TIDMWJG
RNS Number : 0970M
Watkin Jones plc
19 January 2021
For immediate release 19 January 2021
Watkin Jones plc
('Watkin Jones' or the 'Group')
Full year results for the year ended 30 September 2020
'Return to dividend driven by robust performance with
foundations in place for future growth'
Watkin Jones plc (AIM:WJG), the UK's leading developer and
manager of residential for rent with a focus on the build to rent
('BtR') and purpose built student accommodation ('PBSA') sectors ,
announces its annual results for the year ended 30 September 2020
('FY20').
FY20 FY19 Change
(Restated(1) ) (%)
------------------------------------- --------- --------------- ------
Revenue GBP354.1m GBP374.8m -5.5%
Gross profit GBP75.9m GBP80.0m -5.1%
Adjusted operating profit(2) GBP51.7m GBP55.6m -7.1%
Adjusted profit before tax(2) GBP45.8m GBP50.4m -9.3%
Adjusted basic earnings per share(2) 14.7p 16.1p -8.7%
Dividend per share 7.35p 8.35p -12.0%
Adjusted net cash(3) GBP94.8m GBP76.8m +23.4%
Statutory operating profit GBP31.2m GBP53.0m -41.1%
Statutory profit before tax GBP25.3m GBP47.9m -47.1%
Basic earnings per share 8.2p 15.2p -45.8%
------------------------------------- --------- --------------- ------
Financial Highlights
-- Solid financial performance, showing the resilience of the
business during a challenging period for the UK economy.
-- Revenue down 5.5% for the year, primarily as a result of
forward sales of developments being deferred due to COVID-19
uncertainty.
-- Robust gross margin for the year of 21.4% (FY19: 21.4%).
-- Impact of COVID-19 disruption on operational delivery
minimised and additional construction cost substantially mitigated,
with FY20 planned deliveries all completed.
-- All Government financial assistance received to support
furloughed staff, totalling GBP0.8 million, repaid at the start of
FY21.
-- Full-year final dividend of 7.35 pence per share proposed, in
line with policy of 2.0x cover by adjusted earnings, reflecting
strength of financial performance and cash position.
-- Strong liquidity position:
- GBP134.5 million gross cash at 30 September 2020 (30 September 2019: GBP115.6 million).
- GBP94.8 million net cash (after deducting loans, but excluding
IFRS 16 operating lease liabilities), up from GBP76.8 million at 30
September 2019.
- GBP100.0 million revolving credit facility with HSBC renewed
to May 2025, of which GBP65.0 million was undrawn at 30 September
2020.
-- Exceptional costs of GBP20.5 million, including GBP14.8
million in relation to remediating cladding on a number of past
developments and GBP5.7 million of additional costs in relation to
COVID-19.
Richard Simpson, Chief Executive Officer of Watkin Jones, said:
" We delivered a robust financial performance for FY20, building on
our strong first half despite the subsequent and ongoing disruption
caused by COVID-19. Our operations have performed well and we have
taken the opportunity to secure sites to significantly increase our
development pipeline, positioning us to deliver our growth strategy
as the UK's leading developer and manager of residential for
rent.
"COVID-19 undoubtedly caused delays to investment activity in
the period, however I am pleased to report that the resumption in
forward sales that we have seen, coupled with the increase in the
number of student beds for delivery in FY21 and the scheduled
completion of four BtR developments, should see Watkin Jones return
to growth in the coming year, assuming there is no further
significant disruption to our activities. We are pleased with our
progress in growing our BtR and PBSA development pipelines and
remain very confident in the long term prospects for these
markets.
"We have had a good start to FY21 with new forward sales and our
developments progressing well. The current escalation of the
pandemic and latest lockdown brings with it further operational
challenges, not least of which to Fresh who continue to provide
support to students in residence and those unable to return to
their accommodation in January. However, we have limited direct
exposure to the level of student occupancy and with our
COVID-secure operations working effectively we are able to continue
delivering our developments on site. In light of our strong
performance and cash position, we have resumed our previous
dividend policy and the Board is therefore proposing a full-year
dividend of 7.35 pence per share.
"Overall, I am confident about our business and its prospects,
which are supported by strong sector dynamics and investor demand.
Throughout the pandemic, we have been able to adapt to the changing
circumstances and this, together with our strong pipeline of future
developments and increasing focus on our ESG agenda, will allow the
Group to continue to deliver for its stakeholders.
"I would like to take this opportunity to thank all the people
across the Watkin Jones Group for their outstanding contribution in
the most challenging of times. I want to thank them all for their
hard work and their willingness to innovate, overcome problems and
adapt to new ways of working which has set the foundations for our
future growth."
Business Highlights
Further good progress with delivering our strategy.
Build to rent development - good progress with developments for
delivery in FY21 and strong growth in pipeline
-- Exciting progress with BtR strategy, delivering 159--unit
scheme in Bournemouth and making good progress on site with
developments at Reading, Wembley, Sutton and Stratford, which are
all on track for completion in FY21.
-- Secured four significant new sites in Birmingham, Bath,
Glasgow and Lewisham, London and, subsequent to the year end, a
site in Belfast.
-- 928 apartments across five sites forward sold for delivery
over the period to FY22. Further three sites (722 apartments)
currently in negotiation for sale for delivery over the period FY22
to FY23.
-- Planning obtained for 538 BtR apartments on schemes in
Brighton and Hove and Lewisham, London.
-- Total secured development pipeline of 4,466 apartments across
13 sites, for delivery between FY21 and FY25.
BtR apartments
-----------------------------------------------
Total FY21 FY22 FY23 FY24 FY25
pipeline
----------------------------------- ---------- ----- ----- ----- ------ ------
Forward sold 928 857 71 - - -
Forward sales in negotiation 722 - 184 538 - -
Sites secured with planning - - - - - -
Sites secured subject to planning 2,816 - - - 1,117 1,699
----------------------------------- ---------- ----- ----- ----- ------ ------
Total secured 4,466 857 255 538 1,117 1,699
Site acquisitions in legals 247 - - - 247 -
----------------------------------- ---------- ----- ----- ----- ------ ------
Total BtR pipeline 4,713 857 255 538 1,364 1,699
----------------------------------- ---------- ----- ----- ----- ------ ------
Student accommodation development - completed FY20 schemes and
those for FY21 on track, pipeline increased
-- Resilient operational performance, with 2,609 beds delivered.
Six developments were completed ahead of the academic year despite
lockdown restrictions and one scheme subsequent to the year
end.
-- 2,730 beds across six sites forward sold for delivery in
FY21, with a further development (462 beds) in negotiation for
forward sale.
-- 1,168 beds across four sites forward sold for delivery in
FY22, including sites in Bristol, York and Leicester forward sold
subsequent to the year end.
-- Added prime sites to the pipeline in Bristol, Bath, Edinburgh, Guildford and Manchester.
-- Obtained planning for 1,217 PBSA beds across five sites,
including an additional 100 beds at Kelaty House, Wembley.
-- Signed an on-campus partnership agreement with Cranfield
University for delivery in FY21 (415 beds) and FY22 (198 beds).
-- Total secured development pipeline of 7,910 student beds
across 20 sites, for delivery between FY21 and FY24.
PBSA beds
------------------------------------------------
Total FY21 FY22 FY23 FY24 FY25
pipeline
----------------------------------- ---------- ------ ------ ------ ----- -----
Forward sold 3,898 2,730 1,168 - - -
Forward sales in negotiation 714 462 - 252 - -
Sites secured with planning 1,117 - 777 340 - -
Sites secured subject to planning 2,181 - - 1,846 335 -
----------------------------------- ---------- ------ ------ ------ ----- -----
Total secured 7,910 3,192 1,945 2,438 335 -
Site acquisitions in legals 1,998 - - 662 570 766
----------------------------------- ---------- ------ ------ ------ ----- -----
Total PBSA pipeline 9,908 3,192 1,945 3,100 905 766
----------------------------------- ---------- ------ ------ ------ ----- -----
Accommodation management (Fresh) - strong operational
performance in the face of the pandemic
-- Fresh continued to perform well during the pandemic, as we
focused on supporting student and tenant welfare.
-- At 30 September 2020, Fresh managed 20,179 student beds and
BtR apartments across 66 schemes (30 September 2019: 17,721 beds
and apartments, across 64 schemes).
-- Nine new PBSA schemes (3,593 beds) mobilised in the year,
ready for occupation and management from the start of the 2020/21
academic year.
-- Won mandates during the year for the future management of 1,414 PBSA beds.
-- Currently appointed to manage 21,790 student beds and BtR
apartments by FY23, including expected renewals.
-- Began to implement new management system for both BtR and
student accommodation, for roll out in FY21.
-- Achieved COVID-secure accreditation for the properties Fresh
manages and provided significant support to student and residential
tenants throughout the pandemic.
Residential - solid performance and exploring opportunities to
develop a presence in affordable housing
-- Good performance against backdrop of COVID-19 pandemic, with
95 sales completions (FY19: 150 completions), including 25
apartments in our developments at Stratford and Bath.
-- Completed the 35-apartment development at Trafford Street,
Chester, which was forward sold in FY19.
-- Strong pick up in sales in the summer months following the
lifting of the initial COVID-19 lockdown measures and introduction
of temporary stamp duty relief, with 25 sales reserved or exchanged
going into FY21.
-- Commenced development of a site for 97 homes in Preston, including 34 affordable homes.
-- Pilot testing opportunity to combine our residential delivery
capability with our proven residential for rent development model
in the affordable housing sector.
-- Secured, subsequent to the year end, our first affordable
homes site for 245 homes in Crewe, with an offer progressing for
the forward sale of 159 affordable and BtR homes.
Notes
1. IFRS 16 'Leases' was applicable to the Group for the first
time for FY20. The Group has adopted the fully retrospective
approach in applying the standard, recognising its material impact
on the Group's results and statement of financial position. The
comparative results for FY19 have therefore been restated according
to the transition arrangements set out in the standard. Further
details on the nature of the changes to the Group's accounting
required by this standard, as well as its main impacts and the
adjustments made to restate the comparative figures, are detailed
in the financial review below and in note 4 to the financial
statements.
2. Adjusted operating profit, adjusted profit before tax and
adjusted basic earnings per share are calculated before the impact
of exceptional charges of GBP20.5 million (FY19: exceptional charge
of GBP2.6 million).
3. Adjusted net cash is stated after deducting loans, but before
deducting IFRS 16 operating lease liabilities of GBP134.4 million
at 30 September 2020 (30 September 2019: GBP137.5 million).
Analyst meeting
A meeting for analysts will be held virtually at 09.30am today,
19 January 2021. A copy of the Final Results presentation is
available at the Group's website: http://www.watkinjonesplc.com
An audio webcast of the conference call with analysts will be
available after 12pm today:
https://webcasting.buchanan.uk.com/broadcast/5fda032ac26cbe3059348df4
Chairman's statement
This has been a difficult year for everyone, but Watkin Jones
has proved its ability to adapt and respond to the most challenging
of times.
The resilience of our business was soundly tested this year by
the COVID-19 pandemic and I am pleased to say that we have emerged
in good shape. This is testament to our strong executive
leadership, our ability to adapt our operations quickly and
effectively, and the support of our people, supply chain,
shareholders and institutional clients.
Performance
Our operations have performed well through the pandemic and we
delivered solid financial results, proving the robustness of our
business.
Since the onset of the pandemic, protecting the health and
wellbeing of our people, tenants and supply chain partners has been
our absolute priority. While Government advice did not require us
to close our development sites, we did so from 23 March 2020 until
we were sure we could operate them safely. Introducing new working
practices on our sites enabled us to deliver six of our seven
student schemes ahead of the start of the academic year. For the
seventh development, in Walthamstow, we agreed a staged handover
with the client, with final completion early in FY21. However, we
did incur some extra costs as a result of the disruption to our
operations and measures taken to accelerate works, as well as some
late delivery damages in relation to Walthamstow.
Build to rent again made a material contribution to our
performance, as we completed one development and made further
progress with the other schemes on site. The residential business
had a good recovery in sales following the easing of the initial
"lockdown" and Fresh continued to perform well, while successfully
adapting to operating in a COVID-secure environment.
While the Group is soundly financed and has good liquidity, in a
highly uncertain environment at the beginning of the pandemic, we
considered it prudent to implement comprehensive cash conservation
measures. At the year end, we had a net cash balance of GBP94.8
million and headroom within our debt facilities of a further
GBP75.0 million, giving us confidence in our financial
position.
Dividends
On 1 April 2020, we announced the temporary suspension of
dividend payments. The Board did not therefore declare an interim
dividend in FY20. However, in light of the Group's performance and
our strong cash position, we have resumed our previous dividend
policy of paying a dividend 2.0x covered by adjusted earnings. The
Board is therefore proposing a full-year dividend of 7.35 pence per
share, which will be paid on 26 February 2021 to shareholders on
the register on 29 January 2021.
Board, management and people
I have been hugely impressed by the way our people, throughout
the business, have responded to the challenges of COVID-19. Their
flexibility, expertise and commitment enabled us to react
effectively and in a way that reflects our culture, and I thank
them all on the Board's behalf.
The Board has always focused carefully on the Group's culture
and how the decisions we make could affect it. As one example, at
our quarterly reviews of health and safety performance we always
ensure that the health and safety team feels it has the support it
needs to make the right decisions and to prioritise protecting
people above all else. This in turn helps to reinforce a culture
where our people feel valued and respected, and are incentivised to
perform.
The Group has strong executive leadership and we have seen the
benefits of that this year. One of the Board's responsibilities is
to ensure that we have the breadth and depth of leadership we will
need in the future, so we can meet our growth objectives. The Board
therefore spent time during the year reviewing talent across the
Group and considering succession planning. This exercise
demonstrated the great strides we have taken with building our
leadership pipeline in the last twelve months.
There were no changes to the composition of the Board or its
committees during the year. The Directors continue to work well
together and we significantly stepped up our formal and informal
interactions this year, as we oversaw and supported the Group's
response to the pandemic.
