TIDMWJG

RNS Number : 6672Z

Watkin Jones plc

14 January 2020

 
For immediate release  14 January 2020 
 

Watkin Jones plc

('Watkin Jones' or the 'Group')

Full year results for the year ended 30 September 2019

'Another year of growth, underpinned by PBSA and first significant contribution from BtR'

Watkin Jones plc (AIM:WJG), the UK's leading developer and manager of residential for rent, with a focus on the student accommodation and Build to Rent sectors, announces its annual results for the year ended 30 September 2019 ('FY19').

 
                                            FY19       FY18  Change (%) 
-------------------------------------  ---------  ---------  ---------- 
Revenue(1)                             GBP374.8m  GBP363.1m       +3.2% 
Gross profit(1)                         GBP76.8m   GBP72.4m       +6.0% 
Adjusted operating profit(2)            GBP52.3m   GBP49.6m       +5.4% 
Adjusted profit before tax(2)           GBP52.3m   GBP50.1m       +4.5% 
Adjusted basic earnings per share(2)       16.7p      16.0p       +4.6% 
Dividend per share                         8.35p       7.6p       +9.9% 
Net cash                                GBP76.8m   GBP80.2m       -4.1% 
 
Statutory operating profit(1)           GBP49.7m   GBP53.9m       -7.8% 
Statutory profit before tax(1)          GBP49.7m   GBP54.3m       -8.5% 
Basic earnings per share                   15.8p      17.3p       -8.9% 
-------------------------------------  ---------  ---------  ---------- 
 

Financial Highlights

   --    3.2% increase in revenue to GBP374.8 million (FY18: GBP363.1 million), underpinned by student accommodation development and benefiting from strong growth in build to rent ('BtR') revenues. 

-- 6.0% increase in gross profit to GBP76.8 million (FY18: GBP72.4 million), reflecting a robust gross margin of 20.5% (FY18: 20.0%).

   --    4.5% increase in adjusted profit before tax(2) to GBP52.3 million (FY18: GBP50.1 million). 

-- 9.9% increase in dividend to 8.35 pence per share, with a final dividend of 5.6 pence per share, fulfilling our previously stated policy of moving to a dividend twice covered by adjusted earnings.

   --    GBP17.6 million net cash inflow from operating activities (FY18: GBP54.4 million). 

-- GBP115.6 million gross cash at the year end (FY18: GBP106.6 million) and GBP76.8 million net cash (FY18: GBP80.2 million).

-- 29.9% adjusted return on equity(3) (FY18: 33.2%), reflecting the Group's capital-light business model.

Richard Simpson, Chief Executive Officer of Watkin Jones, said: "We are pleased to report another year of growth for Watkin Jones, which demonstrates the strength and resilience of our capital light business model. Despite the difficult macro environment caused by Brexit-related uncertainty, the Group has delivered further profitable growth, in line with expectations.

Importantly, for the first time, build to rent development made a significant contribution to the Group's results and we expect it to become an increasingly important growth driver for the Group in the coming years. Watkin Jones is now firmly positioned as the UK's leading developer and manager of residential for rent schemes.

We are positive about the outlook for both the student accommodation and BtR sectors. There is continued investor appetite in those markets and we are confident in our ability to expand our position as market leader. We therefore expect to continue to grow the business, in line with our strategy, and believe that the Group has a bright future."

Business Highlights

Student accommodation - FY19 developments delivered on time and a strong pipeline of new developments

-- Six developments (2,723 beds) completed on time ahead of the 2019/20 academic year (FY18: 10 developments, 3,415 beds).

-- All seven developments (2,609 beds) for delivery in FY20 forward sold, with a further four developments (1,928 beds) forward sold for FY21 delivery and 448 beds in legals for sale.

   --    Added prime sites to the future pipeline in Birmingham, Exeter, Edinburgh and Bath. 

-- Total forward sold and secured development pipeline of 6,670 student beds across 17 sites, for delivery between FY20 and FY24.

 
 Delivery pipeline                               PBSA 
                                                 Beds 
                                   ------------------------------- 
                                     FY20    FY21    FY22    FY23/ 
                                                             FY24* 
                                   ------  ------  ------  ------- 
 
 Forward sold                       2,609   1,928       -        - 
                                   ------  ------  ------  ------- 
 In legals for sale                     -     448       -        - 
                                   ------  ------  ------  ------- 
 Secured with planning                  -     462       -        - 
                                   ------  ------  ------  ------- 
 Secured subject to planning            -       -   1,032      191 
                                   ------  ------  ------  ------- 
 Advanced negotiation to acquire        -     415   1,610        - 
                                   ------  ------  ------  ------- 
 
 Total                              2,609   3,253   2,642      191 
                                   ------  ------  ------  ------- 
 

* FY23/24 relates to a two-year period

Build to rent - first year to make a material contribution to the Group's results and accelerating growth in pipeline

-- Continued to make good progress with the 315-apartment scheme at Reading and the 301-apartment scheme in Wembley, with both on schedule for delivery in FY21.

   --    Three further schemes forward sold (396 apartments) for delivery between FY20 and FY22. 

-- Secured prime development sites in Brighton & Hove (for delivery in FY22) and Woking (for delivery in FY23) and, subsequent to the financial year end, in Birmingham (for delivery in FY23).

   --    Obtained planning consent for sites in Sutton (forward sold) and Leicester. 

-- Total forward sold and secured development pipeline, including Reading and Wembley, of nine sites (approximately 2,300 apartments) for delivery between FY20 and FY23.

 
 Delivery pipeline                              BtR 
                                            Apartments 
                                   ---------------------------- 
                                    FY20   FY21   FY22    FY23/ 
                                                          FY24* 
                                   -----  -----  -----  ------- 
 
 Forward sold                        159    782     71        - 
                                   -----  -----  -----  ------- 
 In legals for sale                    -      -      -        - 
                                   -----  -----  -----  ------- 
 Secured with planning                 -      -    184        - 
                                   -----  -----  -----  ------- 
 Secured subject to planning           -      -    213      903 
                                   -----  -----  -----  ------- 
 Advanced negotiation to acquire       -      -    350      250 
                                   -----  -----  -----  ------- 
 
 Total                               159    782    818    1,153 
                                   -----  -----  -----  ------- 
 

* FY23/24 relates to a two-year period

Accommodation management - continues to leverage market leadership position

-- At 30 September 2019, Fresh Property Group ("FPG") managed 17,721 student beds and BtR apartments across 64 schemes (FY18: 15,421 beds and apartments, across 56 schemes).

-- Continued success in winning management contracts for new and existing schemes. In total, FPG is currently contracted to manage 20,448 student beds and BtR apartments, across 66 schemes, by FY22.

Residential - robust performance

-- 150 homes and apartments sold (FY18: 175 sales), including 42 apartments at developments in Stratford and Bath.

   --    Forward sold a 35-apartment development in Chester, for delivery in FY20. 

-- Commenced works under a development agreement for 75 apartments at Marshgate, Stratford for delivery in FY21.

Notes

1. FY19 is the first year that the Group has adopted IFRS 15 'Revenue from Contracts with Customers'. This requires us to account separately for the land sale and development agreement elements of forward-sold contracts, rather than treating them as a combined agreement. The effect on the Group's results has been to reduce FY19 revenue and profit before tax by GBP0.6 million. The prior period comparatives have not been restated.

2. For FY19, adjusted operating profit, adjusted profit before tax and adjusted basic earnings per share are calculated before the impact of an exceptional charge of GBP2.6 million. This charge relates to the commitment to compensate the Group's new CEO, Richard Simpson, for forfeiting outstanding incentives held in respect of his former employer, of which GBP2.2 million is a non-cash charge. For FY18, adjusted operating profit, adjusted profit before tax and adjusted earnings per share are calculated before the impact of an exceptional gain of GBP4.3 million. This gain related to compensation for the reduction in scope of services and early termination of management contracts for assets sold by the Curlew Student Trust (the "Trust") and the Group's share of profit from the sale of the assets paid on its carried interest investment in the Trust.

3. Adjusted return on equity is calculated as profit before interest and tax, excluding exceptional items, as a percentage of total equity.

Analyst meeting

A meeting for analysts will be held at 09.30am today, 14 January 2020, at the offices of Buchanan, 107 Cheapside, London EC2V 6DN. A copy of the Final Results presentation is available at the Company's website: http://www.watkinjonesplc.com

An audio webcast of the analysts meeting will be available after 12pm today: https://webcasting.buchanan.uk.com/broadcast/5e1c3185fb21a407ce74c353

Chairman's statement

This was another good year for Watkin Jones, which again demonstrated the robustness of our business model. The Group delivered further profitable growth in line with expectations, despite the difficult macro environment caused by Brexit--related uncertainty and near--recessionary economic conditions in the UK.

Performance

Student accommodation development remained our core revenue generator and we once again completed all our developments on time, ahead of the start of the academic year. This distinguishes us in a market where more than 20 competitor schemes were reportedly delivered late in 2019, meaning investors see us as a trusted delivery partner. We have the commitment and discipline to deliver and a good understanding of risk and how to mitigate it. We also benefit from our excellent subcontractor relationships, which we leverage to deliver on budget and to the right quality.

This year has also shown the success of our move into build to rent development. The strong demand for the two developments we forward sold at the end of the year provided further evidence of the depth of institutional interest in this sector.

These sales, coupled with the continued good progress of our on-site developments at Reading and Wembley, meant that for the first time BtR development was a material contributor to our financial performance in FY19. The accommodation management and residential businesses also had a good year.

