptional IPO costs
IPO transaction costs	-	6,500
Management incentive payments	-	20,061
Total exceptional IPO costs	-	26,561

 

The prior year charge for management incentive payments comprises amounts payable to certain senior management of Watkin Jones Group Limited in connection with various long-term incentive plans which fell due on the admission to AIM of Watkin Jones plc.  The amount comprised a total charge of £21,735,400, plus stamp duty costs of £98,440, less an amount previously provided of £1,773,200. Of the total incentive payments made, management invested £13,942,984 in shares in Watkin Jones plc as part of the IPO.

 

 

6. Income taxes

	Year ended	Year ended
	30 September	30  September
	2017	2016
	£'000	£'000
Current income tax
UK corporation tax on profits for the year	8,096	7,508
Adjustments in respect of previous periods	(820)	(299)
Total current tax	7,276	7,209
Deferred tax
Origination and reversal of temporary differences	202	135
Impact of change in tax rate	-	(52)
Adjustments in respect of prior year	-	887
Total deferred tax	202	970
Total tax expense	7,478	8,179

 

Reconciliation of total tax expense

	Year ended	Year ended
	30 September	30  September
	2017	2016
	£'000	£'000
Accounting profit before tax from continuing operations	43,278	13,264
Accounting loss before tax from discontinued operations	-	(1,098)
Accounting profit before income tax	43,278	12,166
Profit multiplied by standard rate of corporation tax in the UK of 19.5% (2016: 20%)	8,439	2,433
Expenses not deductible	(52)	4,958
Joint ventures results reported net of tax	(101)	(594)
Other differences	35	30
Prior period adjustment	(820)	1,161
At the effective rate of tax of 17.3% (2016: 65.6%)	7,501	7,988
Income tax expense reported in the statement of profit or loss	7,478	8,179
Income tax attributed to a discontinued activity	-	(220)
Income tax attributed to an available-for-sale asset	23	29
	7,501	7,988

 

 

7. Earnings per share

Basic earnings per share ("EPS") amounts are calculated by dividing the net profit or loss for the year attributable to ordinary equity holders of the parent by the weighted average number of shares in issue during the year.

 

There is no difference between basic earnings per share and diluted earnings per share as there are no dilutive share option arrangements in place at 30 September 2017.

 

The following table reflects the income and share data used in the basic and diluted EPS computations:

	Year ended	Year ended
	30 September	30  September
	2017	2016
	£'000	£'000
Profit attributable to ordinary equity holders of the parent	35,800	4,207
Profit from continuing operations attributable to ordinary equity holders of the parent	35,800	5,085
Adjusted profit from continuing operations attributable to ordinary equity holders of the parent (excluding exceptional IPO costs)	35,800	31,646

 

	Number of shares	Number of shares
Number of ordinary shares for basic earnings per share	255,268,875	134,729,152

 

	Pence	Pence
Basic earnings per share from continuing operations
Basic profit for the year attributable to ordinary equity holders of the parent	14.024	3.774
Adjusted proforma basic earnings per share from continuing operations (excluding exceptional IPO costs)
Basic profit for the year attributable to ordinary equity holders of the parent	14.024	23.489

Using the number of shares in issue at 30 September 2016, the adjusted proforma basic earnings per share from continuing operations for the year ended 30 September 2016 would have been 12.397 pence.

 

 

8. Dividends

	Year ended	Year ended
	30 September	30  September
	2017	2016
	£'000	£'000
Dividend paid prior to IPO	-	10,000
Interim dividend paid in June 2017 of 2.2 pence (June 2016: 1.33 pence)	5,615	3,395
Final dividend paid in February 2017 of 2.67 pence	6,816	-
	12,431	13,395

 

The final dividend proposed for the year ended 30 September 2017 is 4.4 pence per ordinary share.  This dividend was declared after 30 September 2017 and as such the liability of £11,231,831 has not been recognised at that date.  At 30 September 2017, the Company had distributable reserves available of £152,784,000 (30 September 2016: £165,215,000).

 

 

9. Reconciliation of operating profit to net cash flows from operating activities

	Year ended	Year ended
	30 September	30  September
	2017	2016
	£'000	£'000
Profit before tax from continuing operations	43,278	13,264
Loss before tax from discontinued operations	-	(1,098)
Profit before tax	43,278	12,166
Depreciation	520	341
Amortisation of intangible assets	559	326
(Profit)/loss on sale of plant and equipment	(26)	80
Issue of shares to employee SIP and employees of Fresh Student Living Limited	-	29
Finance income	(101)	(252)
Finance costs	957	1,282
Profit on disposal of interest in joint ventures	(930)	-
Share of profit in joint ventures	(519)	(2,972)
Decrease/(Increase) in inventory and work in progress	2,937	(8,474)
Interest capitalised in development land, inventory and work in progress	159	148
(Increase)/decrease in trade and other receivables	(21,523)	5,353
(Decrease)/increase in trade and other payables	(428)	16,682
Increase/(decrease) in provision for property lease commitment	495	(252)
Net cash inflow from operating activities	25,378	24,457

 

Major non-cash transactions

 

There were no major non-cash transactions during the period.

 

 

10. Analysis of net cash/(debt)

	At beginning		Non-cash
	of year	Cash flow	movements	At end of year
30 September 2017	£'000	£'000	£'000	£'000
Cash at bank and in hand	47,221	18,104	-	65,325
Finance leases	(260)	605	(3,235)	(2,890)
Bank loans	(14,753)	(6,605)	(80)	(21,438)
Net cash	32,208	12,104	(3,315)	40,997

 

	At beginning		Non-cash
	of year	Cash flow	movements	At end of  year
30 September 2016	£'000	£'000	£'000	£'000
Cash at bank and in hand	59,270	(12,049)	-	47,221
Finance leases	(538)	278	-	(260)
Bank loans	(19,645)	4,825	67	(14,753)
Net cash	39,087	(6,946)	67	32,208

 

 

11. Annual report

 

Copies of this announcement are available from the Company at Units 21?22 Llandygai Industrial Estate, Llandygai, Bangor, Gwynedd, LL57 4YH.  The Group's annual report for the year ended 30 September 2017 will be posted to shareholders shortly and will be available on our website at www.watkinjones.com.

 

 

- Ends -