Governance
We have continued to evolve and reinforce our corporate
governance framework so it remains fit for purpose as the Group
grows. One example is the formal and rigorous review of our
strategy during the year, supported by an external facilitator. Our
discussions considered how we can make a difference in our markets,
how we should be structured to best take advantage of the
opportunities we see, and the associated risks we face. Since the
end of the year, this work has enabled us to approve a new strategy
to evolve the residential business into an affordable housing-led
developer, under a capital-light partnership model. We intend to
carefully trial the new model, through a pilot in the North West.
The Board also put considerable focus on risk management during the
year, ensuring we have a real understanding of the risks facing the
business and the barriers we have in place to limit their potential
impact, as well as the costs and consequences of getting it
wrong.
As part of our ongoing enhancements to governance, we recruited
our first in-house Company Secretary, who will join us in 2021. I
want to thank Prism for their excellent support to our company
secretarial function.
Environmental, social and governance ("ESG") initiatives are
firmly on the Board's agenda, reflecting both the importance of
these matters to our stakeholders and their potential to influence
the Group's long-term success. The Executive team has worked hard
to develop and refine our approach this year. Our decision to be
proactive about undertaking remedial cladding works, despite not
being legally required to do so, is one example of our
determination to do what is right.
Looking forward
We remain in highly uncertain times, both in terms of the
progress of the pandemic and its economic impact. Even so, we are
confident in the underlying strength of the UK's higher education
sector, in the growing demand for more build to rent properties,
and in our ability to adapt to changing circumstances, which will
enable us to continue to deliver for our stakeholders.
Grenville Turner
Non--Executive Chairman
19 January 2021
Chief Executive Officer's review
This was an exceptionally challenging year, but one which fully
demonstrated the quality of the business and its people.
Performance
Despite the inevitable disruption from COVID-19 in the second
half of the year, we built on our strong first half and delivered a
robust financial performance for FY20 as a whole. We also made
further strategic progress as the UK's leading developer and
manager of residential for rent.
This outcome reflects the outstanding contribution from our
people across the Group. I want to thank them all for their hard
work and their willingness to innovate, overcome problems and adapt
to new ways of working. It also demonstrates the highly defensive
nature of residential for rent as an asset class, and the support
of our clients, customers, supply chain partners and communities,
which we truly appreciate.
Revenue was GBP354.1 million (FY19: GBP374.8 million), a
reduction of 5.5%, which was primarily due to the delay in some
anticipated forward sales in the second half of the year.
Gross profit was GBP75.9 million (FY19: GBP80.0 million), while
operating profit was GBP51.7 million (FY19: GBP55.6 million) before
exceptional charges of GBP20.5 million (FY19: GBP2.6 million). The
exceptional charges mainly relate to the anticipated cost of
remediating cladding on past developments, as well as additional
costs and impairment charges incurred as a result of the pandemic.
The pre-exceptional operating margin was 14.6% (FY19: 14.8%).
While the business is soundly financed and has substantial
headroom in its banking facilities, we prudently took the early
decision that we should conserve cash during the pandemic. This
helped us to achieve a strong closing cash balance of GBP134.5
million (FY19: GBP115.7 million).
Our rapid response to COVID--19 enabled us to meet the revised
delivery schedule for student accommodation we set out at the
half--year. This strong operational performance contributed to
revenue in the year of GBP226.0 million for our student
accommodation division, compared with GBP246.1 million in FY19. In
total, we delivered 2,609 beds across seven schemes.
For FY21, we have seven schemes with 3,192 beds scheduled for
delivery. Of this, six schemes with 2,730 beds have been forward
sold, with the remaining scheme in negotiation for sale.
Build to rent development again made a significant contribution
to our performance, with revenue of GBP94.0 million (FY19: GBP77.4
million). We made good progress with the developments in Reading,
Wembley, Sutton and Stratford, which are all moving forward as
planned for completion in FY21. We also completed our development
in Bournemouth in the year, albeit later than planned due to some
issues with on site management and the installation of the cladding
system, compounded by the onset of the pandemic.
We have continued to add attractive sites to the pipeline for
both BtR and PBSA developments, supporting our growth ambitions in
the residential for rent market. We secured nine sites during the
second half of the year and a further four sites after our year
end, three of which were under forward sales agreements.
Fresh delivered another solid performance, with revenue of
GBP7.6 million (FY19: GBP7.5 million). Nine new PBSA schemes (3,595
beds) were mobilised in the year, ready for occupation and
management from the start of the 2020/21 academic year. At the end
of the year, the division had a total of 20,179 student beds and
BtR apartments under management across 66 schemes, up from 17,721
units across 64 schemes at the start of the year. Fresh won
mandates during the year for the future management of 1,414 PBSA
beds and, by FY23, Fresh is currently appointed to manage 21,790
student beds and apartments, including expected renewals.
The residential development business achieved revenues of
GBP26.3 million (FY19: GBP34.3 million), with a strong pick up in
sales following the lifting of the initial COVID-19 "lockdown"
measures and introduction of the temporary stamp duty relief.
Strategy
We continue to successfully implement the growth strategy we set
out last year. BtR development will be the biggest contributor to
growth in the coming years, and we expect it to make a comparable
contribution to revenues as PBSA by FY23, based on our current
pipeline. We have also identified an opportunity for a closely
aligned residential development business, which combines affordable
housing with our BtR and residential for sale offers.
Streamlining and investing in our operations is a key pillar of
our strategy, helping us to deliver better outcomes for clients and
customers while improving our own efficiency. We continued to
implement the restructuring I outlined in my report last year, in
particular combining three regional student accommodation delivery
divisions into one. The development side of the business is now
organised around cross--functional hubs, responsible for delivering
both PBSA and BtR developments, which supports our ability to
leverage our PBSA expertise into the BtR market.
We have created a strategic framework for managing ESG
initiatives. I see being a responsible company as a business
imperative. One of the key attractions for us of the affordable
housing market is the opportunity to help meet a pressing social
need that will make a real difference to people's lives.
ESG performance
Health and safety is vitally important to us, in terms of
protecting the people and subcontractors who work for us and in
ensuring that residents have a safe place to live. This ethos
underpinned our careful response to COVID-19 and our decision to
remediate cladding on properties we had previously developed,
despite having no legal liability to do so.
I am pleased to say that we have continued to improve day-to-day
health and safety performance within the business this year. Our
incident rate, which is the number of incidents recorded per
100,000 employees, was 128 (FY19: 152), which compares with 2,420
for the wider industry (source: HSE).
Other examples of our commitment to ESG include our decision to
ensure that everyone who was furloughed during the early stages of
the pandemic would continue to receive 80% of their pay, rather
than just the amount covered by Government assistance. In addition,
we took the decision that the executive team and the Directors
would take a 20% pay cut during the period we received furlough
money from the Government. We subsequently repaid the financial
assistance we had received once we were certain the business was in
sound shape. We appreciate that this affected our profits but we
believe that a highly ethical approach to business is best for our
clients, investors and society, and is therefore best for
shareholders.
I am a firm believer in the importance of culture to long-term
business success. The reorganisation of the development and
delivery divisions has helped to flatten our structure, empowering
our people and making communication and engagement easier and more
effective. This structure also gives more transparency about career
opportunities, so our people can better see where they can take
their careers in Watkin Jones. The introduction of agile working
also supports our culture, by allowing our people to make their own
decisions about how and where they work most effectively, while
aiding collaboration. This will help us to attract and retain
people who will thrive in such an environment, while also allowing
us to reap the benefits of a more diverse workforce.
We also continue to work hard to minimise our environmental
impact and to ensure we engage effectively with all of our
stakeholders.
Brexit
As I reported last year, we did a significant amount of work in
preparing for a range of possible Brexit outcomes. We are pleased
to see the agreement of a trade deal with the EU. This will further
help ensure our supply chain continuity and we do not believe
Brexit will affect the timely delivery of our development
schemes.
Outlook
Institutional forward sale markets started to recover in the
final quarter of FY20 and this has enabled us to complete three
forward sales of PBSA developments since the year end. These
schemes are in Bristol, York and Leicester and total 909 beds for
delivery in FY22.
The COVID-related delays to our development cycle will take time
to unwind. However, the resumption of forward sales, the increase
in the number of student beds for delivery in FY21 and the
scheduled completion of four BtR developments should see us return
to growth in the coming year, assuming we do not see further
significant disruption to our activities from COVID-19. While the
new lockdown in January 2021 requires us to continue supporting our
employees and customers, we have safe operating procedures in place
to continue our on site developments, and we are closely monitoring
the situation.
Our work this year to add attractive new development sites to
the pipeline also underpins the visibility of our revenue and
earnings in future years. We will continue to secure new sites in
the coming months, while being careful to protect our
liquidity.
In summary, I am fundamentally optimistic about our business,
the dynamics of the sectors we operate in and the strength of
investor demand for our product.
Richard Simpson
Chief Executive Officer
19 January 2021
Operating review
Build to rent
BtR is an important and growing contributor to the Group's
financial performance. Revenues in the year were GBP94.0 million,
up 21.4% from GBP77.4 million in FY19. This revenue performance
reflected the completion in the year of the 159-apartment scheme in
Bournemouth, and good progress on site with the forward sold
developments in Reading, Wembley, Sutton and Stratford which are
due for delivery in FY21. Despite temporary disruption on site
resulting from COVID-19, construction is proceeding to plan for all
four schemes. The completion of the development in Bournemouth was
hampered by on-site management issues and problems with the
cladding system, which were further compounded by the initial
COVID-19 disruption.
Gross profit for the year was GBP14.9 million (FY19: GBP13.8
million), at a margin of 15.8% (FY19: 17.8%). The margin achieved
in the year is consistent with our guidance of an average 15%
margin for BtR developments in the medium term. The margin in FY19
benefited from a strong contribution from the Reading scheme, which
was the main contributor to BtR revenues in that year.
There were no new forward sales in the year, due to a slowdown
in institutional client investment activity caused by the COVID-19
related uncertainty. The forward sale market began to recover
towards the end of the year and we are currently negotiating on the
sale of three developments (722 apartments).
The Group secured four significant new development sites during
the year, three of which are subject to planning. These sites are
in Birmingham (550 apartments), Bath (343 apartments), Glasgow (779
apartments) and Lewisham, London (322 apartments). Subsequent to
the year end a further site was secured subject to planning in
Belfast (778 apartments).
We also obtained planning permission for 538 BtR apartments at
sites in Brighton and Hove (216 apartments) and Lewisham, London
(322 apartments) for delivery in FY23.
The current BtR development pipeline is as shown in the table
below:
BtR apartments
-----------------------------------------------
Total FY21 FY22 FY23 FY24 FY25
pipeline
----------------------------------- ---------- ----- ----- ----- ------ ------
Forward sold 928 857 71 - - -
Forward sales in negotiation 722 - 184 538 - -
Sites secured with planning - - - - - -
Sites secured subject to planning 2,816 - - - 1,117 1,699
----------------------------------- ---------- ----- ----- ----- ------ ------
Total secured 4,466 857 255 538 1,117 1,699
Site acquisitions in legals 247 - - - 247 -
----------------------------------- ---------- ----- ----- ----- ------ ------
Total BtR pipeline 4,713 857 255 538 1,364 1,699
----------------------------------- ---------- ----- ----- ----- ------ ------
The appraised future revenue value to the Group of the above
secured development pipeline is c.GBP900.0 million, of which
c.GBP90.0 million is currently forward sold.
Student accommodation
Revenues from student accommodation development were GBP226.0
million (FY19: GBP246.1 million), a decline of 8.2%. The reduction
in revenue was primarily due to a delay in the anticipated forward
sale of a scheme which is currently in build in Leicester, for
delivery in FY21, and in the forward sale of several other new
developments, as the COVID-19 pandemic caused a hiatus in
institutional clients' investment activity.
The division recorded a robust gross profit of GBP54.3 million
(FY19: GBP54.9 million), despite the disruption caused by the
pandemic. The gross margin of 24.0% was ahead of the 22.3% for
FY19, reflecting the delay to new forward sales of land, which
typically attract a lower margin than we achieve on the subsequent
works carried out under the development agreement.
We closed all our development sites on 23 March 2020, as we
assessed our response to the pandemic and introduced COVID-secure
working practices, with close to full working capacity achieved
again by the end of May. By carefully reprogramming our
developments, including appropriate scenario planning, and
introducing extended working hours and rotating shift patterns
where required, we were able to complete six schemes with 2,256
beds that were due for delivery ahead of the new academic year.
For the seventh scheme due in FY20, a 353-bed development in
Walthamstow, we agreed a phased delivery with the client, with two
of the three blocks handed over for the 2020/21 academic year and
the third block completed approximately three months later. While
we incurred some damages as a result of the late completion, our
close working relationship with the client and the efforts we made
to recover the delay caused by the COVID-19 disruption and to
complete as quickly as possible, enabled us to negotiate an
improved position.
The cost of the damages is included in the exceptional COVID--19
cost to the business. In addition, the business incurred
exceptional costs relating to the waiver of 2020/21 final term
rents due from students who were tenants of the Group's leased
student accommodation properties and were unable to return to their
accommodation as a result of the first lockdown and due to a
further impairment to the carrying value of one of the leased
properties, which was already impaired, as a result of lower
occupancy due to the pandemic. More information on exceptional
items is included in the financial review below.
We forward sold one PBSA development in the year, the 348-bed
scheme at Wilder Street, Bristol, for delivery in FY21. This
follows an option agreement announced in October 2018, which was
conditional on full planning consent being achieved. The
consideration payable to us for Wilder Street is c.GBP33.8 million,
net of all client funding and acquisition costs, and is payable
over FY20 and FY21 as the development works progress.
We also obtained planning for and completed an agreement with
DWS to add a further 100 beds to the scheme at Kelaty House in
Wembley, for delivery in FY21.