The performances achieved across the Group mean that our people continue to work for a successful business, which values their contribution and aims to help them achieve their potential. As part of this, we need to make sure safety and compliance remain at the top of our agenda. The Group safety team presented to the Board during the year about their experiences on our sites and how they go about their work, and the Board has made clear that we will always prioritise safety.

Dividends

We have continued to implement a progressive dividend policy, and in line with our previous guidance, we will pay a dividend for this year that is twice covered by adjusted earnings. The Board is therefore recommending a final dividend of 5.6 pence per share. Combined with the interim dividend of 2.75 pence per share, this gives a total dividend for the year of 8.35 pence, up 9.9% on the 7.6 pence paid in respect of FY18.

The final dividend will be paid on 28 February 2020 to shareholders on the register at the close of business on 24 January 2020.

The ability to pay attractive dividends to shareholders reflects the Group's profitability and the benefits of our capital--light business model. This limits our risk and generates good levels of cash, which we can reinvest to grow the business and use to reward our shareholders.

Board, management and people

Richard Simpson, who was appointed to succeed Mark Watkin Jones as CEO, commenced his role in January 2019 and has made a successful transition into the business. Richard is already making a significant contribution, in terms of developing our strategy, decision-making processes and structures.

More generally, strengthening the senior team and refining their responsibilities has been an important focus area for us over recent years. It has been pleasing to see them really gel as a leadership group, which is critical both for the robustness of our business and for succession planning.

The Board is keenly aware of the importance of culture to sustainable business success. Under Richard's leadership we are doing even more work in this area, to ensure our culture is both demanding and supportive. We are increasing engagement with our people and have hired the Group's first Human Resources Director, Jackie Kelly, with culture being high on her agenda.

We also extended the Board in January 2019, with Liz Reilly joining us as a Non-Executive Director. Liz has been a great addition and her appointment has enhanced the quality of our discussions and debate, as well as increasing diversity on the Board.

Governance

The Board spent considerable time during the year supporting and challenging the development of the Group's strategy. We took a granular approach, which included receiving expert presentations on our markets and their attractiveness, a review of our own business and its performance, and an analysis of our competitors and how we will continue to differentiate ourselves, so we can effectively deploy capital and build on our current success. We also focused on risk management and in particular the Group's preparations for Brexit, which have been carried out in detail and to a high standard.

This year, we had our first externally facilitated review of the Board's performance. The feedback from the review was predominantly positive, in particular noting the cohesive team and the Board's strong culture, as well as identifying areas we will address.

Looking forward

While we need to keep a close eye on the macro environment, which can change rapidly, our business model is proving robust through different cycles. The extension into the BtR market offers significant growth potential, while our core student accommodation business continues to perform very well and underpins our growth ambitions. I therefore believe the Group has a bright future and I look forward to reporting on further progress in the coming year.

Grenville Turner

Independent Non--Executive Chairman

13 January 2020

Chief Executive Officer's review

This was another successful year for Watkin Jones. Our performance demonstrates the quality of the business and shows we are in the right sectors. Demand across our operations remains resilient, in contrast with the broader uncertainty seen in many sectors in the UK.

Performance

Revenue from continuing operations was GBP374.8 million (FY18: GBP363.1 million), an increase of 3.2%. Gross profit rose by 6.0%, from GBP72.4 million in FY18 to GBP76.8 million in FY19, as we achieved our margin targets across the Group. Operating profit was 5.4% up at GBP52.3 million (FY18: GBP49.6 million) before an exceptional charge of GBP2.6 million (FY18: exceptional gain of GBP4.3 million). The pre-exceptional operating margin was at 14.0% (FY18: 13.7%). Adjusted performance measures have been used where necessary in order to give a clearer understanding of our underlying performance.

Our forward sale model continues to benefit both our cash generation and our returns. The operating cash inflow for the year was GBP17.6 million (FY18: GBP54.4 million), while our return on equity was 29.9% (FY18: 33.2%).

Student accommodation development remains the largest revenue generator in the Group. Revenues were in line with expectations at GBP246.1 million (FY18: GBP312.7 million), with the lower level of revenues reflecting a reduction in the number of student beds delivered as we focused on selecting development sites on which we could achieve strong margins. In total, we delivered six student schemes with 2,723 beds in FY19 (FY18: ten schemes with 3,415 beds). We once again completed all our developments on time, ahead of the start of the academic year. The business has a high-quality pipeline of development sites coming through.

For the first time, build to rent development made a significant contribution to our performance, with revenue of GBP73.6 million (FY18: GBP3.8 million). This business will be an increasingly important growth driver for us in the coming years and we continue to prove the success of our low--risk forward sale model, having progressed our existing developments, completed a number of forward sales, added new sites to the pipeline and obtained several new planning consents.

FPG had a solid year, as new business wins more than offset last year's reduction in beds following a client's sale of its student property portfolio. The business earns a highly attractive margin and has excellent prospects, with contracts in place to manage a further 2,727 PBSA beds and BtR apartments by FY22, and a pipeline of opportunities offering the potential for growth over and above this.

The residential business also had a good year in FY19. It completed 150 sales (FY18: 175 sales), including 108 sales in its North West heartland, and benefited from sales of apartments in Stratford and Bath.

Operating Review

Student accommodation

Performance

Revenues from student accommodation development were 21.3% lower at GBP246.1 million (FY18: GBP312.7 million), in line with our expectations and reflecting the lower number of student beds delivered in FY19 as a result our decision to focus on a smaller number of development sites on which we could achieve strong margins, in the light of Brexit uncertainty. In FY19, we completed six schemes with 2,723 beds, compared with ten schemes with 3,415 beds in FY18. In doing so, we maintained our 100% record of completing developments before they were due to be let.

Our business model typically sees us forward sell our developments. However, we may begin developments and sell them later, where we believe this will create the most value for the Group. Towards the end of the year, we sold two developments on this basis in Chester.

The first development, on Hunter Street, was completed for the start of the 2019/20 academic year. The second development, on Liverpool Road, was sold on a forward commitment basis, under which we received a deposit from the acquirer, with the balance payable on handover of the completed development during FY20. This reduced FY19 revenue by approximately GBP20.0 million, compared with the amount that would have been recognised in the year had we forward sold the scheme.

The gross margin for FY19 was 21.0%, against 19.4% in FY18. The robust margin this year reflected the mix profile of the schemes in development and our continuing success in sourcing and obtaining planning for high-quality sites, in locations with strong investor demand. The gross margin in FY18 was affected by the forward sales of a number of developments on 30 September 2018. These mainly constituted land sales and totalled GBP42.6 million, with a margin of 11.1% being recognised. Adjusting for the impact of these forward sales, the FY18 margin was 20.7%.

We have a strong pipeline of developments, for delivery over the next few years. For FY20, we are scheduled to deliver seven schemes with 2,609 beds. All of these schemes have been forward sold. For FY21, our pipeline comprises seven sites with 3,253 beds. At the year end, four of these schemes with 1,928 beds had been forward sold, with a further 448 beds in legals for sale. One site (462 beds) is secured and has planning and one site (415 beds) is in legals to secure. We are building our pipeline for delivery in FY22 and beyond, with four sites (1,223 beds) currently secured subject to planning.

The total forward sold and secured development pipeline at 30 September 2019 comprised 17 sites, representing 6,670 beds, and with an appraised development value to the Group of approximately GBP630 million.

We continued to make good progress with planning consents during the year, utilising our in-house expertise. In FY19, we obtained three consents for developments totalling 1,055 beds. A further six sites (2,187 beds) are progressing through the planning process.

The market opportunity

Demand for university places continues to grow

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 continues to rise, with growth of around 50,000 students per year in recent years. In 2018/19, there were nearly 1.88 million full-time students in the UK.

Students from the UK totalled 1.42 million in 2017/18. This was an increase of 2% on the previous year and reflects increased participation rates more than offsetting the absolute decline in the number of 18 year olds. This decline is set to reverse, with increasing numbers of 18 year olds from 2021 and for the next 20 years, which will result in rising numbers of people of university age each year.

Analysis of ONS population projections, along with entry rates from UCAS, point to a 100,000 increase in full-time undergraduate numbers between now and 2030.

Trends in international students are also positive. The UK is the second most in--demand student market, after the US, and has 33 of the top 250 universities worldwide. There were around 125,000 EU students in the UK in 2017/18, up 4% on the previous year, while non-EU international students totalled around 297,000, up nearly 5%.

EU students made up 6.8% of the total UK student population in 2017/18, which means that any changes in EU student numbers post-Brexit should not have a material impact on demand for PBSA beds. The Government has published its immigration white paper, which should be positive for international student numbers in the UK, and targets a 30% growth in international students by 2030, equivalent to an increase in international student numbers of approximately 130,000. The Government is also proposing to increase the time international students can stay in the UK after graduating so they can look for work, which should make the UK a more attractive place to study.

Taking the effect of the increase in the number of 18 year olds, together with the targeted increase in international students, would lead to a total increase in full-time student numbers of 230,000 by 2030.

Even though the student population has grown, there is still significant unmet demand for university places. For the 2018/19 academic year, there were 695,650 applications to UK universities, of which 533,360 were accepted, resulting in demand outstripping supply by 30%.

