Watkin Jones plc (LON:WJG), a leading UK developer and constructor of multi-occupancy property assets, with a focus on the student accommodation and build to rent sectors, gave DirectorsTalk 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.
Financial Highlights
FY 2017 FY2016 Movement
Revenue 301.9 million GBP267.0 million +13.1%
Gross profit GBP63.5 million GBP53.8 million +18.0%
EBITDA
(2016 adjusted)(1) GBP45.2 million GBP41.6 million +8.6%
Operating profit
(2016 adjusted)(2) GBP42.7 million GBP37.9 million +12.7%
Profit before tax GBP43.3 million GBP13.3 million +326.3%
Basic EPS
(2016 adjusted)(3) 14.0 pence 12.4 pence +12.9%
Net cash GBP41.0 million GBP32.2 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 GBP19.2 million (FY16: GBP15.1 million after exceptional IPO costs), with a further GBP22.8 million of cash received in October 2017, relating to forward sales agreed before the year end
-- Net cash of GBP41.0 million at 30 September 2017 (30 September 2016: GBP32.2 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 GBP506.0 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