In April, we signed an on-campus partnership agreement with
Cranfield University to develop 415 beds for delivery in FY21 and a
further 198 beds for FY22. The development value to us is GBP48.0
million, payable over the period FY20 to FY22. The agreement also
contains an option for a second phase of 252 beds. This is a
significant addition to our PBSA development pipeline and paves the
way for similar university partnerships.
The Group secured a further six PBSA development sites in the
year, four of which are subject to planning. These comprised two
sites in Edinburgh (644 beds) and sites in Bath (335 beds), Bristol
(387 beds), Guildford (375 beds) and Manchester (419 beds).
After our year end we entered into forward sales agreements for
three new development sites, for which the clients concerned
acquired the land directly. These were in Bristol (291 beds), York
(368 beds) and Leicester (250 beds), all for delivery in FY22 and
with a total forward sold development value of GBP65.2 million.
The Group obtained planning for 1,217 beds, comprising the
additional 100 beds for the Wembley site, 984 beds for sites in
Edinburgh and 133 beds in Exeter.
The current PBSA development pipeline is as shown in the table
below:
PBSA beds
------------------------------------------------
Total FY21 FY22 FY23 FY24 FY25
pipeline
----------------------------------- ---------- ------ ------ ------ ----- -----
Forward sold 3,898 2,730 1,168 - - -
Forward sales in negotiation 714 462 - 252 - -
Sites secured with planning 1,117 - 777 340 - -
Sites secured subject to planning 2,181 - - 1,846 335 -
----------------------------------- ---------- ------ ------ ------ ----- -----
Total secured 7,910 3,192 1,945 2,438 335 -
Site acquisitions in legals 1,998 - - 662 570 766
----------------------------------- ---------- ------ ------ ------ ----- -----
Total PBSA pipeline 9,908 3,192 1,945 3,100 905 766
----------------------------------- ---------- ------ ------ ------ ----- -----
The appraised future revenue value to the Group of the above
secured development pipeline is c.GBP600.0 million, of which
c.GBP215.0 million is currently forward sold.
Accommodation management (Fresh)
Fresh generated revenues of GBP7.6 million, broadly in line with
the GBP7.5 million recorded in FY19. Gross profit was GBP4.5
million (FY19: GBP4.6 million), reflecting a margin of 59.8% (FY19:
61.5%). The stable revenue position reflects the fact that Fresh's
revenues largely derive from fixed management fees, but with a
modest level of variable income based on the level of occupancy
revenues achieved. The disruption to student lettings in the final
term of the 2020/21 academic year resulted in a small reduction in
expected fee income and consequential decrease in the gross margin
relative to FY19. The gross margin was, however, in line with our
normal target of 60.0%.
At the start of the financial year, Fresh had 17,721 student
beds and BtR apartments under management, across 64 schemes. This
compared with 15,421 units across 56 schemes a year earlier.
Fresh continued to perform well, mobilising nine new PBSA
schemes in the year (3,593 beds) and winning mandates for the
future management of 1,414 PBSA beds. At the end of the financial
year, Fresh had 20,179 PBSA beds and BtR apartments under
management across 66 schemes, and is currently appointed to manage
21,790 beds and apartments by FY23, including expected renewals.
Fresh is now the fourth largest operator of student beds in the UK
(source: CBRE), up from sixth in 2019, and it remains the largest
third-party operator.
Ensuring customers were living in a COVID--secure environment
was a key focus for the business from March, with occupancy levels
in student accommodation remaining relatively high during lockdown.
Around 60% of students were still in residence at the start of
lockdown, with more than one third of beds still occupied in June.
This required Fresh to develop new ways of working, so customers
could continue to receive essential services and support during the
pandemic. In September 2020, the Group was awarded COVID-secure
accreditation by the British Safety Council, reflecting the
rigorous approach adopted by Fresh and the Group's other divisions.
The latest lockdown measures will impact students who had planned
to return to their accommodation for the start of the 2020/21
spring term. We will continue to respond to the situation as it
evolves and to provide them with the necessary support.
At the start of FY20, Fresh launched its Be wellbeing and
lifestyle programme, which puts residents at the heart by creating
communities that thrive and care for each other, where our
residents feel welcomed and connected, and can enjoy a range of
tailored activities, events and support.
Adapting the Be programme during the pandemic to provide on line
communities, support activities and advice has enabled residents to
remain connected and feel supported during this difficult
period.
The business continues to invest in its infrastructure systems,
to support service delivery to both residents and to clients.
The implementation of our new single management platform Yardi
is progressing well and will launch in 2021. This will result in a
seamless customer journey for residents from the point of initial
booking through the whole length of their tenancy. Live data via
our new app will enable residents to manage all aspects of their
tenancy, as well as connect with our on site teams and their
neighbours in a way that is convenient for them.
Yardi will give Fresh a best-in-class control framework and the
ability to provide dynamic reporting to clients.
Fresh is also moving to a single consumer brand. The
consolidation of the Fresh Student Living and Five Nine Living
brands under the new single Fresh brand will be complete in early
FY21 and will communicate a clear customer proposition that is
relevant to the broader residential for rent market, while also
enabling the targeting of specific audiences with relevant
messaging and creative concepts.
Residential
The residential business delivered revenues of GBP26.3 million
in FY20, down from GBP34.3 million in FY19. Overall, the division
achieved 95 sales in the year, compared to 150 in FY19. Revenues in
the prior year were helped by strong sales from the apartment
development at Duncan House, Stratford. Sales in FY20 were
inevitably impacted by the initial COVID-19 lockdown in the
critical spring period and by the temporary suspension in site
build. We did, however, see a good pick up in sales in the summer
months, following the easing of the initial lockdown and
introduction of the temporary stamp duty relief, and the division
entered FY21 with 25 sales exchanged or reserved.
Important contributions to revenue in the year came from:
-- a solid performance from the division's operations in the
North West, and in particular the development at Macclesfield;
-- further sales of apartments at the Duncan House, Stratford,
and Riverview Court, Bath developments; and
-- the completion of the 35-apartment development at Trafford
Street, Chester, which was forward sold in the previous financial
year.
Gross profit for the year was GBP4.0 million (FY19: GBP7.2
million), representing a margin of 15.4% (FY19: 20.9%). The lower
margin reflects the mix of revenues this year, and in particular
the contribution in the prior year from the high--margin sales of
apartments at Duncan House, Stratford.
We acquired and commenced a development site for 97 homes in
Preston during the year and commenced development of a site for 29
homes in Bontnewydd, North Wales.
Alongside the demand for private housing to buy, there is also a
significant need for more affordable housing. Affordable housing is
increasingly delivered as part of mixed -- tenure schemes, which
incorporate an element of BtR and private housing for sale. This
enables the delivery of a meaningful number of affordable units,
while the inclusion of the other tenures makes the scheme more
economically viable. We see an opportunity to pivot our residential
housing division to become part of a new business stream, led by
affordable housing. If our North West trial of this model is
successful, it has the potential to deliver important social
benefits through the provision of much-needed affordable homes.
Subsequent to the year end, we secured our first site under the
affordable homes pilot strategy. This site, for 245 units in Crewe,
has planning and is targeted to deliver 90 affordable, 69 BtR and
84 private for sale homes, and should start to contribute to
revenues from the end of FY21. Offers for the forward sale of the
affordable and BtR homes have been received and are progressing
into legals.
With the addition of the above site the future pipeline stands
at c.745 homes and apartments.
Financial Review
The Group remains well capitalised, with significant liquidity
and substantial headroom within its banking facilities, supporting
future growth.
Highlights
FY20 FY19
GBPm GBPm Change
----------------------------------------------------- ------- ------- -------
Revenue 354.1 374.8 -5.5%
Gross profit 75.9 80.0 -5.1%
Administrative expenses (24.2) (24.4) -0.7%
----------------------------------------------------- ------- ------- -------
Operating profit before exceptional items 51.7 55.6 -7.1%
Exceptional costs (20.5) (2.6)
----------------------------------------------------- ------- ------- -------
Operating profit 31.2 53.0 -41.1%
Share of profit in joint ventures 0.2 0.3
Net finance costs (6.1) (5.4)
----------------------------------------------------- ------- ------- -------
Profit before tax from continuing operations 25.3 47.9 -47.1%
Income tax expense (4.2) (9.1)
----------------------------------------------------- ------- ------- -------
Profit for the year 21.1 38.8 -45.7%
----------------------------------------------------- ------- ------- -------
Basic earnings per share from continuing operations 8.2p 15.2p -45.8%
Adjusted basic earnings per share 14.7p 16.1p -8.7%
Dividend per share 7.35p 8.35p -12.0%
----------------------------------------------------- ------- ------- -------
Comparative figures for FY19 have been restated as necessary for
the adoption of IFRS 16 - Leases, as described later in this
section.
Revenue
Revenue was GBP354.1 million, down 5.5% from GBP374.8 million in
FY19. The reduction was primarily the result of delays to forward
sales of developments as a result of COVID-19, which slowed
institutional clients' activity during the second half of the year,
as well as lower residential sales.
Revenues from student accommodation development were GBP226.0
million (FY19: GBP246.1 million). The reduction in the year was
mainly due to a delay in the forward sale of our scheme in
Leicester, which is currently in build for delivery in FY21, as
well as delays in the forward sale of other new developments.
BtR development revenues increased 21.4% in the year to GBP94.0
million (FY19: GBP77.4 million), reflecting the completion of the
development in Bournemouth and continued progress with the schemes
in build at Reading, Wembley, Sutton and Stratford. BtR revenues
were, however, also impacted by the delay in the forward sale of
new developments.
Accommodation management revenues earned by Fresh were GBP7.6
million, against GBP7.5 million in FY19. Despite the disruption to
student occupancy in the second half of FY20 as a result of the
pandemic, the consistent revenue performance reflects the fixed
management fee income earned by Fresh, with only a modest level of
fees being variable based on the level of occupancy revenues
achieved. The latter did, however, suppress Fresh's revenues when
considering that the number of student beds and apartments under
management at the start of FY20 (17,721) was 14.9% higher than at
the start of FY19 (15,421).
The residential business delivered revenues of GBP26.3 million,
compared to GBP34.3 million for FY19. The division experienced a
good recovery in sales following the relaxation of the initial
COVID-19 lockdown measures and introduction of the temporary stamp
duty relief, but its revenue performance was inevitably impacted by
the disruption to its important spring selling period and by the
temporary closure to its sites, which delayed the build completion
of some homes into FY21.
There were no significant revenues in the year generated by
developing commercial property alongside PBSA and BtR developments.
This activity produced revenue of GBP9.5 million in the previous
year.
Gross profit
Gross profit was GBP75.9 million (FY19: GBP80.0 million),
reflecting a gross margin consistent with last year of 21.4% (FY19:
21.4%). Whilst we had a shift in the revenue mix towards BtR, which
is at a lower margin than PBSA, the maintained gross margin was
primarily attributable to a stronger margin achieved in the year on
our student accommodation development activities.
The gross profit from our PBSA development activities was
GBP54.3 million (FY19: GBP54.9 million) at a margin of 24.0% (FY19:
22.3%). The improvement in the margin reflects the absence of new
forward land sales in the second half of the year, which would
otherwise have added to revenues but would have reduced the gross
margin. We typically earn a low or nil margin on the land sale
element of new forward sales, which under IFRS 15 'Revenue from
Contracts with Customers' is accounted for separately from the
revenues due under the agreement to carry out the development
works. This means that we typically earn a lower margin in the year
in which the land sale occurs, followed by higher margins in the
following years as the development works are undertaken.
BtR development generated a gross profit of GBP14.9 million
(FY19: GBP13.8 million), resulting in a gross margin of 15.8%
(FY19: 17.8%). The margin achieved in the year was broadly in line
with our expectation of generating a 15% margin from our BtR
development activities in the medium term, with the slight
improvement reflecting the absence of anticipated new forward land
sales in the second half of the year, which as noted for PBSA
above, are typically at low or nil margin. The gross margin in FY19
benefited from a strong contribution from the development at
Reading, which accounted for a higher proportion of BtR revenues in
that year.
Fresh continued to generate a highly attractive level of
profitability, with gross profit of GBP4.5 million (FY19: GBP4.6
million) equating to a gross margin of 59.8% (FY19: 61.5%). The
slight drop in margin reflects the impact of the modest reduction
in variable fee income as a result of the disruption to student
occupancy in the second half of the year.
Gross profit for the residential business was GBP4.0 million,
versus GBP7.2 million in FY19. The reduction in the gross margin
from 20.9% in FY19 to 15.4% in FY20 was primarily due to a change
in mix, with the prior year benefiting from higher margin sales
from developments completed in that year.
Administrative expenses
Administrative expenses were GBP24.2 million in FY20, a slight
reduction on the GBP24.4 million for FY19. As a result of COVID-19,
we took precautionary measures to reduce spend across a number of
areas, for example suspending the 1 April pay review, reducing the
salaries for the Executive Committee and the fees for the
Non--Executive Directors by 20% during the period April - June 2020
and cutting back on discretionary expenditure, including on
consultancy costs. The Group's profit performance this year also
resulted in a reduction in the cost of the bonus accrual of
c.GBP1.3 million. These cost reductions offset increases in our
headcount in the year, with the average number of management and
administrative personnel increasing by seven to 116, inflationary
cost increases and higher insurance costs as a result of a more
challenging insurance market.
Operating profit before exceptional items
Operating profit before exceptional items was GBP51.7 million
(FY19: GBP55.6 million). The operating margin was 14.6% (FY19:
14.8%), reflecting the maintained gross margin and holding of
administrative expenses.
Exceptional items
The Group incurred a number of exceptional costs during the
year, totalling GBP20.5 million (FY19: GBP2.6 million). The largest
component was a provision of GBP14.8 million in respect of remedial
works relating to cladding. Of this, GBP4.9 million was utilised in
the year, with the remainder expected to be incurred over the next
two financial years.