Another notable trend in the higher education market is the "flight to quality". The introduction of tuition fees coincided with the removal of the cap on student places at each university. This has allowed better institutions to grow, with the result that lower-quality institutions are struggling to retain or grow their student numbers. Between 2012/13 and 2017/18, the number of full-time students at the bottom five institutions fell by 30%, while full-time numbers at the top five institutions grew by 46%. This has clear implications for the location of new PBSA developments.

There is considerable scope for growth in PBSA provision

Cushman & Wakefield reported in its UK Student Accommodation Report 2018/19 that 627,000 PBSA beds were available for the start of the 2018/19 academic year. Of this, universities provided 53% and the private sector provided 47%. This is a notable change from just a few years ago, with universities providing two-thirds of all beds in 2014. With around 25,000 beds being added each year, the market could reach 910,000 beds by 2030.

Significant scope remains for increased penetration of private PBSA. Knight Frank estimates that the private sector will deliver 82% of the total beds set to be completed by 2021, with universities providing the remaining 18%.

Private PBSA developers need to be selective about the locations they choose. This is due to the flight to quality noted above and because the level of supply of PBSA beds in some towns and cities means that asset owners have seen higher vacancy rates and lower rental growth than expected. However, even in towns and cities with strong supply, being able to identify the right micro-locations can allow developers to build assets that will successfully fill at attractive rental levels. In addition, even towns and cities currently seen as oversupplied will become attractive for new development over time, as student numbers continue to rise and existing PBSA stock ages.

Indeed, it is estimated that 75% of university-operated accommodation was built pre-1999 and is no longer fit for purpose or meeting occupier expectations. We estimate that around 75,000 PBSA beds require redevelopment. This is contributing to students seeking modern, high--specification accommodation in the private sector. A similar flight to quality is also evident in the private sector, with students increasingly preferring high--quality private PBSA to traditional houses of multiple occupation ("HMOs") run by private landlords.

This trend is being exacerbated by fiscal and planning barriers, which make the acquisition of houses for student letting more costly and difficult for private landlords, which will lead to a reduction in the number of students living in HMOs.

This accords with national and local government agendas, which recognise PBSA as a better solution for housing students and enables HMOs to be made available to help towards the shortage in residential accommodation.

PBSA investment

Institutional investors see UK PBSA as a mature, stable and income-producing asset class. This makes it a defensive investment and an attractive asset to hold in times of uncertainty. New institutions from the UK, Europe and the Far East have therefore entered the market in recent years. According to Knight Frank, total investment in student accommodation is set to increase from GBP51 billion in 2019 to GBP65 billion by 2025.

There is growing demand from UK institutions, who are increasingly focused on operational real estate and who have become increasingly comfortable with the granular leasing profile offered by direct-let PBSA. There has been some weakening in the demand from European investors, driven by hedging costs and the prospects of a no-deal Brexit. Overall, however, international investors have not been deterred by Brexit, reflecting the long-term nature of their investment decisions, and the depreciation of sterling has increased the attractiveness of UK investments for overseas buyers.

There has been a notable increase in the demand for portfolios of assets, allowing institutions to deploy large amounts of capital and gain a sizeable operational platform for economies of scale.

As of Q2 2019, JLL estimated that GBP3.86 billion of transactions had completed or were under offer for 2019, ahead of the GBP3.2 billion recorded in 2018 as a whole and close to the GBP4.1 billion recorded in 2017. There has been sufficient institutional demand for yields to compress for prime assets, with yields shifting down by between 25 and 50 basis points over the twelve months to Q2 2019.

Competition

Watkin Jones operates across the entire PBSA development lifecycle. While there are other specialist PBSA developers in the UK, most do not construct their own developments, few provide accommodation management services, and their scale and geographical focus vary considerably. 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 sells all its schemes to investors. This makes us an attractive conduit for institutions looking to increase exposure to PBSA and means we do not compete with our institutional clients by also being an asset owner. These factors make us well placed to compete effectively.

Market conditions are having some effect on the level of competition. For example, lower yields in prime markets mean some investors who previously acquired operational stock or forward funded new developments are looking to acquire development sites, so they can generate sufficient returns. Some private residential developers are also diversifying into PBSA, due to the sector's strong fundamentals. However, these developers do not have the scale to be competitive and, having bought sites at a premium, often end up selling them. This is typically the result of build-cost inflation and institutions' desire to work with a tier one developer, making it hard for an inexperienced developer to obtain institutional funding.

Build to Rent

Performance

BtR development made its first material contribution to the Group's performance in FY19, with revenue of GBP73.6 million (FY18: GBP3.8 million). This reflected revenues from the 315-apartment scheme in Reading and the 301-apartment scheme in Wembley, both of which are progressing well, and the forward sale of two other developments. These were the schemes in:

-- Bournemouth, comprising 159 apartments and 37,000 sqft of commercial office space, for delivery in FY20; and

   --    Sutton, London, comprising 166 apartments and scheduled for delivery in FY21. 

We also forward sold a 71-apartment scheme for delivery in FY22, which forms part of a mixed-use PBSA and BtR scheme in Sheffield.

The gross profit for the year from BtR was GBP13.2 million (FY18: GBP1.0 million), at a gross margin of 18.0%. This reflects an encouraging start to our performance in this market, driven by the developments in build, and compares favourably with our medium-term expectation of a 15% average margin for BtR developments.

We secured planning consents during the year for the development site in Sutton and a 184--apartment development in Leicester, which is adjacent to our PBSA development site in the city. The Leicester development is scheduled for delivery in FY22.

We also continued to add to our development pipeline, securing during the year a prime site in Woking, for the development of 336 apartments (subject to planning) for delivery in FY23, and another in Brighton & Hove. This site has an existing planning consent for 186 apartments and c.2,000 sqm of commercial space. We intend to rework the design for this scheme, with the intention of obtaining planning for c.220 apartments. The scheme is targeted for delivery in FY22. Subsequent to the year end, we secured a site in Birmingham on which we are progressing planning for a 567--apartment scheme for delivery in FY23.

In total, we now have a forward sold and secured development pipeline, including Reading and Wembley, of nine sites, from which we are targeting to deliver approximately 2,300 apartments over the period FY20 to FY23. Six of these sites have planning (1,196 apartments). We also have a substantial pipeline of target sites and are actively negotiating on a number of opportunities.

All the developments for delivery in FY20 (159 apartments) and FY21 (782 apartments) have been forward sold, with one development (71 apartments) for delivery in FY22 also forward sold.

The market opportunity

BtR represents an exciting opportunity and has growing momentum as an asset class.

There is well-known structural supply and demand imbalance in the UK residential property market, with the supply of new homes in the UK failing to keep up with demand. Factors driving this demand include rising life expectancy and immigration, which together will contribute to a 7.3 million increase in the UK population by 2035, as well as growth in one-person households and urbanisation. To meet this demand, the Government is targeting 300,000 new dwellings each year, but only 195,000 were delivered in 2017/18, continuing a trend established over many years of delivery falling short of requirements. Indeed, the net housing supply has averaged around 150,000 dwellings over the last 15 years. With around 200,000-250,000 additional households being formed in England alone each year, there is a significant current UK housing deficit.

This 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. Stricter mortgage regulations and the need for larger deposits have also increased the barriers to home ownership. At the same time, people are increasingly getting married and having children later, delaying the point at which they decide to buy a house. This results in people living in rental stock for longer.

Urbanisation is an important factor, which is reshaping the country's economic and demographic structures. The UK has one of the highest rates of urbanisation, which influences issues such as infrastructure constraints, competition for land, planning, logistics and housing affordability. Many of the locations where we see the greatest potential for build to rent are in urban areas with universities, where education leads to employment opportunities and the need for housing.

As a result of all of these factors, many people are renting for the medium to long term. Young people in particular increasingly see renting as a better lifestyle choice, providing quality of living while maintaining flexibility, in the expectation of changing jobs more frequently than in the past. This has contributed to the number of people renting in England doubling over the last ten years (source: English Housing Survey), while 2.5 million households have entered the rental market since 2000. Private renters are expected to account for 25% of all households by 2021 (source: Knight Frank, EHS, DCLG).

The total number of BtR apartments completed, under construction or in the pipeline now amounts to c.143,000 units, of which around 75,000 are in London. At full maturity, the BtR sector could grow to 1.7 million units (source: Savills), providing considerable scope for growth.

Institutional demand is strong

Ownership of UK rented housing is fragmented and dominated by small buy--to-let landlords, with little over 5% being owned by institutions. This compares with around 40% in the USA, which is a more mature institutional market. Individual private landlords are exiting the market, however, as recent changes to the tax regime start to take effect. Large-scale professional BtR landlords are well placed to absorb this change, as well as satisfying some of the structural shortfall in the UK's housing supply.

As a result, the proportion of UK rented homes owned by institutions is expected to rise, as BtR offers them an attractive income stream that correlates strongly with inflation and is considered highly sustainable through the economic cycle. Investment in the build to rent sector was estimated at GBP3 billion in 2018, up 50% on the previous year, with around GBP2.1 billion of transactions in the first nine months of 2019. Total investment in the sector is estimated at GBP35 billion in 2019. Using Savills' estimate of 1.7 million units, investment would increase to around GBP544 billion by 2071, based on the current run rate of a net 30,000 units being added each year.

Accommodation management

Fresh Property Group is a key part of our end-to-end solution for clients. By focusing on delivering exceptional customer experience and creating vibrant communities, where people want to live, we drive return for our clients.

Revenue in FY19 was GBP7.5 million, compared with GBP7.3 million in FY18. This reflects strong underlying growth, given the full-year impact of the loss of 4,597 beds under management in FY18, following the sale of a portfolio of student schemes by a client, the Curlew Student Trust ("CST"). The business delivered a gross profit of GBP4.6 million (FY18: GBP4.5 million), representing a gross margin of 61.5% (FY18: 61.8%).

At the start of FY19, we had 15,421 student beds and BtR apartments under management across 56 schemes. We had a strong year for new business, mobilising a number of new student schemes and adding existing schemes to the portfolio. At the start of FY20, we therefore had 17,721 student beds and BtR apartments under management, across 64 schemes, above the level prior to CST's portfolio sale. For FY22, we are currently contracted to manage 20,448 student beds and BtR apartments, across 66 schemes.

Our growth this year has moved us up two places to sixth in CBRE's PBSA Operator League Table. The five largest operators are all in-house management arms of PBSA owners and FPG is now the biggest third-party operator. Of the 64 schemes we currently manage, approximately half were developed by third parties, showing our success at winning business from institutional clients and reflecting the high quality of our offer.

New business won in the year included being appointed to six student schemes currently being developed by Curlew Capital's new fund, CST2. We also mobilised an additional two sites in Ireland during the year, with a further two schemes mobilising for the 2020/21 academic year. For the start of FY21 we will therefore have six PBSA schemes (1,516 beds) under management in Ireland. We have strengthened the team in Ireland as a result, employing an operations manager.

While growth this year has been driven by contracts to manage PBSA schemes, we continue to discuss BtR opportunities with clients in both the UK and Ireland. We have therefore worked hard to ensure we have the right proposition, structure and processes to effectively take on the growth opportunity we see in the BtR market.

We also continue to invest in technology, both to enhance our own operations and to improve the customer experience.

Our investment in a new system, Salesforce, during FY18 was beneficial this year, giving us improved visibility of leads and making us better able to track their conversion into bookings. We have also invested in our booking system for PBSA, to improve efficiency and enhance the customer journey.

In addition, we are investing in a new system to support our management of both PBSA and BtR developments, allowing us to offer a really exceptional customer experience. We are planning to go live with the new system towards the end of FY20.

During the year, we introduced Think Fresh training for our people, in partnership with Mary Gober International. This is a combination of ten e-learning modules and "huddles", which are small discussion groups designed to embed the content. Around 220 of our people have been assigned the training, from front line customer service staff to directors. The training is leading to a better customer experience, with the latest National Student Housing Survey rating our overall management at 91%, staff knowledge at 94% and staff friendliness at 93%.

We are constantly looking at ways to improve the sense of community at our sites and this year at Foundry Courtyard, Glasgow, we piloted weekly life skills workshops for the residents. Workshops include self confidence, managing stress, communication and teamwork. We hope to roll this out nationally.

FPG has continued to win awards, reflecting the quality of our service. In December 2018, we received Operator of the Year at the Property Week Student Accommodation Awards. The Shield in Newcastle also won Best Social Experience and Best Value for Money Student Accommodation from Student Crowd.

Residential

The residential business had another solid year, with revenue increasing from GBP30.0 million to GBP38.1 million, a rise of 27%.

We completed 150 sales compared with 175 in FY18. This included sales in our core North West market, together with 42 apartment sales at our developments in Stratford and Bath. These two developments will make a further contribution to revenues in the coming year.

Sales at nil margin from our legacy site in Droylsden reduced from GBP10.2 million in FY18 to GBP3.5 million in FY19.

We also forward sold a residential development of 35 apartments on Trafford Street in Chester, for delivery in FY20.

During the year we were engaged by a client to commence the development of 75 residential apartments at Marshgate, Stratford, for delivery in FY21. This will make a meaningful contribution to the revenues for our residential business over the next two years.

The gross profit for the year was GBP7.7 million (FY18: GBP4.4 million), representing a margin of 20.3% (FY18: 14.6%). Excluding the nil margin sales at Droylsden, the gross margin was 22.3%, against 22.2% in the previous year.

At the end of the year, we had a land bank of 462 plots (30 September 2018: 657 plots). We will continue to acquire smaller to medium-sized development sites of 50-100 homes, primarily in our core North West market, which is expected to remain one of the stronger performing regions in the UK. We will also utilise our residential experience to deliver the residential element of mixed-use schemes, such as the one in Stratford.

Strategy

During the year, we reviewed and refreshed the Group's strategy. The starting point for our review was to confirm which markets we wanted to be in. The overall sector we operate in is residential for rent and, within that, our chosen markets remain PBSA and BtR.

Our ambition is to be the leader for developing and managing residential for rent schemes in the UK, by increasing our market share in both PBSA and BtR. We see the opportunity for growth over the next five years. To realise this opportunity, we will leverage our existing capabilities and maintain the same business model as today, which is capital light and based on forward sales, minimising risk and not relying on debt finance.

Underpinning our ability to grow is our understanding of our customers. FPG shines a light on consumers for us, so we know what students and BtR tenants want from their homes. The business looks after nearly 18,000 customers, giving us an enormous amount of feedback. This helps us to refine how we configure, build and operate our buildings. We also need to understand institutional investors' appetite for different types of product and locations. This determines where we buy sites and what type of building would suit them.

We have previously referenced the possibility of creating a separate BtR investment vehicle. The forward sales of BtR developments we completed towards the end of the financial year showed us there is strong liquidity in the sector. This means that while a dedicated vehicle with a suitable partner might be appropriate for us in the future, we do not currently require one to succeed in the BtR market.

People and culture

To support our growth plans, we need to ensure our organisation is fit for the future, with the right culture and level of resource. We have done a lot of the groundwork this year, including recruiting more people who are expert in delivering buildings through the development lifecycle.

Property development is a multi--disciplinary process, requiring a range of skills from understanding customers to planning, acquiring sites, procuring subcontracts and managing construction. This requires strong internal collaboration, transparency and knowledge management. We therefore need a culture which reflects this, where our people work in cross-functional project teams and can be more mobile, flexible and comfortable with change. Being joined up will help us to spot market changes and adapt accordingly, resulting in better products.

We have made good progress with how the business works together, focusing on engagement and building teams. This involves adjusting our internal structures. We operated with three delivery divisions for PBSA and separated the development lifecycle in two: land sourcing, planning and design; and then the delivery of the building.

We have now created single, larger delivery units for both student and BtR development, as well as development hub structures, which will lead to better integration across the full development lifecycle. This will enable better decision making and deliver superior outcomes. It will also make it easier to define career paths for our people, so they can progress within the business. We are therefore investing in learning and development, to help prepare people for the next step.

Sustainability

Our purpose - creating the future of living - means we look to provide sustainable solutions through the assets we develop and manage. We need to create places that will be attractive to live in for years to come, which help their residents succeed in life through the quality of their homes and the customer service they receive, and which play a part in fixing the UK's housing shortage. This in turn will create attractive, long-term returns for our institutional partners, encouraging them to invest more in the residential to rent sector.

As a responsible business, we also have to operate in a sustainable way. That means minimising our environmental impact, protecting the health and safety of everyone on our sites, ensuring we have a properly diverse and inclusive workforce, engaging effectively with our supply chains and benefiting the community.

The fire safety of the buildings we develop is of paramount importance to us and we construct our developments to high fire management specifications. However, the integrity of cladding systems and fire protection measures used on high-rise buildings is a matter of ongoing review and is likely to be the subject of further direction or new legislation in due course. In the meantime, we will continue to work with the owners of the properties we have developed, as appropriate, to ensure the safety of tenants.

Brexit

An important workstream during the year was ensuring we are prepared for any Brexit outcome. Our work has included a wide range of scenario planning, including identifying alternative sources of supply for key materials sourced from the EU, requesting our supply chain to forward buy where necessary so we can ensure continued progress with our current schemes, understanding the impact of tariffs and exchange rate movements on our costs, ensuring we have sufficient labour on site and reviewing our counterparty risks.

As a business that primarily forward sells its developments, acquires land on a subject-to-planning basis, is net cash positive and does not hold significant property assets, we feel that our exposure to even the hardest forms of Brexit is relatively limited. Brexit may also create land-buying opportunities for us, if it has an impact on the wider economy. EU students make up around 7% of the total UK student population, so Brexit should not have a material impact on demand for PBSA beds.

Outlook

We are positive about the outlook for both the student accommodation and BtR sectors. There is continued investor appetite in those markets and we are confident in our ability to expand our position as market leader. We therefore expect to grow the business over the next five years, in line with our strategy. While Watkin Jones is not immune from any potential impact of Brexit, we believe our business model puts us in a strong position to continue to grow.

Richard Simpson

Chief Executive Officer

13 January 2020

Financial Review

Highlights

 
                                                    FY19    FY18 
Continuing operations                               GBPm    GBPm  Change 
------------------------------------------------  ------  ------  ------ 
Revenue                                            374.8   363.1   +3.2% 
Gross profit                                        76.8    72.4   +6.0% 
Overheads                                         (24.5)  (22.8)   +7.2% 
------------------------------------------------  ------  ------  ------ 
Operating profit before 
exceptional items                                   52.3    49.6   +5.4% 
Exceptional (charge)/income                        (2.6)     4.3 
------------------------------------------------  ------  ------  ------ 
Operating profit                                    49.7    53.9   -7.8% 
Profit on disposal of interest in joint venture        -     0.1 
Share of profit in joint ventures                    0.3     1.0 
Net finance costs                                  (0.3)   (0.7) 
------------------------------------------------  ------  ------  ------ 
Profit before tax                                   49.7    54.3   -8.5% 
Tax                                                (9.4)  (10.1) 
------------------------------------------------  ------  ------  ------ 
Profit for the year                                 40.3    44.2   -8.8% 
------------------------------------------------  ------  ------  ------ 
Basic earnings per share                           15.8p   17.3p   -8.9% 
Adjusted basic earnings per share                  16.7p   16.0p   +4.6% 
Dividend per share                                 8.35p    7.6p   +9.9% 
------------------------------------------------  ------  ------  ------ 
 

Revenue

Revenue from continuing operations increased by 3.2%, from GBP363.1 million in FY18 to GBP374.8 million in FY19. As expected, student accommodation development revenues were GBP246.1 million, or 21.3% lower, as a result of the planned reduction in the number of developments completed compared with the previous year. This was the result of our decision to focus on a smaller number of development sites on which we could achieve strong margins, in the light of Brexit uncertainty.