In addition, we incurred exceptional charges totalling GBP5.7
million as a result of the COVID-19 pandemic:
-- GBP2.7 million relating to the additional direct costs
incurred on site as a result of additional health and safety
measures and the implementation of accelerated working practices,
to make up for construction delays caused by COVID-19, as well as
the cost of damages arising from the late completion of the
Walthamstow PBSA scheme;
-- GBP1.1 million for waiving the final 2019/20 rent instalments
for students living in the Group's leased student accommodation
assets, who left their accommodation prior to 23 March 2020 and
were unable to return; and
-- GBP1.9 million in respect of an impairment to one of the
student accommodation leased investment property assets, as a
result of the reduction in student occupancy for the 2020/21
academic year due to the pandemic.
Exceptional costs in FY19 totalled GBP2.6 million. This related
to the cost of compensating our CEO, Richard Simpson, for
forfeiting outstanding incentives he held in respect of his former
employer.
Share of profit in joint ventures
The Group's share of profit in joint ventures was GBP0.2 million
(FY19: GBP0.3 million). These relate to the balance of profits
arising in relation to PBSA developments completed in Belfast in
prior years.
Finance costs
Our finance costs are primarily the finance cost of capitalised
leases under IFRS 16. Finance costs also include 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 GBP6.1 million (FY19: GBP5.4 million), of
which GBP5.1 million was in respect of capitalised leases (FY19:
GBP5.2 million).
Profit before tax
Profit before tax for the year amounted to GBP25.3 million
(FY19: GBP47.9 million). Adjusted profit before tax, which excludes
the impact of exceptional items, was GBP45.8 million (FY19: GBP50.4
million).
Taxation
The corporation tax charge was GBP4.2 million (FY19: GBP9.1
million). The effective tax rate of 16.7% (FY19: 18.9%) was less
than the UK corporation tax rate of 19%. The lower tax rate was
primarily due to a prior year tax credit relating to the taxation
of distributions from the Curlew Student Fund, which had already
been taxed at source, and the higher proportionate benefit relative
to the lower profit of specific tax allowances, including land
remediation expenditure.
Earnings per share
Basic earnings per share from continuing operations was 8.2
pence (FY19: 15.2 pence). Adjusted basic earnings per share, which
excludes the impact of the exceptional items discussed above, was
14.7 pence (FY19: 16.1 pence).
Dividends
On 1 April 2020, we announced that we were suspending the
interim dividend, as a result of the economic uncertainty and
disruption caused by COVID-19. However, given the Group's
subsequent operational performance, the strength of our financial
position and the Board's confidence in the outlook, the Board has
proposed a final dividend of 7.35 pence per share. The dividend is
2.0x covered by adjusted earnings, in line with our dividend
policy.
At 30 September 2020, the Company had distributable reserves of
GBP100.8 million available to pay dividends.
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 34.6% to GBP40.9 million (FY19: GBP62.5
million). Adjusted EBITDA, which excludes exceptional items, was
GBP61.3 million (FY19: GBP65.0 million), representing an adjusted
EBITDA margin of 17.3% (FY19: 17.4%).
Statement of financial position
At 30 September 2020, non-current assets amounted to GBP134.7
million (FY19: GBP142.7 million), with the most significant item
being the carrying value of the leased student accommodation
investment properties amounting to GBP104.6 million (FY19: GBP110.2
million), which arises following the adoption of IFRS 16 (see
"Implementation of IFRS 16 'Leases'" below). Right-of-use assets
relating to office and car leases amount to GBP4.8 million (FY19:
GBP5.9 million). The reduction in the balances in the year reflect
the depreciation and impairment charges. Intangible assets relating
to Fresh amounted to GBP13.3 million, reduced by the amortisation
charge of GBP0.6 million in the year, and are supported by the
future cash flows for the business.
Inventory and work in progress was GBP125.7 million, down from
GBP134.2 million at 30 September 2019. The reduction was mainly
attributable to the residential sales in the year, notably from the
apartment developments at Stratford and Bath and the housing
development in Macclesfield, which resulted in a reduction in
residential stock and work in progress of GBP12.3 million. PBSA and
BtR inventory and work in progress was largely unchanged from last
year as we realised cash from the sale of the Liverpool Road,
Chester PBSA development and the forward sale of the Wilder Street,
Bristol land site, but spent similar amounts on the PBSA and BtR
developments in build in Leicester and on the acquisition of a new
BtR site in Glasgow.
Contract assets were GBP41.5 million at the year end (30
September 2019: GBP25.6 million). These contract assets are mainly
the final payment balances which will be received on the completion
in FY21 of the forward sold developments currently in build, of
which GBP30.6 million related to the developments in build in
Reading, Sutton and Wembley.
Trade and other receivables at 30 September 2020 stood at
GBP23.5 million (FY19: GBP13.9 million), with the increase mainly
in respect of certified and retention balances that will be payable
on the developments in build.
Contract liabilities and trade and other payables amounted to
GBP106.3 million at 30 September 2020 (30 September 2019: GBP86.5
million), with the increase of GBP19.8 million due to a higher
value of subcontract and supplier liabilities (GBP72.4 million)
compared to a year ago (GBP50.7 million), reflecting the value of
work performed in the final months of the year on the developments
completed at the end of FY20 and those in build for FY21.
Our corporation tax liability was reduced to GBP0.8 million at
30 September 2020, from GBP7.0 million at 30 September 2019,
reflecting our quarterly payments on account during the year.
The provision for cladding remedial works of GBP9.9 million has
been split between current liabilities (GBP6.3 million) and
non--current liabilities (GBP3.6 million), based on our anticipated
expenditure over the next two years.
Interest-bearing loans and borrowings stood at GBP39.7 million
at 30 September 2020, net of debt arrangement fees of GBP0.9
million, compared to GBP38.8 million at 30 September 2019 (see
"Bank facilities" below).
Implementation of IFRS 16 'Leases'
The Group has applied IFRS 16 'Leases' for the first time in
FY20. This standard affects the Group's six historic student
accommodation sale and leaseback properties, as well as leases for
the rental of office space and motor vehicles. The new standard
creates investment property (leased) assets for the student
accommodation leases, right-of-use assets for the office and motor
vehicle leases and a liability for future lease payments.
We have adopted the fully retrospective approach in applying the
standard, recognising its material impact on the Group's results
and statement of financial position. As noted earlier, the
comparative results for FY19 and the statement of financial
position at 30 September 2019 have therefore been restated
according to the transition arrangements set out in the
standard.
The investment property (leased) assets recognised at 30
September 2020 amount to GBP104.6 million (30 September 2019:
GBP110.2 million), net of impairment charges of GBP5.7 million (30
September 2019: GBP3.5 million). The impairment charge at 30
September 2019 was previously classified as an onerous lease
provision.
The right-of-use assets recognised at 30 September 2020 amount
to GBP4.8 million (30 September 2019: GBP5.9 million).
Corresponding lease liabilities of GBP134.4 million have been
recognised (30 September 2019: GBP137.5 million), of which GBP128.1
million (30 September 2019: GBP131.3 million) is non-current and
reflects the remaining length of the PBSA leases, varying between
six and 32 years. The two leases with the longest remaining terms,
Dunaskin Mill, Glasgow, and New Bridewell, Bristol, which are
profitable, account for GBP75.9 million of the total lease
liabilities.
The difference between the right--of--use assets and lease
liabilities at 30 September 2019 of GBP21.3 million, net of a
deferred tax asset of GBP3.5 million, the reclassification of the
onerous lease provision of GBP3.5 million and previously prepaid
lease rental payments of GBP0.6 million, is reflected in a
reduction in retained earnings of GBP14.9 million at that date.
In our interim financial statements for the six months ended 31
March 2020, the student accommodation leased assets were included
as right-of-use assets. However, the interaction of IAS 40
'Investment property' with IFRS 16 requires that leased assets on
which rental income is received are classified as investment
property. The leased student accommodation assets have therefore
been reclassified as investment property (leased) in accordance
with IAS 40.
The Group's income statements for FY20 and FY19 have been
impacted as follows:
FY20 FY19
----------------------------- -----------------------------
Pre IFRS 16 IFRS 16 Pre IFRS 16 IFRS 16
IFRS 16 Impact Reported IFRS 16 Impact Reported
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
------------------------------------------- -------- -------- --------- -------- -------- ---------
Gross profit 72.5 3.4 75.9 76.8 3.2 80.0
Administrative expenses (24.3) 0.1 (24.2) (24.5) 0.1 (24.4)
Operating profit before exceptional items 48.2 3.5 51.7 52.3 3.3 55.6
Exceptional costs (20.5) - (20.5) (2.6) - (2.6)
------------------------------------------- -------- -------- --------- -------- -------- ---------
Operating profit 27.7 3.5 31.2 49.7 3.3 53.0
Share of profit in joint ventures 0.2 - 0.2 0.3 - 0.3
Net finance charges (1.0) (5.1) (6.1) (0.3) (5.1) (5.4)
------------------------------------------- -------- -------- --------- -------- -------- ---------
Profit before tax 26.9 (1.6) 25.3 49.7 (1.8) 47.9
------------------------------------------- -------- -------- --------- -------- -------- ---------
Adjusted EBITDA 49.9 11.4 61.3 53.9 11.1 65.0
------------------------------------------- -------- -------- --------- -------- -------- ---------
Further details on the nature of the changes to the Group's
accounting required by this standard, as well as its main impacts
and the adjustments made to restate the comparative figures, are
provided in note 4 to the financial statements below.
Cash flows
FY20 FY19(1)
Continuing operations GBPm GBPm
----------------------------------------------------------------------- -------- --------
Operating profit before exceptional items 51.7 55.6
Exceptional items (8.7) (0.4)
Depreciation and amortisation 9.4 9.2
Impairment of leased student accommodation property (non-exceptional) 0.3 0.8
(Increase)/decrease in working capital 2.1 (26.2)
Finance costs paid (6.5) (5.7)
Tax paid (10.0) (9.8)
----------------------------------------------------------------------- -------- --------
Net cash inflow from operating activities 38.3 23.5
Purchase of fixed assets (0.2) (0.3)
Cash flow from joint venture interests 0.8 -
Cash flow from other financial assets - 0.2
Dividends paid (14.3) (20.1)
Payment of lease liabilities (6.1) (5.9)
Payment of hire purchase liabilities (1.0) (1.3)
Cash flow from borrowings 1.4 12.9
----------------------------------------------------------------------- -------- --------
Increase in cash 18.9 9.0
Cash at beginning of year 115.6 106.6
----------------------------------------------------------------------- -------- --------
Cash at end of year 134.5 115.6
Less: borrowings (39.7) (38.8)
----------------------------------------------------------------------- -------- --------
Net cash before deducting lease liabilities 94.8 76.8
Less: lease liabilities (134.4) (137.5)
----------------------------------------------------------------------- -------- --------
Net debt (39.6) (60.7)
----------------------------------------------------------------------- -------- --------
(1.) Restated for the impact of IFRS 16.
In a typical year, the Group's cash balance peaks around the
year end, as we receive the final payments on student accommodation
developments completing ahead of the new academic year.
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. The cash balance at the year end
is therefore important for funding our day-to-day cash requirements
and puts the Group in a strong position when bidding for new sites
to grow the future development pipeline.
The Group's net cash flow from operating activities was GBP38.3
million (FY19: GBP23.5 million), reflecting a strong cash flow from
the Group's trading operations in the year. The cash flow from
operating activities, before deducting the cash cost of exceptional
items, finance costs and tax payments, was GBP63.5 million (FY19:
GBP39.4 million). The working capital balance was relatively
unchanged, decreasing by GBP2.1 million in the year, compared to an
increase of GBP26.2 million in FY19.
Finance costs paid totalled GBP6.5 million (FY19: GBP5.7
million), including GBP5.1 million (FY19: GBP5.2 million), as a
result of the finance charges on the capitalised lease liabilities,
for which the capital repayments amounted to GBP6.1 million (FY19:
GBP5.9 million).
Dividends paid in the year amounted to GBP14.3 million (FY19:
GBP20.1 million) and corporation tax payments totalled GBP10.0
million (FY19: GBP9.8 million).
At the year end, we had a gross cash balance of GBP134.5 million
and loans of GBP39.7 million, resulting in a net cash position of
GBP94.8 million. At 30 September 2019, we had gross cash of
GBP115.6 million, loans of GBP38.8 million and net cash of GBP76.8
million.
Net cash balances are stated before deducting the operating
lease liabilities of GBP134.4 million (30 September 2019: GBP137.5
million), arising as a result of applying IFRS 16. We believe the
net cash balance before deducting operating lease liabilities is a
more relevant measure for the Group. The lease liabilities relate
primarily to several historic student accommodation sale and
leaseback properties, for which the lease rental liabilities are
expected to be substantially covered by the future net student
rental incomes to be received, in the absence of the short-term
disruption caused by COVID-19.
Bank facilities
During the year, we renewed our RCF with HSBC for five years to
May 2025, while increasing the facility from GBP60.0 million to
GBP100.0 million on the same terms. At the year end, we had drawn
GBP35.0 million against the RCF, giving unused headroom within the
facility of GBP65.0 million. We have also maintained an overdraft
facility of GBP10.0 million.
The Group also has loan facilities with Svenska Handelsbanken
AB, which are used to fund our operating build to rent stock in
Sheffield and Droylsden. These facilities run to March 2022. The
outstanding balance at the year end was GBP5.0 million (30
September 2019: GBP5.5 million).
Going concern
We have undertaken a thorough review of the Group's ability to
continue to trade as a going concern for the period to 31 January
2022 (the "forecast period"). This review has been undertaken
taking into consideration the following matters:
Liquidity
At 30 September 2020, the Group had a robust liquidity position,
with cash and available headroom in its banking facilities
totalling GBP209.5 million, as set out below.
GBPm
------------------------------------- ------
Cash balances 134.5
RCF headroom 65.0
Overdraft facility 10.0
------------------------------------- ------
Total cash and available facilities 209.5
------------------------------------- ------
Strong liquidity has been maintained through the first quarter
of FY21, providing the Group with a good level of cash and
available banking facilities for the year ahead.
As noted above, the RCF is committed and has a five-year term to
May 2025. All financial covenants under the facility were
comfortably met at 30 September 2020 and will continue to be met
through the forecast period.