BtR development generated revenues of GBP73.6 million, up from GBP3.8 million in FY18. This reflects good progress with the on-site developments and forward sales completed in the year. The BtR business is set to make an important contribution to our growth over the coming years.

Accommodation management continued to make good progress. Revenues increased to GBP7.5 million, against GBP7.3 million in FY18, with strong underlying growth more than offsetting the full-year impact of the loss of the Curlew Student Trust beds in FY18.

The residential business also delivered strong revenue growth, with revenue up 27.0% to GBP38.1 million (FY18: GBP30.0 million). The business had a solid performance in its core North West housing market and also benefited from the sales of apartments in Stratford and Bath. In addition, the business generated revenues from acting as developer for a client on a separate residential scheme in Stratford, which will make a greater contribution in FY20 and FY21.

The Group has continued to generate revenue from the development of commercial property associated with its student and BtR developments. In FY19, this amounted to GBP9.5 million and arose from the commercial office element of the BtR scheme in Bournemouth, which was forward sold in the year. Commercial property revenues in FY18 were GBP9.3 million and related to a hotel and offices at the student accommodation development site in Christchurch Road, Bournemouth.

FY19 is the first year that we have adopted IFRS 15 'Revenue from Contracts with Customers'. This requires us to account separately for the land and development agreement elements of forward--sold contracts, rather than treating them as a combined agreement. The effect on the Group's results has been to reduce FY19 revenues and profit before tax by GBP613,000. The prior period comparatives have not been restated.

Gross profit

Gross profit was GBP76.8 million, up 6.0% from the GBP72.4 million recorded in FY18. The gross margin was 20.5% (FY18: 20.0%).

Student accommodation development generated gross profit of GBP51.6 million (FY18: GBP60.7 million) and a gross margin of 21.0% (FY18: 19.4%), reflecting our focus on a select number of high--quality developments. The underlying gross margin in FY18 was 20.7%, after adjusting for forward sales that completed on 30 September 2018. These forward sales primarily comprised the land sales element, which were at lower margins than the margins to be recognised on the development works in FY19 and FY20.

BtR development achieved a gross profit of GBP13.2 million (FY18: GBP1.0 million), at a gross margin of 18.0%. This is an encouraging start to our performance in this market and is ahead of the average margin of 15% we expect to achieve from our BtR pipeline in the medium term.

FPG maintained its highly attractive profitability. Its gross profit of GBP4.6 million (FY18: GBP4.5 million) equated to a gross margin of 61.5% (FY18: 61.8%).

The residential business generated gross profit of GBP7.7 million (FY18: GBP4.4 million). The gross margin of 20.3% (FY18: 14.6%) reflected a reduction in nil margin sales at the legacy Droylsden site, from GBP10.2 million in FY18 to GBP3.5 million this year. Excluding these nil margin sales, the underlying gross margin was 22.3% (FY18: 22.2%).

Commercial property activities produced a loss of GBP0.1 million (FY18: profit of GBP1.8 million).

Administrative expenses

Administrative expenses rose by 7.2%, from GBP22.8 million in FY18 to GBP24.5 million in FY19. This was the result of recruitment to support the ongoing development of the business and a general salary increase of 3%.

Operating profit before exceptional items

Operating profit before exceptional items was GBP52.3 million (FY18: GBP49.6 million), reflecting an operating margin of 14.0% (FY18: 13.7%).

Exceptional items

An exceptional charge of GBP2.6 million was recorded in the year. This related to the cost of compensating our new CEO, Richard Simpson, for forfeiting outstanding incentives he held in respect of his former employer, Unite Group plc ("Unite"). The charge comprises a cash cost of GBP0.4 million in respect of forfeiting his 2018 Unite bonus and a non--cash cost of GBP2.2 million, in respect of forfeiting his outstanding 2015-2017 Unite LTIP awards.

In FY18, the Group recorded exceptional income of GBP4.3 million. This resulted from Curlew Student Trust's sale of a portfolio of assets, and the subsequent reduction in scope and early termination of FPG's contracts to manage the majority of these assets. Of this, GBP3.0 million was received as compensation for the reduction in scope and early termination of the management contracts. The Group also holds a carried interest in the Curlew Student Trust and made an exceptional profit of GBP1.3 million on the portfolio sale.

Share of profit in joint ventures

The Group's share of profit in joint ventures was GBP0.3 million (FY18: GBP1.0 million). The most significant of the Group's joint ventures are those with Lacuna Developments Limited, which allowed us to develop student accommodation sites in Belfast. These developments are now complete.

Finance costs

Our finance costs are primarily fees associated with the availability of our revolving credit facility ("RCF") with HSBC, and the interest cost of the loans we have with Svenska Handelsbanken AB (see bank facilities below). The net finance cost for the year was GBP0.3 million, down from GBP0.7 million in FY18, as a result of the Group's strong cash position at the start of the year.

Profit before tax

Profit before tax for the year amounted to GBP49.7 million (FY18: GBP54.3 million). Adjusted profit before tax, which excludes the impact of exceptional items, increased by GBP2.2 million to GBP52.3 million (FY18: GBP50.1 million).

Taxation

The corporation tax charge was GBP9.4 million (FY18: GBP10.1 million). The effective tax rate of 19.0% (FY18: 18.7%) was in line with the UK corporation tax rate of 19%.

Earnings per share

Basic earnings per share from continuing operations were 15.8 pence (FY18: 17.3 pence). Adjusted basic earnings per share, which exclude the impact of the exceptional items discussed above, were 16.7 pence (FY18: 16.0 pence).

Dividends

The Board has recommended a final dividend of 5.6 pence per share, giving a total dividend for the year of 8.35 pence. The cash cost of the final dividend will be GBP14.3 million.

At 30 September 2019, the Company had distributable reserves of GBP115.1 million available to pay the final dividend.

EBITDA

EBITDA is an important measure of our underlying performance. It is calculated as operating profit plus profit from joint ventures, before interest, tax, depreciation and amortisation. EBITDA decreased by 8.8% to GBP51.4 million (FY18: GBP56.3 million). Adjusted EBITDA, which excludes exceptional items, increased by 3.6% to GBP53.9 million (FY18: GBP52.0 million), representing an adjusted EBITDA margin of 14.4% (FY18: 14.3%).

Statement of financial position

At the year end, inventory and work in progress was GBP134.2 million, largely unchanged from the GBP132.8 million at 30 September 2018, and reflects the investment in the year in the BtR site at Brighton & Hove (GBP14.8 million) and in work in progress associated with a PBSA development on Liverpool Road in Chester (GBP9.5 million), which has been sold on a forward commitment basis, offset by sales of the Bournemouth and Sutton BtR development sites for which GBP21.9 million was held in inventory and work in progress at 30 September 2018.

Contract assets and trade and other receivables were GBP39.1 million at 30 September 2019, up by GBP12.1 million (30 September 2018: GBP27.0 million). The increase was primarily in respect of amounts receivable on forward--sold developments which are not yet contractually due, mainly final payments which will be due on practical completion.

Contract liabilities and trade and other payables stood at GBP85.7 million at the year end, a decrease of GBP13.4 million from the GBP99.1 million at 30 September 2018. The decrease is primarily in respect of amounts received in advance on forward--sold developments, which were GBP9.2 million lower at 30 September 2019.

Cash flows

 
                                              FY19    FY18 
Continuing operations                         GBPm    GBPm 
------------------------------------------  ------  ------ 
Operating profit before exceptional items     52.3    49.6 
Exceptional items                            (0.4)     4.3 
Depreciation and amortisation                  1.4     1.3 
(Increase)/decrease in working capital      (25.4)    11.3 
Finance costs paid                           (0.5)   (1.0) 
Tax paid                                     (9.8)  (11.1) 
------------------------------------------  ------  ------ 
Net cash inflow from operating activities     17.6    54.4 
(Purchase)/disposal of fixed assets          (0.3)   (0.3) 
Cash flow from joint venture interests           -     1.6 
Cash flow from other financial assets          0.2     1.4 
Dividends paid                              (20.1)  (17.5) 
Cash flow from borrowings                     11.6     1.7 
------------------------------------------  ------  ------ 
Increase in cash                               9.0    41.3 
Cash at beginning of year                    106.6    65.3 
------------------------------------------  ------  ------ 
Cash at end of year                          115.6   106.6 
Less: borrowings                            (38.8)  (26.4) 
------------------------------------------  ------  ------ 
Net cash                                      76.8    80.2 
------------------------------------------  ------  ------ 
 

The Group's forward sale business model contributes to good cash generation. The net cash flow from operating activities in the year was GBP17.6 million (FY18: GBP54.4 million).

Cash generation in FY19 was affected by the working capital movements referred to above and by the deal structure for the sale of the PBSA development on Liverpool Road in Chester. Consideration for this sale will be received on handover of the development during FY20. While this has produced a better commercial outcome for us when compared with a typical forward sale, it did reduce cash flow in FY19 by approximately GBP16.0 million versus the cash that a forward sale would have generated.

Operating cash flow in FY18 benefited from a receipt of GBP38.8 million from the forward sale of four PBSA development sites on 30 September 2018.

Dividends paid in the year amounted to GBP20.1 million (FY18: GBP17.5 million). Corporation tax payments totalled GBP9.8 million (FY18: GBP11.1 million).

At the year end, we had a gross cash balance of GBP115.6 million and borrowings of GBP38.8 million, resulting in a net cash position of GBP76.8 million. At 30 September 2018, we had net cash of GBP80.2 million, after deducting borrowings of GBP26.4 million from a gross cash balance of GBP106.6 million.

The Group's cash balance typically peaks around the year end, as in the last weeks of the financial year we receive the final payments on student accommodation developments completing ahead of the new academic year, as well as the initial proceeds from the latest forward sales.

The Group is then a net user of cash until the following year end, as a result of outflows such as tax and dividend payments, overhead costs and land purchases. We therefore see the cash balance at the year end as an appropriate level for funding our day-to-day cash requirements and to put the Group in a strong position when bidding for new sites.

Bank facilities

Our bank facilities comprise a five-year RCF and a GBP10 million on-demand working capital facility, both with HSBC Bank plc. During the year, we increased the RCF from GBP40 million to GBP60 million, to give us further capacity to support our growth. The maturity date for the RCF was unchanged, with the facility expiring on 15 March 2021.

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.

At the year end, we had drawn GBP32.1 million against the RCF (30 September 2018: GBP17.4 million) and the working capital facility was undrawn. We therefore had total headroom within our facilities of GBP37.9 million.

Implementation of IFRS 16 "Leases"

FY20 will be the first year in which the Group is required to adopt IFRS 16, which covers lease accounting and will have a material impact on the Group's financial statements. The date of the initial application for the Group will be 1 October 2019. In the past, the Group has sold a small number of student developments subject to operating leasebacks, equivalent to rental guarantees. These transaction structures were utilised in selective instances and reflected market conditions at the time. Since 2016 the Group has operated exclusively on a non-leaseback model which it expects to maintain going forward. These, together with leases for the rental of office space and vehicles, must now be accounted for in the statement of financial position in accordance with IFRS 16.

The impact will be to recognise a right-of-use asset of c GBP132 million, a deferred tax asset of c GBP3 million and a lease liability of c.GBP150 million. The difference between the right-of-use asset, deferred tax asset and lease liability of c.GBP15 million will be reflected as a reduction in shareholders' equity.

For FY20 we estimate that the effect of adopting IFRS 16 on our earnings will be to reduce operating lease costs, currently charged to cost of sales and administrative expenses, by approximately GBP11.2 million and to increase depreciation by GBP8.5 million and finance costs by GBP4.5 million. This will reduce profit before tax by approximately GBP1.8 million in FY20, but will increase EBITDA by GBP11.2 million.

In adopting IFRS 16, we will restate the prior reporting periods in order to ensure comparability of results and performance, given the materiality of the amounts involved.

Philip Byrom

Chief Financial Officer

13 January 2020

For further information:

 
Watkin Jones plc 
Richard Simpson, Chief Executive Officer            Tel: +44 (0) 1248 362 
                                                     516 
Phil Byrom, Chief Financial Officer                 www.watkinjonesplc.com 
 
Peel Hunt LLP (Nominated Adviser & Joint Corporate  Tel: +44 (0) 20 7418 
 Broker)                                             8900 
Mike Bell / Ed Allsopp                              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 
watkinjones@buchanan.uk.com               www.buchanan.uk.com 
 

Notes to Editors

Watkin Jones is the UK's leading developer and manager of residential for rent, 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 41,000 student beds across 123 sites, making it a key player and leader in the UK purpose built student accommodation market. In addition, the Fresh Property Group, the Group's specialist accommodation management company, manages nearly 18,000 student beds and Build to Rent apartments on behalf of its institutional clients. Watkin Jones has also been responsible for over 80 residential developments, ranging from starter homes to executive housing and apartments. The Group is now expanding its 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 2019

 
                                                                                              Year ended    Year ended 
                                                                                            30 September  30 September 
                                                                                                    2019          2018 
                                                                                     Notes       GBP'000       GBP'000 
-----------------------------------------------------------------------------------  -----  ------------  ------------ 
Continuing operations 
Revenue                                                                                  4       374,785       363,054 
Cost of sales                                                                                  (298,020)     (290,624) 
-----------------------------------------------------------------------------------  -----  ------------  ------------ 
Gross profit                                                                                      76,765        72,430 
Administrative expenses                                                                         (24,472)      (22,818) 
Operating profit before exceptional items                                                         52,293        49,612 
Exceptional (costs)/income                                                               5       (2,576)         4,283 
-----------------------------------------------------------------------------------  -----  ------------  ------------ 
Operating profit                                                                                  49,717        53,895 
Profit on disposal of interest in joint venture                                                        -           121 
Share of profit in joint ventures                                                                    286         1,023 
Finance income                                                                                       428           228 
Finance costs                                                                                      (695)         (925) 
-----------------------------------------------------------------------------------  -----  ------------  ------------ 
Profit before tax                                                                                 49,736        54,342 
Income tax expense                                                                       6       (9,436)      (10,136) 
-----------------------------------------------------------------------------------  -----  ------------  ------------ 
Profit for the year attributable to ordinary equity holders of the parent                         40,300        44,206 
-----------------------------------------------------------------------------------  -----  ------------  ------------ 
Other comprehensive income 
Subsequently reclassified to income statement: 
Net (loss)/gain on equity instruments designated at fair value through other 
 comprehensive 
 income                                                                                              (2)            37 
-----------------------------------------------------------------------------------  -----  ------------  ------------ 
Total comprehensive income for the year attributable to ordinary equity holders of 
 the parent                                                                                       40,298        44,243 
-----------------------------------------------------------------------------------  -----  ------------  ------------ 
 
 
                                                                                          Pence   Pence 
--------------------------------------------------------------------------------------   ------  ------ 
Earnings per share for the year attributable to ordinary equity holders of the parent 
Basic earnings per share                                                                715.780  17.317 
--------------------------------------------------------------------------------------   ------  ------ 
Diluted earnings per share                                                              715.740  17.310 
--------------------------------------------------------------------------------------   ------  ------ 
Adjusted proforma basic earnings per share (excluding exceptional (costs)/income)       716.689  15.958 
--------------------------------------------------------------------------------------   ------  ------ 
Adjusted proforma diluted earnings per share (excluding exceptional (costs)/income)     716.646  15.952 
--------------------------------------------------------------------------------------   ------  ------ 
 

Consolidated statement of financial position

as at 30 September 2019

 
                                                         30 September  30 September 
                                                                 2019          2018 
                                                  Notes       GBP'000       GBP'000 
------------------------------------------------  -----  ------------  ------------ 
Non-current assets 
Intangible assets                                              13,844        14,403 
Property, plant and equipment                                   4,966         4,809 
Investment in joint ventures                                    2,794         2,558 
Deferred tax asset                                                290            42 
Other financial assets                                          1,139         1,350 
------------------------------------------------  -----  ------------  ------------ 
                                                               23,033        23,162 
------------------------------------------------  -----  ------------  ------------ 
Current assets 
Inventory and work in progress                                134,226       132,778 
Contract assets                                                25,578         8,758 
Trade and other receivables                                    14,443        18,209 
Cash and cash equivalents                            10       115,652       106,640 
------------------------------------------------  -----  ------------  ------------ 
                                                              289,899       266,385 
------------------------------------------------  -----  ------------  ------------ 
Total assets                                                  312,932       289,547 
------------------------------------------------  -----  ------------  ------------ 
Current liabilities 
Trade and other payables                                     (81,407)      (84,805) 
Contract liabilities                                          (5,164)      (14,314) 
Provisions                                                      (863)       (1,068) 
Interest-bearing loans and borrowings                         (1,324)       (1,605) 
Current tax liabilities                                       (7,056)       (7,204) 
------------------------------------------------  -----  ------------  ------------ 
                                                             (95,814)     (108,996) 
------------------------------------------------  -----  ------------  ------------ 
Non-current liabilities 
Interest-bearing loans and borrowings                        (37,481)      (24,877) 
Deferred tax liabilities                                      (1,042)       (1,050) 
Provisions                                                    (2,594)       (1,602) 
------------------------------------------------  -----  ------------  ------------ 
                                                             (41,117)      (27,529) 
------------------------------------------------  -----  ------------  ------------ 
Total liabilities                                           (136,931)     (136,525) 
------------------------------------------------  -----  ------------  ------------ 
Net assets                                                    176,001       153,022 
------------------------------------------------  -----  ------------  ------------ 
Equity 
Share capital                                                   2,553         2,553 
Share premium                                                  84,612        84,612 
Merger reserve                                               (75,383)      (75,383) 
Available-for-sale reserve                                          -           436 
Fair value reserve of financial assets at FVOCI                   434             - 
Share--based payment reserve                                    2,311            84 
Retained earnings                                             161,474       140,720 
------------------------------------------------  -----  ------------  ------------ 
Total equity                                                  176,001       153,022 
------------------------------------------------  -----  ------------  ------------ 
 