Business model
Our forward sale business model, is by definition,
capital-light. By forward selling the majority of our BtR and PBSA
developments, we receive payment for the land either at the same
time as or shortly after we complete the purchase, and before we
commit to any significant development expenditure. Once forward
sold, we receive payment for the development works as they
progress.
By being in control of our development pipeline we are able to
ensure that we only commit construction expenditure to developments
that are either forward sold or to undertake a modest level of
enabling works. In certain circumstances we may decide to continue
construction activities beyond the initial enabling phase, without
a forward sale agreement in place, but we take this decision based
on our available liquidity and can suspend the works should it
prove necessary. This greatly limits our exposure to development
expenditure which is not covered by cash income.
Sites are normally secured on a subject to satisfactory planning
basis, which gives us time to manage the cash requirements and to
market them for forward sale. We also take a cautious approach to
managing our land acquisition programme to ensure that we have
sufficient liquidity available to complete the acquisition of the
sites without any new forward sales being secured.
The Fresh business receives a regular contractual monthly fixed
fee income from its multiple clients and the short to medium-term
risk to its revenue stream is low.
For our residential business, which is currently relatively
small and only has a few sites in build, we manage our development
expenditure so that, other than for infrastructure works, we only
commit expenditure where it is supported by a forward sales
position.
We also receive rental income from tenants on our leased PBSA
assets and operational BtR assets. The level of rental income
received, whilst reduced in the short term for the PBSA assets as a
result of COVID-19, is relatively small in the context of the
Group's revenues as a whole.
Our business model and approach to cash management therefore
provides a high degree of resilience.
Counterparty risk
Our clients are predominantly blue-chip institutional funds and
the risk of default is low. The funds for a forward sold
development are normally specifically allocated by the client or
backed by committed debt funding.
For forward sold developments our cash income remains ahead of
our development expenditure through the life of the development,
such that if we were exposed to a client payment default, we could
suspend the works, thereby limiting any cash exposure.
Fresh has many clients and these are mostly institutional funds
with low default risk.
Base case cash forecast
We have prepared a base case cash forecast for the forecast
period, based on our current business plan and trading assumptions
for the year, including a lower level of revenue from the leased
PBSA assets as a result of COVID-19. This is strongly supported by
our forward sold pipeline of six PBSA developments and four BtR
developments for delivery in FY21, as well as Fresh's contracted
income and the reserved/exchanged sales for our residential
business. Our currently secured cash flow, derived from our forward
sold developments and other contracted income, net of overheads and
tax, results in a modest cash utilisation over the forecast period,
with the result that our liquidity position is strongly
maintained.
In addition to the secured cash flow, the base case forecast
assumes a number of new forward sales and further house sales,
which if achieved will result in a further strengthening of our
liquidity position, after allowing for dividend payments. We
currently have under offer and are progressing sales of three BtR
schemes and one PBSA scheme, which will underpin the additional
forward sales assumptions in the forecast.
Risk analysis
In addition to the base case forecast and though considered
unlikely, we have considered the following possible significant
downside risks as a consequence of the pandemic:
-- counterparty risk - whilst the majority of our clients are
not considered to present a default risk, we have identified two
which we consider could be more vulnerable in the event of further
sustained disruption;
-- suspension of the forward sale markets, resulting from a
significant economic downturn or market uncertainty - this is our
most significant risk as it would greatly limit our ability to
achieve any further forward sales and would potentially mean that
we have to complete on secured site acquisitions without a
subsequent forward sale in place; and
-- collapse of the housing market - in this scenario we have
considered the possibility of a significant reduction in future
house sales.
We have run various model scenarios to assess the possible
impact of the above risks, including a worst case downside scenario
assuming the following:
-- default by the two identified counterparty risks;
-- no further forward sales are achieved, other than those
currently under offer, as a result of a freeze in the sales
markets;
-- only 50% of further house sales are achieved beyond those currently reserved/exchanged; and
-- we continue to complete the acquisition of our secured sites
in line with the current target programmes, with limited mitigating
actions being taken.
In the worst case downside scenario we have included for the
payment of our FY20 full-year proposed dividend in line with our
policy.
The cash forecast prepared under the worst case downside
scenario illustrates that adequate liquidity is maintained through
the forecast period.
Conclusion
Based on the thorough review and robust downside forecasting
undertaken, and having not identified any material uncertainties
that may cast any significant doubt, the Board is satisfied that
the Group will be able to continue to trade for the period to 31
January 2022 and has therefore adopted the going concern basis in
preparing the financial statements.
Philip Byrom
Chief Financial Officer
19 January 2021
For further information:
Watkin Jones plc
Richard Simpson, Chief Executive Officer Tel: +44 (0) 20 3617
4453
Phil Byrom, Chief Financial Officer www.watkinjonesplc.com
Peel Hunt LLP (Nominated Adviser & Joint Tel: +44 (0) 20 7418
Corporate Broker) 8900
Mike Bell / Ed Allsopp www.peelhunt.com
Jefferies Hoare Govett (Joint Corporate Tel: +44 (0) 20 7029
Broker) 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 build to rent and student
accommodation 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 over 43,000 student beds across 130 sites,
making it a key player and leader in the UK purpose built student
accommodation market. In addition, Fresh, the Group's specialist
accommodation management business, manages over 20,000 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 increasingly 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 2020
Year
ended
Year 30
ended September
30 2019
September Restated
2020 (note
4)
Notes GBP'000 GBP'000
----------------------------------------------------------------------------------- ------ ------------ -----------
Continuing operations
Revenue 5 354,121 374,785
Cost of sales (278,205) (294,752)
----------------------------------------------------------------------------------- ------ ------------ -----------
Gross profit 75,916 80,033
Administrative expenses (24,249) (24,433)
----------------------------------------------------------------------------------- ------ ------------ -----------
Operating profit before exceptional items 51,667 55,600
Exceptional costs 6 (20,437) (2,576)
----------------------------------------------------------------------------------- ------ ------------ -----------
Operating profit 31,230 53,024
Share of profit in joint ventures 199 286
Finance income 251 428
Finance costs (6,366) (5,874)
----------------------------------------------------------------------------------- ------ ------------ -----------
Profit before tax 25,314 47,864
Income tax expense 7 (4,222) (9,041)
----------------------------------------------------------------------------------- ------ ------------ -----------
Profit for the year attributable to ordinary equity holders of the parent 21,092 38,823
----------------------------------------------------------------------------------- ------ ------------ -----------
Other comprehensive income
Other comprehensive income that will not be reclassified to profit or loss in
subsequent periods:
Net loss on equity instruments designated at fair value through other
comprehensive income (6) (2)
Total comprehensive income for the year attributable to ordinary equity holders of
the parent 21,086 38,821
----------------------------------------------------------------------------------- ------ ------------ -----------
Pence Pence
--------------------------------------------------------------------------------------- ------- -------
Earnings per share for the year attributable to ordinary equity holders of the parent
Basic earnings per share 8 8.246 15.202
--------------------------------------------------------------------------------------- ------- -------
Diluted earnings per share 8 8.234 15.175
--------------------------------------------------------------------------------------- ------- -------
Adjusted proforma basic earnings per share (excluding exceptional costs) 8 14.717 16.111
--------------------------------------------------------------------------------------- ------- -------
Adjusted proforma diluted earnings per share (excluding exceptional costs) 8 14.696 16.082
--------------------------------------------------------------------------------------- ------- -------
Consolidated statement of financial position
as at 30 September 2020
30 30 30 September
September September 2018
2020 2019 Restated
Restated (note
(note 4)
4)
Notes GBP'000 GBP'000 GBP'000
------------------------------------------------- ------ ------------ ----------- -------------
Non-current assets
Intangible assets 13,284 13,844 14,403
Investment property (leased) 10 104,623 110,224 117,483
Right-of-use assets 10 4,763 5,930 7,013
Property, plant and equipment 4,376 4,966 4,809
Investment in joint ventures 3,243 2,794 2,558
Deferred tax asset 3,313 3,836 3,155
Other financial assets 1,133 1,139 1,350
------------------------------------------------- ------ ------------ ----------- -------------
134,735 142,733 150,771
------------------------------------------------- ------ ------------ ----------- -------------
Current assets
Inventory and work in progress 125,660 134,226 132,778
Contract assets 41,522 25,578 8,758
Trade and other receivables 23,518 13,850 17,499
Cash and cash equivalents 12 134,513 115,652 106,640
------------------------------------------------- ------ ------------ ----------- -------------
325,213 289,306 265,675
------------------------------------------------- ------ ------------ ----------- -------------
Total assets 459,948 432,039 416,446
------------------------------------------------- ------ ------------ ----------- -------------
Current liabilities
Trade and other payables (97,300) (81,368) (84,014)
Contract liabilities (8,967) (5,164) (14,314)
Provisions (6,277) - -
Interest-bearing loans and borrowings (711) (1,324) (1,605)
Lease liabilities 10 (6,310) (6,192) (5,770)
Current tax liabilities (819) (7,043) (7,204)
------------------------------------------------- ------ ------------ ----------- -------------
(120,384) (101,091) (112,907)
------------------------------------------------- ------ ------------ ----------- -------------
Non-current liabilities
Interest-bearing loans and borrowings (38,956) (37,481) (24,877)
Lease liabilities 10 (128,143) (131,330) (137,522)
Deferred tax liabilities (1,040) (1,042) (1,050)
Provisions (3,587) - -
------------------------------------------------- ------ ------------ ----------- -------------
(171,726) (169,853) (163,449)
------------------------------------------------- ------ ------------ ----------- -------------
Total liabilities (292,110) (270,944) (276,356)
------------------------------------------------- ------ ------------ ----------- -------------
Net assets 167,838 161,095 140,090
------------------------------------------------- ------ ------------ ----------- -------------
Equity
Share capital 2,562 2,553 2,553
Share premium 84,612 84,612 84,612
Merger reserve (75,383) (75,383) (75,383)
Fair value reserve of financial assets at FVOCI 428 434 436
Share--based payment reserve 2,348 2,311 84
Retained earnings 153,271 146,568 127,788
------------------------------------------------- ------ ------------ ----------- -------------
Total equity 167,838 161,095 140,090
------------------------------------------------- ------ ------------ ----------- -------------
Consolidated statement of changes in equity
for the year ended 30 September 2020
Fair value
reserve Share-based
of payment
Share Share Merger financial reserve Retained
capital premium reserve assets earnings Total
at
FVOCI
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ---------- ---------- ----------- ----------- -------------- ----------- -----------
As at 30 September 2018 2,553 84,612 (75,383) 436 84 141,217 153,519
-------------------------- ---------- ---------- ----------- ----------- -------------- ----------- -----------
Effect of initial
application of IFRS 16
(note 4) - - - - - (13,429) (13,429)
As at 30 September 2018
(restated) 2,553 84,612 (75,383) 436 84 127,788 140,090
-------------------------- ---------- ---------- ----------- ----------- -------------- ----------- -----------
Profit for the year
(restated) - - - - - 38,823 38,823
Other comprehensive
income - - - (2) - - (2)
-------------------------- ---------- ---------- ----------- ----------- -------------- ----------- -----------
Total comprehensive
income (restated) - - - (2) - 38,823 38,821
-------------------------- ---------- ---------- ----------- ----------- -------------- ----------- -----------
Share-based payments - - - - 2,208 - 2,208
Deferred tax credited
directly to equity - - - - 19 70 89
Dividend paid (note 9) - - - - - (20,113) (20,113)
-------------------------- ---------- ---------- ----------- ----------- -------------- ----------- -----------
Balance at 30 September
2019 (restated) 2,553 84,612 (75,383) 434 2,311 146,568 161,095
-------------------------- ---------- ---------- ----------- ----------- -------------- ----------- -----------
Profit for the year - - - - - 21,092 21,092
Other comprehensive
income - - - (6) - - (6)
-------------------------- ---------- ---------- ----------- ----------- -------------- ----------- -----------
Total comprehensive
income - - - (6) - 21,092 21,086
-------------------------- ---------- ---------- ----------- ----------- -------------- ----------- -----------
Share-based payments - - - - 37 - 37
Deferred tax debited
directly to equity - - - - - (70) (70)
Issue of shares 9 - - - - - 9
Dividend paid (note 9) - - - - - (14,319) (14,319)
-------------------------- ---------- ---------- ----------- ----------- -------------- ----------- -----------
Balance at 30 September
2020 2,562 84,612 (75,383) 428 2,348 153,271 167,838
-------------------------- ---------- ---------- ----------- ----------- -------------- ----------- -----------
Consolidated statement of cash flows
for the year ended 30 September 2020
Year
ended
Year 30
ended September
30 2019
September Restated
2020 (note 4)
Notes GBP'000 GBP'000
---------------------------------------------------------------------- ------ ------------ -----------
Cash flows from operating activities
Cash inflow from operations 11 54,868 38,943
Interest received 245 428
Interest paid (6,792) (6,090)
Tax paid (10,035) (9,769)
---------------------------------------------------------------------- ------ ------------ -----------
Net cash inflow from operating activities 38,286 23,512
---------------------------------------------------------------------- ------ ------------ -----------
Cash flows from investing activities
Acquisition of property, plant and equipment (317) (361)
Proceeds on disposal of property, plant and equipment 69 87
Cash flow from joint venture interests 812 -
Cash distribution received from other financial assets - 209
---------------------------------------------------------------------- ------ ------------ -----------
Net cash inflow from investing activities 564 (65)
---------------------------------------------------------------------- ------ ------------ -----------
Cash flows from financing activities
Dividends paid 9 (14,319) (20,113)
Proceeds from exercise of share options 9 -
Payment of principal portion of lease liabilities (6,089) (5,953)
Payment of capital element of other interest bearing loans (1,034) (1,307)
Drawdown of RCF 20,843 46,244
Repayment of bank loans (18,499) (33,306)
Bank loan arrangement fees (900) -
---------------------------------------------------------------------- ------ ------------ -----------
Net cash outflow from financing activities (19,989) (14,435)
---------------------------------------------------------------------- ------ ------------ -----------
Net increase in cash 18,861 9,012
Cash and cash equivalents at 1 October 2019 and 1 October 2018 115,652 106,640
---------------------------------------------------------------------- ------ ------------ -----------
Cash and cash equivalents at 30 September 2020 and 30 September 2019 134,513 115,652
---------------------------------------------------------------------- ------ ------------ -----------
Notes to the consolidated financial statements
for the year ended 30 September 2020
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 7-9 Swallow Street,
London, England, W1B 4DE.
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 2020 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 2020 or
2019, but is derived from those accounts. Statutory accounts for
2019 have been delivered to the Registrar of Companies, and those
for 2020 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 2020 Annual Report to shareholders on 26 January 2021.
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 2020.
4. New standards and interpretations
New standards and interpretations adopted for the first time
during the financial year ended 30 September 2020
IFRS 16 'Leases'
In the current year, the Group has applied IFRS 16 'Leases' for
the first time. The date of the initial application of IFRS 16 for
the Group is 1 October 2019. IFRS 16 replaces IAS 17 'Leases' and
IFRIC 4 'Determining whether an Arrangement contains a lease'.
IFRS 16 introduces new or amended requirements in respect of
lease accounting. It introduces significant changes to lessee
accounting by removing the distinction between operating and
finance leases, requiring the recognition of an investment property
(leased) asset or a right-of-use asset and a lease liability at
commencement of all leases, except for short-term leases and leases
of low-value assets when such recognition exemptions are adopted.
In contrast to lessee accounting, the requirements for lessor
accounting have remained largely unchanged.
Details of the Group's approach to the transition to IFRS 16 are
set out below, followed by a description of the impact of adopting
IFRS 16.
Approach to the transition to IFRS 16
The Group has chosen to apply IFRS 16 retrospectively at the
date of initial application, as if it had already been effective at
the commencement date of the existing lease contracts. The two
capitalisation exemptions proposed by the standard - lease
contracts with a duration of less than twelve months and lease
contracts for which the underlying asset has a low value - have
been used. The Group has elected to only apply IFRS 16 to contracts
previously identified as a lease under IAS 17. In contrast to
lessee accounting, IFRS 16 substantially carries forward the lessor
accounting requirements from IAS 17. Under IFRS 16, a lessor
continues to classify leases as either finance leases or operating
leases and account for those two types of leases differently.
Impact of lessee accounting
IFRS 16 has changed how the Group accounts for leases previously
classified as operating leases under IAS 17, which were off-balance
sheet. The accounting for these leases upon the initial adoption of
the standard is as follows:
-- recognise investment property (leased) or right-of-use assets
in the consolidated statement of financial position, initially
measured at the present value of the future minimum lease payments
from the inception of each lease discounted at the lease's
incremental borrowing rate. Depreciation has been recognised in
relation to these assets with the initial asset valuation
calculated on the basis that depreciation has been applied from the
inception of the underlying lease;
-- recognise lease liabilities in the consolidated statement of
financial position, initially measured at the present value of the
future minimum lease payment from the inception of each lease
discounted at the lease's incremental borrowing rate. The discount
has been unwound each year with the initial liability valuation
calculated on the basis that the unwind of the discount has been
applied from the inception of the lease; and
-- the difference between the right--of--use assets, lease
liabilities and prepaid or accrued lease payments has resulted in
an adjustment to equity at 1 October 2018 relative to that
previously reported.
Subsequent treatment is as follows:
-- to recognise depreciation of investment property (leased) and
right-of--use assets in the consolidated statement of comprehensive
income;
-- the lease liability is unwound each year, with the discount
unwind recognised as an interest expense; and
-- to separate the total amount of cash paid into a portion
repaying the principal of the lease liability (presented within
financing activities) and interest (presented within operating
activities) in the consolidated statement of cash flows.
The application of IFRS 16 has generated a different profile for
the recognition of lease expenditure in the Group statement of
comprehensive income when compared to IAS 17. The calculation of
lease liabilities under IFRS 16 requires the discounting of future
minimum lease payments with the unwind of the discount then
recognised in the statement of comprehensive income. When
estimating future minimum lease payments, the minimum rent
increases applicable under each lease are factored into the
calculation and for the six student accommodation sale and
leaseback properties these minimum annual rent increases range from
1.5% to 2.5%. This results in the timing of the recognition of
lease costs under IFRS 16 having a greater weighting in the early
life of the leases than under IAS 17 and lower costs in the later
years. In addition, EBITDA for the Group has increased
significantly as the costs associated with these leases will now be
recognised as depreciation and interest. The following tables set
out the adjustments recognised as at the date of initial
application of IFRS 16.
Statement of comprehensive income for the year ended 30
September 2019
As reported IFRS 16 As restated
adjustment
GBP'000 GBP'000 GBP'000
---------------------------------------------------------------------------- ------------ ------------ ------------
Continuing operations
Revenue 374,785 - 374,785
Cost of sales (298,020) 3,268 (294,752)
---------------------------------------------------------------------------- ------------ ------------ ------------
Gross profit 76,765 3,268 80,033
Administrative expenses (24,472) 39 (24,433)
---------------------------------------------------------------------------- ------------ ------------ ------------
Operating profit before exceptional items 52,293 3,307 55,600
Exceptional costs (2,576) - (2,576)
---------------------------------------------------------------------------- ------------ ------------ ------------
Operating profit 49,717 3,307 53,024
Share of profit in joint ventures 286 - 286
Finance income 428 - 428
Finance costs (695) (5,179) (5,874)
---------------------------------------------------------------------------- ------------ ------------ ------------
Profit before tax 49,736 (1,872) 47,864
Income tax expense (9,436) 395 (9,041)
---------------------------------------------------------------------------- ------------ ------------ ------------
Profit for the year attributable to ordinary equity holders of the parent 40,300 (1,477) 38,823
---------------------------------------------------------------------------- ------------ ------------ ------------
Earnings per share for the year attributable to ordinary equity holders of
the parent
Basic earnings per share 15.780 (0.578) 15.202
---------------------------------------------------------------------------- ------------ ------------ ------------
Diluted earnings per share 15.740 (0.565) 15.175
---------------------------------------------------------------------------- ------------ ------------ ------------
Adjusted proforma basic earnings per share (excluding exceptional costs) 16.689 (0.578) 16.111
---------------------------------------------------------------------------- ------------ ------------ ------------
Adjusted proforma diluted earnings per share (excluding exceptional costs) 16.646 (0.564) 16.082
---------------------------------------------------------------------------- ------------ ------------ ------------
The application of IFRS 16 resulted in an increase in operating
profit of GBP3.3 million due to lease payments no longer being
recognised in the statement of comprehensive income and replaced by
depreciation and interest costs. This has led to a net reduction in
cost of sales and administrative expenses. An increased interest
expense, in comparison to IAS 17, was recognised in respect of
interest on lease liabilities of GBP5.2 million with overall profit
for the year attributable to ordinary equity holders of the parent
reduced by GBP1.5 million.
Statement of comprehensive income for the year ended 30
September 2020
On a see-
through IFRS 16 As reported
basis adjustment
GBP'000 GBP'000 GBP'000
--------------------------------------------------------------------------- ---------- ------------- --------------
Continuing operations
Revenue 354,121 - 354,121
Cost of sales (281,669) 3,464 (278,205)
--------------------------------------------------------------------------- ---------- ------------- --------------
Gross profit 72,452 3,464 75,916
Administrative expenses (24,306) 57 (24,249)
--------------------------------------------------------------------------- ---------- ------------- --------------
Operating profit before exceptional items 48,146 3,521 51,667
Exceptional costs (20,437) - (20,437)
--------------------------------------------------------------------------- ---------- ------------- --------------
Operating profit 27,709 3,521 31,230
Share of profit in joint ventures 199 - 199
Finance income 251 - 251
Finance costs (1,263) (5,103) (6,366)
--------------------------------------------------------------------------- ---------- ------------- --------------
Profit before tax 26,896 (1,582) 25,314
Income tax expense (4,523) 301 (4,222)
--------------------------------------------------------------------------- ---------- ------------- --------------
Profit for the year attributable to ordinary equity holders of the parent 22,373 (1,281) 21,092
--------------------------------------------------------------------------- ---------- ------------- --------------
Earnings per share for the year attributable to ordinary equity holders of
the parent
Basic earnings per share 8.746 (0.500) 8.246
--------------------------------------------------------------------------- ---------- ------------- --------------
Diluted earnings per share 8.734 (0.500) 8.234
--------------------------------------------------------------------------- ---------- ------------- --------------
Adjusted proforma basic earnings per share (excluding exceptional costs) 15.218 (0.501) 14.717
--------------------------------------------------------------------------- ---------- ------------- --------------
Adjusted proforma diluted earnings per share (excluding exceptional costs) 15.196 (0.500) 14.696
--------------------------------------------------------------------------- ---------- ------------- --------------
The application of IFRS 16 resulted in an increase in operating
profit of GBP3.5 million due to lease payments no longer being
recognised in the statement of comprehensive income and replaced by
depreciation and interest costs. This has led to a net reduction in
cost of sales and administrative expenses. An increased interest
expense, in comparison to IAS 17, was recognised in respect of
interest on lease liabilities of GBP5.1 million with overall profit
for the year attributable to ordinary equity holders of the parent
reduced by GBP1.3 million.
Statement of financial position at 30 September 2018
As reported IFRS 16 As restated
adjustment
GBP'000 GBP'000 GBP'000
------------------------------------------------- ------------ ------------ ------------
Non-current assets
Intangible assets 14,403 - 14,403
Investment property (leased) - 117,483 117,483
Right-of-use assets - 7,013 7,013
Property, plant and equipment 4,809 - 4,809
Investment in joint ventures 2,558 - 2,558
Deferred tax asset 42 3,113 3,155
Other financial assets 1,350 - 1,350
------------------------------------------------- ------------ ------------ ------------
23,162 127,609 150,771
------------------------------------------------- ------------ ------------ ------------
Current assets
Inventory and work in progress 132,778 - 132,778
Contract assets 8,758 - 8,758
Trade and other receivables 18,209 (710) 17,499
Cash and cash equivalents 106,640 - 106,640
------------------------------------------------- ------------ ------------ ------------
266,385 (710) 265,675
------------------------------------------------- ------------ ------------ ------------
Total assets 289,547 126,899 416,446
------------------------------------------------- ------------ ------------ ------------
Current liabilities
Trade and other payables (84,308) 294 (84,014)
Contract liabilities (14,314) - (14,314)
Provisions (1,068) 1,068 -
Interest-bearing loans and borrowings (1,605) - (1,605)
Lease liabilities - (5,770) (5,770)
Current tax liabilities (7,204) - (7,204)
------------------------------------------------- ------------ ------------ ------------
(108,499) (4,408) (112,907)
------------------------------------------------- ------------ ------------ ------------
Non-current liabilities
Interest-bearing loans and borrowings (24,877) - (24,877)
Lease liabilities - (137,522) (137,522)
Deferred tax liabilities (1,050) - (1,050)
Provisions (1,602) 1,602 -
------------------------------------------------- ------------ ------------ ------------
(27,529) (135,920) (163,449)
------------------------------------------------- ------------ ------------ ------------
Total liabilities (136,028) (140,328) (276,356)
------------------------------------------------- ------------ ------------ ------------
Net assets 153,519 (13,429) 140,090
------------------------------------------------- ------------ ------------ ------------
Equity
Share capital 2,553 - 2,553
Share premium 84,612 - 84,612
Merger reserve (75,383) - (75,383)
Fair value reserve of financial assets at FVOCI 436 - 436
Share--based payment reserve 84 - 84
Retained earnings 141,217 (13,429) 127,788
------------------------------------------------- ------------ ------------ ------------
Total equity 153,519 (13,429) 140,090
------------------------------------------------- ------------ ------------ ------------
On 1 October 2018, GBP117.5 million was recognised in the
statement of financial position as investment property (leased)
assets in respect of student leaseback arrangements and GBP7.0
million as right-of-use assets in respect of office properties and
motor vehicles. In addition, a lease liability of GBP143.3 million
was recognised in respect of these assets. Trade and other
receivables reduced by GBP0.7 million due to the reclassification
of prepayments from receivables to lease liabilities. Provisions
reduced by GBP2.7 million due to the reclassification of these
provisions to investment property (leased) assets as impairment
provisions. Deferred tax assets totalling GBP3.1 million were
recognised in relation to the future tax benefit from these
adjustments.
The net difference of GBP13.4 million has been recognised as a
reduction in retained earnings.