Consolidated statement of changes in equity

for the year ended 30 September 2019

 
                                                                 Fair value 
                                                                    reserve 
                                                                         of 
                                                  Available-for   financial  Share-based 
                                                                     assets 
                        Share    Share    Merger          -sale          at      payment  Retained 
                      capital  premium   reserve        reserve       FVOCI      reserve  earnings     Total 
                      GBP'000  GBP'000   GBP'000        GBP'000     GBP'000      GBP'000   GBP'000   GBP'000 
--------------------  -------  -------  --------  -------------  ----------  -----------  --------  -------- 
Balance at 
 1 October 
 2017                   2,553   84,612  (75,383)            399           -            -   114,050   126,231 
--------------------  -------  -------  --------  -------------  ----------  -----------  --------  -------- 
Profit for 
 the year                   -        -         -              -           -            -    44,206    44,206 
Other comprehensive 
 income                     -        -         -             37           -            -         -        37 
--------------------  -------  -------  --------  -------------  ----------  -----------  --------  -------- 
Total comprehensive 
 income                     -        -         -             37           -            -    44,206    44,243 
--------------------  -------  -------  --------  -------------  ----------  -----------  --------  -------- 
Transactions 
 with owners 
Share-based 
 payments                   -        -         -              -           -           84         -        84 
Dividend 
 paid (note 
 8)                         -        -         -              -           -            -  (17,536)  (17,536) 
--------------------  -------  -------  --------  -------------  ----------  -----------  --------  -------- 
Balance at 
 30 September 
 2018 (as 
 previously 
 reported)              2,553   84,612  (75,383)            436           -           84   140,720   153,022 
IFRS 9 restatement          -        -         -          (436)         436            -         -         - 
Adjustment 
 on initial 
 application 
 of IFRS 15 
 (net of tax)               -        -         -              -           -            -       497       497 
--------------------  -------  -------  --------  -------------  ----------  -----------  --------  -------- 
As at 30 
 September 
 2018 (restated)        2,553   84,612  (75,383)              -         436           84   141,217   153,519 
--------------------  -------  -------  --------  -------------  ----------  -----------  --------  -------- 
Profit for 
 the year                   -        -         -              -           -            -    40,300    40,300 
Other comprehensive 
 income                     -        -         -              -         (2)            -         -       (2) 
Deferred 
 tax credited 
 directly 
 to equity                  -        -         -              -           -            -        70        70 
--------------------  -------  -------  --------  -------------  ----------  -----------  --------  -------- 
Total comprehensive 
 income                     -        -         -              -         (2)            -    40,370    40,368 
--------------------  -------  -------  --------  -------------  ----------  -----------  --------  -------- 
Transactions 
 with owners 
Share-based 
 payments                   -        -         -              -           -        2,227         -     2,227 
Dividend 
 paid (note 
 8)                         -        -         -              -           -            -  (20,113)  (20,113) 
--------------------  -------  -------  --------  -------------  ----------  -----------  --------  -------- 
Balance at 
 30 September 
 2019                   2,553   84,612  (75,383)              -         434        2,311   161,474   176,001 
--------------------  -------  -------  --------  -------------  ----------  -----------  --------  -------- 
 

Consolidated statement of cash flows

for the year ended 30 September 2019

 
                                                                                Year ended    Year ended 
                                                                              30 September  30 September 
                                                                                      2019          2018 
                                                                       Notes       GBP'000       GBP'000 
---------------------------------------------------------------------  -----  ------------  ------------ 
Cash flows from operating activities 
Cash inflow from operations                                                9        27,811        66,582 
Interest received                                                                      428           228 
Interest paid                                                                        (911)       (1,247) 
Tax paid                                                                           (9,769)      (11,140) 
---------------------------------------------------------------------  -----  ------------  ------------ 
Net cash inflow from operating activities                                           17,559        54,423 
---------------------------------------------------------------------  -----  ------------  ------------ 
Cash flows from investing activities 
Acquisition of property, plant and equipment                                         (361)         (298) 
Proceeds on disposal of property, plant and equipment                                   87            18 
Proceeds from disposal of interest in joint venture                                      -           400 
Cash distribution received from other financial assets (note 28)                       209         1,744 
Purchase of other financial assets                                                       -         (350) 
Loan payments from joint ventures                                                        -         1,176 
---------------------------------------------------------------------  -----  ------------  ------------ 
Net cash inflow from investing activities                                             (65)         2,690 
---------------------------------------------------------------------  -----  ------------  ------------ 
Cash flows from financing activities 
Dividends paid                                                             8      (20,113)      (17,536) 
Capital element of finance lease rental payments                                   (1,307)       (1,203) 
Drawdown of RCF                                                                     46,244         8,036 
Repayment of bank loans                                                           (33,306)       (5,095) 
---------------------------------------------------------------------  -----  ------------  ------------ 
Net cash outflow from financing activities                                         (8,482)      (15,798) 
---------------------------------------------------------------------  -----  ------------  ------------ 
Net increase in cash                                                                 9,012        41,315 
Cash and cash equivalents at 1 October 2018 and 1 October 2017                     106,640        65,325 
---------------------------------------------------------------------  -----  ------------  ------------ 
Cash and cash equivalents at 30 September 2019 and 30 September 2018               115,652       106,640 
---------------------------------------------------------------------  -----  ------------  ------------ 
 

Notes to the consolidated financial statements

for the year ended 30 September 2019

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 9791105). The Company is domiciled in the United Kingdom and its registered address is 21--22 Llandygai Industrial Estate, Llandygai, 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 2019 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 2019 or 2018, but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies, and those for 2019 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 2019 Annual Report to shareholders on 20 January 2020.

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 (GBP'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 2019.

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 operating segment.

All revenues arise in the UK.

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

Apart from inventory and work in progress, no other assets or liabilities are analysed into the operating segments.

 
                                                     Student    Build               Accommodation 
                                               accommodation  to rent  Residential     management  Corporate     Total 
Year ended 30 September 2019                         GBP'000  GBP'000      GBP'000        GBP'000    GBP'000   GBP'000 
---------------------------------------------  -------------  -------  -----------  -------------  ---------  -------- 
Segmental revenue                                    246,116   73,643       38,064          7,460      9,502   374,785 
---------------------------------------------  -------------  -------  -----------  -------------  ---------  -------- 
Segmental gross profit                                51,582   13,228        7,713          4,586      (344)    76,765 
Administration expenses                                    -        -            -        (3,167)   (21,305)  (24,472) 
Exceptional costs                                          -        -            -              -    (2,576)   (2,576) 
Share of operating profit in joint ventures              286        -            -              -          -       286 
Finance income                                             -        -            -              -        428       428 
Finance costs                                              -        -            -              -      (695)     (695) 
---------------------------------------------  -------------  -------  -----------  -------------  ---------  -------- 
Profit/(loss) before tax                              51,868   13,228        7,713          1,419   (24,492)    49,736 
Taxation                                                   -        -            -              -    (9,436)   (9,436) 
---------------------------------------------  -------------  -------  -----------  -------------  ---------  -------- 
Continuing profit/(loss) for the year                 51,868   13,228        7,713          1,419   (33,928)    40,300 
---------------------------------------------  -------------  -------  -----------  -------------  ---------  -------- 
Profit for the year attributable to ordinary 
 equity shareholders of the parent                                                                              40,300 
---------------------------------------------  -------------  -------  -----------  -------------  ---------  -------- 
Inventory and work in progress                        40,268   38,608       45,153              -     10,197   134,226 
---------------------------------------------  -------------  -------  -----------  -------------  ---------  -------- 
 
                                                     Student    Build               Accommodation 
                                               accommodation  to rent  Residential     management  Corporate     Total 
Year ended 30 September 2018                         GBP'000  GBP'000      GBP'000        GBP'000    GBP'000   GBP'000 
---------------------------------------------  -------------  -------  -----------  -------------  ---------  -------- 
Segmental revenue                                    312,695    3,764       29,965          7,302      9,328   363,054 
---------------------------------------------  -------------  -------  -----------  -------------  ---------  -------- 
Segmental gross profit                                60,705    1,020        4,377          4,513      1,815    72,430 
Administration expenses                                    -        -            -        (3,171)   (19,647)  (22,818) 
Exceptional income                                         -        -            -          4,283          -     4,283 
Share of disposal of interest in joint 
 venture                                                   -        -            -              -        121       121 
Share of operating profit in joint ventures            1,023        -            -              -          -     1,023 
Finance income                                             -        -            -              -        228       228 
Finance costs                                              -        -            -              -      (925)     (925) 
---------------------------------------------  -------------  -------  -----------  -------------  ---------  -------- 
Profit/(loss) before tax                              61,728    1,020        4,377          5,625   (18,408)    54,342 
Taxation                                                   -        -            -              -   (10,136)  (10,136) 
---------------------------------------------  -------------  -------  -----------  -------------  ---------  -------- 
Continuing profit/(loss) for the year                 61,728    1,020        4,377          5,625   (28,544)    44,206 
---------------------------------------------  -------------  -------  -----------  -------------  ---------  -------- 
Profit for the year attributable to ordinary 
 equity shareholders of the parent                                                                              44,206 
---------------------------------------------  -------------  -------  -----------  -------------  ---------  -------- 
Inventory and work in progress                        32,371   44,187       47,021              -      9,199   132,778 
---------------------------------------------  -------------  -------  -----------  -------------  ---------  -------- 
 

5. Exceptional (costs)/income

 
                                                                                              Year ended    Year ended 
                                                                                            30 September  30 September 
                                                                                                    2019          2018 
                                                                                                 GBP'000       GBP'000 
------------------------------------------------------------------------------------------  ------------  ------------ 
Cost of compensating the Group's new CEO, Richard Simpson, for his forfeit Unite Group plc 
 ("Unite") 2018 bonus                                                                              (411)             - 
Cost of Watkin Jones plc share awards issued on compensating Richard Simpson for his 
 forfeit 
 Unite 2015-2017 share awards                                                                    (2,165)             - 
Compensation for reduction in scope of services and termination of accommodation 
 management 
 contracts resulting from the sale of a portfolio of properties by the Curlew Student 
 Trust                                                                                                 -         3,020 
Profit share arising from the sale of the portfolio of properties by the Curlew Student 
 Trust                                                                                                 -         1,263 
------------------------------------------------------------------------------------------  ------------  ------------ 
Total exceptional (costs)/income                                                                 (2,576)         4,283 
------------------------------------------------------------------------------------------  ------------  ------------ 
 

In the year ended 30 September 2018, following the sale of a portfolio of properties by the Curlew Student Trust ("CST"), Fresh Property Group ("FPG") was compensated for the initial reduction in the scope of management services and subsequent termination of the accommodation management contracts for those properties by the new owner. In addition, FPG holds a carried interest investment in CST associated with its role as preferred property manager and received a share of the profit realised by CST on the sale of the property portfolio.

6. Income taxes

 
                                                      Year ended    Year ended 
                                                    30 September  30 September 
                                                            2019          2018 
                                                         GBP'000       GBP'000 
--------------------------------------------------  ------------  ------------ 
Current income tax 
UK corporation tax on profits for the year                 9,439        10,320 
Adjustments in respect of previous periods                   183         (101) 
--------------------------------------------------  ------------  ------------ 
Total current tax                                          9,622        10,219 
--------------------------------------------------  ------------  ------------ 
Deferred tax 
Origination and reversal of temporary differences          (262)          (84) 
Adjustments in respect of prior year                          76             1 
--------------------------------------------------  ------------  ------------ 
Total deferred tax                                         (186)          (83) 
--------------------------------------------------  ------------  ------------ 
Total tax expense                                          9,436        10,136 
--------------------------------------------------  ------------  ------------ 
 

Reconciliation of total tax expense

 
                                                                                       Year ended    Year ended 
                                                                                     30 September  30 September 
                                                                                             2019          2018 
                                                                                          GBP'000       GBP'000 
-----------------------------------------------------------------------------------  ------------  ------------ 
Accounting profit before income tax                                                        49,736        54,342 
Profit multiplied by standard rate of corporation tax in the UK of 19% (2018: 19%)          9,450        10,325 
Expenses not deductible                                                                       282           499 
Income not taxable                                                                           (79)         (441) 
Joint ventures results reported net of tax                                                      -         (242) 
Other differences                                                                              12           104 
Prior period adjustment                                                                     (229)         (100) 
-----------------------------------------------------------------------------------  ------------  ------------ 
At the effective rate of tax of 19.0% (2018: 18.7%)                                         9,436        10,145 
-----------------------------------------------------------------------------------  ------------  ------------ 
Income tax expense reported in the statement of profit or loss                              9,436        10,136 
Income tax attributed to an available-for-sale asset                                            -             9 
-----------------------------------------------------------------------------------  ------------  ------------ 
                                                                                            9,436        10,145 
-----------------------------------------------------------------------------------  ------------  ------------ 
 

7. Earnings per share

Basic and diluted 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. For the years ending 30 September 2019 and 30 September 2018, all profits arise from continuing operations.

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 
                                                                                                2019              2018 
                                                                                             GBP'000           GBP'000 
----------------------------------------------------------------------------------  ----------------  ---------------- 
Profit for the year attributable to ordinary equity holders of the parent                     40,300            44,206 
Adjusted profit for the year attributable to ordinary equity holders of the parent 
 (excluding 
 exceptional (costs)/ income after tax)                                                       42,621            40,737 
----------------------------------------------------------------------------------  ----------------  ---------------- 
 
                                                                                    Number of shares  Number of shares 
----------------------------------------------------------------------------------  ----------------  ---------------- 
Number of ordinary shares for basic earnings per share                                   255,382,181       255,268,875 
Adjustment for the effects of dilutive potential ordinary shares                             658,650           102,929 
----------------------------------------------------------------------------------  ----------------  ---------------- 
Weighted average number for diluted earnings per share                                   256,040,831       255,371,804 
----------------------------------------------------------------------------------  ----------------  ---------------- 
 
                                                                                               Pence             Pence 
----------------------------------------------------------------------------------  ----------------  ---------------- 
Basic earnings per share 
Basic profit for the year attributable to ordinary equity holders of the parent               15.780            17.317 
Adjusted proforma basic earnings per share 
 (excluding exceptional (costs)/income after tax) 
Adjusted profit for the year attributable to ordinary equity holders of the parent            16.689            15.958 
Diluted earnings per share 
Basic profit for the year attributable to diluted equity holders of the parent                15.740            17.310 
Adjusted proforma diluted earnings per share 
 (excluding exceptional (costs)/income after tax) 
Adjusted profit for the year attributable to diluted equity holders of the parent             16.646            15.952 
----------------------------------------------------------------------------------  ----------------  ---------------- 
 

8. Dividends

 
                                                                                  Year ended    Year ended 
                                                                                30 September  30 September 
                                                                                        2019          2018 
                                                                                     GBP'000       GBP'000 
------------------------------------------------------------------------------  ------------  ------------ 
Interim dividend paid in June 2019 of 2.75 pence (June 2018: 2.47 pence)               7,018         6,304 
Final dividend paid in February 2019 of 5.13 pence (February 2018: 4.4 pence)         13,095        11,232 
------------------------------------------------------------------------------  ------------  ------------ 
                                                                                      20,113        17,536 
------------------------------------------------------------------------------  ------------  ------------ 
 

The final dividend proposed for the year ended 30 September 2019 is 5.6 pence per ordinary share. This dividend was declared after 30 September 2019 and as such the liability of GBP14,320,438 has not been recognised at that date. At 30 September 2019, the Company had distributable reserves available of GBP115,135,000 (30 September 2018: GBP135,248,000).

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

 
                                                                             Year ended    Year ended 
                                                                           30 September  30 September 
                                                                                   2019          2018 
                                                                                GBP'000       GBP'000 
-------------------------------------------------------------------------  ------------  ------------ 
Profit before tax                                                                49,736        54,342 
Depreciation                                                                        835           725 
Amortisation of intangible assets                                                   559           559 
(Profit)/loss on sale of plant and equipment                                       (43)           (7) 
Finance income                                                                    (428)         (228) 
Finance costs                                                                       695           925 
Profit on disposal of interest in joint ventures                                      -         (121) 
Share of profit in joint ventures                                                 (286)       (1,023) 
(Increase)/decrease in inventory and work in progress                           (1,948)       (7,558) 
Interest capitalised in development land, inventory and work in progress            216           322 
(Increase)/decrease in contract assets                                         (16,820)             - 
(Increase)/decrease in trade and other receivables                                4,682         9,442 
(Decrease)/increase in contract liabilities                                     (9,150)             - 
(Decrease)/increase in trade and other payables                                 (3,251)         9,155 
Increase/(decrease) in provision for property lease commitment                      787          (35) 
Increase in share--based payment reserve                                          2,227            84 
-------------------------------------------------------------------------  ------------  ------------ 
Net cash inflow from operating activities                                        27,811        66,582 
-------------------------------------------------------------------------  ------------  ------------ 
 

Major non-cash transactions

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

10. Analysis of net cash/(debt)

 
                           At beginning               Non-cash  At end of 
                                of year  Cash flow   movements       year 
30 September 2019               GBP'000    GBP'000     GBP'000    GBP'000 
-------------------------  ------------  ---------  ----------  --------- 
Cash at bank and in hand        106,640      9,012           -    115,652 
Finance leases                  (2,023)      1,307       (676)    (1,392) 
Bank loans                     (24,459)   (12,938)        (16)   (37,413) 
-------------------------  ------------  ---------  ----------  --------- 
Net cash                         80,158    (2,619)       (692)     76,847 
-------------------------  ------------  ---------  ----------  --------- 
 
                           At beginning               Non-cash  At end of 
                                of year  Cash flow   movements       year 
30 September 2018               GBP'000    GBP'000     GBP'000    GBP'000 
-------------------------  ------------  ---------  ----------  --------- 
Cash at bank and in hand         65,325     41,315           -    106,640 
Finance leases                  (2,890)      1,203       (336)    (2,023) 
Bank loans                     (21,438)    (2,941)        (80)   (24,459) 
-------------------------  ------------  ---------  ----------  --------- 
Net cash                         40,997     39,577       (416)     80,158 
-------------------------  ------------  ---------  ----------  --------- 
 

Cash at bank and in hand as at 30 September 2019 includes GBP1,853,000 of cash deposited by the Group in an escrow account in connection with a development in progress, access to which is contingent upon the completion of certain development works (30 September 2018: GBPNil).

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 2019 will be posted to shareholders shortly and will be available on our website at www.watkinjones.com.

- Ends -

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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January 14, 2020 02:00 ET (07:00 GMT)

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