Statement of financial position at 30 September 2019
As reported IFRS 16 As restated
adjustment
GBP'000 GBP'000 GBP'000
------------------------------------------------- ------------ ------------ ------------
Non-current assets
Intangible assets 13,844 - 13,844
Investment property (leased) - 110,224 110,224
Right-of-use assets - 5,930 5,930
Property, plant and equipment 4,966 - 4,966
Investment in joint ventures 2,794 - 2,794
Deferred tax asset 290 3,546 3,836
Other financial assets 1,139 - 1,139
------------------------------------------------- ------------ ------------ ------------
23,033 119,700 142,733
------------------------------------------------- ------------ ------------ ------------
Current assets
Inventory and work in progress 134,226 - 134,226
Contract assets 25,578 - 25,578
Trade and other receivables 14,443 (593) 13,850
Cash and cash equivalents 115,652 - 115,652
------------------------------------------------- ------------ ------------ ------------
289,899 (593) 289,306
------------------------------------------------- ------------ ------------ ------------
Total assets 312,932 119,107 432,039
------------------------------------------------- ------------ ------------ ------------
Current liabilities
Trade and other payables (81,407) 39 (81,368)
Contract liabilities (5,164) - (5,164)
Provisions (863) 863 -
Interest-bearing loans and borrowings (1,324) - (1,324)
Lease liabilities - (6,192) (6,192)
Current tax liabilities (7,056) 13 (7,043)
------------------------------------------------- ------------ ------------ ------------
(95,814) (5,277) (101,091)
------------------------------------------------- ------------ ------------ ------------
Non-current liabilities
Interest-bearing loans and borrowings (37,481) - (37,481)
Lease liabilities - (131,330) (131,330)
Deferred tax liabilities (1,042) - (1,042)
Provisions (2,594) 2,594 -
------------------------------------------------- ------------ ------------ ------------
(41,117) (128,736) (169,853)
------------------------------------------------- ------------ ------------ ------------
Total liabilities (136,931) (134,013) (270,944)
------------------------------------------------- ------------ ------------ ------------
Net assets 176,001 (14,906) 161,095
------------------------------------------------- ------------ ------------ ------------
Equity
Share capital 2,553 - 2,553
Share premium 84,612 - 84,612
Merger reserve (75,383) - (75,383)
Fair value reserve of financial assets at FVOCI 434 - 434
Share--based payment reserve 2,311 - 2,311
Retained earnings 161,474 (14,906) 146,568
------------------------------------------------- ------------ ------------ ------------
Total equity 176,001 (14,906) 161,095
------------------------------------------------- ------------ ------------ ------------
On 1 October 2019, GBP110.2 million was recognised in the
statement of financial position as investment property (leased)
assets in respect of student leaseback arrangements and GBP5.9
million as right-of-use assets in respect of office properties and
motor vehicles. In addition, a lease liability of GBP137.5 million
was recognised in respect of these assets. Trade and other
receivables reduced by GBP0.6 million due to the reclassification
of prepayments from receivables to lease liabilities. Provisions
reduced by GBP3.5 million due to the reclassification of these
provisions to investment property (leased) assets as impairment
provisions. Deferred tax assets totalling GBP3.5 million were
recognised in relation to the future tax benefit from these
adjustments.
The net difference of GBP14.9 million has been recognised as a
reduction in retained earnings.
Statement of financial position at 30 September 2020
On a see-
through IFRS 16 As reported
basis adjustment
GBP'000 GBP'000 GBP'000
------------------------------------------------- ---------- ------------- --------------
Non-current assets
Intangible assets 13,284 - 13,284
Investment property (leased) - 104,623 104,623
Right-of-use assets - 4,763 4,763
Property, plant and equipment 4,376 - 4,376
Investment in joint ventures 3,243 - 3,243
Deferred tax asset 251 3,062 3,313
Other financial assets 1,133 - 1,133
------------------------------------------------- ---------- ------------- --------------
22,287 112,448 134,735
------------------------------------------------- ---------- ------------- --------------
Current assets
Inventory and work in progress 125,660 - 125,660
Contract assets 41,522 - 41,522
Trade and other receivables 24,250 (732) 23,518
Cash and cash equivalents 134,513 - 134,513
------------------------------------------------- ---------- ------------- --------------
325,945 (732) 325,213
------------------------------------------------- ---------- ------------- --------------
Total assets 348,232 111,716 459,948
------------------------------------------------- ---------- ------------- --------------
Current liabilities
Trade and other payables (97,761) 461 (97,300)
Contract liabilities (8,967) - (8,967)
Provisions (9,208) 2,931 (6,277)
Interest-bearing loans and borrowings (711) - (711)
Lease liabilities - (6,310) (6,310)
Current tax liabilities (819) - (819)
------------------------------------------------- ---------- ------------- --------------
(117,466) (2,918) (120,384)
------------------------------------------------- ---------- ------------- --------------
Non-current liabilities
Interest-bearing loans and borrowings (38,956) - (38,956)
Lease liabilities - (128,143) (128,143)
Deferred tax liabilities (1,040) - (1,040)
Provisions (6,691) 3,104 (3,587)
------------------------------------------------- ---------- ------------- --------------
(46,687) (125,039) (171,726)
------------------------------------------------- ---------- ------------- --------------
Total liabilities (164,153) (127,957) (292,110)
------------------------------------------------- ---------- ------------- --------------
Net assets 184,079 (16,241) 167,838
------------------------------------------------- ---------- ------------- --------------
Equity
Share capital 2,562 - 2,562
Share premium 84,612 - 84,612
Merger reserve (75,383) - (75,383)
Fair value reserve of financial assets at FVOCI 428 - 428
Share--based payment reserve 2,348 - 2,348
Retained earnings 169,512 (16,241) 153,271
------------------------------------------------- ---------- ------------- --------------
Total equity 184,079 (16,241) 167,838
------------------------------------------------- ---------- ------------- --------------
On 30 September 2020, GBP104.6million was recognised in the
statement of financial position as investment property (leased)
assets in respect of student leaseback arrangements and GBP4.8
million as right-of-use assets in respect of office properties and
motor vehicles. In addition, a lease liability of GBP134.4 million
was recognised in respect of these assets. Trade and other
receivables reduced by GBP0.7 million due to the reclassification
of prepayments from receivables to lease liabilities. Provisions
reduced by GBP6.0 million due to the reclassification of these
provisions to investment property (leased) assets as impairment
provisions. Deferred tax assets totalling GBP3.1 million were
recognised in relation to the future tax benefit from these
adjustments.
The net difference of GBP16.2 million has been recognised as a
reduction in retained earnings.
Statement of cash flows for the year ended 30 September 2019
As reported IFRS 16 As restated
adjustment
GBP'000 GBP'000 GBP'000
---------------------------------------------------------------------- ------------ ------------ ------------
Cash flows from operating activities
Cash inflow from operations 27,811 11,132 38,943
Interest received 428 - 428
Interest paid (911) (5,179) (6,090)
Tax paid (9,769) - (9,769)
---------------------------------------------------------------------- ------------ ------------ ------------
Net cash inflow from operating activities 17,559 5,953 23,512
---------------------------------------------------------------------- ------------ ------------ ------------
Cash flows from investing activities
Acquisition of property, plant and equipment (361) - (361)
Proceeds on disposal of property, plant and equipment 87 - 87
Cash distribution received from other financial assets 209 - 209
---------------------------------------------------------------------- ------------ ------------ ------------
Net cash inflow from investing activities (65) - (65)
---------------------------------------------------------------------- ------------ ------------ ------------
Cash flows from financing activities
Dividends paid (20,113) - (20,113)
Payment of lease liabilities - (5,953) (5,953)
Payment of capital element of other interest bearing loans (1,307) - (1,307)
Drawdown of RCF 46,244 - 46,244
Repayment of bank loans (33,306) - (33,306)
---------------------------------------------------------------------- ------------ ------------ ------------
Net cash outflow from financing activities (8,482) (5,953) (14,435)
---------------------------------------------------------------------- ------------ ------------ ------------
Net increase in cash 9,012 --- 9,012
Cash and cash equivalents at 1 October 2019 and 1 October 2018 106,640 - 106,640
---------------------------------------------------------------------- ------------ ------------ ------------
Cash and cash equivalents at 30 September 2020 and 30 September 2019 115,652 - 115,652
---------------------------------------------------------------------- ------------ ------------ ------------
The application of IFRS 16 resulted in an increase in the cash
inflow from operations of GBP11.1 million due to the
reclassification of operating lease payments as interest paid and
payment of lease liabilities. Interest paid has increased by GBP5.2
million and the payment of lease liabilities by GBP5.9 million.
Statement of cash flows for the year ended 30 September 2020
On a see-through
basis IFRS 16 As reported
adjustment
GBP'000 GBP'000 GBP'000
------------------------------------------------------------ ----------------- ------------- --------------
Cash flows from operating activities
Cash inflow from operations 43,676 11,192 54,868
Interest received 245 - 245
Interest paid (1,689) (5,103) (6,792)
Tax paid (10,035) - (10,035)
------------------------------------------------------------ ----------------- ------------- --------------
Net cash inflow from operating activities 32,197 6,089 38,286
------------------------------------------------------------ ----------------- ------------- --------------
Cash flows from investing activities
Acquisition of property, plant and equipment (317) - (317)
Proceeds on disposal of property, plant and equipment 69 - 69
Cash flow from joint venture interests 812 - 812
Cash distribution received from other financial assets - - -
------------------------------------------------------------ ----------------- ------------- --------------
Net cash inflow from investing activities 564 - 564
------------------------------------------------------------ ----------------- ------------- --------------
Cash flows from financing activities
Dividends paid (14,319) - (14,319)
Proceeds from exercise of share options 9 - 9
Payment of principal portion of lease liabilities - (6,089) (6,089)
Payment of capital element of other interest bearing loans (1,034) - (1,034)
Drawdown of RCF 20,843 - 20,843
Repayment of bank loans (18,499) - (18,499)
Bank loan arrangement fees (900) - (900)
------------------------------------------------------------ ----------------- ------------- --------------
Net cash outflow from financing activities (13,900) (6,089) (19,989)
------------------------------------------------------------ ----------------- ------------- --------------
Net increase in cash 18,861 - 18,861
Cash and cash equivalents at 1 October 2019 115,652 - 115,652
------------------------------------------------------------ ----------------- ------------- --------------
Cash and cash equivalents at 30 September 2020 134,513 - 134,513
------------------------------------------------------------ ----------------- ------------- --------------
The application of IFRS 16 resulted in an increase in the cash
inflow from operations of GBP11.2 million due to the
reclassification of operating lease payments as interest paid and
payment of lease liabilities. Interest paid has increased by GBP5.1
million and the payment of lease liabilities by GBP6.1 million.
New standards and interpretations that have not yet been
adopted
The following standards and interpretations that are anticipated
to be relevant to the Group have an effective date after the date
of these financial statements. The Group has not early adopted them
and plans to adopt them from the effective dates once endorsed for
application in the EU. These standards are not expected to have a
significant impact on the Group's consolidated financial
statements.
Effective for
accounting
Standard or interpretation periods beginning
on or after
------------------------------------------------------------------------ ------------------
Amendments to IFRS 3 'Business Combinations' 1 January 2020
Amendments to IAS 1 and IAS 8: Definition of Material 1 January 2020
Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform 1 January 2020
IFRS 17 'Insurance contracts' 1 January 2023
------------------------------------------------------------------------ ------------------
5. 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.
Year ended 30 September 2020 Student Build Accommodation
accommodation to rent Residential management Corporate Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- --------------- --------- -------------- -------------- ------------ -----------
Segmental revenue 226,026 93,991 26,268 7,586 250 354,121
--------------- --------- -------------- -------------- ------------ -----------
Segmental gross profit 54,285 14,884 4,042 4,540 (1,835) 75,916
Administration expenses - - - (3,432) (20,817) (24,249)
Exceptional costs - - - - (20,437) (20,437)
Share of operating profit in
joint ventures 199 - - - - 199
Finance income - - - - 251 251
Finance costs - - - - (6,366) (6,366)
------------------------------- --------------- --------- -------------- -------------- ------------ -----------
Profit/(loss) before tax 54,484 14,884 4,042 1,108 (49,204) 25,314
Taxation - - - - (4,222) (4,222)
------------------------------- --------------- --------- -------------- -------------- ------------ -----------
Continuing profit/(loss) for
the year 54,484 14,884 4,042 1,108 (53,426) 21,092
------------------------------- --------------- --------- -------------- -------------- ------------ -----------
Profit for the year
attributable to ordinary
equity shareholders of the
parent 21,092
------------------------------- --------------- --------- -------------- -------------- ------------ -----------
Inventory and work in progress 30,706 53,964 30,656 - 10,334 125,660
------------------------------- --------------- --------- -------------- -------------- ------------ -----------
Year ended 30 September 2019 Student Build Accommodation
accommodation to rent Residential management Corporate Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- --------------- --------- -------------- -------------- ------------ -----------
Segmental revenue 246,116 77,429 34,278 7,460 9,502 374,785
--------------- --------- -------------- -------------- ------------ -----------
Segmental gross profit 54,850 13,783 7,158 4,586 (344) 80,033
Administration expenses - - - (3,167) (21,266) (24,433)
Exceptional costs - - - - (2,576) (2,576)
Share of operating profit in
joint ventures 286 - - - - 286
Finance income - - - - 428 428
Finance costs - - - - (5,874) (5,874)
------------------------------- --------------- --------- -------------- -------------- ------------ -----------
Profit/(loss) before tax 55,136 13,783 7,158 1,419 (29,632) 47,864
Taxation - - - - (9,041) (9,041)
------------------------------- --------------- --------- -------------- -------------- ------------ -----------
Continuing profit/(loss) for
the year 55,136 13,783 7,158 1,419 (38,673) 38,823
------------------------------- --------------- --------- -------------- -------------- ------------ -----------
Profit for the year
attributable to ordinary
equity shareholders of the
parent 38,823
------------------------------- --------------- --------- -------------- -------------- ------------ -----------
Inventory and work in progress 40,268 38,608 45,153 - 10,197 134,226
------------------------------- --------------- --------- -------------- -------------- ------------ -----------
The prior year comparative information has been restated so that
it is presented in a way which is consistent with the internal
reporting provided to the chief operating decision-maker. Revenue
of GBP3,786,000 and gross profit of GBP555,000 has been transferred
from the Residential to the Build to Rent segment.
6. Exceptional costs
Year Year
ended ended
30 30
September September
2020 2019
GBP'000 GBP'000
-------------------------------------------------------------------------------------------- ----------- -----------
Covid-19 costs
-------------------------------------------------------------------------------------------- ----------- -----------
COVID-19 additional costs of on-site working and in completing developments (2,659) -
Waiver of academic year 2019/20 final term rents due on leased student accommodation assets
due to lockdown measures (1,086) -
Impairment of the right-of-use carrying value of leased student accommodation assets due to
reduced 2020/21 student occupancy (1,892) -
Total COVID-19 costs (5,637) -
-------------------------------------------------------------------------------------------- ----------- -----------
Fire safety recladding works (14,800) -
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)
-------------------------------------------------------------------------------------------- ----------- -----------
Total exceptional costs (20,437) (2,576)
-------------------------------------------------------------------------------------------- ----------- -----------
During the year a total impairment charge of GBP2,241,000 was
recognised in relation to the carrying value of leased student
accommodation assets (note 10). GBP1,892,000 of this impairment
charge has been treated as an exceptional item due to the impact of
reduced student occupancy during the 2020/21 academic year as a
result of the COVID-19 pandemic. This element of the total charge
has been calculated by comparing the final impairment calculations
to a calculation of the impairment charge using the income
forecasts for 2020/21 prepared prior to the pandemic.
All of the exceptional costs in the year have been treated as
allowable deductions for corporation tax purposes (2019:
GBP1,341,000 of the GBP2,576,000 exceptional costs were treated as
allowable deductions).
7. Income taxes
Year
ended
Year 30
ended September
30 September 2019
2020 Restated
(note
4)
GBP'000 GBP'000
--------------------------------------------------- --------------- ------------
Current income tax
UK corporation tax on profits for the year 4,076 9,426
Adjustments in respect of prior periods (305) 183
Total current tax 3,771 9,609
--------------------------------------------------- --------------- ------------
Deferred tax
Origination and reversal of temporary differences 455 (644)
Adjustments in respect of prior year (10) 76
Effect of tax rate change on opening balance 6 -
--------------------------------------------------- --------------- ------------
Total deferred tax 451 (568)
--------------------------------------------------- --------------- ------------
Total tax expense 4,222 9,041
--------------------------------------------------- --------------- ------------
Reconciliation of total tax expense
Year
ended
Year 30
ended September
30 2019
September Restated
2020 (note
4)
GBP'000 GBP'000
------------------------------------------------------------------------------------ ------------ -----------
Profit before tax 25,314 47,864
Profit multiplied by standard rate of corporation tax in the UK of 19% (2019: 19%) 4,810 9,094
Expenses not deductible 288 282
Income not taxable (53) (79)
Other differences (508) (513)
Prior period adjustment (315) 257
------------------------------------------------------------------------------------ ------------ -----------
At the effective rate of tax of 16.7% (2019: 18.9%) 4,222 9,041
------------------------------------------------------------------------------------ ------------ -----------
Income tax expense reported in the statement of profit or loss 4,222 9,041
------------------------------------------------------------------------------------ ------------ -----------
8. 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.
The following table reflects the income and share data used in
the basic and diluted EPS computations:
Year
ended
Year 30
ended September
30 2019
September Restated
2020 (note
5)
GBP'000 GBP'000
------------------------------------------------------------------------------------------- ------------ -----------
Profit for the year attributable to ordinary equity holders of the parent 21,092 38,823
Add back exceptional costs for the year (note 6) 20,437 2,576
Less corporation tax benefit from exceptional costs for the year (3,883) (255)
------------------------------------------------------------------------------------------- ------------ -----------
Adjusted profit for the year attributable to ordinary equity holders of the parent
(excluding
exceptional costs after tax) 37,646 41,144
------------------------------------------------------------------------------------------- ------------ -----------
Number Number
of of
shares shares
------------------------------------------------------------------------- ------------ ------------
Weighted average number of ordinary shares for basic earnings per share 255,795,659 255,382,181
Adjustment for the effects of dilutive potential ordinary shares 367,800 658,650
------------------------------------------------------------------------- ------------ ------------
Weighted average number for diluted earnings per share 256,163,459 256,040,831
------------------------------------------------------------------------- ------------ ------------
Pence Pence
-------------------------------------------------------------------------------------- ------- -------
Basic earnings per share
Basic profit for the year attributable to ordinary equity holders of the parent 8.246 15.202
Adjusted proforma basic earnings per share (excluding exceptional costs after tax)
Adjusted profit for the year attributable to ordinary equity holders of the parent 14.717 16.111
Diluted earnings per share
Basic profit for the year attributable to diluted equity holders of the parent 8.234 15.175
Adjusted proforma diluted earnings per share (excluding exceptional costs after tax)
Adjusted profit for the year attributable to diluted equity holders of the parent 14.696 16.082
-------------------------------------------------------------------------------------- ------- -------
9. Dividends
Year Year
ended ended
30 30
September September
2020 2019
GBP'000 GBP'000
------------------------------------------------------------------------------- ----------- -----------
Interim dividend paid in June 2020 of nil pence (June 2019: 2.75 pence) - 7,018
Final dividend paid in February 2020 of 5.6 pence (February 2019: 5.13 pence) 14,319 13,095
------------------------------------------------------------------------------- ----------- -----------
14,319 20,113
------------------------------------------------------------------------------- ----------- -----------
The interim dividend that would have been paid in June 2020 was
suspended as a precautionary measure whilst the impact of COVID-19
on the business was assessed.
The final dividend proposed for the year ended 30 September 2020
is 7.35 pence per ordinary share. This dividend was declared after
30 September 2020 and as such the liability of GBP18,828,000 has
not been recognised at that date. At 30 September 2020, the Company
had distributable reserves available of GBP100,816,000 (30
September 2019: GBP115,135,000).
10. Leases
Set out below are the carrying amounts of right-of-use assets
recognised and the movements during the year:
Investment
property Plant Motor
(leased) and machinery vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ----------- ---------------- ----------- --------
Cost
At 30 September 2018 158,231 9,411 1,577 169,219
Additions - - 372 372
Disposals - - (352) (352)
---------------------- ----------- ---------------- ----------- --------
At 30 September 2019 158,231 9,411 1,597 169,239
Additions/adjustment 3,162 - 313 3,475
Disposals - - (478) (478)
---------------------- ----------- ---------------- ----------- --------
At 30 September 2020 161,393 9,411 1,432 172,236
---------------------- ----------- ---------------- ----------- --------
Depreciation
At 30 September 2018 38,077 3,412 563 42,052
Charge for the year 6,473 791 496 7,760
Disposals - - (184) (184)
---------------------- ----------- ---------------- ----------- --------
At 30 September 2019 44,550 4,203 875 49,628
Charge for the year 6,522 791 552 7,865
Disposals - - (341) (341)
---------------------- ----------- ---------------- ----------- --------
At 30 September 2020 51,072 4,994 1,086 57,152
---------------------- ----------- ---------------- ----------- --------
Impairment
At 30 September 2018 2,671 - - 2,671
Charge for the year 786 - - 786
---------------------- ----------- ---------------- ----------- --------
At 30 September 2019 3,457 - - 3,457
Charge for the year 2,241 - - 2,241
---------------------- ----------- ---------------- ----------- --------
At 30 September 2020 5,698 - - 5,698
---------------------- ----------- ---------------- ----------- --------
Net book value
At 30 September 2020 104,623 4,417 346 109,386
---------------------- ----------- ---------------- ----------- --------
At 30 September 2019 110,224 5,208 722 116,154
At 30 September 2018 117,483 5,999 1,014 124,496
---------------------- ----------- ---------------- ----------- --------
Investment property (leased) assets relate to the Group's six
student leaseback arrangements. Each of the six leaseback
arrangements are considered to be a separate CGU. The Directors
consider an impairment indication to exist if there is a shortfall
between the annual net rental income generated by each property and
the annual headlease payment due under each lease. The Directors
have reviewed the carrying value of four of these leases where
there is an indication of impairment and compared them to their
respective recoverable amounts. An impairment charge totalling
GBP2,241,000 (2019: GBP786,000) has been recognised in respect of
one of the Group's sale and leaseback arrangements - Europa,
Liverpool, because the recoverable amount was less than the
depreciated carrying value of the asset. GBP1,892,000 (2019:
GBPNil) of this impairment charge has been recognised as an
exceptional item in the consolidated statement of comprehensive
income and GBP349,000 (2019: GBP786,000) has been recognised within
student accommodation cost of sales.
The recoverable amount for each CGU has been calculated as its
value in use. The valuation technique used is a discounted cash
flow. Due to the bespoke nature of these arrangements these
valuations are also considered to represent the fair value of each
of the investment property (leased) assets. The key inputs into the
valuation are gross rental income, operating costs, lease term and
an estimated discount rate reflecting the market assessment of risk
that would be applied to each asset. The estimated discount rates
for each property are included in the next table. A key assumption
in the valuation calculation as at 30 September 2020 is that
occupancy levels will return to those at the start of the 2019/20
academic year by the 2021/22 academic year.
Impairment charge/(reversal) Fair value in use
GBP'000 GBP'000
------------------------------- ------------------------
Year Year Year Year
ended ended ended ended
30 30 Discount Lease 30 30
September September rate termination September September
2020 2019 (yields) date 2020 2019
---------------------- --------------- -------------- ----------- -------------- ----------- -----------
Collegelands, 6 September
Glasgow - (229) 5.5% 2026 14,244 17,220
18 March
Europa, Liverpool 2,241 993 6.5% 2030 12,462 18,172
18 March
Optima, Loughborough - 153 6.0% 2030 2,182 2,375
Glassyard
Building, 10 September
London - (131) 5.0% 2034 11,177 11,551
Dunaskin 5 September
Mill, Glasgow - - 5.5% 2051 53,059 53,084
New Bridewell, 12 March
Bristol - - 5.5% 2052 56,964 56,913
---------------------- --------------- -------------- ----------- -------------- ----------- -----------
Total 2,241 786 150,088 159,315
---------------------- --------------- -------------- ----------- -------------- ----------- -----------
Set out below are the carrying amounts of lease liabilities and
movements during the period:
Year Year
ended ended
30 30
September September
2020 2019
GBP'000 GBP'000
---------------------------- ----------- -----------
At the start of the period 137,522 143,292
Additions 3,475 372
Disposals (455) (189)
Accretion of interest 5,103 5,179
Payments (11,192) (11,132)
---------------------------- ----------- -----------
At the end of the period 134,453 137,522
---------------------------- ----------- -----------
Current 6,310 6,192
Non-current 128,143 131,330
---------------------------- ----------- -----------
Lease liability maturity analysis
Year Year
ended ended
30 30
September September
2020 2019
GBP'000 GBP'000
------------ ----------- -----------
Year one 11,041 11,302
Year two 10,880 10,638
Year three 10,781 10,758
Year four 10,707 10,948
Year five 10,909 11,117
Onwards 150,554 159,372
------------ ----------- -----------
204,872 214,135
------------ ----------- -----------
Total commitments - Group as lessor
Year Year
ended ended
30 30
September September
2020 2019
GBP'000 GBP'000
-------------------------------------------------------------------- ----------- -----------
Non-cancellable operating lease rentals are receivable as follows:
Within one year 12,436 14,846
Later than one year and less than five years 573 3,586
After five years 780 917
-------------------------------------------------------------------- ----------- -----------
13,789 19,349
-------------------------------------------------------------------- ----------- -----------
The Group acts as lessor in respect of certain commercial
property and for the student accommodation properties operated
under the sale and leaseback arrangements detailed above.
11. Reconciliation of profit before tax to net cash flows from
operating activities
Year
Year ended Ended
30 September 30
2020 September
Restated
(note
5)
GBP'000 GBP'000
-------------------------------------------------------------------------- --------------- -----------
Profit before tax 25,314 47,864
Depreciation of leased investment properties and right-of-use assets 7,865 7,760
Depreciation of plant and equipment 998 835
Impairment of leased investment properties 2,241 786
Amortisation of intangible assets 559 559
(Profit) on sale of plant and equipment (24) (42)
Finance income (245) (428)
Finance costs 6,366 5,874
Share of profit in joint ventures (199) (286)
Decrease/(increase) in inventory and work in progress 8,566 (1,948)
Interest capitalised in development land, inventory and work in progress 465 216
(Increase)/decrease in contract assets (15,944) (16,820)
(Increase)/decrease in trade and other receivables (10,785) 4,089
Increase/(decrease) in contract liabilities 3,803 (9,150)
Increase/(decrease) in trade and other payables 15,987 (2,593)
Provision for fire safety cladding works 9,864 -
Increase in share--based payment reserve 37 2,227
-------------------------------------------------------------------------- --------------- -----------
Net cash inflow from operating activities 54,868 38,943
-------------------------------------------------------------------------- --------------- -----------
Major non-cash transactions
There were no major non-cash transactions during the period.
12. Analysis of net cash/(debt)
At At
beginning Other end of
30 September 2020 of year Cash flow movements year
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- ----------- ------------ ------------ ----------
Cash at bank and in hand 115,652 18,861 - 134,513
Bank loans (37,413) (1,444) (179) (39,036)
Other interest bearing loans (1,392) 1,034 (273) (631)
Net cash before deducting lease liabilities 76,847 18,451 (452) 94,846
--------------------------------------------- ----------- ------------ ------------ ----------
Lease liabilities (note 10) (137,522) 6,089 (3,020) (134,453)
--------------------------------------------- ----------- ------------ ------------ ----------
Net debt (60,675) 24,540 (3,472) (39,607)
--------------------------------------------- ----------- ------------ ------------ ----------
At At
beginning Other end of
30 September 2019 - restated (note 4) of year Cash flow movements year
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- ----------- ------------ ------------ ----------
Cash at bank and in hand 106,640 9,012 - 115,652
Bank loans (24,459) (12,938) (16) (37,413)
Other interest bearing loans (2,023) 1,307 (676) (1,392)
Net cash before deducting lease liabilities 80,158 (2,619) (692) 76,847
--------------------------------------------- ----------- ------------ ------------ ----------
Lease liabilities (note 10) (143,292) 5,953 (183) (137,522)
--------------------------------------------- ----------- ------------ ------------ ----------
Net debt (63,134) 3,334 (875) (60,675)
--------------------------------------------- ----------- ------------ ------------ ----------
Cash at bank and in hand as at 30 September 2020 includes
GBP814,225 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 2019: GBP1,853,000). Non--cash movements relate to the
acquisition of property, plant and equipment under finance leases,
the amortisation of bank loan arrangement fees and changes to the
calculation of the value of lease liabilities as a result of
movements in the rent inflation rates assumed.
13. Annual report
Copies of this announcement are available from the Company at
7-9 Swallow Street, London W1B 4DE. The Group's annual report for
the year ended 30 September 2020 will be posted to shareholders
shortly and will be available on our website at
www.watkinjonesplc.com.
- ENDS -
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